Great. You know, I got like the day. I can do whatever. I ended up sitting in my room reading that, so.
Good.
Great. So let's go ahead and get started. I'm Joe Quatrochi, the SemiCap and semis analyst here at Wells Fargo. Excited to have Applied Materials, Brice Hill, CFO, join us this morning. Thanks for joining us.
Thanks for hosting, Joe. Great venue. Happy to be here, and thanks for inviting us.
Awesome. So maybe to start, right, there's a little bit of news this week. You know, China export restrictions. Anything you guys put out a short kind of release earlier this week just kind of addressing that stuff. But can you maybe just opine on you know, the takeaways and just kind of how to think about, you know, the impact there?
It's certainly, yeah, certainly not unexpected. There were rumors that new rules were being considered, so the timing was unknown. But I think from our perspective, the first thing on our press release, we said that we're not changing our range for the quarter. And the nuance there for investors is the midpoint is will be a little bit different because there will be some impact from those rules. There's 200 pages plus, Joe, to go through. And I think from our perspective, there were pros and cons. There were some tools that we thought there would be controls on that were, you know, quote-unquote, "demoted," that there won't be, and vice versa. And so there's a lot to go through.
But you know, for Applied Materials, most of our business in China is already in the more mature nodes, the what we call the ICAPS nodes, IoT communications, auto power sensors, those types of products. So I think, you know, besides companies that might be put on the Entity List, most of those nodes, you know, we were already impacted by previous rules. So anyway, back to the not changing. So what we decided, we didn't need to change the range for the quarter.
Okay. And you're kind of, I guess, we didn't wait till February when you guys report to us. We think about, like, just the impact in calendar 2025.
Yeah. I think no guidance for you. I think you know our practice. We haven't guided calendar 2025, so there's a lot of puts and takes, and as I mentioned in the rules, there's some positives, some things that we think, you know, move in a positive direction and some that don't, and so we'll have to evaluate that. It'll take some time.
Okay. Okay. Fair enough. Maybe just kind of as we, you know, move on from that. It's kind of as we look into next year. You know, you guys just recently reported earnings. But just to kind of frame the discussion, I guess, like, as you look into 2025 and you think about WFE, like, is there anything you can kind of help us just kind of shape at least, like, how it looks into next year and just kind of to form the discussion?
We definitely try to, you know, as you know, we don't guide the year, but we definitely try to give as much information as we can about the pace of the market and what's happening. All of last year, you know, leading edge was at a low level. But it's been accelerating through the course of our 2024, and into 2025. And that's certainly where we see the strongest market dynamics. If you think about high-bandwidth memory, DRAM, advanced packaging in general, and then leading logic. When you look at leading logic, where is the best utilization across the ecosystem? The best utilization is at the very advanced node where you're making GPUs, CPUs, accelerator chips, etc. So we think that's where there's the most energy in the ecosystem. Last year, because leading was lower, ICAPS was very strong. DRAM was very strong.
Obviously, there's a growth year for Applied, you know, five years in a row of growth, for Applied. As we look into 2025, if there's any, you know, maturity in the spending of ICAPS, then the question is, will leading, that demand on leading be strong enough, to grow the business? We don't guide that, but that's certainly what we've been seeing in Q4 and Q1 is still growth quarters for the company. Our Q4 was a growth, year over year. Our Q1 is a growth year over year, in our guide. We think it's that dynamic that's the strongest pull in the market right now.
Okay. I guess as you maybe ask a different way, like, when you look at '25 and you think about, right, the pull for leading edge technology's strong and accelerating next year, what's the biggest, let me put China aside for a second, but, like, or at least the export restrictions, what's the biggest unknown or, like, thing that you're just kind of like, "Yeah, we just, we kind of need to see how things play out," like, as you try to think about '25?
I think the biggest unknown is that ICAPS investment in China.
Right.
So sorry, I didn't put China aside, but.
Export restrictions, you know.
Yeah.
Straight-up demand, right? Like.
I think for us, we, you know, we see the acceleration in leading edge. The reason it was lower last year was because companies are on the cusp of moving gate-all-around process technologies from pilot to high-volume manufacturing. And so, you know, everybody's expecting this investment cycle. Hopefully, we'll build out a large node on the gate-all-around node. It's certainly got great performance characteristics. So if it meets its schedule and ramp requirements, it should be a good landing spot for lots of designs and be a large node. And so where is the uncertainty—you know, more uncertainty in the market relative to that, it would be we've had significant ramp in China over the past three years in terms of ICAPS capacity.
Yeah.
Now, when we look at that, you know, we have a number of ways of triangulating to say, is it too high? We think the country has a goal of being, you know, self-sufficient from a capacity perspective. We don't think it's reached that level yet. The utilizations in China are at a good level. And so, you know, it'll just be a question of whether that continues at the same pace or not.
Yeah. I guess, like, you know, on the domestic China piece, right? Like, you've seen there's a lot of new customers there, right? And you know, as we move into next year and maybe there's some digestion a little bit just 'cause they've spent a lot, right?
Yeah.
Trying to kind of ramp up their technology. Are you seeing, like, where there's consolidation of that ecosystem yet, or is that still maybe something that is in front of us?
No evidence of consolidation, at least from my perspective.
Okay.
We see a growing customer list. And a lot of these customers, to your point, are smaller. It's just a long tail of customers. Some are large, but there's a long tail of smaller customers. And so the positive from that perspective is you got over 30 factory projects that we see. We've got even a longer list of customers that are adding capacity in, you know, facilities that already exist. It does make sense to me that over time, you know, I have a mental model where I say, "Okay, maybe there's eight companies that are starting an image sensor business.
Yeah.
It does make sense over time that they won't all be successful and there'll be some consolidation. I don't think we're seeing that at this point.
Okay. That's helpful. I mean, you talked about, maybe we'll stick with China just a little bit longer. You talked about kind of the normalized rate of, you know, 30-ish% of revenue. I mean, that's still, I guess, the right way to think about it? I mean, it can ebb and flow. And then how do you, like, break down the services versus systems versus, there's also the display business, right, that maybe is a little bit different than your peers.
Right.
That I think historically has been a little bit more driven by China than other regions.
It is. So first of all, you know, since there had been a few quarters where we had a very high percentage of our business in China, that was largely driven by the DRAM shipments that we could do to, you know, once a DRAM node was confirmed that we could ship within the rules to that. That lasted for about three quarters, I think, our prior Q4, our Q1, and Q2. And then we've sort of normalized, and that was as expected. And we call 30% normal because we sort of looked at our historical average, longer historical average, and we think 30% is a good number. We also have a perspective that China consumes about 25%-30% of semiconductors globally. And so it makes sense to us from that perspective if they're working to put that capacity in place.
I think, you know, with respect to the mix of the business, I don't think we really would call out significant changes in intensity between our services business and our equipment business.
Okay.
So I think 30% is a decent number to think of. It is true that our display business is more intensive in China, so that, you know, the number for the other two is probably just a little bit lower, but I, I wouldn't, yeah, call that out.
Okay. Okay, maybe, you know, one of the things that, that with the rules that came out Monday, right, and, and some of the things that have been happening in China is, like, they've also been trying to develop their own equipment, you know, just ecosystem. And it feels like maybe the rules on, on Monday that came out could pretty hamper that pretty significantly. Do you, do you feel like that that's an opportunity for you guys to maybe, like, kind of gain back some share that, that you've kind of, like, ceded away to some of those players? Or how, how should we think about that?
It, it's definitely, you know, a positive from that perspective that the rules may also have some impact there, and so I, I think what we're describing is if the local China vendors don't have access to some of the supply chain because of the trade rules, then maybe they're impacted. You know, Joe, one thing you'd have to think through in that thesis is assuming those vendors have expected it, they've probably also taken steps to.
Yeah.
Stock up on inventory and work on their supply chain, so it's unclear what the impact will be, but then backing up just to an Applied share thinking perspective, the local China vendors have grown share over time, while at the same time Applied has been growing share.
Yeah.
And so we understand that companies in China will try some of their applications with you know lower-cost hardware vendors. We understand that's part of the model. For us, we have two, you know, our strategy to address that, first of all, is to just grow the TAM, grow the addressable market of our business faster than anyone can duplicate a hardware offering that we have, you know, somewhere else in the roadmap, and that's what you see happening. The leading edge nodes, you know, leading edge logic, DRAM, the applications grow so quickly. And because Applied has integrated equipment and unit equipment that can address those demands, those applications are growing more quickly than any share we would lose on something that could be duplicated from a hardware perspective.
Then the other piece of the strategy sort of head-on is when Applied sells in China or anywhere else in the world. You're bringing a top-to-bottom and you're not just selling a hardware capability. You're bringing a, you know, experienced supply chain, high-quality supply chain. You're bringing a services business that can service the equipment and make recommendations how to keep it at high yield and how to get it to high yield in the first place. You're bringing the installation capabilities that we have for the company and a roadmap of how to improve those tools over time. And so there's a lot that comes with that. And so we understand that customers might try an application with a local vendor.
Yeah.
For lots of reasons, including being incentivized, but we have ways to address that competitively.
Okay. That's helpful. Maybe we'll move on from China for a bit. You know, let's stick with ICAPS, though. You know, I think outside of China, right, like, analog semi demand relatively still kind of bouncing on the bottom. You know, a lot of the customers that have spent a lot on tools over the last couple of years to add capacity, now they kind of don't need to, maybe outside of one that's kind of building some strategic capacity. So, like, how do we think about, I guess, you know, them returning to normalized utilization rates, and what's the right way to think about the long-term kind of growth, algorithm for that part of the business? And then also, you know, I guess, like, where are you seeing the areas that can still grow from just kind of secular trends?
Yeah. I think, first of all, I would, you know, back up and say, "All right, the process technologies we're talking about for ICAPS, our definition, is greater than 7 nanometer or more mature than 7 nanometer." So anything that's EUV or newer, EUV starts at 7. Anything that's EUV or newer will put in leading logic, and then the ICAPS process technologies will be the ones that are larger than that or older than that. If you look at those, they're larger as an ecosystem. The actual factory footprint and wafer starts of capacity that are in place, they're larger than all of the other markets that we're talking about put together plus a factor, you know, NAND plus DRAM plus leading logic. ICAPS is much bigger than all that. All of the third-party forecasts call for those devices.
Every single device, you know, microcontrollers, analog devices, image sensors, power devices, etc., all of the third-party forecasts say that those will grow at mid to high single digits over time as especially these, you know, EV, renewable energy, all these end markets, continue to grow. And we agree with those forecasts. So if you look at that large footprint, our view is, you know, as you step back, that footprint will grow at that speed over time. Now, the question is, today, where are you on that curve? You're right. The end markets have been slower. The utilization is probably somewhere in the 70s in the rest of the world.
Yeah.
And so they can take, there's a little bit less pressure to add capacity right now. I think it's just a question of when does that normalize, and then they get back on the path of adding, you know, 5%-7% capacity every year. As you know, or, you know, when I think about the, the trends, we like to think we look at GDP. You know, GDP is typically 2%-3%, from a global perspective. Every once in a while, it doesn't meet that. Like 2009, you have a, you know, a year off from that or something like that, but it's a pretty steady drumbeat. If you look at semiconductors, they're usually a few points higher than that, 2- 3, you know, 2, 3, 4 points higher than that from a growth perspective, but it's more volatile, right?
Yeah.
And then if you look at equipment, it's a couple more points on top of that.
Yeah.
But it's also more volatile. It amplifies that line. So it's difficult to forecast one year, but we're confident in the secular trends that, you know, the industry's gonna grow to a trillion. All those device types will grow to a trillion, and that large capacity profile of those more mature nodes, the ICAPS nodes, will continue to grow.
Okay. Maybe, I guess, like, you know, you mentioned that, right? There's everyone's kind of said, "Look, a $1 trillion by pick your timeframe, 2028, 2030, whatever," right? But I think, like, what is and that hasn't changed for years, a few years, right? But I think what has changed is the mix of that, right?
Yes.
GPUs taking much bigger share of that. So I guess, how do you, like, kind of handicap that in the growth expectation?
Yeah, it's a great question because I think when people ask the question about the GPUs, they're thinking about price.
Yeah.
Right? Because if you get to $1 trillion by selling one GPU for $1 trillion, that doesn't help the equipment business very much.
Right.
A lot of people ask us this in the sense of intensity. What's the equipment intensity? You know, if you take the equipment spending for a year and you divide it by the semiconductors, we have an intensity rate that we think about. It's been elevated, and it's been increasing over the past number of years for various reasons. One, because intensity increases. The second is because of the buildout in China that we just discussed.
Right.
So we've sort of expected it to come down, a little bit from an intensity perspective. And one of the unknowns in that equation is, you know, what is the price movement of semiconductors relative to volume? I guess what we would say is the range actually has widened. You know, people say $1 trillion. Now we're starting to see estimates that are as high as $1.3 trillion.
Yeah.
Some are lower, and certainly, the mix toward leading edge is improving, so I'll just say there's, you know, it's a range, but if we back up, it's good news. It's hard. We don't want to turn a good news story into bad news. The good news is leading edge logic, high-performance compute systems, the search for power efficiency, and the ability to put more and more compute in data centers and serve these models. I mean, there is a lot of energy there today. Sure, it might change the intensity, and it might change the ratio of, you know, semi-revenues versus equipment, but we're not actually. It doesn't cause us to not sleep at night. For us, it just means, boy, we need rapid innovation on power efficiency, on leading edge process technologies.
We need to support our customers building out these factories, and we need to have plans. If you think of the, you know, net zero stuff and ESG, it's very important that we drive the energy efficiency, and we have to work with our customer base on how are we all going to improve the grid and, you know, be able to serve the AI demands successfully.
Okay. That's helpful. Maybe, you know, moving to leading edge more broadly, I mean, you guys have been pretty vocal about your opportunity to gain share as the industry moves the gates all around 2 nanometer. Can you talk about just kind of double-click on those opportunities to gain share? Where what steps are becoming more important with gates all around and, you know, your position there?
Yeah. So Gate-All-Around is a new transistor. So we were on FinFET for a number of years in leading logic. We're moving to a new transistor. The reason that's done is because that transistor is more reliable and more power efficient than the FinFET transistor. The difficulty, of course, is it's a more complex architecture built at even smaller geometries, which offers Applied, since we bring these connected tool solutions. Someone described to me, "Joe, if you look at a Gate-All-Around transistor, there's like three nanosheets." If you've seen a diagram of this. And in between those nanosheets, there's just, you know, literally a few atoms thick or angstroms thick of operation space. And in between, I think we're putting three or four or five different types of materials in between those sheets.
And so the tools required and the environment required to combine the techniques to put those films, put those layers, put them with precision, at high yield, it's very complex. And that's, you know, that's sort of that is the bread and butter of Applied Materials is knowing the roadmap for many years forward with customers and then working collaboratively with them to develop the tool techniques that will build those architectures at that small level. So gate -all -around, it actually increases a broad variety of tool types needed to do that. I think the steps for the process, you know, we've added, or the industry has added over 200 steps in terms of the number of passes to get a gate -all -around type of processor versus a FinFET type of processor. So that's a lot of different passes and different tool types.
For us, what that's done is grown the addressable market by about 15%. So we said for the transistor itself, for 100,000 wafer starts of capacity, it was a $6 billion addressable market for FinFET. It's now $7 billion, for gate -all -around. And it's actually the same math if you add the wiring for backside power delivery. If that's being employed, it also grows from $6 billion -$7 billion of an addressable market. And we feel we're well-positioned. We do feel we'll gain share in that transition. And, you know, part of what drives that is those integrated solutions.
Because of the complexity of what we just described, you know, having tools that can work in a vacuum environment that are connected together where you never let the device, you know, see air and the oxidation that comes with that, those advantages Applied brings to that equation to deliver those solutions.
And on the integrated solutions, I mean, can you remind us, you know, what percentage of revenue that is today? And, like, where do you realistically see that going?
It's approximately 30% of our business. That means tools that are integrated and co-optimized. And we do have, it is accretive from a margin perspective for the company. So, you know, it's better for the customers, and it's also better for Applied to build those environments. And we've seen it grow over time. So we haven't. I don't think we have a number that we've shared in terms of the pace, but we expect it to gradually grow as a portion of our business over time.
Okay. Maybe just kind of back on 2 nanometer. I mean, outside of the architectural changes, I think there's some excitement in terms of, you know, potentially kind of the size of the node relative to prior nodes. Is there any kind of help you can provide in thinking about that?
I can just.
Sure. I can just give you my intuition. I mean, what I've heard from designers is it should be a big node. I mean, if you think of nodes, 10, 7, 5, 10 was a small node. 7 was a large node, you know? And I think 3 is a fairly large node. I guess my expectation is that 2 nanometer will be a good landing spot. Power shrink, you know, the reliability of the transistor type itself. If they stay on schedule with demand and yield, then we think it'll be a large landing spot. And I mean, has that changed at all over the last several months, just given that, you know, I think there's been some movements in some of the customers in terms of just planning and things like that?
You know, if you from our perspective, the size of the node. I think thank you for starting that way because it's a great way to think about it. The size of the node is gonna be driven by the end markets.
Yeah.
PCs, smartphones, data center, how many how much product and how many wafer starts are needed? Now, whether it's, you know, the mix of foundries that serve that market, we think from a macro perspective, it doesn't affect our planning very much.
Okay.
So let's just say that we expected this to be a 400,000 wafer start per month, node. And I don't have that expectation. I'm just picking that as a number.
Sure.
Then we would expect that to be put in place, regardless of what the mix is between foundries.
Okay.
Yeah.
Okay. Maybe, you know, I guess maybe one last question there. I mean, tool reuse in terms of 2 nanometer? I think maybe 3 nanometer demand has been a little bit surprisingly stronger this year than expected, so can you help us? Any expectations in terms of reuse?
I don't think it matters early.
Okay.
So when you're starting the ramp of a new process technology, you can't, you generally can't use the existing tools that you have to start that ramp because, as you're describing, if it's 3 in that example, 3's being used.
Right.
You can't use those tools.
Right.
So you generally, the first part of your buildout of a new node is all greenfield or all new, you know, all new equipment. And then at some point, you're taking demand from that old node as designs move over, and then you can reuse some of that equipment. And we just think that's a positive. That's always been part of the leading edge math. It's, you know, there's a planned amount of reuse, and I don't really see any difference in the dynamic there.
Okay. I'm gonna shift gears a little bit to DRAM. You know, you guys have been gaining a lot of share there. You know, I mean, what's been the key driver of those share gains over the last several years?
I think there's a couple of things. One, some of the integrated tool offerings factor into that space. At a high level, we think the architectures in DRAM are starting to employ many of the techniques we've used in leading logic. And so for us, bringing that to bear in the DRAM space has, you know, offered the company the opportunity to gain applications and gain share. And as we look at the DRAM roadmap, it becomes more and more vertical architectures going forward.
Right.
So the company has talked about a 4F squared architecture that we're working on the roadmap that will offer, you know, Applied an opportunity to provide even more value from a materials engineering perspective. And then much further out on the roadmap is the 3D DRAM.
Yep.
So, just the complexity of those architectures, the more 3D nature of those architectures offers, you know, similar to the logic, it offers many more passes and many more steps of materials engineering type applications.
Okay. You know, HBM obviously been a big area of focus for investors and a big nice area of growth. I mean, how do you think about, like, the setup into 2025 after a really, really strong 2024?
Yeah. High bandwidth memory, you know, another indication of this leading logic pull and the pull of high-performance compute because those high bandwidth memory stacks are being put in the highest performance systems right now. So first, you know, sizing that, we think about 10% of DRAM wafer starts today are allocated towards high bandwidth memory. And we think that's growing at a 30% rate, so fast, and that's helped increase the utilization on DRAM in general. And last year, the company you know, we had started with $100 million of revenue, but last year, the company delivered $700 million of revenue in the HBM area. So obviously, it grew a lot.
Okay.
during the course of the year.
Packaging only, right?
That's right. It's when we quote our advanced packaging number of $1.7 billion, it includes.
Okay.
That $700 million of revenue. So, when we think of '25, they're going to continue to add capacity. We don't think it'll be at that same rate because there's a.
Sure.
Initial buildout, and then you just start adding capacity. So there's sort of that burst, jump off in 2024, and we'll see it just continue to grow in 2025.
Okay. That's helpful. Maybe on the flip side, right, like, a lot of conversion of conventional DRAM capacity to HBM, you know, basically, it's also helped improve utilization rates. I mean, in the discussions with your customers, like, how are they thinking about conventional DRAM capacity looking into next year? Like, is that an area they're starting to maybe do some planning in terms of adding capacity?
Oh, I think so. You know, I think we've tried to call out that the DRAM market has just continued to be strong even after those quarters that we shipped that China demand.
Yep.
It continues to be strong, and I think it is from the pull that you're describing. And, you know, the DRAM market continues to add capacity footprint overall. It's a little bit different from NAND. NAND, you know, it's approximately the same wafer start capacity footprint, mostly advances by upgrades.
Yep.
DRAM also advances by upgrades but is also continuing to add to its wafer starts footprint. And that's what we see in the forecast. And, you know, we called out in our Q4 and our Q1, even after those China shipments, that it's still strong from a DRAM market perspective.
Right. Right. Anything to worry about in terms of, like, fab readiness, footprint, other, like, you know, clean room space, like that?
That's a good question.
Okay.
So I'm not very close to those, to the NAND, or sorry, the DRAM footprint. So I don't. I'm not aware of,
Okay. Okay.
of a roadblock.
Okay. Okay. That's helpful. Maybe shift gears a little bit. I thought this past quarter on the gross margin side, you guys had some really positive things to share. You know, talking about a 48% kind of gross margin baseline, I don't think many people had expected that to hear you guys talk about that, at least maybe not this quickly. Can you talk about just kind of, you know, how you got there? What are the puts and takes of it, and where can we go from here?
Yeah. I think it's been gradually improving. So at least from my perspective, if you go back two-plus years, the company was operating close to 40% or just over 40%. And so the supply chain issues and COVID, you know, coming off the backs of COVID, certainly caused a depression in that gross margin. And so what you've seen over the last couple of years is we nailed the low-hanging fruit relatively quickly. Like, when I first came to the company two-plus years ago, a lot of things were being air freighted and expedited, and you have all these kinds of extraordinary costs to deal with the environment. That was relatively low-hanging fruit. Since then, we've been doing the harder work of continuing to re-engineer components, shaking out inventory.
If you look at our inventory on our balance sheet, it's at a much better days-of-inventory position than it has been over the prior years. Feeling really good about that. Along with that comes excess and obsolete material. We've done a great job of managing those costs down. All of those are benefiting. And then on the price side, as you know, so a lot of cost drivers. On the price side, it was also a factor, although less of a factor. And one thing I highlighted is that I expect our pricing, you know, our ability to improve pricing to mature as we go forward. We've been working on that process, and that'll become, you know, a more meaningful benefit in our gross margin trajectory going forward.
And so, lastly, just to reiterate, we had said we think our guide for Q1 is 48.4% gross margin, but I didn't want people to think we were at 48.4%. It just happens to be a rich quarter from a mix perspective.
Yep.
So it's better to think of it as approximately 48, and then we're gonna continue to work on improving that.
Okay. I mean, when I look out three to five years, I mean, do we dare start to say a gross margin starts with a 5?
We're not gonna give that guide.
Yeah.
But I'll just say that we're committed to continue what we've been doing. Yes.
Have to try. Maybe shift gears a little bit. You know, on the AGS side, you guys have seen, you know, nice re-acceleration as utilizations have increased. Can you talk about this, the confidence of, you know, low double-digit growth kinda looking into next year still is the right way to think about it?
Yeah, well, we again didn't guide the year, but.
Sure.
When you look at our Q4 and Q1 guide, we're certainly growing at low double digits, and we think from a macro perspective and a through-cycle perspective, that's the right way to think about that services business. The installed base continues to grow every single year. Our attach rate, if you will, to that installed base is growing also because there's more service intensity to the more complex tools and because a lot of the customers, maybe because of global incentives, are building in newer places, and they're going to be more interested in working with Applied and getting our labor into their factories to help them ramp their factories and keep them at high yield, so we think there's a few tailwinds, and we're providing more service capability, Joe, in terms of, you know, if you think about AI, we've got this fleet of tools.
We've got the ability to see how they operate and help the customers tune them so that they're operating at the highest levels. That is, you know, sort of increasing our service offerings and capabilities as we work across the ecosystem. So we think that's a good long-term perspective for that business, demonstrating it in Q4 and Q1. And you know, more and more of that business has a subscription, you know, recurring revenue type flavor. So we talk about how 85% of the revenues approximately are recurring business, meaning either spares or service contracts. About two-thirds of that is under contract, and those contracts are at a high renewal rate and, you know, actually are being renewed for, on average, longer term as it helps us with our planning and it helps our customers with their planning if those are long-term service agreements.
Then from a finance perspective, you know, that gives you a little bit more of a recurring revenue flow, a little bit more confidence in that. So we've also sort of attached our sizing of our dividend expectations.
Yep.
To that flow.
Yep. That's kinda perfect segue. I mean, we have like 30 seconds left, but, like, capital return, thinking about, you know, that dynamic, and that's exactly where I was going is, you know, services and the dividend, right, growing that dividend. And then I think maybe there's a little bit of CapEx kinda requirements over the next several quarters, but just kinda briefly talk about capital return.
Yes. So no change in overall plan, you know, return 80%-100%.
Yep.
If there's little M&A in the environment, it's close to 100% being distributed to shareholders. We have been on a path to raise the dividend. We are thinking of that related to that recurring business that we just talked about, and then you mentioned CapEx. We are expanding our lab footprint so that we can do this collaboration work with our customers. That's a project primarily in Sunnyvale where you see that, and that will elevate our capital spending for the 2025 and 2026.
Okay. Perfect.
All right.
Leave it there.
Thanks very much. Good to see you.
Thank you.