Great. Let's go ahead and get started, so I'm Joe Quatrochi, the semi-cap analyst at Wells Fargo. Today we're pleased to feature KLA CFO Bren Higgins, as well as the head of Global Support and Services, Brian Lorig, as well. Maybe first, Bren, a little bit of news out over the last 24 hours. Can we just knock out this China question and any.
So there was news.
Any comments? Yeah. A little bit.
Yeah, so happy to talk about this a little bit. I just wanted to thank Brian for being here, so Brian runs our service organization, and I think sometimes the service business of KLA is not as understood as I'd like it to be with investors. I think it's a unique business. It's a huge value contributor to the company, and hopefully, as we move forward today, Brian will share some insights about how that business is growing, some of the drivers of that, and how service overall is becoming more and more strategic to our customers, as they support what we believe a pretty compelling leading-edge roadmap, but also dynamics within the mainstream, I'll call it part of the business, but also our mainstream volume, but also legacy.
As it relates to China, yesterday we received some new export controls that have been talked about for a while, so it's created some noise in the market over the last 12 months or so. We're still digesting the document. It's about 200 pages, and it's incredibly complex as we work our way through it. We did an 8-K this morning that reiterated our guidance for the December quarter.
Yep.
So we feel that with all the moving parts in December quarter, we're still comfortable with our guidance that we provided. As it relates to a broader picture into 2025, we've been looking at it, and our preliminary estimates is that in 2025, it probably has an incremental impact of somewhere in the neighborhood of about $500 million, plus or minus, I'll call it $100 million. Now, that's preliminary, and is based on not only backlog and some expectations from customers in the near term, but also forecast dynamics as you move into the second half. So there's some fluidity in terms of how you think about that. About 70% of that would be systems, and roughly 30% of it would be service.
If you look at our overall China business for 2025, that would imply our overall China business is down somewhere in the low 20s percent or so as we look at it. You know, back at earnings, you know, we saw it somewhere down between 15% and 20%. I think it's somewhere in the low 20s percent inclusive of these actions. We'll see how licensing goes. There's always clarifications of what the intent is and whether we can get licenses to and to still support these customers in line with the intent of the regulations. The licensing process has been somewhat inefficient over the last couple of years as here in the U.S., so we'll have to see how that goes.
I'm not planning for efficiency there, but if we do have a more efficient approach and that creates some additional opportunities to mitigate some of that exposure, that would be a positive. There's also some systems that we sell that have long lead times where we've had supply constraints. And so the ability of perhaps some of that business that might be out into 2026, pulling into 2025, could also be a factor that would mitigate that as well. But overall, that's more or less how we see the impact. And we'll have more to say about it at earnings. We'll provide an update. But I think in terms of where we're sitting today, our preliminary assessment is in line with that.
So as we look at 2025, though, we're pretty excited about the opportunities that exist with investment at the leading edge. The N2 ramp is compelling and is driving our business into next year. But not just as it relates to logic, but also in high bandwidth memory, which is driving memory intensity, and also advanced packaging, which is also a good driver for the company as well. We've seen that inflect from what was about $300 million in business in 2023. That looks like it's in excess of $500 million in 2024, and it's probably north of $750 million in 2025. We're pretty excited about that opportunity. I think the business is pretty concentrated around those customers that are exposed to high-performance compute and the N2 node. But we're pretty excited about what's in front of us there.
Over the long run, if you look at the company's plans, and, you know, we've always expected that the industry would rationalize and normalize over time. There were some unique factors, I think, that drove China to an elevated percent over the last couple of years, driven by supply constraints back in 2022, and then some of that business pulling in and raising the level the last couple of years. So we've already, I think, been fairly cautious about expecting some normalization of that spend moving forward, and as you look at the long-term plan of the company, our long-term view is that semiconductor revenue is really end-market driven, not capacity driven, but end-market driven. That's going to drive a growth rate in semiconductor revenue of somewhere in excess of 7%. We think capital intensity, from a planning point of view, likely is somewhere that's ahead.
I mean, I think capital intensity is growing. So capital intensity climbs, I think, slowly. So it enables WFE to grow modestly faster than semi-revenue. Turns out that there's more inefficiency, and capital intensity rises faster. I think we've proven in the company that we can ramp our business to support that. But that's generally how we see it. I think given the growth rate in logic and foundry, we would expect the mix of that WFE to be more logic-foundry-centric.
Yep.
That tends to be good for process control because process control intensity is higher in logic and foundry. If you look at within process control, the fastest growing markets in process control are markets that KLA has a very strong position in. And so I think that creates an opportunity for KLA to grow even faster than that. So we think that, coupled with service, which is growing at 12%-14%, which we'll talk about more, creates a pretty compelling story over the long run. So I think what's happened recently doesn't affect our long-term view. I think we expected that you can only invest ahead of revenue, and that there were some unique dynamics associated with that investment, for so long, and that over time you would expect some normalization of it.
I wanted to provide some view of how we're seeing the long term because I think it's driving not only how we're investing in the company, we're sizing, but also thinking about the business model, and you know, capital return slash, you know, capital allocation strategy underneath it. I think I'll stop there and.
Give me a lot to digest there.
Maybe just.
Maybe can we revisit some of the stuff that you said about China just to I want to make sure I understand you correctly here. So you're saying the preliminary estimate from what happened yesterday is $500 million plus or minus $100 million for 2025, just looking at like kind of your backlog that splits 70/30 systems versus services. And then can you repeat that one in terms of how you're thinking about the percentage of revenue from China next year? Because I think in the earnings call you said I want to say you said 20%, right? Now you're thinking low 20% or?
No, no, no. That's the, that's the down year to year.
The decline year to year. It's a 30%.
No.
It was 30% of total?
The decline year to year is low 20th percentile.
Yep.
From 20, the decline at 25 versus 24. If you go do the math on the mix of business, we're going to go from roughly 40%.
40%.
We're not done with this year yet. There was some impact this year, of the restrictions, although there's a lot of moving parts in the quarter, which is why we were comfortable with the guidance.
Yep.
that from around 40% to somewhere, I think, probably in the high 20 percentile.
Okay. Okay.
So before we thought it was about 30, now I think it's somewhere in the high 20s. We saw it's sort of low 30s-ish percent, now somewhere in the high 20s.
Okay. Okay. That's clear. Maybe just a couple more questions in, in terms of just kind of the bigger picture. And then, and then I promise we'll, we'll dive in on the services. You know, you talked about two-nanometer and, and, and thinking about just the positioning there. You know, can you talk about, like, the, the increase in capital intensity for two-nanometer for process control specifically around the gate-all-around? Like, how do we think about sample rates? Is it, is it too early still to, to understand what that looks like? But just kind of how do we think about that? And then also sneak one more in there. You know, you're also positioned in the mask shop too, to benefit from two-nanometer. So kind of can we dissect that a little bit?
Sure. So two-nanometer, the biggest change in two-nanometer is an architecture change, going to gate-all-around architecture from a FinFET architecture. And architecture changes are good for process control, good for KLA. If you go back to when the industry transitioned from, you know, planar devices to FinFET, that was the last local high in process control intensity. So we're very encouraged by what we're seeing there. If you look at our engagement with our primary customer there, we're seeing the process control intensity higher. And we're encouraged by that. I think KLA share of WFE higher. And so I think that's reflective of the challenges associated with the architecture change.
The litho scaling is, or the number of litho layers is relatively flat, but still driving significantly challenging layers and challenging defects that we're trying to debug and help our customers, so I think overall, from an architecture point of view, and a node point of view, we're pretty compelled by what we see. Our customers are excited about the number of design starts, and in a similar state of the ramp versus three-nanometer, there are more designs, and high-performance computing is driving some of that design activity. More designs driving leading-edge process integration is good because they're managing a much more fluid environment, and these designs test design rules in different ways, so that tends to be good also for process control versus maybe one design driving the debugging process of a new node.
So, the other factor is the three-nanometer node has also been fairly tight in terms of capacity. And we've seen some incremental business this year from three-nanometer. And so that makes it very hard for our customers to take capacity and try to reuse it, to try to be efficient with it, as they go to think about the two-nanometer ramp. So I think all those factors are driving a pretty compelling environment around process control intensity and KLA share of the opportunity there. So that's two. And then, of course, what's driving the biggest part of memory is high bandwidth memory. And high bandwidth memory carries higher process control intensity relative to baseline DRAM.
Yep.
Because of the nature of the devices, the dies are bigger, drives more capacity. There's logic circuitry that adds the need for more sampling. You're stacking dies with high reliability challenges and then you have to take those die and integrate them with the GPU and the interposer, substrate, to drive the advanced package. And that package now carries a tremendous amount of value. There's complexity in how it is all linked together in terms of the interconnects. And so all of that tends to drive opportunities, not only in terms of the packaging opportunity with it, but also the value of the device. And failing one of these devices because of some defectivity issue starts to be pretty costly for our customers. And so that translates into higher sampling rates.
You know, more complexity moving into these packages over time creates the need for more technology in the package inspection environment as well. So I think there are a number of factors that are driving this two-nanometer node and the, you know, leading-edge memory and packaging, which are the big drivers for our business into next year. There was another question there. Oh, reticle. Reticle inspection.
Yep. Yep.
So reticle inspection is, you know, not really changing node to node. It tends to drive like a process. It behaves very similar to a process tool in that it's really driven by designs. Every design has a reticle set.
Right.
So as you have the need for incremental capacity to produce those reticles, then, that drives the reticle inspection business. KLA tends to get in the mask shop as you're writing those reticles. Most of those EUV reticles actually flow through KLA systems, probably greater than 90% of them. And then you have to monitor and requalify those reticles in a fab environment. And so there's multiple products that KLA sells that also addresses that part of the market where there are specific inspections that happen after a certain number of exposures to ensure that the reticles are, there's been no contamination or some other defectivity that's materialized in the production process. So it's part of the overall view of strength of N2. I think it's, you know, reticle fidelity is also important.
The pitch sizes are not shrinking, which is driving higher sensitivity requirements, but the overall demand environment, from a capacity point of view, is pretty strong, and I would expect that part of the business to also grow, probably faster than overall market into next year.
You think about, like, I think in the past, like, just one more question on the, on the reticle space. In the past, like, you've seen, you know, where there's been some level of reuse just given that they haven't seen that trickle down, like, you know, of products moving from seven to five, et cetera, et cetera. Like, do you, as you get back into two, do you see that kind of dynamic where they're going to have to, like, your customers need to add a lot of capacity? Because, I mean, they're clearly talking about a lot of, you know, good design starts or, you know, re-acceleration design starts at two-nanometer. Like, do we think about the reuse at two as increasing relative to prior nodes? Or how, how do you think about that?
No, I think it's less. We tend to see less in process control generally anyway because, you know, there isn't redundancy in process control as much. And so our customers tend to monitor processes for yield, because they only want to start so many wafer starts.
Yeah.
To address the demand that is out there. So we usually don't see as much. But typically the big driver for the size of the ramp is, you know, how robust is the design environment from the more mainstream designs as they follow the leading-edge designs into a node.
Right.
Right. And I think it's early, but the expectations are that the N2 node in the first few years of the node is likely to be probably the largest node in terms of design starts. Now we'll see how that plays out. But if you just go back, you know, 28-nanometer, then seven-nanometer had more design starts in the first few years than 28. And I think the potential for N2 is that it could be bigger than seven. So a lot of excitement about it.
Yeah.
N2 is a very power-friendly node. So if you're a data center and paying your own power bill, the migration to N2, even if it is may perhaps a more costly node, the benefits from power consumption, can be a huge driver. And I think that's why we're seeing not only the competitive environment as it relates to high-performance compute driving faster product cycles, but N2 in particular is more attractive because of its power-friendly architecture.
Okay. Maybe let's shift gears over to services.
Yes.
You know, maybe just to start, Brian, like, can you give us kind of just like a little bit of an overview of the services business, like what, you know, the portfolio looks like in terms of, you know, the offerings and why services is important to your customers? And then, you know, any sort of metrics you're willing to kind of share in terms of just, you know, some of the KPIs that you focus on?
Yeah. Thanks for having us, Joe. And excited to talk a little bit about the services business. So, you know, our service business makes up about 25% of overall KLA revenue. And it's a very durable revenue stream, as evidenced by our 49th consecutive quarter of growth on a year-over-year basis. And, you know, that durability is really a function of a few things. One, it's a customer-focused organization, provides a lot of value to our customers. And so, you know, there, we service a lot of different customers, 1,400 or so facilities across the world. So it's fairly diversified in that regard. We also have a very large and growing install base of more than 50,000 tools. And finally, about 75% of our service revenue is on subscription contracts, long-term subscription contracts. And those renew at about a 95% rate.
So.
Yeah. You know, it's a business that provides a lot of value to our customers and in turn, you know, is a really good business for KLA.
Maybe like, you're double-clicking on that, your services relative to some of your peers, right? That's a little bit more like break/fix. Like, talk about like the things that you do for your customers relative to that that drives that kind of stability in terms of, you know, the contract, 75% on contract.
Yeah. And it is, you know, industry-leading 75%. And so it is a differentiated service model. You know, it ultimately when our customers select a KLA product, they're selecting it based on sensitivity, the ability for the product to find or measure the defect, and then also, you know, how fast can it do that throughput. And so those two things from a service perspective, we call performance. And then they want that performance at a very high availability. Those tools have to be reliably and predictably available. And so we call that availability at performance. And ultimately that is the outcome that we sell with our service business.
You know, as you look at the complexity of the products that we're introducing, the only way that you can achieve the ROI on that investment that you're making in a KLA system is to have that availability of performance at a very high level. And the only way to do that is through a KLA service contract, comprehensive service contract. The other thing that's a little bit different with respect to the KLA service business is related to our installed base makeup. And, you know, we have a high mix, highly complex, low redundancy, installed base. And by that, I mean, if you go into a customer fab, you'll see a lot of KLA tools in there. But, you know, there are a lot of different product types inside of that number of tools. And so that's that high mix.
It also leads to lower redundancy, so we're a little bit less susceptible to some of these changes that you see in utilization rates because yield always pays, and so even when you see utilization rates decline in a fab, customers still want to leverage their inspection metrology equipment. They might just sample higher, so they're not idling any of that equipment, and that creates again a lot less vulnerability to large utilization fluctuations. The last thing is, you know, we have a very pure service model.
Yep.
We don't have a lot of capital or any capital-related investment in our service revenue profile. It's more around operating budgets. And so, you know, when you see WFE fluctuations, it doesn't impact our service business in the same way because we don't have refurbished equipment or upgrades in our model. It's more around servicing the existing install base. And so that purity leads to a lot more stability. And that leads to this growth year-over-year. Again, as I said, 49 consecutive quarters of growth on a year-over-year basis. And that's those are certainly some of the factors that drive it.
Yeah. And grows every year, right? I think we've had one down year in the last 25 years. And that was in 2009. And it was down about, you know, 10% or 12%. So we'll call low double digits. So because of those factors, you get the predictability of the contract stream at a pretty high ratio. And you get it consistently with growth year- over -year. And of course, in downturns, you do see some idling and utilization rates drop. And so that tends to drop the growth rate down below, as we saw in 2023, below our long-term target. And then you end up in a year like this year, where you're seeing that tighten and new tools that are coming off of warranty that we shipped over the last couple of years that go into contract with a very high attach rate.
Yeah.
And so that tends to drive growth that's, you know, more in line or even above the long-term target. So it's, as Brian said, it's a high mix business. And it isn't just about fixing tools, right?
Right.
Wear parts break. There's a lot of services that we provide in terms of preventative maintenance to ensure that the tools can deliver the performance and deliver performance across a fleet in a particular fab at very high uptimes, right? 90% + uptimes. And it's one of the reasons that as our customers buy our products, you know, they've run them at high levels. They expect a lot of information from them. And it makes it, because of the complexity of it, very hard to, and frankly, a very low ROI to go and do self-service. And so they rely on us to keep the systems up to drive that availability at performance. And so it behaves very uniquely, I think, relative to some of the other service businesses that are out there for those reasons.
Yeah. I mean, it's fairly impressive that you, you know, 49, I think you said 49 quarters of year-over-year growth. And you still are also had to comp, like, you know, export restrictions, right? And over the last, you know, 18 months, right? And so, it definitely speaks to the consistency of that business.
Yeah. So you get, you have some headwinds there, right? And you also get some headwinds sometimes from foreign exchange. Your costs are denominated in local currencies.
Yeah.
But given the strength of the dollar over the last couple of years, it's been a bit of a headwind from a revenue point of view. So, you do have those dynamics. Obviously, we invest in a lot of inventory.
Yes.
To support these very long lives of these systems and the custom nature of the parts. So we're optimizing for the business dynamics that we just talked about, which are very compelling. And we accept that we're going to have to make some investments in working capital to be able to support the business over time.
Okay. You know, thinking about you guys had talked about like a services revenue growth. I think the, the CAGR that you gave the last Analyst Day was, you know, 12%-14%. You know, I, well, I think you're going to have another Analyst Day here next year. You know, you're operating above it. I mean, talk about like what, what maybe what's been the surprise, that, that's driven the upside to that growth rate? Is it the install base or just the, the service intensity? Like, how, how do you think about, I guess, like that, that dynamic of what's driving the upside?
Yeah. I think a few things. I mean, the biggest driver, of course, is new install base growth.
Yeah.
And, you know, that certainly the KLA lineup of products has been very strong even in these, you know, non-hyper growth WFE years. We've still continued to drive market share and intensity improvement. That's driven new products, which has driven or new install base, which has driven new opportunities for service. And again, that intensity is high at the leading edge for sure. The other thing is existing install base growth. And so, you know, unlike a lot of companies, when you introduce a new product, oftentimes it cannibalizes the existing products. That is not the case with inspection and metrology equipment. When we introduce new equipment, it's incremental install base growth. Our existing install base, there are tools that have been out there for 10 years, 20 years, even 30 years.
And customers routinely ask for the tools that are 30 years old to extend those for another 10 years. So you've got a very, very robust existing install base, which allows us to drive value-added services there because maintaining some of that equipment that's that old is, is a very challenge, is a very big challenge in terms of maintaining supply chain and driving, obsolescence projects, engineering projects to, to support it. But it's, it's long been depreciated assets for our customers. So those are.
Yeah.
Important and still very much providing value to them in their production environment. So certainly new installed base growth coupled with a very stable and opportunity to drive additional value-added services to that existing installed base has really helped drive the growth rate. You know, as you said, 2022, you know, we increased the growth rate from, we were at 9%-11% in our 2022 Analyst Day. We increased to 12%-14%. In the recently completed September quarter, we were at about 15%. As you said, top end of that range. You know, we're not updating that model today. As you said, we've got an Analyst Day coming. When we look at the fundamentals of the business and you know, long range, we still feel very good about the growth prospects.
I think one other thing is, there's an opportunity for us, and we've seen a little bit of it. But just when you acquire companies and we've had, you know, some, we did the Orbotech transaction, but we've also done some other transactions over time. What you find is, a lot of companies, particularly small ones, struggle to monetize services or certainly.
Sure.
To optimize it.
Yeah.
And they don't have the infrastructure necessarily to support a global footprint. And so one of the drivers for us, we think both near term and long term, is the ability to get more out of the service businesses of acquired companies. You go back a long way and you look at some of the deals we did back, you know, 15 years ago when we acquired ADE and we acquired Therma-Wave and other companies. We've been able to drive significant, you know, service revenue streams out of those businesses, much more than we ever contemplated where it turns out, you know, from a deal thesis point of view, you might have been able to justify the deal just on the service stream.
Sure.
Let alone the system contributions and IP contributions come from it. So there's an opportunity there for us. Each business behaves differently. So we have to, you know, deal with different, particularly in different markets. But still there's clearly an opportunity there, you know, for top line, but also for efficiency in terms of the service delivery system itself.
Yeah. And, and I know you guys like did past Analyst Days. I think you've talked about like a lot of work that you guys were doing like on the Orbotech side. I'm just trying to kind of, you know, pull that service model to be more like, you know, core KLA. I mean, where, where do you stand on that? And, and like how do you think about the, the kind of the go-forward there?
Yeah. I think, you know, on some of those businesses, FPD, of course, we're exiting that business.
Right.
PCB is certainly more of a capacity-related business. That market's been a little softer. From a top line perspective, you know, a little challenged. But from an operational efficiency perspective and driving the KLA services operating model into those businesses, I think we're right on plan or maybe slightly ahead of plan. We do see some of the efficiencies that Bren talked about. You know, those companies can't necessarily invest in the same infrastructure as well as balance sheet. They don't want to necessarily make the investment in inventory. And our services business is an inventory heavy business because we've got to have parts available on at moment's notice. I'd say that the place where we're doing both reasonably well top line and operational efficiency is the SPTS business.
Yeah.
We've made some headway there where we've driven some improved contract penetration there. And so we remain pretty, pretty confident and optimistic about our opportunity to drive that business. And the last area that I think is a real opportunity for us. Bren talked about advanced packaging for the company. You know, if you look at services intensity and advanced packaging versus historical service intensity and packaging, it's certainly increasing. And for all the reasons that Bren outlined, you know, the stakes are much higher when you're.
No.
When you're putting these packages together and therefore you've got to make sure that you've got the same availability at performance lined up on those products and thereby you're increasing some of your service attach rate.
Yeah. And that's a good segue, you know, into trying to think about like the services intensity, you know, how that has increased over time. I mean, what are those like discussions that your customers like? I mean, when they're, you know, you're saying, "Look, like things are becoming more difficult," like how, how does that like work into the, the contract negotiation of services and just like the, the overall just handholding or, or help that you're providing them like in those situations as we, as your customers are moving to, you know, new technologies or, or next generation nodes?
Yeah. As Bren outlined, there's a lot of complexity at moving to the next node. And therefore the products that KLA is delivering, the complexity is increasing. And therefore, the need for KLA service is even greater. And, you know, time to market and time to yield is still king. And so, you know, they really need those products available all the time. So you get more, they want higher availability. For example, Bren talked about 90%, but in a technology development area, they might want 95%, which means, you know, additional coverage for us, infrastructure investment. They also drive the tools very, very hard from a performance perspective. And so one way to think about services intensity is contract penetration.
And so if you were to look at contract penetration at leading edge versus our sort of 75% baseline, you know, it's up 10 or 15 points, 20 points on some product lines where they're attaching at a very, very high rate on leading edge products with respect to service contracts.
I guess like in the situation where, you know, someone doesn't want to sign a contract, I mean, what's the driving factor of that?
Usually it's a little bit of, it's a budgeting constraint.
Yeah.
And so it's usually more an environmental issue where.
Okay.
If they think that they might have lower utilization, in some period where they can maybe reduce some period costs for a particular quarter.
Yeah.
They might not want to do a full service contract, and so, you know, unfortunately over that period of time, it's going to cost them more money to go into a time and material, and but given the environment that they're in, that's usually the driver is that they've got an environment that they're unsure of, and so they don't want to make a long-term commitment. They'd rather go day to day, month to month.
Yeah. Okay.
And you have that, but you also have, I think, the ability of us to customize our offerings, whether it's per tool, whether it's fab-wide, whether it's uptime commitments over specific time frames, response times, stocking levels of parts. All of these things go into our calculation in terms of how we think about how we price these. And so we can be pretty flexible with our customers to meet some of their challenges with their budgets. And even to the point where we even allow them to do some idling and some other things. It's, I think, fairly customer-friendly, and it's customized. And then we want to deliver to that entitlement. So then we build the system underneath it. The visibility helps us, I think, optimize from an efficiency point of view.
but also we can help them manage a very fluid environment in terms of how we offer, what we can do, with our service business.
Okay. You know, maybe as you think about, you know, a lot of discussions still happening around like rationalization, regionalization of chip production, you know, the geopolitical kind of climate of, of just making sure that we've got leading edge production, you know, in the U.S. So I guess like, is that an opportunity for the services business in terms of, you know, kind of moving away from more regionally, you know, large fabs to smaller scale fabs that are in different regions? How do I think about that from services?
Yeah. I'd say it's a tailwind and a headwind. I mean, the headwind is, of course, when you have mega fabs, you can drive some operational efficiency that you can share with customers. But from a regionalization perspective and driving a tailwind for the service business is that, you know, when our customers are trying to expand geographically, it puts a lot of pressure not just on the new region, but also on the home region because they're moving a lot of those same resources to the new location to help ramp up that new facility. And so they need more help in the home region. They need certainly more help in the new region. So they really lean on their strategic partners like KLA, because they've got to deal with hiring people.
They've got to deal with the governments in terms of getting things lined up. They've got to drive the facility. And so we really have an opportunity. And it comes down to, you know, very detailed level work, which adds a lot of value for our customers, which is looking at every single slot that they have. We have a very robust ramp process that we work with our customers on, where again, we look at line by line, slot by slot, making sure that we've pre-positioned people. We've hired all the people that we need. We've pre-positioned parts. And then we accelerate the installation to production ready time. And, you know, our commitment to our customers is that we will improve that lead time each ramp. That's our goal with our customers.
Now when they change their schedules, then there's a headwind there, right? So both in terms of, you know, think about the, we talked about the complexity, right? So the training lead times are pretty long. You have to hire people and regionalization is driving those investments. We have to position parts. And then if the ramp plan changes or the fab delays, then we have to figure out how to absorb and manage, but still keep optionality to support in the long term.
The other thing that regionalization also drives is, I think from a market share point of view, given the reliance model of managing a broader footprint, I think it helps systems market share also because I think they want, our customers generally want to rely on us for more support, more applications where we have people stationed in the fabs to help optimize and get value out of the systems. So I think having the broader footprint allows them to rely on us. And it translates as a scale provider. I think it translates into market share for systems, as well as driving a service penetration that's favorable.
Perfect. Well, I think we're out of time. So we'll end it there. Thanks, guys.
Thank you for having us.
Thanks.