Welcome to day two of Citi Virtual Technology Conference. My name is Atas Malik. I cover U. S. Semiconductors and equipment stocks here at Citi.
It's my pleasure to welcome Rick Wallace, President and CEO of KLA Bren Higgins, CFO and Ed and Kevin from the IR team. Rick is going to make a few opening comments and then we'll do the fireside chat. If you have any questions for the KLA team, please email them to me. That's atif. Mallik city dot com.
Over to you, Rick.
Thank you, Asif, thank you so much for hosting us today. Hello, everyone. I hope you're safe, your families are safe, kids are back in school, at least virtually. Just a reminder that you need to refer to our SEC filings for safe harbor language regarding our comments today. Let me just start off by where we are.
About a year ago, we laid out our 2023 plan for KLA in in the financial model. And the first half of, 2020 is looking very good relative to the expectations we had for that plan. Some of the initiatives that we put forward there. Those of you who are at that know we talked really about the KLA operating model as the central, guiding principle in the way we're running the company. And I got to say, I'm really pleased around how the operating model has performed in two ways.
One, in terms of the integration with Orbotech and the success that we've had in the Orbotech business and how we've applied that, and we'll talk to that. And the second one is how we've dealt with the obvious challenges that we've had throughout 2020 relative to COVID nineteen and how we're performing. 2020 is shaping up to be a good year. And and I think many of you know this, but coming in, 2020 was looked to probably have some growth in 2020 from a WFE standpoint. KLA certainly expected that.
We went through some uncertainty, but earlier on, but feel very confident now of our ability. And our customers continue to invest strategically, and I think that's playing out well for us. Our markets are working. Process control is working. Our leadership is working for us, and we're demonstrating our ability to gain share with some critical new products, and and we're really excited about the performance that we're seeing out of there.
So the way the the year looks for the rest of the year, we feel pretty good about how it's ending, although there's still a lot of uncertainty. The one comment I wanna make is the obvious, question people are having in the last few days is around US China trade. Obviously, we're aware of the media reports that are associated with this, and they you know, we do have an important customer that's being talked about. It's an important customer, not a particularly big customer. But we're gonna, as you might imagine, comply with all the rules and regulations around what the the decisions have been made.
But to date, there have not been any decisions, and so we're continuing, to monitor that, and and we'll do whatever, we need to do. So if that comes up, we can address it. But I think the other factors are much more interesting, especially as they pertain to where KLA is today and where we think, the future is is gonna take us. We have some underlying drivers that are still in place, and and you might say COVID nineteen is accelerating them. And one is the five g infrastructure build out and the that's driving different parts of our business, including semiconductor.
High performance computing continues to be really important for us, and and we're seeing a a lot of strength from that. And we feel really good about our ability to execute. Also, services, one of the things we weren't sure about earlier in this year is what would happen to utilization rates in our service business, and yet that's been quite strong. And we're seeing at that historical growth level that we we talked about for the year is is panning out and for the 2023 model. Also, as Asif mentioned, I'm joined by Bren Higgins, our CFO, and he's gonna help me out in the fireside chat and take all the really hard questions.
And so I'm glad that he's here to do that. So again, thank you all for joining. And Asif, thank you, and let you start the q and a.
Thank you, Rick, for that background, and I'll go back and forth between you and Bren. Rick, if I look at the investor narrative on KLA, I feel like it's changing. It has changed over, last year and a half or two years. As you have diversified and expanded into mobile and five gs markets through Orbotech, we recently hosted a call with Oreste who runs your EPC, electronics packaging and components business and learned that two third of PCB business and 40% of the specialty and RF business is tied to five gs. And that kind of agrees with our assessment that you guys come on top among front end equipment suppliers being exposed to five And you have a very good history of transformative acquisitions.
Can you talk about the shift from a pure process control semiconductor business and how EPC part of the business prepares you for the data center era?
Yes. That's a great question, and thank you for that. I think that when we went back a couple of years ago and we were laying out a growth strategies for KLA, we assess what is it that we're doing well in terms of how we're running the company. And that's where we really codified the KLA operating model. And we looked at what we were doing and how we were running these businesses.
Many of our investors know we have a lot of businesses, a lot of relatively small that in aggregate make a good sized company. But we really learned how to run those businesses successfully using the operating operating model and had done that with acquisitions in the past. So we weren't so intimidated by going into process, which is what SPTS is. As long as it satisfied the real important criteria for KLA, which is a market leading position, having sustainable technology advantage, and be able to support our customers in growth segments. So when we looked at Orbotech, we're pleased with what we saw there.
We have brought technical synergies and and we'll continue to, in parts of those business, but definitely channel synergies. And some of the success we're seeing related to Orbotech is the fact that the operating model and the success we've had with some of these customers that are now investing more heavily in packaging, is really playing out, and they view KLA as a as a trusted supplier. And so we're having very high level engagements. So we feel good about that. And we think, as you say, we're on, we're really pleased with what we're seeing in five g build out.
And I I know everybody knows this, but this is early days for five g. We we this is a several year investment thesis, and we feel good about our position right now. And we have more products in the development stage to support that as it goes forward.
That's good. Rick, company has done a great job in maintaining high market share in a fragmented market. You're number one in eight of the 10 served markets. You've proven many beers wrong, including myself, in maintaining this share. What sets Kaylee apart?
What is the secret sauce around holding this share?
Yeah. I I I think that one of the, and as you know, as if I've been in the company thirty one years or so, and and we've had this history of being able to be both paranoid and continuing to evolve and and develop. So we have this model that we've looked at in the past where we we really understand if we collaborate closely with our customers so we can anticipate their problems well ahead of when they're going to be needed, then we can innovate and drive that innovation and then if we can execute. But over time, we got really good, I think, at all three of those things. As collaborating with customers, being engaged in the very leading edge, trying to understand what problems they were having and where we could provide capability.
We dedicate a lot of resources, a lot of r and t to the innovation, to the making sure that we have capability when it's needed. And then we got good over time at executing. The other thing is structurally, we've set up these businesses to have a singular focus on these market segments, while at the same time having an overarching view. So we have general managers, we have engineering teams that wake up every day dedicated and worrying about how to be successful in those market segments, and they never rest. And and so from the standpoint of that, we continue to innovate and invest, and I I think that's proven out.
We think we can scale that. We've seen it with other acquisitions where we've been able to take their positions and continue to grow on it. So that is one of the overarching principles for KLA is market share, but also differentiated products which show up as gross margin. So part of the other thing we measure is how differentiated are our products and can we create enough value that we can share that with our customers. And we think that shows up if you look at our gross margins.
Great. Rick, I really like the way you describe the process control as a portfolio of products. You are technology agnostic and offer a range of optical and e beam products that are right in time for the market for the volume introduction, offer compelling cost of ownership. Team expects to grow sales by 400,000,000 to $500,000,000 through 2023 on new products like Gen five, which had had great success, e beam, X-ray. Can you just talk about EUV positioning and confidence on both the mask and patent wafer inspection?
Yes. Sure. That's a great question. And it goes back, I'll do a little history and then talk about it because I was the general manager of what was called the Brightfield inspection division when we were looking at merging with Tencor many years ago. And Tencor was dark field.
And we felt like you could solve every problem with Brightfield. And we came out with new products that were great, and I go talk to customers. And then they were still gonna buy some Tencor products, and I was trying to understand why. And the answer was they were trying to optimize the portfolio. And and so when we merged with Tencor, and then later as we added products, we realized the best thing we can do for our customers is offer them a choice.
So that they have a choice between what fits their strategy, whether it's bright field, whether or broadband plasma now, or it's dark field laser scanning, or it's macro inspection. And so we did that both in inspection and we also did it in metrology. So when we fast forward to EUV, there are some people that thought there was only one answer for EUV reticle inspection. And our view is that's not true. What what our customers have told us for years is they wanna optimize the cost effectiveness of their solutions.
So the the real question is what is the most cost effective answer to solving the problems of defectivity in the UV? And it turns out that taking an optical reticle inspector and coupling it with a broadband plasma to check the print after you've printed the device is right now the most cost effective answer as opposed to people that thought years ago we needed to have an antenna antenna reticle inspector. That was never gonna be practical from a financial standpoint or investment. So our view is if we provide customers with the most cost effective solution, that that will solve their problems and allow us to continue to invest. We do think there'll be a role for actinic reticle inspection, but concurrent with high NA EUV, which we think is a few years out.
So, EUV does create an inflection. It's increasing process control intensity simply because smaller defects matter that didn't matter before. And also, there are additional challenges associated with, the control the process control around EUV. So we've seen an increase and we think that process control intensity goes up as our customers, drive EUV. But until we're really in high volume across multiple, we won't know the extent of that, but it's definitely a tailwind for our business.
Okay. Eric, specifically if you could talk about how the ESL10 e beam product has been received by your customer and what is so unique about its architecture?
Well, that's a good example of one where, I go back to that we wanted to have differentiated products that would not be a me too. And the way we had measured that was based on whether or not, the gross margins were going to be good. We exited e beam years ago, e beam inspection, when we felt that we didn't have a compelling differentiation in that market. And so we stayed out of that market. We think it's an important market, but not a big one because as much as possible, people are gonna offload their inspection onto the least cost solution.
So you take e beam and try to offload it to broadband plasma, try to offload it to laser scanning, and try to offload it to macro if you could do it. That's the progression. So, but when we finally had an architecture for the ESL 10, I have to give that team credit because, you know, they they really we invested very heavily in that platform. But the other thing we we believed and and it's proving to be true, if we coupled it to the broadband plasma, we would create a solution around those two so that we can make both more effective. And what we've seen with the early adoption of ESL is by having the optical tool in complement to the e beam, the e beam's got its own technological advances, but it's also as part of that solution, it's gaining a lot of traction with customers that, frankly, were skeptical.
They were somewhat skeptical because they felt like we had abandoned e beam, which wasn't the case. What we were waiting for is to have an entry point where we thought we could differentiate. So I I feel good about where we are in that product. It's still relatively early days. The team has done a great job.
But we're we're very pleased with the customer reaction. There are always gonna be some defects that are unique uniquely found by e beam. And they're that that what percent of the market that is historically for the last ten years, as you know, it's probably been 20% of the overall market between e beam and and optical. We don't think that actually changes that much, but we think this is an enabler to drive us to gain share, but also to continue to drive the broadband plasma.
Very helpful. Brent, switching to you, you have talked about a 55,000,000,000 WFE this year. Rick mentioned everything seems to be on track, if you ignore the kind of the macro noise. Just focusing on memory first, can you reconcile how the elevated levels for inventory and softer demand that we're hearing matches up with your view in second half of memory investments improving? I thought your view was far more realistic.
And you also talked about some risk in memory because of the weaker prices. So how is memory shipping out in second half this year?
Yes, Tip, thanks for the question. And so sometimes when we talk about WFE levels, when we look at 2019, we saw it was about 52,000,000,000 And when we talked about this year, 2020, being somewhere in the mid- high 50s, just to give a sort of a range of perspective. And I don't think that's everybody counts it a little bit differently, but I don't think that our view is all that different for most of our peers. Obviously, foundry logic has been a big part of this year. Second half looks like it's even modestly stronger than the first half.
And so that's a good sign. And you just echoing back to earnings, we feel very good about just where the business is, some of the context we provided both in terms of guidance, but also views on the second half, and there's really no change to that. We thought the second half had stronger memory mix of business, mostly weighted to the December with some breadth. And again, we haven't seen any real change in that. Now I think that's fairly modest.
I mean, if you keep in mind that 2019 was down about 35% or so for the memory market. I mean, really since the 2018, we've seen memory switch into this digestion phase. And so 2020 looks like it's maybe flattish or so overall for the year. And like I said, right at the end of the year, we do see some pickup, but I think it's off a pretty low base. So we think memory improves in 2021, and I agree with you.
I think some of the end market dynamics are pretty modest and certainly don't signal a strong recovery. But we do think as we move into 2021, we'll see more strength in that business. I mean, certainly for the mobility cycle that we'll see with five gs and some of the data center drivers that are there will be positive both for DRAM and for flash. You've got gaming cycles that will happen. So we think overall that the end market dynamics will improve, But I think we're still talking about operating off a fairly low base.
So as we look at next year, we see next year as a modest growth year. We see foundry logic sustainability, both in terms of breadth of customers and levels of investment as look at next year. And there's and that memory does grow a little bit. But even if memory grew 10% off of the base and that drove sort of a mid single digit kind of growth year for 2021 is really how we're basically seeing it today. So we'll have to see how it plays out.
One thing about these customers and the need for capacity to satisfy incremental bit growth beyond technology investment is that they have to make quick decisions and quick turns in the business. So I would expect if we see some end market strength that you'll see those customers respond fairly quickly with not a lot of lead time for us. So we've got to be flexible enough to respond to these scenarios, and I think we're in a pretty good position to do it.
Great. And then switching to foundry. There was a concern earlier this year that Tyrebonne foundry CapEx would be more like first half loaded, but it appears that other foundry logic customers have stepped up in second half. You talked about sustained outlook for foundry logic in second half. But more interestingly, you see foundry logic improving into next year.
What's driving the higher foundry logic investments from a demand perspective?
Well, I think when you look at the seven nanometer design start activity, which has been fairly strong, and then you'll have five nanometer ramps that will move into next year, you'll start to see three nanometer development. And so you see this from a leader, but you also have, as we talked about breadth, there's a fair amount of end market activity that's supporting multiple customers to invest. And so I think that, that continues into next year. You've also got stratification. There's a lot of trailing edge investment that's happening in China and elsewhere.
And I would expect automotive and some of the things that have been weaker this year to be stronger into next year. So when I look at it, I think it's at least flat. I haven't been specific about percentage growth as we look at next year, but I think the underlying drivers look very solid as we move forward. I think also on the logic side, I think that as those issues there start to on the leading edge, start to get resolved as we move into next year, I think that could be upside to the business as well. So I think that on multiple fronts, we feel pretty good about those segments.
And then how much of a headwind or a tailwind is potential microprocessor outsourcing to foundries in the future?
Well, I mean, I think that's one of those questions that I think that's out there that it's really hard to see at this point. I mean, the behavior from the customer has been very consistent and a focus on developing leading edge. I think with leading edge investment, I think that you can only you have to you're in it or you're out. And so I think that and not talking about specific customers, but could there be additional outsourcing? Sure.
But I think that the commitments we've seen to the leading edge roadmap are the same and haven't changed, and we look forward to supporting the customer through that.
Great. Coming back to, Rick, you guys are helping the machine learning AI revolution. Can you talk about the role of machine learning AI across all your products? Longer term, do you think KLA has an opportunity to use a disruptive feature like machine learning AI across all your inspectors to offer a platform like some of your peers, ASML talk about? Or this capability will always be closest to the customers?
The, it's a great question. I think that the notion of advanced algorithms and what we're seeing with machine learning or AI, has been a big part of what KLA has done for years. I mean, if you think back in time to some of the earlier days in wafer inspection, originally, we had a very straightforward align and subtract an image, the difference was a defect. That was the basic. But but soon after, we started realizing if we started doing image processing that we could have more information and squeeze more technology out of the capability.
So we invested heavily in algorithms and in development. And as the AI technology became more and more affordable in the last several years, And frankly, as the complexity of our tools went up, we started applying AI to our inspectors a few years ago. And and recently, we've been able to expand it so much so that we put together a team inside which develops AI algorithms and capabilities for multiple inspectors. So one of the questions you asked, ESL10 takes advantage of that, of the fact that we have investment that's being used for broadband plasma that we're able to leverage some of that capability. And over time, we'll expand it to and we've already started expanding it across all the inspection platforms.
And then also, we do similar things in metrology. So we're already doing it on our tools. We're heavily invested in that capability. We've established centers of excellence where we're hiring people that are that are doing that. And we're kind of doing it on three fronts.
One is for the inspections themselves to optimize the capability. The other one is for the setup. The setup of our systems can be incredibly complex because there's so many degrees of freedom. So how do you assist people in optimizing the inspector setup itself and using learning for that? Then the last one we've been applying some is the logistics around service and managing and moving a lot of the parts that we have as a company.
So we kind of view it as multifaceted in terms of of how it impacts. With customers, I think that they're we're really trying to solve different problems because what we're trying to solve is the inspection measurement problem associated that's that's around our tools. What they're trying to solve is the how do you run the fab problem. And we have some cases where we have some software offerings where we assist in that. But our philosophy has always been to plug in and be part of whatever system that they have an open architecture that they might have so that we can be complementary to it as opposed to trying to replace them.
So we feel good about it. We have good engagements with both the producers of the semiconductors that are used for AI. For some of them, we're their leading application in terms of the most complexity that they're dealing with. So we have some pretty good r and d developments with them. And then, you know, if you look at the challenges our systems face, we handle a tremendous amount of data.
What we viewed AI as being able to squeeze out additional nodes of capability with existing hardware. So we think it's a way that we can extend the life of our tools by providing, more capabilities. So we've been hiring those resources, and and we feel good about the progress that we've made.
Great. Rick, a bit of a different question. How do you manage talent at KLA? I mean, work in the Valley and hear a lot about your flat organization structure. You've promoted the most kind of leadership roles within the company, a very high retention rate?
How do you manage talent?
You know, I I think it's been for for a long time. I appreciate the question. I think the the notion that if we can grow people in their roles inside, the the best chance of success of a company that's being successful is to grow their talent in inside the company. When I became CEO, my goal was that 80% of our vice president promotions were gonna be internal promotions. And we actually, for a while, hit 85.
We've added some outside people, which is also you need a blend, I think. But because there are some times where there's outside expertise from other areas, other fields that that are beneficial. But a lot of what we've done is not so much through training programs, although we do invest in training, but in opportunities for learning and and having people have a chance to do different skills, having mentoring and also rotation. So we feel good about what we've done in terms of developing the workforce. And and I think a lot of people at KLA, we do have low turnover, but we have very high engagement, which to me is more important than the the turnover is the level of engagement that the engagement surveys tell us that we have.
And I think it's because people are treated fairly. They have a lot of growth opportunities, and they can be have a significant role in a company that has a global impact. And I I think for a lot of people, they find that very exciting. You know, for the semiconductor industry, in particular, you know, there's as you know, there's no semi there's no silicon being manufactured in Silicon Valley, but we impact the entire industry around the world. And I think for a lot of a lot of recruits, that's exciting.
Plus, we've hired in a lot of other places too. We're doing development in more than just California, as you know. And so we're finding that we can take this approach and and do it in other places. So we have some great talent coming, and I'm very excited about the future leadership of this company based on what I've seen to date.
Great. And then for the next five years, you expect to grow faster or 6% to 7% above industry run rate for your process control business. Can you talk about how new device architectures like nanosheets, etcetera, help drive higher process control intensity?
Of course. I think that the key to our business you know, I used to feel like if you weren't on Moore's Law, the process control intensity would slow down, but it it's it's not quite that simple. It's really how much change is happening and how much is driving, how much innovation and change in the process that's not strictly Moore's law. And the example I would go give is, NAND flash. You know, so I'll get I'll get to the your nanoseat.
But, you know, NAND flash at first went kinda backwards technology. And if you looked at it, what the challenges were originally was less complicated lithography, and therefore, we didn't know how much process control intensity. But as those as there became multiple players, they all have to innovate. And it created a lot of opportunities, and there are plenty of yield challenges and ramp challenges. So for memory, it became really, can we find solutions that help solve those problems?
And can we be creative? Because in that case, it wasn't lateral scaling. It was dimensionality. You know? Can you do things like help them figure out if the contact of these huge stacks are are, you know, the structure has the integrity it's supposed to have.
So we had to develop technologies, and we're driving process control intensity with that. Nanoseed's interesting because it it may well be that we don't need the next the gen five, but there are modifications to gen four because of the contrast that's necessary to find the modeling to to find the defectivity that it's gonna matter to do process control. So I go back to my original conversation or discussion we had where, you know, you collaborate upfront. We do modeling. We try to understand what are these devices gonna look like.
We have a a group that's dedicated to understanding future technologies. And what is the most appropriate inspection or measurement technology to be able to help customers debug those processes at the front end? So I think, you know, first, I'd say for the next ten years, we can see process architectures that are gonna require increased process control capability to be able to ramp. And in some ways, the extension of Moore's Law in terms of the amount of time that it's taking to get to the next node is not really a bad thing for us because it allows us to make these investments that are amortized over more time. So as long as there is change, as long as there are continued innovation by our customers, there's continued opportunity for us to help enable that.
Great. Bren, June was a record services quarter, growing installed base contributes 25% of your sales. Now how much of this is fixed energy type versus variable? And can services be a double digit grower?
Well, to your point, mean, for really since the beginning of the company, I mean, installed base gets deployed and those tools get used for extended periods of time. And one of the things that it's been driven by such a broad end market that we're servicing when you factor in things like automotive and electrification of cars, industrial and IoT and communication infrastructures, the trailing edge or the installed base of tools is being run for longer. And so certainly, that creates some challenges to support the tools, but it also creates a lot of opportunity for us as well. So 75% plus of the revenue stream is contract subscription like contract. And it's a pretty compelling thing for us.
It allows us to optimize the cost structure underneath it. And it's a little different, think, than our peers because our customers, when they buy process control, they tend to buy what they feel like they need. And then they value the information, so they run the tools as hard as they can. Now they don't have that many of them, so it's hard for them to develop their own capability. And we manage the supply chain where it's very difficult for the for our customer to service on their own, to get parts, to be able to take the tools and make the tools match and perform and deliver similar results.
So because of those dynamics, we end up with a contract base that's predictable and, as I said, allows us to optimize for cost. The growth rate of that business historically has been around 9% to 11%, and our go forward is 9% to 11%. And really, just a statement that we expect it to continue to grow at that growth rate even from the with the billion dollar base that we have today on the semi side. So the other good thing about it is, is that even when you have cyclicality around systems, you still have the install base that continues to get run and deliver products. So that predictability, we've had one down year in that business.
And so it tends to be a pretty predictive stream. With consolidation in our customer base, we've been able to consolidate our support resources. We've invested in a lot of infrastructure. We expect that we can leverage that infrastructure to drive better margin profile out of the Orbotech and other acquired businesses. And so it's driven a profit stream that's attractive as well.
In fact, on the semi side of the business, revenue has grown about 2.5x over the last ten years, but profit has grown about 4% or 4x. So it's we've been able to improve the profitability at the same time driving significant revenue growth. And I don't expect that to change. And I think given the behavior around our products, I would expect the subscription like Stream to stay at a significant majority of the overall mix.
Great. And then the free cash flow, always very strong, even better than some of the industrials. Can you talk about your capital allocation priorities for the next twelve to eighteen months of which the stock has come down because of the macro concerns?
Yes. When we take a long term perspective and our free cash flow as a percent of revenue, you're right, is pretty high and it's a capital fairly capital light business. We invest in working capital and we have to invest from time to time in facilities to support our growth. But working capital ramps ramps up and if things were to deteriorate, you're able to recoup that investment. So our free cash flow tends to track our earnings pretty well.
And so given our top line expectations for revenue growth of 7% to 9% and the ability to drop through 11% to 15% or 1.5x the revenue growth rate in terms of earnings growth, it should enable us to grow free cash flow in a similar range. And so that's the model we have and I think makes sense for our business. Now we've been pretty explicit about the liquidity requirements of the company, the leverage level we think is appropriate. And so our philosophy is really unchanged. I mean we're going to have balanced approach across dividends and share repurchases.
We've raised the dividend. We just raised it again. So it's been eleven consecutive years. It's currently at $0.90 a quarter. And it's grown at 15% since inception.
So that's fundamental and should grow in line with the cash flow of the company. And so I think that's how we govern it. And about 35% of the cash flow is our long term sort of target payout. And then we think that overall, given the dynamics of the business, we should be able to return at least 70% of the cash flow that the business generates. If we our M and A calculus is to look at share repurchase as the alternative.
And so if I would expect that we should be able to maintain 70%, that's probably a low floor in terms of our ability to return. So and then our approach is to be consistent and be in the market every day to deliver that value. We're firm believers that cash doesn't get value unless it's deployed well and productively and where they're going to deploy it back in the business or return it to our shareholders. I think it's important aspect of the investment thesis of the company.
Great. I'm going to switch to audience questions. I've received a few via e mails. The first one is how big is domestic China historically and how much of that is foundry logic?
Well, so it varies by year. So last year was more memory heavy. This year is more foundry logic heavy. It's about $100,000,000 in shipments. Last year, we were around $650,000,000 or so the last couple of years.
And I'll call that the domestic or native China business. There's also wafer investment and radical infrastructure investment that's part of that, too. But I would say this year, it's probably somewhere around 70% overall logicfoundry. It was a mix of a number of customers. So I didn't say that there's any one customer that dominates that
mix.
So there's a fair amount of projects that are supporting a lot of these lagging edge markets we've talked about. I think that there's a lot of activity in IoT and infrastructure. And so those projects are supporting those markets. And I think in the memory part, as I said, was stronger last year, and I'd expect memory probably to be a little bit better next year.
Okay. And then have you needed to get a license to ship to domestic China over the past couple of years?
We have not. I mean, we've had to get an affirmation from customers about the intent of the use of the tools. But as we've gone through that exercise and in all cases, I could say that we have not had to have a license so far to ship to China to any of our customers in China. Now that's on the semiconductor front. We do have other customers on some of our smaller businesses, our analytical businesses that we're still in the process of evaluating.
It's a less material part of the company. So I think my statement really focuses on the material aspects of our business.
Okay. And if entities like SMIC get on the if the companies like SMIC get on the entity list, how different would it be getting a license from what you have done so far?
Well, entity list and then there's military end user list. So there's a couple of different rules that are out there, right? I don't want to speculate on the SMIC situation because so far, all we know about is what's been reported in the media. As Rick said in the opening comments, it's long standing mature customer. And so they're building parts to support existing markets.
And so I would expect that while there could be some dislocation and some short term effect, I think in the long run, most of that demand gets served by other providers. If that were to happen, now again, we don't really know what will happen here. And so I don't want to speculate on it any further.
Okay. I think this one is for both of you. Orbotech has been a good acquisition record revenues in the June. Are there other areas in the industry for tuck in type acquisitions?
Yes, but Bren mentioned earlier in his comments that we look at everyone with a strategic and a financial filter. Right? So the strategic has got to have a leading market position. It's got to have something that's compatible with the other things that we do. We got to be able to make it better.
Then the financial filter is, is it better than buying back our own stock, which is the easiest thing to measure against. But there in in the plan we laid out for 2023 at in at our Investor Day last year, we talked we had a plug in there of about 200,000,000 in revenue for acquisitions, and that was based on a historic average of the size of acquisitions we've done, not counting Orbotech. So the answer would be it would be plug in. We don't anticipate at this time necessarily, but we're always evaluating what's available in the market. So the answer is we're capable.
We're confident that we could do well with them. But as you know, with acquisitions, there's got to be right company at the right time at the right price. So, you know, we're we're not we don't feel compelled to do it, but if it makes sense, we certainly will will proceed.
Great. We're we're almost out of time. Rick and Brent, thank you. Thank you for joining our conference and providing those opening opening comments.
Thanks for having us. Hopefully, as of next year, we're in New York, and we're all talking about going to the US Open, but we'll all be too busy, but at least we'll be there. Right? That's the goal.
Yes. Thank you.
Alright. Thank you, Matthew. Yeah. Yeah.