Greetings, and happy New Year, and thank you for attending JPMorgan's nineteenth annual virtual CES technology forum. My name is Harlan Sur, semiconductor and semiconductor capital equipment analyst. Very pleased to have Oreste Donzella, executive vice president of KLA's electronics packaging and components division, EPC. This includes specialty semiconductor processing equipment, printed circuit board processing and inspection, component inspection, and display inspection and test. This segment provides great diversification alongside KLA semiconductor process control business.
Oreste will take us through KLA's EPC segment and how every product line in this division is key to enabling next generation technologies such as five gs, next gen compute architectures like AI, IoT, touches the automotive markets as well. And then after his presentation, we'll follow it up with questions. So Oreste, thank you very much for joining us today, and let me turn it over to you.
Arlan, thanks for having me. It's a great pleasure to be at your conference this year. I put together this presentation to tag you along our journey of transformation that we started at New York Investor Day in September 19. It's only sixteen months. It seems to be like ten years considering what happened in the last six, ten months in the world.
So first of all, obligatory slide on the statement. You can see more details in the IR website of KLA. Now, first of all, let me talk about KLA and DPC in particular, the electronics value and component, a group that I have the honor to lead and how this group and the entire KLA is exposed to the megatrends that are really driving our semiconductor and electronic industries. Let's start from the numbers. These numbers are coming from the fiscal year 2020 that ended in June 2020.
So there are no updated number. Of course, we are in a quiet period. We are not going to make any assessment or any statement about the last quarter results. This was again until fiscal year twenty twenty ending in June 2020. You can see we are now at almost a $6,000,000,000 company in terms of revenue per year, 57,000 tools installed all around the world with more than 10,000 people.
And you see 75%. Let's say threefour of our business is relative to new system sales and a quarter in the service that is very much tied to maintenance contract that is an annuity to our revenue. When you look at what KLA has done in the last forty plus years, until 2019, we're really in one market, one segment for one application. And this was a semiconductor process control. For semiconductor process control, I intend finding defects that matter and find the problems that affect the chip performance and the yield.
So KLA has been the leader in the semiconductor process control for many, many, many years. And it was until the 2019 when we completed the acquisition of Orbotech and SPTS only in that particular segment of the market. With the acquisition of Orbotech, main purpose was to expand the SAM, the server available market. And we did, I would say, with this acquisition expanding two fold. On one hand, we expanded in completely new markets, aviation to semiconductors like print to the circuit board, packaging, flat panel display and also specialty semiconductor like RF devices, power and MEMS.
On another hand, we also strengthened our position in the semiconductor itself by introducing a process capability, process technology capability from the acquisition of SPTS that at that time was a subsidiary of Orbotech. So you can see in one acquisition, it's kind of we killed two birds with a stone. On one hand, we expanded the new markets. On another hand, we were able to complement our process control presence in the semiconductor market with the process solutions as well. And now if you want to map all our presence in the entire electronics ecosystem, you see a very, very big diversification of our, offering.
In particular, going from the right to the left here, you can see front end wafer fabs where we started in particular in advanced semiconductor but also specialty semiconductors. And then you see going right to the left, you see assembly and packaging components, PCB. And in the lower part of this slide, can see also a presence in display fabrication, in particular in the area of testing and inspection. So because we are engineers, we love numbers, so I put the numbers in the middle of this slide in yellow, you can see the critical geometry that we can cover in all our spectrum of solutions from like the five nanometer advanced semiconductor to like 100 micron in some of the PCB application. So again, diversification that makes KLA a very, very strong player not only in the semiconductor process control but in a much broader electronics ecosystem.
Now let me say how we are exposed to the megatrends. But before going there, I want to say a little bit of words on the organization chart. Of course, when we acquired Orbotech and SPTS, we closed the acquisition in February 2019. The next question was how do we integrate Orbotech? And we decided actually was around the time that we came to New York City for the Investor Day, we decided to create an organization that we announced early in 2020 that is pretty much collecting all the markets that are not the semiconductor process control wafer front end that now KLA is serving.
And as I said, mostly specialty semiconductor packaging component, PCB and display. And this is the organization that I lead, it's called EPC, Electronic Packaging Components. And Ahmad Khan is leading the semiconductor process control that is a historical branch of KLA. And Brian Lorig is leading the service organization. And the three of us report to Rick Wallace, who has been our CEO and President since 02/2006.
But one thing that I would like to emphasize as well is the fact that while we integrate this large acquisition, we are also applying what we call KLA operating model. And KLA operating model is really the secret sauce. It's what keeps all of us together. It's the very rigorous set of rules, processes, methodologies that we have been using for many, many years at KLA as really a foundation for our success. And now we are expanding this type of model for all the companies we acquire.
Now let me talk about the secular trends and how KLA and in particular EPC, are exposed to them. First of all, let me say that 2020 has been an incredibly challenging year for everybody. However, from business point of view, of course, the semiconductor was the most resilient and semiconductor capital equipment, the most resilient industry that you can see. And the reason is because really we saw an acceleration with the COVID of everything that is rotating around us and is driving the society, the modern society right now. And it was accelerated because, of course, secular trends like five gs or AI didn't stop, they accelerated.
We saw more and more opportunities in accelerated also the visual interaction, that interaction is either at work or social interaction that have like semiconductor at the front and the center of whatever we can do to really interact among each other. And if you look at on the right side of this table there, you see what are the indices that are benefiting the most from really the secular trends that we see in electronics. These are mobile, data center, automotive and most recently also healthcare and also the automation and really the advancement of technology in healthcare also got an acceleration with the COVID pandemic, that we are living right now. So at the bottom of this slide, you see like how pretty much this is from Gartner. You see how the semiconductor revenues is forecasted to grow in the next year.
You see pretty steady, growth of semiconductor revenue and of course semiconductor capital A key point that is supporting this revenue. When you try to narrow down to like EPC, you see, for example, three out of the markets we serve like SPTS specialty market, IQOS and the Orbotech PCB, you see how much the revenue is driven by the megatrends. You see, for example, SPTS is very much exposed to mobile and five gs infrastructure, IQOS to smartphones and data, Orbotech PCB in particular from five gs infrastructure, mobile and data as well. So whatever is really driving electronics technology is something that KLA and EPC in this case are very much exposed to. That's the reason why we believe in the secular story of semiconductor and of course, secular story of KLA.
Let me talk a little bit on three of these secular trends. Starting from five gs, of course, five gs is extremely important and it has a huge impact on semiconductor. And this is across the board, the spacing from higher memory content to application technologies shrinking the mobile, but also aviation to semiconductor related industries like, for example, we see more and more PCB content and complexity become much higher due to the five gs infrastructure and the five gs smartphones, but also five gs is driving new type of packaging, new type of components that need much more advanced process control technology. Five gs again is the first driver I want to talk and here is a terrific opportunity for growth at KLA across the board, as I said, in advanced semiconductor with the core process control business we have, but also specialty semiconductor in particular because of the RF higher content and complexity, both packaging, also printed circuit board. So we see five gs again an incredible, incredible opportunity for KLA.
Switching to data and, I would like to start from more low nineteen sixty five is still working, although slowing down a little bit becoming tougher to, do conventional transistor scaling, but the industry is not shy of innovation and the biggest one that is happening right now is introduction of EUV photolithography. But this innovation and the scaling in a conventional way of the transistor is becoming more expensive. And for that kind of reason, more and more of the innovations are moving into packaging, in particular moving from a system on a chip approach to chiplets through disaggregation of functionality of a single component in multiple, multiple devices that are then aggregated in a three-dimensional way through packaging. And that's the reason why packaging is becoming an incredibly important part of the semiconductor electronics supply chain and KLA is investing a lot of effort, time and money in designing a new product portfolio in packaging to enable innovation across the board. And we introduced some of these tools and we may talk a little bit more in details later at the SEMICON Taiwan in September 2020.
Finally, automotive. After a couple of years of decline and I've been happy to hear all people who talked before me about how the automotive industry is recovering already. We expect faster growth coming up in the next few years. And because of the secular trends in automotive are not changing, they got a little bit decelerated because of COVID and before COVID because of some inventory digestion. But the electrification, autonomous connectivity, these are still with us and these are important secular trends that all the electronic industry will take leverage and eventually we will see a lot of innovation and a lot of new business coming from automotive semiconductor.
Where is KLA on this? KLA has been partnering with ecosystem in the last two, three years to set up new standards for in line screening of potential chip reliability failures in wafer front end. But also we are developing solutions, in particular process solutions for the new compound semiconductor introduction automotive, in particular silicon carbide and gallium nitride. So these are the three trends that I would like to take as an example, five gs data with the packaging implications and automotive to showcase KLA as a global leader in electronics value chain and also the possibility of a very bright future and sustainable growth And now back to you, Arlen.
Yeah. Great overview, Oreste, and great overview of the opportunities and great overview of the business. So even in a tough demand environment, as you mentioned in 2020, EPC, we estimate, grew about 9% to 10% in line with your long term target CAGR for the business. Stepping into this year, you know, we have things like data center CapEx spending is set to grow 20%, automotive production is going to grow 15%, five gs smartphones more than doubling, OLED display CapEx is starting to inflect higher. We have your EPC business growing about 10% this year given some of these trends.
Maybe you can just help us understand what segments specialty semi, PCB, component inspection, display, which of these components are going to do well and any areas of weakness?
Yes. Let me start by saying that we have been very happy with the results that we have achieved in EPC since the creation of this group that is very, very new. It's only several months. And we see continuous strength in all the markets we serve. Now as I said in my presentation, let's start from five gs.
And when I say five gs, it means base station, smartphone. Because of the unit sale increase in the smartphone and because of the higher content of, in particular, RF devices in both base stations and smartphones. We see, of course, SPTS, that is our process solution branch for specialty semiconductor that is going to shine in the next years because exposed quite a bit to five gs. But also, we see five gs also influencing, as I said, the PCB and IQOS business of the component inspection. Data is going to drive, of course, more sophisticated packaging where we are investing quite a bit of, as I said, resources in order to come up with a compelling product portfolio.
So we see both SPTS and IQOS are very, very much exposed to the data centering packaging innovation. And the final automotive is another area where we are much exposed because with SPTS, we are leader in developing process solution, in particular, etch and deposit solution for power devices. So we see a big exposure there as well. On the display side, the display has been weaker. In the last couple of years, it has been stagnating because of inventory digestion and also because the consumer market, in particular TV, didn't go very, very well last year.
Now we are restructuring the organization. We are restructuring the cost. We are taking this time also to make sure that we can come up even stronger from a predictability point of view when the market will resume. And, we expect actually the market to see momentum in 2021 and then eventually gradually get into the revenue stream in 2022 and 2023. And that's what we see all the markets.
I know. That's a good that's a good outlook, high level outlook for 2021. So if I think about it from maybe from a longer term perspective, so, again, going back to the twenty nine nineteen Analyst Day, the team's outlook for your EPC business was about a 9% to 10% CAGR from 2019 to 2023, achieving $1.41500000000.0 in revenues in 2023 or about 20% of KLA's total revenues at that time. Based on the results thus far in 2020 and our outlook, it feels like the team appears to be on track to hit the 2023 target. So the first question is, is your team still on track to hit the 2023 targets, number one.
And then over the next few years, a 9% to 10% CAGR, what end markets will be faster will be growing faster than trend line and what end markets will be growing slower than the trend line?
Yeah. First of all, we remain very optimistic on the trajectory that we outlined in September 2019. So it seems that this is really we are evolving the right way. Now the second question is about the long term growth. And frankly, things are the same that we are seeing in 2021 because five gs, for example, is going to be a long wave.
Five gs is not going to stop right now. I really appreciate the comment in one of the previous interviews saying that two fifty million subscribers of five gs, but there are 6,000,000,000 mobile subscribers in the world. So we have a long way to go. So we have a very good margin for improvement there. And the automotive is going back to the double digit growth.
So again, we saw a deceleration in the last couple of years, we are confident everybody in the industry is confident that automotive electronics will grow double digit in the next three, five years, so we can take advantage. Computing, storage, of course, are big drivers as well. Now the segments, markets that I believe they are not going to grow as fast as the others I mentioned before are pretty much PC and maybe some consumer type of application. Again, the long term growth, the beauty of this particular moment of the industry, I've been in the semiconductor industry for twenty eight years, is we have never seen so many drivers together. And we have never seen the near term drivers to be also long term drivers at the same time.
So that's a very unique time for semiconductor and electronics.
You know, one of the strong one of the reasons for the, you know, company's sort of very differentiated premium profitability profile, gross margins, operating margins, free cash flow margins, is that the team has pricing power. Right? And and and part of it is because in the semiconductor process control business, you know, the KLA team is a strong number one in the market. It's four times larger than its nearest competitor. Within your EPC business around some of your key end markets, mobile, automotive, data center, you know, or looking at it from a product perspective, you know, looking at specialty semis, advanced printed circuit board, component inspection, and display.
You know, what what is your market share position in these product categories? And more importantly, who are some of your major customers?
Yes. So first of all, let me stay really happy with the position that KLA was able to pretty much to gain in the last many, many years in the semiconductor process control. We are the number one leader in this area, in this market with ForEx more than the nearest competitor. ForEx has more share than the nearest competitor. For what concerns all the new markets, when I talk about specialty or PCB or component or display, I want to take this as an opportunity to explain a little bit what is our strategy for acquisition.
Because when we look at targets for acquisition, we would like to acquire market leaders. No question about it. We don't want to acquire people who are not the leaders in their segments, in their markets. This And is what we have done with Orbotech SPTS. Let me start with SPTS for example.
SPTS produce a plasma vacuum based deposition and etching system for specialty semiconductors. And in this particular category of the semiconductor business, they are the number one. We are the number one with SPTS. We are talking about RF filters. We are talking about MEMS, power devices for automotive or RF or five gs infrastructure.
So SPTS has been able for many, many years, even before KLA acquired SPTS Orbotech to shine in these niche markets because of their customization of the solutions they provide to our customers. And who are the customers? You ask the customer. In this case, the usual suspects, I mean, you can Infineon, ST and XP on the automotive side, on RF, of course Skyworks, Qorvo. These are the major customers of SPTS.
And of course, SPTS has a play in packaging as well in wafer level packaging. And this is where we partner with all the major IDM, both logic and memory, major foundries and also OSATs. So Micron and Samsung and Intel and TSMC and Dynex and all the OSATs and the other major, major semiconductor customers are our customers in packaging as well. On the PCB area, this is an interesting market that frankly I think before the acquisition I didn't even know. And now I start to learn and I learn day by day.
And the uniqueness of Orbotech and now KLA, pricing in the PCB is the breadth of portfolio. So we play in inspection, we play in repair, we play in imaging, we play in inject. And in all these segments we play, we are the market leader. Now the goal of PCB actually is to expand outside these segments, to figure out if we can do something else in other segments of the PCB market where we are the number one. And we would like to be number one in any market that we would like to enter either organically or inorganically.
As soon as FPD, our presence in display is not that big as a percent of equipment spending. We are only in test and inspection, but in these segments, are number one.
So we've always said that we used to cover Orbotech and what we used to say and part of the reason why we covered Obertech is because we would always tell ourselves that in display, in PCB, other parts, they were the KLA of the PCB industry or KLA of the display industry. And and, you know, a good example is, you know, advanced PCBs. Right? So vias, interconnect layers, they're all approaching deep submicron geometries that we were seeing at the wafer level, right, like five, ten years ago. So as the pitch, you know, and pitcher sizes continue to decrease, has the KLA team started to apply technologies from your core semiconductor process control division to some of your PCB products or some of your other inspection products?
Can you give us examples of where Kayleigh is applying some of your core optics, sensors, software, platform designs to your EPC inspection platforms?
That's a great question, actually. And it gives me the opportunity to talk about acquisition strategy again. Because in addition to target market leaders, we would like also to target companies where KLA can contribute either in operation efficiency or technology innovation. And you are right, PCB of course is far behind semiconductor in terms of complexity but they are ramping very, very fast and in particular the number of years and the geometry is getting tighter. And on top of that, there is a big, big need to go higher end with the PCB, in particular through IC substrates that are so important and so complementary to the packaging industry.
So I'll give you an example, just an example. This actually is very, very new because we are developing, for example, the next automated optical inspection for PCB and we are building this new tool around KLA designed optics. So in other words, KLA optics are designed and they are implementing in the automated optical inspection for PCB and substrates. And we believe by this combination we are able to serve the high end market of subset of PCB even better with this innovation.
So one of the areas that you touched upon that I wanna get into is, you know, if you look at the megatrends within auto, five g, RF, and even applicability to the industrial markets, power transistors are a key building block. Right? Inverters in EVs, industrial solar, power amplifiers and five gs base stations. And one of the key enablers is power transistors, IGBT, power MOSFETs, next generation silicon carbide, gallium nitride power transistors. Touched upon this in your slides, but what equipment and solutions etch deposition that EPC has that are used to manufacture these newer SiC and GaN based power transistor architectures?
Yes. This is another great question. So we have been working with the silicon subsets forever and compound semiconductor has been like a very, very, very small market. But because of, as you know, the breakdown voltage strength and because of the wide band gap, so these materials now are more and more useful for all the power semiconductor power device needs, in particular in the automotive EV or charging or even RF for five gs infrastructure. So I'll give you a couple of examples of implementation of KLA technology for silicon carbide gallium nitride.
When you go for a fast switcher and you design a power switch in the future for charging or EV, you are designing the technology around some very, very circular rounded bottom of the trench. And making trenchetch that are rounded at the bottom is extremely, extremely tough to do. We are not talking about five nanometer here, but we are talking about different type of complexity. And we know for sure that SPTS is developing technology that can accommodate this kind of process integration scheme that is very, very important for the electrification of the vehicle in the future when all the EVs are going to have power inverter, for example, made by silicon carbide. Another example is how we apply our own technology of gallium nitride on silicon carbide etching and making sure that we have separation of gallium nitride and silicon carbide and we have a selectivity of the material that is provided by our own etch solution.
So these are examples where the SPTS technologies, although they don't serve the latest and greatest appreciation processor of smartphones, are very, very sophisticated and narrowly focused on some critical problems that our customers are
Rusty, we're just about out of time. I want to thank you for the insights on the EPC franchise at KLA. Lots of great growth drivers and looks like setting up for another pretty solid growth year in 2021. So thank you very much. I appreciate your participation.
Thanks for having me. Thank you. Yes.