Good morning, and welcome to the second day of J.P. Morgan's 54th annual Global Technology, Media and Communications Conference. My name is Harlan Sur. I'm the semiconductor and semiconductor capital equipment analyst for the firm. Very pleased to have Bren Higgins, Executive Vice President and Chief Financial Officer, of KLA here with us today. I've asked Bren to start us off with KLA's view of the wafer equipment, process control, advanced packaging equipment spending environment this year and next year, KLA's growth outlook within that, and then we'll go ahead and kick off the Q&A. Bren, thank you very much for joining us this morning.
Harlan, thank you for having me. Good to be here. Maybe I'll just level set a little bit from some of the themes coming out of earnings in our recent Investor Day that we had on March 12. Certainly it feels like that was a long time ago, given some of the momentum that we continue to experience in the industry, even though it was only several weeks ago. Certainly 2026 is setting up to be a very constructive year with increasing momentum in the industry and in our business. We talked about an environment of spending for wafer equipment that was roughly $140 billion-plus for this year.
As we come out of the reporting cycle and also just fueled by some of the engagement we've had with customers as we look at the second half of the year, it feels like there's additional momentum there. There's likely upside to that level of spending. That's really across all segments. If you look at what's happening in the leading edge, there's nice broad-based participation at the leading edge. We're really encouraged by that. Process control intensity is higher there, and given the nature of what's happening with high-performance computing, it does drive some unique benefits, we think, to process control and the value of it. On the memory side, of course, we've seen the pricing environment.
I'm feeling a little bit of that as a headwind in our business as it relates to my own computing requirements, but additional spending that's happening there. Advanced packaging feels that it's accelerating.
If you go back to maybe January timeframe, we thought the packaging market might have been somewhere in the sort of plus 20% overall. Now I think it's in excess of 30%. In our business, we see that growing even faster in semiconductor process control. We talked about an environment that gets us to $1 billion.
That's right.
which translates into a high 50% kinda growth rate. Really strength across all three segments. Service business underneath all that continues to move forward. 2027 visibility is very good, and I've been with the company a long time. I've been the CFO here since 2013, and I can't recall this level of visibility into the next year in, you know, the early May timeframe. There are a number of new fabs that are in process from a construction point of view, and those will open up next year. Customers are very focused on making sure that they have equipment deliveries that line up with those construction schedules.
I think that's translating not only into this visibility, but also into orders and backlog and also putting pressure on lead times. We're spending a lot of time working on our own capacity, our supply chain capacity to support what looks like not only what's happening this year, which we think accelerates in the second half for us, but also what's coming in 2027. This quarter, results for market share were published by a third party, happens every year in the April-May timeframe. Within process control, KLA gained about 80 basis points.
Yeah
in market share this year. We have a portfolio approach to this market that I think favors us. I'm sure we'll talk a little bit about that, where we're able to meet our customers' technical needs, but also their economic needs, which vary as they move through sort of maturity and learning cycles on a new node. We're pretty excited about that. 7.5 times our nearest competitor, about 360 basis points over the last, since 2021 or so. Pretty encouraged by what we're seeing in the market, the momentum there around some specific products. At Investor Day, we outlined a 2030 target model of $26 billion in revenue for the company and $84 in earnings.
That was $26 billion ±$2.5 billion at the top line and earnings of $84 ±$8. A path to that with growing KLA wafer equipment intensity, a continuation of what we've seen over the last 5 to 7 years, which we're excited about. If you look at the conditions of high-performance computing as it's a greater percentage of the total, we feel very good about those dynamics driving more relevancy of process control. Our service business, we also uptick that in terms of our long-term-
growth rate of 13% to 15%. You end up with a 15-ish% growth rate for the company against an industry backdrop of 12%. We think we'll outperform the market baseline for our equipment business, for systems business by, you know, 4% to 5% here over the next several years. The financial model continues to hum, and we outlined an environment of opportunity, both in terms of incremental gross margin improvement, a spending profile that's being driven by some dynamics in the industry that allows us to continue to drive scale across our business, and also the leveraging of AI capabilities in terms of how we drive our overall productivity. I'd like to say, you know, one of the best business models in the industry.
gets better, on that trajectory between now and 2030. Maybe I'll just stop there, and we'll go into your questions.
Absolutely. No, appreciate the opening commentary. Why don't we continue from where you left off, which is the Investor Day-15% top line growth CAGR. We'll also talk about, you know, the strong share gains, and WFE and process control growth outperformance, in a minute. You know, at the Investor Day, I think part of what was clear at the Investor Day was that part of the share gain and absolute market leadership is your R&D scale. An aggressive cadence of new product introductions, right? Between 2021 to 2025, you introduced 4.5 times more platforms and programs versus the same period 10 years ago, and average platform or program spend is 70% higher, right? This year, team is set to introduce platforms across all 13 of your product segments.
That's the most in 10 years, right? Give us some examples of the platforms the teams will be bringing to the market across process control, across advanced packaging, and even software and analytics.
Yeah, no, it's interesting, two things are true. The first is we're spending a lot more on development, right? If you look at our programs, we have, we've said before, we have to over 10 major programs, over $100 million in the company. It takes time to develop the capabilities that we bring to the market. At the same time, we have a pace of innovation that's happening in the industry that's allowing us to leverage and optimize the existing platforms that we have. Historically, if you were on a much faster technology cadence, you'd have to spend more to keep up, and you'd have to transition faster. We have a pace in the industry.
It's not exactly the two-year historical Moore's Law cadence, a pace of new innovation that drives the design environment, but also allows us to optimize the capabilities we have. Innovation isn't just scaling. Scaling is a factor, smaller feature sizes, but also transistor architectures and other things like that that are driving new capabilities that drive those designs. We're able to drive, I think, scale on what we do, and we're really able to optimize the platforms we have. That's I think a part of it, and I think it's pretty important part to our view of R&D scale. R&D as a % of revenue likely trends down, part of it being growth.
Right
-we talked about. Product introduction is an important aspect of KLA. It's something that Rick and I spend a lot of time on because we wanna have a prolific sort of product introduction cadence 'cause it allows us to do a few things. I mean, the first thing is that we stay a moving target to our competitors. The second thing is that it allows our salespeople to have more to sell, right? There's always something new that we're actually selling in terms of new capability. Sometimes these introductions are a variant, sometimes it's a new platform, it does vary a little bit in terms of a significant architecture change versus just new capability.
The other thing, particularly in this environment and the environment that we've lived in over the last several years, is it allows us to take a look at cost versus price. As we work with our customers and we deliver a new capability that introduces a cost of ownership improvement over an established baseline, that how much of that improvement do we take?
Yeah
How much of that improvement in the form of higher prices that we transfer to customers is something that we spend some time on. When you're in an environment where you're seeing cost pressure, that introduction allows you to then make those changes. Really hard to go to a customer and say, "You know, I know we've already negotiated on this product, but now I'm gonna go raise the price on that," right?
Right.
It just doesn't work, and in a somewhat consolidated industry, it's very hard to do. It matters a lot for us to introduce this new capability for those reasons. You know, pricing, but also competitive dynamics. It's worked for KLA for a long time, and it's something that we think is an important part of the R&D model, but also the execution to be able to deliver it and ramp it and execute against that new capability and those commitments we're making with our customers.
If we step back for a moment and look at the current industry dynamics, and it's a topic that we've been writing on for the last several years, which is the whole emergence by our semiconductor companies and their customers to focus on bringing more custom silicon ASIC, we call them ASIC solutions, to the market. We have seen a resurgence in advanced ASIC XPU chip designs by all of the cloud and hyperscalers and AI frontier model developers. More than 100 designs and design starts at the 3 nanometer, 2 nm node. These are some of the most advanced, most complex chip designs in the world, and given the large chip sizes of these custom XPUs, different circuit topographies, your foundry customers, I think, have to custom develop special inspection metrology recipes for all of these new ASICs, right?
How significant of a driver is this dynamic to overall sort of foundry process control intensity?
Yeah, you covered a lot there. I think, first of all, the design environment is always good 'cause it introduces change.
Right.
Right? Change is hard for our customers to manage. It's also introducing change of very high-value parts, the predictability of the yield, but also the performance specifications are very important. You wanna be able to deliver to a very tight market window. Obviously, demand is very strong, you don't wanna start too many wafers, you don't wanna start too few. There's a fab efficiency element that comes from trying to manage all those dynamics, process control plays a pretty significant factor in that. The other thing is it occupies the nodes. It drives up the commitment to those designs.
As the next node starts to ramp, the previous node is generally very well utilized. As a result of that, the purchasing for the next node tends to not be able to reuse any of the capacity.
Yeah
or very little of the capacity from the previous node. That tends to be a factor, too. Customers are always trying to optimize their capital efficiency. If they, you know, they have some utilization rates come down in a previous node, they'll try to use some of that capacity. A little harder when you've got a roadmap that's moving. It was easier when the roadmap was fairly stagnant back in the last decade, but that's certainly a factor. Now, if you look at these particular designs, as I said, you, they have some of the challenges of production, right?
Right.
Defect Density is a challenge.
Right.
Right? Where yield, if you have the same number of particles fall into defect, if you have a lot of chips or grade defects, you have a lot of chips on a wafer, versus a few, it has a significant impact on yield. You have that issue, but you also have the value of it. You're willing, as a customer, it's, in some ways it's kind of like insurance. You spend more on insurance if you're insuring something that it's higher value. If you're, if you're producing something, you're gonna spend a lot, but it has a lot of value, you're gonna spend a lot more time, ensuring that that device not only yields but also functions as designed.
Large die benefits KLA in a unique way, and in a way that I don't think really benefits process companies all that much.
Yeah. Mm-hmm.
The size of the chip doesn't matter.
Right.
The capacity matters, you know, big die that drives more capacity matters, the dynamics of large die and how it affects process control and large valuable die is a unique benefit for the company. Designs uniquely challenge us. I don't think really the fact that you're running a lot of designs, a high-mix environment doesn't really change a.
Yeah
opportunity-
Right
When you're exposing the wafer, but matters a lot to process control. These dynamics are I think unique and part of the reason why we see our relevance over the next 5 years continuing to increase.
Yeah. Makes a lot of sense. Let's talk about the WFE spending environment. As you mentioned in your prepared remarks, you know, your WFE outlook for 2026 started off the year at sort of low, mid $130 billion. That was ratcheted up to $135 billion-$140 billion at Investor Day and now to over $140 billion on the recent earnings call. That's three upward revisions in roughly six months, and you even mentioned in your opening remarks, since earnings, you've seen further sort of momentum. When you decompose what's driving each of these upward revisions over the past six months, how would you separate the contribution of the incremental demand? In other words, is it new fab project visibility being solidified? Is it customer pull forward to secure capacity slots ahead of an oversubscribed environment?
Is a lot of it just existing capacity footprints where customers just want to squeeze more yields and output in a supply-constrained environment?
Yeah. I think it's more the former of some of the things you said. I think it's more clarity around what's coming in the second half. As you get, you know, I think firming of schedules, certainly our customers feel demand pressure. They're building below the demand levels that they have. I think as plans are solidifying, we're seeing the pressure to not only the clarity around some of these schedules, but also pressures to kind of pull in. Customers are trying to cadence, you know, all the tools that they're getting to be able to ramp the facility, you always have those dynamics. The momentum is clearly strengthening, right?
I mean, I think 2026 at some point we probably, you know, bump up against a, you know, a limit of what can be done.
Right
Because of fab space, that's one of the reasons why, you know, 2027 conversations are, and visibility is so high. I think it's really a number of those types of factors. The urgency is certainly higher. Everybody wants their tools sooner.
Right.
I'm feeling more and more of that momentum. The other thing is in the packaging world, we're also seeing that accelerate to the point I made earlier, where that tends to be a shorter lead time business.
You're seeing more investment in those plans as well. I would say it's in some ways across the board, but certainly the urgency is higher, and we're spending a lot of time working with our customers to try to say, "Okay, we thought we were good in terms of aligning on their needs and our ability to deliver." We have conversations, they come back and say, "Now you're late 'cause we've changed the plan.
Right.
That's the nature of this industry, but it definitely feels like there's more momentum. It is growing, not stagnating at this point. It's very strong.
We'll get into the mix in terms of, that'll be the next question for us after the second half. Again, you mentioned sort of just even since earnings, you've seen a bit more momentum, continued momentum in the business, and sounds like a incrementally sort of better outlook as you, as you pointed out for the second half of the year. When we think about sort of end market, sort of foundry logic versus memory, is more of the more near-term momentum that you've seen biased one way or the other?
I'd say it's across the board. I mean, one of the challenges we had early on is that it was a pretty quick turn in terms of customer demand starting to accelerate. If I go back to just the fourth quarter of calendar 2025, we weren't anticipating to see the kinda growth that we have in 2026. In about the November timeframe or so, we saw that start to change.
Right.
For our equipment, our lead times, the intrinsic lead times tend to be pretty long and generally around optical components because we're effectively building these high-performance microscopes.
Yeah.
We have to go procure that supply, and it generally takes longer. Now we do a lot of things to try to, you know, hedge it and to reduce our lead time to customers, but there's only so much of that you can do. When you have that quick turn, it does take some time for our business to change. The sequential performance in the first half of the year has been below, I think, what our customers ideally would want.
Right.
We see that starting to improve into the second half, and we've been pretty public about that. I think from a momentum point of view, as we move in the second half, I think the second half is, you know, we'll call it, you know, sort of mid-to-high teens, maybe 20% over the first half.
somewhere in that ballpark. You know, high teens to 20 in that. We think that, you know, we'll see some of that catching up happen. If you go back and look at, you know, the last time in 2020, 2021 timeframe, when the last sort of significant ramp in the industry, during the COVID timeframe, you saw a similar dynamic play out. Now, we think our supply chain is pretty resilient because it tends to be pretty captive to KLA. We sometimes compete within our own product lines for capacity. Our supply relationships, particularly around critical components with long lead times, we tend to have relationships with those customers where they're supplying just us in our space. As we make those commitments and we're investing in 'em, we feel pretty good about their ability to deliver.
As you start to move through an environment where you start to feel the strain.
Yeah
those hedges and things like that you have built into your system start to, the longer it goes, start to feel pressure. I think in the long run, we feel very good about our ability to sustain what looks like a pretty strong 12 to 24 months at a minimum. You know, we'll start to see some of that momentum pick up in a more meaningful way as we move into the second half of the year.
On KLA's mix, high 60% foundry logic, low 30% memory mix, you anticipated for this year. Help us understand sort of first half versus second half foundry versus memory mix and capacity versus technology migration mix within that view.
Yeah. I think if I look at it and can move around a little bit from a revenue recognition point of view, but I think the second half has a little bit more memory. I think there's some timing around certain projects opening in the second half of the year that's influencing some of that. If you look at it overall for the year though.
Memory's growing faster.
Yeah
logic is still, is, you know, I think you're seeing this growth in leading-edge logic, but if you look at other parts of logic, particularly like in China and legacy markets are slower. The inflection is really in the industry is happening in DRAM. I think in the second half you'll see probably DRAM will be a little bit higher than logic, but, you know, you're seeing strong momentum across across all of it. I think that's probably the biggest issue in it. I mean, certainly memory's a slightly higher % this year and.
Yeah
You have a lot of technology migration.
that's happening in memory, and so particularly around conventional memory. That does put a little bit of pressure on process control intensity in that environment, offset by what's happening in high bandwidth memory.
That's right.
is a different animal, if you will, in terms of how customers are investing in, given some of the unique characteristics of High-Bandwidth Memory versus conventional memory. For conventional memory in an upgrade environment, the opportunities for us are more limited. When you move into a more greenfield environment as you're retooling and equipping in a new fab of new capacity, that starts to change. We're seeing with the progression of advanced design rules in conventional memory, but also the growth rates of High-Bandwidth Memory, that creates a higher intensity environment as we move into next year.
Now, in the April earnings call speaking about next year, you articulated a view that the 2027 WFE growth rate should be higher than the growth rate expectations for 2026. To my mind, that's a fairly meaningful statement given, you know, the team typically has been a bit more measured on sort of forward period sort of color, sort of giving it to us historically, right? What specifically gives you the confidence to commit to 2027 growth faster than 2026? Is it specific customer slot commitments? Is it the visibility on the bookings and backlog, greenfield construction program visibility, the breadth of customer engagements, or just a combination of all of the above?
New fabs in logic, new fabs in memory, new fabs in DRAM, but also in flash. Greenfield is part of it and particularly given the nature of the conversations around aligning those schedules with when these facilities come online. I think that's the biggest factor for us. Our customers certainly feel the pressure of the demand environment, and I think even after all that the capacity that's planned in 2027 is still shipping short of where their.
Yeah. Mm-hmm.
demand signals are. That's probably the biggest factor overall. I think I have a higher confidence level in the sustainability of some of the broad-based investment that's happening and also at the leading edge as we move into next year. I'm encouraged by that as well. You're right, it's unusual. We tend to have, you know, I think longer lead time. I'd say, you know, around certain product types, you know, perhaps more visibility. That engagement with customers is pretty high. That gives us the confidence that we'll see that. Our customers are translating, you know, their views of growth that are consistent with that.
You talked about the market share gains in 2025 and, you know, market share statistics were just released by Gartner about a month ago. You gave us a preview of that at Investor Day, some at earnings, some today. In 2025, you know, another strong showing, strong dominant number 1 position in process control. You outgrew the market by 170 basis points, 7.5 times larger versus your number 2 competitor. According to the statistics, number 1 market share position in 7 out of the 10 sub-segments in process control. As you outlined at Investor Day, you know, the team leverages its R&D scale. We talked about the 13 new programs this year, highest in 10 years.
As you outgrow WFE and process control this year, I mean, what are the areas you're anticipating to drive another year of share gains?
Well, certainly in the electron beam world, particularly around the e-beam inspection, we've seen nice share improvement, and we've seen good customer adoption around single-beam solutions and multi-beam solutions.
We're able to leverage in what we call co-intelligence, where we're able to leverage some of that capability to increase the relevancy of our optical inspectors, particularly in production. Where you can use, these are some of our most advanced systems from an AI point of view, and you can use AI to identify hotspots or care areas, some of the terminology we use inside the company, that you can point your inspectors more effectively to look for certain defect signatures and so on. Not only does it drive the point product competitive dynamic, but it also allows us to drive, you know, more relevancy across
Yes
the portfolio. Reticle inspection is an area of opportunity, we saw some gain there as well. That market gets served both in the fab, where you have requalification of reticles.
reticles that are in use. Reticles have defect challenges where you, because you're scanning across the reticles, you're printing devices that if you have a defect, you print onto every one, you know, it's important that either whether it's in the fab, that there's a contamination dynamic, or in the mask shop when you're writing the reticle where process control intensity is very high. There's a number of platforms that serve different parts of that market. When you look at that overall, we saw an increase in overall share, driven mostly by the requal market in terms of where the growth came from. Packaging was another area of share gain. We moved into number one.
position in packaging. One of the things that's happening in packaging is that market is moving towards the need for higher-end, front-end-like solutions, if you look at the integration of packages, particularly for high-performance compute. We've been able to gain traction leveraging our front-end tools. We did a lot of development around the macro inspection products that we're now from a handling and environmental point of view, that we've now been able to leverage across the rest of the portfolio. That engagement, particularly on the logic side, and share improvement has been very high. Memory, I think there's improving momentum. Some of the memory requirements are not as advanced from a technology point of view.
I think that, you know, there's opportunities in memory we're seeing it improve, but it will take longer. Certainly on the logic side, it's starting to inflect. As we move into this year, we're starting to see a higher mix or more advanced systems. That as you start to shrink the design rules and you move into like hybrid bonding type techniques, that drives the need for more advanced capability. I think that there's continued momentum there. Even on the base product that you compete in the market, the tool we won with is down rev to the current tool we're-
Yeah
competing with today. We think that the roadmap is very strong, both in terms of the products that are serving the capacity part of the market, but also those that are optimizing the sampling strategy, leveraging the front-end capability that we've had for some time. Finally, optical inspection continues to be a huge driver in the industry, both Gen 4 and Gen 5. Gen 5 on more advanced, small defect issue and challenges, and then using Gen 4 for Gate-All-Around because of the broadband nature of the architecture allows us to do a lot of buried defect type analysis.
Right
which is a challenge when you start to move into more of a 3D structure environment. We're seeing that in memory, but we're also seeing it in logic as well. Lots of momentum across a number of products. I'd say the only areas where we're challenged is typically where, you know, we have competitors that can serve certain customers, where there's a market access issue.
Yeah
particularly in China as it relates to the geopolitical dynamics and export controls and our ability to compete. Where we compete, we can compete, we feel very good about the position and the momentum moving forward.
Let's talk a little bit more about advanced packaging because this is a new, I would say, SAM expansion opportunity for WFE. Given on the memory side, you've got High-Bandwidth Memory. On the logic and foundry side, you've got the move to these very advanced 2.5D moving to 3.5D, what we call 3D SoIC chip stacking type of technologies. As you mentioned, you know, your total advanced packaging business, process control plus tools, $950 million last year, up 70% year-over-year. This year you actually broke out the process control systems portion of the advanced packaging, growing to $1 billion, like you said, high 50s, 57% year-over-year is the target versus your prior view of 30% growth.
What drove the upside in the growth outlook for this year? Where is KLA, so we get this question a lot, where is KLA over-indexed? Are you over-indexed to HBM? Are you over-indexed to the 2.5D to 3D transition as that happens starting now and for the next kind of few years?
The thing in packaging is that the market has, you know, as I said, has moved in both in terms of some of the processing requirements, but also the lines and space shrink.
Right
the density of the design rules as they've shrinked. It's driven the need for more front-end solutions. If you look at the base macro inspection product that was used in packaging, that market generally segmented around front end was KLA, and then we have some competitors that addressed more of the back-end opportunities. As that market has moved towards front end, naturally it pulled the front-end product. We've seen, particularly in the logic area, has been where most of the share gain has happened. You mentioned some of the new, kind of evolving opportunities.
Yeah
that are also coming with die stack.
Mm-hmm. Mm-hmm.
That will create further opportunities 'cause the sensitivity roadmap is increasing, and so we'll leverage those other tools. What's happening in memory is traditional, you know, bump inspection type opportunities.
Right
which is a less advanced or less complex application. You also have, you know, parts of the market that's been, you know, running really high utilization. The, you know, there's the opportunity to compete. That's also a challenge, too, that, you know, making a change in a high demand environment is not something our customers like to do. We've seen some momentum there, and I think that continues as you start to see the bump dimension shrink, driving more need for more sensitivity or eventually moving to other bonding techniques to stack those die. I never talked about packaging back in, like, 2021 and 2022.
That's right.
We were, like, you know, 50 basis points a market, 100 basis points. You know, now if you look at our share of the overall market, we're, you know, in 2025, I think it was, what, over 6%. 2026, given the growth rates that we were talking about earlier, that probably gets us up into the, you know, above 7%. Our relevancy in that part of the market has changed in a pretty meaningful way, and I think it's one of the factors as we think about the long term is you'll have all these, I think, really good drivers in core WFE-
Yeah
both in memory, but in our logic and in memory. Also you're able to augment this growth with what's happening in the packaging environment. The sampling rates are very high. The last thing a customer wants to do is go through all the integration that goes into integrating one of these very valuable devices, and it doesn't function or doesn't work, and you have to do rework, or you have a performance spec question. Sampling rates, I think, continue to be high, and I don't see that changing all that much moving forward. You'll start to see, as I said, you know, the introduction to drive more optimized sampling strategy of more advanced systems. This year we're going to see even BBP tools adopted in packaging lines.
Wow.
Right, to just give you a sense of.
Mm-hmm, mm-hmm
of the complexity, challenges our customer's facing. Certainly you're gonna see laser scanning tools adopted in a more meaningful way. It's one where the portfolio is hard to compete against. We've established tools, established relationships with customers, established performance over time.
Your services business grew 15% last year with an exit run rate of about 18% year-over-year. You carried that momentum into this year, right? 16% year-over-year growth in the March quarter. As you pointed out at Analyst Day, the team's target is a forward CAGR of sort of 13% to 15% growth. Looking at this year, very, very high customer utilizations. KLA is offering more advanced services, lots of focus on driving as much out of fab as possible through yield improvement, right? Coming into this year, driving above that 13% to 15% CAGR, I mean, does that momentum continue? How should we think about services growth profile for this year?
I think this year we'll be in line with the target. It was slightly above the target last year. I think it was impacted by some billable activity.
closed at the end of 2025 that, you know, caused the number to spike a bit. In line with, you know, we think this 13%-15% that we upticked, and that's despite some of the export control pressure that we had.
Right
where we lost fab access, is a testament to what's happening within service. Our service business is very unique. There's no systems business in it. 80% of the revenue stream is contract. Contract renewal rates are high, in excess of 90%-95%. The lifetime of tools, because they're serving a lot of these markets for long periods of time, we're up in the 20-year plus now lifetime. If you had asked me that question back when I first became CFO at KLA, I would've said, you know, 10 years. You would've said, you know, how much revenue over the lifetime of a tool and service do we drive in the service stream compared to the ASP? I would've said 40%-50% back then. Today, it's in excess of 100%.
We drive more service revenue over the lifetime of the tool than the ASP value of the tool. What's happening in the market today is driving higher service requirements. Availability, one thing about process control is that there's not a lot of redundancy. There's a ton of complexity. Customers can't really service themselves, they run our tools at a much higher uptime generally than what most process tools. Most of the time greater than 90%. We will commit in our service, what we sell to our customers really is availability and performance of the system. Yes, we will change parts, there's a ton of preventative maintenance work that we do.
We're spending a lot of time trying to leverage AI to get more predictive about how we do that because we know we can monetize availability and drive and get consistent performance across the fleet. If you look at what's happening in High-Bandwidth Memory and how memory customers are looking at service, which is starting to change what's happening in packaging, those are opportunities for growth in addition to the things I mentioned earlier. In the acquired companies that we have, right, how do we leverage the infrastructure of the company to drive more service opportunity? Small companies struggle. They get pushed a little bit by customers. They don't have a global infrastructure. They struggle to monetize service. As we acquire companies, put them into our system, that creates an extra element of growth over time.
For all these reasons, we think that not only does the growth rate move at 13%-15%.
Yeah
We also think that the incremental gross margins move above 55% given all the infrastructure investments we've made to support this broadening geo, environment that now exists in our industry.