Applied Materials, Inc. (AMAT) Earnings Call Transcript & Summary

Great. Good afternoon, everybody. Welcome to the 15th Annual Needham Technology and Media Conference. This is day 2. My name is Quinn Bolton. I'm the semiconductor and semiconductor capital equipment analyst for Needham. It's my pleasure to host this fireside chat with the management team of Applied Materials. Participating from the company are Dan Durn, Senior Vice President and CFO; and Michael Sullivan, Corporate Vice President of Investor Relations and Marketing Communications. Just as a reminder for everybody dialed into the webcast, you should see a dialogue box at the bottom of your screen to the extent you would like to submit a question, just enter it into the dialogue box, and we'll try to work those into the fireside chat.

With that, let's get started. Maybe, Dan, I'd like to kind of start discussing the demand environment for WFE and maybe to level set folks. Let's go back to the February time frame where you gave the initial outlook for WFE to grow somewhere between 10% and 15%, I think, with an upward bias towards that 15% level. Discuss for us what you saw in terms of demand from the foundry/logic, the memory and the domestic China segments of the market?

Thanks, Quinn. So if we were to go back in time a quarter, you're right, we're thinking about up 10% to 15% year-over-year, likely to the high end of the range. And as we think about what underpins that, we said strong foundry/logic throughout the year. Memory, would show signs of strength. But the real question framing around the overall strength of the market would depend on what happened in memory in the back half of the year. And I think that framing still holds. Think ultimately how WFE performs against the backdrop of strong foundry/logic through the year will be how memory does in the back half of the calendar year. And then incrementally, we also called out China domestic spend, we said about $6.5 billion of domestic spend in 2019, and we set an expectation for that to be up about $2 billion to $3 billion a quarter ago.

Great. And so fast-forward to earnings last week. I know you guys didn't update or provide a new WFE outlook. But if you looked at the various segments with another 90 days under your belt, how are you now thinking about those 3 segments again across foundry/logic, memory and domestic China?

Yes. Here's what I would say about it. I would say foundry logic continues to show signs of strength throughout the year. And underneath that, what we see is a broadening of the order book, and we've been calling out now for a couple of quarters that the strength we're seeing and we'll see in foundry/logic will be multiple customers, multiple nodes. And you see the broadening of that order book. And you see that continued strength throughout the year. And I'll come back to that in a second from a macro comment standpoint. Then from a memory standpoint, we said balance across device types. If you -- in fact, you were to go back to 2019, the overall size of the market was in line with how we were thinking about it a quarter ago. 2019 was about $51.5 billion WFE, and the split on that was roughly 60% memory -- I mean, I'm sorry, 60% foundry/logic, 40% memory. With balance across both device types and memory. So think of the construct of the market of 60, 2020 and 2019. And what we said this year is we expect the proportion of the spend to be roughly similar. And then ultimately, how the overall market plays out, depends on what happens to memory in the back half of the year. I think that construct still holds so we'll watch it. What we saw in 2019 with that level of spend was investment of our -- by our customers in technology road maps. And we actually saw wafer starts per month coming out of the industry. So it's a healthy level of spend, but wafer starts per month actually came out. And I think the question in the back half of the year for everybody in the memory market is, we will still see investments in the technology road maps because, ultimately, that's their cost structure. So when the market recovers, they'll be able to drive margins and cash flow if they continue to optimize their cost structure, cost per bit. So we see the technology road maps progressing. The big question and swing factor is will they let wafer starts per month for the second year in a row come down in each market. Will they invest a little bit of incremental greenfield to keep wafer starts per month flat? Or incrementally more investments to maybe bring wafer starts per month up a little bit. I think there's a question mark today on exactly how they're going to dial in the capacity statement based on that setup, which creates the swing factor in the back half of the year, but we'll watch it closely. Then as it relates to China, recently, one of the larger Chinese market participants came out and upped their CapEx number. We initially said $2 billion to $3 billion of incremental spend in China domestic market. And now we're at the top end of that range based on that customer coming forward. We had visibility that, that announcement was coming at some point. Now that it's out there, we'll take investors to the top end of the $2 billion to $3 billion range. We also set up a framework of how to think about the profile of that spend, incremental $2 billion to $3 billion, 1/3 of it, 200-millimeter spend, 2/3 of the 300-millimeter spend and in that 300-millimeter spend balance between foundry/logic and memory and within memory balance across those device types. It gives you a rough framing of what we saw in that incremental spend about a quarter ago. And so what I would say with the move to the top end of the range, just dial up the 300-millimeter trailing node foundry logic spend incrementally more, and that gives you a good sense of the rough profile across the different end markets. So that's the best indication of what we see today. From a macro standpoint, there's certainly a push and pull in the market. From a macro standpoint, you see things like foundry/logic, specialty nodes are showing some incremental softness versus where we were a quarter ago. Not surprising, given what we know is going on with automotive and industrial travel leisure, those types of things. There's some softness from a macro standpoint. We talked about the swing factor. And we see that profiling into the spend still strength of the leading edge from foundry/logic. But we see a little softening on the margin in the long tail of specialty nodes, doesn't change our overall outlook. But I want to recognize that given what we see from a macro standpoint, we see a little bit of that profile and from a customer demand into the automotive and industrial segment.

And coming back to the memory comments, is it sort of right to assume that the baseline is that the investment into the second half will largely be node conversions, and the swing factor will be around whether or not they start to add wafer start capacity. And that's -- obviously, we'll just have to watch that capacity factor. But no conversions seem fairly likely to occur.

I think that's exactly right. I think you've got that framing exactly right, Quinn. The customers will continue to pursue the technology road maps similar to what they did last year. And then like you said, the swing factor is how they dial in the capacity to make sure that they've got the right level of bit growth based on the things they're seeing in the market from a demand standpoint. And they've got options. They can let wafer starts per month float down again as you pursue more leading-edge node profile in memory. It's more process intensive and you'll lose wafers out of the factory as you add those incremental capabilities. Then what you would do in a normal environment is add back incremental greenfield capacity to make sure the output out of the factory is either on par with what it was before or even at a greater level to make sure your bit supply growth is dialed in to how you're seeing the market develop. And I think it's premature given where we sit today early in the calendar year to think about sort of what that ultimately looks like in the back part of the calendar year. I think we've got more visibility in our fiscal Q3 and Q4. But certainly, calendar Q4 which is our fiscal Q1 is beyond the horizon of visibility right now. And so I think we've got the right framing in place. Now we'll just continue to monitor it, and share with investors what we see each quarter on our earnings calls.

Great. And as you monitor kind of the demand environment, are there key metrics that you watch, whether it's DRAM or NAND, pricing or fab utilization rates, inventory levels, order lead times push out to cancellations. What are some of the key metrics folks should be looking for to determine where demand may be headed?

So I think you mentioned a lot of the really important ones, and in a normal market, those would be where you would go. You'd watch what was happening with inventory, both at our customers and our customers' customers, throughout the entire value chain. Then you watch the pricing markets closely and to see what lead indicators are showing you in terms of strength or softness. And then we'll always stay close to our customers and have a longer-term horizon and a short term, what they're really thinking from a demand standpoint. It's not a perfect science, but it gives you a good sense of where the market is going. In this environment, I think there's an added dimension that will influence ultimately how the market develops in the back part of the year. There's an element of what our customers will do. We talked a little bit about that. Then there's an element of how healthy the supply chain becomes and what that trend and trajectory looks like off of where we were in the beginning of the year when we've had concurrent shutdowns in both the Bay Area, Malaysia, and governments around the globe, putting some pretty strong containment initiatives in place, and then that certainly impacts the state of the supply chain where we sit today. And then on the most recent earnings call, I mapped out how that will progress throughout the rest of our fiscal year and back half of the calendar year. And I think it's the interplay between what the customers do and how the supply chain trends over time that are going to come together would determine ultimately what we see in the back half of the year from WFE standpoint.

Great. Before we get into some of the supply chain impacts, which I'm sure you are intimately familiar with leading the company to response. Obviously, export control is going to be -- has been a hot topic over the last couple of weeks. And we'll dive into some of those questions in more detail in a little bit. But just big picture thoughts on what you know today, do you see any significant disruption or impact on WFE demand from the actions for China military end-use end user and the Hisilicon action from last Friday?

Yes. Thanks, Quinn. So I've been staying close to the policy team that we have in D.C. I'll try to help you with that. The team has been working with a number of third parties. They're trying to clarify the rules. And for our part, assess if any of those are going to present any implications for us in terms of our business. The -- after looking at everything very closely, talking to a lot of people, the short answer is no. We -- at this point, we don't see anything that's going on in the policy environment that's changing our equipment market outlook to this year.

Great. Okay. And we'll come back with a couple of additional questions a little bit later. But let's come back to the supply chain impacts. And obviously, lots going on in terms of shelter-in-place orders, movement control in Malaysia, in the Philippines. Can you just sort of walk through what the impacts you've seen in the supply chain are from those actions? How it impacted your operations? How it impacted the supply chains? And then any effect on freight and shipping?

Sure. So I want to emphasize what happened probably about 6 weeks to go -- 6, 7 weeks to go in our quarter with the concurrent shutdown in the Bay Area, and Malaysia shelter in place, a material part of our supply chain, either directly or indirectly goes through those 2 geographies. And so it was a significant disruption, and it was against the backdrop, we all knew that foundry/logic was flashing and hot in the early part of the year, continues to be strong throughout the year, but it was a very, very strong ramp. So your supply chain was flat out. I'll use the analogy going from red line to 0 in the course of 1 day, and it was really that dramatic. And then you can see the actions that we started to take as a company to mitigate that. Some of it from our own internal footprint, we can spend more time talking about it, if you want, were actually taken before that shelter-in-place order was made so that we could control what we are able to control and make us more resilient to deal with the unexpected issues from a supply chain standpoint. And what we got is red line to 0 overnight. And I would break it up into 3 categories when you think about returning to health. There is our suppliers being allowed to return to operations, increasing staffing levels and getting back to pre-COVID levels of output. That's the first set of issues. Second set of issues will be how quickly they can make up for lost volumes. And then the last set of issues, like you pointed out, would be the logistics side of the house, once the material is made, once the components and modules are made, how do you get them from point A to point B. So that's an element of making sure we can service customers. And so what we see is a very strong response by the supply chain, we work with governments around the globe and our suppliers who got semiconductor industry, play a role in getting the semiconductor industry designated as critical infrastructure. So that's the authorization for our supply chain to open up their doors, get their factories back online. And we saw incremental improvements throughout our most recent fiscal quarter, fiscal Q2, and what we said is we expect the vast majority of our suppliers to be back to full staffing levels and pre-COVID levels of output exiting the current fiscal quarter, fiscal Q3. That's the best we can see today. We'll obviously monitor it and update that status on our earnings call a quarter from now. But we do expect to have a disproportionate share of that staffing and output disruption behind us exiting the current quarter. The second set of issues making up for lost volumes, we see that being a 2-quarter event. We see it being our fiscal Q4 and our fiscal Q1. And so call it, the back half of the calendar year, I think you see our supply chain getting to a level of health where they can not only deal with the near-term robust environment that we currently are planning for, but also making up for the volumes that didn't get ship in the first part of the year, as a result of the containment initiatives, the containment actions governments around the globe took. So we see that being a back half of calendar year dynamic. And then the third of the 3 issues, which is the logistics. There's a correlation between the logistics channels and commercial airline capacity. Anything short -- not anything, most things short of a full system will go in the belly of commercial aircraft. And it's been a great efficient way to get things around the globe, parts to our customers on a timely basis. Given the capacity that's come out of the system, we've had to pivot all of that traffic now to alternative freight and logistics channels, and there's incremental costs associated with that. And so that being correlated to commercial airline industry. I don't see that recovering anytime soon. And so I would characterize it as those alternative freight logistics channels will be flex for the foreseeable future, which means there'll be an economic headwind for us as we drive to satisfy and serve our customers. It's cost of doing business in this environment, but it's the right thing to do, even if it creates an incremental economic headwind for us.

And Dan, on that point with the freight, is there any -- can you quantify what that additional cost of moving from belly freight to full-blown logistic services? Is that a 50 basis point kind of headwind on margins? Is there any way to quantify what that headwind may be for several quarters?

So I would say it's probably with us. And again, I'm not an expert on the commercial airline industry. But I think it's with us for the better part of the rest of this year and probably the better part of 2021. This is going to be with us for the foreseeable future. Quantifying it, I won't be point specific, but I laid out some data points to help triangulate. We talked about actions, we took to risk mitigate things like cycle times and throughputs in our factories. We saw supply chain in a really tough environment where the suppliers were pushed pretty hard to meet the ramp that was in place and anything that disrupted that, from a timing standpoint, means that availability of parts would slide to the right and create a chokepoint in our factories. We did some pretty aggressive contingency planning and scenario planning work very quickly after we stood up our business continuity team in mid-January. And I think it was the first week of February, we were making the decision to put surge capacity in place from a labor standpoint, beginning to map out what it would look like to reprofile and shift optimize within the factories, space optimization, repurposing of space and beginning to think about what an incentive package would look like in an environment to keep things moving quickly. All important components of driving it. And that -- those set of actions have margin impact as well. So the margin impact in this environment really has 2 components that will be with us for a while. I would imagine we would keep that surge capacity in place. And I imagine that the logistics costs will be with us for the foreseeable future. And without being point specific, I would say that you referenced 50 basis points, just logistics is higher than that. And I can say that confidently. Then what -- the best way to look at this is we gave a favorable segment mix profile into the current quarter we're in. We said we expect the semi systems business to be up high single digits. We expected services and display to be flat to up incrementally. I forget the exact characterization, that's a favorable segment mix. You would expect to see gross margin accretion against that segment mix when we said flat. It's our best guess today, managing all these different dynamics, how we're able to offset the things we can offset, but we still have headwinds that we're dealing with. It's the cost of operating in this environment. If we want to try to service our customers in an aggressive way as possible, given the environment we find ourselves in. And that gives a sense of maybe, depending on what you assume for the different reporting segments, how gross margins would normally profile into that environment, what the impact is, but the logistics alone is -- can't fill up more than 50%.

Okay. And my last question, just sort of on the supply chain or production side, what do you see that the greatest risks of your manufacturing output getting back to effectively pre-COVID levels by the end of the quarter? Is that just some of these logistics issues? Is it a worker on one of your manufacturing shifts comes down with COVID, then you have to guarantee the entire shift for a period of time? What do you see as the biggest challenges to the supply chain ramping back up towards pre-COVID covered levels?

So I think what I would do is I'd break it into 2 buckets. There's our footprint and then there's the supply chain that needs to respond to the demand signal. We talked a little bit about the actions we as a company took based on contingency plans, understanding points of risk and trying to mitigate those risks before they became an impediment to how we operate. The shift to optimization, the space optimization, the incremental incentive package we put in place, all done with an eye towards employee safety. And the company has done a really good job of managing the employee safety aspect of this to create a safe environment where people feel comfortable to come in and we can control the things that we can control. So the track record there is good. And I feel good about the action we as a company have taken with prioritizing employee safety. As I think about risk going forward, history doesn't always predict the future. Do we have an outbreak in one of our factories? That is certainly a risk. We will be very aggressive about taking actions to contain and protect. We've already had a regimen in place of enhanced cleaning and protective measures for our employees. We would redouble those efforts, but we would definitely -- that would definitely have an impact. So we are very aggressive with no compromise on that aspect because we understand what the implications are if something like that were to happen. So that is an element on the manufacturing side. From a supply chain standpoint, it is an assumption around how quickly we get back to pre-COVID levels of output. I gave you a generalized time line based on everything we see, how we've discounted it. And then it's how quickly they make up for lost volumes. So it's taking that pre-COVID level of output and continuing to push the capacity of the supply chain to stretch above those levels so that not only we can make the current period demand but begin to make up for lost volumes. And there's a set of assumptions around what that trend line looks like, what that slope looks like, and we gave you our best guess. And so from a supply chain standpoint, I would say those are the 2 elements that will likely impact what we do in the next several quarters in addition to our own manufacturer. The logistics side, well, incremental expense. And there's some delays in timing what used to take 3 days, now takes 5, what used to take 5 now takes 7. You've got delays like that in the system, but we can still get things from point A to point B at the right price and over the right time frame. So that is still working, even if it's not as efficient as it once was. So I'm not going to include that. Assuming we don't have any significant disruptions, expected disruptions, I won't include that in a likely influencer of at least output and volume to our customers in the next several quarters.

Great. My last sort of question on sort of demand and supply. You talked about $650 million of Semiconductor Systems being unmet in the April quarter, and you won't be back to sort of -- the supply chain won't be back until normal levels until the end of this fiscal third quarter. Do you think you can chip away at any of that $650 million of unmet demand in the fiscal third quarter? Is there a scenario where that unmet demand may actually grow due to supply constraints in fiscal Q3 before you can start to meet it in Q4 and Q1 of next year?

So there's always going to be an element of how quickly what the slope line looks like of our suppliers getting healthy in Q3. And it is against the backdrop of strong demand, not only record backlog at our semi-related businesses, semi systems and AGS, record backlog entering Q3, but we also saw from that semi-related business, record orders in Q2. So the demand environment is robust in addition to just having a strong backlog. And it's hard at this point to say whether or not we start eating into that or whether we accumulate a little more. Time will tell, and it's going to be a function around the slope of the recovery of staffing and output levels. And I just can't predict that with precision today, even though we gave some broad contours from a timing standpoint of how we think about that profiling over the next 2 to 3 quarters. And so we'll just leave it as the broad contours from now. We'll will drive it in a very granular way. If there's an opportunity to begin to make up those lost volumes, we're going to drive it really hard and try to capture as much as possible, with an eye on employee safety and supplier safety. We won't compromise safety, but if there's an opportunity to push even harder on the gas pedal and begin to make that up in Q2 -- I'm sorry, fiscal Q3, we certainly will.

Great. We've had a number of questions coming in on export controls, and so maybe we can shift the conversation over to the export control side. And before we address the 2 specific commerce department actions. Can you give us a sense today for the China business, do you need licenses to ship systems to China? Or is most of the business conducted without the need for a license today?

Yes, it's a good question. So we've been doing business in China for over 30 years, and there have been times where we've needed licenses to ship specific types of products. If we look back at what's happened in the past several years, those requirements, they've been less and less in the current environment. I think it's pretty clear that there's a chance that the requirements are going to be growing. But for our part, we've got a strong team that works on this. They're very experienced. A lot of people have been with us for a long time. So they know how to go about this. And as I said earlier, we think we're going to be able to stay in compliance with the rules.

Okay. Great. Maybe addressing the first action from a couple of weeks ago in military end use end users, does that appear to place additional license requirements on the company? Can you ship if the customer certified that the equipment won't be used military end applications?

Yes. So yes, let me -- I'll address it completely by reiterating what Gary said because we just had our earnings call on Thursday. So first of all, stepping back and looking at the big picture, what's important is that we put a lot of resources into research and development. We spent a couple of billion dollars every year and to drive the innovation out to our customers. So what we really want to see no matter what is free and fair trade, including IP protection around the world. So that's first and foremost. Regarding the new rules on military end use, what we're doing is we're working very closely with the U.S. Government with the trade associations that we have and we also have our own advisers. We have a very strong team, we believe. And what we're doing is better defining what those requirements are for the industry, and that will help us make sure that we understand what it is that our company is going to need to do to be able to comply with the regulations. So based on all of this due diligence, Gary said on Thursday that we expect that we're going to be able to meet the government standards by the end of June, that's when the rules are effective without significant disruptions to our business. A few days have gone by since, and what I would say is that in talking with the team with each day that goes by, we feel even more comfortable with that assessment.

Okay. One other thing, Gary said about the -- I think the China military end-user user was that you had the ability to, I think, flex its global operations footprint, which I think has raised some questions whether if you manufacture a system in Singapore, if that carries different or no license requirements than if you manufacture a system in Austin. Is the location of manufacture important in this decision in terms of the implications on getting a license?

Yes, not necessarily. So what Gary actually talked about were contingencies that we could implement if we needed to. But -- and it's true. Our manufacturing network, it's very diverse. It's got a very high degree of fungibility, but that's really not the point that we're trying to make here. The point that we're making is that we think we're going to be able to meet the government standards when the rules do come into effect. And that is without availing ourselves those kinds of contingencies.

Got it. And then moving on to the second action from last Friday with the commerce department, specifically targeting Huawei designed ASICs manufactured by the various foundries. My understanding is that, that puts the burden of a license actually on the foundries themselves rather than the equipment suppliers. And I'm wondering, first, is that also your impression of how that language is written? Or does it potentially add new license requirements for the equipment companies?

No, you're right. You spelled it out just right.

Okay. Great. And so if there's no new license requirements for Applied Materials, do you think that the ban on Hisilicon and Huawei, sort of same question, does it disrupt your business going forward? Or do you think there is little impact on your business?

No. That ruling, it doesn't have any new requirements placed on us at all.

Okay. And then I guess sort of my last question. In 2018, the commerce department had passed the Export Control Reform Act that I believe, mandated that the Bureau of Industry and Security to look at license controls around emerging and foundational technologies. I know that, that was passed some time ago. But have you seen anything new on that front about export control around emerging and foundational technologies?

Yes. No, that's a good question. I kind of remember that, but we haven't heard about anything on that for a long time. So we've been talking to the team. So it doesn't sound like there's anything there in the near term. But -- and then in terms of the back part of your question, I think it's pretty premature to try to speculate on that.

Okay. Great. Kind of moving to the Kokusai Electric acquisition. Obviously, the last remaining approval you need is from China, we've just gone through the COVID outbreak. Can you give us any updates? Did the outbreak of COVID delay or interfere with your sort of discussions with China regulatory bodies on that transaction? And I guess, do you anticipate potentially that transaction potentially being delayed because of the tightened U.S.-China tensions over the past couple of weeks?

So here's what I would say about it. We announced the transaction on July 1, 2019. At the time we announced the transaction, we set an expectation around timing that 12 months from the date of announcement -- approximately 12 months from the date of announcement. And there's no change. We're still working towards that time line. We feel good about the progress we've made. This is a transaction that is good for customers, accelerate their road maps. We've seen broad support across the customer base. We've got 5 of the 6 geographies -- approval in 5 of the 6 geographies. So we feel really good about that progress. And you pointed out, we've got 1 final geography remaining, it's China. COVID has delayed lots of things around the globe. But we're still working towards our original time line. We're engaged constructively with the Chinese regulatory authority. We feel good about the progress to date. We'll continue to drive it. And we're optimistic around the original time line that we laid out, and we'll just continue to update over time.

Okay. Great. A couple of questions coming in from the web. One, how do you reconcile the outlook for display to be up sequentially through the year? And certainly a strong fourth fiscal quarter when there's certainly evidence that there are delays and cancellations on the CapEx side from some of the larger display companies?

So anytime we put an expectation out in the market, we'll always go through that forecasting process, you see things that customers advertise conversations with them. You always derisk things based on certain factors you see. And you put a target out in the market that you hope stands the test of time. And I would say we see that out -- playing out this year based on everything we're see today. We've been saying for several quarters. We expect revenue this year to be similar to what we saw in 2019. So we'll get nearly back to those levels, won't be the exact number, but we'll be in that ZIP code. And based on the profile we saw at the time, we always knew it was going to be a back half loaded year. In our fiscal Q2, the natural demand statement would have been about $100 million more than what we guided to in that business. We guided to $310 million and there was a larger natural demand statement, and we derisked that guide by about $100 million. That gives you a sense of what we saw from an end market demand standpoint. Wuhan is an important city from a display factory standpoint. And given the strong containment efforts driven by China in the quarter, we were able to recover half of that de-risking intra-quarter. There's always been a big statement from a demand standpoint in the back part of the year. That's held steady. We said flat to up slightly in their fiscal Q3. You go through the math, and you would see a big move in -- sequentially into Q4. We see that math holding based on everything we see in the market, and it's consistent with how we saw the year unfolding even a couple of quarters ago. So we feel good about the setup. And there's always that derisking part that goes into putting those forecasts out there. If customers do follow through, then there's upside to the forecast. But it's all based on the expectations that went into our original forecast. And today, we see that holding, and we would expect to do better in Q4 versus what we guided to in Q3, such that you get to nearly the same level of revenue on a year-over-year basis.

Great. And I know we're running up against our allotted time, but maybe the last question from the web. Do you feel that customers may have over ordered equipment? And I assume that this is kind of a China specific question. But have they potentially over ordered equipment due to concerns around trade restrictions? And you had mentioned SMIC recently, raising CapEx by $1.2 billion, and that led to your more optimistic outlook for China domestic. But I guess, do you think any of that could be over ordering or just pulling in of demand?

We don't see it. We don't see it in the conversations, and we don't see it in the numbers. We've been saying for a while. We see slow steady ecosystem development in China. You see investments in technology road maps, building out the ecosystem. We've been saying for several quarters now, $2 billion to $3 billion of incremental spend. We're at the high end of that range, but there's no change to that demand profile. And what constitutes the $2 billion to $3 billion range is an expectation that we would have seen in an announcement like this from SMIC. We don't want to be the ones to advertise that on behalf of the customer. So you put a range around your expectations to account for it, that has now been announced by the customer. So we went to the high end of the range. So all of that's holding. And then if you think about the profile of that spend, split up between 200-millimeter trailing node foundry/logic, 300-millimeter balanced between foundry/logic and memory. And then within memory, balanced by device type, there's an incredible amount of balance that goes into that spend profile. And if you think about the incremental spend represented by each of those buckets, and what it costs to build a 300-millimeter, 100,000 wafer start a month leading factory or 100,000 wafer start a month memory factory. The incremental capacity adds represented by each of those buckets of spend, ties very closely with what we've been saying for a very long time about the development of the ecosystem. And so it's slow, steady, disciplined investments in the ecosystem, technology road maps and where they're seeing success from a technology road map backing up with incremental capacity adds. We don't see hockey sticks of capacity, and we don't see a slide forward of multiyear plans playing out. It's not like we see a customer who had a plan to add capacity 18 months from now, all of a sudden say, you know what, I need all of that supply, all of that equipment in the current quarter. We just don't see it in the conversations, and we don't see it in the behavior patterns, economic behavior patterns of our customers. And so I understand the question. We just don't see.

Great. Well, with that, I think we're out of time. So Dan and Michael, thank you very much for joining us, and wish you and all the employees of Applied Materials continued health and look forward to catching up again soon.

That's great, Quinn. Thanks for the opportunity to participate and same to you and your team. Thank you.

Thanks, Quinn.