Lam Research Corporation (LRCX) Earnings Call Transcript & Summary

Good day, and welcome to the Lam Research Corporation June '26 Earnings Conference Call [Operator Instructions] . Please note this event is being recorded. I would now like to turn the conference over to Ram Ganesh, Vice President of Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to the Lam Research quarterly earnings conference call. With me today are Tim Archer, President and Chief Executive Officer; and Doug Bettinger, Executive Vice President and Chief Financial Officer. During today's call, we will share our overview on the business environment and we'll review our financial results for the June 2026 quarter and our outlook for the September 2026 quarter. The press release detailing our financial results was distributed a little after 1:00 p.m. Pacific Time. The release and the accompanying presentation slides for today can be found on the Investors section of the company's website. Today's presentation and Q&A include forward-looking statements based on our current beliefs, expectations and assumptions. These statements are subject to risks and uncertainties, and actual results could differ materially from those expressed or implied in such statements. For a discussion of factors that could cause actual results to differ materially, please refer to the risk factors in our most recently filed periodic reports on Form 10-K and Form 10-Q and subsequent filings with the SEC and the cautionary statement in the accompanying presentation slides. Today's discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. A detailed reconciliation between GAAP and non-GAAP results can be found in the accompanying presentation slides. This call is scheduled to last until 3:00 p.m. Pacific Time. A replay of this call will be made available later this afternoon on our website. And with that, I'll hand the call over to Tim.

Thanks, Ram. In the June quarter, Lam delivered record revenue, operating margin and earnings per share. Sequential top line growth was led by a doubling of NAND revenue from the prior quarter underscoring the growing importance of storage to AI system performance. Our customer support business group also posted strong revenue growth driven by robust demand for upgrades Reliant and Equipment Intelligence enabled services. As we enter the second half of the year, we expect calendar 2026 wafer fab equipment spending or WFE to be in the low $150 billion range up from our prior outlook of $140 billion with upside bias. Against this backdrop of rising demand, Lam's momentum is strong. Our $8.1 billion September quarter revenue guide represents more than 20% growth quarter-on-quarter. And we see 2026 shaping up to be our third consecutive year of relative outperformance to WFE. Looking into 2027, we see an extraordinary setup for WFE growth. AI is driving record revenue and profitability for our customers who have signaled unprecedented long-term demand visibility. They've also announced multiyear time lines for new fab projects and are working with us to secure equipment orders to fill the incremental clean room space as it comes online. Spending on capacity is occurring alongside investments in technology transitions that are creating structural opportunities for Lam to outgrow WFE. As a driver of industry investment, we are seeing AI progress through distinct waves from training to inference to agentic and now increasingly physical AI. Each wave is building on what came before, creating new AI use cases, greater demand and new performance requirements. We're seeing the impact of this progression notably in NAND, where expanding context windows and persistent memory requirements are driving significantly higher demand for flash storage. In response, customers are in the near term, adding bit supply and improving device capability through installed base conversions to 200-plus layer architectures. As layer counts rise and manufacturing complexity grows, so does our opportunity. We expect Lam's served available market or SAM per wafer in NAND to double from the 128-layer node to 500-plus layer devices. AI is also reshaping the technology requirements in advanced foundry logic and DRAM. Gate-all-around, CFET, HBM, 4F² and panel-level advanced packaging, all featured prominently in the current and future AI device road maps. Through these transitions, increasing deposition and etch intensity remains the common thread. Higher aspect ratio structures, more complex 3D architectures, smaller pitch patterning and new materials integration are all areas where Lam is a leader. We see the benefit of this technology acceleration in our expanding SAM, and we are moving towards our target of high 30s SAM as a percentage of WFE faster than what we had outlined at our 2025 Investor Day. Let me highlight a few examples that illustrate why we're excited about what's ahead for Lam. Starting with conductor etch. Lam is the industry leader with an installed base of more than 40,000 chambers worldwide. With our latest platform, Akara, we are further strengthening our position. Akara combines unique direct drive plasma technology with industry-leading high aspect ratio patterning capabilities. first adopted for 2-nanometer and below gate-all-around architectures and foundry logic, Akara is now gaining momentum in advanced DRAM. We have secured several strategic tool of record positions, including recent wins for the most challenging gate etch applications. Since its launch, Akara's installed base has doubled every year, and we expect that growth trajectory to continue in 2027. DRAM pitch scaling is also driving higher interconnect density and wiring complexity. Shrinking dimensions place increasing demands on pattern fidelity, RC performance and reliability, driving adoption of advanced hard masks, etch stops and diffusion barriers. We previously addressed these patterning challenges in foundry logic and are now extending those capabilities and our production proven technologies into DRAM. For example, DRAM customers are adopting our VECTOR hard mask deposition platform for low-k film patterning. By co-optimizing the hard mask film properties with our conductor etch process we have shown we can deliver improved transistor performance and better yield. Lam's co-optimized solution also offers over 20% cost savings to customers compared to traditional approaches. Similarly, DRAM customers are increasingly adopting our VECTOR diffusion barrier systems to meet next-generation requirements. Our modular architecture combines interface cleaning etch stop enhancement and hermetic protection to prevent shorting at tighter pitches and reduce capacitance by approximately 5% versus competing technologies. As devices scale, surface engineering becomes increasingly important for reducing defectivity and variability. In the transition from FinFET to gate-all-around, the number of applications requiring surface treatment roughly doubles. Our Argos selective etch system uniquely addresses this need. By leveraging proprietary plasma technology, Argos creates a radical-rich environment that enables highly selective surface treatment with minimal substrate damage. As a result, we are winning leading-edge foundry logic customers at 2-nanometer and below and expanding Argos into a growing set of DRAM applications. Turning to advanced packaging. As an industry leader in TSV etch and electroplating, we are on track to deliver greater than 70% year-on-year growth. The long-term opportunity is even more compelling as AI performance will increasingly depend less on transistor density scaling and instead on integrating more chiplets, more HBM stacks and greater memory bandwidth within a single package. We expect each successive generation of advanced packaging to require more redistribution layers, denser copper interconnects, taller mega pillar structures and increasingly complex power delivery networks. We also see future AI packages exceeding 9x the reticle size, roughly 3 times larger than today's mainstream designs. This is driving the industry to look beyond traditional wafer-based architectures, toward larger format panel level packaging approaches. Panels enable the creation of larger AI packages but they also introduce new challenges to maintain deposition uniformity, material properties, defect control and yield across the larger panel area. By leveraging technology and learning from our wafer-based SABRE 3D and advanced wet processing platforms, we have shipped 510x515-millimeter panel systems into development programs across multiple geographies. And this year, we will also ship our first 310x310-millimeter panel tool putting us at the leading edge of this important packaging transition. In CSBG, customers are increasingly leveraging Lam's equipment intelligence and fab automation solutions to help increase capacity as they race to meet growing AI demand. Lam's Dextro cobots, the industry's first collaborative maintenance robots are seeing rapid adoption. The precision and repeatability of automated maintenance is leading to improved first-time right recovery, higher tool availability and increased output, all critical at a time of industry-wide supply shortages. We are accelerating Dextro application development. And since the start of 2026 have doubled the number of preventative maintenance tasks that can be automated. Importantly, many of the Equipment Intelligence and Dextro solutions initially proven out for NAND are now expanding into DRAM, creating additional service revenue opportunities in the second half of the year. Overall, we are still in the very early stages of a multiyear rollout of these offerings across our installed base. So to sum up, this is an exciting time for the industry and for Lam, AI is driving unprecedented demand, greater technical requirements and accelerated architectural scaling at both the device and packaging level. These trends all point to more opportunities for Lam. With our etch and deposition technology leadership, our close customer partnerships and our increasing operational velocity, we believe we are well positioned to outperform this year and in the years ahead. Thank you, and here's Doug.

Excellent. Thank you, Tim. Good afternoon, everyone, and thank you for joining our call today during what I know is a very busy earnings season. We were pleased with our continued strong execution in the June quarter, resulting in our fourth consecutive quarter of record revenue, our highest quarterly gross margin in 20 years, record operating margin and record earnings per share. We just finished fiscal year 2026, and we had record revenue of $23.2 billion and gross margin of 50.6%. Our diluted earnings per share in fiscal year 2026 was also a record, coming in at $5.82, which was up 41% from fiscal year 2025. We're ahead of the profitability objectives we discussed at our 2025 Investor Day, delivered through robust top line growth and strong operational execution. Let's look at the details of our June quarter financial results. Our revenue was above the midpoint of guidance. With gross margin, operating margin and earnings per share all exceeded the high end of our guided range. Revenue for the June quarter was $6.72 billion, which was up 15% sequentially and up 30% from the same period in 2025. Our deferred revenue balance at quarter end was $2.43 billion, which was an increase of $213 million from the March quarter. The increase was driven by a variety of factors, the largest of which was customer downpayments. From a market segment perspective, June quarter systems revenue in Memory was 46%, an increase from 39% in the prior quarter. On a dollar basis, this represented a record level for us in total Memory. Within Memory, non-volatile memory accounted for 23% of our systems revenue, which was up from the March quarter level of 12%. NAND revenue dollars more than doubled sequentially as the industry focuses on conversions to 256-layer and above-class devices, primarily enabling enterprise SSDs. DRAM remained strong, representing 23% of systems revenue compared to 27% in the March quarter. On a dollar basis, DRAM revenue was flattish with the record level we set in the March quarter. DRAM spending remained directed towards wafer additions and technology upgrades across 1-alpha, 1-beta and 1-gamma nodes enabling DDR5, LPDDR5 and high-bandwidth memory. Foundry represented 44% of our systems revenue, down from the percentage concentration in the March quarter of 54%. Mature node spending with our customers in China was down sequentially. This was largely offset by strength in leading-edge process node investments in 2- and 3-nanometer capability, as well as advanced packaging. And finally, Logic/Other were 10% of our systems revenue in the June quarter, which was up from the prior quarter level of 7%. Let me now discuss the regional composition of our total revenue. The Taiwan region contributed 27% of revenue, up from the March quarter at 23%. Taiwan represented a new record level for us in dollar terms. China declined as we expected it would and accounted for 26% of revenue. I'll just remind you that China was 34% of revenue last quarter. I would mention that within China, the global multinational customers grew sequentially, while the domestic customer base declined. Our next largest geographic region was Korea at 20% of revenue in the June quarter, down a little bit from the March quarter level of 23%. The customer support business group generated a third consecutive quarter of record revenue at nearly $2.5 billion in the June quarter, which was up 17% sequentially from March quarter and 43% higher than the same period in 2025. Sequentially, the increase was primarily due to record upgrade revenue. We also saw smaller increases in Reliant and services. Spare part purchases remained consistent with their strong level from the March quarter. Let's look at the gross margin performance. The June quarter came in at 52%, exceeding the upper end of our guidance range and improving from the March quarter level of 49.9%. Gross margin was stronger due to a myriad of factors, including pricing actions, operational and scale efficiencies as well as a favorable product mix. Operating expenses in the June quarter were $916 million, up from the prior quarter amount of $866 million. The increase was mainly due to employee-related spending associated with higher headcount and variable compensation expense as a result of our improving profitability. R&D accounted for 67% of our total operating expenses. We are funding incremental product spending that should enhance the breadth and competitiveness of our future portfolio. Operating margin for the June quarter was 38.4%, also exceeding the upper end of our guidance range and improvement from the March quarter level of 35%. This improvement was primarily due to the higher revenue and stronger gross margin. Our non-GAAP tax rate for the quarter was 11%, in line with our expectations. We do believe the tax rate will be in the mid-teens in the September quarter due to the increase in revenue in higher tax jurisdictions, primarily the United States as we enter the new fiscal year. The U.S. GILTI rate is also higher as we enter the fiscal year. We should expect this uptick in the tax rate to continue for the remainder of 2026 and likely beyond. Other income and expense for the June quarter was approximately $19 million compared with $8 million in expense in the March quarter. The change in OI&E was primarily due to foreign exchange. And as we've talked about in the past, you should expect to see variability in OI&E quarter-to-quarter. Let's look at capital return. We allocated approximately $246 million to share repurchases, and we paid $325 million in dividends in the June quarter. We returned 45% of free cash flow in the quarter. Year-to-date, we have returned 81% of free cash flow, and our plans remain to return at least 85% of free cash flow to our shareholders over time. For the June quarter, diluted earnings per share were a record $1.82. The diluted share count was roughly 1.26 billion shares, down from the March quarter. We have $4 billion remaining on our board-authorized share repurchase program. Let me pivot to the balance sheet. Our cash and short-term investments totaled $5.6 billion at the end of the June quarter, up from $4.8 billion at the end of the March quarter. The primary factors behind the cash increase for cash from operating activities somewhat offset by our capital return activities. As the business grows, we'd like to build a little bit more cash on the balance sheet to support potential liquidity needs like capital spending and working capital. Days sales outstanding were 72 days in the June quarter, an increase from 64 days in the March quarter. Inventory at the June quarter end totaled $4.3 billion which was an increase from the March quarter as we are building inventory to meet growing customer demand. Nonetheless, inventory turns continue to improve coming in at 3x versus 2.9x in the prior quarter. This is the highest inventory turns level we've delivered in almost 5 years. Our noncash expenses in the June quarter included approximately $104 million for equity compensation, $105 million in depreciation and $15 million in amortization. Capital expenditures in the June quarter were $189 million. Capital spending was centered on lab investments in the United States and global growth in our manufacturing facilities. We ended the June quarter with approximately 22,400 regular full-time employees, which was an increase of approximately 1,800 people from the prior quarter. We had headcount growth primarily in the factory and field organizations to support increased tool installations as well as growing manufacturing activities. We also added headcount in R&D. Now let's turn to our non-GAAP guidance for the September 2026 quarter. We're expecting revenue of $8.1 billion, plus or minus $400 million. Gross margin of 52%, plus or minus 1 percentage point; operating margins of 39.5%, plus or minus 1 percentage point. I would just mention, we are growing spending in the September quarter albeit at a much slower rate than the growth in revenue. And finally, we're expecting earnings per share of $2.15, plus or minus $0.15 based on a share count of approximately 1.255 billion shares. So let me wrap up by sharing a brief update to the long-term profitability framework that we introduced at our Investor Day 1.5 years ago. Since then, demand has strengthened significantly, and we're executing well to the strategy that we outlined. As Tim mentioned, we see 2026 shaping up to be our third consecutive year our outperformance to the WFE. We've been growing the CSBG business faster than the installed base, and our close to customer strategy has helped expand our margins. The technology inflections increasing deposition and etch intensity reinforce our confidence that we can continue to expand our SAM while creating additional opportunities for gaining share. Our SAM expansion is trending toward that high 30% range that we communicated. Now within this framework, we intend to drive gross margins to the mid-50% level and operating margins to the mid-40% level over the next several years as the AI transformation drives continued greater investment in global semiconductor capacity. Operator, that concludes our scripted remarks. We would now like to open up the call for questions.

[Operator Instructions] The first question today comes from Timothy Arcuri with UBS.

Doug, I know you usually don't guide by segment, but service was up so much in June. And based upon the gross margin guidance, which you're guiding basically flattish on such a big up in revenue, I would imagine that it's up big again in September. So can you give us some sense of sort of what to expect in service within the guidance for September?

Listen, Tim, I think you're going to see similar profile of what we saw this quarter, and I won't get into specific numbers necessarily, but upgrades are going to continue to be strong, I think, right, driven by what you got going on in NAND investment. I expect spares to continue to be pretty strong given the high utilization in the industry. And then we're excited about what's going on in Advanced Services with all the cobot and Equipment Intelligence. So I think it's going to be pretty consistent across the board, Tim, similar to what we saw this quarter.

Great, Doug. And then -- so the new gross margin of mid-50s, that makes perfect sense. That's great. And I guess the question is, how long will it take to get gross margin to that level? I know -- I mean, obviously, if you look at your margins versus, say, the large foundry margins, I mean it used to be within 5 points and now it's between 5 and 7 points as early as the first half of '24. And now you're like the gap is like 2x that. So there's obviously a lot of room for you to move it up. How long will it take for you to move that up? Is it like a revenue thing? Or is it a time thing?

A little bit of both, Tim, honestly, right? Part of it is scale and scope and revenue growth. Part of it is new product introduction and getting fairly paid for the value we're delivering. I expect, Tim, this is over the next several years that we'll continue to drive it on an annual basis for sure, but it's going to take several years, I think, to get to those levels, Tim.

The next question comes from CJ Muse with Cantor.

I guess a follow-up on the CSBG side of the house. It looks like you're going to grow in the mid-30s, plus or minus. I'm just curious, how do you think about the growth rate beyond '26 into '27, how much strength should we continue to see from NAND inside here? How are you thinking about Reliant? Does that start to recover more meaningfully and do we see sustained kind of spares as well? I would love to hear your thoughts there.

Yes, CJ, I'll start, and then I'll let Tim add on. Yes, the framework we put out at the Investor Day 1.5 years ago, still, I would encourage you to think about it in a similar way. Now clearly, we've grown faster than that suggested back 1.5 years ago, and that's come a little bit from advanced services. We're super excited about that driving incremental growth. It's come -- it came also from just really high utilization in the industry, which drives consumption of spares and service. To the extent that, that continues, spares and service will continue to be really strong from that. And then I think the way to think about Reliant is think about what's going on in the mature node investment, a little bit of what's happening in China. And then more broadly, what's happening in the analog, industrial, automotive space. So that will be a little bit more situational, I guess. But that's the framework to think about. We're probably going to do a little bit better than the growth that we talked about 1.5 years ago.

Perfect. And then I guess, could you speak to perhaps new entrants or more meaningful spending from historically larger spenders on the logic front? What kind of visibility do you have today? And what kind of growth should we expect into '27 and beyond?

Yes. CJ, you're funny. Asking that tricky question about new logic customers. Yes, there's some of the stuff going on. There's clearly dialogue, and I'll let Tim, comment a little bit. We are talking to that new logic customer in the U.S. that is happening.

Yes, I don't have much to add other than to say we're engaged. And I think what's exciting for us is that in many cases where we have new entrants come into foundry logic or memory or any of the spaces they're always looking at some of the more innovative approaches. They're not encumbered by kind of the road maps and installed base that's existed. And so I think that we're hopeful that when we think about all of the new systems that we've talked about, I mentioned a few in the prepared remarks, but we've talked about a lot of others in other calls, that's an opportunity for us to showcase the significant technical improvement Lam is in on the foundry logic side. And I think that's what new entrants mean for us is more opportunities to grow our share within that space.

The next question comes from Harlan Sur with JPMorgan.

If I look back historically, your gross margin seems to have taken a structural step-up in 2023, but I believe this corresponded to the team moving a bigger part of the volume manufacturing going through your more efficient low-cost Malaysia facility. And as the team has continued to scale volumes higher to Malaysia, since then, right, the increment -- you've been able to drive incrementally higher margins on these products, and that continues to be a gross margin benefit. Looking at your strong gross margin results for June and for the September outlook, like how much of the incremental gross margin improvement is coming from the volume mix to Malaysia and the increases there? Or could it be product mix? New product introduction upgrades, I know just incremental pricing increases on your systems? And maybe which of these dynamics is going to be most influential in driving you to your mid-50s sort of new long-term targets?

Yes, Harlan, let me start just because and I know you want to get to the quantification, I'll let Doug do some of that to the extent that he can. But I just wanted to point out, when we look at the tremendous operational execution, and I refer to it as operational velocity inside the company, I wanted to just make sure it's clear. We have been able to execute to what have been really accelerated customer demand because of what I see as a strategic asset in our global manufacturing footprint and global supply chain footprint. We have factories in Oregon, in California and Ohio, in Malaysia and Taiwan and Korea and Austria. And really, as we've looked at this tremendous growth period we've gone through and expect to continue to go through, we've leveraged that full scope of sites and supply chains. And what's really helped us is that they're not all interrelated, and so they're not all being driven by the same demand. And so in that way, we can both get what we need when we need it and also at the prices that we needed. And so there's an element of really being able to leverage this global capability. I think that's somewhat unique in how Lam has driven our operational structure. And I'll let Doug talk to the second part of your question.

Yes, Harlan, a lot of the uptick that you're seeing. Gross margin has come from exactly what Tim just outlined. On top of that, we've got new products coming out every single year, theoretically adding more value to the customers and driving improving profitability. Clearly, that's going to be our ongoing objective. Clearly, we're always working to get fairly paid for the value we're delivering to the customers. We're absolutely working on that. And then, yes, a lot of it has come from operational efficiencies, close to customer strategy, all of that we're conscious that we've outlined over the last several years and have been talking about.

I appreciate that. And then on advanced packaging, you came into this year with a view of greater than 40% growth. You upped that to greater than 50% growth last earnings. Now you're looking at 70% growth today, right? Is the increase in the outlook due to HBM or 2.5D, the 3.5D SoIC advanced packaging transitions happening faster or is it customers just pulling in production capability from next year into this year, curious?

Yes. I mean, Harlan, it's just everything. I mean advanced packaging, I mentioned in my prepared remarks, it's becoming quite a technical tool for our customers and for the industry to drive greater performance. So it's everything you just mentioned. It's 2.5D, it's in the foundry/logic space, it's in HBM. And I think that what we're excited about is, obviously, as it moves also into panel packaging, that's a place where Lam we feel like we've gotten out to an early start there, and we think that transition is in very early stages but it's an important inflection point there as well. So I think just next few years, advanced packaging growth will be a little hard to predict because adoption is just occurring all over the place.

But our clear leadership, Harlan, I'll just remind you, in the TSV etch and the copper electroplating, I call it the drill and fill, we just have really strong product offerings there. So as that goes, we just benefit extensively from our technical leadership.

The next question comes from Atif Malik with Citi.

I know you guys talked about doubling of NAND revenues and the context window or KV cache. There is a third-party trend forecasting a divergence in memory fundamentals next year, they're calling for an oversupply in NAND because of the NAND demand getting pulled down by weaker consumer and shortages to continue on the DRAM side, which is more driven by data center. Are you seeing anything in your conversation with the memory makers that are pointing to some sort of oversupply or a reversal in the NAND fundamentals for next year?

I think that it's -- as we've said on NAND, I mean, clearly, customers are right now progressing through upgrades to 200-plus layer devices. There's some greenfield this year. it's a ways out before there's a lot of greenfield coming into NAND. So I think that, again, next year, we haven't -- we're still having conversations about how to continue to upgrade the existing installed base and get the fleet up to kind of current state of the art in terms of NAND. And so I think it's a little early on 2028. But our view right now is the fundamentals are still about the same for us. I think what I tried to highlight in my prepared remarks is the Lam story is a lot bigger than just NAND. And there's often this focus. But what we've done is we've successfully looked at these vertical scaling trends that are occurring in both DRAM and foundry/logic. And we've applied all of that learning and expertise that we have from 3D NAND into those. And those are the basis for a lot of the wins that I was talking about in my remarks. And I think that's a trend that continues into 2028 and beyond as well. So you've got NAND and then you've got DRAM and foundry/logic as well. And I would point out, we said that we believe 2027 looks like a great setup, not only for the industry, but for Lam. And that's an environment where next year, we still see DRAM being the fastest grower. Foundry/logic being the second fastest grower and NAND being third. And that's exactly the setup that we came into this year on. And clearly, our results so far in 2026 are quite good. So we think even in that environment, Lam can do extremely well.

And then Taiwan was a record revenue year. Can you just talk about your foundry share gains at 3- and 2-nanometer.

Sure. I mean I can't tell you specifically. Obviously, since some of that gets quite close to a single customer. But look, it's back to the things that we've talked about. As customers are shrinking and they're moving to gate-all-around. It's the verticalization of the transistor structure. It's the focus on things like RC performance. And if you go back and look at our transcripts from the last number of calls, we've been talking about things like low-k spacers, and we talked about the importance of patterning etch as features become ever smaller and taller because of EUV patterning and device shrink and so I would just say anything that's related again to something becoming higher aspect ratio, it requires etch, if it has to do with RC meaning metallization resistance or dielectric capacitance. Those are areas where Lam's new ALD tools where our new etch tools like Akara are doing extremely well, not just in Taiwan, but really at every leading-edge foundry/logic customer around the world because these are unique capabilities built into our newest tools and they're doing great at the customer.

The next question comes from Jim Schneider with Goldman Sachs.

I was wondering, as you look at the growth rates. The industry is going to post in 2026. How would you handicap looking into 2027 where you could see a similar, better or worse growth rate relative to this year?

Yes, Jim, we're not going to get into talking specifically about next year, at least not numerically I would tell you, though, that as we look at kind of what's being invested in, the industry is still meaningfully undersupplied, right? You've got clean room coming online over the next, I don't know, 12 months and beyond, frankly, and all that will lead to incremental opportunities as we get into '27. It's too soon for us to put quantification around what '27 is going to be. But it looks like it's going to set up to be a pretty darn good year, Jim. I guess I'd just leave it at that.

That's fair enough. I understand. And then maybe just as a follow-up. You mentioned pricing being one of the factors that drove gross margin outperformance in the quarter. Can you speak to some of the factors that drove that? And do you see opportunities for further pricing actions in the short term, for example, like-for-like pricing increases even within the same program, the same project?

Jim, I mean, we're always working on getting fairly paid for the value we're delivering last quarter was no different than it ever has been. Pricing is always a component of what's been going on in addition to operational efficiency, that close to customer strategy I talked about, all these new products that we're bringing out, delivering better gross margin because it's solving more difficult technical challenges. All that contributes to what you're seeing us deliver in gross margin. And frankly, we will strive to continue to expand gross margin to that mid-50% level. We're going to work on all of this stuff.

The next question comes from Srini Pajjuri with RBC Capital Markets.

Tim, on your WFE comment about $150 billion I think you said -- you alluded to maybe further upward bias for the year. I'm just trying to get a sense of what your lead times are? And in case if there is more upside, I guess, in the second half of the year, how well positioned you are to be able to supply to any potential upside?

Yes. Sorry, that might have been poorly worded in the remarks. It was -- our previous quarter's guidance was $140 billion with upside bias and that upside bias played out to get us to $150 billion now. So this outlook was in the $150 billion range. We didn't say upside bias for this this current outlook. But to that extent, I mean, your second part of your question about what capability do we have? I mean I know we were thinking one of the questions might be, how did you go from $140 billlion to $150 billion when you said it was clean room constrained. People find ways and the demand is very strong. And so people have squeezed out a little bit of extra space. They've resolved bottleneck tools. We work with customers on -- if we happen to be the bottleneck tool from a throughput perspective in places, we work with customers to resolve those and that sometimes frees them up to spend a little bit more to resolve other bottleneck tools. So that's kind of the $140 billion to $150 billion. From this point forward, as you said, lead times are challenging, but maybe referring back to the answer I gave about our strategic global manufacturing supply chain. Our team is doing a phenomenal job, a heroic job, I think, responding to urgent customer requests and so when those do come up, we've been able to meet those needs. I think as we move through the second half of the year, that becomes more and more difficult to see anything further in this year as true surprise upside. And that's why the discussions are now out in the '27 and beyond to make sure that as new fabs come into play, this is my comment about visibility. As those new fabs are opening up, customers want to make sure they have secured the tools they need from Lam and so those discussions are taking place at lead time or beyond.

And then my follow-up, maybe on gross margins. Doug, pretty impressive gross margin performance despite the fact that China declined pretty meaningfully sequentially. So I'm just trying to get a sense of what you're seeing in terms of China overall demand. Are you expecting, I guess, China to recover in the next few quarters, I see your deferred revenue balance went up a little bit. So I'm just trying to get a sense of how to think about China going forward.

Srini, I still think China overall WFE is flat to slightly up, similar to what we said before. I think quarter-by-quarter, you'll see some lumpiness to it. right? But our view is still largely the same. I would just also point out a comment that I made in my script and maybe that we're going to continue to see is understand in that China region, you also have the global multinational customers with fabs in China showing up in that number that 26%. And in the June quarter, those global multinationals in China actually grew somewhat while the indigenous Chinese customers declined. It won't surprise me if that's a similar trend that we see as we go through the latter part of the year as well.

The next question comes from Vivek Arya with Bank of America Securities.

This is Michael Mani on for Vivek Arya. My first question is on NAND. So it seems like the company is pretty close to realizing the $40 billion upgrade opportunity faster than expected. But as you've described in the past, that's not so much of a static opportunity. Like whatever has been upgraded to 200 layers eventually has to migrate to 300 layers and above, which could trigger another wave of spending for NAND where are we in that kind of second phase of upgrades? And is there a way to kind of contextualize how big that opportunity could be relative to the initial $40 billion upgrade opportunity you saw in the last couple of years?