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SEC filingRevenue slightly up sequentially with mix shift to customer support; gross margin down on customer mix; six-month revenue up 25% YoY on foundry strength.
Revenue for the December 2025 quarter was $5,345 million, slightly up from $5,324 million in the September 2025 quarter, as increases in customer support-related revenue largely offset decreases in systems revenue due to timing of customer investments. Gross margin decreased to 49.6% from 50.4% sequentially, driven primarily by unfavorable changes in customer mix. Total operating expenses were relatively flat at $841 million versus $856 million. Net income improved to $1,594 million from $1,569 million, with diluted EPS rising to $1.26 from $1.24.
For the six months ended December 28, 2025, revenue reached $10,669 million, up 24.9% from $8,544 million in the prior-year period, predominantly driven by increases in foundry equipment spending and higher customer support-related revenue. Gross margin improved to 50.0% from 47.7%, benefiting from favorable customer mix partially offset by reduced factory efficiencies from higher tariff-related spend. Operating expenses grew 14.8% to $1,697 million due to higher employee-related costs and increased R&D spending. Operating income rose to $3,639 million from $2,598 million, with operating margin expanding 370 bps to 34.1%.
In the six-month period, systems revenue was $6,905 million (up 37.6% YoY) and customer support-related revenue was $3,764 million (up 6.8% YoY). By market, foundry accounted for 60% of systems revenue (up from 38%), memory 34% (down from 43%), and logic/IDM 6% (down from 19%). The foundry segment benefited from customer investments in mature nodes, while memory saw strengthened DRAM spending offset by lower non-volatile memory demand. Geographically, China represented 39% of total revenue (up from 34%), Taiwan 20% (up from 16%), and Korea 17% (down from 22%).
Management commented that wafer fabrication equipment spending levels were strong in calendar 2025 driven by higher semiconductor demand across memory and non-memory segments. However, short-term volatility from trade restrictions, tariffs, and other uncertainties may negatively impact revenue and operating margin. Over the longer term, secular demand for semiconductors and technology inflections (3D device scaling, multiple patterning, advanced packaging) are expected to drive sustainable growth and expand the served available market for deposition, etch, and clean products. The company continues to invest in R&D, with $1,150 million in the first half, focusing on leading-edge processes. Liquidity remains strong with $6.2 billion in cash, cash equivalents, and restricted cash, supporting share repurchases and dividends while maintaining investment capacity.
Operating cash flow (CFO) of $3.26B exceeded net income of $3.16B, indicating healthy cash conversion. The CFO-to-net-income ratio is 1.03x, driven by non-cash charges (depreciation of $0.21B, equity compensation of $0.19B) partially offset by working capital outflows of $0.18B. Capital expenditures of $0.45B represent a capex intensity of 13.8% of revenue (not disclosed here but implied moderate). Free cash flow (CFO minus capex) is $2.81B, which covers $3.06B of capital returns (share repurchases $2.44B and dividends $0.62B) by 92%, indicating reliance on other financing activities. The $0.25B shortfall is funded through debt and other sources. Financing cash outflows of $3.01B included significant share repurchases and dividends, partially offset by equity issuance of $0.07B. Working capital changes of ($0.18B) were driven by inventory and payables. Overall, cash flow generation is strong, but elevated capital returns are leveraging the balance sheet.