Item 1. BUSINESS

Certain industry and technical terms used in this section are defined in the subsection entitled “Glossary” found at the end of this Item 1.

The Company

KLA Corporation and its majority-owned subsidiaries (“KLA” or the “Company” and also referred to as “we,” “our,” “us,” or similar references) is a supplier of industry-leading equipment and services that enables innovation throughout the electronics industry. We provide advanced process control and process-enabling solutions for manufacturing wafers, reticles, chemicals/materials, integrated circuits (“IC” or “chip”), packaged ICs, printed circuit boards (“PCB”), and flat panel displays (“FPD”), as well as comprehensive support and services across our installed base. Our suite of advanced products, coupled with our unique yield management software and services, allow us to deliver the solutions our customers need to achieve their productivity goals, including improving yields and reducing waste, by significantly reducing their risks and costs and improving their overall profitability and return on investment.

KLA was formed as KLA-Tencor in April 1997 through the merger of KLA Instruments Corporation and Tencor Instruments, two long-time leaders in the semiconductor capital equipment industry that began operations in 1975 and 1976, respectively. On February 20, 2019, KLA completed the acquisition of Orbotech, Ltd. (“Orbotech”), a global supplier of yield-enhancing and process-enabling solutions for the manufacture of electronics products, in order to target growth opportunities in new and expanding end markets. We are organized into four reportable segments: Semiconductor Process Control; Specialty Semiconductor Process; PCB, Display and Component Inspection; and Other.

Within the Semiconductor Process Control segment, our comprehensive portfolio of inspection, metrology and software products, and related services, help IC, wafer, reticle and chemical/materials manufacturers achieve target yields throughout the entire fabrication process, from R&D to final volume production. These products and services are designed to provide comprehensive solutions to help customers accelerate development and production ramp cycles, achieve higher and more stable product yields and improve their overall profitability.

Within the Specialty Semiconductor Process segment, which includes the SPTS business, KLA develops and sells advanced vacuum deposition and etching process tools, which are used by a broad range of specialty semiconductor customers, including manufacturers of microelectromechanical systems (“MEMS”), radio frequency (“RF”) communication semiconductors, and power semiconductors for automotive and industrial applications.

Within the PCB, Display and Component Inspection segment, which includes the PCB, FPD, Frontline and ICOS businesses, KLA enables electronic device manufacturers to inspect, test and measure PCBs, FPDs and packaged ICs to verify their quality, pattern the desired electronic circuitry on the relevant substrate and perform three-dimensional shaping of metalized circuits on multiple surfaces.

Additional information about KLA is available at www.kla.com. The Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on the website as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Information contained on KLA’s website is not part of this Annual Report on Form 10-K or KLA’s other filings with the SEC. Additionally, these filings may be obtained through the SEC’s website (www.sec.gov), which contains reports, proxy and information statements, and other information regarding issuers that file electronically.

Investors and others should note that KLA announces material financial information to investors using an investor relations website (ir.kla.com), which includes KLA’s SEC filings, press releases, public earnings calls and conference webcasts. The investor relations website is used to communicate with the public about the Company, products, services and other matters.

Industry

KLA’s core focus is enabling technological advances as well as improving manufacturing yields in the semiconductor industry. The semiconductor fabrication process begins with a bare silicon wafer - a round disk that is typically 200 millimeters or 300 millimeters in diameter, about as thick as a credit card and gray in color. The process of manufacturing wafers is highly sophisticated and involves the creation of large ingots of silicon by pulling them out of a vat of molten silicon. The ingots are then sliced into wafers. Prime silicon wafers are then polished to a mirror finish. Other, more specialized wafers, such as epitaxial silicon (“epi”), silicon on insulator (“SOI”), gallium nitride (“GaN”) and silicon carbide (“SiC”) are also common in the semiconductor industry.

The manufacturing cycle of an IC is grouped into three phases: design, fabrication and testing. IC design involves the architectural layout of the circuit, as well as design verification and reticle generation. The fabrication of a semiconductor chip (or “semiconductor”) is accomplished by depositing a series of film layers that act as conductors, semiconductors or insulators on bare wafers. The deposition of these film layers is interspersed with numerous other process steps that create circuit patterns, remove portions of the film layers, and perform other functions such as heat treatment, measurement and inspection. Most advanced chip designs require hundreds of individual steps, many of which are performed multiple times. The majority of chips consist of two main structures: the lower structure, typically consisting of transistors or capacitors which perform the “smart” functions; and the upper “interconnect” structure, typically consisting of circuitry which connects the components in the lower structure. When the layers on the wafer have been fabricated, each chip on the wafer is tested for functionality. The wafer is then cut into individual chips, and the chips that pass functional testing are packaged. Final testing is performed on all packaged chips. Packaged chips are then mounted onto PCBs for connection to the rest of the electronic system. Additionally, FPDs are manufactured using processes similar to ICs (e.g., film deposition, photolithography, etching) except using glass as the starting substrate.

Our business depends upon the capital expenditures of semiconductor, semiconductor-related and electronic device manufacturers, which in turn is driven by the current and anticipated market demand for ICs, products utilizing ICs and other electronic components. We do not consider our business to be seasonal in nature, but it has historically been cyclical with respect to the capital equipment procurement practices of semiconductor, semiconductor-related and electronic device manufacturers, and it is impacted by the investment patterns of such manufacturers in different global markets. Downturns in the semiconductor or other industries in which we operate, or slowdowns in the worldwide economy as well as customer consolidation, could have a material adverse effect on our future business and financial results.

Companies that anticipate future market demands by developing and advancing new technologies and manufacturing processes are better positioned to lead in the semiconductor market. Accelerating the yield ramp and maximizing production yields of high-performance devices are key goals of modern semiconductor manufacturing. Ramping to high-volume production ahead of competitors can dramatically increase the revenue an IC manufacturer realizes for a given product. Leading semiconductor manufacturers are investing in simultaneous production integration of multiple new process technologies, some requiring new substrate and film materials, new geometries, new transistor architectures, new power distribution schemes, advanced multi-patterning optical and extreme ultraviolet (“EUV”) lithography, and advanced packaging techniques. While many of these technologies have been adopted at the development and pilot production stages of semiconductor manufacturing, significant challenges and risks associated with each technology have affected the adoption of these technologies into high-volume production. For example, as design rules decrease, yields become more sensitive to the size and density of defects. Device performance characteristics (namely speed, capacity or power management) also become more sensitive to parameters such as linewidth and film thickness variation. New process materials require extensive characterization before they can be used in the manufacturing process. Moving several of these advanced technologies into production at once only adds to the risks that chipmakers face. The continuing evolution of semiconductors to smaller geometries and more complex multi-level circuitry has significantly increased the performance and cost requirements of the capital equipment used to manufacture these devices. Construction of an advanced IC fabrication facility today can cost well above $10 billion, substantially more than previous-generation facilities. In addition, chipmakers are demanding increased productivity and higher returns from their manufacturing equipment and are also seeking ways to extend the performance of their existing equipment.

The semiconductor capital equipment industry is currently experiencing multiple growth drivers bolstered by demand for semiconductors from leading edge foundry and logic manufacturers to support computational power and connectivity for markets such as artificial intelligence (“AI”) and 5G wireless technology. Growth of virtual engagement and the pace of digitization have been driven by COVID-19 related travel restrictions and quarantines, work from home requirements, and advances in healthcare and industrial applications. These factors together with the increasing adoption of electric vehicles and intelligence in automobiles are powering leading-edge design node technology investments and capacity expansions. Intertwined in these areas, spurred by the requirements of big data, is the growth in demand for memory chips. Regionalization of semiconductors has become a trend as access to semiconductors is viewed from the lens of national security. China continues to emerge as a major region for the manufacturing of logic and memory chips, adding to its role as the world’s largest consumer of ICs. Government initiatives are propelling China to expand its domestic manufacturing capacity. Although China is currently seen as an important long-term growth region for the semiconductor capital equipment sector, the U.S. Department of Commerce (“Commerce”) has added certain China-based entities to the U.S. Entity List, restricting our ability to provide products and services to such entities without a license. In addition, Commerce has imposed export licensing requirements on China-based customers engaged in military end uses, as well as requiring our customers to obtain an export license when they use certain semiconductor capital equipment based on U.S. technology to manufacture products connected to Huawei or its affiliates. While these new rules have not significantly impacted our operations to date, such actions by the U.S. government or another country could impact our ability to provide our products and services to existing and potential customers and adversely affect our business.

Research and Development

The market for semiconductor and electronics industries is characterized by rapid technological development and product innovation. These technical innovations are inherently complex and require long development cycles and appropriate professional staffing. We make significant investments in product R&D for the timely development of new products and enhancements necessary to maintain our competitive position. Accordingly, we devote a significant portion of our human and financial resources to R&D programs and seek to maintain close relationships with customers to remain responsive to their needs.

Our key R&D activities during the fiscal year ended June 30, 2022 involved the development of process control and process-enabling solutions for a broad range of industries including semiconductors, PCBs and displays. For information regarding our R&D expenses during the last three fiscal years, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.

The strength of our competitive positions in many of our existing markets is largely due to our leading technology, which is the result of our continuing significant investments in product R&D. Even during down cycles in the semiconductor industry, we have remained committed to significant engineering efforts toward both product improvement and new product development in order to enhance our competitive position.

Customers

We count among our largest customers the leading semiconductor, semiconductor-related and electronic device manufacturers in Asia, the U.S. and Europe. Our future performance will depend, in part, on our ability to continue to compete successfully in Asia, one of the largest markets for our equipment. Our ability to compete in this area is dependent upon the continuation of favorable trading relationships between countries in the region and the U.S,, and our continuing ability to maintain satisfactory relationships with leading semiconductor companies in the region.

For the fiscal years ended June 30, 2022, 2021 and 2020, the following customers each accounted for more than 10% of total revenues, primarily in the Semiconductor Process Control segment:

Year Ended June 30,
2022						2021						2020
Taiwan Semiconductor Manufacturing Company Limited						Taiwan Semiconductor Manufacturing Company Limited						Taiwan Semiconductor Manufacturing Company Limited
Samsung Electronics Co., Ltd.						Samsung Electronics Co., Ltd.						Samsung Electronics Co., Ltd.

Sales, Service and Marketing

Our sales, service and marketing efforts are aimed at building deep long-term relationships with our customers. We focus on providing comprehensive resources for the full breadth of process control, process-enabling and yield management solutions for manufacturing and testing wafers and reticles, ICs, packaging, light-emitting diodes (“LED”), power devices, compound semiconductor devices, MEMS, data storage, PCBs and flat and flexible panel displays, as well as general materials research. Our revenues are derived primarily from product sales and related service contracts, mostly through our direct sales force.

We believe that the size and location of our field sales, service and applications engineering, and marketing organizations represent a competitive advantage in our served markets. We have direct sales forces in Asia, the U.S. and Europe. We maintain an export compliance program that is designed to meet the requirements of Commerce and the U.S. Department of State.

In addition to sales and service offices in the U.S., we conduct sales, marketing and services out of subsidiaries or branches in many countries, some of the largest include China, Germany, Israel, Japan, Korea, Singapore, Taiwan and the United Kingdom. We believe that sales outside the U.S. will continue to be a significant percentage of our total revenues. International revenues accounted for approximately 90%, 89%, and 89% of our total revenues in the fiscal years ended June 30, 2022, 2021 and 2020, respectively. Additional information regarding our revenues from foreign operations for our last three fiscal years can be found in Note 19 “Segment Reporting and Geographic Information” to our Consolidated Financial Statements.

International sales and operations may be adversely affected by the imposition of governmental controls, restrictions on export technology, political instability, trade restrictions, changes in tariffs and the difficulties associated with staffing and managing international operations. In addition, international sales may be adversely affected by the economic conditions in each country and by fluctuations in currency exchange rates, and such fluctuations may negatively impact our ability to compete on price with local providers or the value of revenues we generate from our international business. Although we attempt to manage some of the currency risk inherent in non-U.S. dollar product sales through hedging activities, there can be

no assurance that such efforts will be adequate. These factors, as well as any of the other risk factors related to our international business and operations that are described in Item 1A “Risk Factors,” could have a material adverse effect on our future business and financial results.

Products

KLA develops industry-leading equipment and services that enable innovation throughout the electronics industry. We provide advanced process control and process-enabling solutions for manufacturing wafers, reticles, ICs, packaging, PCBs, and flat and flexible panel displays.

The Semiconductor Process Control segment offers a comprehensive portfolio of inspection, metrology and software products and related services, which support the semiconductor ecosystem from R&D to final volume production. For IC manufacturing, our systems support production of all chip types including advanced logic, DRAM, 3D NAND, power devices, MEMS, legacy design node chips and more. Our substrate manufacturing systems support the production of a broad range of wafer types and sizes including silicon, prime silicon SOI, sapphire, glass, wide bandgap substrates (e.g., SiC, GaN) and more. Our reticle systems support quality control during manufacturing of optical and EUV reticle types. We also produce products that support chemical/materials quality control, and process tool development and qualification. Our products and services for IC, wafer, reticle, original equipment manufacturer (“OEM”) and chemical/materials manufacturing are designed to provide comprehensive solutions that help our customers accelerate development and production ramp cycles, achieve higher and more stable product yields and improve their overall profitability. The Semiconductor Process Control segment offers a variety of solutions and products, including:

Segment			Technologies			Products
Semiconductor Process Control
			IC Manufacturing: Wafer Inspection and Review Inspection and review tools are used to identify, locate, characterize, review, and analyze defects on various surfaces of patterned and unpatterned wafers.			39xx Series, 29xx Series, C20x Series, eSL10™, Voyager® Series, 8 Series, Puma™ Series, CIRCL™, Surfscan® Series, eDR7xxx™ Series, Kronos™ Series.
			IC Manufacturing: Wafer Metrology Metrology tools are used to measure pattern dimensions, film thicknesses, layer-to-layer alignment, pattern placement, surface topography and electro-optical properties for wafers.			Archer™ Series, ATL™ Series, SpectraShape™ Series, SpectraFilm™ Series, Aleris® Series, PWG™ Series, Therma-Probe® Series, OmniMap® RS-xxx Series, MicroSense® product family, CAPRES product family.
			Wafer and Substrate: Defect Inspection and Metrology Defect inspection and metrology systems are used to help substrate manufacturers manage quality throughout the wafer fabrication process by assessing wafer geometry and surface quality, and detecting defects.			Surfscan® Series, WaferSight™ Series, Candela® Series, MicroSense® product family.
			Reticle Defect Inspection and Metrology Reticle inspection and metrology systems help blank, reticle and IC manufacturers identify defects and pattern placement errors.			Teron™ SL6xx Series, Teron™ 6xx Series, TeraScan™ 5xx Series, X5.x™ Series, FlashScan® Series, LMS IPRO Series.
			Chemical/Materials: Quality Analysis Chemical process control equipment qualifies incoming supplies, manages tool inputs, adjusts chamber/bath conditions and monitors process waste.			ECI Technology product family.

			IC and OEM Manufacturing: In Situ Process Management and Wafer Handling Diagnostics Wired and wireless sensor wafers and reticles provide comprehensive data used to visualize, diagnose and control process conditions in the equipment used to manufacture chips and reticles. Additional wafer diagnostic solutions help troubleshoot and monitor materials handling to help detect and predict mechanical behaviors that may cause wafer damage.			SensArray® product family, InnerSense product family.
			Software Products Data analysis systems centralize and analyze the data produced by inspection, metrology and process systems for IC, reticle and wafer manufacturing. These systems provide run-time process control, defect excursion identification, process corrections and defect classification to accelerate yield learning rates and reduce production risk. Patterning simulation systems use advanced models to explore critical-feature designs and manufacturability of lithography and patterning technologies.			Klarity® product family, 5D Analyzer®, OVALis, Anchor product family, RDC, FabVision® Series, ProDATA™, PROLITH™, I-PAT®
			Refurbished and Remanufactured Products Inspection and metrology systems support manufacture of larger design node chips.			KLA Pro products.

A range of industries, including general scientific and materials research and optoelectronics, require measurements of surface topography and film thickness to either control their processes or research new material characteristics. These general purpose and lab applications tools are offered under our KLA Instruments™ brand.

Segment			Technologies			Products
Semiconductor Process Control
			General Purpose/Lab Application Specialty Semiconductor Manufacturing, Benchtop Metrology, Surface Characterization and Electrical Property Measurement.			Candela® Series, HRP® -260, ZetaScan 800 Series, Zeta™ Series, Tencor™ P Series, Nano Indenter® Series, Alpha-Step® Series, Filmetrics® Series, iMicro, iNano®, Profilm3D® Series, T150 UTM, NanoFlip, InSEM® HT.

The Specialty Semiconductor Process segment develops and sells advanced vacuum deposition and etching process tools, which are used by a broad range of specialty semiconductor customers, including manufacturers of MEMS, RF communication chips and power semiconductors for automotive and industrial applications. The PCB, Display and Component Inspection segment enables electronic device manufacturers to inspect, test and measure PCBs, FPDs and packaged ICs to verify their quality, pattern the desired electronic circuitry on the relevant substrate and perform three-dimensional shaping of metalized circuits on multiple surfaces. The Specialty Semiconductor Process and PCB, Display and Component Inspection segments offer a variety of solutions and products, including:

Segment			Technologies			Products
Specialty Semiconductor Process
			Specialty Semiconductor Manufacturing Etch, plasma dicing, deposition and other wafer processing technologies and solutions for the semiconductor and microelectronics industry.			SPTS Omega® Series, SPTS Sigma® Series, SPTS Delta™ Series, SPTS Primaxx® Series, SPTS Xactix® Series, SPTS Mosaic™ Series, SPTS MVD Series.
PCB, Display and Component Inspection
			PCB Direct imaging, inspection, optical shaping, additive printing, and computer-aided manufacturing and engineering solutions for the PCB market.			Orbotech Nuvogo™ Series, Orbotech Paragon™ Series, Orbotech Diamond™ Series, Orbotech Infinitum™ Series, Orbotech Ultra Dimension™ Series, Orbotech Ultra Fusion™/ Fusion™ Series, Orbotech Discovery™ II Series, Orbotech Precise™ Series, Orbotech Ultra PerFix™/ PerFix™ Series, Orbotech Neos™ Series, Orbotech Sprint™ Series, Orbotech Emerald™ Series, Orbotech Apeiron™ Series, Frontline product family.
			Display Inspection and electrical testing systems to identify and classify defects, as well as systems to repair defects for the display market.			Orbotech Quantum™ Series, Orbotech Flare™ Series, Orbotech Array Checker™ Series, Orbotech Ignite™ Series, Orbotech Array Saver, Orbotech Prism™ Series, Orbotech OASIS.
			Component Inspection and metrology systems for quality control and yield improvement in advanced and traditional semiconductor packaging markets.			ICOS™ F16x, ICOS™ Tx Series, Zeta™-5xx/6xx.

Services

Our service programs enable our customers in all business sectors to maintain the high performance and productivity of our products through a flexible array of service options. Whether a manufacturing site is producing wafers, reticles, ICs, display or PCB products, our highly trained service teams collaborate with customers to determine the best products and services to meet technology and business requirements.

Backlog

Our backlog, which represents our performance obligation to deliver products and services, totaled $13.11 billion and $4.69 billion as of June 30, 2022 and 2021, respectively, and primarily consists of sales orders where written customer requests have been received. We expect to recognize approximately 40% to 50% of these performance obligations as revenue beyond the next 12 months, but this estimate is subject to constant change depending on the following: supply chain constraints; customer slot change requests as well as pushouts and cancellations, usually with limited or no penalties; and potential elevated demand levels, which could require even longer lead times. The growth that we have experienced over the past few years has resulted in higher levels of backlog. The supply chain disruptions caused by the ongoing pandemic as well as favorable market trends have led to customers agreeing to purchase equipment from us with lead times that are longer than our historical experience. As the lead times for delivery of our equipment get longer, the risk increases that customers may choose to change their equipment orders due to the evolution of the customer's technological, production or market needs. This could result in order modifications, rescheduling or even cancellations that may not be communicated to us in a timely manner, causing backlog to remain elevated until agreed with the customer. Customer communication delays for orders already placed could affect our ability to respond quickly in weakening demand environments, which could harm our results of operations.

Because customers can potentially change delivery schedules or delay or cancel orders, and because some orders are received and shipped within the same quarter, our shipment backlog at any particular date is not necessarily indicative of business volumes or actual sales for any succeeding periods. The historical cyclicality of the semiconductor industry combined with the lead times from our suppliers sometimes result in timing disparities between, on the one hand, our ability to manufacture, deliver and install products and, on the other, the requirements of our customers. In our efforts to balance the requirements of our customers with the availability of resources, management of our operating model and other factors, we often must exercise discretion and judgment as to the timing and prioritization of manufacturing, deliveries and installations of products, which may impact the timing of revenue recognition with respect to such products.

Manufacturing, Raw Materials and Supplies

We perform system design, assembly and testing in-house and utilize an outsourcing strategy for the manufacture of components and major subassemblies. Our in-house manufacturing activities consist primarily of assembling and testing components and subassemblies that are acquired through third-party vendors and integrating those subassemblies into our

finished products. Our principal manufacturing activities take place in the U.S., Singapore, Israel, Germany, United Kingdom, Italy and China. Our supply chain strategy adheres to ethical labor practices, responsible minerals sourcing, and Responsible Business Alliance and SEMI guidelines.

Some critical parts, components and subassemblies (collectively, “parts”) that we use are designed by us and manufactured by suppliers in accordance with our specifications, while other parts are standard commercial products. We use numerous vendors to supply parts and raw materials for the manufacture and support of our products. Although we make reasonable efforts to ensure that these parts and raw materials are available from multiple suppliers, this is not always possible, and certain parts and raw materials included in our systems may be obtained only from a single supplier or a limited group of suppliers. Through our business interruption planning, we endeavor to minimize the risk of production interruption by, among other things, monitoring the financial condition of suppliers of key parts and raw materials, providing financial support and incentives to encourage vendors to increase capacity when required, identifying (but not necessarily qualifying) possible alternative suppliers of such parts and materials, and ensuring adequate inventories of key parts and raw materials are available to maintain manufacturing schedules.

Although we seek to reduce our dependence on sole and limited source suppliers, in some cases the partial or complete loss of certain of these sources, or disruptions within our suppliers’ often complex supply chains, could disrupt scheduled deliveries to customers, damage customer relationships and have a material adverse effect on our results of operations.

Competition

The worldwide market for technologically advanced process control, process-enabling and yield management solutions used by semiconductor and electronics manufacturers is highly competitive, with important competitive factors including system performance, ease of use, reliability, technical service and support, and overall cost of ownership. However, we believe that, while the competitive factors listed are important, the customers’ overriding requirement is for systems that easily and effectively incorporate automated capabilities into their existing development and manufacturing processes to enhance productivity, improve yields and reduce waste. To remain competitive, we use significant financial resources to offer a broad range of products, to maintain customer service and support centers worldwide, and to invest in product R&D. In each of our product markets, we have many competitors, including companies such as Applied Materials, Inc., ASML Holding N.V., Hitachi High-Technologies Corporation, Onto Innovation, Inc. and Lasertec, Inc., some of which may have greater financial, research, engineering, manufacturing and marketing resources than we have. We expect our competitors to continue to improve the design and performance of their current products and to introduce new products with improved price and performance characteristics. We may also face future competition from new market entrants overseas or domestically. We maintain our market position by building long-term relationships with our customers to meet their dynamic needs as well as anticipating future market demands and enabling our customers to accelerate adoption and production of new technologies, as discussed further in the “Industry” section of this Item 1. Management believes that we are well positioned in the market with our industry-leading portfolio of products and services. However, any loss of competitive position could negatively impact our prices, customer orders, revenue, gross margin and market share. Should this occur, it could negatively impact our operating results and financial condition.

Acquisitions

We continuously evaluate strategic acquisitions and alliances to expand our technologies, product offerings and distribution capabilities. Acquisitions involve numerous risks, including management issues and costs in connection with integration of the operations, technologies and products of the acquired companies, and the potential loss of key employees of the acquired companies. The inability to manage these risks effectively could negatively impact our operating results and financial condition.

Patents and Other Proprietary Rights

We protect our proprietary technology through reliance on a variety of intellectual property laws, including patent, copyright and trade secret. We have filed and obtained a number of patents in the U.S. and abroad and intend to continue pursuing the legal protection of our technology through intellectual property laws. In addition, from time to time we acquire license rights under U.S. and foreign patents and other proprietary rights of third parties, and we attempt to protect our trade secrets and other proprietary information through confidentiality and other agreements with our customers, suppliers, employees and consultants and through other security measures.

Although we consider patents and other intellectual property significant to our business, no single patent, copyright or trade secret is essential to us as a whole or to any of our business segments.

No assurance can be given that patents will be issued on any of our applications, that license assignments will be made as anticipated, or that our patents, licenses or other proprietary rights will be sufficiently broad to protect our technology. No

assurance can be given that any patents issued to or licensed by us will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide us with a competitive advantage. In addition, there can be no assurance that we will be able to protect our technology or that competitors will not be able to independently develop similar or functionally competitive technology.

Government Regulations

We are subject to a variety of federal, state and local governmental laws and regulations worldwide, including laws and regulations related to anti-corruption, antitrust, data privacy, employment, environmental, foreign exchange controls, health and safety, immigration, import/export, intellectual property and tax. Compliance with these laws and regulations did not have in fiscal 2022, and is not expected to have in fiscal 2023, a material effect on our capital expenditures, financial condition, results of operations or competitive position.

However, any failure to comply with laws and regulations may subject us to a range of consequences including fines, suspension of certain of our business activities, limitations on our ability to sell our products, obligations to remediate in the case of environmental contamination, and criminal and civil liabilities or other sanctions. Changes in environmental laws and regulations could require us to invest in potentially costly pollution control equipment, alter our manufacturing processes or use substitute materials. Our failure to comply with laws and regulations could subject us to future liabilities.

Environmental, Social and Governance Initiatives

KLA strives to proactively manage and address the ESG topics most important to our stakeholders. We have integrated ESG considerations into many of our business practices and policies, and work together with our customers, peers, partners and suppliers to promote improvement in human rights, labor, environment, health and safety, anti-corruption, ethics and management system standards within our operations and our supply chain. Our ESG initiatives are another way in which KLA seeks to deliver long-term value for our stockholders and they exemplify our core values. For more on our core values, refer to the “Human Capital Management” section of this Item 1.

We have an ESG Steering Committee composed of global leaders within the organization that implements and executes our ESG strategy under the oversight of the KLA executive team and the Board of Directors. Training and awareness are central to the success of the strategy, and, as part of its responsibilities, the steering committee evaluates our policies and practices including our Code of Business Conduct to promote an effective outcome and adherence by our employees. Our ESG strategy is organized into four pillars based on the areas where we believe we have the greatest opportunities to make positive impacts:

Advancing Innovation: As a technological innovator, we seek to deliver solutions for our customers to increase production yields, reduce waste, and meet their own profitability and sustainability goals. Refer to “Research and Development” and “Patents and Other Proprietary Rights” of this Item 1 for more information on our efforts for advancing innovation. In addition to legal protections, we also work to protect our operations through a significant focus on cybersecurity. In addition to 24/7 monitoring through our KLA Security Operations Center, we engage in other initiatives such as cybersecurity assessments, employee training on cybersecurity issues and compliance monitoring. Our cybersecurity efforts are spearheaded by our Chief Information Security Officer, and cybersecurity updates are provided to the Audit Committee quarterly, or more frequently as needed.

Advancing Stewardship: We work across our global footprint to shape a more sustainable future. Our company-wide Environmental Management Policy establishes a commitment to complying with all applicable environmental laws and standards across company locations globally. KLA is committed to protecting and respecting our environment and energy resources for future generations throughout our manufacturing operations. As part of our efforts in striving to be better, we’ve established goals around climate and energy, waste and water management. For example, we have set a goal to use 100% renewable electricity across our global operations by 2030.

Advancing Opportunity: It is our goal to work together to harness the untapped human potential of a more just and inclusive world. Refer to the “Human Capital Management” and “Manufacturing, Raw Materials and Supply” sections of this Item 1 for information on our diversity and inclusion, human rights, health and safety initiatives.

Advancing Leadership: We aim to empower today’s leaders as well as tomorrow’s leaders by infusing our values in everything we do. Refer to the “Human Capital Management” and “Government Regulations” sections of this Item 1 for examples of our employee-centric culture and our commitment to operating our business responsibly in compliance with regulations and best practices worldwide.

For more information on ESG, see KLA’s 2019-2020 Global Impact Report on our website; however, this citation is provided solely for informational purposes and the content of KLA's Global Impact Report is expressly not incorporated by reference into this filing. We include details in our Global Impact Report that are not included in this Form 10-K because we

seek to be responsive to various areas of interest of our stakeholders; however, such information generally does not have a material effect on our capital expenditures, financial condition, results of operations or competitive position. In addition, no assurance can be given that our ESG initiatives will have the intended results or be able to be completed as currently envisioned, whether due to cost, feasibility or other constraints.

Human Capital Management

At KLA, our people drive our success, and we celebrate the diversity of backgrounds and experiences that all employees bring to the table. We recognize that our competitive advantage is our people and the technology they develop. As talent and retention continue to be a challenging issue for many companies, we strive to work proactively to address these concerns. We believe it is critical to attract, motivate and retain a dedicated, talented, and innovative team of employees who exhibit our core values. We also aim to support employees’ personal and professional growth. Our talent development programs focus on developing the whole person through comprehensive training offerings, employee engagement programs and health & wellness activities. We embrace our responsibility to lead through exceptional training programs and professional development and through enabling our employees to be safe, secure, healthy and feel included and empowered to bring their full self to work.

Our Core Values

At KLA, our core values – demonstrating perseverance; striving to be better; being honest, forthright, and consistent; building high-performing teams; and being indispensable to our customers – serve as a foundation for our relationships with employees, customers, suppliers, and other stakeholders and reflect a commitment to ethical business practices and corporate citizenship in the places where we do business.

Our Workforce

As of June 30, 2022, we had approximately 14,000 regular full-time employees and approximately 280 part-time and temporary employees in facilities located in 19 countries. Approximately 30% of our regular full-time employees are located in the U.S., 22% in Europe and Middle Eastern countries and 48% in Asia Pacific and Japan, with approximately 20% engaged in manufacturing, 26% in R&D, 31% in customer service, 4% in sales and marketing, and 19% in other roles. Except for our employees in Belgium (where a trade union delegation has been recognized) and our employees in the German operations of our MIE business unit (who are represented by employee works council), none of our employees are represented by a labor union. We have not experienced work stoppages and believe that our employee relations are good.

In fiscal year 2022, our overall turnover rate was 7.4%.

Compensation and Benefits

At KLA, our talent is the heartbeat of our organization. We value our employees as individuals and aim to recognize and support their needs so they can bring their best selves to work every day. We engage with our employees about what they need to be successful in and out of the workplace. We seek to achieve our objective of attracting, retaining, and motivating our workforce by linking a significant portion of compensation to Company and business unit performance. We seek competitiveness and fairness in total compensation with reference to peer comparisons and internal equity. In the first half of fiscal 2022 we performed a mid-year salary review and made adjustments to improve our competitiveness in the market. We enable employees to share in the success of the Company through various programs including an Employee Stock Purchase Plan (“ESPP”), equity compensation including restricted stock units (“RSU”), profit sharing and bonus plans.

In addition to providing our employees with competitive compensation packages, we have built out a robust suite of benefits to help foster the well-being of all employees. Our benefits are designed to meet the needs of employees and their families, including paid time off, parental leave, bereavement leave, health insurance coverage, flexible work arrangements, contributions to retirement savings and access to employee assistance and work-life programs.

We offer programs to employees to help improve their health and wellness habits. KLA’s virtual and in-person wellness course offerings span both physical and mental health. We offer in-person and virtual workout classes as well as seminars on mindfulness, meditation and other wellness topics. We hold online fitness classes that include body-tune up, yoga and other well-being classes like maintaining life balance, nutrition, importance of sleep, hydration and relaxation. Throughout our sites, we host a series of events and challenges, both virtually and in person, to encourage our employees to stay active. Our wellness program helps employees manage and improve their health and build healthy lifestyle habits in engaging ways.

We expanded hybrid work options and telecommuting. As the COVID-19 pandemic persisted through fiscal 2021 and into fiscal 2022, many working parents faced challenges balancing working from home and caring for their families’ needs. At KLA, we recognized those challenges and expanded our benefits to include remote learning and childcare leave for employees in the U.S. and some of our other locations. We offered parenting webinars through our Connecting Employees website for

parents to learn more about adolescent mental health. Some sessions have included helping teens through COVID-19, talking to children about racism, and supporting children with anxiety. We also offer courses on financial literacy and planning to help our employees prepare for their financial futures.

Inclusion and Diversity

The journey to becoming a truly inclusive and diverse global organization takes time, and we are deeply committed to this path. At KLA, Inclusion & Diversity (“I&D”) is a shared aspiration, commitment and responsibility, as well as a direct expression of our core values. We celebrate the diversity of our employees, customers and partners, and we are committed to fostering a culture of conscious inclusion.

Throughout fiscal 2022, we continued to strengthen our engagement on I&D. We are an equal opportunity/affirmative action employer and have increased our efforts to recruit, develop and retain a more diverse workforce with a focus on those historically underrepresented in the technology field, including women, Black and Hispanic/Latinx candidates.

Over the last fiscal year, we increased our I&D efforts in several ways. We continue to provide digital versions of our Values in Action training modules with a continued focus on I&D. New managers can hone their skills on unconscious bias, non-discrimination, and anti-harassment, and are introduced to a model of conscious inclusion that emphasizes key leadership qualities.

We also expanded our Employee Resource Groups (“ERG”) to engage employees in service of our I&D goals. In addition to the ERG called WISE (Women in STEM, Empowered), an employee-led group that includes people of all genders who have joined to support the professional growth of women at KLA and foster an inclusive environment, Konexión, our Hispanic/Latinx ERG where employees can interact and innovate through cultural sharing and understanding of the Latinx community, and MOSAIC, which comprises a diverse group of employees at KLA’s second North American headquarters in Ann Arbor, Michigan working together to build a culture of inclusion across all dimensions, all of which were launched in 2020, KLA also launched BELIEVE (Black Employees Leading in Inclusion, Excellence, Values and Education) in fiscal 2022. This ERG supports the recruitment and advancement of Black talent, while also promoting cultural awareness, understanding and allyship of the Black community. Our newest ERG is PRISM, where Pride, Respect, Inclusion and Solidarity Meet. PRISM's mission is to amplify KLA's commitment to equality and inclusion by encouraging a safe and open working environment for LGBTQ+ employees and allies.

As of June 30, 2022, our global workforce was 80% male, 18% female and 2% gender undisclosed, and 8% of our workforce in the U.S. was composed of Black or African American, and/or Hispanic/Latinx employees.

Learning and Development

We offer our employees opportunities to advance their careers at KLA. We emphasize stretch assignments, on-the job development, as well as classroom and online training. Our employees have access to a wide range of programs, workshops, classes and resources to help them excel in their careers and share what they know with others. Our performance management process includes performance feedback against goals, a review of key competencies that are needed to be successful at KLA and career development discussions.

We emphasize frequent 1-on-1 meetings between managers and employees and regular coaching and feedback sessions. Through coaching and mentorship programs, our employees are inspired to push the boundaries of their comfort zones and seek creative solutions.

If our employees pursue external learning opportunities and education, we support that too, through tuition reimbursement. Through our partnerships with San Jose State University and the University of Michigan, employees can pursue advanced degrees in engineering that are customized for KLA, and the skills and competencies required to support our customers. We also offer a competitive student loan reimbursement program in the U.S.

We have a robust succession planning process especially targeted at director level positions and above. Our Enterprise Leadership Program, a comprehensive, two-year management training program that we offer, helps to prepare KLA employees to fill future leadership roles. In fiscal year 2022, several of our managers and leaders went through the program. Additionally, our Values in Action training which was also targeted at the director level and above provided further guidance on our values, business ethics and about inclusion and diversity.

Most of our employees are also required to take annual training courses and regular certifications related to their work, including those pertaining to the environment, data privacy and workplace health and safety.

Employee Engagement

We conduct regular employee surveys to check in with our global workforce and obtain input on several topics. The feedback we receive from these surveys helps us assess employee sentiment, identify areas of improvement, and guides our decision-making as it relates to people management. In addition, our executives conduct regular weekly and quarterly webcasts. These global webcasts enable all employees to engage with senior leaders and ask questions in an open Q&A session.

As we began to emerge from the global pandemic in fiscal 2022 in parts of the world, many employees sought connection as never before. Through our annual Employee Engagement Surveys, which had an 85% response rate in fiscal year 2022, we identified the top priorities in a post-pandemic world. We created action plans to act on these priorities and engaged our workforce in identifying potential solutions to address these top concerns. Even though our survey rated our level of engagement as being “good,” we realize that we have several opportunities for improvement and will continue to involve our employees in seeking ways we can get even better.

Employee Health and Safety and Pandemic Response

The health and safety of our employees is paramount to our success. We are committed to providing a safe and healthy workplace for all employees. We accomplish this through strict compliance with applicable laws and regulations regarding workplace safety, including recognition and control of workplace hazards, tracking injury and illness rates, utilizing a global travel health program and maintaining detailed emergency and disaster recovery plans.

KLA’s top priority during the COVID-19 pandemic has been and continues to be protecting the health and safety of our employees and their families, our customers, and our community. The continuing demands of COVID-19 required that we build upon our global approach to employee health and safety (“EHS”) with strong collaboration across the regions. This has resulted in the adoption of best practices for each of our sites, improving business resiliency and EHS worldwide. In addition, our flexible work options have enabled employees to remain safely at home during quarantines to support their families and prevent cross-contamination in the workplace. Through this period we continued the implementation of an infectious disease playbook, work from home programs, health check protocols, screenings for all employees working on-site, new process workflows at physical sites to ensure reduced contact for employees working on-site, contact tracing processes and protocols, quarantining and testing protocols for exposure and positive tests, on-site vaccination clinics, travel guidelines and protocols to ensure employees who must travel for work can do so safely and phased return-to-work plans and approval processes to enable non-manufacturing employees to return-to-work when permitted by local government regulations.

Our goal is always zero accidents across our facilities, and to achieve that, we proactively conduct risk assessments and audits to constantly improve our efforts. We implemented a global standard for our incidents to ensure consistency across our regions, and continually outperform industry averages for injury rates. We are committed to reducing safety risks across business units and at corporate sites worldwide. We revised our approach to risk assessments to “risk rank” our own operations. We are utilizing this system not only to measure our own performance, but also to help improve the performance in our supply chain and with our customers. Our excellent safety record is a tribute to our employees' efforts, the breadth and depth of our training programs, and our dedication to safety policy management. All new hires are required to complete a health and safety training program. In addition, our service technicians are required to achieve and maintain role-specific safety training certifications.

We made a commitment to globalize our ISO 45001 (Occupational Health & Safety Management Systems) certification and expand our ISO 14001 (Environmental Management Systems) certification beyond our larger sites. The goal is to execute these plans through calendar year 2024.

Glossary

This section provides definitions for certain industry and technical terms commonly used in our business, that are used elsewhere in this Annual Report on Form 10-K:

compound semiconductor						A semiconductor formed from chemical elements in two or more different groups in the periodic table (ex. III-V). The composition of these materials influences their properties, resulting in different performance than silicon when used in electronics. Primary examples include SiC, GaN, gallium arsenide (GaAs), and indium phosphide (InP).
design rules						Rules that set forth the allowable dimensions of particular features used in the design and layout of ICs.
die						A single semiconductor chip on a wafer.
epitaxial silicon (“epi”)						A substrate technology based on growing a crystalline silicon layer on top of a silicon wafer. The added layer, where the structure and orientation are matched to those of the silicon wafer, includes dopants (impurities) to imbue the substrate with special electronic properties.
etching						A process step in which layers of material are removed from a semiconductor wafer in a specific pattern.
excursion						For a manufacturing step or process, a deviation from normal operating conditions that can lead to decreased performance or yield of the final product.
fab						The main manufacturing facility for processing semiconductor wafers.
flat panel display (“FPD”)						A display appliance that uses a thin panel design. Also includes flexible displays.
geometry						The surface shape of an object, such as the 3D shape of a semiconductor device structure or the shape of base or patterned wafers
in situ						Of processing steps or tests, done without moving the wafer. Latin for “in original position.”
ingot						A piece of pure metal intended to be processed. In semiconductors, a silicon ingot is typically created in such a way that slicing cross-sections creates bare wafers.
interconnect						A highly conductive material, usually copper or aluminum, which carries electrical signals to different parts of a die.
internet of things (“IoT”)						A network of devices with the ability to transfer data without human interaction.
light emitting diode (“LED”)						A semiconductor device that releases electromagnetic radiation (light) when current flows through it. The bandgap of the semiconductor material determines the wavelength (color) of the light emitted.
lithography						A process in which a masked pattern is projected onto a photosensitive coating that covers a substrate.
metrology						The science of measurement to determine dimensions, quantity or capacity. In the semiconductor industry, typical measurements include critical dimension, overlay and film thickness.
microelectromechanical systems (“MEMS”)						Micron-sized mechanical devices powered by electricity, created using processes similar to those used to manufacture IC devices.
micron						A metric unit of linear measure that equals 1/1,000,000 meter (10-6m), or 10,000 angstroms (the diameter of a human hair is approximately 75 microns).

patterned						For semiconductor manufacturing and industries using similar processing technologies, substrates that have electronic circuits (transistors, interconnects, etc.) fabricated on the surface.
photovoltaic						The property of semiconductor devices to create electric current through exposure to sunlight.
printed circuit board (“PCB”)						A board used to mechanically support and electrically connect various electrical and mechanical components.
process control						The ability to maintain specifications of products and equipment during manufacturing operations.
reticle						A very flat glass plate that contains the patterns to be reproduced on a wafer.
silicon on insulator (“SOI”)						A substrate technology comprised of a thin top silicon layer separated from the silicon substrate by a thin insulating layer of glass or silicon dioxide, used to improve performance and reduce the power consumption of IC circuits.
substrate						A wafer or other material on which layers of various materials are added during the process of manufacturing semiconductor devices (circuits), FPDs or PCBs.
unpatterned						For semiconductor manufacturing and industries using similar processing technologies, substrates that do not have electronic circuits (transistors, interconnects, etc.) fabricated on the surface. These can include bare silicon wafers, other bare substrates or substrates on which blanket films have been deposited.
yield management						The ability of a semiconductor manufacturer to oversee, manage and control its manufacturing processes so as to maximize the percentage of manufactured wafers or die that conform to pre-determined specifications.

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The definitions above are from internal sources, as well as online semiconductor dictionaries such as https://www.semiconductors.org/semiconductors-101/frequently asked questions/. Such citation is for informational purposes only and the content referenced is not otherwise incorporated by reference herein.