應用材料 (AMAT) 2011 Q1 法說會逐字稿

完整原文

使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主

  • Operator

  • Welcome to the Applied Materials first quarter of fiscal 2011 conference call.

  • During the presentation all participants will be in a listen only mode.

  • Afterwards, you will be invited to participate in a question and answer session.

  • As a reminder this conference is being recorded today, February 24, 2011.

  • Please note that today's call will contain forward-looking statements, which are all statements other than those of historical fact.

  • Including statements regarding Applied' s performance, industry outlooks, market positions, products, operational initiatives, expenses, tax rate, segment performance, expectations, and Q2 and fiscal year 2011 business outlook.

  • All forward-looking statements are subject to known and unknown risks and uncertainties, that could cause actual results to differ materially from those expressed or implied by such statements.

  • Information concerning these risk factors is contained in today's earnings press release and in the companies filings with the SEC.

  • Forward-looking statements are based on information as of February 24, 2011, and the Company assumes no obligation to update such statements.

  • Today's call also contains non-GAAP financial measures.

  • Reconciliations of the non-GAAP measures to GAAP measures are contained in today's earnings release or in the financial highlights slides which are on the investor page of our website at www.appliedmaterials.com.

  • I would now like to turn the call over to Michael Sullivan, Vice President of Investor Relations.

  • Please go ahead, sir.

  • - VP, IR

  • Thank you Carrie, and good afternoon.

  • Joining me today are Mike Splinter, our Chairman and CEO, George Davis, our Chief Financial Officer, and Joe Sweeney our General Counsel and Corporate Secretary.

  • Today we'll discuss the results for our first quarter which ended on January 30.

  • Our earnings release was issued at 1.05 Pacific time and you can find a copy on our website www.appliedmaterials.com.

  • Also on the website is our quarterly financial highlights presentation, which provides additional details.

  • Mike Splinter will lead off today's call with comments on the business environments along with our results and strategies.

  • And then next, George will discuss our financial performance in Q1 and our expectations for Q2 and the rest of the year.

  • We'll then open the call for your questions.

  • Before we begin I have a quick calendar announcement.

  • Applied will hold its 2011 Investor and Analyst meeting in New York City on the morning of March 23 local time.

  • We hope to see many of you there and we'll have a live webcast and replay, for anyone who won't be able to join us in person.

  • We'll be sure to provide you with further details about the event over the next few weeks.

  • And with that I would like to hand the call over to Mike Splinter.

  • - Chairman, President and CEO

  • Thanks, Mike.

  • And good afternoon to everyone on the call today.

  • I'm pleased to report that Applied Materials started our 2011 fiscal year with a very solid first quarter.

  • We posted revenue of $2.7 billion, generated $659 million in non-GAAP operating income, and delivered earnings that exceeded the high end of our target.

  • Orders were approximately $3 billion.

  • Backlog is building and our outlook for the year as a whole is improving.

  • For Applied, 2010 was a year of share gains and increasing profitability.

  • We have carried this momentum into 2011.

  • I'm especially pleased with the performance of our innovation engine.

  • Last year, Applied ranked eighth in the US and 33rd in the world for international PCT patent filings.

  • I'd like to recognize our technologists and engineers for this noteworthy achievement.

  • Let me now turn to the economic outlook.

  • 2010 was a strong recovery year across the board, and 2011 is shaping up to be even better for our semiconductor service and solar businesses.

  • Since the start of the year, we have seen increasing optimism about the macro environment.

  • Although this is tempered with realism about risk factors including inflation, political instability, and unemployment.

  • Strong demand for consumer electronics is being generated by innovative new products.

  • And this is driving our semiconductor and display customers to invest in capacity and new technology.

  • The market for Smart phones grew 55% in 2010, and similar growth is forecast for 2011.

  • We're seeing promise of the tablet market being realized with 11 million units sold in the last three months of the year.

  • There is an exciting line up of new tablets ready for launch, and we expect sales to be in the range of 60 to 70 million units this year.

  • The solar market exceeded our expectations in 2010, with over six gigawatts of PB modules installed in the last calendar quarter.

  • Bringing the total for the year to 17 gigawatts.

  • We believe this robust growth will continue in 2011 and we anticipate panel installations to be in the range of 21 to 25 gigawatts.

  • Germany and Italy are projected to make up over half of the market this year, while California and China are becoming increasingly significant.

  • I'll now provide an update for each of our segments.

  • In semiconductor, Smart phones and tablets are driving demand for mobile chip sets and solid state storage.

  • Which translates to strong investments by our foundry, logic and NAND customers.

  • We maintain our view that PC growth will determine overall timing of DRAM investment.

  • And this remains the biggest swing factor in our WFE forecast.

  • We believe DRAM prices have now bottomed out and this is a positive sign for an eventual increase in spending.

  • Following recent announcements by our largest customers, we now see WFE spending for calendar 2011 in the range of $34 billion to $36 billion, an increase of 10% to 15% over 2010, and well above our previous view.

  • We also see capital intensity increasing, particularly in foundry, as the foundries transition to advanced processes at 40 and 28 nanometers, their capital intensity will reach the highest level in 10 years.

  • Over the past two quarters, there has been a significant shift in the spending mix.

  • Foundry and logic are increasing as a percentage of overall WFE.

  • With foundry projected to be close to 40% of the total spending in 2011.

  • NAND investment will approach its previous high while DRAM spending is expected to drop to less than 15% of WFE, its lowest level in over a decade.

  • We believe we gained about two points of 300 millimeter WFE share in 2010.

  • And we anticipate gaining at least another point of share in 2011, despite a mix that is slightly unfavorable to Applied.

  • Our gains in PDC are being fueled by customers renewed investments in radical inspection, combined with net positional wins with our Uvision brightfield inspection tools at logic and foundry customers.

  • And the adoption of our new Centrus platform for double patterning and hard mask applications, should help offset an unfavorable mix effect, and enable us to maintain market share following nearly four points of gain in 2010.

  • In summary, our growth and profitability in SSG is being fueled by innovative products and strong customer relationships.

  • We have a rich product pipeline and a plan to launch over 12 new products in 2011.

  • We see momentum building as the year progresses and based on the timing of customer investment plans, we expect our revenue to be second-half loaded.

  • In services, our market is growing with wafer starts projected to increase in the range of 5% to 7% this year.

  • AGS's growth was driven primarily by our parts and services business, combined with strong demand for 200 millimeter tools.

  • However profitability was impacted by performance in our 200-millimeter equipment business.

  • We've made a number of changes to our operations and organization.

  • These are already having a positive impact and we expect to see improvement in AGS's financial performance as the year progresses.

  • In Display, while TV growth remains strong with over 70 million units shipped in the final quarter of 2010, we expect CapEx for this segment to be down by approximately 30% in 2011, dropping to around $9 billion.

  • However, this traditional downturn in LCD investment cycle is being partially offset by strong investment in new technologies, as customers add capacity for touch panels and high performance LCD NOLED displays used in tablets and Smart phones.

  • Applied has excellent share in both of these markets, and this year we expect to generate more than $250 million of revenue from products that serve these new applications.

  • In solar, as the industry scales crystalline silicon module prices continue to fall, reaching spot prices as low as $1.50 per Watt in calendar Q4.

  • Our top customers remain profitable, are running their factories at full utilization and are increasing capacity.

  • We are now projecting crystalline silicon CapEx for 2011 in the range of $7 billion to $9 billion, an increase of about 30% year-over-year.

  • We expect 90% of this new capacity to be added in China and Taiwan.

  • In the first quarter, our solar business set new records for profitability, Buccini and PWS each shipped over 200 systems, more than the total number of units shipped in the first three quarters of 2010.

  • Recently our PWS group passed an important milestone by shipping their 2,000th wire saw.

  • Crystalline silicon books are at a record level indicating another strong quarter of growth in Q2.

  • Our visibility through the second half of the year is strengthening, but is still limited.

  • In summary, Applied began 2011 with a strong first quarter and growing momentum across the Company.

  • 2011 is shaping up to be an excellent year for all of our businesses.

  • And based on our current view of the market, we expect to exceed $11 billion of revenue for the first time in our Company's history.

  • Our strategy is working effectively resulting in share gains in our core businesses, growth in new businesses, and greater efficiency and profitability.

  • Now let me hand the call over to George for further comments on our performance and outlook.

  • George?

  • - EVP, CFO

  • Thank you, Mike.

  • Let me add my welcome to everyone joining us on the call today.

  • During our first quarter of 2011, Applied delivered earnings and net sales above the high end of our target ranges lead by our SSG and EES segments.

  • Compared to our results from one year ago, net sales were up 45% and non-GAAP earnings per share grew more than 170%.

  • This performance highlights the financial leverage in our business models, and underpins the strong year-over-year earnings performance improvement we expect to see in 2011.

  • Now, I will review our results versus the prior quarter.

  • Orders were down slightly with significant growth in solar, partially offsetting reductions in our other businesses.

  • Backlog increased to $3.5 billion, a 9% increase.

  • Net sales declined 7% to $2.7 billion as record crystalline silicon sales partially offset the expected drop in thin film solar and display sales.

  • Non-GAAP gross margin of 43% was up slightly from last quarter as improved EDS margins more than offset lower margins in our other segments.

  • Non-GAAP operating expenses of $486 million were better than our target range.

  • This quarter included some one-time savings and absent these items, expenses would have been at about the mid point of our target range.

  • Next quarter, we expect OpEx will fall within the range of $510 million to $530 million with the increases targeted for field support of semiconductor customers and to address market share opportunities.

  • These customers are investing aggressively to ramp technology and capacity and expect us to increase our support.

  • This theme is expected to continue throughout the year.

  • Non-GAAP earnings per share were $0.36.

  • GAAP earnings per share were $0.38 and included the benefit of an adjustment to our restructuring reserves and the R&D tax credit.

  • Our tax rate for the quarter was 25.5% and included a two point reduction to reflect the R&D tax credit adjustment.

  • We expect our effective rate for 2011 will be in the range of 27% to 28%, about a five point reduction from our rate in 2010.

  • This improvement is primarily due to the implementation of our Singapore operations hub and Asia based supply chain.

  • Operating cash flow was $425 million or 16% of sales.

  • We returned $243 million to shareholders through the repurchase of 11 million shares for $150 million.

  • And the payment of dividends of $93 million.

  • Cash and investments ended the quarter at $4.1 billion up over $200 million from last quarter.

  • I'll now comment on our operating segments.

  • Silicon Systems Group orders were down 4% as DRAM bookings dropped nearly 40% partially offset by higher foundry and flash demand.

  • Three customers accounted for over 60% of SSG bookings this quarter, up from about 35% over the past two quarters.

  • Net sales were a modest 1%, excuse me were up a modest 1%, and margins declined by less than two points due to mix and the impact of a settlement.

  • As a result of customers' increased capital spending announcements, we expect net sales of SSG will begin to ramp in our fiscal third quarter.

  • AGS orders declined 13% primarily due to lower demand for refurbished equipment.

  • Net sales increased in line with higher wafer starts and some improvements in 200-millimeter equipment deliveries.

  • Operating margins declined due to the continuing challenges in our 200 millimeter supply chain and the higher proportion of that business in AGS net sales.

  • We expect to absorb the bulk of the remaining low margin backlog in this quarter.

  • And see a return to more typical margins in our third and fourth fiscal quarters.

  • Display orders decreased 19% on lower demand for LCD equipment.

  • Net sales were down 48% reflecting expected cyclical decline.

  • Display operating margins were lower in line with the fall off in sales and the mix effect of sales into the O-lead and Touch Screen markets.

  • We expect our first and second fiscal quarters to represent the bottom of the cycle for the LCD market, and that we will see a recovery in the second half of the year.

  • In the EES segment, orders increased to a record $668 million with new highs in the Buccini and PWS solar businesses.

  • Net sales declined less than expected to $476 million.

  • Sales of crystalline solar equipment grew almost 30%, partially offsetting the large SunFab sign off that occurred in the prior quarter.

  • Operating margin for the quarter of 30% reflected a favorable adjustment of $28 million related to the EES restructuring last year.

  • The non-GAAP segment operating margin exceeded 25%.

  • Margin performance in EES is well ahead of our model and reflects operating leverage on higher volumes, a concentration of Buccini sales, and the benefits of our restructuring.

  • Next let me talk about our expectations for the second quarter.

  • We expect Silicon Systems Group net sales to be in line with the first quarter.

  • AGS net sales are expected to grow about 3% reflecting higher wafer starts.

  • In display, we believe net sales will be flat quarter-over-quarter.

  • We expect EES net sales to be up at least 10% on strong demand from China, with a heavier mix of sales to wafering customers.

  • Overall, we expect the Company's second quarter net sales to be flat to up 5% with shipment timing in semiconductor and solar as the biggest swing factors.

  • We expect our Q2 non-GAAP earnings to be between $0.34 and $0.38 per share.

  • Looking ahead, we see momentum building for our strongest year ever and now expect fiscal year non-GAAP earnings per share to exceed $1.50 at the $11 billion revenue level based on the market sizing Mike described.

  • This would represent a 70% increase in our non-GAAP earnings per share on a 15% increase in revenue.

  • We will provide more details about our full year financial outlook at our Investor and Analyst meeting on March 23, from New York City.

  • Now, Mike let's open the call for questions.

  • - VP, IR

  • Thanks, George.

  • To help us reach as many of you as we can, please ask just one question and no more than one brief follow-up.

  • Carrie, let's please begin.

  • Operator

  • (Operator Instructions)Your first question comes from Jim Covello with Goldman Sachs.

  • - Analyst

  • Hi, this is Mark Delaney calling for Jim.

  • Thanks very much for taking the question.

  • Mike, I was wondering if you could start, I know in prior quarters you were more cautious that there could be potentially some excess supply building in the crystalline segment.

  • I was wondering if you could give us an update behind what's making you more positive on the outlook for that area now.

  • - Chairman, President and CEO

  • Sure.

  • Well there's a number of things.

  • If we just start with demand, if we look back at Q4, we saw over six gigawatts of capacity -- being a module capacity being installed in the field in Q4.

  • When you look at that on a run rate basis, that requires about 25 gigawatts of capacity, yearly capacity.

  • We think operationally today there's about 28 gigawatts that are really in effective production.

  • So that means all the factories are full.

  • That's why our major customers are seeing factories full and that's why they're aggressively adding capacity.

  • Still -- and now when you think about -- end demand for 2011, we think it's going to be very strong.

  • As I said we think Germany and Italy will lead the way, but there are just many other countries getting into the mix, not only in Europe but now throughout the rest of the world.

  • Still our visibility into the second half while it's improving, and I would say strengthening, it's still hard to see in this market the second half of the year.

  • We have to see continued demand growth to justify the capacity, but today there's not enough silicon, not enough wafering capacity to meet the demand that we expect to occur this year.

  • - Analyst

  • Thanks, and George, a quick follow-up question for you.

  • You talked about increasing OpEx for some targeted opportunities.

  • Wondering if this changes any of your longer term plans on the cost reduction opportunities from the move to Singapore.

  • Thanks guys and congratulations.

  • - EVP, CFO

  • Thanks Mark.

  • No, it doesn't really change our plans.

  • The move of activities -- out of our Singapore operations hub is a long term commitment to, number one, first and foremost meeting our customers needs with the shortest possible cycle times.

  • We have a largely Asia-based customer base now, and so there's a lot of reason to continue that.

  • The spending is really more a function of opportunities, one to build on our market share momentum in the semiconductor area but also just the sheer volume of activity that we're seeing picking up with our customers.

  • They're looking for us to help them.

  • A lot of this activity is at the very leading edge, and so -- it's something that we need to do and we think we'll have a very good return.

  • - VP, IR

  • Thanks, Mark.

  • Operator

  • Your next question comes from Krish Sankar with Banc of America Merill Lynch.

  • - Analyst

  • Thanks for taking my questions.

  • Good results guys.A couple of them, number one, Mike you hinted the second half should be better than the first half.

  • Is that across all your different segments or is it mostly silicon and you expect ES/solar to slowdown in fiscal second half?

  • - Chairman, President and CEO

  • Well we do expect silicon and services and display to have a better second half.

  • I think the unknown is exactly what's going to happen in Q3 and Q4 in solar.

  • And as I said, our view is strengthening but we still have to get some conviction.

  • And we'll talk about it a little bit more in the Analyst meeting at the end of March, and give you an update at that time, but you essentially have it right.

  • - EVP, CFO

  • And Krish, think about it.

  • We're running at almost the $2 billion a year run-rate for solar right now.

  • Which is almost 2-X what we had forecasted at the beginning of the year.

  • So we think the year is going to be better but it's too early to say it's going to be that good.

  • - Analyst

  • Got it, and then a quick follow-up.

  • George, you've done a fantastic job in the operational enhancement.

  • Which innings are we in that?

  • And how do we think about it going forward because given that you're shipping at the same time you're trying to lower costs.

  • Where do you think the steady state OpEx should be at a $2.7 billion run rate for you guys.

  • Thank you.

  • - EVP, CFO

  • Well, in a deeply cyclical business, it's very hard to get a single run rate.

  • But the fact of the matter is we feel very good about where our cost structure is today, and the types of things that we're flexing are the things that you want to flex in response to opportunities.

  • But we still have a very strong variable cost structure and so we know that if we need to, we have the ability to flex the other way as well.

  • In terms of kind of our -- what inning we're in, we have a continuous improvement mentality so we don't believe in innings.

  • It's kind of you got to keep looking for opportunities to be more efficient and effective.

  • And so I would say though, just to use your analogy we're in the early innings still in our Singapore operations hub.

  • So there's -- I think over the next five years we'll see the full benefit of that, but our mentality is about continuous improvement is intact.

  • - VP, IR

  • Thanks, Krish.

  • Operator

  • Your next question comes from Stephen Chin with UBS.

  • - Analyst

  • Hi, great.

  • Hi Mike and George, congrats on the execution.

  • I wanted to follow-up on how to think about the silicon segment operating margin going forward.

  • I was wondering, is this negative impact in the January quarter from, I guess, the settlement with Samsung kind of one-time in nature?

  • Maybe for some pent-up demand from Samsung?

  • Or is the slow operating margin penalty kind of the right way to think about silicon margins for the rest of 2011?

  • - EVP, CFO

  • Stephen, as we said we think the effect of the settlement doesn't fundamentally pull us out of our business model or the semiconductor business.

  • Worst case maybe one point, and quite frankly, I think what you're seeing is we came off of a very, very strong Q4.

  • If you look over the last several quarters, this Q1 '11 would actually be the second strongest quarter they've had in multiple quarters in terms of operating margin.

  • So I think we had a little bit of a mix issue compared to Q4, a little bit of impact from the settlement but the business model is intact.

  • - Analyst

  • Thanks, George.

  • And maybe a follow-up question, Mike, for the silicon market share gain goals.

  • I know you gained two points last year and you're thinking it could be one point this year.

  • I know you said mix is having an impact.

  • Is that just because your end customers are spending less this year, and that's where you've got strong share or is there more to that?

  • - Chairman, President and CEO

  • No more to it than that.

  • We've been surprised how far down DRAM orders and revenue have dropped and how fast they've dropped.

  • We knew that DRAM wasn't going to spend as much but it's running at a pretty low level right now.

  • I don't want to make too big of a deal about that, but we're pretty confident about our share gain.

  • With foundry spending we're going to gain in PVD and CMP.

  • And people at 28 nanometers now have to buy new radical inspection equipment and we've positioned our tools there very, very nicely.

  • So, I think those areas are going to provide the biggest pop on share gain in SSG.

  • - Analyst

  • Thanks, Mike.

  • Operator

  • Your next question comes from Atif Malik with Morgan Stanley.

  • - Analyst

  • Hi, thanks for taking my question.

  • And Mike and George, good job on the numbers and the guidance.

  • A question on the display intensity.

  • You talked about how the semiconductor intensity is rising because of the foundries.

  • And we've seen pretty large investments made by Apple and Qualcomm and other guys in the small and medium display panels and screens for Smart phones and tablets.

  • So I was wondering if you can talk about your dollar opportunity per unit of that CapEx?

  • And as a follow-up, if you can talk about whether Applied will be willing to do some kind of a joint venture with your customers in setting up a line or two, thanks.

  • - Chairman, President and CEO

  • Okay, so in display we kind of have this segmented in the more traditional TV market where I commented investment will be down.

  • Now, it's almost like there's a new segment here with touch panels with OLED and the high performance LCD displays for tablets and Smart phones.

  • And what we're seeing this year is about $500 million overall investment for that.

  • We'll get our products will get more than half of that, actually probably more than 60% of that spending.

  • We think that spending is going to continue and increase into next year, as both volume goes up and more companies adopt these high performance displays.

  • We think there's really no choice there but to add-on to it.

  • As far as I think customers, especially the customers who immediate to invest in this space are quite capable of supplying the dollars, I don't think that we want to supply to all of them.

  • And that would not be a good idea for us at this point to JV with just one of them.

  • - Analyst

  • Thanks.

  • Operator

  • Your next question comes from Tim Arcuri with Citigroup.

  • - Analyst

  • Hi, Mike.

  • Thanks a lot.

  • Two things.

  • I guess as it relates to your share, if I look at your WFE share, it was about 20%, if I sort of back into the numbers for calendar 2010.

  • That's about flat with what it was the year prior, despite probably there would be some packaging revenues in there as well.

  • So, how would you expect your share to shake out in the next forward years, because it would appear you're gaining share yet in WFE.

  • Thanks.

  • - Chairman, President and CEO

  • Well I think Tim, if we look at our number for 2009, it was pretty close to 18-plus, so -- and our number for 10 is 27, so we can get offline and get the details so we can make sure we have the right numbers.

  • And so, just add another percent this year, but we think that this trend of one to two points a year can continue for a few years.

  • - Analyst

  • Okay, and then Mike, just as I look at the bookings.

  • If the second half of the fiscal year or if the revenue for the fiscal year will be more second half loaded, that would seem to imply another strong bookings quarter in April, probably in the similar range.

  • So if I sort of look at that, does that imply given that you're sort of at a $12 billion bookings run rate, and you're saying that revenue for the year will be 11-plus, does it sort of imply bookings have topped out here or do you think as you kind of look at how all of the businesses mix together that bookings can still go higher here throughout the rest of the year?

  • Thanks.

  • - EVP, CFO

  • Tim, it's George.

  • Why don't I take a shot at that.

  • Our view is we're clearly seeing very strong bookings for the solar business right now.

  • We expect orders to pick up for our semiconductor customer throughout the year.

  • And display, we're still at the cyclical bottom, so we should see improvement there as well.

  • And I would expect AGS to be a little bit more ratable going forward.

  • So I think those elements would drive you to have an order outlook that's in line with a stronger second half.

  • And that's on top of an environment where DRAM orders are dropping significantly.

  • - Analyst

  • Right, okay George.

  • Thanks a lot.

  • Operator

  • Your next question comes from CJ Muse with Barclays Capital.

  • - Analyst

  • Good afternoon.

  • Thank you for taking my question.

  • I guess if you look at silicon coming in back end loaded, and then service improving through the year in LCD at a cyclical trough, and I guess on EES.

  • Can we assume or can you help us here in terms of the operating margin?

  • It would appear we should see at least 200 or 300 bips of improvement through the year.

  • Is that the right way to think about it?

  • - EVP, CFO

  • I think if you take a look at our published models for operating margin, that's consistent with that.

  • And you would also expect to see that with a strong SSG second half.

  • - Analyst

  • Okay, that's helpful, and then I guess real quickly as a follow-up, in terms of the variance in the 34 billion to 36 billion WFE guide, what would drive the uptick there?

  • Would that be a resumption from DRAM or is that still more foundry logic base?

  • - Chairman, President and CEO

  • I think it can be -- the biggest thing is we said was DRAM, and because it's at such a low level.

  • And whether it comes back in the second half of the year or the beginning of 2012, it makes me have more confidence in the length of this cycle.

  • When you look at what memory is as a percent of WFE right now, it's around 30%.

  • Back in '07 at the previous peak, it was 70%, so that is a lot of-- and spending was roughly at the same level overall.

  • So I think there's a lot of room to move in the memory area.

  • But of course we've got to see strong PC growth to warrant that.

  • But I'm encouraged because prices, I expected prices to kind of DRAM prices to hit bottom around June, to hit bottom in January starting to strengthen already.

  • So I think that's a good omen for late in the year investments in DRAM.

  • - Analyst

  • Great.

  • Thank you.

  • Operator

  • Your next question comes from Edwin Mok with Needham & Company.

  • - Analyst

  • Hi thanks for taking my question.

  • First question on the solar side.

  • Can you remind us what your lead time right now?

  • And my understanding is lead time is still pretty long.

  • If that's the case shouldn't you have some visibility in the back half?

  • - EVP, CFO

  • Edwin, the lead time is still about four to six months for our equipment, and the factories are pretty much all full out.

  • - Analyst

  • I see, so with that lead time you should have bookings in the second half, wouldn't that be the case?

  • - EVP, CFO

  • That's part of it and we have backlog today of about a $1 billion in EES already.

  • So you've got healthy backlog and the things that we'll be shipping in Q2, we've been working on for a period of time already.

  • And much of it's already secured by LC, so -- this is a pretty straightforward market in terms of linking all those elements.

  • - Analyst

  • Great and just a quick follow-up on display.

  • You mentioned around $250 million of revenue in new applications.

  • Is that on top of the 30% capital spending decline that you expect for the industry?

  • And are those mostly come from PCB or does some of that come from PVD?

  • - Chairman, President and CEO

  • Yes, that's on top of the 30% decline.

  • We're trying to separate the TV market from the new applications market.

  • It's web coaters primarily.

  • - Analyst

  • Great.

  • Operator

  • Your next question comes from Patrick Ho with Stifel Nicolaus.

  • - Analyst

  • Thanks a lot, and also congrats on a great quarter.

  • First off in terms of your last comment about the solar capacity that you have in house being I guess all full out right now.

  • How much do you believe you need to add to your own internal capacity to meet both existing as well as the future demand?

  • - EVP, CFO

  • I mean, I think we feel good about where the capacity is today.

  • If we can meet this quarter, I think that will be a good stress test.

  • And so we're confident we can support the quarter and we'll just see how the second half of the year plays out.

  • - Chairman, President and CEO

  • And our teams have been very good at quickly adjusting capacity, if you think back to the first part of 2010.

  • We were delivering one-third of these volumes so the team has responded very, very quickly so a supply chain here is pretty flexible.

  • - Analyst

  • Great.

  • And I know you guys talked about this in the past as a growing area for your silicon systems business on the advanced wafer level packaging.

  • And can you describe where we are on that front, and whether that's a driver for some of the share gains you're looking for in 2011?

  • Thank you.

  • - Chairman, President and CEO

  • It will be a small driver of share gains in 2011.

  • We really expect production volumes in 2012 and we've estimated 2012 it will be about a $500 million market, and much smaller than that and in 2011.

  • But we have very high share of the total.

  • - VP, IR

  • Thanks, Patrick.

  • Operator

  • Your next question comes from Jagadish Iyer with Arete Research.

  • - Analyst

  • Thanks for taking my question, Mike and George.

  • Two questions.

  • First, I just wanted to find out on the trajectory of the display margins given that you have these two new productlines, which are going to be contributing about 250 million.

  • So I just would like to know about the trajectory of the operating margins.

  • - EVP, CFO

  • The OLED and touch panel equipment is, quite frankly, older generation equipment for us, and it has been really outside commercial arena for a few years now.

  • So it hasn't gone through the supply chain actions that we've taken on our core and active products, that have improved the margins over time and really meet the display model.

  • As this market develops, we will do that and the margins on this equipment will look a lot like the display margins overall.

  • So we'll talk at the March meeting, we'll go into the business models going forward but it's not -- it won't be a material change in the business model for display.

  • - Analyst

  • And just to follow-up on Mike, on your thoughts on the NAND spending, do you believe that it will continue to grow in 2012?

  • And if so, if DRAM also comes back, do you think 2012 could be a blockbuster year for memory spending?

  • - Chairman, President and CEO

  • I'm not going to ask you to define blockbuster, but I do think NAND spending has to continue to increase.

  • And part of this assumption of course is that NAND density and tablets is going to continue to go up double essentially year-on-year, and then tablets will double again in 2012.

  • So I think NAND spending has to continue to go up from here.

  • DRAM has to come back.

  • Whether that results in a blockbuster or not, I have no idea.

  • But it's going to be positive the second half of the year and into 2012 I believe will be very positive for memory.

  • - Analyst

  • Congratulations.

  • Thanks.

  • - VP, IR

  • Thanks.

  • Operator

  • Your next question comes from [Gus] Richard with Piper Jaffrey.

  • - Analyst

  • Yes, thanks for taking my questions.

  • A couple quick ones.

  • George, just help me out as I model going forward.

  • What's the range of gross margins understanding that there's a mix component to that, what would you expect that to be over the next year and a half?

  • - EVP, CFO

  • I think you've seen the range.

  • What we're seeing in -- for instance in this quarter was while it was flat, there was a lot going on.

  • And if you look at the kinds of things that -- the mix -- the potential mix effects as we get a recovery in display, that helps lift our overall gross margins.

  • But as we get a higher mix of solar, it has lower gross margins in kind of our average margin as a Company, even though as you see the operating performance was just outstanding this quarter.

  • So a very strong solar is a good story, but it will bring down our average gross margin a little bit.

  • We don't see any fundamental change to the gross margin structure of our semiconductor business, and AGS, which has struggled in the first couple quarters of this year will improve in the second half.

  • So I expect overall the second half will be a stronger gross margin period for the Company.

  • But any time you have a large load of solar, that will dilute it a little bit but again, the profitability there is far more attractive.

  • - Analyst

  • So we can kind of think of a -- 42 to 45 gross margin range, sort of where you'll operate going forward?

  • - EVP, CFO

  • Sure.

  • I think that's a reasonable range, you can widen it out or 41 to 45 is probably okay.

  • - Analyst

  • Okay, got it.

  • And then Mike, just looking at the PC market, it appears to me we're getting a shift to Smart phones and tablets.

  • That's a lot of high leading edge, low margin silicon that probably drives a lot of consumption.

  • What are you thinking about PC unit growth going forward this year?

  • And where would it become a problem in terms of your thoughts of the over $11 billion this year?

  • - Chairman, President and CEO

  • We're still thinking 10 or greater, 10% or greater PC growth this year driven a lot by emerging markets and corporate.

  • And so I think that's still a pretty positive view about PCs, and I think it will drive more DRAM investment.

  • Where could it get where it starts to have problems with our model, I can't really quite say because I think the big part of the swing here is what would happen at Intel if the numbers went down dramatically.

  • So I think they're pretty committed to their capacity expansion and they have a pretty clear view of their market.

  • - VP, IR

  • Gus, thanks.

  • And Carrie, we have time for about two more questions, please.

  • Operator

  • Your next question comes from Ben Pang with Caris & Company.

  • - Analyst

  • Thanks for taking my question.

  • Two questions.

  • First on the market share that you commented on for the SSG, I would have assumed that you guys would actually gain some share since a lot of the foundry applications are in these newer technology nodes.

  • Am I misunderstanding what you guys are talking about in terms of the shift that's causing the market share slower momentum, I guess?

  • - Chairman, President and CEO

  • Foundry is a good, you put foundry and logic together it's good for Applied Materials.

  • The modest headwind I talked about was just the drop off in DRAM and rise in NAND, so it is a lot of shifting around.

  • As I said I don't want to make too big of a deal out of that but when we talk about market share, we're talking about market share of -- in overall WFE for 300 millimeter WFE.

  • And in our specific product groups we will obviously gain more because we address only about half the overall TAM in the market.

  • - Analyst

  • Okay, and a bigger picture question.

  • When you think about DRAM capital intensity, you commented on some prior historic low values and high values for capital intensity.

  • In general, does the amount of on-chip memory now kind of change those capital intensity historical -- the way we look at it historically?

  • - Chairman, President and CEO

  • I'm sorry, you want to repeat the last part of that question?

  • - Analyst

  • Well, now Intel has so much memory on its own chip, right?

  • How do we actually think about the way that, that logic actually drives memory spending.

  • Can we actually compare it to like 1995?

  • - Chairman, President and CEO

  • Well, it's really about addressable memory in a PC, and so that's kind of gone over the last five years from two gigabyte's per PC to we actually saw a drop off last year as prices went up.

  • And now it seems to be trending up to almost four gigabyte's per PC.

  • We expect 3.9 gigabyte's per PC in '11 up from about three gigabyte's in 2010.

  • So how that DRAM is attached hasn't really changed in PC architecture in recent times.

  • - Analyst

  • Thank you very much.

  • - Chairman, President and CEO

  • You bet.

  • Operator

  • Your next question comes from Krish Sankar with Banc of America Merill Lynch.

  • - Analyst

  • Thanks for taking my follow-up.

  • George, what percentage of AGS is attributable to SSG sales?

  • - EVP, CFO

  • It's SSG for AGS is 80%-plus of their overall, you mean the semiconductor related for AGS, is that your question?

  • - Analyst

  • Yes, yes, exactly.

  • - EVP, CFO

  • 80%-plus.

  • - Analyst

  • Okay, and then final question.

  • Mike, in the past you've spoken about like $60 billion spend for all of the new fabs that are coming online over the next 12 to 18-months.

  • Where do you think we are in that, like how much is being spent and how much more is there to go?

  • Thank you.

  • - Chairman, President and CEO

  • Well, we keep updating this chart.

  • Now we're tracking 18 fabs and over the next 8 to 12 quarters I think we're estimating that there's $80 billion of potential spend there.

  • So some has come off, some have come on and the net-net has increased quite dramatically.

  • I don't have the exact puts and takes in front of me but I think that's close to the net-net.

  • - Analyst

  • Thanks, Mike.

  • - VP, IR

  • Thanks, Krish.

  • Thanks for your follow-up.And then, Carrie do we have a last question, please?

  • Operator

  • Your last question comes from Satya Kumar with Credit Suisse.

  • - Analyst

  • Hi.

  • This is [Farhan] calling in for Satya.

  • My question is on your each market share.

  • Can you talk about like your each and especially like your new product, how is the traction with it?

  • And how do you see it going into 2011 and 2012?

  • - Chairman, President and CEO

  • Sure.

  • So if we take a step back last year, we believe our Etch share was up about four points.

  • A lot of that was in memory where silicon Etch in particular is increasingly favorable for us with buried word lines and bit lines.

  • That's really quite positive aspect for us.

  • We've been gaining share on both NAND and cap foundry recently with we talked about our new platform.

  • But really trying to focus in on patterning and Etching hard mask and helping with double patterning definition.

  • These things this year since I think you know that we have some headwind this year with foundry spending higher, DRAM spending lower, and we don't have Etch share at Intel.

  • We believe that gains that we're going to make will allow us to hold flat share in '11, so as memory spending comes back, we think it will be very positive for us.

  • And inside of that, our intrinsic application share is growing.

  • - Analyst

  • Thanks for answering that.

  • Just one more question, on capital intensity for foundries.

  • The foundry spending is up quite significantly, and I just wanted to see what your views are on CapEx for your wafer start.

  • Do you see that increasing complexities increasing the CapEx for you?

  • - Chairman, President and CEO

  • I do.

  • I think that what's happening right now is we look at trying to develop the 28 and 22 nanometer technologies, the capital per wafer start is going up quite dramatically.

  • I think it will be very close to the logic capital per wafer start at those nodes.

  • In the past, foundries have had a pretty significant advantage on capital per wafer start.

  • We see that going away as high K metal gate approaches and the processes just get a lot more complex.

  • So we're certainly seeing that this year and capital spending per dollar of revenue.

  • And we think that's going to continue in the advanced nodes.

  • - VP, IR

  • Great.

  • So thank you for your question Farhan, and we would like to thank everyone for joining us on the call this afternoon.

  • A replay of this call will be available on our website beginning at 5.00 p.m.

  • Pacific Time today.

  • We hope to see many of you at our Analyst meeting next month.

  • And we would like to thank you for your continued interest in Applied Materials.

  • Operator

  • This concludes today's conference.

  • You may now disconnect.