科磊 (KLAC) 2012 Q4 法說會逐字稿

Good afternoon.

My name is Amanda and I'll be your conference operator today.

At this time I would like welcome everyone to the KLA-Tencor fourth-quarter fiscal year 2012 conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions) Thank you.

I would now like to turn the call over to Mr. Ed Lockwood with KLA-Tencor Investor Relations.

You may begin your conference.

Thank you, Amanda.

Good afternoon, everyone, and welcome to KLA-Tencor's fourth-quarter fiscal year 2012 earnings conference call.

Joining me on our call today are Rick Wallace, our President and Chief Executive Officer, and Mark Dentinger our Chief Financial Officer.

We're here today to discuss fourth-quarter results for the period ended June 30, 2012.

We released these results this afternoon at 1.15 PM Pacific Time.

If you haven't seen the release, you can find it on our website at www.kla-tencor.com or call 408-875-3600 to request a copy.

A simulcast of this call will be accessible on demand following its completion on the investor section of our website.

There you'll also find a calendar of future investor events, presentations and conferences.

As well as links to KLA-Tencor's SEC filings, including our annual report on Form 10-K for the year ended June 30, 2011, and our subsequently filed 10-Q report.

In these filings you'll also find descriptions of risk factors that could impact our future results.

As you know our future results are subject to risks.

Any forward-looking statements including those we make on this call today are subject to those risks.

And KLA-Tencor cannot guarantee those forward-looking statements will come true.

Our actual results may differ significantly from those projected in our forward-looking results.

More information regarding factors that could cause those differences is contained in the filings we make with the SEC from time to time.

Including our fiscal year 2011 Form 10-K, and our current reports on Form 8-K.

We assume no obligation and do not intend to update these forward-looking statements.

However, you can be assured any updates we do provide will be broadly disseminated and available over the Web.

With that, I'll turn the call over to Rick.

Thanks, Ed.

Thank you all for joining us for our call today.

Given that we provided a thorough update just two weeks ago at SEMICON West, I'll focus my commentary today on summary highlights of our results.

And provide guidance for September.

Then Mark will follow with a more detailed review of the Q4 and fiscal year '12 financials.

Let's begin with a quick review of Q4.

Gross bookings for the June quarter were $827 million, slightly down from March.

Foundry was 65% of semiconductor system orders in Q4, continuing the strong foundry demand trend over the past several quarters.

Logic was steady at 20% and memory was 15% of new orders.

June quarter revenue grew 6% to a revenue record $892 million.

Coming in at the upper end of the range of guidance.

And non-GAAP earnings per share was $1.49 in Q4.

Our EPS was above the range of guidance, partially due to a 19% tax rate for the quarter.

If our tax rate had been 26%, as expected, our EPS would have been $1.36, at the high end of the range guidance.

Mark will provide more detail on this tax commentary.

Finally, cash flow from operations was $273 million in Q4.

We were active in returning value to stockholders, repurchasing 1.35 million shares in the quarter for $67 million.

And of course, paying our regular quarterly dividend.

Also, as we announced on July 10, our board of directors has authorized an increase in the level of the Company's quarterly dividend of $0.40 per share.

This is the fourth increase in the quarterly dividend level since it was first instituted in 2005.

And reflects our confidence in the long-term outlook for the Company.

KLA-Tencor's strong performance in Q4 and for fiscal year 2012, showcases the Company's market, technology and business model leadership, in an industry CapEx environment.

Driven by mobility market growth, and featuring high levels of investment in leading-edge foundry and logic.

Against this industry backdrop, KLA-Tencor is successfully executing our long-term strategic objectives.

And delivering industry-leading performance in terms of growth, profitability, and stockholder returns.

Of course, the major factor in our success continues to be strong collaboration with customers and business partners.

And the great execution of our world-wide workforce.

And I'd like to take this opportunity to thank each of our employees for their contributions in helping KLA-Tencor excel in this environment and in shaping our future success.

Now, for some additional perspective on the near-term demand picture.

As we noted at SEMICON West, the industry demand outlook for the rest of calendar year 2012 has backed off recently.

Due to a combination of weaker memory forecasts and some softening in near-term foundry demand.

As a result, industry observers are now expecting full-year industry CapEx to be down in the range of 10% to 15% in 2012.

However, looking past this current pause, we believe the factors which are helping sustain the high levels of CapEx investment seen in this cycle remain in place.

With mobility markets fueling growth for the market leaders in memory, foundry and logic.

And in an increasing more complex bleeding-edge technology and manufacturing environment.

In foundry, even with the expected near-term softening in demand, bleeding-edge capacity remains in tight supply.

And the yield challenges associated with advanced technology ramps are well-documented.

Meanwhile, the rapid pace of innovation in next-generation semiconductor devices to support mobility market growth continues unabated.

Looking ahead, even with a modest as expected here in the second half of calendar 2012, foundry demand is expected to remain at high levels, as customers continue their 28-nanometer ramp and begin 20-nanometer development in 2013.

Logic investment today is focused on ramping 22-nanometer manufacturing processes and volume.

And development of next-generation technologies at the sub 20-nanometer node.

Logic demand is widely expected to accelerate in 2013 as the 20-nanometer technologies begin to ramp in value.

Logic demand in this cycle is fueled by the competitive dynamic surrounding the future intersection of x86 and armed-based processors for mobility.

Although memory CapEx forecasts for the second half of calendar 2012 have weakened lately, we believe that memory market leaders remain committed to their advanced technology road map.

With upside to current forecast hinging on successful ramp of new ultrabook PC and smartphone products.

Turning now to our outlook for the first quarter of fiscal year 2013.

We expect September quarter bookings to be in the range of $625 million to $775 million.

Guidance for revenue in September is in the range of $700 million to $760 million.

And non-GAAP earnings per share are projected to be in the range of $0.75 to $0.95 in the quarter.

And with that, I'll turn the call over to Mark Dentinger for his review of the numbers.

Mark?

Thanks, Rick.

And good afternoon, everyone.

I'll note that we present our income statement in two formats.

One under US GAAP.

And the other in a non-GAAP format, which excludes amortization and write-down of intangible assets associated with acquisitions, restructuring-related charges and credits.

\And any costs or credits which are outside of our core operations including unusual tax items.

There is a $0.03 per share difference between this quarter's GAAP and non-GAAP earnings.

Our balance sheet and cash flow statements are presented in GAAP format only.

Most of my prepared remarks on operations will refer to non-GAAP information.

But where I mention GAAP numbers I'll make the distinction.

A reconciliation of our GAAP to non-GAAP income statement is attached to our press release and available at our website.

Q4 new orders were $827 million, down slightly from $833 million in Q3.

Net orders were $787 million, down about 4% from last quarter.

The regional distribution of new systems orders and the quarter-to-quarter change in distribution were as follows.

The US was 26% of new systems orders in Q4, up from about 22% in the March quarter.

Europe was 3% of new systems order, down from 8% in Q3.

Japan was 6%, down from 11% last quarter.

Korea was 8%, down from 39% last quarter.

Taiwan was 55%, up from 13% last quarter.

And the rest of Asia was 2%, down from 7% in Q3.

The distribution of new orders by product family and the quarter-to-quarter change in distribution were as follows.

Wafer inspection was 48%, compared with 54% last quarter.

Critical inspection was 9%, up from 6% last quarter.

Metrology was 22%, up from 19% in the prior quarter.

Solar, storage, LEd and other non-semi was 3%, down from 4% last quarter.

And service was 18% of new orders in Q4, up from 17% last quarter.

Finally for semiconductor systems, the distribution of new orders by market and the quarter-to-quarter change in distribution were as follows.

65% of new systems orders in Q4 were from foundry customers, compared with 55% in Q3.

Logic customer were 20% of new semi orders in Q4 versus 16% in Q3.

And memory orders were 15% in Q4, down from 29% last quarter.

Looking forward we expect that new orders for our Q1 fiscal 2013 will be within a range of $625 million to $775 million.

In Q4, we shipped $866 million versus $818 million last quarter.

The shipment numbers include both system shipments and service revenue.

And we expect shipments between $700 million and $760 million in Q1.

Total backlog at the end of Q4 decreased by $106 million from March 31.

And we ended the quarter with about $1.2 billion in systems backlog.

The backlog at June 30, 2012, included $286 million of revenue backlog, or products that had been shipped and invoiced but have not yet been recognized as revenue.

And $947 million in systems orders that have not yet shipped.

Total revenue for Q4 was $892 million, up 6% from $841 million last quarter.

And virtually even with last year's Q4 record total revenue.

Systems revenue in Q4 was up about $44 million to about $746 million.

And services revenue was $147 million, up about $7 million from Q3.

Our expectation for total revenue in Q1 is a range between $700 million and $760 million.

Non-GAAP gross margin was 60% this quarter, up from 58.3% last quarter.

Most of the Q3 to Q4 gross margin percentage improvement was a function of higher volume and favorable product mix.

For Q1, we are expecting gross margins between 56.5% and 57.5%.

Operating expenses were $210 million in Q4 compared with $199 million in Q3.

Research and development expenses were $118 million in Q4, up $9 million from Q3.

The quarterly increase in our R&D was mostly related to higher expense for additional product material.

Selling, general, and administrative expenses were $92 million in Q4, up $3 million from Q3.

We expect operating expenses in Q1 to be up slightly from Q4.

OIE was a net $12 million expense in Q4, up about $2 million from Q3.

The majority of the change was due to a $1.5 million write-down of an investment in our venture portfolio during Q4.

For modeling purposes, we expect OIE to be a net expense of approximately $11 million in Q1.

In Q4, our non-GAAP income tax expense was $59 million, or 19% of pre-tax income.

Versus a 23% rate in Q3.

The Q4 rate decrease was largely a function of the change in distribution and earnings between the US and international locations.

In setting tax rate guidance for our fiscal 2013, I'll provide our view of next year's rate, as well as our expectations for the rate over the next three years.

Our best estimate of the fiscal 2013 rate is 24%, which is a 2 point drop from last year's planning rate.

Our estimate for the rate over next three years is a range between 22% to 26%.

Obviously, many factors enter into these rate estimates, including the geographic distribution of earnings.

And in all likelihood the actual rate in any given period will be different than our estimate.

Non-GAAP net income was $253 million or $1.49 per share in Q4, up from $1.27 per share last quarter.

If we apply our 2012 model tax rate of 26%, Q4 non-GAAP earnings would have been $1.36 per share.

With the revenue range I previously mentioned, and using a tax rate of 24%, we would expect our Q1 non-GAAP earnings to be somewhere between $0.75 and $0.95 per share.

The weighted average share count used to compute EPS in Q4 was 170.2 million versus 170.1 million in Q3.

During Q4 we spent $67 million repurchasing about 1.35 million shares.

And as of June 30, 2012, we had approximately 3.2 million shares available under our current repurchase authorization.

We also paid $58 million in dividends in Q4.

We anticipate continuing to repurchase shares, as well as paying a quarterly dividend of $0.40 per share in Q1.

For guidance purposes we are modelling an average share count of 170 million for Q1.

Turning to the balance sheet.

Cash and investments ended the quarter at $2.5 billion, up about $165 million from March 31.

Cash generated from operations was $273 million in Q4, compared with $262 million in Q3.

Accounts receivable ended the quarter at $701 million, up from $638 million at the end of the March.

DSOs were 72 days at June 30, versus 69 days at March 31.

Both DSO figures are net of allowance for uncollectible accounts and factoring.

Net inventories were flat with Q3 and ended the quarter at $651 million.

Inventory turnover based on GAAP cost of revenues was 2.2 turns in Q4, the same as Q3.

Capital expenditures were $16 million in Q4, up $2 million from Q3.

Total head count at June 30, 2012 was 5,710, up from 5,655 at March 31.

We expect our headcount will increase slightly during Q1.

In summary, our guidance for Q1 is new orders between $625 million and $775 million.

Total revenue between $700 million and $760 million.

And non-GAAP earnings between $0.75 and $0.95 per share, assuming a tax rate of 24%.

This concludes our prepared remarks on the quarter.

I will now turn the call back over to Ed to begin Q&A.

Okay, thank you, Mark.

At this point, we'd like to open up the call to Q&A.

And we do, once again, request that you limit yourself to one question, given the limited time we have for today's call.

Feel free to re-queue for your follow-up questions, and we'll do our best to give everyone a chance for follow-ups on today's call, if time permits.

Amanda, we're ready for your first question.

(Operator Instructions) Satya Kumar, Credit Suisse.

I was wondering if you could give a sense of what the order mix by segment would look like in the September quarter.

And at this time, if you have any thoughts on how the orders would shape up for December.

With a view on trying to get a sense of (inaudible) for revenue this year.

Thanks.

It's Rick.

Memory forecast not that different percentage-wise.

We think probably about 17% of orders, is what we're currently looking at.

Logic down a little, 15% off the 20% for the quarter we just finished.

And looks like foundry would be about 68%.

So that's how we're currently modeling it.

Not a big change.

As far as the rest of the year, it's very hard.

We don't guide out for the December quarter.

But we do see the overall picture softening, as we said in our guide for the September quarter.

And then we'd expect some resumed investment coming back in the December quarter.

As we talked at SEMI West.

Terence Whalen, Citi.

This question is a little bit of a qualitative commentary on how you see your customers' behavior changing.

It certainly feels a lot like last year in terms of the 3Q order pause.

And if I think about last year, that order pause, in some ways, got us into the 20-nanometer shortage that we experienced in the first half of this year.

I wanted to understand, do you observe your customers responding any differently to macro uncertainty this year around, versus last year around, especially considering some of the foundry shortages that we experienced so far this year?

Thank you.

Terence, it does have that It does look pretty similar.

I think it is, perhaps for different causes, but a similar sense of headwinds that are causing, I think, the pause that we're seeing from our customer base.

Whether that will result in any shortages is very hard to tell.

I can say that, as our customers work on 28, they haven't made progress, they haven't made it as fast as they'd hoped.

And there are plenty more challenges.

And the early look at 20 makes it look even more challenges then what they experienced in 28.

So I don't know if it will create shortages or not, but I do see some conservative behavior in our customer base in the short-term.

CJ Muse from Barclays.

I was hoping, first off, to get what your ending backlog and deferred revenues were for June.

And what I'm getting at is that it seems like your revenues are a little bit light for September.

So curious if you're building backlog or what's going on there?

Yes, the ending backlog, CJ, was $1.2 billion.

About $300 in revenue backlog and about $900-plus in ship backlog.

And if I can just scroll forward to see what the deferred revenue was, the ending position in deferred revenue.

There's about $150 million in deferred systems profit, which is a netted down number.

You can probably gross that up against our average gross margins and figure that there's at least $450 million to $500 million in, if you will, true deferred revenue related to systems business.

That's a rough approximation.

Raj Seth, from Cowen.

Rick, I'm curious, will the followers in the foundry space likely have the same inspection intensity as we saw at TSM, the leader?

Or do they, in some way, benefit by following and maybe learn in an industry sense from the leader?

And is the trail blazer in any way disadvantaged?

Thanks.

Raj, that's a good question.

History would not necessarily play that out.

I do think that it's a function of experience on advance nodes.

I think it's a function of the exact process people are running.

And the experience they've had with prior nodes.

So we have seen more variation, I would say, across different companies in terms of intensity than you might expect, given the notion that the first guy might trail blaze.

It just hasn't worked that way.

And in some cases you get followers later in the cycle that invest more heavily.

And there are dependencies on process, which do change.

And philosophy.

Frankly, there are some customers that might orient themselves more toward a certain kind of inspection tool based on a philosophy that they have.

And the result varies as we go across the board.

And even from customers from cycle to cycle, it can vary too.

The same players.

Krish Sankar with Banc of America, Merrill Lynch.

This is [Tom Piyae] calling in for Krish.

I just wanted to get a bit more granularity into your outlook.

ASML recently said that foundry spending should moderate near term, Which is in line with what you guided.

But they also said they expect 20-nanometer production to start ramping at foundries starting in mid 2013.

So can we get your sentiment on the timing around that?

And just what confidence you have in the improvement in the order trajectory after September?

It's always hard to predict as we look out.

Because, as you know, we're subject to many factors, not the least of which is uncertainty in the macro environment, which does influence our customers' behaviors.

But relative to the technology, I think a lot of confidences that the investment that we saw in 28, will be followed with increased investment on 20.

And we get that from two ways.

One, when we look at the process itself, and identify the exact number of inspection points and the tools that will be needed, and the throughputs associated with those, and how we model the factory, we do a pretty good job of modeling that.

But we also have some experience now on 20 and even sub 20 of what people are seeing and their comfort level with the information that they have.

And how they're pushing us for later-generation tools.

So exact timing is always hard to predict in this industry, as you know.

But we're certainly seeing early indications on 20 that we think there will be a lot of pressure on the inspection measurement space in terms of opportunity and installation at increased number of layers, with increasing complexity in their process and in our tools.

I can't speak to the exact timing but even in historically slow periods, our customers tend to move forward on technology.

Mark Heller with CLSA.

First a clarification.

I'm just wondering if you still expect -- I think at SEMICON West you had indicated that orders for the calendar year to be down only slightly.

So I'm just wondering if that's still the case.

And I'm also wondering if you can comment on customer behavior since SEMICON West.

Has it got even softer or is it relatively consistent?

We updated our guide for the year for CapEx was -- I think many people had, going in to West, or prior to that, the last update was flattish.

And I think, along with others, we now see as modeling the year to be down 10% to 15%.

We, however, will outperform that, as we model our revenue going forward, which is really the right metric against industry CapEx.

And so we anticipate, given our view of the quarter we just guided, and in general the overall expectations for the year, that that will continue.

As to whether it's gotten worse since SEMICON West, I don't think so.

I think it's in line with what we saw.

There were many in what came up with this down 10% to 15%, have been further confirmation of that.

But on the other hand, there has been increased conversation about '13, which has been more positive.

So I feel reasonably confident that what we're seeing is a softening or a pause.

And we'll see resumed growth.

I think the caveat in all this, the obvious caveat, is the macro, which nobody really has a good way to predict at this point.

Thanks.

Christopher Blansett with JPMorgan.

Rick, I had a question related to, within the product mix, out-performance, under-performance.

Where do you see that with this 28-nanometer foundry node?

And what different types of equipment are really being adopted at a faster rate or more aggressively to enable that?

I think if you look at some of the material we talked about in SEMICON West, we gave an example of our leading-edge Brightfield tool, the 29XX, which we were seeing ramping up in the first four quarters.

Approximately 3X the revenue of the prior four quarters, compare for the prior generation.

And, really, that was an example in the inspection space.

We have seen similar fairway for similar push on new technology.

I think that the other end of the spectrum is on metrology.

And a good example there would be what's happened with our overlay tool, the optical metrology Archer tool.

And that has really had strong demand for that.

And we have a very strong position in that product line.

That, driven heavily by multi pattern.

I think an area where you've seen less performance in general would be in an area like reticle inspection.

And that has been driven largely by the fact that there's a lot of capability.

When we introduced our latest generation, we really have served that market well with that product.

But due to its capability and the capacity, we have not seen subsequent demand increasing in line with what we've seen for the tools that are directly in the fab line.

The other area I would say that has been slower has been associated directly with wafer manufacturing.

Where wafer guys went through a heavy investment phase, and still have not worked out all the capacity that they had.

So in that area we are more like people that are selling directly into -- associated with process equipment in terms of ramping with capacity.

So our strength has really been in the product lines that are more tied to the complexity of manufacturing process directly, unless with things like reticle and bare wafer.

Vishal Shah, Deutsche Bank.

Rick, I wanted to just understand, in your foundry segment revenues or bookings, what percentage of those bookings or revenues would be associated with either 28-nanometer or capacity buys and what percentage would be 20-nanometer or technology buys?

Thank you.

That is a good question.

I'd say that at this point probably 75% are associated with 28.

Maybe 80%, 28.

And the rest would be on new development associated with 20.

But there is somewhat of a blurring in that, because it is true that they might buy them for 20-nanometer development, but be utilizing them in 28.

But I'd say right now we're probably somewhere along that split.

Thank you.

Jagadish Iyer from Piper Jaffray.

Rick, you talked about out-performance.

How much was related to the spending mix for this year and how much was really share gain?

I think that the mix certainly, being in foundry and having a strong footprint in foundry, has been a good place to be.

And I believe will be a good place to be as we go forward.

Also, we're strong in logic.

The place where we had struggled would be in the place we've not been investing heavily.

And where we have not performed as well.

Although, we have very strong indications technology buys in memory will come our way when they happen.

I do think there's been some share gain in some product lines in particular, like in e-beam review where we've brought on really a strong product line.

And I think clearly have the best product in the market today.

We're definitely seeing benefit from that.

So I think it's a combination.

But I would say, 70% associated with the fact that our core business in foundry continues to expand through adoption.

And then maybe 30% of our gains have been associated with market share.

Thank you.

Ben Pang with Caris & Company.

Thanks for taking the question.

In terms of the reticle inspection, I think you commented on an answer to an earlier question that the capability's already sufficient for the 20-nanometer.

Does the additional overlay steps, does that drive any additional capacity requirements for reticle inspection?

Not as much.

And partly a lot of those design rules are not as advanced.

And so part of what you get away with multi-patterning is you don't push as much as on the very leading edge.

So we do have capacity with 6XX.

And part of the capability of 6XX has been EUV-related.

And there are some customers that purchase for that.

And that development has been slower than our customers anticipated.

So there's just been less in terms of EUV.

But no, most of the benefit of multi-patterning goes towards our overlay business as opposed to toward our reticle business.

Thank you very much.

(Operator Instructions) Mahesh Sanganeria, RBC Capital Markets.

Rick, I just want to follow up on the EUV.

I know the industry is focused entirely on the power.

But I suppose there are lots of challenges with the mask blank operation.

And you have the advantage of looking at the masks through your relevant inspection tools.

Do you have a sense of where the industry is in terms of mask, defect rate for mask?

And could that be an issue in adoption of EUV?

I think that there's no question that right now most of the energy is focused, as you said, on power and throughput and getting the run rate of the EUV scanners up.

There's progress that's been made.

But, of course, a lot more progress has to go.

I've been saying for some period of time that I think then we will get into the next challenge, which is contamination related.

In the entire sense.

Not just what happens in the reticle but the entire system.

And there's going to be a lot of work to do there.

But, frankly, right now, it's hard.

You have to do one before the other.

And I think that there's going to be a learning curve associated with it.

Which is why I do think that the production volume of EUV will be delayed as a result of some of the challenges, the technical challenges.

But there's nothing show-stopper--wise that I've heard of anyone seeing on the contamination work.

It is a lot of work and I don't want to minimize it by saying it's just engineering.

But there is a lot of hard work that has to go into it.

But I think the more fundamental challenge is going to be associated with power.

We do expect the reticle opportunity to be significant, but at this point delayed because of the challenges with ramping EUV.

Okay.

Thanks.

Mehdi Hosseini, Susquehanna International.

Rick, I'm looking at your booking guidance for the past couple of quarters.

For the March and June quarter, you have been coming at the low end.

I'm just wondering, is that because your foundry customers have consolidated and there is only maybe one or very few that have been able to ramp 28?

Or is there something else that's impacting your forecasting?

And I have a follow-up.

Yes, I wouldn't want to drive a trend line through two points.

I'd take you back to December last year, where we missed wildly on the other side.

We were up 85%, and we guided way under that.

I think it speaks a little bit more to the challenge associated when you have -- maybe to your point -- you have a smaller number of customers.

And I think in many cases they don't even know.

And so they make decisions very late in the process, as they are moving things around, to try to figure out where they have needs and what the time frame is for those needs.

So I wouldn't draw any conclusions.

What we back up from and look at, how are we doing relative to the overall industry.

And we're pretty happy with our performance.

I would say it is true, if you want to find an area of criticism, our forecasting accuracy is not very good.

But we also don't think it's an area that is of particular value in terms of long-term success of the Company.

So we don't tend to run it on our ability to accurately forecast.

We're still building backlog and we're still supporting the needs of our next-generation products and customers.

That's fair.

And then I think I may have missed it.

What did you comment or what did you say about booking trend into the December quarter?

We anticipate it strengthening out of September for a couple reasons.

One, this is an area we do have some history on.

8 out of 10 years we do tend to see a softening in the September quarter, followed by strength in December.

And then as we talk with our customers, there seems to be a narrative around the overall industry dynamic that would support that.

That we would see increase.

And if you go back to last year, that was when we had, we finished the second half of the year basically where we thought, but certainly not how we thought in terms of September was very soft followed by an outstanding quarter in December.

So it's those trends.

And then you do bottoms up and you see all the projects that are on the books, and what people are talking about, and that's how it works it out for us.

Thank you.

Satya Kumar, Credit Suisse.

Just wondering if there was any (inaudible) bookings, cancellation or backlog adjustments in the June quarter.

And in following up to CJ's question earlier on, when I go back and look at quarters where your orders have declined, in some occasions your backlog goes down and the revenue guidance is a bit higher.

And in some occasions it's not.

And the surprise here is that the September revenue guidance is a bit below where people thought.

Could you provide a little bit more clarity as to how to think about that?

Thanks.

Yes.

Satya, I can take the question on the revenue guidance for September.

You actually have to go deal by deal.

And I would emphasize that the business emphasis inside the Company is getting orders in, getting the orders shipped, getting installations done and making sure that the customer is set with the tool.

Once we get all of those things done, the revenue recognition process moves to a different side of the house.

Including the finance side of the house.

And goes through customer acceptance, sign-offs and another set of processes.

Which doesn't always follow necessarily linearly the booking and the shipment rhythm of the Company.

It's close.

So if you look at it over a long period of time, sooner or later the revenue passes through the system.

But I would emphasize, it is a different process and you can't necessarily draw those correlations, at least very tightly quarter to quarter.

So we go through and basically do a bottoms-up forecast.

We know what we've taken in for orders over the last two to three quarters.

We know what is shipped over the last one to two quarters.

And we take all of that information and go on a case-by-case basis what do we expect to turn to revenue.

But the exact timing of when it turns to revenue is a function of when the customer does its final sign-off and so on so on and so forth.

So I wouldn't read too much into it.

But the revenue range that we did give is a penciled out detailed analysis of exactly what we think we'll turn in September.

And, by the way, as you know, because some of the average selling prices of our tools are pretty big, a few going either way can change the outcome.

Satya, just to add a little color for you.

Mark did allude to and said that we did have some de-bookings, if you will.

And your question on that.

I'll tell you how that works.

It's related to EUV because some of the capability we have for EUV, as I've mentioned before on blank, is in our Teron tools.

And when a tool delivery gets pushed out beyond the 12-month horizon, even though there's customer interest and demand, and a desire to get it, we then take it out of the system.

And that's what we saw.

And that's a fairly sizable.

We're very confident the customer wants it, but, frankly based on their initial modeling and demand for EUV, and what they're seeing now, they don't feel compelled to get additional capacity.

They already have some capacity.

But the EUV ramp is going slower than they anticipated so as a result we make an adjustment.

And that's part of the change in backlog, why the gross bookings and the net bookings were different.

So that there's a specific example on a delay we're seeing in our customers on EUV.

And you can do the backwards math.

The selling price of the tool, that's about most of the adjustment in the backlog.

That's one tool, right?

Yes.

All right, thanks a lot guys.

Very helpful.

Patrick Ho, Stifel Nicolaus.

Rick, in terms of the outlook for September and orders and your projected uptick in December, could you just give a little color in terms of, do you see the decline in September being offset by the same uptick in the December quarter?

Or is the magnitude just going to depend on when the customers come back?

Patrick, as we said, we have enough trouble guiding one quarter, let alone two.

But, that being said, I don't think that's an unfair way to characterize it.

But I might have said that a year ago and been very wrong on December.

So it very much goes to, our customer's behavior around our equipment tends to be more volatile than they might be about process equipment, because of their perceived need.

Okay.

Fair enough.

Just looking at bigger picture and just some of the industry trends.

I know we talk a lot about EUV, 450 out there.

Advanced wafer level packaging -- what are some of the opportunities you see for process control in that emerging marketplace?

Yes, great question.

We have a business there.

We're seeing good performance out of that.

That's been the business we acquired a few years ago, ICOS, where we do participate in that business.

And we have seen some strength recently.

And I think there is some good opportunity for that for us going forward.

There are some other opportunities, technology-wise that are under investigation.

Where they're technical challenged but it's not as evident to us if they provide really sustained business opportunities for us, such as in things like TSV for inspection and measurement.

But definitely in general around packaging we have good performance there.

All right.

Thank you very much.

CJ Muse with Barclays.

I'm curious on the foundry side.

And I know it's going to be hard to predict.

But I was hoping to get your sense of where are we in 28 for you guys.

And maybe you want to talk baseball-speak, what inning.

And then how you see 20 adoption in 2013.

And as part of that, what the linearity could look like.

Would it be similar to what we've seen the last two years, front half loaded?

Or what are your conversations today suggesting?

I'm going to turn to football, CJ.

I'll tell you the conversations.

We try to break it down like that, but I'll give you another way we're talking to our customers about it.

We don't have that many big customers at this point.

And the conversation we have often is around 2013.

And a lot of them recently, because of their frustration with not getting deliveries from us, have been talking very clearly about what they believe their needs are going to be in 2013 relative to 2012.

And when we go through all that conversation we feel pretty good about how 2013 looks.

For them, it's driven by, whether it's by 28 final buildout or 20 ramp, it's not as obvious exactly what the deployment is.

But they are being very clear about what they think in terms of the kind of tools, the number of tools, and the timing of those tools.

And so I would say that if they then were to map it onto 28 versus 20, that's something they're doing.

The conversations they're having with us are actually at a higher level.

And it goes something like -- We really need you to continue to support us, as you have this year, and we just want to give you a heads up we believe next year will be strong or stronger, in many cases, when we look at it.

And we think the timing over the next year, we'll give you more clarity when we get it.

But those are more the conversations we have with them.

It gets less about the specific timing and the phase of their node.

Does that makes sense?

Actually that's very helpful.

Thank you.

And we have no further questions at this time.

I turn the call back over to the presenters for any closing remarks.

No.

Thank you, Amanda.

And we'd like to thank everyone for joining us this afternoon and for your continued interest in KLA-Tencor.

This concludes today's conference call.

You may now disconnect.