科磊 (KLAC) 2013 Q3 法說會逐字稿

Good afternoon, my name is Jay.

I will be your conference operator today.

At this time, I would like to welcome everyone to the KLA Corp Third Quarter Fiscal Year 2013 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'd now like to hand the call over to Mr. Ed Lockwood, Senior Director of Investor Relations.

Please go ahead, sir.

Thank you, Jay.

Good afternoon, everyone.

Welcome to our conference call.

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

We're here to discuss third-quarter results for period ended March 31, 2013.

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

If you haven't seen the release, you can find it on our website at www.klatencor.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 Relation section on our website.

There you will also find a calendar of future investor events, presentations, and conferences, as well as links to KLA-Tencor's SEC fillings, including our annual report on Form 10-K for the year ended June 30, 2012; and our subsequently filed 10-Q reports.

In those filings, you will 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 2012 form 10-K and our current reports on form 8-K.

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

However, 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 on our call today.

The March quarter results for KLA-Tencor were in line with the Company's expectations.

New bookings in the March quarter were $738 million, down about 3% compared with December.

Orders were concentrated among our foundry and logic customers, with particular strength from logic customers in the period.

Third-quarter revenue was $729 million, and non-GAAP EPS was $1.01 per share, applying an effective tax rate of 14%, resulting from a one-time R&D tax credit taken during the quarter.

Non-GAAP earnings would have been $0.89 at our modeled tax rate of 24%.

A good start for KLA-Tencor in calendar year 2013, following a year of very strong relative performance for the Company in calendar 2012.

In fact, according to Gardner's recently published industry report, KLA-Tencor sustained its strong relative market position in calendar 2012 in an environment in which overall process control market revenues were flat in 2012, and the industry CapEx was down approximately 10%.

These results highlight a continuation of the trend we have seen in this cycle of increasing adoption of process control as the mobility markets fuel growth and boundary and logic demand, and the increasing costs and complexity associated with managing yields makes process control critical to our customers' success at the leading edge.

Turning now to our view of the current business environment, consumer demand from mobile technology continues to be the primary force behind semiconductor industry demand, with strong smartphone and tablet unit growth, competition, and increasing device cost and complexity driving our markets today.

For KLA-Tencor, the Q3 bookings profile was highlighted by strength and logic demand, with these customers accounting for 25% of bookings in March.

We expect logic orders to comprise 32% of our orders next quarter, and to be strong into the second half of calendar year 2013, though below the first-half levels.

Foundry customers accounted for 47% of new orders in March.

We expect foundry orders to comprise 35% of the orders next quarter, and our foundry customer forecast for the second half of 2013 show growth over the first half of the year, with more breadth of demand among these customers, because foundries tend to be the highest adopters of process control, the sustained high level of foundry investment we have experienced is favorable to KLA-Tencor, and key contributor to our strong relative performance.

Finally, orders for memory customers represented 28% of total orders in March, nearly double the percentage from the December quarter.

We expect that memory will be 33% of new orders in the June quarter, and that memory demand will strengthen in the second half of calendar 2013.

Although we are not currently forecasting significant capacity investment for memory customers in the year, we are encouraged by signs of higher relative adoption of process control, and strengthening market share for KLA-Tencor among the leading-edge memory customers.

Looking ahead to the remainder of 2013, our outlook for the industry CapEx investment in the year has moderated somewhat from our initial commentary in January, as our customers adopt a more measured outlook for new wafer capacity investment in the near term and prepare for the next node.

We believe some of the major factors impacting the timing of equipment demand in the near term include uncertainly, as the potential magnitude and breadth of participation among established customers for the 20-nanometer node, challenges associated with the transition from plain or 3D device architectures, and a persistently weak global economy.

As a result, our current market outlook for modest incremental improvements in overall equipment demand in the second half of the year, driven more by the breadth of foundry demand, sustained levels of investment from logic, and a strong resurgence of demand from Korea, both for logic and memory applications.

That said, given the factors I just mentioned, our bias today as for industry CapEx in 2013 to trend toward the lower end of our original down 5% to 10% range for the year.

The driving force behind KLA-Tencor's market leadership continues to be our focus on the customer.

With each successive generation of new technology, our customers are facing increased process complexity, shorter market windows, and more challenging yield requirements.

Process control is on the critical path to successful management of these complex technical challenges.

As the market leader, KLA-Tencor is positioned to continue to benefit from strong relative adoption of inspection and measurement technologies, as our customers move ahead with their advanced technology road maps.

Turning now to guidance for the June quarter, gross bookings are projected to be in the range of $625 million to $775 million.

Revenue in the June quarter is expected to be in the range of $670 million to $730 million, and non-GAAP earnings per share in the range of $0.66 to $0.86 per share.

With that, I will turn the call over to Mark Dentinger for his review of the numbers.

Mark?

Good afternoon, everyone.

As most of you know, we present our income statement in two formats -- one under the US GAAP and the other in a non-GAAP format which excludes amortization and write-downs 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 was a $0.03 after-tax difference between this quarter's GAAP and non-GAAP EPS.

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.

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

Q3 new orders were $738 million, down slightly from $760 million in Q2.

Q3 net orders were $736 million.

The regional distribution of new systems orders in the quarter-to-quarter change in distribution were as follows -- The US was 17% of new systems orders in Q3, down from 33% in the December quarter; Europe was also 17% of new systems orders, up from one percent in Q2; Japan was 9%, up from 7% last quarter; Korea was 10%, down from 13% last quarter; Taiwan was 35%, down slightly from 39% last quarter; and the rest of Asia was 12%, up from 7% in Q2.

The distribution of new orders by product group and the quarter-to-quarter change in distribution were as follows -- wafer inspection was 51%, compared with 48% last quarter; reticle inspection was 6%, down from 10% last quarter; metrology was 20%, up slightly from 19% in Q2; our non-semi businesses were 3%, even with last quarter; and service was 20% of new orders in Q3, the same as Q2.

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

47% of new systems orders in Q3 were from foundry customers, compared with 67% in Q2.

Logic customers were 25% of new orders in Q3, up from 16% in Q2, and memory records were 28% in Q3 verses 17% last quarter.

Looking forward, we expect that new orders for fiscal Q4 will be within a range of $625 million to $775 million.

In Q3 we shipped $694 million, up from $673 million last quarter.

The shipment numbers include both system shipments and services revenue, and we expect shipments between $740 million and $800 million in Q4.

Total backlog at the end of Q3 increased slightly from the end of December, and we ended the quarter with about $1.1 billion in systems backlog.

The backlog at March 31, 2013, included $218 million of revenue backlog for products that have been shipped and invoiced but have not yet been recognized as revenue, and $880 million in systems orders that have not yet shipped.

Total revenue for Q3 was $729 million, up 8% from $673 million last quarter.

Systems revenue in Q3 was $580 million, and services revenue was $149 million.

Our expectation for total revenue in Q4 is a range between $670 million and $730 million.

Non-GAAP gross margin was 57.9% this quarter, up from 55.1% last quarter.

The major contributors to the quarter-over-quarter improvement in the gross margin percentage were higher systems revenues and lower reserve requirements.

For Q4, we are expecting gross margins between 56% and 57.5%.

Operating expenses were $213 million in Q3, almost even with the $214 million we posted in Q2.

We expect operating expenses in Q4 to be up between $3 million and $7 million from Q3.

OIE was a net $10.1 million expense in Q3, up about $1.7 million from Q2.

Most of the quarter-over-quarter increase in OIE was due to a gain on the sale of non-operating investment during Q2.

For modeling purposes, we expect OIE to be a net expense of about $10 million in Q4.

In Q3, our non-GAAP income tax expense was $28 million, or 14% of pre-tax income, verses a 29% rate in Q2.

Q3 rate drop was mostly due to the current quarter and catch-up effect from the reinstatement of the US Federal R&D Tax Credit in January.

Our estimate for the non-GAAP tax rate for Q4 is about 24%.

Non-GAAP net income was $171 million, or $1.01 per share in Q3.

Using our planning tax rate of 24%, our Q2 EPS would have been $0.89.

At the revenue range I previously mentioned and applying our tax rate of 24%, we would expect our Q4 non-GAAP earnings to be somewhere between $0.66 and $0.86 per share.

The weighted average share count used to compute EPS in Q3 was 169.2 million, verses 169.1 million in Q2.

During Q3, we spent $68 million repurchasing about 1.3 million shares, and as of March 31, 2013, we had approximately 7.1 million shares available under our current authorization.

For guidance purposes, we are modeling an average share count of about 169 million for Q4.

We also paid $67 million in dividends in Q3.

We anticipate continuing to repurchase shares, as well as paying a quarterly dividend of $0.40 per share in Q4.

On our balance sheet, cash and investments ended the quarter at $2.9 billion, up $301 million from December 31.

Cash generated from operations was $415 million in Q3, compared with $77 million in Q2.

This significant improvement in quarterly cash flow from operations was largely attributable to an increase of $190 million in customer collections, as well as lower outlays for trade payable, income taxes, and interest on our debt.

In all likelihood, Q4 operating cash flow will revert to a more typical result.

Net accounts receivable ended the quarter at $454 million, down from $606 million at the end of December.

DSO was 57 days at March 31, verses 82 days at December 31.

Both DSO figures are net of allowance for uncollectable accounts in factoring.

Net inventories were down $13 million from Q2, and ended the quarter at $650 million.

Inventory turnover based upon GAAP cost of revenues was 1.9 turns in Q3, slightly higher than 1.8 turns in Q2.

Capital expenditures were $18 million in Q3, up slightly from $17 million in Q2.

Full-time head count at March 31 was 5,830 verses 5,816 at December 31, 2012.

We expect our head counsel to remain about flat in Q4.

In summary, our guidance for Q4 is new orders between $625 million and $775 million, total revenue between $670 million and $730 million, and non-GAAP earnings between $0.66 and $0.86 per share, applying a 24% tax rate.

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 would like to open the call up to Q&A.

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

Please feel free to re-queue for your follow-up questions, then we'll do our best to get everyone a chance for follow-ups as time permits.

So Jay, we're ready for the first question.

Thank you.

Our first question comes from Satya Kumar with Credit Suisse.

Your line is open.

I guess we're wondering, there is a fair bit of disconnect between what you guys are guiding for the year and what we saw from one of your peers yesterday, and also what you're looking into June.

Is this the segment contemplation situation that's going on, or are there any market share changes that's happening that's affecting your outlook?

Thanks.

Yes, Satya, it's Rick.

I don't see any particular segment difference.

I think there is just a matter of perspective on the year.

When we look out and talk to customers, we do see some improvement in the second half, but still we see, as we said, a little bit trending down based on all the factors we cited.

I think if you go case by case, I think you've got memory is technology, but not a lot of investment for capacity.

I think foundry continues to be relatively strong, and we'll see logic probably continuing, although probably cooling off a little bit in the second half.

That's how we roll up to the annual.

As far as share, our share continues to be very strong.

I think that we see from overall perspective, some opportunity actually to gain share this calendar year.

We've got some really strong product positions and making pretty good investments in close collaboration with our customers.

We don't see share overall for KLA-Tencor to be a -- obviously we have to work for it, but we're not modeling any share loss through this year.

As we talked about last year, we actually did quite well in share 2012.

(Operator Instructions)

Our next question comes from Timothy Arcuri with Cowen & Company.

Your line is open.

I just wanted to dive into that a little more, because there's just such a difference between what you're saying and what others are seeing.

Rick, do you think that there has been any change in your view that process diagnostic is still 15% of wafer fab?

Is there -- can you maybe discuss what could push that up from here, and what might be pushing that down, if only in the short term?

Thanks.

Sure, Tim.

I think that the -- I guess overall, we model memory to be improving in terms of adoption of process control, but not at the level of what we see for foundry and logic.

So the degree there is a mix change in the near term.

That would mean that process control overall would probably not see as much appreciation as somebody that was more exposed to memory.

However, for the overall for the year, we think the foundry continues to invest, although the build-out of 20 nanometers is largely people are making those investments, but we think that will possibly be light participation, with more customers gearing up for the transition to below 20, whether it's 16 or 14, depending on who.

Yes, there is a bit of a mix in the term-near scenario, but long-term overall capital intensity for foundry is, I think, probably we're modeling it pretty consistent with others; and I think that process control for foundries continues to be very strong.

Thanks Rick.

Next you have a question from Krish Sankar with Bank of America Merrill Lynch.

Your line is open.

Rick, just to follow up on that.

Your foundry booking for June quarter looks like it will be the lowest over the last three years.

Is it just purely a timing issue, or do you see your foundry customers actually stalling the spending because of the (inaudible - technical difficulty) transition, or maybe you've not decided which way to go?

No, I think right now what we are seeing is in the June quarter that we do see some -- a bit of pause in some of the foundry business.

There is another factor which maybe we talked about in the prepared remarks, and I can address a little bit.

We did guide shipments to be quite a bit up in this quarter, up to the $740 million, $800 million.

Part of what that is, is there are a number of rules in that, that are early in development that will -- it will take us a little while to revenue-recognize those.

Those will probably not fall under the June quarter.

In some cases, what we're looking at for those tools is those are more oriented toward future development process technology nodes.

There may be investment leading into the thin-fab development in the foundry space that maybe off sets that a little bit, but we don't expect to see that necessarily be as large in the June quarter as what we see in the last couple quarters.

Then we see resumption of that spending in the later part of the calendar year.

Thanks.

Next we have a question from Edwin Mok with Needham and Company.

Your line is open.

Hi Rick, thanks for taking my question.

Just for that, those developments that you're targeting, are you saying those are targeting 20-nanometer, or are they 14-nanometer?

Are they specifically for foundry?

I guess in your outlook for the year, are you not factoring in much (inaudible) investment in the second half of this year?

Hi, Edwin.

No, not a lot of investment on the second half for 20.

Still some, but I would say a little broader participation, so maybe some of the players that haven't been as active in 20 already will participate.

We are modeling relatively modest on a compared basis.

Toward the end of the year, more investment associated with maybe the later phases of 20 and some of the sub-20 work.

Great, thanks.

(Operator Instructions)

Our next question comes from Stephen Chin with UBS.

Your line is open.

Just a question on your view on the order trend for the second half of the year.

It sounds like you said you are still planning for orders in the second half to increase from foundry, and also to be up for memory, but logic might be down a bit.

I just wanted to clarify, despite that you're more cautious view on CapEx this year, are you still planning for total second-half orders to be flat or slightly up verses the first half?

Thanks.

We see second half being better, but I'd say when we modeled earlier in the year and we were -- the bias was a little bit more toward down 5%, our bias for the year is still down, but a little bit toward the down 10% -- which I think is consistent with actually most of our peers but one.

What we see in that is you see a second-half comeback; as we said, a little bit more investment happening, primarily on a broad-based foundry investment on the second half.

Some memory, but not a lot of capacity memory, more capacity-related; and logic perhaps cooling in the second half.

The other thing that affects us a little bit, too, is we're looking at some of the ancillary markets like the wafer manufacturers, which we have not seen a lot of investment out of them.

Historically, if you look at past cycles, we would have seen more investment out of the wafer guys.

We just don't see that happening.

That's usually an early indicator on overall capacity buys.

We don't see it happening, and that kind of aligns with our thinking of overall trends for the year.

Thanks Rick.

Next we have Vishal Shah with Deutsche Bank.

Your line is open.

Hi.

Thanks for taking my question.

Rick, I just wanted to get a sense from you, you made comments around second-half growth in the foundry bookings, but just wanted to understand either the magnitude of up-side or growth you are expecting?

If you look at the first-half bookings run rate.

Your bookings would have to almost double for overall bookings to be down slightly compared to last year.

I am just wondering what kind of magnitude of bookings you are expecting in the second half?

Thank you.

Yes, well obviously we don't guide beyond the quarter, but I can tell you as we model the overall year -- and you can do the math, as you said, on how you look at it -- as you model the overall year, we think the capital intensity investment for the industry is on a relative basis pretty flattish.

We overall CapEx down anywhere from flat to down 10%, and we are saying it's more the down 10%.

We do see mix coming back a little bit in a little bit strength in the foundries, and breadth in the foundries, and strength in memory.

So that's kind of how we get that memory more on technology than on overall capacity buys at this point.

Logic flattish, but maybe a little bit more first-half loaded than the second half.

Obviously, if you want to walk through the models our guys can do that with you.

Thank you.

(Operator Instructions)

Our next question comes from Mehdi Hosseini with SFG.

Your line is open.

Yes, thanks for taking my question.

Rick, your September quarter has historically been a down quarter, given how your fiscal year ends in June.

Given the kind of picture you painted for us, and I appreciate all the details and sincerity, how should we think about seasonality and historical trend playing into the September quarter?

Again, I appreciate the desire to get that.

We don't have a good view of September right now.

We're still working on finalizing what June looks like.

That's why there is such a large range on there.

I had also offered that at SemiCon West, we'll have a much better picture and be able to talk in more detail.

But you're right, we do view September historically has been seasonably softer for KT and counterbalanced by what's often a very strong end of the calendar year.

We don't know exactly where we're going to get it in the calendar year quarter-by-quarter, but we're modeling if we see this overall CapEx down 10%, then it kind of fits with our thesis that process control at least hold our overall intensity, and probably out-perform; but it will come later in the calendar year.

Got it.

Thank you.

Next, we have a question from Mahesh Sanganeria with RBC Capital Markets.

Your line is open.

Yes, thank you very much, Rick.

In terms of your incremental from minus 5% to -- flat to minus 5% to flat to minus 10%, is there one specific segment which has become more incrementally more cautious on?

What we really haven't seen is any strength in the non -- in the stuff that's outside of the core, so some of the manufacturers' wafers, for example.

We do see that overall being softer.

The first half is probably lower than we thought it would be in January, and so that -- you still have some come-back in the second half, but it won't compensate for some of the softness we are seeing now.

One more question.

How much of your -- the difference between you and competitors is timing of ordering.

I see that your guidance is pretty similar to Little's, where the guidance for the full year is down, whereas I think the Depp and [achure], those segments seems to be stronger.

Is there some kind of a timing issue that Little and process control, or has happened earlier and there is probably some capacity out there, and there is more of capacity orders right now, which making some of your competitor looks better?

Well, there certainly -- there are players that are more tuned to capacity buys; in the regard -- I would say it is probably more similar to Litho -- our profile looks a little bit like it, but perhaps for slightly different reasons.

From our standpoint, it is true that if you look on balance there is more investment at the very front end of a node than there is in the later parts of the node, until they get on to the next node.

That's what we're suggesting as we are seeing more investment continuing and probably phase shifts it a bit.

That's not true of all our products.

Some of our products are sensitive to capacity.

Those we do not see a lot of capacity being added.

For example, I go back to the wafer manufacturers.

But on balance, that's true.

The other thing that's happened is we are in a relatively soft period for reticle inspection, which historically would have been stronger through a period of technology development.

That has been softer due to this continuation in double patterning and quad patterning, not stressing the mass shops as much.

That's the other counterbalance to it.

One final question on ASML, suggesting that they have integrated metrology on CD measurement and overlay.

I am just wondering to what extent that is an additive market, or how much of that cannibalizes your overlay market?

I think CD measurement is probably not that significant, because it's only for FICD, but definitely on overlay you have a very strong market share.

I'm wondering if you are seeing any kind of impact on that part of the business?

Yes, I think as far as integrated go, customers are interested and have been for many years in the concept of integrated metrology, but still not very clear on exactly how to use it.

That comes from the fact that you are then at basically one unit per track step or pair, which is a higher concentration.

It's not clear that that's either economic or feasible from a production worthiness perspective, because if it goes down you can bring down the line.

But there is certainly interest in increasing the capability around registration control as people push multiple patterning.

We do think that the market is growing significantly, and there is going to be plenty room for alternative approaches to dealing with that.

As far as the CD control, we actually are very happy and have made tremendous progress in terms of market share there, where we did not have a stronger position, and have recently won (inaudible) record buys at a number of key customers for providing optical CD control.

We're really pleased with that part of our business.

Okay.

Thank you very much.

You bet.

The next question comes from Jagadish Iyer with Piper Jaffray.

Your line is open.

Had a question -- there's a view out there, Rick, that 28-nanometer could have more longevity as customers seem to be at the cusp of deciding on 20-nanometer or sub-60-nanometer by skipping a node, so as they try to debug some of the processes.

Do we think -- is this flux is causing you to be more biased toward the negative side?

Hopefully, if they get more clarity on it that probably we could see much more up-tick from the foundries?

I think there's -- very good observation.

Two thoughts on that.

One is, I think in many ways they're saying the same thing, is that we do see some question about the strength of 20-nanometer based on interests we are seeing in sub-20, which would by extension extend the life of 28.

The other thing is that even though 28 has been -- there are people that are successful at 28 -- there is still a broader market, broader participation by other foundries in 28 that creates other opportunities.

So we do see some strength in that build out.

I suspect that there is still some process changes even on 28 that will create some opportunity for us, as well.

But yes, that is the question is how big the participation and how quick people go to 20 or if they skip it or not.

Should that change, I think it does improve our prospects for the calendar year.

Thank you.

(Operator Instructions)

Next we have a question from Patrick Ho with Stifel Nicolaus.

Your line is open.

Thank you very much.

Rick, maybe if you could give a little bit of color in terms of the 3D nand opportunity, and whether you see that transition as being, I guess an inflexion point, or a step up in terms of the memory adoption of more process control, given some of the challenges in that type of manufacturing?

Hi Patrick, yes.

There's a couple opportunities that 3D presents.

Some are less obvious than others.

One is obviously as you could imagine, trying to find defects requires new some capabilities for people as they deal with 3D.

Finding them is just one part of it; then validating that they actually found them.

There has been a lot of work going on to try to support customers as they do that; try to make that manufacturing process production worthy.

The other thing is there's plenty of opportunity there for some of this optical CD measurement that I talked about, and we're doing well in that regard.

The third one is, because many of these structures are multi-layer within a process tool, there's actually a pretty good opportunity for bare-wafer inspection to make sure that the cleanliness of those tools is at a higher level than historically.

We are seeing increased opportunity for bare-wafer inspection to support 3D, which is an additive bonus, and perhaps counter-intuitive to the opportunities of 3D.

Maybe just a real quick follow-up.

What kinds of percentage in terms of dollar opportunity from what you are doing today in planer versus what 3D could be -- I guess on a percentage basis of the increase in the [tam]?

Well, I think if you think about process control intensity being -- I don't want to get into specific numbers, but let's say memory process control intensity is 50% of what foundry is.

This probably takes it to 70% or 75% of what foundry is.

Right.

Thank you.

(Operator Instructions)

Our next question comes from Ben Pang with Caris & Company.

Your line is open.

Yes, it's B. Riley & Company now.

Thanks for taking my question.

First, on -- you commented on the capital intensity that memory adoption is not as high as logic and foundry, but isn't the capital spending still much greater than 50% for foundry and logic this year?

Yes.

Overall, that's right.

I think that the memory investment for the year is certainly not -- you go back in time, and it was actually driving a lot of the CapEx.

But we are in a momentary point in time where there is probably on a relative basis even for us, we are seeing we're looking at June and thinking 33%, or a third of our business is going to come from memory.

You have to go back several years to the market split used to be a third, a third, a third.

Now I think we're in this temporary phase where memory is a third of what we're going to see in terms of opportunity, which means it's probably more than that of the overall market.

We think that reverts as we get to the second half of the year, which is why we think we'll see more strength in the second half.

Usually, I think we're always worried about utilization rates for other types of tools.

Is there any kind of situation where there was too much buying of your equipment early, like 2012?

Not really.

I mean, I think the question often becomes can it get re-deployed on additional nodes?

Part of what drives our product road map is the slight differences.

You could redeploy inspection in met roll gee capacity towards advanced nodes with some level of success.

Part of our challenge is always to create more capability in the next generation to make a compelling case for customers to upgrade or go to new products.

Otherwise, you would see that.

You would see the transition of some of that, especially as yields got very high on the older nodes.

I'd say that we are constantly -- and one of the products we just introduced, for example, in NanoPoint is to extend the capability, provide a motivation for our customers to go to the next-generation technology, and we're seeing that bare out, but usually there's an adoption cycle of that.

Just to clarify that answer as a last question, if your tools weren't utilized for the manufacturing node, do you would see more re-deployment to next generation.

Is that what I am hearing?

It depends how big a transition the technology change is.

For example, 28 to 20 is too big a change, so if they were at 28, they're not going to do a great job at 20, except in the case where they -- it's probably more like Litho.

The very critical layers on 28 probably correspond better to the non-critical layers on 20.

So there will be some, but that cycle's been going on for a while.

Even in that case, if you can provide compelling reasons to upgrade you can often get customers to make the transition.

Thank you very much.

There are no further questions at this time.

I turn the call back over to Mr. Lockwood.

Okay.

Thank you, Jay.

I'd like to thank everyone on behalf of the Management team today for joining us.

An audio replay of today's call will be available on our website later this afternoon.

Once again, we appreciate your interest in KLA-Tencor.

This concludes today's conference call.

You may now disconnect.