科林研發 (LRCX) 2003 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Lam Research September 2002 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question and answer session. If you need assistance during the conference, press the star followed by the 0 on your telephone keypad. This conference is being recorded today, Thursday, October 17, 2002. I will like to turn it over to Kathleen Bela, Director of Investor Relations for Lam Research. Go ahead, ma'am.

Thank you, operator.

Good afternoon and thanks for joining us to discuss the financial results for the quarter ending September 29, 2002. You should have received a copy of today's press release, which was distributed by Business Wire at approximately 1:00 p.m. Pacific Daylight Time and is posted on our website at www.lamrd.com.

Here today is James Bagley and Mercedes Johnson, Stephen Newberry is not in the office today.

Before we begin, you should know that except for historical information, the information Lam is about to provide and the questions Lam answers in this call may contain certain forward-looking statements. Including, but not limited to, statements that relate to the Company's future revenue and operating expenses, management's plans and objectives for future operations of product development and the demand acceptance and competitiveness of the Company's products. These statements are subject to various risks, uncertainties and changes that could cause results to change. And which are detailed in the Company's SEC report. We encourage you to read those reports in their entirety. We disclaim any obligation to correct or update any of the information we are about to provide.

This call is scheduled to last for one hour. Please limit questions to one per firm.

Now I'll turn it to Mercedes for a review of the financial results.

Thank you, Kathleen. Good afternoon.

Our financial results overview today will cover new orders, revenues and profitability, ending with some comments on significant balance sheet changes due in the September quarter. Since joins, semiconductor producers have reduced investment in wafer equipment as growth and end-user demand for semiconductors did not materialize as forecasted earlier in this calendar year, our incoming order flow was impacted by this market contraction and fell by approximately 21% from last quarter levels.

New orders of $185 million were down sequentially most significantly in Asia Pacific followed by Europe and partially offset by increases in North America and Japan. The graphic distribution of orders was as follows: North America, 37%; Europe, 23%; Japan, 9%; and Asia Pacific, 31%.

We continue with our practice of systematically reviewing the content of our financial backlog. The amount of unfilled orders deemed uncertain or where shipments within the next 12 months is doubtful, increased from the prior two quarters and resulted in a $23 million downwards adjustment. Our financial backlog stands at $234 million at quarter end. Revenues reached $197.5 million in September. A 10% increase from the prior quarter. Asia Pacific and Europe revenues were higher than June's, offset by lower levels in North America and Japan.

Geographic revenue distribution was as follows: North America, 23%; Europe, 18%; Japan, 11%; and Asia Pacific, 48%.

Shipments for the September quarter rose sequentially by approximately $212 million, resulting in better utilization of manufacturing resources which combined with the more favorable product mix, and improved our growth margins to 40% of revenue. Operating expenses of $74.7 million for the quarter declined modestly from last June reflecting the impact of our cost containment program.

During September, we announced that repayment of our 5% convertible divestiture loan and the closure of a related loan. In result, we recorded a non-operating, nontaxable charge of $16 million to reflect the $8 million live to date gain of the put on call options in Lam stock.

Ongoing other income and interest was a net charge of $660,000, mostly due to foreign currency fluctuations. Excluding the charge related to our caller, income after tax was $2.7 million or 2 cents per diluted share. Embedded in this result is an effective income tax rate of 25% of profits. As our continued investment in R&D activities will provide the associated tax credit. Including the mark-to-market charge for the cashless caller, net loss after tax was $13.7 million or 11 cents per share.

Last, a few comments on significant changes in the balance sheet. Cash, short-term investments and restricted cash balances of $602 million reflect the $310 million repayment of our 5% bond and the associated closure of the cashless caller by purchasing 3.5 million treasury shares for a total of $39.1 million. Cash flow from operating activities was positive, as accounts receivable turnover improved to 63 days and inventories declined by close to $20 million. Capital additions were minimal at $3.5 million and depreciation and amortization for the quarter was $11 million. Long-term debt includes our May 2001 convertible debenture, due in June 2006 for a nominal amount of $300 million. As we have an interest rate in this transaction associate we did this bond, we are required to mark-to-market the note on a quarterly basis.

At the end of September, the result of this accounting is an increase in long-term assets of approximately $16 million and an increase in long-term debt of approximately $16 million. For more information about this transaction and the accounting in fact of the mark-to-market calculation, please refer to the IR section of our website under convertible bonds information. Deferred revenues and profits stand at $133 million and $71 million respectively. And our global employment decreased to approximately 2,450 employees by the end of September.

Next, Jim will discuss industry conditions and the Company's progress towards our operating goals. Jim?

Thank you, Mercedes.

While the decline in our orders was consistent with the rest of the industry, they were below our guidance as a result of adjustments in capital spending plans by customers in general, but particularly in Taiwan. Unfortunately, the volatility surrounding new orders for any quarter has increased over the last year and a half so that forecasting with any reasonable accuracy has become nearly impossible. In this difficult environment, I'm please that we met our operating objectives and achieved the financial performance that Mercedes just outlined. We are constraining spending to control costs, but will continue to make significant investments in R&D to support the development of our next generation products.

Our outsourcing programs are preceding as planned. Our objectives are outsourcing of labor intensive transactional activities while we contain those critical areas that support the core functions of development, marketing and selling and support for our customers. Completion of our overall outsourcing program will create a more variable cost base for the Company allowing to us adjust our expense levels to revenue more rapidly. This business model will enable us to deliver more returns to our shareholders in a full industry cycle.

Our next generation family of etchers continues to form well in our customer's wafer fabs as well as the marketplace. We believe they are becoming the standard by which other etchers are measured. We expect to see market share growth across-the-board in silicon and metal edge when the next wave of buying begins.

During this downturn, the CMT market eroded faster than other segments. We've made progress in enhancing the reliability, substantially improving process performance while lowering consumables cost. We believe in the next cycle CMT will be driven largely by comp purchases and we continue to focus our efforts in that area.

Before I close with our guidance, I'd like to recognize Lam employees. They have consistently sacrificed during this difficult market to create increased customer trust and a stronger, more capable company. I expect they will strengthen our product technology lead and attain higher levels of financial performance during the next cycle.

Turning to guidance for the December quarter, we expect our orders to decline about 15%, which we believe is in line with industry projections. Revenue will be between $185 million and $190 million at approximately 40% gross margin. The factory will operate at approximately $160 million in production output. Operating expenses will be similar to the previous quarter and operating results will be approximately break-even.

I will now open the lines for questions.

Thank you, sir. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press the star followed by the 1 on your push-button phone. If you would like to decline from the polling process, press the star followed by the 2. You will hear a three-tone prompt, if you're on speaker equipment, it is necessary to lift the handset before pressing the numbers. Our first question today comes from Ted Bergeleman. State your company name and question.

Lehman Brothers. Can you talk about some of the order activity terms in some of the adjustments you made with the cancellations or adjustments you made in your discretion and where you see the level of pushouts or cancellations for the next quarter? Is it still kind of going week to week?

Ted, let me clarify, there were no cancellations from customers. Our practices are on a basis. We review the content of our unfilled backlog orders that have not shipped yet and assess the reliability, if you will, of those shipments occurring over the next 12 months or the availability of us shipping those products altogether and we make judgment calls in that respect and for that reason we remove certain orders from our financial backlog when we deem them to be doubtful. So, we have no cancellations due in this quarter. We have gone through our prudent processes of reviewing the backlog like we have done for several years now and as a result, we have deemed certain orders to be either doubtful to ship altogether due to similar reasons, one of which may be financial condition of the customer, and/or situations where the customer, we believe, may not receive delivery over the next 12 months. So, in either one of those two circumstances we have taken the orders out of the financial backlog. For me to discuss customers or regions I think would be inappropriate because as I said, these are not customers' requested cancellations. These judgment calls that the management team at Lam has made with all the information we had available at the time when we made that judgment call.

Thank you.

Our next question comes from Bret Lotus. Go ahead with your question.

Two questions. First, Jim, can you give us a feel on the competitive front. Obviously you mentioned the 2300 is becoming the industry standard, but given the weakness out there, is this a chance to gain more or does it put some of the wins that you've had more at risk with your customers coming back more competitively?

Bret, I think at both circumstances, where we have been ahead of some of our competitors in certain areas and the customer is delaying purchasing of equipment, it gives a competitor a time to recover. At the same time, for us particularly in di-electric, where we were behind with our 300 millimeter system, we behind with the 300 millimeter, also, just because of our development work, we've improved our system and done a very good job of positioning ourself with the customers. I think that this delay in the rebuy and the upturn in the industry is giving us a better opportunity to gain market share in di-electric. So, you know, it's kind of a sword that cuts both ways. We will try to defend where we have had the lead and have become the production tool of record and prevent our competitors from taking share from us there. But at the same time, we're working very aggressively to try to consolidate wins in di-electric and get additional wins in di-electric which will clearly turn into market share for us as these customers return to buying.

Thank you. Our next question comes from Glenn Young. Please state your company name and question.

Are you there, Glen?

Hello, hello, sorry. Sorry about that. From Salomon. If you look at the orders in the quarter, Asia Pacific was down, which is not really that surprising, but Japan and the U.S. were up quite strongly, can you talk about what was going on there? And maybe stap late a little bit in the fourth quarter? And what do you think Europe will do in the fourth quarter?

The forecast as I said, Glen, is incredibly volatile. At this point we only know for sure what customers are going to do who have already placed their orders with us. That's not an insignificant number. But we still have customers who said they intend to do things and we have things in our forecast and we've applied them as we understand the situation today. The situation in a month may change considerably as it did last quarter so that our judgment will change. But I don't think there was anything usual that happened in North America that would signify some kind of change in events. We had a couple of customers who are very good customers of ours, where we have substantial market share who did place some orders and so that affected us in North America. Japan is kind of a small amount anyway, so, it's on a percentage basis it looks much more volatile than it is really on the basis of dollars and as a percent of our total bookings. And Asia Pacific is down, we don't expect all of Asia to be down. We expect Korea to be up in the next quarter. Most people are talking about individual customers and placing orders and we expect that to happen, also.

Our next question comes from Steve Polo.

Morgan Stanley. Jim, can you comment on the concentration of orders both in this reported quarter and going into next quarter? I thought it was interesting that your comment is, here we are two weeks into the quarter, and you already have an insignificant amount. Is the linearity of bookings in the calendar fourth quarter looking front-end loaded so you have a good tail end?

Yeah, I think we will do a little bit better during this quarter. I think that most people who are going to place orders in the quarter recognize that they will lighten up from a work day standpoint toward into September. It wouldn't surprise me at all to see a lot of the customers begin to reduce their work schedule in December, particularly given the rather dismal forecast that we've had so far for consumer demand during this holiday period. And it's going to take a -- something just short of a miracle at this point for semiconductor companies to respond to demand that may occur in the fourth quarter, that has not already been forecasted because we're getting very close to a point at which semiconductor companies can't respond to new orders unless the device is already in inventory, which is a little bit difficult for some of the companies. So, I wouldn't -- it wouldn't surprise me that our customers would take some time off during the Christmas period, causing them to pull their orders forward if they intend to get orders placed for delivery in March and the March quarter or even into April/May.

Thank you.

Our next question is from Mark Fitzgerald. State your company name followed by your question.

Banc of America Securities. Just wanted to get a couple of numbers here. Intangibles on the balance sheet at the end of the quarter here, backlog in June and wondering if your cash from operations will be positive in the December quarter?

Okay, Mark. Intangibles in the balance sheet, I'm sure you're referring to intellectual property we may have purchased from a non-company related activity and they're immaterial for us. We have announced in a couple of occasions that we have acquired intellectual property in the last two or three years. The numbers have never been significant. And our patent portfolio is, to a great extent, internally developed.

Your second question was the June quarter ending backlog, I believe and that was about $287 million, I think we disclosed back then.

What was your last question, I'm sorry? Oh, cash from operations in the coming quarter, we expect operating cash flow to remain relatively flat in the December quarter.

Thank you.

Our next question comes from Shamar.

Prudential Securities. Jim, one question, you know, early part of the week we heard guidance of flat to minus 10 and, of course, I realized all the numbers are extremely volatile, but is this minus 15? Kind of middle of the pack thinking or more on a conservative end, do you think given a chance to do minus 10 is even better?

All we're saying is we think we're going to be consistent with the industry. I read what you guys write and most of you are projecting orders, not you in particular, but there are several projections for orders that are as bad as I think minus 20 to minus 25%. Those may be worst case scenarios where others may be more intent. We're going to be somewhere in that -- in with the industry. We don't think we're going to be abnormally high or low. We used 15% because it looked like it was the middle of the range of projections for capital auto replacements during the December quarter.

Thank you. Our next question comes from John Pitzer.

Yeah, guys, one clarification, then a question. Just on the 185 in bookings for the fiscal first quarter, that's a gross number, correct? And I'm wondering if the down 15% guidance is off of the 185 gross number?

Yes, John. You are correct in both cases. The 185 is new orders, which is the way we report our orders on a consistent basis so the guidance is also based on that number in terms of what we expect the December quarter to be relative to the September quarter.

Thank you. Our next question comes from Mike O'Brien. Please state your company name followed by your question.

Yes, from Sound View. Maybe you could just talk about how the pricing pressure is increasing, especially if Tokyo Electron is becoming more aggressive on their pricing as they try and gain back some share in di-elect, especially in 300 millimeter. Thanks.

I don't think the pricing environment has changed any over the last three or four months. We haven't seen what I think is a significant change either positive or negative so pricing has kind of stabilized for right now. If the business weakens more than what we're forecasting, maybe the pricing and pressure will increase, but I think maybe some of the companies in the marketplace recognize there is no elasticity, price elasticity in equipment. If you need three etchers and we cut the price in half, people don't say gee, I think I will buy five because they're so cheap. They buy three etchers but get a hell of a good deal. What we'd like to see is people to -- some of our competitors to understand this problem, that we're doing -- we have more impact on the market than our customers spending by fooling around with prices.

Thank you. Our next question comes from Robert Mayor. State your company name and question.

Bear Stearns. Can you give us a little bit of a spin as to 200 millimeter versus 300 millimeter business? I realize we're only a couple of weeks into the quarter, but any changes in geographic direction or spending habits, especially in light of some recent announcements we've heard?

Well, I think that you can be very misled by looking at -- I think I've said this in the past, looking at the split between 200 and 300 millimeter on a quarterly basis. I mean that's almost meaningless information unless you can put it in some kind of contextual framework. 300 millimeter is still progressing. Certainly not at the level that we would have thought, today. It is not at the level we would have thought 12 months ago. The whole 300 millimeter conversion has been reduced in rate and it's largely a function of lack of need for capacity beyond what has already been installed.

Yes, there are problems with 300 millimeter processing, but those are just things are that the industry normally deals with and there are problems in converting to copper and there are problems converting to di-electrics, all again, the industry deals with those programs on a fairly regular basis as we march our -- actually we stampede down the technology road map. So, I don't think any of that is significant. We don't see a big change in our outlook for 300 millimeter over what we expected to see other than we continue to see push-outs and rearrangements of schedule, but those are happening in the 200 millimeter, also. So, I don't think there is any trend that we can ascertain from our numbers on what's happening in 200 or 300 millimeter.

Thank you. Our next question comes from Jerry Fleming. Please state your company name, followed by your question.

Yes, Fahnestock and Company. I had a quick question for Mercedes. You mentioned you had repurchased 3.5 million shares. What's that going to do to the share count next quarter? Could you give us some guidance on that?

The share count next quarter, Jerry, will not change significantly from the share count that we have utilized in the September quarter. The shares were repurchased in the September timeframe and they will be used for ESDP employee stock plans, insurance, et cetera, et cetera. So, we don't believe that the share count for the September quarter is going to change materially from where it was in the September quarter.

Thank you. Our next question comes from Timothy, please state your company name and question.

Deutsche Banc. Thanks a lot. Jim, can you talk about copper activity. It feels a little bit like it's being pushed out slightly. Maybe that's due to some of the -- some of the, you know, processing issues.

Well, I think that you have two things going on right now. People believe that copper is inevitable so they're continuing to work very aggressively to solve any processing problems related with copper. But I also think that there is a limitation to the rate at which people are designing for copper implementation, so, you have two things going I think together.

The -- the demand for product, leading edge product for new generation systems that require copper in a connect will absolutely determine the rate at which copper is implemented in wafer fabs. So, this will be clearly an in-market-driven situation. If the in-market starts demanding more and more copper devices for next generation systems, there will be a heightened priority given to copper activities to get a move forward.

Again, I think that you can't look at what's going on, particularly on the quarterly basis, you can look at it kind of at an overall the basis of what's happening in copper, but certainly the business cycle today is -- has a dampening effect on practically everything that's supposed to be taking place. And as the economy improves, maybe telecom gets sorted out to some level, then we will see the market begin to recover, I think pretty dramatically.

Thank you. Next we have Byron Walker, please state your company name followed by your question.

Byron Walker, UBS Warburg. Jim, as you continue to outsource, can you comment on the health and the issues of those sub suppliers at this point? My belief is they're getting hit pretty hard under the circumstances.

Byron, we are not outsourcing to people that -- and we said this before, we had a -- we're not outsourcing to people who are generally -- have been in this business. Now, obviously some of our outsourcing suppliers have been. And we review their financial status and their ability to service us as part of our program to select suppliers and then -- and then to manage them as we go forward. But we're also getting with people who have traditionally not been in the semiconductor equipment business and we did that deliberately so that we would not be in a market with outsource suppliers who have concentrated their activities in semiconductor equipment and then have exactly the same problem we would have had had we kept some of these functions inside the Company. We're trying to go with outsource suppliers who can deal with the significant growth that we experienced at the beginning and through the peak of a cycle and then the significant downsides that we have when we have one of these disasters like we've had in the past. So, we're trying to get with people who have other businesses that aren't so volatile and where we are a meaningful but still relatively small part of their business so that they can deal with our volatility without it being a significant burden on their Company.

Thank you. Our next question comes from Nick. Please state your company name followed by your question.

Good afternoon, this is Nick from Global Partners. One question not related to financials, if you consider the change in technology now with the strong point, 182 points for micron, what happens with the share of wafer processing equipment going to etch? Does it go up, down or stays the same?

Nick, we think by all the modeling we've done that it goes up significantly. We have -- for comparison purposes, I don't have the slide right here in front of me, so I will try to recall it. So, forgive me if I don't get it exactly right. We did a comparison of a five-level metal quarter micron device and compared it to an equivalent copper device, even though no one will make a quarter micron five-level metal copper. And what we did is to show first as a transition because of the removal process in copper, both deposition and removal process and the fact that the copper interconnect is formed in the di-electric and we have to do that two times.

So it shows a growth in etchers required just to do that, if you just took any process you're currently running, change it to copper, you give up a certain number of metal etchers for the aluminum and you increase the number of di-electric etchers and the di-electric etchers are larger, the increase is larger in di-electric than the decrease in metal. So, you have a net growth in etchers when you move to copper. If you then move to a .13 device which would typically be something in the order of 6 to 8 levels of copper and we chose 8 because it showed where the leading edge is likely to be and compared to quarter micron, I think our numbers were that di-electric etch in the back end grew 60% going to eight levels of copper from five levels of aluminum.

Thank you. Next we have Jay Dana. Please state your company name followed by a question.

Thanks, JP Morgan. Good afternoon, Jim and Mercedes and Kathleen. The question is, Jim, at what point do you think utilization rates will bottom out in the semiconductor industry and start to turn and then secondly, Mercedes, you indicated up front that gross margins improved due to mix shift in addition to higher volumes. Is that a mix shift from service to systems or was there some sort of meaningful mix shift within systems?

Relative to utilization, Jay, I wish I knew because if I -- was I go longer on semiconductor equipment stocks than I am now, which is hard for my wife to believe, but I would do that because if you can get in six months before it happens, you're going get a real buy I'm hoping that anyone that didn't buy Lam in the late 6s and early 7s that you missed a wonderful opportunity as we soar with the anticipated growth and utilization over the next few quarters. But frankly, I just don't know. I suspect that we're going to see a low here in fourth quarter and then I -- I believe it's going to be a function of what happens with the economy in general.

On the gross margin, Jay, your question, the better product mix relates to the fact we are shipping larger portions of newer business equipment. Which, as we said many times before, have been designed with a lower cost component and therefore our margin improved as the percentage of those products overall mix gets greater.

Thank you. Our next question comes from Sherez. State your company name and question.

Yes, Think Equity Partners. Jim, can you give us your thoughts on how extendable the etchers are for BM manufacturers? And to what extent can they use this tool for -- can they use a .18 for a sub point .18 and how long can they keep doing it before buying more advanced --

Can you repeat your question, was it DM manufacturers?

Yes, they can't keep using the same tool and keep on doing it. Why do we reach a stage when they have to bony up and buy new tools?

Actually, on almost every strength they will buy new tools. Not every other strength. Typically the D-ram people don't do 70% shrinks each time. They do an incremental shrink that is more like about an 83% shrink I think it is. So, they're dropping at -- at their future size twice -- they have twice as many shrinks as a logic company does which project generally does at a 70% shrink.

So, if you look at anyone that does a 70% shrink and go through and look at critical etch steps it doesn't make any difference whether it is gate edge, some cases it is metal, some cases it is STI, others it is first level of contact. Sometimes it can be Avia and D-ram. Many times the sack etch has to be changed to a next generation product or the ratio contact edge has to be changed. So, if you look through both logic and d-ram devices, or memory and d-ram and -- and logic devices, you will see that at every -- at every step there is some number of etchers that will have to be replaced. And this has been an ongoing process for some time. It's getting -- it's probably to the point now where every strength is going to be more difficult, we're trying to develop etchers that when we deliver them at least will work on two generations but with some of the changes in material that we have going on in the market -- in our customer base, we're not sure that's going to happen because sometimes we don't know what the material choice is going to be. In some areas where the device generally is changing more slowly, you can have an etcher work for two, maybe even three generations.

Thank you. Our next question comes from Jim Cobello. Please state your company name and question.

Hi, Goldman Sachs, thanks very much. Couple quick questions, Jim. The first thing you had mentioned during the conference call that you saw the CMP segment eroding more quickly in this period of weakness. Can you put color around that?

And secondly you made a comment of lowering your consumable costs on the CMP. Can you give more color around that? Thanks very much.

Jim, let me make sure -- we've had -- I want to clarify, I'm not talking about the last quarter, this dip in the last quarter, I'm really talking about through this whole downturn that we've gone through that it appears that the CMP market suffered more than say etch, CVD, there may be aspects of the metal market that have been as bad as CMP, but I think that in general as we converted to copper while we were reducing the number of -- the amount of capital that was being invested, CMP got hurt because it got caught in a transition. People were reluctant to buy a new CMP system as they're reverting to copper unless they're buying copper systems and they didn't need inner level di-electric machines because of the moving from an aluminum inner connect to copper and toungeston [ph] accomplishing is being replaced with new metal structures so they're not doing CMP to the same level they were. So, where they used to be a growth market, it is peaked and probably has declined pretty significantly as well as inner layer di-electric. So, now you're on some of the other polishes like STI, which is only a one-level polish, poly, there is some poly processing, it is typically a one-level polish and everything is moving to copper.

So, in the transition, we don't need a technology upgrade for inner layer di-electric, we need technology for copper. But it's not like etch and CVD and some of the other processes where there has been a technology change, you need new equipment in order to do the task. And so they don't have the -- CMP is not experiencing the new technology buys to the same degree that some of the other processing markets are and they are suffering from the lack of general capacity purchases. I think that's what's happened.

Relative to cost of consumables, we've done work with some story suppliers, we're getting slurry that's less expensive and has more capability that allows to us raise our removal rates and that we get a better belt life because if the removal rate goes up, we're not polishing with the belt as long. So, the lifetime of our belts has been extended and we use less slurry so the overall consumable rate has dropped down.

Thank you. Our next question comes from Mark. Please state your company name and question.

Yes, hi, Thomas Weisel Partners. Jim, can you maybe give us color on where your lead times are now?

And secondly, Mercedes, can you go over the backlog number? I thought you gave the number of $234 early on and heard $287 during the question period. Thank you.

Let me address the backlog question first. The backlog $234, which is the number I quoted you in my script is the backlog end of September. Subsequent to that I got a question about what the backlog level was at the end of June. That's when I responded the backlog levels at the end of June of this calendar year was $287 million.

Oh, and lead times, they vary by the piece of equipment. We're responding pretty quickly to customer requests as you can imagine. Our customers think that we -- the equipment business is now a just-in-time business so that they can order a piece of equipment and it shows up like a TV from Best Buy, but unfortunately we can't quite do that well. We don't keep any systems in inventory, so our lead times are a little longer than that. But in cases where we have the inventory available, we can essentially build a system and ship it to a customer in about five weeks. If the factory is loaded or the inventory has to be secured because we have insufficient inventory to make the product that's desired, then the lead time typically gets out into the 12-week time period.

Thank you. Our next question comes from Steven. Please state your company name and question.

Yes, just a quick follow you question. Your guidance of shipments was $160 million next quarter, shows shipments declining 25%. What does it suggest for March quarter revenues? And can you maintain that kind of 40% gross margins if the revenues continue down in March?

As long as, Steve, as long as we can keep our production output at about $160 million, then we fully absorb the factory. So, now, if we can get our production output above that, then we overabsorb the factory overhead relative to our plan and it does enhance gross margin. But we do okay relative to our financial forecast if we can keep the production output around 160. Obviously gross margin is not figured on production output, it is just a component that -- that affects gross margin, determines the gross margin. If we can maintain -- if we can maintain an output of about $180 million for the next couple of quarters, provided that our bookings stay in and around the area that we are forecasting they would be in in the December time period. Now, that requires us to continue to deplete our deferred revenues.

In other words, we ship a product today and it is revenue somewhere between 90 and typically 180 days and we are continuing to pull that back as we get more efficient in getting sign-offs on our equipment. And you can tell that we're making progress by looking at our days outstanding on receivables. So, I think that we have a good chance through March, the December quarter and the March quarter, to hold revenue about where we are -- where we have forecasted for December and we can continue with about the same level of financial performance provided that we can ship -- run the factories at about $160 million and get somewhere in the 170 to $200 million in new orders.

Thank you. Our next question comes from Mark Fitzgerald, please state your company name followed by your question.

Banc of America Securities. Two longer term issues here, Jim, do you subscribe to the slower growth rate theory that some of us are pushing out there on the street? And do you think there is any risk that kind of the transition from one technology node to another has to slow for some of your customers, as kind of the return on capital, return on equity for some of the chip companies come in?

Mark, I've been through at least three periods where the demise of the semiconductor industry was forecasted with great assuredness and what people then were describing very accurately and they demonstrated graphically in, in that the industry was slowing down, semiconductors weren't going to -- we're not going to be as pervasive as had been planned and gave all kinds of reasons. That's going to happen one of these days. I just don't believe it is now. So, I don't think that's the situation. We are shipping far more semiconductors than we ever shipped.

Unfortunately because of what I believe has been essentially chronic overcapacity in the industry since the fourth quarter of 1995 with very brief response as a result of either Asian money being free or just gross misforecasting of what the demand is and building semiconductors that really had no home. But we've been in a chronic overcapacity situation. That has had a dramatic impact on the selling price of semiconductors. You can't look at the semiconductor industry and say it's slowing down when -- because the revenue from the d-ram operations is less than their cost. This is a business problem. It is not a growth and industry problem, it is a business problem. We have a capacity situation that people are struggling for survival in various businesses and pricing their products near or at cost.

If you applied a reasonable gross margin to the d-ram industry, a reasonable gross margin in -- and return in microprocessors, flash memory and some other things, the semiconductor industry would be huge! Or larger than it is today. It's already huge, but much larger than it is today. So, the problem is not one of semiconductor consumption, not one of semiconductor growth, it is one of average selling price declines in dramatic fashions, which is not healthy for the industry.

Operator, we will take one more question prior to the conclusion of today's call.

Thank you. Our final question today comes from John.

Credit Suisse First Boston. Jim, I'm not sure if you hear this out, but can you talk about what d-ram represented in the September quarter and what it might represent in the December guidance, as well. Thanks.

The d-ram looks like it was under 20% in September and it will be substantially higher than that in December, we hope. We expect.

Thank you.

We'd like to thank everyone for participating today's conference call and we look forward to speaking with you again in coming quarters.

Ladies and gentlemen, this concludes the Lam Research September 2002 Earnings Conference Call. Thank you for your participation on today's conference. You may now disconnect.