科林研發 (LRCX) 2003 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the LAM Research December quarter financial results conference. At this time, all participants more are in a listen-only mode. Following the session, instructions will be given for the answer and question session. If anyone needs help, press the star followed by the 0. As a reminder this, conference is being recorded today, Wednesday, January 22nd, 2003. I would now like to turn the conference over to the director of investor relations and corporate. Please go ahead, ma'em.

Thank you, operator. Good afternoon, and thank you for joining us to discuss the financial results for the quarter ending, December 29, 2002. You should have received a copy of the press release distributed at 1:00 p.m. pacific daylight time and is posted on our website at www.LAMRC.com. James Bagley and Mercedes Johnson are here with us 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 relating to the company's future revenue and operating expenses, management's plans and objectives for future operations and product development, and the demand acceptance and competitiveness of the company's product. These statements are subject to various risks, uncertainties and changes in conditions, significance, value and effect that could cause results to differ materially. And in ways not readily foreseeable, and which are detailed in the company's SCC report. We encourage you to read the reports in their entirety. Lam would like to disclaim any obligation to correct or update any of the information we're about to provide. This call is scheduled to last for one hour. Please limit questions to one per firm. I will now turn the call to Mercedes for a review of the financial results.

Thank you, Kathleen. Good afternoon. Today, I will comment on our new order trend, asset management performance, and key revenue and profitability metrics for the quarter just ended. As anticipated, demand for semiconductor equipment during the December period weakened further from September levels leading to a 12% sequential decline in our new orders. Total incoming orders of $163 million represent a 32% improvement over the low mark in this cycle set in the December 2001 quarter. Driven by DRAM orders, the Asia pacific region exceeded prior quarter's performance offset by reductions in all other geography, most notably North America. As a result over all memory orders accounted for approximately 2/3 of system's bookings. New orders break down by location was: North America, 23%; Europe, 21%; Japan, 7%; and Asia pacific 49%. Revenue for the quarter was 184.6 million. With regional mix of North America, 31%; Europe, 16%; Japan, 7%, and Asia Pacific, 46%. Following the bookings trend, production output of 152 million declined sequentially by 28%. With the corresponding reductions in deferred revenue to 103 million.

We have performed our customary quarterly risk assessment review and, after cancellations and adjustments, our ending backlog includes 229 million of unfilled orders. As a result of customers expanding their December shutdown, our gross margin for the quarter was negatively impacted by lower spare shipments and under utilization of our field service engineers workforce. Our outsourcing strategies contributed to achieving ongoing gross margins of 39.1% of revenue by mitigating the unfavorable effect of volume reductions in our customer service business revenue. Reporting gross margins of 39.3% of revenue include the benefit of a 300-gain restructuring reversal, as we were able to partially recover the value of inventories previously written off. Ongoing operating expenses of 71.5 million benefits from our focus in outsourcing GNA function, as well as, from cost management activities such as reduction in working days via extended shutdowns. We continue to invest in strategic programs and initiatives in R&D. Driving spending to 39.7 million, slightly down from last quarter levels.

During the December quarter, the company incurred a net restructuring charge of 1.8 million with $300,000 of recoveries included in gross margin, as I just mentioned, and 2.1 million in net charges to operating expenses. The 2.1 million net charge to operating expenses includes, 5.7 million for facilities consolidations and employee-related costs associated with outsourcing and 3.6 million recovery from prior years restructuring plans. Other income and expense was a net gain of 3 million, mainly from net interest income as we no longer carry the service of our 5% convertible bonds. Including net restructuring charges and reversals, net income after-tax was 1.5 million or 1 cent per share. Excluding restructuring charges and recovery, net income after-tax was 2.8 million or 2 cents per share.

To conclude, a few comments on changes in our balance sheet from last September. Cash and equivalence plus restricted cash rose to 614 million at the end of December, with 12 million generated from operating activities. This performance highlights our ability to execute to our asset management goals. Accounts receivable declined by 16 million and inventory levels continued the downward trend started in March of 2001, falling to 147 million or 15 million less than September. Net fixed assets of 57.5 million include capital expenditures of 2 million. Depreciation and amortization expense for the quarter was 10 million while our employment levels stand at approximately 2300 people at the end of December. These comments cover the most significant aspects of our financial performance for the quarter, so now we're ready to move to Jim who, will discuss the current environment and provide guidance for the coming quarter. Jim.

Thank you, Mercedes. We finished the December quarter in line with our bookings, revenue and profit expectations. And we didn't see any significant cancellations or requests for order push-out. Customers that are making purchases in the current environment are doing so to remain competitive on next-generation applications, or to ensure that they are well-positioned to 300 millimeters. Looking forward, despite the uncertain in-market environment, we expect customers to invest, to migrate their process capability to enable productions of 110 nanometer memory and 130 nanometer logic devices. We have implemented most of our outsourcing plans and are addressing excess facilities. We have consolidated manufacturing space, as well as some administrative space as the trend for a former LAM employees to outsource suppliers has idled facilities. We expect to execute further consolidations associated with our outsourcing strategy. Accordingly, we anticipate incurring restructuring costs in the range of $10 million, which we will record between now and the end of September as these facilities are vacated. These actions, when completed, will reduce costs by approximately a million-dollars per quarter.

During the downturn, we continued our focus on specific objectives followed by new applications, as well as achieved production tool of record status in both etch and CMP at a broader array of customers. I am pleased we have achieved many of the objectives that we have established. The 2300 S series is at the forefront in today's market and is driving the recent market share wins for the company. This has been a highly successful product for LAM, and I believe our position in the etch market will continue to strengthen, particularly as customers continue to evaluate 300 millimeter, capable equipment or move to 300 millimeter production. The CMP group has been concentrating on bringing a new 300-millimeter system to market, and has made good progress with shipments of beta systems expected in the June quarter. Our employees have, as in the past six months, pursued innovations and delivered on commitments in the difficult market environment. I commend the entire LAM team for their dedication and perseverance during the lengthy downturn, and I look for forward to better days ahead when our market successes will translate into revenue and earnings growth when the cycle improves.

Now, turning to guidance for the March quarter, we expect our orders to be approximately $180 million. During the March quarter, we anticipate approximately $2 million of savings from the restructuring actions just taken. We plan to collateralize other of our real estate synthetic leases, increasing restricted cash by $59 million. Coupled with the repayment of a portion of our long-term debt, we will reduce costs by an additional $250,000 per quarter. Revenue will be approximately $180 million with break-even results. This assumes that increased number of working days in the March quarter, no significant changes in factory utilization or product mix, and excludes the impact of the $10 million restructuring charges that I mentioned earlier. With that, we'll turn the call over to the operator to begin the Q&A.

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 process, press the star followed by the 2. You will hear a three-tone prompt acknowledging your selection and your questions will be pulled in the order they're received. Please limit yourself to one question and one follow-up question. Please requeue for any additional questions that you may have. If you -- [ Indiscernible ] Have speakers, please lift the handset before pressing the numbers. The first question today comes from Byron Walker, please state your company name followed by your question.

Byron Walker, UBS Warburg. On the $10 million restructuring, how much is estimated to be cash related?

Very little of it, Byron, because the 10 million, to a great extent, relates to facilities consolidation.

Okay, and is that across the board Mercedes in terms of etch and CMP or is it biased towards one group or another?

It's across the board in all PNL lines, across the sales as well as all the lines in operating expenses.

Okay, good. Thank you.

Your our next question comes from Mark Fitzgerald. Please state your company name followed by your question.

Thanks on, the guidance of the shipments for the quarter here and then the guidance for revenues being up 180 and shipments under 152, does that mean you're bringing your cycle times down, and therefore, turning the equipment a lot quicker and getting it signed off?

Let me see. The guidance --

got 180 million in revenues for the next quarter right?

Yes.

And shipments in the current quarter were 152. Did I get that right?

Yes.

So I was -- I assume with the SAP 101 were looking at the shipments rolling into the next quarter, so it sounds like revenues are going to be up, you have to be doing more turns or --

there is some impact there, but -- there is also a reduction in our deferred revenues. Okay. Are you giving deferred revenues?

I quoted deferred revenues at the end of December. They were 103 million, Mark.

Okay. And if I can just do a follow-up on the guidance here in terms of the break-even, um, I'm not quite sure how this 10 million flows into the next quarter in terms of the earnings estimate. Is there any further detail on that?

It's excluded from March what. We're trying to convey is that we will be taking charges as we vacate the facilities. There has been a change in the way restructuring charges are allowed. You have to be either out of the facility, you abandon it, or you have negotiated a cancellation of the lease with your landlord, and so you can take a restructuring charge when one of those two things have happened. We have a series of consolidations that will be sequential in nature, and we will take the charges in the quarter that the facilities are released. And we may release some in March. We're not sure if the schedule is in March or in early April. So, I wanted to be clear what our operating performance would be, excluding the impact of any of the restructuring charges. Or the benefits of the restructuring charges.

Our next question comes from Jay Deahna. Please state your company name followed by your question.

J.P. Morgan. Good afternoon. Jim, considering the DRAM is 10% of chip-industry revenues, seeing orders from memory, 66% of the total is a little on the scary side, I guess. How sustainable do you think that is, um, and as we move forward over the next couple of quarters, how do you see that mix changing based on memory versus Foundry and IBM?

Well, I think that the memory will decline as a percent of our orders going forward. 66% of our orders is not sustainable unless we don't have any business with logic companies, which we do. We're very well penetrated into people who make logic. So, you should expect that the memories this is -- most of the memory suppliers, when they have concluded a plan for what they're going to do, will begin to release some pretty substantial groups of orders, and they'll do it quickly so that you will get a large order from a memory company and then maybe modest orders in subsequent quarters until they release the next batch. Significant batch. So you should expect to see memory orders come in large clumps and then they declined significantly in subsequent quarters.

Right. So, as you look out into the next couple of quarters, do you think that Foundry and IBM can come up fast enough to balance off the potential decline in memory or more so?

Our forecast says that is exactly what will happen. Our internal forecast.

Your next question comes from Glenn Young. Please state your company name followed by your question.

Solomon Smith Barney. Jim, a guess a bit of a follow-up on that. If you were to instead of looking at it from a device perspective, look at a geographic perspective, can talk about what looks to be a 10% up quarter for the March quarter in terms of orders, you can talk about where you think the geographic orders -- not strength, but where the orders will be coming from geographically.

Let's see, Asia is still strong. And it's the strongest area and followed by North America. And then you have the rest of -- let me see -- and then Europe and then Japan.

And when you look at that, is it more of a broad breath kind of thing where all the regions will be up a bit, or are you going to see some of the regions down?

let's see, um -- no. There is a shift in Asia. North America is -- we expect North America to be up. We expect Europe to be relatively flat. Japan relatively flat and in Asia, there are swings between Korea, Taiwan, and Singapore.

Your our next question comes from Jim Covello. Please state your company name followed by your question.

Hi, Goldman Sachs. Thank you very much. Jim, can I just ask you a question that when you're evaluating the DRAM orders that are coming in, what do you think the biggest risk is? Is there a level of -- of DDR contract pricing that you think if DRAM prices fell below, the orders would be at risk, or future orders would be at risk, or are the orders more strategic than that. The DRAM orders that you have gotten and/or are anticipating for March quarter, what percent are 200 versus 300. Thanks a lot.

I think that DRAM people, those that are placing orders, are doing it strategically. I think all of them have a specific plan that they are following relative to their capacity requirements, as well as a big part of the orders is an upgrade in technology. Samsung has made it clear in a public -- in a press conference that they expect to make a dramatic change in the content of their DRAM output and make a significant move to 110 nanometers. I think the other leading DRAM companies, will have to do the same thing in order to stay in the ball game. So my expectation is that DDR price today, I think, yesterday, something, is essentially at the synchronous DRAM price, that is 256 MEG level, so I don't think that a change in DDR pricing is going to have much impact on most of the orders being placed, and we're not too concerned about the orders that are being placed, being pushed out, or being canceled, unless there is a catastrophic change in the DRAM business.

Thank you.

Your next question comes from John Fischer. Please state your company name followed by your question.

Yes, CS First Boston. Good afternoon, Jim. I apologize yesterday you mentioned this and I missed it, but when you looked into the March quarter, you said DRAM was 2/3 of the book of the December quarter. What is the percentage going into the March quarter, then I have a quick follow-up after that.

Let me go back to make sure that we -- that we all understand. In the December quarter, the actual bookings received DRAMs represented 67% of our system's bookings. As we move into the March quarter, the forecast is at, DRAMs will be about -- well, I say DRAMs. This is really memory. We don't differentiate, um, in the way we are, um, looking at our numbers whether it's flash, static, or DRAM, but since DRAM is probably the largest portion, but memory will go from 67% of system's bookings in the December quarter to 24% of system's bookings in the March quarter.

And then, Jim, just as a quick follow-up, when you look at the order book from December to March, can you comment on customer concentration is getting higher or lower moving into the March quarter?

Into the March quarter? The customer concentration -- I don't think it makes -- it's significantly different.

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

Good afternoon, first, given the comments that you made about the cost reductions from the consolidation of plants, seems like your break-even point will end up by the time you get to September or somewhere in the 170 range, lower than it is now. Is that a correct assumption?

Well, it will certainly move down from the 180 area. Part of what we want to do as we go forward with this consolidation is ensure that the employees who have been operating under reduced pay, and reduced work weeks will be able to work full time at full pay, and that will increase our costs somewhat. The difficulty with looking at December is that we had, I believe, 54, essentially pay days in the December time period. The rest of the eight or 10 days in the December period were either holidays or, forced time off. So, if you eliminate that from the forecast going forward and then take in the cost reductions that we see, we'll move our break-even down from 180, but it's not quite as you would expect, looking at the December results, because we don't anticipate having that many shut-down days on a quarterly basis as we go forward, and we're not forecasting them.

Okay. Then secondly, I hate to keep on the memory question, but do you think that the high percentage you had in memory, Jim, was -- indicative of the industry or do you think you picked up share within the memory market?

Well, we're pretty sure that with the customers that ordered in the December period that we're gaining share.

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

Hi, Lehman Brothers. Thanks. My question is on the year for 2003. I was wondering, you know, a lot of people are anticipating that Japan, that Japanese chip makers, will increase capital spending pretty substantially this year much more so versus other regions, and I know that, over the last few quarters, has been a smaller party revenue. Where do you see your market share and your positioning in '03 if Japan is, you know, meaningfully, I guess a larger part of the market, although they're growing off of a small base.

Well, one thing I would like to make sure everyone has the same understanding that we are when we make comments, when we look at Japan, first off, we don't expect to see any increase in Japanese investment until the beginning of April for the quarter ending in June, because that's when -- that will be their first fiscal quarter of 2003. And so, the numbers that you have seen for Japanese investment as they have come from Japanese customers are generally focused on their fiscal year as opposed to calendar year. So, if there is an increase in spending in Japan, and it's through their fiscal year, then we'll see 3/4 of it in '03, and a 1/4 of it in '04. In the past, just like other regions, the Japanese have made forecast for capital expenditures, which have been adjusted as time went on, as a function of the market conditions and their success in the market. So, I won't make any comments at all relative to the validity of the current capital expenditure plans by customers. So, I think that we would be better off to take a conservative view of what is going on in Japan for the time being.

So if we have a relatively, for worldwide, more like CAPEX is flat to say up 10% next year and maybe Japan isn't, you know, they don't increase CAPEX as much as they say they might, would you anticipate your market share to remain 1/3 of the market overall, or so for '03 then?

We would expect that almost irrespective of the Japanese investments that will continue to, grow our market share in etch and -- with expected it to be more than a third of the market.

Thank you. Your our next question comes from Robert Mayer, please state your company name followed by a question.

Kind of two questions, can you give us a little commentary on your current view of utilizations and yields and basically, where the industry is at generally, and second question it in terms of the orders you're looking at going forward, would you categorize these as second or third tier semiconductor companies starting to come into the market and doing technology buys followed on by first tier companies or a little of each what's -- how would you sort of classify you as this uptick in business going forward?

Well, our forecast is not, showing any significant change in the type of customer that is making investments as we go forward in '03, then made the investments in '02. In other words, this isn't some kind of dramatic shift where the first-tier customers are not investing and second-tier customers are. The top 10 or 15, that's probably 15 customers have consistently represented somewhere, nearly 80% of the capital that has been invested, so, the second-tier companies can make a significant change in that ratio, I don't believe. There was a second part to your question.

Yeah, the other part was utilization, yields and where your take on the industry is today.

Well, the difficulty, I think, that everyone has with the utilization numbers that are talked about, is that you never know what's in the denominator. If people take Wafer Fabs out of service and remove that out of service wafer fab from the denominator and say it's no longer operating capacity, then their capacity utilization goes up, and it's not clear to me that we don't have a mix of that going you on from time to time and then if a wafer fab is brought on line and goes back into the denominator, the utilization could stay flat when actually the number of Wafers process go up. We tried to look at the total number of Wafers processed from the marketing information we could gather and, the -- the number of Wafer starts in January. We think will be up slightly from fourth quarter given that December was probably lower in Wafer starts on a monthly basis than October or November. So, I don't see that on an apples-to-apples basis that there is a significant change in utilization.

Ladies and gentlemen, as a reminder, please remember to state your company name followed by your question. Our next question comes from Beresh Paloramin [ Indiscernible ] Please state your company name followed by your question.

Yes, I'm from Equity Partners. Jim, can you give us a sense of where the ASPs are for the 200 millimeter tools relative to the 200 millimeter tools and a couple of years we were talking about a 30 to 40% premium for the 300 millimeter tools, I'm wondering if they're still in the ballpark or the situation changed.

The ASPs for 300 millimeter tools are somewhere between 30 and 40% higher than 200 millimeter tools, but you -- part of that change in ASP is a change in the configuration of the tools. There is much more automation included in the price of a 300 millimeter tool than is typical of 200 millimeter. We have some 200 millimeter tools that are well equipped from an automation standpoint, but that is not the norm, and so if you look at the norm, the normal 300 millimeter tool is 30 to 40% higher in ASP than 200 millimeter.

You can also talk about any opportunities in China that you may have over the next few quarters.

Well, I think China will be an area where investment will be a continuing process that -- the difficult that, I think, we have in forecasting the investment in China or the shipments into China will revolve around export licensing control and does it get tightened for U.S., companies or relax for U.S., companies or stay the same? I believe that there is a propensity on the part of the Chinese government to encourage and aid investment in wafer fab activities, and as that goes forward, if we don't have a problem with export control on equipment, then I would expect to see a fairly brisk market in China through '03.

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

Yeah, Mike O'Brien from Soundview, Jim, I want to get thoughts on a potential order pause. What do you think we can continue to grow through at least the next several quarters, especially with a mixed outlook from the end markets, you know, wireless handsets and mixed data points and whether there is some inventory build there and whether we have a PC replacement cycle this year or not. What are your thoughts on being able to grow if we don't see those materialize?

Well, you know, it's depends on exactly how you answer the question. First, if you ask us about our, you know, our forecast as we go forward, it's still pretty murky. I expect that we will see orders in the June quarter that are similar to what we expect to see in the March quarter. In the third and fourth quarter, I haven't got a clue. I mean there isn't any way for us to forecast that. That is -- if we go to our customers and that's what their Wafer starts, are going to be in the fourth quarter, what they'll say is they'll be up if demand is there, which is an obvious situation. But there isn't anything that we can look at and determine what our -- what we should forecast for the end of the year, so we, from an internal standpoint, we stayed fairly conservative on what we expect the revenue to be, and we're going to continue to work on cost reductions and lower our break-even as fast as we can without impairing our ability to do product development. So, the interesting thing is in history in this industry, you can't forecast two quarters out. I don't care what time it's been, whether it's an up turn, a down turn, it's flat. You have -- no one has been able to forecast two quarters out. We still can't. There is nothing changed.

Now, the June quarter that you're modeling, at least internally, it sounds like a flattish. What could be some of the potential for upside there. You know, what are -- what areas or segments are you looking at to make that better or, frankly, worse.

Well, I think if -- if there is going to be a point where copper processing will operate at very high and predictable yields. I don't know whether it's going to be by June or not, but there is going to be a point when that happens. When that happens, and customers who want 130 nanometer copper devices, are able to place orders, put these devices in their products with a high degree of assurance that they can get delivery on time, to specification, then, I think you're going to see a pretty significant move to expanding the copper production line. And that could be one of the things that will drive the equipment business. Now, having said, that you understand that if in demand doesn't grow and what I have said happens, then there will be idled facilities and utilization crises for, Wafer Fabs operating at .15, .18, .25, etc., as product migrates from that technology node down to 130 nanometers, because that is the more desirable place to be, but I think customers are reluctant to move in that direction because others have been burned by trying to get on copper too fast and have been unable to sustain their production lines with these copper device.

Thank you.

Our next question comes from Jay Melon. Please state your company name followed by your question.

RBC Capital Marks. Just a couple of housekeeping questions, if you could give us what accounts payable was for the quarter and profits, and based on your revenue and bookings numbers for next quarter, are you looking at about 160 million in production output.

Um --

well, let me answer the last one first while we scrambled, since no one ever asks us about deferred profit, no one ever asks us about receivables, we'll have to look for that. The shipments will be between 170 and 180 million dollars. And receivables --

well, the question was related to accounts payable.

Oh, I'm sorry.

I think if you look at the press release, other liabilities, current liabilities is about $238 million at the end of December of 2002. Your other question was deferred profits and that was about $58 million.

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

[Indiscernible] My question relates to general ordering by a customer. Is there any delay or lag between orders coming for etch equipment and, let's say the position equipment? The reason for the question is very simple: Yesterday books-to-bill dates allow you to be calculated on a quarterly basis. That orders overall for U.S.-based equipment were up 1%, and at the same time your orders were down. I'm trying to understand what the reason was for this. Is it geographical issue or the lack of orders being placed for etch equipment as opposed to other types of manufacturing equipments.

Well, first I don't think at this point anyone knows the data to plus or minus 10% on orders. So, I think what you're trying to do is take a vernier and trying to measure a rubber band. The rubber band doesn't have a dimension that is stable, so we don't have information on what was booked in North America to any degree of accuracies, plus, we have got customers who haven't turned in their fourth quarter numbers yet. They may have turned in a part of third and two months of their first quarter and that has a big swing on some of these numbers, so I wouldn't -- the numbers are really good to look back on after six months of adjustment and tuning. I wouldn't pay much attention to semies numbers, and I'm always amused that we -- people will talk about the semi book-to-bill, and the semi book-to-bill represents estimates and a bunch of other things that are turned into them, and I would -- I would wait and look at them in about six months and see what they say. But, to answer your question, it's less a function of equipment type than it is which customers are buying & at which time and whether they are comfortable placing, orders with a supplier in different time frames, dependent upon what their lead times are.

So it's individual. Thank you.

Yes, it is.

Thank you very much.

Our next question comes from Kevin Vassily . Please state your company name followed by your question.

Yes, it's Kevin Vassily from Thomas Weisel Partners. You can break out the numbers that came from the December quarter from China.

We don't break out China versus the rest of Asia. We only break out Japan from Asia.

All right, so is it safe to say there was a contribution in this quarter from China?

Yes.

Okay.

above 0. Great. Thanks.

Our next question comes from Steve O'Rorick. Please state your company name followed by your question.

Steve O'Rorick from Unterberg, Towbin. Jim, you spoke of some design wins and market share gains. Could you provide detail on where you see market share shifts in your favor, and more specifically, can you speak on your shifts in positioning in the dialectic etch market as the industry moves toward copper interconnects.

What I will talk about is -- I'm not going to talk about market share at customers. Thats, we treat that as proprietary both to LAM and the customers, but I will talk about the kind of applications where we're gaining share. We're -- we believe that we're gaining share in general, in Dual Damasing, etching in copper interconnect. We also believe we have gained share in critical front-end applications related to dialect etching, this is principally servicing DRAMs or logic companies that have embedded DRAMs. I think we're doing quite well there. I think that we are maintaining our market share in critical silicon etch, essentially to -- we can make a case but we're going to be conservative and say we held a market share in silicon etch.

Fair enough, one follow up to CMP. You mentioned Beta shipments in the June time frame on the 300 millimeter systems. Could you speak also to competitive positioning there with respect to the applications on this tool, and what advantages it may have in the marketplace.

Well, the 300 -- 300 millimeter tools that I mentioned is a development project that we have had going on to make a cost-reduced, more-capable, machine that would service both the 200 and 300 millimeter markets with minor tooling changes, and it would be in that regard, very similar to the 2300 flat form that we have for etch products. There are several technology changes that we have made in the tool to enhance its performance. Those will be announced as we go forward. The principle focus of our development has been to develop an improved, copper, polishing machine, and we believe that we will have achieved that goal, and we'll determine that for sure as we put the first baby units in the field in the June quarter.

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

Yes, it's Fahnnestock and Company. A couple more housekeeping questions, um, first of all, are there anymore shutdowns planned for the first quarter? Secondly, could you give us the backlog adjustment numbers for the quarter, and also the mix of 200 and 300 millimeter orders and shipments.

We have no scheduled shutdowns during the March quarter in the company at the moment. Um, the second question was related to cancellations and adjustments to the backlog. They were in the order of 12 to $13 million, which is, reasonably, stable number. It has been, so for the last three quarters. What was your other question?

300 millimeter, 200 millimeter split.

200 millimeter split was approximately, um, 55% during the December quarter.

Thank you. Our next question comes from Steven Glayo. [ Indiscernible ] Please state your company name followed by your question. With Morgan Stanley.

My question was answered -- one quick one, though, your largest competitor really keys off on process immigration capabilities and the broad product portfolio. I wonder if you could give us an update on your work with the Euro copper alliance.

Well, we continue to work on other things besides copper with our partners, but we continue to make progress. We have, I think, enhanced the performance of both companies, the two major companies. Both companies' tool sets as a result of our working together, and we continue to do that and share information as well as develop process capabilities.

Thank you. Our next question comes from Timothy Auteri. [ Indiscernible ] Please state your company name followed by your question.

Timothy Auteri, Deutsche Bank. I have a couple of questions, most have been answered. Nobody's asked yet about Europe, so I guess I'll ask about that, you know, Jim do you see, I guess when do you see Europe picking it up. Is it a Q2 event? Is it a Q3 event?

I think that Europe will direct involvement. It may not be in Europe. It may be offshore in Singapore, as well as, Taiwan. So, it's one of the things that we're going to have to get adjusted to is the fact that many of the companies' direct investment define equipment that will be purchased and they do that for people who are providing either foundry services for them, subcontract services for them, or if in joint ventures, and I think that as Europe, the European companies, the three principle European-based companies, begin to invest, we'll see an investment in Europe proper, but a lot of the investment that they direct will be in Asia.

But -- but I guess if you're thinking about a big 200 millimeter fab being built in Europe proper. Is that more of a Q2 or Q3-type of event?

It's going to be probably later than Q3, they have made an investment. There is a 300 millimeter Wafer Fab going on in Europe in addition to the DRAM factory there. They will make an investment that -- they have made some investment already. The pilot line is being put in place and will be brought up, and that'll start qualifying processes and doing risks, risks of pilot production, and I'm assuming that as they see favorable results coming from that, then they will increase our investment, but I wouldn't expect to see the bookings until well late into the year.

Thank you. Our next question comes from Glen Young. Please state your company name followed by your question. Mr. Young?

Sorry. If you look at your backlog now, I think you pointed out you didn't see any cancellations in the current quarter. You can give us a sense what you think your exposure is to cancellations at this point? Do you feel like your backlog is pretty clean?

Let me answer that question. As I mentioned to you in the script, we have a process in the company where, as many other risks assessments are performed, we perform a risk assessment in reviewing what we are carrying in backlog. When I quoted the number for cancellations and adjustments, I was talking about what we have, what has resulted out of that process through the end of the quarter procedures that we have in the company, so from our perspective, we have performed a risk assessment that we always performed. We have purged out of the backlog what we believe is at risk, so as I quoted the $229 million ending backlog, I believe that this backlog is firm.

Okay, thanks. you know, Jim, your opinion on this is always interesting. What are your thoughts on the growth or decline potential for 2003 for the industry?

Um, I think that we're potentially underscoping the growth that will occur in 2003. Now, and I'm going to be a little bit optimistic that a -- a resolution in Iraq will more likely come without armed conflict. There may be -- there may be some armed conflict to remind them that we really do mean business, but I -- my expectation is that this -- we might have an opportunity to avoid that. If that happens, I believe we, there is a possibility that business will get better. Overall, the economy will get better overall. Some of the concern the people have about their economy will abate and, with the growth and economy I think that there will be improvement in the situation. Because of the suppressed economy, semiconductors, like many other products today -- automobiles, computers, and you can go on and on and on -- are in a heavy discount mode in the hopes that the discounting will increase demands and improve everyone's profitability. But when everyone participates, basically all you do is reduce average selling price. What can change this situation is an improvement in business overall and when that happens, some of the excess capacity in everything could be abated and, then you end up in a situation where prices can improve, profitability will improve and, investments could improve, and I'm optimistic sort of a person, and I believe that is likely to happen in '03. I can't control, obviously, and I don't even have a forecast for the situation in the Middle East, but I just believe that idiocy will not prevail.

Okay, we're coming up on the hour, excuse me, so we'll take one more question.

Our final question today comes from. Chakab Pomonic, Please state your company name followed by your question.

Good afternoon. Chakab from Prudential Securities. Jim, a question from CMP, if you could give us an update on some of the off-time issues with the 200 millimeter tools, and have those improved significantly and some of the changes we're seeing with the 300 millimeter tools, will those be implemented on 200 and, secondly, does the 300 millimeter tool still a linear tool or a different kind of method. That's all. Thanks.

I'm not going to characterize our next-generation product until it's -- we're showing it in the marketplace, and release it as a real product. But there is -- we have made significant improvement in the utilization of the 200 millimeter tools, as well as its reliability, and I believe today that customer that have the tool in place in production would say that the up-time on it is equivalent to or better than the norm in the industry. So, we believe that we have made significant progress there and as a result of that, at least in one customer, they placed orders for -- either three or four tools recently so, my expectation is that we'll continue to make progress in CMP and, as the performance continues to show well, competitively, that our business situation CMP will improve.

Okay, thank you. That is all the time we have for today's conference call. We would like to thank you again for your participation, and we look forward to, discussing next quarter's results with you in April. Thank you.

Ladies and gentlemen, that concludes the LAM Research December quarter financial results conference call. Thank you for your participation in today's conference, and you may now disconnect.