科林研發 (LRCX) 2003 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Lam Research 2003 finance 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. (CALLER INSTRUCTIONS) As a reminder, this conference is being recorded today, Wednesday, July 23, 2003.

I would now like to turn the conference over to Kathleen Bela, Director of Investor Relations and Corporate Communications.

Please go ahead, ma'am.

Thank you, operator.

Good afternoon and thank you for joining us to discuss the financial results for the quarter ending June 29, 2003.

By now you should have received a copy of today's press release, which was distributed by BusinessWire at approximately 1 PM Pacific Daylight Time and is posted on our website at www.Lamrc.com.

Here today are Jim Bagley, Chairman and Chief Executive Officer;

Mercedes Johnson, Chief Financial Officer; and Steve Newberry, President and Chief Operating Officer.

Before we begin, please be advised 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 and product development, and the demand, acceptance, and competitiveness of the company's products.

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 SEC reports.

We encourage you to read those reports in their entirety.

Lam would also like to 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.

I will now turn the call over to Mercedes for a review of the financial results.

Thank you, Kathleen.

Good afternoon.

Today it is a pleasure to be speaking with you to share the highlights of our June quarter results.

Last week at our analyst event during SemiCon, Jim and Steve walked us through Lam's outsourcing strategies and the significant opportunity they represent for our company.

Today, after reviewing our latest financials, I am sure you will agree that we continued to deliver to the performance expected from our new business model, and that the numbers (technical difficulty) confirm this approach is appropriate for a company in our industry.

In April, we expected to remain ahead of the overall industry by achieving flat June over March new orders; or an 18 percent increase from December of '02 levels.

At 192 million in incoming orders for June, our performance was in line with this expectation, driven by strength in Asia, which was offset by declines in North America and Europe.

For the geographic distribution of new orders and revenues, please refer to the table provided in our press release today.

Shipments were also aligned with expectations, at approximately 175 million, and essentially even with last quarter levels.

After applying our customary management judgment adjustments, year-end backlog amounts to 239 million.

Revenues for the quarter exceeded 186 million, consistent with management's guidance, and flat sequentially.

Regionally, revenues rose significantly in North America, offset by declines in Europe and Asia Pacific.

Excluding the benefit of a 663,000 restructuring recovery, the gross margin improved to 41.1 percent of revenue.

A 90 basis point sequential increase illustrates the contribution of our outsourcing strategy and other cost reduction programs.

Reported gross margins of 77 million or 41.4 percent reflect a partial recovery of Ifanseenya (ph) product inventory previously written off.

With increased number of working days in the quarter, ongoing operating expenses rose modestly quarter-over-quarter to 74.9 million.

Reported operating expenses of 84.7 million include net restructuring charges of$9.8 million.

We continue to rationalize our real estate occupancy and employment needs in light of our outsourcing initiatives.

The bulk of the charge or 8.8 million is associated with vacated buildings, with the rest going to satisfy severance obligations.

Ongoing operating income of 1.6 million reflects the benefit of cost reduction programs and outsourcing savings, which mitigated the approximate $4 million impact of additional working days in the quarter, and approximately 3 million of restored pay and other compensation expenses.

Net interest income was a major contributor to other income of 1.7 million.

Lower yields due to decreasing interest rates were offset by our focus on cash generation, which resulted in a higher investment portfolio during the quarter.

Including restructuring charges, losses before tax for the quarter amounted to 5.9 million.

The overall 9.6 million income tax benefit for the June quarter includes the following.

A 1.5 million benefit or 25 percent of the quarterly loss before tax; a $25 million R&D tax credit resulting from a concluded IRS audit; and a tax expense of 17 million associated with existing strategies to utilize our deferred tax assets and foreign tax credits.

Net income for the quarter was 3.7 million or 3 cents per share.

Excluding restructuring charges, ongoing net income was 2.5 million or 2 cents per share.

To better enable comparisons for ongoing operations, a reconciliation of U.S.

GAAP net income to ongoing net income for the June quarter is provided in our press release today.

To conclude, let's review balance sheet items and statistics.

Cash and short-term investment balances increased by 41.5 million from last March.

Accounts receivable turnover accelerated for the sixth quarter in a row to 53 days of sales outstanding, generating 25.5 (ph) million in cash.

Our outsourcing strategy continues to support industry-leading asset management performance.

Our inventory levels declined by 14.7 million resulting in 3.8 turns; and overall net plant and equipment decreased to 48.8 million.

Capital purchases of 2.7 million were offset by depreciation and amortization of 8.2 million during the quarter.

Deferred revenues and profits were 78.5 million and 45.3 million respectively.

Our worldwide workforce was approximately 2,150 regular employees at the end of June.

With these remarks, we've covered the information included in the financial press release.

Next, Jim will review market trends as well as provide guidance for the September quarter.

Thank you, Mercedes.

Our focus on improving operating performance and expense management, and the success of our quest to extend our leadership in etch markets, is demonstrated in our results for the June quarter.

And I am pleased with our considerable progress in all three areas.

First, I will discuss our etch market position.

The turnaround in our dielectric position may seem rather sudden, but it has been the result of a step-by-step plan to develop and offer our customers the technology they can rely on to lower their cost and enable their most demanding next generation applications.

Lam was first to market with today's technology of choice for dual damascene and other critical etch applications; and our substantial production history with this technology is greater than the combined experience of our competitors.

In poly and silicon etch, we have been the marketshare leader for several years.

We believe we have extended our share gains for these products at 300 millimeters.

As evidenced by our improving gross margins, our marketshare gains have been driven primarily by our competitive differentiation, as opposed to deeply discounted prices.

While the metal etch market declines in the transition to copper, the growth in dielectric etch applications, driven by dual Damascene processes and the copper interconnect, more than offset the decline in the metal etch market.

Dielectric etch growth, coupled with the expansion in poly etch applications supporting 90 nanometer processes, will grow the overall etch market.

Metal etch is still an important process for memory products, particularly DRAM.

As these products move to copper interconnect, we will see the same transition to increased dielectric applications offsetting the reduction in the metal etch market.

We're well positioned with the majority of the largest capital spenders in poly and metal etch at both 200 and 300 millimeter.

At 300 millimeter, we are recognized as the technology leader as well as the manufacturing productivity leader.

In dielectric, we are making steady progress in winning 130-nanometer production applications for companies now making the transition to copper.

More important to our future, we have won production and development positions at 90 nanometers and have been selected by large and influential customers for 65-nanometer development.

Our bookings are an indication of our etch success.

I believe our June bookings are better relative to March than most other process equipment companies.

Of this higher June basis, I would expect our September bookings should be approximately $205 million or about 7 percent above June.

We have made considerable progress, and from my vantage point, it appears our momentum is increasing.

I met with many of our key customers last week at SemiCon West and was encouraged by their depth of commitment to Lam.

Our position at many of these customers has strengthened with marketshare gains in Korea, Japan, China, and Taiwan adding to our already strong position in Europe.

Our success at a large IDM in the U.S. positions the company for further gains resulting from their extensive technology licensing around the world.

Our position in North America-based IDMs is weaker when compared to our position in other geographical areas.

We are now directing significant effort to change the situation.

We believe we have the right etch products to address the opportunities, and our success will be a function of our ability to execute.

Our share gains, in conjunction with our new operating model, should continue to improve our future financial performance.

The outsourcing of support and administrative functions has been largely accomplished and should be completed within (technical difficulty) quarters.

Our manufacturing outsourcing is deemed accomplished in defined phases.

With each successful phase, we have recognized additional opportunities and have expanded the scope of our original plan.

We will address this expanded scope with additional implementation phases over future quarters.

We believe our leverage will be better than it is been in previous cycle ramps, and our reduced cost basis will enhance our ability to remain profitable during the downturns, as we have demonstrated in the past few quarters.

In addition, we intend to improve our cash generation capabilities.

Operating initiatives are targeted to reduce the working capital required to support revenue growth and to increase our capital asset productivity.

We believe this new business model will deliver higher returns to our shareholders over the course of a complete business cycle.

And we expect to equal the peak earnings achieved in the past cycle at significantly reduced revenue levels.

Before concluding with guidance, I would like to acknowledge the contribution of our employees.

We have (technical difficulty) company by implementing a bold outsourcing initiative and delivering a market-leading product portfolio.

Our considerable progress reflects the innovative spirit and dedication of our employees.

I commend them all for a job well done to date, and have confidence in their ability to achieve the goals that we have set for the future.

Now I will conclude with our business outlook for September.

As I mentioned earlier, we see strengthened customer orders resulting in an increase in September bookings to around $205 million.

As I mentioned at our analyst meeting at SemiCon West, we see an improving second half bookings environment.

Our revenue will be about the same level as June, and production output is expected to come in at approximately $160 million.

This will result in an ongoing EPS of between one penny and three pennies.

That is calculated using a share count of 133 million shares and a projected 25 percent tax rate.

This guidance does not include the impact of our previously announced restructuring charges, which will be approximately $5 million for the remainder of the calendar year, the major portion of which is related to facilities consolidations.

With that I will turn it over to Kathleen so we can conduct the Q&A.

Operator, can we begin the Q&A portion of the conference call, please?

(CALLER INSTRUCTIONS) Ted Berg (ph) .

Lehman Brothers.

I was wondering on the pricing situation for the newer tools that are at 130 nanometer versus the previous generation tools at 180 and above; and then as we move down to 90 nanometer; what is the pricing of those tools?

In terms of relative pricing.

What is the trend for that?

As Jim mentioned in his comments, because of our technological and productivity differentiation, the pricing at 130 nanometers is strong.

As we go and compare it to where things are at 180 nanometers, it depends on whether customers buy into that.

Are they are buying our allied (ph ) space products, and the pricing is very strong for that kind of repeat business.

If the customer ships to a 2300 based product, at a 200-millimeter chamber, so that they can have extendability going forward, again we see that, because it is 2300 based and because of the productivity differentiation that that platform brings, again we see that the pricing has remained strong.

And so I don't think that we see much differentiation between 130 and 180 because of the differentiated capability.

Thank you.

Harold Mellen (ph) .

RBC Capital Markets.

I was wondering if you would talk a little bit more about the 90 nanometer and 65 nanometer development activity?

And then I missed the shipment level; could you give me that too?

The shipment level was 160 million.

Relative to the 90-nanometer situation, we have got customers who are in the throes of development activity.

Some are in pilot production and some have moved to 90-nanometer production.

We have done, I think, very well in all three of those positions.

Whether it is development work, pilot production, or production of product.

We have done very well both in dielectric as well as poly etch applications.

This has been fairly widely disseminated in Southeast Asia, North America, as well as Europe.

So, I think we have got a very good position and a good trend as we move to 90 nanometers.

Mark FitzGerald (ph) .

Jim, this relationship you've got with this U.S.

IDM, is that going to help you translate any business or get your market share up in Japan?

Because I think if you are talking about RDM (ph) they are working with Sony and Toshiba there.

You know, Mark, as our custom, we don't talk specifically about customers.

However, I think that our marketshare position is going to be enhanced by the activities that we have conducted in Japan in copper as well as critical etch applications.

Jim Covello (ph) .

Goldman Sachs.

Thanks very much; a couple quick questions.

Jim, could you give us a little bit of color on the regional breakdown of bookings for the September quarter?

What regions might have areas of strength versus weakness?

The second question would be why are the shipments down a little bit, given the improved order activity over the last couple quarters?

Follow on to that would be, should we expect gross margins to dip a little bit in the September quarter, given the lower factory absorption because of the slightly lower shipments?

Thanks.

On the orders by region, we have seen a very strong push, and it's really remarkable when we went through the segmentation of our orders by technology level.

For orders that included products that we thought were going into applications greater than 130 nanometer, it was only slightly above 15 percent of our orders were in that technology node.

For 130 nanometer and below, the rest of our business, 85 or so percent of our business, were in those technology nodes.

It was probably more heavily biased to the smaller feature size, even, than 130 nanometers.

We have not -- it's very difficult for us to differentiate at this point with a few exceptions, where customers are buying 130 nanometer today, but they really are buying for 110, because they're going to convert shortly.

It is pretty clear where customers are buying for 90 nanometer.

And right now for us that is predominantly DRAM applications in the front end of their wafer processing process.

Now, I will let Steve discuss our shipments.

The decline in the production output for the September quarter is largely a function of the fact that we are in a typical summer seasonality situation, where a lot of customers, because of the kind of environment that is out there, where you don't have some frantic pace to go and bring additional capacity on typically in this time frame, don't want a lot of equipment delivered or as much equipment delivered due to all of the summer vacation activities, and the kinds of things that go on from a seasonality standpoint.

You asked about margins, in fact our margins I would expect to be at least equal and possibly slightly up a half a point or so due to the ongoing benefits of material cost reductions from our contract manufacturing outsourcing.

We continue to reduce the overall cost that it takes to operate the factory.

So while the output will be lower, we have less cost to absorb.

And then the last factor that will continue to support us with margin improvement is that our pricing, as we talked about, due to product differentiation remained strong.

Timothy Arcuri (ph).

Deutsche Bank.

Thanks.

I have a two-part question.

First of all, Jim, can you break out, as you have in the past, can you break out DRAM, foundry, and IDM as a percentage of orders?

I'm wondering if it at all concerns you that DRAM is such a high percentage of orders?

And if it's reminiscent of any other time in the past, say, 10 or 15 years?

Let's segregate this thing not by DRAM but by memory, which includes flash.

About 54 percent of our bookings were in flash -- I mean, in memory.

And so that tells you the 46 percent were in logic and other.

The foundries represented about 31 percent.

This is, again, these differentiations are getting more and more blurred.

Some of the foundry activity could or could not be included in memory.

I would have to go back and look at exactly what we did.

But our foundry business was about 31 percent of our total bookings.

Great.

If you could just address the DRAM issue, or memory I guess you could say.

Is it reminiscent of any time in history?

And does it worry you that it is so high?

Or is that typical of kind of early quarters in a sustainable cycle?

It may be concerning, but it having it at 54 percent of our revenue is better than not having it.

I mean 54 percent of our bookings.

This thing goes up and down.

The memory people are obviously investing to get 110 nanometer fully implemented in production, as well as they are beginning to invest for their 90-nanometer change.

I think with the logic players, by and large, at least for us because we have a little bit different profile for a customer profile than some other companies; but the logic players still, sorting through some of their excess capacity at the larger feature sizes, and the cost of carrying that unloaded capacity.

The DRAM people are spending money to convert their capacity from larger feature sizes to smaller feature sizes.

And I don't see that same drive in the logic arena.

That is largely because, probably because the demand for end products that would use very small feature sizes, very high-performance, and the time it takes to get those products qualified and into the market.

The DRAM people have an advantage that they can change the size of their feature, shrink the die size or increase the complexity, by going to Next Generation memory.

And it is easy for them to sell that product in the marketplace.

While the logic people have to get their product qualified in a specific application; and customers have to design a (technical difficulty) that application.

And that is more difficult then substituting a 256-megabit DRAM for a smaller DRAM size, 128 or a 64 megabit.

It is just a different environment.

And the DRAM people will be out in front of these technology changes.

I would expect that we would see -- with an improving business environment you will start to see an aggressive investment on the part of the non-memory players in this business.

Jay Deahna (ph) .

JP Morgan.

Jim, the technology partnership that you have with the large U.S.

IDM, which Lam products are you working with there?

Do you get the sense that that will lead to some sort of sticky marketshare gain traction with people that license that company's technologies?

Secondly, what are some of the key features of your 2300 dielectric etch product that is driving the share gains?

The answer to the first question is, we have done well in both poly etch applications as well as dielectrics with the IDM that I had alluded to in my remarks.

And if history repeats itself, when there is a sale or licensing of technology, the recipient tends to use the product set that the licensor of the technology uses.

So, we have suffered from that in the past.

When Japan was a large transferrer of technology into Taiwanese companies, we suffered from the fact that we were not well-positioned in Japan; and we lost share as a result of that, for that particular set of buys.

Today, it looks like we could be the beneficiary of having penetrated the right set of customers, who are doing a lot of licensing; and that should help our shares as the recipient of the technology makes their equipment buys.

The 2300 features that have contributed to marketshare gains in dielectric is basically the same as the 200 millimeter.

We have a very small effective volume for our process chamber, which means that the memory of the process chamber is very short.

The memory being the residual effect of a set of chemistries that you are using to do an etch process.

As soon as that etch process ends, as we continue to pump the process chamber, we quickly evacuate the residual gases, and then we can switch chemistries, go to the next process.

And there is virtually no retention of memory retention in the process chamber.

That is a key feature from the standpoint of cleanliness as well as flexibility and the ability to do in situ processing.

Many people claim that they can do in situ processing.

In situ processing is only a value to the customer if it can be done at a very high rate, so that you don't suffer a throughput degradation when you go to in situ; and we don't.

So, I think in broad 30,000-foot view, (technical difficulty) be the most significant differentiator for our dielectric machine.

When you look at the 2300 platform in total, there are several differentiating features that our customers have recognized.

And I am not going to try and go into them today.

If you would like, I will send you a 2300 brochure and you can look through those and see what I mean.

But it gets very long and very involved.

Steven Pelayo (ph) .

Morgan Stanley.

Jim I am interested with your ships declining and the shipments declining in the September quarter, do I have to worry then about the December quarter revenues actually potentially down ticking here?

You have got two quarters of flat shipments and now declining in September.

Do I have to worry about revenues down in December or can you start turning some a little bit quicker on the shipment end revenues?

I think that you should not worry about declining revenues in December.

Why don't you leave that to Steve and I?

Steve will worry the most; that is Steve Newberry not Steve Blake (ph).

Steve will worry the most;

I will worry the second most; and then you can have a relaxed environment.

Fair enough.

Last question is just relative to the competitive landscape.

You spend a fair amount of time comparing the Exelan platform versus some of the recent announcements out of Applied Materials.

Some of my recent checks seem to suggest that Tokyo Electrons is also in the middle of a redesign on some of their STCM chambers.

I am wondering if you have heard anything new there, relative to TEL?

That is actually where you are probably getting more competitive threats than Oxide (ph).

Any thoughts there?

We know that TEL has been trying to solve a performance problem at a DRAM manufacturer.

They have made some changes in their machines that have improved it at 200 millimeter.

We question whether the changes that they have made will transfer with grace to 300 millimeter.

We don't think that they can accomplish the same results at 300 millimeter.

Since it looks like most of the DRAM companies are putting a real emphasis on 300 millimeter, such that 300 millimeter performance is going to be paramount as opposed to what you can do at 200.

Obviously they are interested in improving anything that they can that would lower their cost at 200 millimeter.

But the real buys, because they have got most of the equipment they need, is 200 millimeter today.

So they are focused on 300 millimeter.

And your performance at 300 millimeter again is going to be the significant measure.

Having said that, we respect the technical capabilities of both of our major competitors.

We know that they have done significant things in the past; and we expect them to do significant things in the future.

We just believe that we will stay ahead.

That is our focus, that we are going to be the technology leader.

We have caught them and we have surpassed them technically.

We intend to hold that technology leadership and a manufacturing productivity leadership.

But we know that they are going to be good competitors, and they're going to be around, and they certainly have us in their crosshairs now.

Bill Ong (ph).

American Technology Research.

Could you tell me how would you characterize the current pricing environment right now?

What type of trend lines are you expecting on ASPs, as well as cost reduction plans?

I'm not sure I heard the question.

I will answer what I did hear.

That was, what are trends on cost reduction and (inaudible) pricing.

I think Steve answered both of those, because he has already talked about the pricing situation.

(technical difficulty) Continued cost reduction plans, as we talked about, relate to some ongoing facilities activities where we expect, as a function of our outsourcing activity, that we can reduce the square footage and the costs associated with operating our factory.

So I expect that we will continue to see some improvement in factory absorption and translation to margin.

We continue to work with the our key contract manufacturing suppliers, and add a number of new major suppliers to our list of suppliers, who continue to demonstrate to us their ability to produce integrated assemblies and modules in some cases at cost reductions below what we were incurring previously.

I think that with our ongoing activities with our outsource service providers that as we go forward, as we continue to work with them, they're continuing to pass on additional reductions in transaction-related activities and also leveraging their fixed-cost structure by spreading it over a larger customer base.

And we will benefit from some of those actions as we go forward as well.

I will just summarize what Steve said about pricing.

At 300 millimeter, our pricing continues to remain marginally satisfactory.

To a supplier, the pricing is never high enough.

Any supplier that says, boy, what I need to do is reduce my pricing because I am making too much money, needs to have his head examined.

But we are satisfied that we are getting reasonable return for our etch product.

Now we would like to see our customers recognize to a greater degree the value we're supplying them and the cost that we are incurring, so that we can get an improved return on our investment.

And we are working to do that on a regular basis.

But the pricing trend should be flat to modestly up.

John Pitzer (ph) .

First Boston.

Good afternoon, Jim, just curious when you look to the September orderbook, can you help me understand how the mix between memory and logic might change?

In addition, earlier in the week Novellus came out and reported pretty strong June orders out of Japan.

Well above their historical norm.

Looking at your June numbers for Japan they're well in line with historical norms.

Can you help me understand what Japan might do in the September quarter?

And how you are positioned there from a marketshare perspective to participate in what is supposed to be pretty good growth out of there on the CAPEX front?

Thanks.

Relative to Japan, I haven't talked with Rick, so I don't know what the source of his orders were, relative to the source of our orders.

I think that heat has been the beneficiary of getting his orders earlier.

And maybe because they are not doing the same level of qualifications.

Not qualifications, of selection.

With three suppliers, the selection process is always longer.

But I think that we have recently positioned ourselves very well to take advantage of some of the major spending that will go on in Japan.

And we may see some of those orders placed, depending upon how negotiations goes, in the September quarter.

I think you will see that we will have a fairly significant change in the ratio of our DRAM or memory new orders versus our logic new orders.

So, I think that is going to change somewhat.

The bookings pattern is probably going to be heavily weighted to Japan, and just Asia in general, not Japan in particular.

But I think in Asia in general we will see the weighting of our bookings shift or continue to shift in that area.

Shekhar Pramanick (ph).

Prudential.

Jim, two questions.

Maybe you can update us a little bit on the CMP business?

And also maybe tell us what level of inventory, in your current inventory and OPEX, is the CMP businesses?

Lastly, I believe you did 11 million of cancellation or backlog adjustment in this quarter.

What was the originations?

What two companies, three companies, if any detail you could provide?

I will let Mercedes expand on the backlog adjustments.

But again we're not going to give out specific numbers.

She can tell you what part of the world they came from.

You are going to kind of hit 0 for -- maybe you will get one out of three on this thing.

As I said earlier, numerous occasions we will discuss CMP in our third-quarter conference call.

That was the date I gave back in April, after the end of the March quarter, when I said that we were nearly complete with the design of our 2300 CMP system, and that we would be better positioned to talk about that product and what we thought about that product in the September time period.

Now, I think that we're still holding to that timeline.

Relative to inventories, we don't break inventories out by productline at all.

But, I can assure you that Mercedes has ensured that our inventory is quite well in line with our business prospects.

Let me give you a little bit of the same type of answer on the backlog adjustment.

As I have mentioned in the past, our risk assessments of the backlog at each quarter end is largely based on management judgment.

So, it is in essence our view of what the risk is of a particular set of orders that have been placed in previous quarters, in terms of what their shipability is likely to be going forward.

Based on that risk assessment, we purge items from our backlog.

Being that these are not customer cancellations, and being that these are in essence management judgment, I think it's inappropriate for us to comment on regions or customers, because again they are based on our internal view of what a customer may do, in terms of either pushing out shipments or requesting a shipment to be canceled altogether.

Mike O'Brien (ph) .

SoundView.

You mentioned that you can get the peak earnings at much lower revenue levels.

Do you care to give us an idea of what kind of levels you are talking about, where you can get to the prior peak?

I don't have a slide right here in front of me, but I recall the key features.

What we did was show the model that said at $385 million in revenue, that we would earn operating profits of I think it was 88.6 million; which is 48 cents a share, assuming a share count and a tax rate that we held constant.

And we compared that with the peak of March '01, which was after SAB 101 (ph), was our peak earnings and revenue quarter.

And we had revenue of $465 million; because $80 million difference.

And the operating profit was exactly the same, because we started with operating profit and worked our way back to the revenue we would need at our new model.

That again was 48 cents a share, constant tax, constant share count.

Now, with some of the plans that we have for continued cost reductions, my expectation is that the next time we show this model, probably three months from now, that we will have updated the model.

And we will keep, as we started with this model of 385 in revenue versus 465 in revenue, what we will do is show that same level of revenue; but I think what we're going to show is we will outearn our peak at that revenue level because of the cost reduction and the improvements that we're making in the company.

Brett Hodess (ph).

Merrill Lynch.

Jim, as you look at the 90 and 65-nanometer opportunities, the chambers on the 2300 platform, are they extendable down from 130 for the customers that have already bought them?

Or will they need to do, for those that want to upgrade a fab, for instance, in the case of a DRAM guy; will they need to upgrade the chambers on those platforms?

On the solid chambers, there are some poly applications that, as you shrink, that they can use the current process chamber.

The process chamber as it is currently configured.

There are other processes where we have already introduced upgrade kits that customers can buy that will improve CD uniformity across the wafer.

So that they can etch smaller feature sizes.

But the basic process chamber is the same and the upgrade cost is a fraction of the cost of a new poly chamber.

So, the extendability of the 2300 platform is one of the features I think Jay Deahna was asking about earlier; and that happens to be one of them.

We have a very well-designed process chamber that allows us to continue to upgrade it and improve the performance.

In the dielectric system, it is similar.

Although we have some new capabilities that we will announce in the not too distant future, which is a little more substantial upgrade.

But fundamentally it uses the same platform that we have.

It uses the same chamber body.

The same basic technology.

But it is a relatively extensive change and provides dramatic processing advancement.

So, again, if you bought a 2300 dialectic machine you could upgrade it to the latest version that will be kind of the standard product.

Let's say 65 nanometer.

And you could upgrade to that through purchase of a process kit or process chamber upgrade.

Glen Yeung (ph) .

Smith Barney.

Couple of questions, Jim; one is on the sustainability of a recovery that we're looking at.

ST just reporting, suggesting that they need to do some technology work.

We are hearing some numbers from UMC (ph).

Just your thoughts on how sustainable the kind of recovery we are seeing is.

And secondly, maybe for Steve or Mercedes, your SG&A -- not SG&A but overall operating expenses now, in the 75 million range; where can we expect that to go on a quarterly basis looking forward?

I will answer the first question about the sustainability of the upturn because it is an easier question to answer.

We just don't know.

The sustainability of the upturn is going to be a function -- for the logic people, let's say, because you mentioned ST and UMC.

The sustainability for people in the logic business is going to be a function of how the general economic environment improves, and how that in turn affects the total electronics business, with the resulting consumption of semiconductors.

I would like to be able to predict that.

I would like to know that.

I wish that I had the insight to be able to predict that with a high degree of certainty, because it would certainly change the way I invest my money.

Since I don't have that capability, I'm just kind of like a blind hog out there rooting for acorns and hoping I get one.

But, we just don't know what the sustainability is.

We're working quarter-to-quarter.

We think the next September and December quarters are going to be fairly positive from a booking standpoint.

But beyond that, we are clueless.

I will let Mercedes talk about something that we actually can predict.

In the operating expenses area, I think with our outsourcing activities and other cost reduction programs, you should expect to see them trending down a couple to $3 million going forward over the next to two to three quarters.

Nikolay Tishchenko (ph).

Good afternoon.

It's Fulcrum Global.

One question about the outsourcing business model.

When Lam talks about outsourcing, usually you talk about cost-cutting and about achieving higher earnings at lower revenue Lam.

My concern, my question is about your abilities to ramp.

And the question is, can you quantify what kind of capabilities you are getting in terms of ramp, probably on a sequential basis, with this new outsourcing business model?

In our selection process, from the standpoint of the contract manufacturers that we're working with, we are working with companies with established track records of performance, with established supply chain management capability, and we are also investing in our own increased capability in supply chain management.

So that as this ramp occurs, the ability to be proactive and be out in front of the kinds of challenges that occur within the supply chain, typically at the raw material or component level, are able to be managed as readily as we have been able to do them in the past.

I think it is important to recognize that in any ramp, which is a function of both what is happening within the industry itself and the pressures that puts on the ability of suppliers to output 30 percent plus quarter-to-quarter, that it is also potentially impacted by what is happening in the global economies of the world; in terms of what other industries are putting what other pressures on various sources of raw materials that we may not use in big quantities in this industry but are used in large quantities in other industries.

None of those things change as a function of an outsourcing strategy.

We just have a different set of people in terms of our suppliers that we're working with, to ensure that we can achieve our ramp.

And I have every confidence that we're going to be able to ramp our output as we have in the past, just as readily in this upturn.

Mark FitzGerald.

Just curious on the operating income here, you have lost $7 million versus the couple million the prior quarter.

It looks to be in the SG&A lie.

Can you explain what is going on there?

I think you're looking at numbers that include restructuring charges, that as I mentioned are in the $9.8 million range, in the operating expenses section of the P&L.

And they are largely related to us vacating buildings during the June quarter, or about $8.8 million of the 9.8 total charges being for buildings that we have moved out of during the June quarter.

And the rest of the restructuring charges relate to severance obligations.

So those were in SG&A, right?

That is what you're saying?

If you're looking at the face of the P&L, they are listed separately.

The specific line called restructuring charges, $9.8 million.

The selling, general, and administrative expenses were 34.5 million.

And that number of course, the 34.5 million, excludes the restructuring charges that I just alluded to.

Ladies and gentlemen, this concludes the question-and-answer session for today's conference.

I would like to turn the conference back over to management for any closing comments.

Please go ahead.

Thank you very much.

We would like to thank you again for participating in today's conference call.

We look forward to meeting with you again in the October time frame, to talk with you about our September results.

Thank you.

Ladies and gentlemen, this concludes the Lam Research June 2003 financial results conference call.

Thank you again for your participation on today's conference, and you may now disconnect.