科林研發 (LRCX) 2004 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Lam Research September quarter 2003 financial results 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. (OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded today, Wednesday, the 15th of October, 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 ended September 28, 2003.

By now, you should have received a copy of today's press release, which was distributed by BusinessWire at approximately 1:30 PM Pacific Daylight Time, and is posted on our Website at www.LAMRC.com.

Here today are Jim Bagley, Chairman and Chief Executive Officer, and Mercedes Johnson, Chief Financial 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.

As we have covered with you in past calls, today I will review new orders, revenue and profitability trends, concluding with asset management performance for the quarter.

During our last conference call, Jim forecasted an improving second-half bookings environment.

He discussed with you our progress in growing 130 nanometer production applications for companies making the transition to copper, and winning production and development positions at 90 nanometers, as well as having been selected by large and influential customers for 65 nanometer development.

Our September new order levels were better than we predicted, and support his comments last July.

Incoming orders of 211 million for the quarter increased 10 percent sequentially, and were 30 percent higher than those reported in December of last year, representing our strongest performance since June of '02.

Regionally, Asia/Pacific contributed greatly to the order strength, amounting to 66 percent of the total.

European orders were also up, when compared to June, partially offset by declines in North America.

Revenues for September met our expectations, at 183.7 million, and were close to June levels.

For further details on orders and revenues geographic breakdown, please refer to our press release today.

158 million in production output for September was in line with our initial forecasts.

Deferred revenues and profits were 47 million and 28 million, respectively.

And our unshipped orders backlog increased by more than 50 million to 291 million at the end of the quarter.

Ongoing gross margins, as a percentage of revenues, also exceeded expectations, achieving the best performance of the last 2.5 years, at 42.6 percent of revenues.

Just to illustrate the progress we've made, in terms of gross margin ratios, the last time our gross margins were above 42 percent was in March of '01, on 465 million in revenues, the peak of the last cycle.

We have predicted that our outsourcing initiatives would improve our profitability throughout our industry cycle.

These September results reinforce our expectations in this regard, as the improved gross margin performance has enabled us to remain profitable for the last four quarters in a row, throughout the depressed part of the cycle.

As planned, total operating expenses of 73.6 million include 1.1 million restructuring charges, the bulk of which relate to decommissioned real estate.

Ongoing operating expenses of 72.5 million continue to be actively managed in order to maintain expenditures in sync with anticipated revenues.

The combination of improved margins and high expense control drove operating profits higher than we anticipated entering the quarter, underscoring the significant leverage of our new business model.

After other income of 1.4 million and tax expenses of 25 percent of profits, net income for September was 4.8 million or 4 cents per diluted share, slightly better than originally expected.

Ongoing income, net income, amounted to 5.4 million, which also translates into 4 cents per diluted share.

Next, I will provide some data for financial modeling purposes and on key balance sheet items.

Our employment levels were relatively flat sequentially, at 2,100 employees world-wide.

Capital expenditures of 1.7 million were more than offset by depreciation of 8.5 million for September, driving net property and equipment down to 43.4 million at the end of the period.

Proceeds from employee stock option exercises generated 17 million in cash, growing cash, short-term investments and restricted cash balances to approximately 643 million.

Accounts receivable increased slightly to 114 million, yielding -- one more time -- an industry-leading DSO of 56 days.

Inventories declined to 102 million, continuing the reduction reported in 9 of the last 10 quarters, from 328 million in March of '02 -- sorry, March of '01.

At 4.1 turns, we continued to accelerate our inventory turnover to levels that in the past were only achieved during upturns.

We are ready, now, to move to the next portion of the call, when Jim will update you on our operational performance and provide guidance for the coming quarter.

Jim?

Thank you, Mercedes.

I thank all of you for joining us today to hear about the results of the September quarter.

I'll comment on our position in the market, I'll provide an update on CMP, and I'll close with our guidance for the December quarter.

In January of 2002, the near-term semiconductor equipment bookings opportunities looked better than they had since the third quarter of 2000.

The concern at that time was a lack of broad participation in customer spending and the world-wide economy.

The concerns were justified, as bookings peaked in the June/July 2002 time period, and retrenched significantly by the end of the year.

Today, looking forward at the next three quarters, the business outlook is stronger than at any time since January of 2002, and the identified customer investment is much broader, and the world-wide economic outlook is brighter.

Our efforts over these past seven quarters have been, first, gaining market position in the companies we believed would be the larger investors in wafer fab equipment and, second, changing the business model of the Company.

At 200 mm, we have had good success in dielectric positioning, complementing our strength in silicon and metal etch.

We have made good progress in 300 mm etch penetration for silicon, metal and dielectrics, but our work is not complete.

In the next two to three quarters, we expect to make additional gains in dielectrics.

We recently achieved market position wins in Japan, and expect additional wins in Korea, Taiwan and China.

Our position in Europe remains strong, and there are encouraging signs of opportunities for Lam in North America.

If the current business outlook is the beginning of a cycle of increased investments, our market position by the end of Q1 of '04 will determine our success over this cycle, as marketshare shifts are rare during an upturn.

We have communicated our success with the change in our business model, and look forward to exploiting it during and improved business climate to demonstrate its value.

Our business model reflects our vision of organizing our efforts around our core capabilities and utilizing capable solution providers for our non-core activities.

We believe that this approach will allow us to be more flexible in addressing the cycle peaks, and more resilient when the cycle trends down.

In addition, it creates an environment where the customer is at the center of all that we do, and we believe this will further increase our success, as we move forward.

I am pleased, thus far, with the outcome of this major initiative.

In the April conference call, and again in the July conference call, I deferred questions about our CMP activities until the October conference call.

I said we were finishing the design, and beginning the evaluation of next-generation machines with specific goals on reliability, production performance and cost of ownership.

Today, I would like to update you on our progress.

On multiple tests, both in our facilities and at customers', we are currently achieving greater than two times the reliability for the machine software and hardware.

We are still refining the machine, and believe the fundamental design of the software and hardware has significantly greater reliability potential.

Process stability and repeatability have been improved substantially, principally from a new proprietary polishing belt and some hardware improvements in the polishing modules.

Cost of consumables should be reduced by more than half, by proven reductions in slurry consumption and the significantly longer lifetime and lower cost of the new polishing belts.

The total cost to polish a wafer has been reduced by well over 50 percent through the cost of consumable reductions just mentioned, coupled with higher system throughput.

Current tariff (ph) customers and potential customers who have observed the machine at our facility have been favorably impressed.

Additional companies are scheduled for initial evaluation of the system at our facility.

The feedback from this group of customers will determine our next step in our CMP activities.

In January, we will report to you the reaction of the customers, as well as our plans.

To conclude, I'll provide guidance for the December quarter.

We anticipate new orders will be up sequentially by approximately 10 percent.

Revenues will be about the same level as the September 2003 quarter.

Production output will increase from September.

In an environment where bookings and backlog levels are better leading indicators of future revenue, production output has far less relevance today.

Recent history shows there is a tighter correlation between bookings in the current quarter and revenues two quarters out than between production output in the current quarter and revenues one quarter out.

Because we have converted to SAB 101 revenue reporting, production output is no longer useful for managing the business.

We have discontinued its use, and will no longer report it.

Gross margins, as a percent of revenues, should be relatively flat when compared to September.

Due to seasonal holiday vacations and shutdowns, operating expenses will decline.

Before any restructuring charges, we expect earnings per share of 3 to 4 cents, using a share count of 135 million shares.

As we have commented in past calls, we continue to rationalize our real estate occupancy in light of our outsourcing initiatives, and anticipate vacating additional buildings during December, resulting in restructuring charges of approximately 6.5 million.

Including restructuring charges, we should be essentially at breakeven.

Beyond December, we expect revenues to increase 10 percent sequentially in March and June, and operating expenses to grow modestly as a function of increased revenues and profits, which will trigger higher levels of variable compensation for Lam employees.

With that, we'll open it for Q&A.

(OPERATOR INSTRUCTIONS).

Suresh Balaraman.

From ThinkEquity Partners.

Jim, in terms of the metal etch market, are Flash and DRAMs pretty much most of it?

And any thoughts on how big the segment will be next year?

And when do you think flash will convert to copper?

First, Flash and the DRAMs comprise probably the lion's share of the market, although we are still selling metal etchers, both at 300 mm as well as 200 mm, into logic applications, where they are processing 0.15 micron devices and above.

But for 300 mm, it's typically 0.15 micron devices.

So there is still some demand for metal etch.

Certainly, with the expenditures by the DRAM companies the metal etch market is better than we would have expected it to be, say, two years ago.

The Flash conversion to copper -- there are some companies that are talking about the conversion to copper in the next generation of Flash devices.

Others have it pushed a little bit further out.

I think that you'll see the conversion of Flash begin sometime at the end of '04 -- middle of '04 to end of '04.

And it will be a gradual process throughout the customer base.

Next question?

James Covello.

Goldman Sachs.

Good afternoon.

Two quick questions.

Jim, you typically have very good perspective on the DRAM market, given your position on the Board of one of your major customers.

Can you help us understand a little bit about whether you are concerned about the amount of DRAM capacity that's being added as we exit '03 and head into '04 in the DRAM market?

And then, secondly, could you help us understand a little bit the operating leverage in the model?

Given the excellent job the Company has done outsourcing a lot of the expenses during the downturn, do you think you have as much operating leverage in the model as you have had in previous cycles?

Jim, the DRAM capacity is something that only Carmack can know, because the rest of us, being mortal, just can't figure it out.

The bit growth has been pretty substantial since kind of the middle of this past year, when the pricing started going up.

The amount of capacity being added may be less than we generally think, because my belief is that Samsung is not increasing their DRAM capacity, but holding it flat as they add wafer starts, so that they can increase by outputting Flash.

One DRAM company, not the one that I am associated with, was showing me a presentation that he had made to his management that showed that Samsung's marketshare had actually dropped a couple of points, because they were limiting their DRAM wafer starts and were increasing their Flash wafer starts.

And Samsung has kind of alluded to this in some of their press announcements.

So I'm not -- I'm worried, just in general, about the DRAM business being profitable enough to sustain the current level of investment.

It's hard to say whether in the near term there's going to be an oversupply situation.

I think that the bit growth is faster than the shrinks will provide, and the result is that wafer starts capacity has got to increase for you to maintain a reasonable supply of DRAMs.

And the second question, about the leverage in our model -- I believe, and I'll be happy to send it to you, or post it, maybe, so that everybody can have it; we'll post it on our Website.

We did an example of what the leverage would be in the model compared to what it was in the past, and we used 1999 as an example, and it showed that the leverage was greater today than it was when we started going through 1999 in the previous significant upturn.

So I think that people are little bit mistaken about their understanding or their thought that there is less leverage in our business model today than there was in the past.

Next question?

Mark Fitzgerald.

Jim, with the CMP plans kind of firming up here, can you give us a sense of what you're looking at?

You say this is the success and you're going to hang in there.

And are the new applications you're looking at outside of the trench application?

Right now, Mark, we're focusing totally on copper.

We have had some inquiries about using this new machine for dielectric as well as SCI.

So those are -- that's in the future.

But today, I think that we're showing performance, and customers are telling us that we're showing performance that's equal to or better than any performances that they have seen at 300 mm.

That's very encouraging.

I would like for them to be much more affirmative of where we are relative to the best available competition, because we don't want to be in a situation where what we have is essentially a "me, too" product.

I think we have got to have a capability to differentiate the product from the competition for us to have rapid growth in share, and that's what we are waiting for in the feedback from additional customers, as well as the formal feedback that we'll get from customers that have been in here, where we have done demonstrations on slurry usage, we have done demonstrations on reliability, and then demonstrations on process stability and process repeatability.

Next question?

Jay Deahna.

JP Morgan.

Good afternoon.

Jim, I've got two questions for you.

The first one is this concept of -- in your opening statement, you were talking about between now and the end of the first quarter kind of setting the stage for what your marketshare is as the cycle ramps.

I presume that's the design-in phase.

Is that pretty much exclusively through 90 nanometers, or does that incorporate some 65 nanometer stuff, as well?

And then, the second question is, if you get pull-ins for shipments in the fourth quarter, does that get reflected in SAB 101 revenues in the first quarter or the second quarter?

And do you sense pressure building for that?

Jay, the 90 nanometer is not completely resolved, and that's why I gave myself a little bit of wiggle room by saying two to three quarters.

But for our planning purposes, what we are focusing on is closing decisions between now and the end of the first quarter, because we believe that beyond that, it's difficult, certainly on 130 nanometer and any 110 nanometer buys that are made.

At 90, I suspect there's still some valuations that are open, and at 65, it is still pretty much wide-open.

There's a lot of activity going on in evaluating equipment for 65-nanometer capability.

Next question?

What was that, after --?

Oh, yes, the pull-ins.

Let me give you an algorithm that kind of works.

Nothing is perfect in projecting revenue because, if you -- some of it has to do with customer dependency, some of it has to do with some of the processes that we may be shipping equipment to.

But if you take the September bookings, at about 90 percent, and go two quarters out, that's a good proxy for revenue.

So, when you talk about a pull-in, a pull-in where someone has booked it with the expectation of getting it in March and putting it into November -- that's one of the perturbations that would have an effect on December revenues, that the algorithm I just gave you wouldn't apply to.

But there may also be some push-out's from saying that it's booked and planned to ship.

So none of this is a perfect forecaster of our revenue, and that's why we are hesitant to give much more than pretty close-in guidance on revenue.

I gave you the guidance in the March in June quarters so that it would help you with your models and help the estimation of our revenues as we are going forward.

As you look at bookings in the December quarter, which we have given guidance for, and then as we give you guidance for March bookings, it will give you a good indication of what the revenue would be two quarters out.

Next question?

Bret Hodess.

Merrill Lynch.

Jim, two questions.

First, were there any cancellations of any material level in the quarter?

No.

And secondly, talking about some of the marketshares that you are picking up on dielectric in Asia right now, is this mostly capability-driven, in terms of the in situ etch in the single chamber on copper, or is it being driven by other factors -- cost, et cetera?

Well, part of it is the DRAM companies find that our etcher is one of the few that will do all of the tasks that they have, in critical and near-critical dielectric applications.

One of our customers has basically said that our marketshare is growing in their purchases primarily because we're the only etcher that can do the tasks that they require to be done, which is a good affirmation of what we have been saying for some time.

Next question?

John Pitzer.

Credit Suisse First Boston.

Jim, you mentioned in your prepared remarks sort of a broadening out of the customer base.

And I'm wondering if, when you look at the order book September to December, if you can help quantify that broadening out, and also just give us a sense of what your DRAM exposure may be.

And then a follow-up to Jay's question.

I'm assuming your confidence level in March and June revenue growth is just getting you to where you think December bookings are going to be.

Is that the right way to look at it?

Yes.

I'm sorry; say that again.

I may have (multiple speakers).

Your confidence level in March and June revenue growing 10 percent sequentially essentially gets June revenue to where the December bookings levels --

Yes, that's approximately (multiple speakers).

Plus or minus?

Yes; it's not quite.

Again, use the 90 percent number, and it gets you pretty close.

To answer your first question, when I look at the big orders that we received in September, not a single company repeated in the December quarter.

If we look at what we think will happen relative to customer bookings in the March quarter, you begin to get some repeats from the September as well as the December quarter.

So it is definitely substantially greater than what we thought was going to happen, or what we were seeing happen back at the beginning of '02.

Next question?

Glen Yeung.

Smith Barney.

Jim, when you look out into the fourth calendar quarter, you're looking for 10 percent order growth.

I wonder if you could maybe give us a sense as to where you expect that strength to come from geographically, particularly given some of the swings that you saw in the third quarter.

And then secondly, if you just look into '04, people seem to be talking about something like a 20 percent growth in CapEx.

I wonder if that's consistent with your outlook?

Okay.

Let me give you -- on the December quarter, basically -- I don't know; it's hard to classify.

It looks like there's strength pretty much across all the geographic areas.

I don't see a single area that's not represented in some of the larger orders during December.

So we have pretty good representation everywhere.

So, again, I think this says something about the breadth of the spending, that it's not confined geographically, and it's not confined so much by customer.

Next question?

Avinash Kant.

Hi, Jim, this is Avinash from Adams, Harkness & Hill.

The question I had was what percentage of the business this quarter was from 300 mm?

Let's see.

Are you talking about orders?

Yes, orders would be good.

Before I give you the answer to this, I want to make sure you understand that when you look at it on a quarterly basis, it can completely mislead you as to what the situation in the business is.

All it takes is one 300 mm customer to shift their bookings one quarter, and it completely turns this thing upside-down.

But in the September quarter, 300 mm represented 71 percent of our new orders.

But that's not true if we go look at a couple of the outlying quarters, where our forecast is, because it starts down again.

So you have a very high quarter this quarter, and it's strictly -- it's largely driven by the fact that Inaterra (ph) and Nanya and Infineon placed large orders.

Next question?

Vijay Rakesh (ph).

Medium Capital (ph).

Hi, Jim.

I had a question on the orders.

If you could break it down by technology (indiscernible) 130, 90 and 65?

And I was wondering if you could also break it down into memory, logic or foundry?

And the second question was, on the CMP Terrace (ph), do you expect to book orders in the December quarter?

I'll defer the CMP question until our January update.

Let me give you some information on geometry.

We haven't broken it out as finally as you have asked, but about 58 percent of our business was less than 130 nanometer.

You can expect that the vast majority of the less than 130 nanometer is comprised of DRAM -- I'm sorry.

In the less than 130 nanometer, the 110 nanometer purchases were largely DRAM.

And then you have 42 percent of the business is greater than 130, and DRAM is essentially not represented in that group of buys, because DRAM companies are buying 110.

If you look at it by memory, foundry and logic -- and of course, in foundry, there is some memory.

But it's 46 percent memory companies, and that's not just DRAM; that's memory.

Logic was 21 percent, and foundry is 33 percent of the orders in the September quarter.

And I want to answer Glen's other question -- Glen Yeung's other question, that I forgot while I was talking.

You asked about my belief about a 20 percent CapEx growth next year.

I think that is very do-able.

Just looking at what we see as yet announced for capital spending by a lot of the customers, 20 percent looks quite do-able, as far as growth.

I would expect, given that there isn't some cataclysmic event between now and the end of '04, that there is a better chance of upside to the 20 percent than there is downside to the 20 percent.

Next question?

Michael O’Brien.

SoundView.

Jim, are there any big swing orders in this December/March quarters timeframe that could make that 10 percent bigger?

Or are you factoring in what you think is most likely?

This is a most-likely forecast, and we have been pretty good at forecasting our bookings recently.

It's much easier to forecast your bookings in an upturn or a stronger business environment than it is in a down environment, because the people you're negotiating with will find out that they can't get approval for the capital that they had expected.

But in the environment that you see today, you get more upside surprises than downside surprises.

There's always the possibility that the bookings could be higher in the December quarter, but I wouldn't count on that.

I think that 10 percent is a good number, and that's what we will work to, so I wouldn't count on anything much greater than that.

Next question?

Shekhar Pramanick.

Good afternoon.

Prudential.

Jim, a question on oxide etch.

You clearly have a great tool with this dual-frequency tool, and you have done really well in the DRAM space.

On the logic side, I think you are starting to make inroads.

Where are you seeing your geographical wins coming in the logic side?

And lastly, I think earlier there was a mention of 65 nanometer wins, or at least a development win.

Was that a North America win?

That's all.

Let me correct one thing.

I never said we won anything at 65 nanometers.

There was somebody that asked me a question about was the 65 nanometer business still open.

And that was Jay Deahna asked me that, whether the 65 nanometer opportunities were still open, and I said yes.

But I didn't comment anything about what we had won or not, and we are not commenting on 65 nanometers at this time.

From a logic standpoint, and how well our etcher is doing, our etcher was first recognized by logic companies as being a differentiated tool with processing capability as yet unrealized -- this was back in the '98 time period -- and that was what gave us the thrust to move very quickly toward the Exelan.

It has done very well in memory for critical etch applications, and that's pretty much across the board, where the technology is the stack capacitor.

In logic, the area of demonstrated capability is both trench and via for dual damascene applications.

Logic via applications even at 150 nanometers, if it's aluminum, are not so challenging that a broad array of etchers can't do it.

The one advantage that we have is ours will handle that activity as well has other activities when the process chemistry is completely different, because of the small-volume nature of our process chamber and the lack of memory of the process chamber.

So we have an advantage, even where -- against our competitors, even when the technology capability of the Exelan is not required, just because of its manufacturing versatility.

Next question?

Timothy Arcuri.

Deutsche Bank.

Thanks a lot.

I have two questions.

First of all, for Mercedes, can you talk a little bit about -- obviously, you have done a great job on gross margin.

Can you talk a little bit about the drop-through if you look at operating margins?

So maybe if you could quantify for us what that incremental drop-through might be on the operating line?

I think that in the guidance that Jim provided, you can expect to see improvement in the calendar 2004 first half.

We've given guidance for the December quarter which was quite explicit, and it talked about gross margins being essentially flat with what we are reporting for the September quarter, as well as a small decline in operating expenses due to seasonality, which obviously is not going to translate into the first half of calendar '04.

As Jim alluded to in the guidance portion of his speech, the early part of '04, which is, in essence, what we are giving you some color on, we expect operating expenses to grow, not just because we are out of the seasonality in the December quarter, but also because with higher revenues and profits in the first half of '04, we anticipate increasing the level of variable compensation for our employees, in terms of performance bonuses and profit-sharing distribution.

We have also, I think, guided to the fact that continuing to mine the benefits of our outsourcing initiative, we expect gross margins to continue to expand beyond -- again, not in the December quarter, but in the first half of '04, as revenues increase and we have better ability to leverage the capability of our outsource providers.

Next question?

Stephen Pelayo.

Morgan Stanley.

Just a clarification from Mercedes, and then I have a question for you, Jim.

I guess your guidance here is for flat revenues and gross margins, yet operating expense is coming down.

If I remember, last quarter you said they should be coming down kind of 2 to 3 million per quarter for the next few quarters, I think, was your comment.

Yet your EPS guidance is for kind of flat to down.

So I'm trying to reconcile that.

How do you have flat revenues, gross margins, down operating expenses, and yet down EPS?

Is there something weird in the guidance?

Is there a tax rate change that I'm unaware of? (multiple speakers).

There is no tax change.

As we have commented in the past -- first of all, we did not comment at all on the size of the decline of our operating expenses in December versus September; we simply said they would decline.

So I think you can model the decline at your leisure.

So your comment on $2 to $3 million is not something that we have talked about, and we are clearly not endorsing it.

There is another component of our profitability, which tends to be modeled, at least in our universe, at zero, and that's called other income expense.

And that is because in that line, there are foreign exchange fluctuations that can swing that area up or down in a significant way, so you don't ever want to count on that to make your profitability.

And in essence, when we give guidance, we expect that line to be very close to zero.

So if you do all the math, flat revenues, flat gross margins, a small decline in operating expenses, and you model other income at zero, you come pretty close to the guidance that we have given of 3 to 4 cents.

And in terms of pre -- ongoing results, as we would classify them, of course, that excludes the $6.5 million that we have guided, we will take as a restructuring charge in the December quarter, after which we expect to be at breakeven levels.

Next question?

Ted Berg.

Lehman Brothers.

I was wondering if, Jim, you could reiterate or talk a little bit more about some of the design wins that you mentioned.

In the very beginning of your prepared remarks, you mentioned Korea, Taiwan and I forget the third region in Asia.

And you mentioned, I think, a design win in Japan.

I was wondering if you could talk about whether most of these are 200 mm or 300 mm, and whether they are 130 nanometer or higher.

And then, if they are for the high-volume applications like trench or via, versus other perhaps smaller-volume etch applications.

Ted, you have just about covered everything we won.

This is largely 300 mm today.

I think that at 200 mm, we have essentially secured our market position.

There's not going to be a great deal of new fabs built for DRAMs at 200 mm.

So the wins that we have made for dielectric on DRAMs are principally 300 mm.

We did very well at 200 mm, at the two larger DRAM companies, and that has carried over with Exelan into 300 mm.

We have also expanded our wins in 300 mm into other DRAM companies on the Exelan.

We talked about Japan.

Japan is largely logic, no DRAM activity of significance there that we could report on.

In Taiwan, it's a combination; we are continuing to win applications in Taiwan at one of the DRAM companies where we had an ongoing program for the past several quarters to qualify on a broad array of processes where they wanted to move to the Exelan as opposed to their tool of record.

And that is continuing, and we're winning a couple of applications a quarter in that company.

We have also won -- continued to win dielectric applications for logic in foundries in Taiwan, and we have done quite well in the major foundry in China -- pretty much across the board.

They'll do some memory foundry work, as well as logic, and we have done very well in both of those applications.

It starts with the critical etch wins, and as they look at the number of Exelans they will buy for critical etch, then you begin to win near-critical etch, because of the versatility of the machine and the fact that, by buying Exelan for near-critical as well as critical, you have essentially backed the other applications up so that they don't suffer a significant loss in throughput just because an etcher in via goes down, but they have capacity in HARC or SAC.

With the Exelan, you can process wafers across all three of those applications, with no change in the tool and no setup changes, no cleaning of the tool; you just load it with wafers.

Next question?

Byron Walker.

Byron, are you there?

Operator, next question?

Jim, I have a question which may seem to you strange.

It's about the installation of etchers.

Let's imagine your customer is installing your tools.

I believe that different types of tools are being installed in turns.

Could you please place etchers installation versus lithography and ion (ph) implementation tools, and what is typical time difference between installation of these types of tools?

Well, the implanter is typically a pretty large machine, and in addition to a technology activity, it's a civil engineering program to install it.

The etchers are more modular and consume less floorspace, so they typically install quite quickly.

We've got customers who now, on the 2300 series of etchers, expect to be able to install an etcher and begin processing wafers in five days.

Now, the processing of the wafers are qualification, not production, of course.

But we've got customers who, from the time the etcher hits their dock until it is processing wafers, it's 35 days.

Next question?

Kevin Vassily.

Susquehanna Financial Group.

A question on the service business.

With all the momentum you guys have now, with winning some of these etch applications, are you seeing any corresponding pick up in service business?

And are there any significant contracts kind of on the horizon for the December quarter?

Let me answer that in kind of two parts.

There is a pickup in the service business, from the standpoint that customers are today more inclined -- and this is even true in Asia -- although the magnitude is small, the direction is certainly right.

But the customers are more inclined to buy service contracts today than ever before.

Because of the shrinking process windows, the maintenance on the etchers has to be done very precisely, and follow the methods that we prescribe very accurately, because a small shift in the performance of the etcher can throw you completely out of the process window today.

When you're talking about etching feature sizes in the 90 nanometer range, and you're trying to do it within -- we count atoms now, when we talk about etching uniformity, as opposed to counting microns or tenths of microns.

So there is a very significant change in the customer base on buying our service, because of the expertise that our people have and the training that they have.

The service business lags the upturn by about nine months to a year, because most of the products are warrantied for a year, which means that you don't see -- this is a service contract business -- until it comes off warranty, and the customer then begins to use your service organization to provide the service on the etcher.

The same thing is largely true for spare parts.

The spare parts business doesn't change until the product comes off warranty.

So you can expect there to be a significant lag between the upturn in equipment purchases and the change in the service business.

A better metric for measuring the service business is worldwide wafer starts.

We use that to forecast our service business, because as wafer starts increase, we have a very good correlation between that and the bookings in revenue out of our service business.

Next question?

Mark Fitzgerald.

Just on Japan, I was curious how comfortable you felt making more significant gains than you historically had there.

We're pretty comfortable, Mark, but it but it's on a fairly narrow customer base.

We've got some customers there that we have penetrated, but we are certainly not broadly penetrated within the Japanese market for significant Japanese customers.

That excludes customers that are owned by outside entities.

But if you look at exclusive Japanese customers, about four or five of the companies over there are customers that we have reasonable levels of business with.

Operator, we have time for one more question.

John Pitzer.

Yes, Jim.

Cyclic follow-up -- when you look at the order book from September to December, can you talk a little bit about the memory concentration, and also the foundry concentration?

New orders in September were big out of Asia/Pacific, but I'm assuming that was a lot from Inaterra (ph).

I'm just kind of curious what you are seeing from the foundries, as you move into the December quarter.

The foundries, I would say, are underrepresented in December, as far as large orders.

If you look at the combination of all foundry activity, it amounts to something, but our orders for the December quarter are, by and large, IDM and memory companies -- that the significant buys are.

If you start looking at two etchers or something like this, then you could say the complexion changes.

But the preponderance of the orders are in IDM and memory companies.

Thank you very much for your interest in Lam Research.

We appreciate your attendance on these conference calls, and we look forward to talking to you again in the January conference call.

Thank you.

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

Thank you once again for your participation today.

You may now disconnect.