科林研發 (LRCX) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Lam Research June quarter financial results conference call.

During today's presentation all parties will be in a listen only mode.

Following the presentation the conference will be open for your questions.

(OPERATOR INSTRUCTIONS) This call is scheduled to conclude at 3:00 p.m.

I would now like to turn our conference over to Carol Raeburn, Investor Relations Analyst.

Please go ahead, ma'am.

Thank you, Rose.

Good afternoon, and thank you for joining us today to discuss the June quarter and near term business outlook.

By now you should have received a copy of today's press release which was distributed by business wire at approximately 1:05 p.m.

In our webcasting, a slide presentation is in conjunction with today's commentary.

The presentation can be accessed through the investor section of our website at www.lamresearch.com and will also be available as a podcast following today's call.

Joining us today are are Steve Newberry, President, and Chief Executive Officer and Martin Anstice, Chief Financial Officer.

As we described in our Form 8-K filed July 18, 2007, a special committee of our Board of Directors is conducting a review of our historical stock option practices and the related accounting.

As a result of this review, we are unable to present complete financial results for our June quarter.

We will not respond to questions on our financial performance related to the June quarter or our expected financial performance for the September quarter outside of the financial results and forecasts contained in our prepared comments.

The following discussion will contain certain forward-looking statements, including those related to revenue and shipment forecasts, customer demand and industry conditions, as well as statements that express the Company's expectations, beliefs, plans, and forecasts.

There are important factors that the could cause our actual results to differ materially from those discussed in these forward-looking statements.

Additional information concerning factors that could cause results to differ can be found on our report Form 10-K for the year ended June 25, 2006.

This call is scheduled to last until 3:00 p.m., we ask that you please limit questions to one per firm.

With that, I'll now turn the call over to Martin for a review of the financial results.

Thank you, Carol.

Good afternoon, and thank you all for joining us.

Last week, as you all know, we disclosed that the Lam Research Board of Directors has initiated a voluntary independent review of the accounting reporting related to past company grants of employee stock options.

While the activity is ongoing, we do not expect it to have any impact on the Company's focus on execution both operationally and financially.

As I discussed last week, because of the review, we are unable to present our complete financial results or complete guidance to you today, however we can provide some limited information on the June 2007 quarter that should provide insight into our performance.

Highlights include shipments of $694 million, up 12% quarter on quarter, revenues of $679 million exceeding the upper end of our forecasted range, and a gross cash and short-term investment position of slightly more than $1 billion.

While we cannot provide a specific operating cash flow number for you today, I will give you a few data points in a moment that should add some color to our continued strong cash generation capability.

Shipments of $694 million represented a 12% increase over the March quarter coming in at the mid-point of our 10% to 15% guidance range.

Memory segment customers in the quarter represented 73% of total system shipments with the NAND component accounting for approximately 31% of total memory.

Logic/other was 8% and foundry was a strong 19% of the total system shipments favorably impacted by some customer requested pull-ins this quarter.

For more complete details on the geographic break down of our shipments and revenues, please see today's press release and our website for a reconciliation of shipments revenues and deferred revenues.

While we cannot provide detail around operating expenses for the June quarter, I can share that in general we executed to plan in terms of investments in support of our new product developments and market share growth objectives.

Our total net cash balance including restricted cash was $781 million at the end of June down from $1.244 billion at the end of March.

During the quarter we completed our stock repurchase authorization, buying back approximately 768 million of common stock at an average price of $52.98 per share.

We did not repay any debt during the quarter.

Employee equity plans generated proceeds of $19 million to the Company and capital expenditures were approximately $14 million.

Taken together, these data points should provide some insight as to the strength of cash generation in the quarter although we can not be more specific at this time.

I also want to spend a moment on the share count following the completion of our stock repurchase authorization.

If you'll recall, we gave EPS guidance for the June 2007 quarter assuming a weighted average diluted share count of approximately 139 million shares, which reflected a full quarter's impact of March quarter repurchase activity but no specific guidance on June quarter repurchases.

We are pleased to report that June quarter 2007 stock repurchases totaled 14.5 million shares absolute, and shares issued pursuant to employee equity plans totaled approximately 800,000 shares.

Total shares outstanding as of June 24, 2007, were 123.5 million compared to 137.2 million at March 25, 2007.

Elsewhere, the deferred revenue balance is higher at $296 million.

There is approximately $51 million of anticipated future revenue value for our previously made shipments to Japanese customers representing an increase in these combined balances of $21 million relative to the prior quarter.

Restricted cash balance is unchanged from $360 million in the previous quarter.

Accounts Receivable, days outstanding was 55 days.

Depreciation and amortization was $11 million.

Also, employment levels held steady with a head count of approximately 2,900.

Now I'd like to turn the call over to Steve.

Thank you, Martin, and good afternoon to everyone.

I am pleased with the Company's outstanding June quarter which met or exceeded my expectations across a broad range of performance metrics.

In particular, the ending cash balance of the Company was very strong, especially considering the aggressive repurchase activity that Martin highlighted in his comments.

At our Analyst Day event in San Francisco last week, I focused my comments on the favorable outlook for wafer fab equipment spending over the 2007 through 2010 time frame which is supported by strong growth in IC unit demand of approximately 14% on a compound annual basis over that period.

We responded to a number of questions at the event about our outlook for the balance of 2007 and into 2008 and I will recap and expand on that a bit here.

We're forecasting overall IC units to grow 10% to 12% in calendar 2007 compared with 2006.

Memory unit growth is expected to be up approximately 27% in 2007 driven by an expected 44% growth in DRAM units and approximately 42% in NAND Flash units.

Faster than expected declines in average selling price of DRAMs has helped accelerate the pace of increasing gigabyte content per PC.

PC makers are increasing their shipments of two gigabyte configurations to support Vista resulting in an expected average configuration of 1.7 gigabytes by the end of the calendar year.

With the expected seasonal DRAM demand increases, prices are expected to stabilize over the balance of the year.

The NAND Flash market, meanwhile, is seeing modest increases in pricing in the second quarter and as we move into the second half of the year.

With devices like the iPhone Next Generation iPods and other digital consumer electronic products expected to drive stronger unit demand in the second half of the year relative to the first half.

These demand dynamics in memory support a strengthening our overall outlook for wafer fab equipment spending in 2007 to grow approximately 5% to 7% to the $30 billion range.

Memory had strengthened as well from a previously expected 8% growth to approximately 16% to 19% per calendar 2007 compared with calendar 2006.

Within the memory segment, NAND Flash wafer fab equipment spending is expected to be down approximately 15% in calendar year 2007, however, capacity additions will begin to increase in the second half versus the first half.

DRAM wafer fab equipment spending is expected to be up greater than 40% for the year with capacity additions slowing in the second half versus the first half.

Foundry and logic/other are now expected to be down approximately 5% to 7% and micro processor spending is now expected to be down approximately 7% for the calendar year 2007.

Moving on to Lam Research specific activity, we continue to expect our revenue to be up 15% to 20% for calendar 2007 versus 2006 and shipments for calendar year 2007 are still expected to be up 5% to 10%.

Lam's memory shipments in calendar year 2007 are expected to grow 25% to 29% compared with the expected 16% to 19% growth in memory wafer fab equipment spending.

We expect our shipment performance to out pace the projected wafer fab equipment spending in both NAND and DRAM which is a strong validation of our continued market share gains in memory.

We expect that foundry shipments for Lam will be weak in the September quarter as a function of the pull-ins to June and we expect that shipments in foundry will strengthen in the December quarter.

Shipments for logic/other and MPU are expected to be flat in the second half compared with the first half.

Turning to 2008.

as we discussed at our analyst meeting last week, we believe that 50% CapEx intensity in memory is not sustainable exiting 2007 and in fact, the rate of capacity additions has already begun to slow.

The depth and duration of this reduction in capacity additions will be dictated by the actual demand environment as we go forward in the next 6 to 12 months.

Demand trends to watch here include adoption rates of major products such as Vista and the i Phone as well as the overall demand for the broad range of other semiconductor intensive consumer digital electronic products.

As we move into 2008, it will also be important to watch the conversion of 200 millimeter memory production to 300 millimeter as memory manufacturers ability to generate acceptable profits at 200 millimeter will force additional production to move to 300 millimeter.

Based on current industry dynamics, our very early assessment for calendar year for 2008 is that overall wafer fab equipment spending is likely to be flattish with memory spending to be down potentially 10% to 15% in an expectation that foundry, logic/other and MPU spending will increase sufficiently to offset the decline in memory spending.

Moving to Lam specific guidance for the September 2007 quarter, revenue is expected to be in the range of $668 million to $688 million, essentially flat at the mid-point with the June quarter, while shipments are expected to be down in the range of 7% to 12%.

Our overall performance will continue to be driven by our growing market position in Etch which we anticipate growing from 46% in shipment share at the end of calendar 2006 to approximately 3 points higher by the end of 2007.

We continue to see positive momentum in application wins with 6 new wins in the first half of calendar 2007 at the 6X through 4 X technology nodes.

In summary, Lam Research continues to perform very well.

We continue to execute on our longer term strategic focus which gives us the opportunity to build a $4 billion revenue company in the 2010 time frame.

As we move forward, I continue to be very pleased with the performance of Lam Research employees across the Company and I thank all of them for their outstanding contributions to our success.

Now, we will open it up for questions.

Thank you.

(OPERATOR INSTRUCTIONS)

Our first question comes from Timothy Arcuri from Citigroup.

Hi, Steve.

Relative to your comments about capacity adds slowing down in the memory space, it seems like pretty much all the memory companies that have reporting earnings, tonight there was one that also took up their bit growth expectation for the year and they did--they produced more bits in June than they had guided.

It seems like pretty consistently all the memory companies are actually producing more bits, not less bits thus far this year so I was hoping you could reconcile that relative to your comment about capacity adds slowing down.

Thanks.

Okay, when I talk about capacity additions, I'm talking about the shipment in additional capacity, not that there is additional capacity coming online in the wafer fab, which actually has shipped in from prior periods, and so there's no question that unit output is growing, bit growth is growing, and that makes sense given that we're coming into the seasonal increase in demand for memory, but if we look at the amount of shipments going in to the memory fabs in the September quarter and the December quarter, the total amount of shipments is less than what was shipped in prior periods.

Thank you.

Our next question comes from Steve O'Rourke from Deutsche Capital.

Hi, thank you.

Steve, just as a follow on to Tim's question, when you reconcile all of that and you look out into 2008, you made a statement that memory is going to be down about 10% to 15%, foundry and MPU will more than offset.

What gives you confidence, one, that it's only 10% to 15% and two, that foundry and MPU can offset?

I mean if you look at that how do you rationalize that?

Well, first off, what I'm providing for you is based on where we stand today which is the third week of July 2007 that this is how we see it likely to play out in 2008, and the reality is as we go forward in 2007, that look at 2008 is going to go through a series of adjustments, so I think that's the first thing that people ought to recognize whenever we're talking about periods that are that far out in the future.

Now specifically as it relates to why memory potentially being down 10% to 15%, and that relates to the fact that you have capital intensity today or assume to be in looking at the total spend for 2000 versus the expectation for revenue in 2000, that capital intensity will be 50%.

Historically, that level of capacity intensity results in a rapid decline in average price per unit which we have clearly seen, which puts enormous pressure on profitability which we've also clearly seen as each of the memory companies has been announcing their results for second quarter.

Historically, when capacity intensity gets up into the 50% or higher range, which is indicative of excess supply relative to demand, the memory companies will begin the process of slowing down the rate at which they order delivery of new capacity additions and bring the balance of supply and demand into a better ratio and in the case of memory that's about 40%.

So if you look at the forecast that we have for unit demand growth for memory, which we believe is about 18% for 2008, that combined with a stabilization of memory pricing that if spending in memory declines about 10% to 15%, that would bring the capital intensity around to about the 40% range, which is where it needs to be to get the pricing at the point where the memory companies can generate the profitability they need to sustain the investment, so that's the rationale for the memory scenario at this point in time.

As it relates to foundry, logic/other, and MPU, we believe that the capacity utilization in the foundries is beginning to rise, we believe that the logic companies who have been in a rationalization process in 2007, i.e.

Texas Instruments , ST, Fujitsu, etc., that in the 2008 time frame, that will become clearer.

We expect that spending from those companies whether it is in their own fabs or is in the foundries will result in an increase in foundry logic spending and we believe that Intel and AMD who have been cutting back their capital expenditures in 2007 are more likely to increase their capital expenditures in 2008 as a function of the fact that we expect that PC demand will be much stronger

Thank you.

Our next question comes from Satya Kumar from Credit Suisse.

Yes, thanks, Steve for taking the question.

Just wanted to follow-up along some of the lines, a couple of thoughts here.

If I look at the memory industry, margins for the companies tends to be a pretty good leading indicator for CapEx and one of the reasons why we've seen such a strong memory spend this year which is surprising people was margins were very good ending last year.

When I look at the industry on a year on year basis, I see that margins are substantially weaker now and I do understand that things are improving seasonally, so when I combine that with what you're saying in terms of 40% CapEx to revenue for the memory industry and when I look at these profitability numbers, is baked into the 10% to 15% numbers an assumption that when I think about cost of capital that's not something that is going to meet the cost of capital for next year and secondly, as you apply this logic to Lam, when I look at your shipments, they have actually exceeded the growth of wafer fab equipment and particularly within memory, they've exceeded that as well, so if memory CapEx were to be down at least 10% to 15% next year, what would that mean to Lam shipments given that you've actually out performed the memory market so far?

Okay, I want to make sure we're talking about the same thing relative to your comment about 40% capital intensity.

40% capital intensity is what I'm forecasting will occur in 2008 if memory CapEx in 2008 declines 10% to 15%.

Our forecast for 2007 is that memory capital intensity for the year as a whole will be 50% so I believe we're talking the same thing, where profits for memory makers were strong in 2006, a lot of capacity was added, and as a function of the capital intensity rising, the supply rising relative to demand, prices fall, profitability falls, and we're going to need to adjust for that and slow the rate of capacity additions, so what I'm suggesting is that the current capital intensity in 2007 is going to need to decline and if it reduces--if spending reduces by 10% to 15% that should put it back in the 40% range which is a healthy number.

Now, when you look at Lam's memory shipments, 25% to 29% up in 2007 versus wafer fab equipment spending being up 16% to 19%, that's what we would expect given that we've seen strong market share growth for us in 2007, so if spending goes down 10% to 15% and we expect that if we continue to win new applications in the memory space that we will have an opportunity to mitigate the impact of that decline with two or three more market share points of market share in 2008.

We also expect to be able to mitigate that with some additional amount of revenue for new products that we're not yet going to quantify, and we expect that we can mitigate whatever decline may be present by flowing through some of our deferred revenue, and we'll be taking revenue for our Japan shipments that Martin talked about are also in our deferred revenue situation, so we believe that we can certainly mitigate to a certain degree a 10% to 15% decline in memory spending but we also believe that we'll be helped by the fact that foundry, logic and MPU will be up in 2008.

Thank you.

Our next question comes from Robert Maire from Needham & Company.

Yes, two questions actually.

If you could fill us in as to what percent of shipments or revenues were products other than Etch, in other words the new products you've rolled out over the last year or so and if you could give us some update on that, and secondarily, in terms of memory spending particularly in DRAM going forward, could you give us some sense as to how much of that is 200 millimeter capacity replacement and are we now at a point where 200 millimeter fab is no longer profitable, is that sort of the second wave of spending we can expect here going forward?

Yes, I'll take the first one there.

From a new part revenue point of view, one of the messages that I think we've been conveying pretty consistently here is we do not have segment reporting in the Company nor are we about to, so I realize there's interest in getting after that number.

What we invested a lot of time and effort in last week in the analyst meeting is giving what we consider to be the very critical data to you relative to new product penetrations and that's the targeted shipments and the targeted qualification windows and that will continue to be the orientation of disclosure relative to new products for the Company in the coming quarters.

So relative to your question about where are we at in the spending for the conversion of 200 millimeter to 300 millimeter, we believe that over the next three or four years, there's going to need to be about $19 billion spent to add 300 millimeter capacity to replace 200 millimeter.

We believe that by the time 2007 is completed that $2 billion out of that $19 billion will have been completed.

It's also possible that in 2006, another 1 or 2 may have occurred out of that 19, so it's possible that there's really $17 billion or so--$16 billion or so that is going to need to be spent in the next three or four years.

It's really kind of hard to qualify--quantify, but it's in that range, and so we expect in 2008 that we're going to see that accelerate to probably $5 billion and then in 2009 and 2010, we'll see kind of the remainder convert out.

Our next question comes from Gary Hsueh from CIBC World Markets.

Hey, thanks for taking my question.

My question revolves around CapEx and your guidance for flat CapEx next year.

Certainly the best job I've seen so far on fundamentally basing it on CapEx intensity, so I was wondering if you could help us out a little bit more here on CapEx next year, do you see it being heavily front half loaded again and if it is, it would suggest basically that we would see a low point in terms of your shipments roughly around the $600 million level in December and that should kind of work its way back up, is that kind of the forecast or is that what your visibility is kind of affording you right now?

Well, Gary, I'm not going to comment on what our December shipments may or may not be at this point in time, but I do think that since we've already begun to see that the memory spending for shipments and therefore capacity that's coming into the fab declined in the second half, most specifically it's DRAM, because actually NAND Flash is actually beginning to increase the shipments into the fab, and I would expect that the shipment environment that we're going to see in the third and fourth, or in the September and December quarters is likely to be similar in the March quarter and then may begin to tic back up in the June and then September, December quarters.

So I don't think that we'll see a heavily weighted front half first half, I think actually I would expect in memory that the first half will be lower than the second half next year.

As it relates to foundry and logic and micro processor, it's way too early to tell how that's going to kind of play out by quarter, but memory is a little bit more something that I think we can kind of forecast out given where it is today and the adjustments I think it needs to make and then where it's going to end up at the end of the year in 2008.

Thank you.

Our next question comes from C.J.

Muse from Lehman Brothers.

Yes, good afternoon.

I was hoping to sneak in two questions.

First off, Martin, I'm wondering if you resolved whether or not you can buy back more shares given the option overhang and then secondly given that this is your fiscal year end, can you share with us what your backlog is?

Thank you.

So first question is relative to stock repurchase.

Well, one of the realities I hope of today's presentation that is clear to everybody is we exercise completely the board authorization that was in place kind of coming into this quarter so we came in with $768 million outstanding and we executed to that plan completely, and so currently there is no authorization from the board to be in the market repurchasing stock.

Obviously, there continues to be a dialogue at the executive level and board level around capital structure, around optimal cash positions, around how best to return excess cash to the shareholders, but there is no decision to communicate today.

The technical answer to your question in a hypothetical situation where there was a authorization in place is we are are allowed to be in the market repurchasing stock to the extent we are not in possession of material non-public information, and so that is the best I can do relative to giving you guidance counsel, but the headline that you should be walking away from today is there is no authorization to be in the market buying stock.

The second question was a fiscal year backlog question.

We are planning to disclose that figure in the 10-K when we file it.

Thank you.

Our next question comes from Jim Covello from Goldman Sachs.

Hi, this is Kate Kotlarsky on behalf of Jim Covello.

I have a question regarding your shipment guidance for the September quarter.

If I remember correctly, last quarter you had talked about some of the shipments that were intended for June quarter from your memory customers being pushed out into the September quarter.

I was just curious whether those shipments are in fact going to ship for the September quarter or whether there were some incremental push outs perhaps into the December quarter?

Thank you.

As it stands right now, those push outs that we had talked about three months ago in the September quarter are standing, as are the rest of the planned shipments that we've expected to ship.

I think that when you get to where we are in the cycle, where the shipment output begins to decline, there's always the potential that customers will begin to do some jockeying as it relates to exactly which fab they want to ship into, particularly in the case of memory customers where if they're producing both NAND Flash and DRAM, you see a lot of movement back and forth which can result in the need to change the configuration of the product, and if that occurs in a system that's scheduled to ship in September, there's always the risk that it might slip into October, and so there's a little bit of volatility that occurs whenever you have customers kind of looking at what their shipments are and how they want to synch them up in terms of which particular line they want those products to go into but as it stands right now when we look at the second half, we're still comfortable that our guidance for the year of up 5% to 10% will manifest itself when we look at the results at the end of the year.

Thank you.

Our next question comes from Harlan Sur from Morgan Stanley.

Hi, good afternoon.

Question for you, Steve, with respect to the '08 outlook.

I know that last week you also mentioned your view on a flattish growth outlook for the Etch segment next year, and we recently did some analysis on the incremental dollar opportunity as your customers transition to sub-65 nanometer technologies and I think we came out with a fairly conservative view that the Etch dollar opportunity actually increases by about 15% to 20% as your customers continue to make these technology transitions, and so the question for you is, given the increase in number of critical Etch steps and overall complexity as we make these technology transitions, why wouldn't you expect the Etch market to grow next year even in a flat CapEx spending environment?

I think that there's the likelihood that Etch intensity is beginning to increase, but all of our analysis would not suggest in the range of 15% to 20% because the vast majority of spending for Etch today is 7X, 6-X and if you're saying that at 6X and below, Etch opportunity goes up 15% to 20%, that would really relate to a significant growth in--the Etch market today we think is about $4 billion and so 15% to 20% is a really significant increase in Etch, so I don't think it's that high, at least our analysis wouldn't suggest that but we think that the Etch intensity may be moving from around about a 13% of wafer fab equipment to potentially 13.5% of wafer fab equipment which more equates to a 4% or 5% type of Etch intensity increase.

Thank you.

Our next question comes from Jay Deahna from JP Morgan.

Hi, it's Jenny [Yun] in for Jay Deahna.

A couple quick questions.

As you ramp in these new products, does that pressure in your gross margin in any way, I know you can't talk specifics but just generally and also can you give us a sense of where shipments will be in the December quarter in terms of overall shipments and among the different segments?

Thanks.

I'll take the gross margin question.

As much as I would like to help you, generally and specifically I'm unable to talk about gross margins at this time.

And then relative to shipments in December, the best I can suggest to you because I'm not going to give specifics for December is to take our shipment guidance for September and combine it with our shipment guidance for the year as a whole and you'll get a pretty good number relative to what you can expect December to be, and there's no point in giving any specificity relative to the segments because when you're sitting here in the third week of July, lots of things start moving around in terms of what the exact shipments are that go out in December.

Sorry.

Thank you.

Our next question comes from Steven Pelayo from HSBC.

Yes, just a question.

Steve, do you think secularly if this 40% to 50% number capital intensity and memory is really justifiable or should it really decline more and let's face it, how many businesses even have 40% EBITDA to kind of support that kind of level of activity, and then a question quickly for you just housekeeping for Martin.

You guys did break out in your fiscal year end your top customers, last year you had a couple, Samsung and Toshiba, 15 and 12.

I wonder of you can give us some new numbers there on top customers and if you don't want to be specific on them, maybe qualitatively speak to how many top 10% and if maybe the existing two increased or decreased that would further support your market share gain story.

Thanks.

Okay, Steven, so relative to the sustainability of a 40% capital intensity, looking back over a long period of time, when the ratio is 40%, the semiconductor memory manufacturers are profitable.

When it gets into the 50% and above range is when they are not profitable and so I think that 40% is sustainable.

I think that certainly, there is a ratio of growth that would suggest that if you keep the supply and demand relationship tight so that pricing does not fall faster than the capital intensity per unit that you probably could sustain even a 41% or 42% capital intensity, but the reality is that spending can go up aggressively as a function of unit growth or unit compound to annual growth, but if supply gets out in front of demand, prices will fall and if prices fall too much, then the ratio is poor, whether you use a capital per unit, ASP per unit or you just use overall CapEx versus revenue, and we've seen it time and time again that that ratio has to be kept in the 40% range if you're looking at CapEx versus revenue or the profitability that's generated by the industry is not sufficient to sustain that level of investment, and historically, the rate of investment drops which then causes supply to fall, matches up with demand, ASP rises, and profitability rises, so it's a pretty predictable trend.

The only question is making sure that you get the revenue right, you get the capital right, and you get those ratios right and then you look at what the expected going forward environment is relative to unit demand, assumptions around ASPs which are going to give you the revenue that's going to be generated by that unit demand and that kind of tells you what the affordability is of what you can spend on CapEx and keep the profitability at the right level.

And relative to the second part of the question, we obviously planned the customer specific disclosure for the fiscal year in the filing of the 10-K, and respect the (inaudible) requirements of that process, so we have no disclosure today.

Thank you.

Our next question comes from Stephen Chin from UBS.

Okay, great, thank you.

Steve, given all of your information you have now, do you get the sense that this September or December quarter likely marks the trough quarter for Lam's shipments in this spending cycle, and just secondly, did you have any color that you can provide on shipments by geography going forward ?

I'll take the first part and we'll take a look at whether there's any substantive change in the geographical shipment distribution that we expect in the second half in just a moment.

I would expect, and if you look at our shipment guidance for September, and you take our shipment guidance for the year, that December will have slightly lower shipments than September if everything goes forward as the customers are planning to take shipments today.

And so if you look at the 7% to 12% down shipment guidance for September and you look at the shipments for the year, it would tell you that we're expecting shipments to be lower in December.

Whether that represents the low for where we are in the cycle, I think we're going to have to see how memory spending plays out because I think that at the end of the day, given that memory spending is probably now about 60% of wafer fab equipment spending in 2007, certainly memory is a very important factor in terms of where things go as we head into the first half of 2008.

Thank you.

Our next question comes from Brett Hodess.

Hang on, we're going to answer the second part of the question, sorry.

There was a geographic dimension to the shipments in the second half of the year.

There's not a kind of very strong trends but if I was to communicate anything I would say in the second half, particularly more so in the December quarter, the trend is probably biasing a little strengthening in Japan and a little weakening in Asia, and that's a strengthening or weakening statement relative to the percentages of total systems shipments.

Our next question comes from Brett Hodess from Merrill Lynch.

Steve last week at the analyst meeting you did a great job talking about the new products and the opportunities.

In the past you had given us some sort of objectives you had in terms of shipments and revenue recognition for those, and I know Martin doesn't want to do segment reporting but I was wondering, I didn't catch at the meeting if you had updated sort of the shipments and how much revenues you were going to expect from the new products in the second half of the year if the timing in that was still on track or if it had changed any?

Well, Brett, what we had talked about was that we will have shipped the revenue equivalent of about $80 million worth of new products which includes new products that we actually ship and take revenue, new products that we ship into evaluations, new products that we ship into JDP's and that what we found is that the penetration cycle in 2007 is taking a little bit longer than we anticipated because our products are primarily targeted for the 4X technology node and I think as everybody is aware, a lot of the decisions around 4X technology node decisions are--have been pushing out later into time, and so what we talked about was the pace of our penetrations is on track to what we had wanted to achieve and expect to achieve in 2007 but how many of those shipments actually will turn to P&L reportable revenue is going to be less than what we had originally anticipated, but given that our objective in 2007 is certainly not revenue generation and any of the revenue that occurs from new products has always been factored in as upside to our revenue forecast for the year, we're very pleased with, and we're very focused on continuing to make the kind of progress that we're making into the shipments that represent penetration opportunities and then getting those penetrations converted to acceptances and then getting the production shipment that follow which we would expect will occur primarily in the 2008 time frame relative to the shipments that we're making today, and so we'll comment later on, probably early in 2008 some commentary about how we think our new products are shaping up and what their combined collective contribution to 2008 revenues will be at that time.

The only thing I would add is obviously Steve in his prepared comments made the point that we continue to expect our revenue for the total company to be up 15 to 20 percentage points calendar 2007 over 2006.

Our next question comes from Patrick Ho from Stifel Nicolaus.

Thanks a lot.

Steve, can you describe if you have seen any changes in the order or shipment flow to the foundries, are they being more gradual or are they being, I guess more piece meal or are they ordering or shipping or receiving the shipments in typical fashion?

The foundries have been, and I've kind of looked at this over the last 6 to 8 quarters.

They're up one quarter, down one quarter, up one quarter, down one quarter, and I think a lot of us expected that the shipments into the foundries in the second half of the year were going to be higher than the first half, at least that's what we thought in the January, February time frame.

It now looks like what the foundries did was they accelerated their shipments into the foundries in the June quarter which is creating this weaker shipment posture in the September quarter and then we see that currently the December quarter is stronger and so when I look at capacity utilization that rose in the second quarter, we expect capacity utilization in the foundries to rise again in the third quarter.

All of my discussions with the foundry customers say that they expect that the first quarter of '08 will be a strong quarter when it's typically, seasonally their weakest quarter, so they are relatively optimistic about what the demand profile is going to be for wafers in the first half of '08 and if that's the case, then this uptick in shipments that we see in December has a good opportunity to manifest itself in strong shipments in the first half of '08 as well.

Thank you.

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

Hi, yes, thanks for taking my question.

I just wanted to go over the numbers for the shipment guidance versus your wafer fab equipment growth in 2007, and how that matches up with the new business that you talked about.

You commented it would be up 5% to 7% wafer fab equipment growth and your shipments are up 5% to 10% and you also gained 3 market share percentage points in 2007 and you--on top of that do you add the additional $80 million in shipments and new products?

No, the shipments for new products that we're talking about, there are some shipments for new products that are in that number, but approximately half of the shipments that I've talked about, specifically the shipments that go into [evals], the shipments that go into JDP's we do not include those in our shipment numbers that you hear us talk about.

When those products are accepted by the customer, when they are--then they will be booked and shipped and revenued in the same quarter.

Thank you.

Our next question comes from Mark Fitzgerald from Banc of America.

Thanks, question for Martin here.

If the forecast that Steve has given us is correct here, is there anything from a capital spending point of view or investment in new products that would suggest cash flows are going to change dramatically in the next fiscal year?

This next fiscal year seems a long way to answer that question, but I would say I don't feel super motivated today to convey so many different things than what we talked about in April certainly from that time frame point of view.

We've talked about targeting cash from operations in the 25% of revenues and although I can't speak to that specifically today, I think as a long term strategic target for the Company, that's an appropriate metric for us to focus on, and last quarter, one of the things that I did communicate is relative to our investments in operating expenses, the pace of expansion in operating expenses that we had seen a couple quarters in a row was kind of slowing down and again, although I can't speak to the specifics today, generally that statement is as helpful to you today as it was in April.

Hope that helps you a little bit.

We have time for two more questions.

Thank you.

We have a follow-up question from Timothy Arcuri.

Hi, Steve.

If I look at the shipments, you came in just about at the mid-point of the shipment guidance, but you're saying that there was some foundry pull-ins at the end of the quarter so something else had to have pushed out and so what was that and where did it push to?

Thanks.

Well, what pulled in was not, I mean, we knew at the start of the quarter that there were pull-ins that occurred, and we didn't speak specifically at the April conference call about what the makeup of foundry and the other segments were going to be in the June quarter and what we saw was we knew that in our shipment plan, because by the time we communicated on the conference call, we had already gotten the word from our foundry people that they wanted those things to be pulled in, and what you never know is whether or not what's going to follow it is additional orders and additional requests for deliveries in September, but as it turned out, that was an acceleration, so we had already encountered that but we didn't specifically talk about the fact that our guidance for being up 10% to 15% was a function of this pull and that activity, etc.

So I hope that's somewhat helpful, because when we sit here today, we're three weeks into--even four weeks into our quarter, so we have a pretty good ability to know what's going to happen in the shipment environment and we--while things certainly have the potential to change, it's one of the reasons why we talk about shipments because it's a much more predictable and correlatable event in terms of ultimately looking at what you can expect our revenues to be.

Thank you.

Our final question is a follow-up from Satya Kumar.

Please go ahead.

Yes, a few housekeeping questions actually.

Do you have an estimate as to what your shipments were for calendar '06 by DRAM, NAND, foundry and logic and could you also give me a sense as to how the break up will be in calendar Q3 of this year?

Well, we know what those shipments were and what I will tell you rather than potentially boring some of the people who may not be interested in all of those numbers, I'll give you some generalities.

NAND Flash, as I commented in my commentary, we expect our NAND Flash shipments will be higher in '07 than they were in 06, even though NAND Flash spending will be down 15%.

Our year-over-year for DRAM, as well as other memory will be up about 48% relative to DRAM spending in other memory spending or DRAM spending that's probably up 40%-something, low 40s, but again, indicative of market share gains, and then when we look at logic and others and microprocessor and foundry, and you kind of combine all of that, our shipments will be down in '07 and the spending in those areas, we believe, will be down in '07 and as a function of mix, as it stands right now, we might be down a little bit more in '07 than what the market's doing.

It's kind of hard to say and a lot of it has to do with some of our customers, particularly in the 300 millimeter IDM logic space just aren't spending this year, and some of the spending that is going on in certain segments, microprocessor, I think everybody knows we don't really have any revenue with the biggest microprocessor spending, so those things can affect what happens to our market share and our shipments in those segments without affecting our application market share, and then given that our current view is that memory spending is about 60% of wafer fab equipment, and foundry and logic and MPU is down to 40%, we're still going to have that three market share points gain in '07 because of our very strong and even improving market share in memory.

So with that I'll turn it back over to Carol.

Thank you, everyone, that's all we have time for this afternoon.

I'd like to thank you again for dialing into this afternoon's call.

Ladies and gentlemen, this does conclude the Lam Research June quarter financial results conference call.

You may now disconnect.

Thank you for your participation, and please have a pleasant day.