科林研發 (LRCX) 2008 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by.

Welcome to Lam's September 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 questions.

(OPERATOR INSTRUCTIONS) This conference is being recorded Wednesday, October 10, 2007.

This call is also scheduled to conclude at 3:00 p.m.

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

Please go ahead.

Thank you, operator.

Good afternoon, and welcome to Lam Research Corporation's September 2007 quarterly conference call.

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

Today we will discuss limited financial results for the quarter ended September 23, 2007, and our business outlook for the December 2007 quarter.

A press release detailing our financial results for the September 2007 quarter was distributed by BusinessWire at approximately 1:05 p.m., and is available on our Web site at www.LamResearch.com.

Today's call contains 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 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.

and we ask that you please limit questions to one per firm.

With that, I'll turn the call over to Martin for a review of the September quarter.

Thank you, Carol.

This afternoon, we will discuss our September 2007 quarter financial results.

As we discussed last quarter, our Board of Directors initiated a voluntary independent review of the accounting and reporting related to past company grants of employee stock options.

This review is ongoing, although moving ahead expeditiously, and with due intention to detail.

Accordingly, the determination of any impact to our financial statements, cash or noncash, is currently unknown.

However, company management has taken steps to assess the potential for impact to the discrete September 2007 quarter financials.

Based on current known facts and beliefs, the potential for material changes to the financial results presented today is limited, although theoretically possible.

Our best judgment is to share more information than we reported in June again with due caution that potential for changes exist as a function of concluding the stock options review.

Highlights of today's reported earnings include shipments of $621 million within the range of anticipated, down 11% sequentially.

Revenue of $685 million at the high end of our guidance range, with a reported gross margin of slightly more than 50%.

Strong ongoing operating income performance of 29.4% of revenues, and net cash and short-term investments of more than $1 billion.

Shipments, at $621 million, were down from the all-time company high in June of $694 million.

This reflects the anticipated reduction of shipments to foundry customers, to some extent the function of unanticipated strength in the June quarter previously discussed.

And in addition, the first sequential quarterly reduction of shipments to DRAM customers in a year, as though customers make adjustments to their investment plans consistent with the current DRAM pricing environments.

300 millimeter applications represented approximately 90% of total system shipments, and applications that are less than or equal to the 90 nanometer technology node represent [9.7%].

Memory segment customers in the quarter represented a very strong 85% of total system shipments with the NAND components accounting for approximately 39% of total memory.

Logic/other was 8% and foundry was 7% of the total systems shipments.

Revenue of $685 million was at the high end of our guidance range with gross margin at the quarter sustained above the 50% level.

In addition, with our December quarter guidance, Steve will speak to in a moment, this is consistent with our full-year expectations of year-over-year revenue growth 2007 over 2006 of between 15 and 20%.

Combined with an expectation of 2% year-over-year etched shipment growth in 2007, we believe that this is one of the most illustrative data points to share our market share expansion message.

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

Operating expenses for the company were $146 million in the September quarter.

This includes approximately $3 million of non-ongoing expenses associated with the voluntary stock option review.

As anticipated, the expansion of operating expenses has slowed, although we continue to invest in R&D activities, as well as infrastructure, to support our new product's penetration and qualification plans, consistent with the window of opportunity presented by our targeted customers.

Our total net cash balance, including restricted cash, was slightly more than $1 billion at the end of September.

Inventory performance was 5.7 turns.

Accounts receivable collections performance was exceptional, with DSO at 45 days.

Deferred revenue and deferred profit balances were $226 million and $149 million, respectively, both down in the range of 25 to 30% sequentially.

In addition, there is approximately $62 million of anticipated future revenue value from previously-made shipments to Japanese customers.

In the quarter there was no stock repurchase activity by the company, although we realized the full benefit of June quarter repurchases in September.

Total basic shares outstanding are approximately 124 million at the end of the period.

Our own capital expenditures were $11 million, depreciation and amortization was $12 million, we received $14 million from the exercise of employee XT plans, head counts grew from 2,900 at the end of June to approximately 2,970 at the end of September, with the majority of the increase in R&D and field operations.

Now for Steve's comments.

Thank you, Martin, and good afternoon, everyone.

Lam once again produced very strong operating and financial results in the September quarter.

As you've heard from Martin, we are pleased to be able to share more of these results with you today than was the case last quarter.

The results support our view that Lam continues to perform consistent with the guidance that we've provided.

In particular, I'm pleased with Lam's ability to deliver revenue to the high end of our guided range, even in an environment where shipments were down roughly 11%.

Our financial performance remains strong, as evidenced by the increase in our cash balance to approximately $1.3 billion.

Today I want to focus my discussion on a couple of topics.

First, I will provide some color on our view of the market and customer spending trends as we move toward calendar 2008.

Second, I want to discuss how Lam is progressing from a market share perspective and I'll update you on some successes that give us confidence in our ability to not only consolidate and maintain our recent market share gains, but continue to gain share by penetrating new applications, particularly at the leading edge technology nodes.

Starting with our market outlook, we continue to expect IC unit growth in the 10 to 12% range for calendar 2007 versus 2006, driven by the strong performance unit growth-wise for memory.

We continue to forecast memory unit growth of approximately 27% in calendar 2007, with DRAM units growing 52%, NAND flash units growing 47%, and other memory flat year over year.

Logic, microprocessor, and other I.C.s are still expected to be up in the neighborhood of 8 to 10% year over year on a unit basis.

We also remain comfortable with our outlook for total wafer fab equipment spending, which we anticipate will be up 5 to 7% in 2007 to the $30 billion range.

While the overall environment is consistent with our prior outlooks, we are now seeing a higher mix of memory spending, which should be up approximately 25% for 2007, an increase from our prior view of 16 to 19%.

Spending in foundry and logic is now expected to be down an aggregate 15 to 17% for the year compared to our prior view of down 5 to 7% and microprocessor is expected to be slightly better, down approximately 4% now versus down 7% in our prior forecast.

These changes in the specific spending categories reflect a market environment where customers are adjusting their spending plans in accordance with their near-term views of market opportunities and needs.

Looking at the memory market, specifically, I talked both in this forum and at our analyst day event about how the relative capital intensity in the memory segment is not likely to be sustainable at 50% of revenue as is still forecasted for calendar year 2007.

The current DRAM environment is characterized by persistent ASP declines, which have continued through the September quarter.

DRAM price per bit is now forecasted to decline approximately 48% on average, year over year, versus the historical norm of 30%.

PC OEMs have taken the opportunity presented by declining prices to build higher bit content into their machines in support of conversions to the Vista operating system.

While corporate conversions to Vista are expected to begin accelerating in the first half of next year, when an overall strong underlying IC unit demand environment exists, we believe that a beneficial supply/demand correction is likely to play out over the next two or three quarters in the memory space.

Meanwhile, the NAND market continues to unfold favorably.

Fueled by the accelerating demand for a wide variety of digital consumer electronics products, we believe that NAND flash unit demand in the September quarter was up more than 15% from the June quarter.

Drivers of this activity include increased bit content and high-end MP3 players, as illustrated by the recently-refreshed iPod line featuring configurations of up to 16 gigabytes and demand for flash cards in support of digital photography and video products as well as many new high-end cell phones.

We are now forecasting that NAND flash bit growth will increase by more than 190% and units will increase approximately $800 million in 2007, compared with 2006.

In the foundries, utilization rose to over 90% in the September quarter, up from 87%.

.

The demand has largely been at 90 nanometer and above, with the expected ramp at 65 nanometer coming more slowly than anticipated due to a narrowing of the number of logic device applications that realize a cost and performance benefit from moving to the 65 nanometer technology node.

We do expect that 65 nanometer volume will ramp throughout the next year, driving the need for capacity expansion at that node and for additional capacity to support the initial ramp for 45 nanometer.

Given this market environment, spending for DRAM capacity additions is slowing and expected to decline 24% in the second half of 2007 versus the first half of 2007.

NAND spending for capacity additions is increasing by approximately 44% in the second half of 2007 versus the first half, with overall spending for memory down approximately 7% second half versus first half.

Foundry and logic, wafer fab equipment spending in the second half is forecasted to be down approximately 28% versus the first half and microprocessor spending is now expected to be flat second half versus first half.

As we began to gain visibility into 2008, we can give an initial glimpse of potential customer spending.

Obviously, the duration of the expected supply demand correction in DRAM plays a key role in determining the outlook for memory spending.

Based on our current view of the marketplace, we believe that the first half of 2008 wafer fab equipment spending will begin to trend up relative to spending in the second half of 2007 and spending for the full year 2008 is likely to be flattish with calendar 2007.

Memory spending could potentially be down about 10 to 15% year on year, though foundry, logic, other, and MPU spending in aggregate could increase at a rate that could largely decline the spending.

Factors that will play key roles in the ultimate spending on equipment will include the demand environment for memory in the coming months, which will in large measure be determined by continued growth in computer products driven by Vista conversions and ongoing demand for high memory content personal digital devices, as well as the overall demand for the broad range of other semiconductor intensive consumer digital electronics, such as high definition TVs and game consoles.

Lam's financial performance in this spending environment is expected to remain strong and will be supported by our ability to enhance our leading market share position in Etch at each successive technology node.

Lam is on track to its prior stated target of approximately 49% market share in shipments of Etch products at the end of calendar 2007, a 3 percentage point increase from 2006.

Our share increases are a function of 8 to 9 points of growth in dielectric memory, leading to a greater than 41% share of the overall dielectric market, up 4.5 points or from 2006, and conductor share remaining at greater than 60%, exiting 2007.

Additional validation of our market share gains is supported by our expectation that Lam memory shipments in calendar year 2007 will grow greater than 32%, compared with the expected 24 to 26% growth in wafer fab equipment memory spending.

We expect to continue to increase our share at the 5X and 4X technology nodes as a function of 12 additional application wins, including 8 in the dielectric market, and 4 in the conductor market, offset by 5 losses for the calendar year, 2007.

We expect over time that the net wins will drive additional share and provide us with slightly greater than 50% share in future year depending upon the ultimate customer spending mix in any given year.

Let's now turn to guidance for the December quarter.

Revenue is expected to be in the range of 580 to $600 million, which is consistent with our prior view that revenue for calendar 2007 would be up 15 to 20% over 2006.

We are forecasting gross margins of approximately 49 to 50%, an operating margin of approximately 25%, plus or minus 1%.

Shipments in the December quarter are expected to be down in the range of 5 to 10%, benefiting from some memory pull-ins from early 2008 planned shipments offsetting some of the delayed spending that was expected in foundry as I previously discussed.

Again, this view is consistent with the prior calendar 2007 outlook of shipments increasing 5 to 10% in calendar year 2007 versus 2006.

Before wrapping up, I want to quickly address the board's review of Lam's stock option accounting practices.

As Martin indicated, the independent committee is working through the process as quickly and diligently as possible.

The next event resulting from the review is our NASDAQ hearing, which is scheduled for tomorrow, October 11.

We'll continue to keep you updated as events develop.

In closing, Lam delivered another very strong quarter for the September quarter and our business continues to perform very well.

Our long-term outlook for the wafer fab equipment market remains strong.

We are pleased with our continued market share gains and we continue to make good progress on executing our adjacent market strategy with the introduction of new products that are meeting critical customer challenges.

I would like to thank all of our employees across the Lam organizations worldwide for their continued outstanding contributions to our performance.

We'll now open it up

(OPERATOR INSTRUCTIONS) Our first question comes from Gary Hsueh with CIBC World Markets.

Please go ahead.

Hey, guys.

Good quarter here.

Thanks a lot for taking my question.

A quick question here, looking at your shipment guidance, that would kind of bring your shipment level to roughly around 600, and yet you're guiding revenues below your shipment level.

Normally that doesn't really happen because you do have north of $200 million in deferred revenue.

Can you tell me what's going on particularly in the December quarter?

Why shipments would actually be higher than revenue levels?

We said shipments down 5 to 10%.

So you kind of end up in a very similar range of shipments to revenue, pretty close to a 1 to 1.

I think that what you end up with is a situation where depending upon the customer mix of where your shipments are in a given quarter, in some quarters, you can get a high turns to acceptance because of who the customers are that you're shipping in the middle weeks of the quarter.

With this particular quarter, we have a number of shipments in the middle of our quarter where they're going to customers either where we're doing some new application work or they're customers that historically have a little longer accepted cycle time.

So the ability to ship those, get them started up and get them to revenue is a little bit more of a challenge this quarter.

Steve, you're referring to Japan in particular in the December quarter?

Is that the region, Japan?

Japan tends to be a little longer on their cycle times.

Okay, that makes sense.

Last follow-up question for me, what are you guys seeing in terms of pricing pressure out there?

I know with DRAM pricing being sort of in the pits, there's intensified pressure on pricing from your side.

If you look at your December revenue guidance, you're still holding with a pretty significant revenue drop, your gross margin of 49 to 50%.

Obviously you're not seeing it.

What are you doing to kind of beat that back?

Well, I think while we've talked about pricing pressures and as we've mentioned before, the reality is, the pricing environment is always very tough, very competitive, so it's really no different in spite of the fact that the customer's environment is difficult.

Our ability to keep our margins up is really a function of the business model that we've put in place and we've talked about for a long time is that as our revenues fall off, we're able to get our variable cost factors in the factory out in a very consistent fashion with the decline in revenue and then because we work very closely with our remote factory providers, we really aren't carrying a significant amount of fixed costs that as the revenue drops, it creates period cost inefficiencies.

So our business model really allows us to tolerate significant declines in revenue with minimal or modest declines in gross margin.

Our next question comes from Satya Kumar with Credit Suisse.

Please go ahead.

Hi, Steve.

Thanks for taking my question.

I've got a question on your Q4 shipments.

If I annualized your Q4 shipments, calendar '08, by my math would be down about 8.4%.

Given your belief that CapEx looks flattish and you could gain share and you have new products, my math says your December shipments are running at least $50 million below what you think is normalized shipment levels for calendar '08.

In addition you're saying CapEx is off next year.

So that would seem like you're seeing clearly at least a double digit recovery in orders in December and shipments growing into March?

Is that a correct assessment and can you help me think about why that would be happening given your earlier cautious statements on memory?

Well, I may have confused you and you have successfully confused me because I've made no comments about anything related to the shipment environment for calendar year '08.

The only comments we made was that our shipment guidance for December of '07 is down 5 to 10% and if you take all of our previous shipments, that it's consistent with our statement that shipments would end the year in calendar year '07, up 5 to 10%.

And so maybe there was some confusion in terms of that reference relative to calendar year '07.

No, I guess my question was, you said in '08 you look at a flattish CapEx environment; is that right?

Right.

I talked about a flattish CapEx environment in '08 --

If I take your Q4 shipment guidance and annualize that, relative to your calendar '07 shipment, '08 shipments would be down about 5 to 10%?

Why would you annualize the December shipment guidance?

I said that the shipments were going to start trending up in the first half of '08.

Got it.

I just wanted to make sure that that was a correct assessment.

Yes.

What I said about the shipments trending up in the first half of '08 versus the second half of '07.

That was a correct statement.

Okay.

I just wanted to make sure it's for Lam and it's not for the industry itself?

Well, I'm talking about what Lam is going to do, but now that you've asked it, I believe that spending for equipment will see a similar trend.

That the spending that customers will do in the first half will be higher levels of spending for equipment than in the second half of '07.

Okay.

A question for Martin as a follow-up, how much minimum cash do you need to run the business?

It's a good question and it's one that I've for the last three years successfully avoided answering for a variety of reasons.

Obviously, from an operational point of view, we have a level of performance in the company and a business model that allows us to generate substantially more cash than we are currently investing in R&D and such from an organic growth point of view.

So the technical answer to the question is, not very much.

Obviously, there are kind of liquidity needs for every legal entity around the world, but that's a very administrative answer to the question.

What I tended to do and, I think the cash balance is and the decisions we made, particularly in the March and June quarters this year give you the best frame of reference for answering that question.

We have not taken the cash balance of the company down below $0.5 billion.

That isn't a direct answer to your question, but it's a reasonable data point relative to getting some frame work for modeling going forward.

Our next question comes from Timothy Arcuri with Citigroup.

Please go ahead.

Hi, guys.

A couple things.

Steve, I guess if I look at your guidance, it looks like OpEx has to actually grow on down revenue.

And it seems like you're kind of at a similar revenue to last September.

So September '06.

And the OpEx was about $20 million higher than it was then and it seems like -- it seems like maybe you've moved some of the variability in the model, the COGS looks pretty variable, but it looks like OpEx now is going up and it's kind of more fixed.

So I guess I'm wondering, is there some kind of a structural change there, and is that just going to last for a couple of quarters, or is my mast math wrong?

I think your math is reasonably correct.

We have a lot of variability in our OpEx.

We're choosing not to apply it at this point in time.

Significantly, we have been increasing our investments systematically, quarter over quarter, not only in Etch, but obviously in our new product activities associated with the fact that all of our new products that we've talked about are in penetration modes, which means that they're fundamentally shipping evaluation units, which obviously carry additional cost expense to support those evaluations, along with a number of products that were in unreleased modes, where the material expense activity in R&D were higher than what we would expect to see at some point in time in the future.

So as we go forward, as we monitor what the customer demand environment is, we have significant variability available to us in the OpEx area to drive that down, but we're just currently choosing not to, but you're correct, that's why -- even though our margins are staying up, the operating income is dropping a little bit.

One of the other reasons why we're keeping that operation expense spending up is, I believe that the way that a company optimizes its ability to deliver superior operational and financial performances are the investments that you make during slowdown periods in the cycle.

And as you know, we're very focused on the achievement of our $4 billion revenue objective in 2010.

We believe that we're going to see some stronger spending environments in 2009 versus the environment that we expect for spending in 2008.

We are going to make the investments in infrastructure, both human resource as well as systems and other capital investments in 2008, so that we are going to be well-positioned for accelerated revenue growth as those opportunities are expected to present themselves more in the future.

Okay.

I guess since the OpEx really is key to the new products then, I think, Steve, you said before that you had shipped enough product to revenue $80 million this year for the new products.

So I guess is that still the case?

And what are the metrics you're using to basically evaluate the new products, whether you continue to invest or whether you stop investing?

Our target earlier in the year was to revenue $80 million.

At the analyst event at SEMICON West, we said that we would not be revenuing $80 million, but that we had -- we were going to be shipping into the marketplace the equivalent of $80 million in shipment value, but because the vast majority of those tools are going into evaluations and that the evaluation periods that we're experiencing with customers relative to penetrating for 4X-type technology nodes, that we're not going to be revenuing that much in calendar year '07, and that we would expect our revenue ramp to occur more in the middle of '08 as those eval systems convert to revenue and as we win those evaluation judgments, and that we would be shipping systems that would be for production purposes and they would revenue as soon as they went through a start-up qualification.

So that's the scenario that we're in, and the way that we evaluate the success that we're having is not really a function of how quickly we revenue.

We evaluate it two ways.

One, how many opportunities are we being given by customers who say I want one of your tools to be brought in for an extensive and comprehensive evaluation activity, and two, once that occurs, we measure our success by how many of those evaluations we convert.

So to date we're essentially on track to the penetration rates that we wanted to achieve and we have not had any unsuccessful evaluations where the return of the equipment has occurred.

Our next question comes from Harlan Sur with Morgan Stanley.

Please go ahead.

Great.

Thank you.

Good afternoon and nice job on the quarterly execution.

Steve, as you look at first half '08 WSE spend and your shipments being higher than first half of this year, I'm just wondering what are the segments that are going to be the drivers?

I'm assuming it's going to be primarily NAND and some foundries, but your view would be helpful here.

Harlan, you're talking about what we think the drivers will be for first half spending in 2008?

Yep, exactly.

Okay.

And thank you for your earlier comment.

I think clearly NAND is going to be a major driver as it relates to memory and I expect that DRAM spending will have a multiple quarter decline environment.

How much that decline is and how long that decline is, I think, we're going to see it play out as a function of what the demand environment is, particularly this quarter, so that when we look at excess capacity in DRAM at the end of the year, that's going to say a lot for how fast the rate of additional shipments for DRAM occur in the first half.

I do think that both logic, microprocessor, and foundry are going to be higher in the first half of '08 than what has shipped in and is planned to be shipped in for the second half.

So I think all of the segments will be up with the exception of DRAM.

Your next question comes from Jay Deahna with JPMorgan.

Good afternoon, Steve and Martin.

A couple of questions here.

Based on the completely reported financials through the March quarter, it looks like the bookings peaked in the December quarter around $779 million, and looking at your shipment trends, I think it would be fairly safe to assume that orders declined for the most part in the March, June, and September quarters.

Now, with the expectation for shipments to be up in the first half of '08, one would think that orders would have to be up in the fourth quarter.

Does that logic make sense, generically speaking, and if so, do you view that as some sort of a cyclical turn?

That's the first question.

The second question is, was your cash flow in the September quarter somewhere in the neighborhood of $300 million?

And then I've got a follow-up.

Okay.

So I'll have Martin answer the cash flow question.

Jay, you are always very inventive in how you are always trying to get me to comment on orders.

As all of you know, I don't comment on orders, but certainly if our shipments have been guided down 5 to 10, and that the shipments are going to trend upward in the first half, I think it would be fair to say that there is a cyclical turn that is in fact occurring, and I think our shipment's perspectives would support that.

So Martin, maybe you can comment on the cash flow?

The cash, I'll give you a couple of precise numbers that we did report in June and again today.

We had a gross cash balance in June of 103.1, net 780 and you'll remember we have about $250 million of debt outstanding at June, and that balance is still the debt of the company at the end of the September.

The gross cash balance at the end of September is 127.1, with the $250 debt, that's net of 102.0.

And there really only are three elements to the change of cash in the quarter.

One is the CapEx of $11 million, one of them is the cash coming into the company from equity, which is $14 million, as I stated, and the balance is more or less a statement of cash from the business.

Our next question comes from C.J.

Muse with Lehman Brothers.

Please go ahead.

Yes, good afternoon.

Thanks for taking my question.

Steve, I would love to dig a little deeper on your outlook for flat WFE in 2008.

If I'm assume the memory is down about 10%, and memory running about 65% clip.

That would suggest you view logic/foundry combined growing at least 20% in 2008.

I guess all our checks suggest it would be down.

So I'm curious what gives you the confidence to not only see strength there, but 20%-type strength?

Well, I think that -- it's a good question and I always try to put in some qualifiers, but nobody ever hears them.

Things like, at this point in time, if customers do what they say, it's likely, or the potential, et cetera.

So that's why I've kind of characterized 2008 as flattish.

Flattish, you could read plus or minus 5%, because I think, here we are, it's October, and we're all trying to figure out what's the world going to look like when it's all over in 2008.

The reality is, I think we have a pretty good feel for what the first half will look like, and when I say pretty good, I mean the reality is, we're at that point in the cycle where, as we talked about earlier, I think we're at an inflection point, but you've got -- you've got a lot of customers who are very much taking advantage of the fact that the cycle times in the supply chain are very short and so you see a lot of changes in terms of people saying pull me in, two or three weeks, push me out two to four weeks.

So it's a really fluid and dynamic environment, relative to what's happening between any one quarter.

So I kind of like to talk in terms of trends.

Second half of '07 versus first half of '08.

So while I'm reasonably confident that we are at an inflection point, that we're going to see shipments rise in the first half of '08, what they're going to do in the second half of '08, I think it's all going to be a function of what is the demand environment that customers have experienced in that first half, but more importantly, what is the expectation for the seasonality of the demand environment for the second half of '08.

And if that is a positive environment, then I think that we'll see the CapEx come in flat.

If it's -- if the demands are falling off, then I think we could see CapEx fall.

And if for some reason the demand environment is exceptionally strong, then you could see that 5% increase.

So I'm just trying to give people a perspective that this is the ballpark of where we think wafer fab equipment spending will be, but we're just going to have to see it play out.

Our next question comes from Steve O'Rourke with Deutsche Bank.

Please go ahead.

Thank you.

Good afternoon.

Can you comment about backlog at the end of your fiscal year in June?

Martin, do you have any comments about that you would like to make?

We're going to stay with the commentary of the last quarter.

I think Pelayo asked it then.

That is a audited financial statement data point and I realize that it is a slightly different data point than a revenue item, but we're going to preserve the authenticity of that process and so I'm afraid to say you're going to have to wait on that until the K is filed.

Our next question comes from Jim Covello with Goldman Sachs.

Please go ahead.

Hey, guys.

Thanks so much for taking the question.

Steve, can I just follow up on issue about the '08 outlook.

There are a number of companies now that have come out and provided hard guidance, all of which is down real significantly for 2008, and the other companies that have that haven't provided hard guidance have certainly made implications about declines, whether they're significant or not can be argued, but declines for 2008.

There really isn't anybody out there who's suggesting increases for 2008.

So if you take the hard guidance, the actual formal guidance from the five or six DRAM companies who are down 30 to 50 and the processor companies which are suggested down a little bit and the foundry companies that are suggested down a little bit, I still don't see where you get the flat for the full year.

And I could be missing something and certainly the companies could be changing their minds versus what they previously indicated.

But they have indicated pretty hard numbers so far.

Well, I think that in terms of official guidance, I'm not sure I would have the same opinion in terms of five or six DRAM companies giving official guidance.

Certainly, Micron, because they're fiscal year '07 ended, talked about what they expected to spend in fiscal year '08, and I realize that for Micron, they indicated that their spending would be down, which we've been expecting for a long, long time.

That's not a surprise or a change, because Micron's investment in 2007 was very significant as they got the IMFT activity going.

And so when Micron says, look, we may spend -- although I don't think they specifically broke it out, but it's kind of been calculated that maybe their DRAM investment will be down 50%.

I think that we all ought to recognize that Micron's been very public in stating that their emphasis on a going-forward basis the to increase the percentage of their business in the NAND Flash arena and to have less emphasis on DRAM and so I would expect that their amount of investment into DRAM would in fact decline and in fact would decline more than what other companies would typically do.

So I think it's very -- I don't think it's necessarily appropriate to take the anticipated 50% decline in DRAM spending by Micron and apply that across the board to all of the other DRAM companies.

My conversations that I've had with a number of memory suppliers, some of whom are both DRAM and NAND/Flash is far more supportive of an environment where they intend to maintain their spending in memory in 2008 and I think that all of these things that people say are subject to change, no question, but I think that I don't want to speak for any specific company, but I can tell you that my discussions with most of these guys is that the expected rate of decline in DRAM is not anything close to 50%, it's probably closer to 30% down for DRAM, but that NAND Flash is going to be up very significantly, so that the expected environment for total memory is down, as I said, 10 to 15%.

Now, comments relative to logic and foundry, I mean, we'll see how that plays out.

But I do believe that we've seen a delay in the move to end use customers adopting 65 nanometer devices and I believe that we're going to see that environment change and that's going to cause the foundries to have to go and make kind of a somewhat long-anticipated expansion in their wafer stock capability at 65 nanometer.

So I believe the foundries will spend probably somewhere around a 25% increase in spending in 2008 versus 2007, and I think that microprocessor is likely to be up, given the strength of what we expect to be happening in the PC and server arena, and logic, which has been really investing at a very slow pace, I expect that it could easily be up 20%.

So whether that actually plays out, that's at least our view at this point in time.

Our next question comes from Robert Maire with Needham.

Please go ahead.

Yes.

Two questions.

We had a relatively low point in the Yen/Dollar exchange rate and in past cycles we've seen better performance versus the Japanese companies.

Could you give us your view as to if you've seen any help from the current weak dollar, especially given [Tell] as your competitor?

I realize that a lot of decisions are purely technology-based, but there are others that are certainly price-based.

And though it may be denominated in dollars, it does somewhat limit their ability the discount.

That's the first question.

The second question is, given the precipitous drop we've seen in memory pricing does that accelerate the decision point for memory manufacturers to upgrade their 200-millimeter fabs?

Maybe you could give us your opinion as to where we are currently in the 200-millimeter -- is everybody below marginal or cash costs, or what does that do?

Okay.

I will address the memory segment, but before I do that, I'll have Martin talk to you about what our thoughts are about the yen/dollar exchange rate and how we deal with that.

Martin?

Directly to your question, Robert, it's a really tough question to answer because the fact is we are gaining share against them and articulating how much of that share gain is a function of any advantage that we have on currency versus performance-based advantage is perhaps a thankless task.

Inevitably, there is some commercial benefit for us relative to managing the risk and opportunity and getting predictability in our financial statements, we have still a fairly significant amount of yen-based pricing on systems.

Obviously, a lot of our installed base revenue streams are yen-based and we have a, I would say a very successful hedge program associated with entering an order and locking in a known statement of profitability through a collection of cash.

So we've got, I think, a very balanced statement of currency in the company, generally, in the case of yen, we have a hedge program.

I don't quite know how directly to answer your question.

I, of course, hope that the hypothesis in your question is a legitimate one and hope that the trend in currency in that regard continues to give us favor, but it's a little academic for us to say isolate the gain on market share and try to articulate what it means from a corns currency point of view.

Relative to your question about the pricing environment and the cost to produce memory devices on 200 millimeter, we think that we are at a point where on DRAMs, you're really below the cash cost to produce on 200-millimeter.

So in 2007, we think probably 2 billion of wafer fab equipment was invested in converting 200-millimeter capacity to 300-millimeter.

A lot of it was Micron as they moved aggressively to 300-millimeter and converted some of that production to CMOS sensors and other types of devices.

We also believe that in Taiwan, it's all 300-millimeter on memory.

So in 2008, we expect it's going to be a very strong year to move probably about 130,000 300-millimeter equivalent wafer starts of 200-millimeter production out.

And that means the need to spend about $4.5 billion of wafer fab equipment just to replace that idled 200-millimeter memory output.

So clearly, Hynix, which has a very large 200-millimeter installed base is going to move aggressively to a stronger 300-millimeter position.

Toshiba will take a lot of their remaining 200-millimeter, and that's one of the reasons we see the very strong investment in the Y4 ramp in Yokichi, and then Samsung will continue to reduce their 200-millimeter DRAM.

So I expect a strong conversation here in 2008.

Operator, we have time for two more questions.

Thank you.

Our next question comes from Mark FitzGerald with Banc of America.

Please go ahead.

Thank you very much.

I'm just curious, given the guidance for shipments being up in the first half, would you expect seasonality here given the consumer electronics driven aspects of the chip industry at this point and then kind of a repeat of the 2007 quarterly performance where the second half of '08 is down significantly, because all the spending's concentrated in the first half?

No, I don't think, Mark, that we -- the industry is not yet really that kind of squared away in terms of those kind of consistent spending patterns.

Because I think that we've seen situations where second halves of years have been stronger than first half of years.

I do think that what you really have in terms of a first half of '08 being likely up from the second half of '07 is largely a function of the fact that DRAM spending has begun its decline.

The foundries have been really modestly investing and we're down half over half.

And so when I say say -- that the spending is up, I don't think that the spending is up dramatically, I think it's just -- it's trending up and it's moving upwards and if you're going end to the year flat, if you look at the trend of a big first half '06 and a weaker second half '06, if you have a slightly up first half -- I'm sorry, yes -- I'm sorry, '07.

If you have a slightly up first half '08, you can have a slightly up second half of '08 and you would kind end the year flattish as a function of that.

So I think what'll happen is if the demand environment is weak, then the second half of '08 will tend to be weak.

But if the demand environment is as expected or strong, then you will see in the middle of the year, you'll see the investment for capital expansion go up.

Our final question comes from Tim Summers with Stanford Group.

Please go ahead.

Thank you.

Just staying on the DRAM topic, Steve, as you look at DRAM spending in '08, do you anticipate it being front-half loaded and some tail off in the second half, or in fact would you expect it to be reversed, stronger second half versus first half?

Well, that's kind of a good question.

I mean, clearly, what we're seeing is that the spending for additional equipment for DRAM is in a downward trend and it's one that I think has been anticipated.

I think it's good, and I think the first half of DRAM will be less spending than the second half of '07 was.

My expectation is that we'll see that at least flatten out and it's likely that DRAM spending in the second half of '08 will be stronger.

But again, spending a lot of time in October of 2007 trying to speculate on what the second half of '08 is, I'm not sure how useful an exercise that is.

Operator, we have time for maybe one more question and then we'll close the call.

Thank you, sir.

Our last question comes from Ben Pang with Caris & Company.

Please go ahead.

Thanks for taking my question.

Under the capital spending scenario that you proposed in 2008, where logic and other are up and memory -- net memory is down, can Lam Research still gain share?

And how much of that would be due to the new product -- products?

Well, I mean, there's two aspects of that.

One, if we talk about gaining share in the wafer fab equipment market, clearly every dollar that we ship into a non-Etch market is a gain in market share for us.

I don't think that's necessarily going to be significant and we'll talk more about what we expect our new products to do in 2008 in the January conference call.

But as it relates to Etch, we expect as a function of the market share application wins that I talked about in my prepared comments, that we have the ability to pick up a couple of more market share points.

At certain points in 2008, it's going to be a function of mix, because in any given year, depending upon who's spending, that can affect things, but if the logic/foundry arena goes up, our market share in logic and foundry is very similar, if not the same, as our market share in memory.

So as foundry/logic becomes a greater percentage, it will not be a drag on our market share and it may in fact, depending upon how well we do with some other application win opportunities, could very well be additive to it.

But at a minimum, we'll be able to hold share, because it's a very balanced share between memory and logic foundry.

We'd like to thank you all for joining us today.

There will be a replay of this call available on our Web site from 5:00 p.m.

and that will remain posted for 90 days.

This concludes our call.

Ladies and gentlemen, this does conclude Lam's September quarter financial results conference call.

You may now disconnect, and we thank you for using AT&T Teleconferencing.