科林研發 (LRCX) 2008 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the December quarter 2007 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 today, January 24, 2008.

I would now like to turn the conference over to Carol Raeburn, Senior Director of Investor Relations.

Please go ahead, ma'am.

Thank you, operator.

Good afternoon and welcome to Lam Research Corporation's December 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 December 23, 2007, and our business outlook for the March 2008 quarter.

The press release detailing our financial results for the December 2007 quarter was distributed by Business Wire at approximately 1:05 p.m.

and is available on our website 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 21, 2006.

This call is scheduled to last until 2:30 p.m.

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

With that, I will turn the call over to Martin for a review of the December quarter.

Thank you, Carol.

This afternoon we will provide a brief synopsis of full-year performance, discuss our December 2007 quarter financial results, and then present some perspective related to the options review and the intended acquisition of SEZ.

Highlights of the 2007 calendar year.

We increased the cash balance of the Company before stock repurchase and debt repayments by approximately $710 million representing 27% of revenues while at the same time funding our adjacent market growth strategy.

Our shift, market share expansion delivered revenue growth of 19% and shipments growth of 8% against a scenario we presented earlier in the year of 15 to 20% revenue growth and 5 to 10% shipments growth calendar year 2007 over 2006.

We executed our plan in the first half of the year to return excess cash to shareholders repurchasing 19.7 million shares.

Highlights of today's reported earnings in the December 2007 quarter include shipments of $593 million, slightly above our guidance range, down 4% sequentially, revenues of $610 million, with a reported gross margin of 50.4% of revenues, and ongoing operating income performance of 27.5% of revenues, all exceeding our previously communicated expectations.

Gross cash and short-term investments were $1.3 billion.

Turning to the specifics, 300-millimeter applications represented approximately 85% of total Etch shipments systems and applications at less than or equal to the 90 nanometer technology node represented 90%.

Memory segment customers in the quarter represented a very strong 80% of total Etch system shipments, with the NAND components accounting for approximately 41% of total memory.

Logic/other was 14% and Foundry was 6% of the total.

Our December quarter ongoing operating income of 27.5% was stronger than the 25% guided because revenues were slightly stronger predominantly in memory.

In addition to this volume benefit, the combination of more favorable mix, the one-time benefit of selling some noncore intellectual property, some run rate benefits on system warranty and installed base performance reserves together contributed approximately 1 percentage point to gross margin and more than 1 percentage point to operating income versus our guidance.

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

Ongoing operating expenses for the Company were $140 million in the December quarter as we continue to invest to support our Etch and adjacent market growth plans.

Our total net cash balance including stricter cash was slightly more than $1 billion at the end of December.

Accounts receivable, collections performance, had a DSO of 66 days.

The deferred revenue balance was $230 million, up by 2% sequentially.

In addition, there is approximately $41 million of anticipated future revenue value of our previously made shipments to Japanese customers.

In the quarter, there was no stock repurchase activity by the Company.

The total shares outstanding, which is intended to be a reasonable proxy for our basic share count, was approximately 125 million shares at the end of the period.

Our own capital expenditures were $24 million, depreciation and amortization was $11 million.

We received $3 million from the exercise of employee equity plan.

Headcounts was more or less constant at slightly less than 3,000 employees at the end of December.

The stock option review continues to move ahead, and in that context, you will remember we concluded and reported to you a financial statement non reliance determination just before the holidays.

In the near term we have important meetings scheduled with our special committee the and our Board of Directors.

Accordingly, our current plan is to provide an update in a couple weeks from now on our expectations for getting current with filings.

We incurred a further $6 million in costs associated with this review in the December quarter and expect an additional $3 million in the March 2008 quarter.

Related to our intended acquisition of SEZ we received approval for the transaction from the Swiss Takeover Board in early January.

The competitive bid window closes in February, in early February.

We are targeting deal closing in early March.

According to these assumptions we will be consolidating less than one month of SEZ performance in our March quarter financials.

Because the initial tender period is still open and the terms of the transactions are still outstanding we are not incorporating any SEZ financials in our guidance today.

Included in our limited financial statements presentation today, however, specifically in other income and expense, we incurred a non-operating mark to market expense of $7 million related to hedging the Swiss franc purchase price of the acquisition at a cash cost of $10 million.

Due to currency movements through the end of the December quarter the U.S.

dollar acquisition price had reduced by $14 million from our deal announcement number.

In addition, and associated with the acquisition in the coming weeks we plan to repay our $250 million offshore debt and borrow $250 million in domestic debt simply to facilitate having cash in the (inaudible) jurisdiction for the purchase.

As we stated previously, we are targeting that the acquisition be marginally accretive to earnings in the first year.

Now to Steve's comments.

Thank you, Martin, and good afternoon, everyone.

As Martin indicated Lam finished 2007 on a strong note marked by better than forecasted revenue and shipments, strong cash generation, and continued demonstration of our ability to win and retain market share in Etch.

We produced record calendar year revenue of $2.62 billion, up 19% over calendar year 2006, and based on our preliminary internal assessment we ended 2007 with a 48.5% shipment based market share in Etch up from around 46% in calendar year '06.

This performance represents significant progress toward achieving our objective to build Lam into a $4 billion revenue Company by the 2010 time frame.

We believe that target is achievable, not only as a function of our continued leadership in share expansion in the Etch market but also the progress we are making with our strategy to leverage our technology, knowledge, and capability space to expand into markets adjacent to Etch.

2007 was an important year for the Company as we released three new products to market.

Our 2300 Motif patterning tool, our 2300 Coronus bevel cleaner, and our new single wafer linear wet clean tool all of which are receiving very positive customer reception.

We also shipped our first 3-DIC tool named Syndion into JDP with a leading edge memory company and expect to ship Syndion tools into additional JDPs throughout 2008.

Our analysis of trends in semiconductor manufacturing indicate that single wafer wet cleans are becoming increasingly critical processing steps necessary to achieve successful production of leading edge memory and logic integrated circuits.

Our adjacency in Etch makes the clean segment a key target for us and now is an opportune time to increase our presence in this market.

On December 11, 2007, we announced our intent to acquire the SEZ group.

We believe that the growth opportunities in single wafer wet clean and bevel clean applications are greater than for the wafer fab equipment industry as a whole and together Lam and SEZ have the opportunity to establish a world-class leadership position in terms of technology differentiation, market share, and profitability in the clean segment.

We are investing in a great opportunity to leverage our existing Etch technical knowledge base, along with our confined chemical cleaning capabilities with the advanced high-productivity products from SEZ in order to provide the broadest and most comprehensive subpoena superior Etch, strip, and clean solutions to meet our customers increasing productivity and yield challenges.

SEZ with its proprietary spin processor, wafer cleaning technology, has a broad technology based solution portfolio and the largest installed base globally in the single-wafer segment.

This segment is one that we think will represent a SAM of over $1.2 billion for the combined companies by 2010.

In short, Lam and SEZ make for a unique combination of established market share leadership combined with complementary leading edge technologies providing high potential for an attractive return profile and additional contributions to Lam's strong cash generation capability.

Turning to the overall industry environment, it is clear that everyone's focus is around the current stage of the cycle, how that relates to expectations of customer spending for wafer fab equipment in 2008.

Since we last spoke the U.S.

economic landscape has altered considerably, and there is general uncertainty globally around key economic drivers.

While current signs still point to relatively healthy growth in IC unit demand for 2008 we expect that profitability issues in the semiconductor industry will limit the rate of additional capacity expansion until IC unit supply and demand is brought back into balance.

In DRAM, pricing continued to decline throughout the last quarter and may at last be beginning to stabilize at its current low levels.

Bit content in PCs continues to increase as PC makers capitalize on the low price environment.

However, excess supply has driven DRAM pricing to levels below what is necessary for many DRAM manufacturers to support future investment, and we don't expect that this environment will change much through the first half of the year.

Over the past year, we have seen very significant capacity expansion in DRAM, resulting in an excess supply relative to demand of approximately 80,000 to 100,000 wafer starts per month by the middle of 2007, and even though in the second half of 2007 we saw roughly a 20% reduction in the rate of new capacity investment, relative to the first half of 2007, it is believed that the industry exited the year with approximately 50,000 to 70,000 wafer starts per month of excess capacity relative to the real demand.

As a result, pricing declines continued through calendar year end which led to accelerated and significant operating losses for many memory companies.

We are forecasting roughly 20 to 25% unit growth for DRAM in 2008, and with the currently expected 40% additional reduction in capacity additions in the first half of 2008, versus the second half of 2007, we expect the supply and demand balance to improve significantly in the second half of the year.

Comparatively, pricing in the NAND market reflects a more balanced supply and demand environment exiting 2007.

While NAND pricing is following its typical early year pricing decline due to the seasonal nature of the segment we expect this relatively healthier supply/demand balance to remain in place in 2008.

We think capacity expansion activity in NAND in the first half of 2008 should be roughly flat with the second half of 2007 which was a strong period of expansion relative to the first half of last year.

This expected capacity expansion activity is supported by forecasted NAND unit growth of greater than 40% for calendar year 2008 driven by demand factors such as growth of multimedia phones, migration to higher density MP3 players, et cetera.

We are also seeing the emergence of solid state drives in the upper end of the notebook market and as the performance and weight benefits of products incorporating SSD become clear the notebook industry's move to this technology should accelerate.

We continue to take a positive long-term view of market drivers in foundry which we believe is nearing the end of a CapEx holiday.

Delays in anticipated foundry spending have been caused by the foundry's ability to meet increased IC unit demand with existing underutilized capacity.

Foundries exited 2007 running at about 93% capacity which is well above normal seasonal trends and the current outlook for growth in wafer starts suggests that foundry utilization could be approaching 100% by the second half of 2008.

We think this makes investment in new capacity additions inevitable.

However, the taming of new investment is uncertain due to short lead times in the supply chain for wafer fab equipment.

Looking ahead, we anticipate that further growth in foundry and investment could result from the increasing trend in outsourcing by logic IDMs as well as portions of the NOR market over the next several years.

The current economic and market uncertainty combined with industry supply and demand fundamentals clearly point to a decline in wafer fab equipment spending in 2008.

The question is how much.

We're probably looking at an annual decline of at least 10% compared to 2007, and that could range up to 15%, depending upon how the global economic situation unfolds, and how that impacts consumer demand.

We have stated on several occasions that lead times in our business are becoming increasingly short and our customers now have the ability to adjust quickly to changing market conditions.

This limits visibility in a volatile economic environment and makes it difficult to provide specificity around the longer term investment plans of our customers.

With respect to our outlook for Lam Research, I'll focus my commentary on the March quarter and share some perspectives on first half of the calendar year.

We expect revenue for the March quarter to be in the range of 600 million to $620 million compared with the December quarter.

We anticipate our shipments will be in the range of flat to up 5%, relative to December, and within that shipment forecast is an expectation that our NAND shipment growth will largely offset weakness in DRAM and while foundries should show an increase in wafer fab equipment spending relative to second half 2007, we now expect shipments for the first half of calendar 2008 to be flattish relative to the second half of calendar 2007, and revenues should follow a similar trend.

Gross margins are expected to be approximately 47.5%, plus or minus a percentage point in the March quarter, owing to customer mix impact relative to our December quarter acceptances, as well as some near-term pricing pressure from customers who are facing significant profitability challenges and continued pricing pressure in spares and consumables as customers strive to lower operating costs in their fabs.

On the operating expense line we have a typical seasonal acceleration of employee benefits and related payroll tax expenses that the new calendar year brings as well as the timing of certain investments we are making in R&D.

These factors taken together suggest that operating profit will be approximately 24% of revenue, plus or minus a percentage point.

Many of the factors affecting our outlook for gross and operating margins are unique to the March quarter or portions of the first half of the year.

As the year progresses we expect gross margins to begin to trend back up to approach more typical levels and operating margins to improve by a point or two.

As mentioned earlier, we anticipate that the June quarter will be the first fully consolidated quarter, including the results of the SEZ group.

Therefore, we would expect to provide more color around how SEZ fits into our P&L and our outlook for Lam in total on our March quarter conference call.

In closing, I continue to be pleased with Lam's operational and financial performance.

In calendar year 2007 we achieved new records for the Company in terms of shipments, revenue, and Etch market share.

This exceptional performance is a function of our demonstrated production proven technologies and our commitment to be fast to customer solutions.

In 2008 we plan to continue to strengthen and grow our leading market share position in Etch, accelerate our activities associated with successfully penetrating adjacent new markets, and effectively integrate SEZ into the Company.

As always, I want to extend my appreciation and thanks to Lam's employees around the world who continue to demonstrate the willingness and ability to meet the ever increasing needs of our customers in ways that continue to set the standard of excellence in our industry.

Now we'll open the call for questions.

Thank you, sir.

We will now begin the question-and-answer session.

(OPERATOR INSTRUCTIONS) And as a reminder, please limit your questions to one question only and requeue for a follow-up question.

Please stand by for our first question.

Our first question comes from Satya Kumar with Credit Suisse.

It sounded like you were noticing a pretty different sort of environment in the pricing in flat shipments yet operating margins are down almost 250 basis points.

Is there more to the pricing equation than just the customer's profitability?

Is there any changes that you're seeing on the competitive environment?

I think that as Martin had talked about, while we came in at 50.4%, on a normalized basis without some of the extraordinary one-time activities, it was closer to 49%.

So at 47.5, it's down another 1.5 points, and there's no question that when you get into downturn type environments, there's a combination of competitive pricing pressures, there's a combination of customer profitability pricing pressure, and there's a combination of spare parts and service and consumables pricing pressure.

So I think that there's an element of that that's present in the 47.5 margin guidance, but there's also a very prominent mix issue for us in the March quarter where we have a very heavy concentration of shipments to one particular customer, and that's contributing to some of the margin pressure as well.

Our next question comes from C.J.

Muse from Lehman Brothers.

Please go ahead.

Yes, good afternoon.

Was hoping to sneak in two, if I may.

I guess first question, in terms of your outlook now for CapEx down 10 to 15% what kind of assumption are you making there on the NAND front considering that we are beginning to see some signs of push-outs on that front?

Then I guess, secondly, just to follow-up on the pricing pressure question, you did mention that one-time customer affecting March, and within the guidance you talked about a recovery in the June and beyond type time frame.

What gives you the confidence, aside from that one-time customer issue, that that pricing pressure will only be a short-term issue?

Thank you.

Is will talk about the NAND aspect of things, and Martin will comment about what we see going forward relative to margins.

And so clearly when you look at what's going on in the industry, you have both activity in the near term that has resulted in customers changing what their planned deliveries were for the first half of the year, largely in DRAM, but also, as you point out, in NAND.

I think the issue is though, that when you look at the still planned investment in NAND, that it's -- at one time it was probably going to be up in the first half of '08 versus where we were in the second half of '07.

Now it's kind of flattish.

But I think it's important to recognize that what's happened in NAND is that when you look at the second half of '07, the second half of '07 was a significant increase in NAND investment, and so for the first half of '08 to be flat, I think that's a good indication that there's still a need for additional capacity investment, and there's still anticipated strong unit growth for NAND.

In our case we forecast about 40%.

So I'll have Martin talk about the margins.

So on the margin, I think Steve kind of delivered the headline.

Certainly in the progression or the regression of gross margin percentages December to March it is almost exclusively a mix story.

And I have to say my tenure in the Company we have not seen the type of mix impacting gross margins that we see here.

So it really is customer mix story and mix is everything, as you know, when you have a business that has 20 significant customers plus or minus five or ten, the mix of business and mix of products they choose to purchase really do define the economics of the Company.

Our current expectation, based on the view we just talked about, and based on the mix that we are approximating today is that the gross margin pressure that we are describing on our guidance for March is a more of an aberration of one quarter, but at the end of the day, until we really see the mix that prevails in the quarter of June and beyond, it's difficult to be absolutely precise about that comment.

But that will be the general impression that we would have and communicate today.

Our next question comes from Harlan Sur from Morgan Stanley.

Nice job on the quarterly execution, guys.

So, Steve, back in the October call you expected 12 application wins for all of 2007.

Maybe you can update us on those numbers with the year behind us?

Then really quick follow-up, does the downward revision in your WFE spend outlook this year change your 2010 assumption for $4 billion in revenues for Lam?

Okay.

Let's talk about application wins and losses.

From a segment standpoint, in dielectric, we had a 16 new net application wins in the year in memory.

We had three more dielectric net wins in foundry, and we had two losses relative to our PTOR position in the logic space.

So our overall net for dielectric wins were 17, and in conductor, we had 11 new net wins and the -- we had a couple of losses in metal, which we had talked about before, where we decided to walk away from some business because of pricing aspects.

For the overall perspective, it's about 5 percentage points of market share gain in dielectric, and essentially, that puts us in a dead heat with Tokyo Electron, which has historically been for many many years the dielectric market share leader, and we calculate that both of us are sitting at about 41% for dielectric.

Our market share in silicon for the year was essentially flat at about 59%, and we lost a little bit of market share in metal but we still control more than 61% of that.

So overall, our market share for the year at 48.5, and I think when you look at those application wins, it would have been even stronger, but the mix, in terms of where customers spent money in 2007 actually had a slight negative drag on our overall ship market share, but these things kind of -- you're better one year, you're a little bit less in the other year, but overall, we still have been able to grow share at the next technology node, where we currently are at 50% on the 65 nanometer node.

So talking about our ability and the potential impact of what's going on with WFE in 2008 relative to what's going to happen in 2010, we still believe that the long-term secular trend for IC unit growth both in memory, logic, and the resultant demand on foundries, is going to require that there's a significant amount of additional spending for wafer fab equipment.

We think that the low end of that range is probably somewhere in 124 billion to $134 billion needed to be spent from 2007 to 2010.

So if we spent 31 in 2007 we need to spend another 103 to maybe as low as 93, 94, and if we're down 10, 15%, so let's be conservative and say we're down 15%, so we spend maybe 27 in wafer fab equipment, which I think is down about 14, then what it says is we still need to spend somewhere around 70 billion to $75 billion in wafer fab equipment in 2009 and 2010.

I think that in order for us to get the $4 billion we would look to see wafer fab equipment market, somewhere in the 38 billion to $40 billion range in 2010.

And if that's the case, I think with our Etch market share projections, with our expectations for the additional revenues that we will generate out of our adjacent market expansion strategy, that we still believe that it's very likely that we will achieve the $4 billion target in 2010.

Our next question comes from Patrick Ho of Stifel Nicolaus.

I've got one quick housekeeping question, and then a question for Steve.

I don't know if you can give out this information, given the ongoing investigation, but the cash flow from operations in the quarter, and you've discussed in the past that you expected to ship $80 million worth of your new products.

Can you give us a status of the revenue timing of that?

And does the impact of these new products being recognized as revenue have any impact on the margins in terms of the mix that you were talking about?

I'm take at least two-thirds of that question.

Relative to cash from operations as your question hypothesized, I cannot directly answer the question.

But what I tried to do, Patrick, is kind of at least characterize for you the elements of kind of cash to the Company, and so in the December quarter the cash balance of the Company was essentially kind of neutral, and there really wasn't any kind of capital finance activity in terms of stock repurchase or cash coming in on options exercise.

There's a little bit, but essentially it was a neutral cash story which implies, therefore, a fairly neutral operational performance, but I can't be specific about the number.

And one of the most obvious reasons for that is the extremely strong performance in the September and June quarter.

In June we reported, I recall, over $280 million of cash from operations.

I have the same reporting challenge in September as I have in December, but again, the cash balance of the Company increased in the September quarter by more than $200 million.

So you've got, again, in the context of where we try and set our objectives on cash, if I take out, as I did in my commentary earlier today, the impact of stock repurchase and the impact of debt repayment in the full year, that cash number represents about 27% of revenues.

Relative to kind of the revenue elements on new product, I wasn't sure if your question was a 2007 question or 2008.

What I would say, presuming it's a 2008 question, is that we obviously are targeting revenues in the 2008 time frame.

We have not unless Steve chooses to in a second here, we haven't been specific about that yet.

I would say relative to the margin element of new products, we've been fairly specific about our targeting ambition, so we've kind of said we are targeting in the range of 40 to 45% margins, four new products in our first year.

I would say in general we're probably biasing much closer to our Etch performance and so I don't think from a Corporate financial point of view there's any impactful story on gross margins for new products.

I think in addition, you asked about the $80 million in new product equipment shipments.

In terms of the total products that we put out we were right around that number.

The timing of how those shipments ultimately convert to revenue is they play out at different points in time, some have already been taken to revenue, most by far occur in the first couple to three-quarters.

As we go forward in '08, we'll speak more to some of the specifics around what's happening in the new products, but primarily from a margin standpoint, what Martin said is right and there's a couple reasons for that.

One, what we're providing, in particular relative to our bevel cleaning product and in our Motif patterning tool is a set of capabilities that are very much targeted at enhancing customer yield issues.

In the case of our Motif patterning tool we're really talking about helping customers with their very significant lithography patterning issues, so these products bring very significant value added result capability for the customer, and so, therefore, the margins that are being achieved by these products are consistent with the margins that we typically generate in the Etch business, and then clearly as we go forward in 2008 and we integrate SEZ into what we do and we begin to increase the volumes of our C3 cleaner, we'll clearly be operating in an arena that for most of the players, the margins are lower than what we operate to, and clearly one of the things that we're going to focus on is where are the opportunities for us to look at bringing some cost efficiency, some productivity capabilities, as well as how can we bring some differentiated yield enhancement capability into the critical clean applications, and deliver products over time that have an improving margin profile in clean.

Our next call comes from Jim Covello of Goldman Sachs.

Good afternoon.

Thanks for taking the question.

Steve, question is just around DRAM and really if we think we're through the worst of the capacity add, so that we can set up for a better second half of the year?

And, I think that -- I don't want to put words in your mouth, but that certainly seems to be your point of view.

But if I look at CapEx as a percent of revenue and DRAM on a quarterly basis we're pretty much at the highs of the cycle, almost, in Q1 of '08 which would imply that we're still bringing on a whole bunch of supply right now.

Is that consistent with your analysis or where do you think I could be wrong about that and what do you think that could otherwise imply about the second half?

Well, when I look at what is going on relative to the rate of shipments into DRAM, in the second half of '07, that declined by 20%, and we're going to see an additional 40% decline in shipments into DRAM in the first half of '08.

And so I think that the capital intensity is coming down significantly.

I think we're expecting that capital intensity for memory as a whole will probably end up at 37.5 if you exclude NAND it's probably going to drop down to probably somewhere close to 28, 30%-type range.

And so we see DRAM capital intensity really dropping dramatically.

And when we look at the calculations where you say there were 4.2 million units of DRAM added in terms of output in 2007, we're now looking at having that output, which we think is going to grow between 20 and 25%, will be another 2.8 billion DRAM units.

Well, that's a decline of about 33% in unit growth relative to the amount of units that were outputted in 2007.

And so if we get a commensurate reduction in capacity coming on line, which we believe is about 34, 35%, and you have a reduction in the rate of unit growth output by about 33%, that's what gives us confidence that by the middle of the year we should see DRAM supply and demand be back in balance or very close to being back in balance.

Thank you.

Our next question comes from Gary Hsueh.

I just have trouble understanding the guidance here.

You're heading into a year where wafer fab equipment spending is down 10 to 15 but Steve you're bullishly guiding revenues, half or half at least in the first half of '08 flat versus the second half '07.

Is it -- what gives you the confidence there that we could see a mirror image in terms of revenue in the June quarter as we saw in the September quarter last year?

We're talking about basically 615, 620 in shipments, and a whopping 4685 million in revenue.

Did I get that wrong or is there -- help me understand that?

Well, I think that, I mean, there's a 10 to 15% decline for the industry in wafer fab equipment, then you have to go and correlate, well, what is that going to mean for Lam?

So let's talk about that a little bit.

One is, we expect in 2008, that we're going to pick up another couple points of market share.

And certainly if the market declines by approximately 13 or 15%, picking up a couple market share points will certainly add somewhere around 70 million, $75 million of additional revenue throughout the year.

We're clearly going to add additional revenue as a function of our new product introductions, and I'm not going to quantify that at this point right now, but certainly that's going to be contributory.

And then you have the customer service business.

Because as long as IC units continue to grow, and as long as wafer start output continues to grow, then our service business, which is dominated by spare parts and consumables, would also service contracts to support the ability to help customers get high utilization and productivity out of the tools, that business is going to grow in 2008 while wafer fab equipment is declining.

So those kind of things help to buoy what's going to happen.

In addition, we have a fairly good deferred revenue backlog, which we're still going to be utilizing, and I would expect over the next two or three-quarters that that might tighten up some or reduce some, and so you will end up with some positive additional flows into revenue over the next couple quarters and the year.

Gary, if I could just add a perhaps semantic comment to Steve's as well, in your question, be sensitive to the fact that when we commented to first half '08, second half '07 as flattish we were describing shipments, and your question segued from that into a revenue statement.

We actually haven't given you a commentary today yet about June revenues.

Thank you.

Our next question comes from -- sorry, our next question comes from Steve O'Rourke from Deutsche Bank.

Steve, over the past several quarters you have given very good rationale as to why you think spending should track forecasts that you give.

Wafer fab equipment forecast has gone from flat last quarter to down 10 to 15%.

Regardless of rationale what gives you confidence that this down 10 to 15% is the last downward revision?

Historically these down turns tend to be rather unpredictable and volatile.

Well, that's a good question, Steve.

I hope I didn't say that when I gave what I said things look like, that I said that I had a lot of confidence in that the market is looking like it's down 10 to 15%, because I think that in that today's volatile economic climate, I don't think any of us should have confidence in really being able to predict what's going to happen, because I think there's multiple forces in play.

One is, what will -- how will this economic situation play out in terms of what does it do to the consumer, which now is about 55% of what causes demand in semiconductors to occur and, we're forecasting that IC unit growth, which at one time we thought was going to be maybe 15 to 16% up, is now probably more likely to be 12 or 13% up, but if the economic situation gets tougher, then it's going to be up 8 or 10%.

And when you combine that with the fact that many segments in this business are not profitable, then you have kind of a combination effect where the number of ICs that are being produced kind of slows down from what it could be.

You've clearly got excess supply in the pipeline relative to demand, and you've got big profitability issues.

So those things are going to put downward pressure.

And you could come up with a scenario where if the economic environment gets a lot worse, we could potentially see that it's more like 15 or even 20% down, but trying to kind of take all things into consideration, I think 10 to 15% is a fairly conservative forecast.

If the economic environment stabilizes or improves a little bit, maybe it won't be 10%.

Maybe it has the potential to be 5.

So all we're trying to do is kind of bracket it, and then as a function of that say, look, for a Company like Lam research, even in this kind of environment, we're going to still generate significant amounts of operating income, we're going to generate significant amounts of operating cash flow, and we're going to do all of that in an environment while we keep investing in our adjacent market expansion strategy, while we go through the process of merging an acquisition into the Company, and that while the near term may be unconcern, may be a difficult environment from the standpoint of total capacity purchases, we think the future is bright, whether that's two or four quarters from now, and we're fortunate to have the economic balance sheet and P&L with which we can continue to invest in technology development, new products for new markets, and pursue the significant growth opportunities that we think are present in the coming years for semiconductor equipment.

Thank you.

Our next question comes from Timothy Arcuri from Citigroup.

Hi, guys.

A couple things.

Steve, I guess when I look at the commentary about the June quarter, it looks like you're basically guiding shipments, if you run through the numbers, June shipments are kind of in the same range, call it, as what the March shipment number is.

So when you look across the last eight quarters,shipments are, with a range of kind of plus or minus 5 or 10%, they're in the low $600 million for a span of roughly eight quarters.

In that time, though, most of your competitors have orders that are down 30 plus, in some cases 40% sequentially.

You don't give orders, but I guess I'm trying to reconcile how the industry is seeing orders down 35, 40% from the peak, and even out into June, your shipments really haven't budged for a span of like eight quarters.

Well, I think, Tim, that probably the thing you can take most away from that is two things.

One, and the most important one, I think, is the primary reason for that is because in spite of what others may say about what their market share is the only way that we can be bucking that trend is because our market share is actually growing, like we say it is.

And the second thing is that, one of the reasons we don't provide bookings guidance is because the reality between what happens in bookings and then ultimately what happens in shipments become very disconnected, and I think there's an element of that going on as well.

And so to us, the true proxy of what's really going on is what people ultimately ship and, you're right, we've had very strong and consistent shipments, and at the end of the day, the story for that is market share.

Thank you.

Our next question comes from [Brett Pera], from Caris and Company.

Brett Pera here for Ben Pang.

I was just wondering if there's a market share target you guys could give us for Etch going into your 2008 revenue assumptions or guidance?

As I commented earlier, we're going to target another couple of points of market share gain in 2008 as it relates to Etch, and then clearly we expect to get additional revenue expansion as a function of our new products going into new markets, our customer service business, and, of course, we think that with the acquisition of SEZ when it's completed and with the accelerated growth of single wafer becoming a bigger and bigger part of the total clean market that there's some real growth opportunities there as well.

Thank you.

We have a follow-up question from Satya Kumar.

Go ahead, please.

Mr.

Kumar, are you there?

Our next question comes from [Chris Sipple] from Blue Line Capital.

Hi, guys.

Could you break out how much revenue of the guidance for the March quarter is from this SEZ group?

None of it.

As I perhaps didn't do a very good job, I tried to articulate that due to the fact that our acquisition is not complete the tender process is ongoing at this time.

None of our financial statement guidance incorporates SEZ.

In reality, if the tender process concludes at the targeted time frame, there is less than appear month's worth of SEZ financials that could technically get into our March quarter.

But none is included in the guidance today.

Operator, we'll take two more callers.

Okay.

Our next question comes from Stephen Chin from UBS.

This is [Jack Bichon] on behalf of Stephen Chin.

Steve, I had a quick question on -- given that you have a good market share in memory and given that your exposure to memory is very strong what do you think the Etch market can grow in 2008 given the backdrop of leading memory customers converting to copper and some 200-millimeter conversions ongoing?

Can you help us out with that number, please?

Well, I think that the memory in calendar year 2008 is going to be a combination of DRAM spending, probably down somewhere around 40%, but NAND flash spending will probably be up about 18%.

NOR flash, which is not an insignificant segment, probably going to be flattish but has the potential to be up.

And so at the end of the day, when you look at the cumulative effect of all of that, you kind of really end up in a situation where overall memory is down about, what is it, 20%?

Overall memory down maybe 25%.

So 20 to 25%, and so I think that what the key is for where we go in the second half of '08 is how well does demand materialize, what's happening in new product activities that may, in fact, stimulate even stronger NAND flash and a resultant trickle-down effect to DRAM.

But I think that for the industry right now, that they just spent the last six months with significantly negative operating profit numbers.

They've got to get supply and demand back in sync.

I think the nice thing about memory is that, with unit growth being as strong as it is, if you end up with strong cut-backs, which we're seeing in DRAM, coupled with strong unit growth, the speed at which you can get supply and demand back in sync is pretty quick, and that's why I'm relatively optimistic that we'll see supply and demand get back in sync somewhere around the middle of '08.

Thank you.

Our next question comes from Steven Pelayo from HSBC.

Steve, just to follow-up on the last one there, what are your expectations now for foundry and logic spending, in your WSE down 10 to 15% assumption?

Then when you look out into the March quarter you had a Etch shipment going to memory.

Where do you think that moved going into the March quarter and do you think foundry that's been running here I guess now at single digits or so percentage, starts to pick up, when would that happen?

Let's talk about foundry and logic a little bit.

I think one of the things that we've all watched very carefully was what was the rate of investment in equipment for foundries in the second half '07, and it was relatively minor, and what we came to understand was that what a number of the foundry companies were doing was really working on driving up their overall utilization levels to much higher than what they normally would before they would reorder.

And so one of the interesting phenomenas in 2007 was that the industry started the year at about 80% utilization, ended the year, or started 2008, at about 93%.

And so what we're seeing now is that the first half of '08 that foundry, that wafer fab equipment shipments into the foundries are going to be up fairly significantly relative to what the shipments were in the second half of '07.

I think somewhere around maybe even 100% plus increase in shipments in the first half versus the second half of '07.

And I think that what that is, is indicative of the fact that with utilization rates running so high, that they're kind of running out of runway in terms of how much longer they can run without having to make investments in additional capacity.

And so I kind of view that for the year overall, that we're likely to see foundries be up somewhere around 25, maybe 30%, and I think that when you look at logic, I think that logic is likely to be relatively flat.

I think that at one point we thought logic was probably going to see some increase investment in 2008, but I think given the economic environment, maybe we'll be a little bit more conservative on that.

And so I would say it's going to be relatively flattish year-over-year.

And then what was the other part of the question that you asked?

Sir, I'd like to now turn the conference call back over to management now for any closing comments.

I think the question was March segmentation for memory.

Okay.

So et let me respond to that last -- the segmentation of memory.

So what you have in March is that the total amount of shipments into memory as a whole is slightly down, not dramatically, but probably somewhere in the 70, 74% range.

And the reason for that is while DRAM is down pretty significant, NAND flash is up pretty significantly.

They're pretty much offsetting each other.

Then other memory, which is SRAM and NOR, et cetera, is down a little bit.

And so I think that what we're seeing is that memory as a whole is down a little bit.

And then you have some strengthening in foundry shipments and you have some weakening in logic shipments, and that's kind of the makeup of the March quarter.

Just to be clear, Stephen, the 74% that Steve gave is the percentage in memory of total Etch shipments in the quarter.

That concludes our call for today.

I would like to thank you for joining us.

Please be advised that our next regularly scheduled quarterly earnings call is set for April 16, and 2:00 p.m.

Pacific time.

I hope you will join us then, and thank you for participating.

Ladies and gentlemen, this concludes the December quarter 2007 financial results conference call.

You may now disconnect.

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