科林研發 (LRCX) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by.

Welcome to the LAM Research Corporation June 2009 quarterly financial results conference call.

(Operator Instructions).

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

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

Please go ahead.

Thank you.

Good afternoon, everyone, and welcome to LAM Research Corporation's quarterly conference call.

Here today are Steve Newberry, President and Chief Executive Officer and Ernie Maddock, LAM's Chief Financial Officer.

Today, we will discuss the financial results for the June 2009 quarter and Steve will share our business outlook for the September quarter before opening up for Q&A.

A press release detailing our financial results for the quarter ended June 28, 2009 was distributed by business wire shortly after 1:00 this afternoon and is available on our website at lamresearch.com.

Today's call contains forward-looking statements, including those relating to our forecasts of shipments, revenues, expenses, margins and earnings per share as well as other statements of the Companies expectations, beliefs and plans.

There are important factors that could cause actual results to differ materially from those described in these forward-looking statements and a list of these factors can be found in the slide package accompanying this conference call and on our most recently filed Form 10-K.

All forward-looking statements are based on information as of today's date and the Company assumes no obligation to update any of them.

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 Ernie for a review of the June quarter results.

Thank you, Carol.

I'm happy to be able to share that we have exceeded or met guidance in all categories for the June quarter.

June quarter shipments were $246 million, meaningfully higher than our guidance range for the quarter, reflecting LAM's ability to respond quickly to unexpected customer demand for leading edge capacity related edge and clean equipment and to an uptick in demand in our install base business.

June quarter shipment levels represent an increase of 55% from the March quarter.

For application and market segment shipment breakout, for the quarter, 300-millimeter applications represent 95% of total systems shipments.

Applications at less than or equal to the 65-nanometer technology node were 93% of system shipments.

During the June quarter, memory segment customers comprise about 48% of the total system shipments and as a subset, the NAND component represents approximately 48% of total memory.

Foundry customers were 34% of system shipments with Logic and other at 18%.

June quarter revenue of $217.8 million exceeded our guidance range and represents a 25% increase from March quarter revenue.

Our clean and Etch systems businesses improved and our install based business also posted higher than forecast revenues due to improvements in our customer's utilization rates and an increase in the number of service contracts.

June quarter ongoing gross margin was 31.1%, within the higher range of our guidance and reflects an increase of 430 basis points over March quarter levels.

The gross margin performance is a result of improved product mix and better absorption from the factory and field related to increased business volume.

Ongoing operating expenses were $114 million for the June quarter, a decrease of approximately $15 million from the March quarter.

Our operating expenses reflect one-time credits in spending reductions of $4 million related to employee benefits, travel, supplies and legal expenses.

We would not expect future quarter spending to benefit from similar credits or spending reductions.

Our ongoing operating loss for the June quarter was $46.6 million, $13.4 million less than the mid-point of our guidance.

Other income and expense was a positive $2.9 million for the quarter and consisted of interest income partially offset by expenses related to balance sheet, currency hedges and interest expense.

Non-ongoing expenses of 18.6 million included 5.4 million for expenses related to our previously announced restructuring plans, a $4.6 million charge related to a legal matter and a $7.2 million non-cash charge related to the finalization of the March quarter of goodwill impairment.

The ongoing tax expense for the quarter was $13.3 million representing a tax rate of negative 30.4% on the operating loss.

And our total tax for the quarter was $26.2 million, and includes a $12.9 million charge related to non-ongoing matters.

As we have previously discussed, our tax structure is optimized for operating profits rather than losses and we expect to have continuing tax expenses in periods of operating loss.

GAAP loss per share was $0.70 and the ongoing loss was $0.45 per share, based upon 126 million shares.

Moving on to our balance sheet, cash and short-term investments, including restricted cash were $758 million, a decrease of $49 million from the March quarter ending balance and reflective of our improved financial performance and focus on minimizing cash expenditures.

Accounts receivable days outstanding increased slightly from 103 days in March to 106 days in June, reflective of the increase in shipment rates and the timing of associated collections.

We anticipate DSO performance to remain at or near this level for the remainder of the calendar year.

Inventory levels decreased by 10%, consistent with the rise in shipment levels resulting in improved inventory turns of 2.6% up from 2.1% in the March quarter.

At the end of June, our deferred revenue balance was $64.7 million, which does not include $13 million related to Japanese shipments and that will be acknowledged as revenue in future quarters.

As June represents our fiscal year end, backlog was $391 million at the end of the June quarter compared to our last disclosed backlog of $410 million as of the June 2008 quarter.

Total capital expenditures were $6 million for the quarter and depreciation and amortization decreased slightly to $18 million.

Employee headcount declined slightly to 2930 employees.

Non-cash expenses included in the June quarter ongoing results, include $13 million for equity compensation and $18 million in depreciation and amortization noted a moment ago.

As previously discussed, we continue to suspend purchases under our $250 million share buyback program on which, approximately 225 million remains.

As we regain sustained positive cash flow levels, the status of the share buyback plan will be revisited.

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

Now, to Steve's comments.

Thank you, Ernie.

Good afternoon everyone and thank you for joining our June conference call.

As you can see from the results we posted for the June quarter, there's a definite improvement in the business environment.

Increased investments are being made for new equipment, as well as upgrades to expand leading edge wafer starts in Foundry, Logic and memory and together with improvements in fab utilization, we are experiencing a strong rebound in shipments and revenue off the depressed levels of the March quarter.

Having said that, we still expect spending on wafer fab equipment for 2009 will be in the range of $10 billion to $11 billion, now biased to the high end of that range.

Back in January, we said a second half improvement in demand for wafer fab equipment would be required to get to that level of spending and at this point in time it appears that's an area that will play out close to what we thought.

Even as memory pricing has improved, over the past few months, our analysis suggests there still remains approximately 20% or 350,000 wafer starts per month of idled memory capacity.

In previous cycles, it has been common practice for our customers to upgrade idled equipment where possible, as a cost effective solution to meeting new technology node output needs at this point in the cycle.

As the current high volume of idled capacity available for remanufacture and upgrade, we anticipate that conversion activity will represent a meaningful revenue opportunity for us over the next few years.

This opportunity is substantial in Etch, where new technology capability is typically required to meet leading edge requirements at the next technology node.

A year or so ago, we established our reliant product group to increase our focus and capabilities on the refurb and upgrades business opportunities we expected to be available in Etch and have now added a clean refurbishment and upgrades business unit to support our customers needs relative to LAM's install base of single wafer cleaners, which is the largest in the world.

In today's Etch market, as our customers utilize available idled equipment and either refurbish or upgrade the equipment, this temporarily reduces the total demand for etch equipment purchases at the leading edge, particularly in memory, by about 45% to 50%.

Once demand accelerates and capacity utilization rises, there is little to available tools for refurbishment or upgrade on the leading edge and most of all leading edge wafer start additions must be filled utilizing new equipment.

Older install base tools cannot be refurbished or upgraded for reuse on the leading edge, but they can be utilized in trailing edge foundries where 300-millimeter tool sets are needed.

We intend to be very active in the used 300-millimeter tool set market as it develops in the coming quarters.

During our recent analyst event, we shared various longer term targets for LAM's market share and financial performance when wafer fab equipment spending once again reaches anticipated levels of $20 billion and $25 billion.

One of these targets was to achieve market share in the mid-30% in single wafer clean.

As we have said many times the market for single wafer clean is growing faster than most segments in wafer fab equipment.

In 2009 we estimate that 3.5% of wafer fab equipment will be spent on single wafer clean equipment and over the next five years or so, we expect spending to rise to around 5% of wafer fab equipment.

LAM's key positions of strength in single wafer clean have historically been in back-end of the line Foundry and Logic and spending for new equipment in those segments has been suppressed over the past 12 months, resulting in temporarily exacerbated reductions in revenue and market share for our equipment.

When new capacity is added in Foundry and Logic, we expect our market share will increase by 4 to 7 percentage points with our current tool of record positions.

In addition, over the next 6 to 18 months, we are targeting numerous application penetrations at existing single wafer customers, as well as at customers who will be introducing single wafer cleaners to their fabs at the current index generation nodes.

Utilizing our strength in Etch and our focus on providing leading edge, technically differentiated solutions to our customers, we expect we'll win a sizeable number of those targeted penetrations, which we expect will add an additional five to seven points of market share in the next few years.

Clearly our targeted market share in the mid-30% requires significant penetration wins, but the opportunity and the customer needs are there and with our history of solid execution, we believe this is a realistic target for us.

In this period of reduced customer spending, we have continued major investment in product portfolios, as we believe they represent a significant growth opportunity when the upturn comes.

We do, however, remain focused on balancing the need to invest in next generation technologies, while carefully managing the cash expenditures of the Company.

Now, moving into the September quarter, our guidance is as follows: shipments of $350 million plus or minus $15 million, revenues of around $290 million plus or minus $15 million, gross margin targeted at 38% plus or minus 2 percentage points and operating loss of $10 million plus or minus $7 million, at a loss per share of approximately negative $0.05 to negative $0.20 a share.

As always, we will continue our focus on serving the needs of our customers by supporting their install base needs, providing cost effective solutions with our reuse and upgrade strategy and winning new tool selections at the next technology node.

With those comments, we will now take your questions.

Thank you.

(Operator Instructions).

Our first question comes from the line of C.J.

Muse with Barclays Capital.

Please go ahead.

Yes, good afternoon.

Thank you for taking my question.

Steve, I thought what you discussed in terms of the (inaudible) capacity is pretty interesting.

I guess as part of that, are you referring solely to 300-millimeter memory capacity and then as part of that, you talked about how the revenue opportunity was roughly half of what it would be if it was new equipment and I guess could you also add to that part of the conversation what the impact is of double patterning and growing the market there for Etch and overall what the revenue dollar could look like?

Yes, when I talk about the idled wafer starts, we're talking about wafer starts.

It's almost exclusively 300-millimeter now, but it is 300-millimeter equivalents, but there's not too much 200-millimeter wafer start and I was talking about memory.

The 45% to 50% down is again referring to memory.

There is some reduction and reuse in non-memory activities, although it's not as extensive because you don't have the same level of idled wafer starts that they want to convert.

Typically what will happen when you see demand rise and the overall utilization in a memory fab goes up, you probably have about 20% reuse and 80% new equipment purchases and that depends on the customer and that depends on how fast they're converting, but we anticipate that in 2009 there will be about 250,000 wafer starts needed at the 5 X and some early 4 X DRAM and somewhere around 150,000 to 175,000 wafer starts of NAND at the 3 X node, and I think the reuse activity in NAND is probably higher than it is in DRAM, but I do anticipate that as we move into 2010 that we'll see that the amount of reuse will start to decline and over the next couple years, we'll start to see that the spending in memory will be 75% or 80% new equipment, so that represents a significant opportunity for increased wafer fab equipment investment.

As it relates to double patterning, clearly you're going to have some additional Etch steps thats factored into how we look at the total size of the market.

We think that if you had to buy all new equipment for 10,000 wafer starts, the Etch spending typically would need to be about $30 million to $35 million for 10,000 wafer starts and you'd have about for single wafer clean, you'd end up with about a third of that or about $10 million to $12 million per 10,000 wafer starts of new equipment capacity.

Thank you.

Our next question comes from the line of Tim Arcuri.

Please go ahead.

Hi, Steve.

I'm just trying to run some numbers here and tell me why this doesn't make sense.

As I look back at the last peak, you were shipping roughly kind of $650 million give or take and it was roughly 75% memory and kind of 25% other, so maybe $490 million memory and like $160 million non-memory.

So, if I simply just take that $490 million memory and just cut in half, as per your comments previously about the upgrades versus the new tools and I just add back that $160 million non-memory, that kind of gets me to $400 million equivalent, given the idle memory wafers out there to what you shipped last peak, so in some ways you're kind of beginning to bump up against what the maximum shipment, the maximum market could be given this 50% hair cut that you're talking about in the memory market.

Can you tell me why that math is or is not right?

Well that $650 million in revenue has about -- 25% of it is customer service business revenue and the numbers that we're talking about relate to just systems revenue, so there's clearly more upside when you look at it from the standpoint of systems revenue.

Thank you.

Our next question comes from the line of Jim Covello with Goldman Sachs.

Please go ahead.

Hi, this is Kate [Kodlarski] for Jim Covello.

I had a couple questions.

One if need be, you could add color within memory, it looks like there might be a pick up in the NAND business sooner maybe than the pick up in the DRAM business.

I was just curious how you'd characterize your conversations with your NAND customers versus your DRAM customers and whether you think the NAND industry might be a bigger driver sort of as we come out of the downturn kind of vis-a-vis the previous upturn?

Thank you.

Well, I think that there's more volume of wafer start additions on the leading edge DRAM being added right now at this time than there is in NAND.

Probably, almost a two-to-one ratio and that's to be expected given the number of units that are produced for DRAM versus for NAND.

Clearly, the leading edge and market share leaders in NAND are investing at cautiously prudent levels, given the flat pricing environment for NAND, but they're clearly expecting to add wafer start capacity output in the third and fourth Quarter of 2009 and depending upon what environment we see from a demand standpoint in 2010, clearly there will be a need for additional investment at a greater level in 2010 for NAND, but the reality is that DRAM is such a big, big business, that the requirement to add leading edge wafer starts in DRAM is expected to be quite significant in 2010.

The issue will be how much of that will be satisfied via reuse and conversions of existing fab capacity versus how much will be needed from new equipment or from purchases of upgrades, and we'll have to see how that plays itself out, but clearly, we expect that both NAND and DRAM are going to be adding more leading edge wafer starts in 2010 than what they're doing in 2009.

Thank you.

Our next question comes from the line of Satya Kumar with Credit Suisse.

Please go ahead.

Thanks, Steve.

Two questions.

What geographies and end markets do you expect to drive growth in Q3?

That's one.

If I annualize the Q3 shipments what do you think that would represent in terms of WSE and lastly, in terms of Q4, how do you think your system shipments are tracking as you look into Q4?

Can you give us a sense of that?

Thanks.

For your first question, which was about Q3, we kind of, I would say that the geographical orientation is obviously significantly Asian oriented and Korea is clearly strong, but Taiwan I think is going to be a little bit stronger in the September quarter than it was in June, but we have to remember that June was a pretty strong quarter for some foundry shipments.

And I think that we're seeing increases in memory investments across a broader basis both in Korea, but also in Japan and as it relates to I'll answer the last question relative to the December quarter.

At this point in time with the lead times as short as they are, that customers are indicating that they will want deliveries of equipment in the December quarter.

That would be similar to the levels that they're asking for in September, potentially a little bit less, potentially a little bit more and the reality that -- I kind of call that the customers hope forecast because they really, they're adding as we talked about, the shipment rates went up pretty good in June.

They are going to go up very strongly in September and what they're going to really want delivered in September is going to be a function of how does the demand environment manifest itself relative to their forecast and I think that as much as we would like to have confidence that December is known.

In my view it's premature and we're just going to have to see how it plays out, but it's clear to me that the customers think that the demand environment that systems that they would ship in December, which would be primarily used to support the middle of the year needs in 2010, they're anticipating that they are going to have a reasonable demand environment, and the second question I'm sorry, I didn't catch it.

Oh, so you're asking Sata if we annualized the Q3 shipments, what would that mean?

So, I think that you would be looking at, we'll have to kind of think about that a little bit.

Probably an environment that's $13 billion $14 billion type of run rate for WFE.

Next question, please?

Our next question comes from the line of Krish Sankar with Banc of America Merrill Lynch.

Yes.

Thanks for taking my question.

I had two questions.

One is in terms of your visibility, you said there's limited visibility.

I'm just trying to see if you can characterize it by foundry, memory and logic in terms of weeks or months and also what percentage actually are selling today are critical dimensions versus others?

Well the limited visibility is not unique to any one segment.

All of the semiconductor manufacturing customers are demand driven, and clearly, where the equipment purchases are occurring, are with those customers who are the leaders in technology, who are the leaders with their customers in terms of providing leading edge demand or they are customers who have a balance sheet that enables them to make the investments at the next technology node and all of those customers are impacted by the macro global economic environment.

All of them are in a situation where we're all fortunate in that because of leading edge demand and because of the semiconductor device performance improvements that occur at the next technology nodes, that they have customers that want to convert and take advantage of the reduction in the cost per bit or the cost per function.

And so the semiconductor guys benefit from the standpoint of typically premium pricing at the leading edge, but none of that can overcome the fundamental macroeconomic demand environment which is 60% consumer driven and when you look at business driven investments, very much impacted by the fact that the consumers are not spending and business profitabilities are suppressed, so the expected PC refresh cycles have been delayed, investments in server capacity have been delayed and so it's not unique to any one segment.

In terms of the percentage of Etch that's critical, as Ernie reported, that 65-nanometer and below we're shipping 93% or 94% of our products, essentially in this kind of environment, there's very little trailing technology types of capacity expansions because the utilization at those technology nodes is running maybe 70% and so what you have is the investments going to leading edge.

Thank you.

Our next question comes from the line of Edwin Mok with Needham & Company.

Please go ahead.

Hi, thanks for taking my question.

Given that you guys are pretty close to breakeven, any update on that in terms of your breakeven model and then just as a quick follow-up, just on your past quarter you guys had memory just being 48% of your revenue.

Do you see that as a new norm for your business going forward or do you expect memory in the coming quarters?

Edwin, I'll take the breakeven question.

So, we have previously talked about P&L breakeven between $300 million and $350 million and certainly we're on track with that sort of bias to the low end of that range, so pretty consistent with what we've previously talked about.

So, in terms of the mix in memory, for LAM, I anticipate that we will see that the total memory will come down somewhat, certainly in 2009 and I would anticipate that over time, we'll see it drift up from the 50% to 60% to probably somewhere around 65% or 70%.

Again, that's in anticipation of expected demand for NAND flash and expected demand for 2 gigabit DRAM DDR III type products.

I think kind of the wildcard will be from the Logic standpoint what's the robustness with which the Logic players will look to add capacity at 32-nanometer and obviously that will also be something to catch very carefully in the foundries, but I don't expect that we would see the 32-nanometer Logic node investments to really accelerate with a few exceptions until mid to late 2010.

Thank you.

Our next question comes from the line of Atif Malik with Morgan Stanley.

Please go ahead.

Hi, thanks for taking my question.

Steve, it sounds like you're a bit more conservative on second half than peers like Novellus and ASML.

How much of that is due to a large micro processor customer and the outlook in second half and you guys have talked about how that large customer depressed your shipments in Q1 so how much of that is that or the mix has kind of caught up now to that deficiency?

I think the mix has improved significantly because we don't have that large micro processor customer we don't tend to look at it all that much, but I think that probably the differences that I'd look at the customer behaviors that have occurred historically over almost 30 years in this industry and I think it's not unusual that customers coming off the bottom are hopeful that the bounce off of the bottom and the inventory correction and that the steady state level of demand that comes out of that will continue to increase and I think that whether that occurs or not is really a function of the macroeconomic environment and maybe part of how I look at things is that I'm very cautious about how quickly the global economies are going to grow and as a function of that how quickly the demand is really going to move forward in the semiconductor world.

And clearly, we have the ability that if it continues to build, we can rapidly deliver to short-term unanticipated demand increases as we commented about doing in June and so we're positioned to deal with any increases in business and we're very well positioned to manage cost in the event that the environment should kind of come up and then stabilize a bit.

Next question, please?

Our next question comes from the line of Steve O'Rourke of Deutsche Bank.

Please go ahead.

Thank you, good afternoon.

Steve, could you give us an idea of the percentage of tool selections that are complete at the 4 X and 3 X nodes and kind of update us on your [PTOR] Windsor progress for some of those critical applications like high (inaudible) metal gates or front end of line cleats?

That's a good question.

It's a difficult one because one of the interesting thing that's occurring in this time frame is if you take the 4 X decisions for DRAM, they're clearly finished for the leading DRAM market share player and they're largely finished for the rest of the DRAM players, but since a number of those aren't really yet ramping their wafer starts there, it gives them an opportunity to change if they so choose.

The 3 X decisions for NAND are made and those will play themselves out over the coming quarters and will begin to increase as a percent of the investments that are made.

In terms of 3 X Logic, certainly the leading micro processor company, has already finalized all of their decisions.

I would say that most of the 3 X decisions in Logic have been made and what that means for us is that in Etch, we're expecting that in 2009 we will pick up three or four market sharepoints.

We expect to pick up another two, three, four points in 2010 as the 4 X nodes really accelerate going forward, as the 3 X nodes accelerate.

And then in clean, I think that part of what our market share situation will be, how big is the rising tide in terms of overall capacity expansion, which we don't really know how that's going to play out in 2010, but certainly from the standpoint of new application wins particularly on the front end of the line as well as some other critical back end of the lines.

We're targeting and expecting that we'll see five to seven market sharepoints play themselves out in the 2010-2011 and then with the rising tide we pick up about another five percentage points where we're already the tool of record, but we need capacity expansion purchases to kind of gain that additional market share back.

Thank you.

Our next question comes from the line of Stephen Chin with UBS.

Please go ahead.

Okay, great.

Thank you.

Steve, I was wondering if you could elaborate more on the shipment rates of some of the clean tools.

Are you modeling shipments to clean tools to increase in line with the September quarter guidance and be up at least 40% sequentially and are some, the strong shipments the foundry customers is that also helping some of the clean tool shipments?

Thanks.

Yes, the clean tool shipments are accelerating.

They are, I'm going to try to find a piece of paper here that will give me what I'm looking for .

I know it's increasing quarter-to-quarter and probably the best way to characterize what we expect to happen in the total single wafer clean market, which for us would be spin clean, our linear clean and our dry bevel clean is that we think the clean market will be down about 35% in 2009 for wafer fab equipment spending versus 2008.

We think the overall wafer fab equipment market is going to be down 46% and so because of the conversions to single wafer, it's not going to be down as much, but the most important point for us is that we expect that our clean business will grow year-over-year about 10% in a market that's declining 35%.

So, that's a clear indication that we're winning market share and we are building our clean shipment outputs as the year

Thank you.

Our next question comes from the line of Ben Pang with Caris & Company.

Please go ahead.

Thank you for taking my question.

First, on the clean, you commented on the segment growth for 2010.

Does that depend on what the actual level of capital spending is?

Yes, I think that when you look at the technology buys that are likely or expected to occur in 2010, that's where we're targeting picking up five to seven market sharepoints with new application wins, which occur at the 4 X and 3 X nodes that we were targeting.

And then the additional 5% which represents existing tool of record positions largely in the back end of the and back side cleaning in Foundry and Logic that we will benefit from that when the overall purchases for capacity expansion occurs in the upturn and again, maybe that occurs in 2010 or maybe that doesn't occur until 2011, but it all depends on what happens to the demand environment in that time frame.

Thank you.

Our next question comes from the line of Gary Hsueh with Oppenheimer & Company.

Please go ahead.

Yes, thank you.

Steve, I think you ducked the question about 2010, just what is your view there in terms of what the overall wafer fab equipment spending environment could be in 2010?

I think you laid out the case here that with shipment levels increasing in September it's about a run rate equivalent to $13 billion to $14 billion CapEx or wafer fab equipment spending environment.

What do we expect here in terms of 2010 and if you don't want to directly answer that, if you could help us frame that for ourselves that would be helpful in your mind.

And second question here for Ernie.

I got the rationale why gross margin improved, but if you look at the revenue level that you performed at above the high end, certainly gross margin didn't come in at the high end so just wondering kind of what sort of held gross margin back and looking at the mid-point for guidance in September, what gives you the confidence we can start tracking back more of a 60% drop through?

Yes, so I think a couple of things Gary.

One, we were kind of in the upper end of our guidance range, so I think the thing that's important and we talked about this before is the fact that at these revenue levels you really have to look at what drove the incremental revenue over and up above the top end of guidance and so if you get a mix between the install base business versus the system shipment business, it's going to tend to moderate the gross margin a little bit and so what you're really looking at net-net is a function of mix in the incremental revenue from the March to June quarter versus the mix that we see going from the June to September quarter.

So, relative to 2010, I think we've all seen various forecasts from a variety of people in the industry anywhere from 2010 should be 20% to 30% up which could mean $13 billion to $14 billion, which would mean that we get up to the shipment levels that we're talking about in September and basically go flat and that would give you about a 20% to 25% increase in wafer fab equipment and there are people that are forecasting that 2010 will be up 50% or 60%.

I don't know what it's going to be and I think it's way too early to tell.

I think that what we want to see is that at a minimum, coming up off this inventory correction bottom that we experienced in March and the rebound in demand in terms of increased shipments in June and our expected increased shipments in September, that it's a sustainable rate of demand that would require that shipments stay at that same level.

I think we'll have to see how that plays itself out and as I said, we're positioned if it maintains the level in September, great.

We'll try to generate the kind of earnings and manage our cash.

If it gets better we'll execute to it and if it gets weaker I think we've positioned our cost structure to where we have plenty of cash on the balance sheet and we'll be able to work our way through, so we're not all that worried and all that focused on what 2010 might be because we think it's just not possible to predict.

Thank you.

Our next question comes from the line of Patrick Ho with Stifel Nicolaus.

Please go ahead.

Thanks a lot.

In terms of what clean business on the margin profile, is that now on a going forward basis heavily dependent on volume or is there still additional restructuring efforts that you can do?

And secondly in terms of the DSOs you mentioned in your prepared remarks are they going to remain at current levels through the end of this calendar year?

What do you see the cash burn in September?

Okay, first relative to the clean business, clearly there is going to be a volume impact to that, a very positive volume impact as factory utilization goes up, our factory utilization has been a significant factor in the gross margin performance at these low shipment levels and we also believe that there is some further work to do relative to the cost side of the equation, both from a product cost level as well as just an operating expense level.

So, I think you're going to see improvement as a function of all three things that you mentioned.

Relative to cash burn in September, we expect that on an ongoing operations basis that we're going to be within $10 million or so of zero and that includes a substantial investment in accounts receivable that we're going to have to make in order to fundamentally support the increased level of shipments that Steve talked about and the DSO performance is really a function of the rate of acceleration of shipments versus the payment terms that are associated with those shipments.

So, you have shipments increasing very rapidly, revenue tends to lag in periods where shipments accelerate very rapidly and that has a drag on overall DSO performance.

And Patrick, I think that if you look at our historical performance relative to DSO being in the 60s and low 70s and now that we're up over 100, clearly a part of it is what Ernie said.

You get this rapid acceleration in shipments, particularly if they're later in the quarter and those are not going to be collected in the period and that will drive DSO.

I think the other factor is that customers clearly are looking for ways in which they can bolster their weak balance sheets with what some of the top equipment suppliers have relative to the strength of our balance sheet and there's no question, just like in all significant downturns that we end up utilizing the strength of our balance sheet and in essence delaying the timing of payments for some of our customers and that contributes to the DSO.

So, the good news is that as we come out of this and as cash flows improve for our customers, we will have an opportunity to see significant positive cash flows occur as the customers start paying faster and the shipments start to smooth out a little bit, that will be very beneficial for the timing of cash flow, as well as for DSO.

Thank you.

Our next question is a follow-up question from the line of Tim Arcuri with Citi.

Please go ahead.

Hi, two more things.

One, Steve, what sort of, of that 350,000 wafers of unutilized memory currently, what portion is being refurbed per quarter?

I'm just trying to figure out how long it will take to chew through that?

Well, it's a function of how many wafer starts they're adding per quarter and so on the leading edge, so if you kind of look at 5 X wafer starts were probably somewhere around 50,000 and by the end of June, they are probably up to 150,000.

And so if you took that 100,000 that they added, probably 50% of that, so 50,000 came from conversions and I think as you go forward, for the rest of this year, we're anticipating that as you move up and add a total for the year of around 250,000 that they will convert about 125,000 of their existing wafer starts from trailing edge to that 5 X and then they will purchase the rest in the form of either new equipment or they will buy upgrade chambers that they will put on their tools.

And so a lot depends on how fast the conversion to 5 X occurs and what the demand levels are for DRAM products and NAND products that are running at the N minus one or even the N minus two node and that's why we say that as demand picks up, they start running those lines because if the pricing moves up, then they can generate cash from those lines and that makes less equipment available to be converted on to a new line and they have to purchase more new equipment.

So we'll see how that plays itself out but at this point in time it's about 50%.

So, we have time for maybe one more question.

All right thank you.

Our next question comes from the line of C.J.

Muse with Barclays Capital.

Please go ahead.

Yes, hi, thanks.

A quick follow-up.

In terms of tax rate for both the September quarter and all of fiscal 2010, can you provide some help there?

Sure.

For the September quarter, we're actually thinking about a tax rate of right around 100% of the operating loss, so it's again a negative tax rate and I think just to put some context around that we talked about the fact that as our operating losses begin to approach zero, the tax rates as long as we're on the south side of zero, the tax rates move astronomically north in terms of the rates and obviously the dollars are going to be much, much smaller.

So, we are modeling a tax rate of about 100% for the September quarter and our view for all of fiscal year 2010 is hovering in that same range as well because as we think about where the profits are going to be generated and the overall level of profitability, we're going to be bumping along that normed line as we think about it right now.

And so, 100% sounds not too good, but since we're targeting our operating loss at $10 million, as Ernie said, it may be 100%, but it's a small number.

Right.

And so we will definitely gain the benefit when we turn profitable, but we'll just have to see when that's going to occur.

All right, I'd like to thank you for joining us today.

Please be advised that the webcast of today's call will be available on our website later this afternoon.

Thank you for your interest in LAM Research and for participating in today's call.

Ladies and gentlemen, this concludes the LAM Research Corporation June 2009 quarterly financial results conference call.

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