科林研發 (LRCX) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by.

Welcome to the Lam Research Corporation March 2010 quarterly 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 call is scheduled to conclude at 3:00 p.m.

Pacific Standard time.

I would now like to turn the conference over to Ms.

Carol Raeburn, Managing Director of Investor Relations.

Please go ahead, ma'am.

Good afternoon, everyone and welcome to Lam Research Corporation quarterly conference call.

Here with me today are Steve Newberry, President and Chief Executive Officer, and Ernie Maddock, Senior Vice President and Chief Financial Officer.

Today we will discuss the financial results for the March 2010 quarter and Steve will share our business outlook for the June 2010 quarter before opening up for Q&A.

The press release detailing our financial results for the quarter ended March 28th, 2010 was distributed by business wire shortly after 1:00 p.m.

this afternoon and is available on our website at lamresearch.com.

Today's call contains forward-looking statements including those relating to our forecast of market share, shipments, revenues, expenses, margins, and earnings per share as well as other statements of the Company's 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 undertakes 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 phone with a brief follow up.

With that I'll turn the call over to Ernie for a review of the March quarter results.

Thank you, Carol.

I'm pleased to report results for the March quarter that met or exceeded guidance in all areas led by record shipments and strong revenue performance for the Company.

Indicative of market share gains and in response to customer demands, Lam's March quarter shipments were $735 million, up 41% sequentially.

The flexibility and responsiveness demonstrated by our operations groups and global supply chain enabled the Company to effectively respond to our customers requests for short cycle time delivery in the March quarter.

Virtually all of our system shipments are now for 300 mm applications and sub 60 nanometer applications comprised 89% of system shipments.

Components of our shipment activity by market segment are as follows.

DRAMs represented approximately 44% of total shipments and NAND comprised 21%, bringing the total memory segment to 65% of system shipments.

Foundry customers were 27% of system shipments, and logic and other were at 8%.

Revenue for the March quarter was $633 million, slightly exceeding our guidance range.

Revenue was up 30% sequentially over the December quarter and reflects increased system shipments and customer acceptances in all product lines as well as strong performance in our installed base business.

For the March quarter, ongoing gross margin was 46.3% up from 44.8% in the December quarter.

This improvement was the result of strong revenue performance coupled with favorable product mix and improved factory absorption.

Ongoing operating expenses for the March quarter were $144 million and reflected only partial quarter expenses related to employee equity grants and nonrecurring benefits related to R&D materials and supplies.

Our employee headcount at March end was approximately 3100.

Ongoing operating profit for the March quarter was $149 million, roughly double that of the December quarter, with a corresponding expansion in operating margin to 23.6%.

Ongoing other income was $1.6 million derived primarily from interest income.

Our ongoing tax rate for the March quarter was 20.2%, in line with expectations.

We are anticipating a tax rate of between 20% to 22% for fiscal year 2010 and expect that the rate in June will be similar to that in March.

This rate would be favorably impacted should Congress ratify the extension of the Federal R&D tax credit prior to the end of our fiscal quarter.

Based on a share count of 129 million shares, earnings per share was $0.94, exceeding the midpoint of the guidance range by $0.14.

Turning to our balance sheet and cash flows, our cash and short term investments including restricted cash totaled $844 million.

We generated $109 million in cash from operations in the March quarter and used that cash to repurchase shares in the amount of $69 million, made an $18 million repayment of certain loans and $11 million in capital expenditures.

Lam repurchased two million shares during the quarter, consistent with our goal of offsetting dilution relating to employee equity plans.

Our priority remains on building our cash balances before considering more aggressive stock repurchases.

Accounts receivable days outstanding were 75 days, down slightly from 79 days in the December quarter and inventory turns were 4.8 up from 4.4 turns in the December quarter.

At the end of March, our deferred revenue balance grew by $104 million to $238 million which excludes $23 million in shipments to Japanese customers that will revenue in future quarters.

With that I'll turn it over to Steve for his comments.

Thank you, Ernie.

Good day, everyone and thank you all for joining our calls.

As Ernie noted, our March quarter shipments represented an all-time high for Lam Research.

The sharply increased shipments into both DRAM and NAND fabs and our foundery shipments, while flat, remained at a strong level versus the December 2009 quarter.

There's some who are concerned that achieving a record number for shipments may signal a peek for the industry.

But the fact we were able to achieve such a result at the current level of semiconductor capital equipment spending is the result of other factors that are associated with Lam's specific performance.

Our short lead times resulting from the rapid response capability and our business operations and supply chain organizations allow us to respond very quickly to increases in customer demand.

In addition to Lam's execution capability, this strong shipment performance is indicative of continued strong market share gains in both Etch and Single-Wafer Clean and an increased revenue contribution from our installed base businesses.

Our broad-based technologically differentiated Clean solutions are shipping in increased volumes to our historically strong back end of the line and back side in cleaning applications in Logic while winning new penetrations at emerging front end of the line applications, as well as winning new customers for back end of the line and backside claims, with both our Spin-based DV-Prime tools and our Linear-based product.

Our Plasma-based Bevel Clean tools have also been shipping out in increased volumes as well.

We now expect by the end of the year, we will grow our Spin-based product shipments by greater than 200% and our entire portfolio of Clean products by greater than 175% year-over-year, a clear indication of our strong market share growth in these applications.

With all of that said we still look to improving our financial results in our Clean businesses as we go forward.

We have more work to do around continued improvement in our efficiency and effectiveness of our product option architectures and bringing up an expanded set of global suppliers to support our new product builds in both Linear and Spin.

Our strong and continuous focus on R&D and product road map alignment has resulted in significant improvements in the Da Vinci Prime Spin Clean tool NRC3 Linear platform.

We plan to continue these investments in our Spin and Linear technologies to allow us to pursue further penetration opportunities as the industry continues to move from 6 and 5X nodes of production to the 4,3 and 2X production nodes.

In Etch we saw new application market share wins as the industry moved to new critical technologies in applications like High-k/Metal Gate, critical hardmask opens and double patterning, and we grew share as well as a function of the adoption of stack capacitor technology at (inaudible).

We are expecting to exceed our Etch chip market share expansion goal of five to six points in 2010, which I talked about on our last earnings call, to a new level of eight to ten points of share gain in 2010 to the 50% plus level.

Support of these market share gains we now expect our Etch system shipments to grow greater than 150% year-over-year.

We will continue to invest strongly and appropriately in Etch R&D to ensure we maintain our leadership in developing next generation products.

Overall, we are leveraging our investments in R&D into new capabilities and products, which are enabling our penetration wins at the next technology node in all areas of our business and our new product pipelines are enabling us to compete very effectively in a broad array of new applications.

We expect to share with you some of these Etch and Clean product enhancements at our upcoming analyst day which we plan to host at Semicon West in July of this year.

As we look at the industry environment today, almost four months into 2010, there is increasing customer demand for shipments throughout the year relative to three months ago.

At that time, the plans our customers had shared with us combined with our views on the demand for semiconductors and capital equipment suggested wafer fab equipment spending would be somewhere in the $20 billion to $22 billion range.

As the global economy has continued to improve and demand for semiconductors has continued to strengthen, our customers have adjusted their plans for delivery of our equipment to higher levels in the remaining three quarters of the year.

If our customers indeed follow through with what they are currently planning for shipments for the rest of the year, it looks like they will end up spending in the $24 billion to $26 billion range for wafer fab equipment spending in calendar year 2010.

With memory prices having remained strong throughout this first quarter, despite the March quarter being typically seasonally weak, this suggests there is a tight supply and demand balance at the moment, and if consumer electronics demand and corporate IT spending increase in the upcoming quarters, and as expected into 2011, there will have to be a need for a sustained level of WFE investment throughout 2010.

Over the past year or so, most of our customers have concentrated on transitioning their technology, beating increased bit demand and memory by shrinks and increasing their own capital efficiency by reusing as much of their existing tool sets as possible.

In many of these technology transitions, Etchers and Single-Wafer Cleaners, our critical applications where new tools or chamber upgrades were required and Lam Research has benefited from these transitions.

As the industry moves forward and continues to add capacity at a steady rate, we expect our Etch and Single-Wafer Clean products will strongly outperform relative to the growth of wafer fab equipment spending in 2010.

With these comments I will now move to guidance for the June quarter.

Shipments of $700 million plus or minus $15 million, revenues of $650 million plus or minus $10 million, gross margin at 46% plus or minus 1%, operating profit at 23.5% plus or minus 1% and earnings of $0.89 to $0.99 per share.

And with that, Ernie and I will take your questions.

(Operator Instructions).

First question is from the line of Satya Kumir with Credit Suisse.

Please go ahead.

Yes, hi thanks.

Steve it was good color on the (inaudible) spending that you were able to provide.

So I was wondering if you're having any improved visibility right now into shipment as we look into December in terms of directional or other quantification you can provide?

Well, as I mentioned in my comments over the last three months the customers plans relative to what they want us to be prepared to ship to them in the June quarter as well as the September and December quarters has come up very strongly.

I think that's indicative of the IC unit demand environment they're seeing, the receptiveness of the ICs that are coming out of the advanced 40 nanometer Logic lines as well as the demand for memory, which I think in spite of the fact that we haven't really started a Corporate PC refresh cycle demand for PCs remains strong as well as for other mobile devices particularly Smart Phones.

So I think that what we're seeing is an environment where confidence is growing that the demand is sustainable, and as a function of that, we're seeing a much more steady request environment emerge relative to shipments throughout the year.

Okay.

I guess I'll do the math (inaudible).

A bit of a longer term oriented question, if you look at the productivity of bits for the memory companies, you talked about them using more equipment and more shrinks, the amount of bits per wafer that the other nine companies are getting from just shrinks has gone up essentially in 2009 and 2010 compared to what it was at the peak of the last cycle back in 2007.

Do you (inaudible) to that and do you see this productivity growth coming back to some kind of normalized level and what that could to do to capacity additions as the wafer starts as we look in 2011?

Well I think that what we're seeing is that there is an ability to increase the bits per wafer as a function of the shrinks and probably more important as a function of the shrinks that they're able to do wafer conversions where both in DRAM and in NAND about 25% of their wafer starts, well I'm sorry, probably about about 40% in DRAM and 40% in-- or 45% in NAND require new pieces of equipment.

But they're able to buy a lot of upgrade chambers at least as it relates to Etch and so they're capital asset intensity is running at very low levels.

If we look at the historical situation in memory, it's very common for them to be spending anywhere from 35% to 50%.

And we see that wafer fab equipment for DRAM for 2009 is going to be around 20% and for NAND probably somewhere around 25%.

So all of those things are good in terms of the efficiency in which these memory providers are operating at, but I think that when we look at how much money they're having to spend per wafer start, if it's all new capacity, they have to spend somewhere around $250 million for 10,000 wafer starts per month.

NAND's currently spending about $105 million, DRAM's currently spending somewhere around $120 million.

I think that as we go forward in time they won't be quite as efficient, I think they'll have to increase the ratio of new equipment.

And so I think that actually if we continue to see a good demand environment, we're going to have to see more new equipment and new wafer start capacity adds later in the year or into 2011 that what we're seeing right now.

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

Muse with Barclays Capital.

Please go ahead.

Good afternoon.

Thank you for taking my question.

The first question, Steve what are your new targets internally for Etch and Clean share for calendar 2010?

And I guess as part of that question, last quarter you suggested NAND's upside could drive even better results and I think what you said in your prepared remarks that's clearly happening.

Is there another lever on top of that that could drive these targets even higher through the year?

Well I think that what we had talked about before was we thought Etch market share would be up five to six market share points now we think eight to ten.

That's going to put us where I said in my comments was 50% plus, probably somewhere around 52% to 54%.

Some of that comes from mix changes, probably somewhere around 4% of that, and it's kind of one of the reasons why our market share declined in 2009 was because the mix was unfavorable to us.

And so now the mix is moving favorably but we're still picking up four to six market share points from application wins.

I think that when we look at where we have well known strong market share in memory, memory is probably, if things go as customers are currently planning, somewhere around 60% plus of the shipments in 2010 with Logic and Foundry being 40%.

And so if memory decides that they need to accelerate later in the year to beat what might be a strong demand environment in 2011, I think that'll be favorable to us, I think that would probably help us grow share a little bit.

I think in the Clean space, we're making penetrations in the memory manufacturers where historically with our Single-Wafer Spin Clean tools they were largely Logic-related and Foundry-related.

And so again, if memory picks up some more I would expect that to help us in Clean as well.

And in terms of your target there for Clean, has that changed at all?

No our target for Clean is we expect to be greater than 30% market share.

I think again how much above 30% that is will be a function of mix.

That'll be both customer mix but also it could be memory versus foundry mix related as well.

Great.

Thank you.

Your next question is from the line of Stephen O'Rourke with Deutsche Bank.

Please go ahead.

Thank you.

Good afternoon.

Steve just a couple of quick questions here.

Last quarter there was a lot of talk about second half shipments down over first half.

Albeit better, do you still see that?

And secondly, has the incremental strength you've seen over the past few months involved more customers or is it just an improvement in orders from the usual suspects?

Yes, I'll take the customer mix issue.

We've seen a much broader based activity level relative to customers.

I mean certainly we've seen strong spending by the typical memory guys with the NAND guys coming in in this time period.

But when I look at the total amount of shipment volume going into the so-called second tier, they are definitely moving into the market in the next quarter-- in the June quarter and going forward.

I think that when I look at how the year is starting to shape up particularly if you think about it in terms of $24 billion to $26 billion in WFE, we're seeing a strong strengthening of expected requests for shipments from the customers.

One of the things that I kind of look at is I think we have a tendency to some times look too much at any one quarter.

And in this case, some of the strong shipment activities that certainly Lam had, and the way I look at it, and I'll share that with you is, in my mind the industry underinvested in the September, December of 2009 time frames and particularly in December.

And so if you were to take the December shipments that Lam had, which were about $520 million, and average it with the shipments that we had in March, which were $735 million, you would end up with a $625 million shipment activity averaged over the December and March quarter.

If you then look at what we're guiding for June at $700 million, and then when I look at what the customers are telling us they're planning to want to take, it's actually a pretty smooth environment, it's a very steady demand environment.

And so I think that this dropoff that was visible, or at least was what people were talking about at the beginning of year, has significantly disappeared and I think that if we continue to have a good economic environment my expectation will be that it's far more likely that we'll see a flat second half relative to what we're shipping as an industry in the first half.

And so I'm much more optimistic that we're seeing a sustained level of investment and we certainly seen a movement up in the demand profile for the second half.

Thank you.

Your next question is from the line of Atif Malik with Morgan Stanley.

Please go ahead.

Hi, this is Mike Chu for Atif.

Thanks for taking my questions.

My first question is around last week AS&L talked about book-to-bill expectations of 1 plus or minus 10% the second half of this year.

Are your expectations for your business in line with this view or do you see things differently in the second half?

Well I just commented pretty extensively about kind of our view relative to what the customers are saying and that I think that things have strengthened.

We don't really get too wrapped around the axle around bookings because they're very lumpy.

I would just say that when you look at the order environment for the next three quarters of the year, they look very good relative to what you would expect for a $24 billion to $26 billion wafer fab equipment market.

Again if we talk about this is that I don't know whether $24 billion to $26 billion of wafer fab equipment is actually going to be what's spent, could be more, could be less.

What I'm telling you is that there's a momentum change in the customers in terms of what they are thinking they want, which is based on how they feel about the demand environment, they're clearly more optimistic about the demand environment, not only in terms of how it's going to play out in 2010.

But when I talk to customers about what their expectations are for the environment in 2011, they're optimistic at this point in time that it's going to continue to be an increasing demand environment, and so what you hear me talk about now is a reflection of kind of how the industry thinks about what's going on.

Okay and a quick follow up just specifically on the foundries.

There's been some recent news flow around Tier 1 foundry wafer start cuts and potential double ordering.

Have you seen any shifts or push outs in the foundry shipments recently?

Haven't seen any from an equipment ordering stand point.

You'd have to talk to the foundry manufacturers in terms of exactly what they may be seeing with their customers.

I've asked the question of a number of foundry executives and their most recent view, which was a couple of weeks ago, was that they were not concerned and didn't feel like we were in a double ordering type of environment of any significance.

Whether that changes going forward, I can't speak to it you'd have to ask them.

Thanks.

The next question is from the line of Krish Sankar with Bank of America/Merrill Lynch.

Please go ahead.

Yes, thanks for taking my question.

Steve I just wanted to follow up on your market share commentary.

Following the potential of 52 to 54 person share this year in Etch, how much of that actually happened in 1Q, was the upside driven predominantly from a [one case] shipment for the stacked to trench capacitor transition?

And also I had a follow up.

Why when we look at market share I mean it's based on the total cumulative amount that we will ship in that calander year versus what the size of the Etch served available market, or the Clean for that matter.

Clearly we benefited from the shift to stacked capacitor that occurred relative to (inaudible) Micron.

We are clearly benefiting from a shift that Intel where we don't have any Etch business was a greater percentage of total wafer fab equipment in the last couple of years that is shipping back down to a more normalized pattern.

So that benefits us.

And then when you combine it with the application wins that we talked about last year, which are now manifesting themselves as production volume wins, it's not all that surprising that we're going to see this kind of market share.

We typically want to make sure that we remain relatively conservative in terms of how we talk about our market share, but as we look at the technology nodes that are ramping in Logic and those that are ramping in NAND and DRAM, our confidence level is very high that if the customers execute and spend the kind of money that they're talking about, our market share is going to move up significantly.

Great.

I just have a follow up, you had spoken about broadening of the customer base from the purchasing pattern in the second half of the year, what would that mean to gross margins given the fact that you could probably have better pricing with some of the Tier 2 guys, is it a steady enough assumption?

This is Ernie.

So you have the impact of the customer mix as well but you also have the timing of shipments on Clean versus Etch, and obviously as we've talked about the Clean margin profile right now is looking a little bit different than Etch.

So you've got things moving in different directions that would essentially generate the kind of margin guidance that we've provided for the second quarter.

Thank you.

The next question is from the line of Patrick Ho with Stifel Nicolaus.

Please go ahead.

Thanks a lot.

First on the Clean side of the business, Steve, you mentioned that you're trying to enhance I guess the global supply chain as well as improve the efficiencies and the effectiveness there.

Can you give us a little bit of the time frame of when these changes are going to be implemented and then when we can see some of the benefits to the business model?

Okay, one of the things we had talked about when we were talking about our business model for the future was that we expected it would take us most of 2010 to really complete the product option architecture, redesign that we wanted to do with our Spin Clean products and get that supply base really working toward more of our traditional outsource model.

In addition, we are in the process of shipping beta tools for our next generation Linear technology product, which also requires a qualification and ramping of a new supply base.

So I would expect that we'll be through the vast majority of activity by the end of calendar year 2010 and that if we end up having a favorable environment in terms of spending and product shipment volumes, that we'll see much improved margin performance for the Clean group, consistent with what we talked about when we shared the model.

One of the thing that's actually been a challenge for us is that with this ramp in business coming faster and at stronger levels than we had anticipated at the end of 2009, we've had to convert some of our engineering resources that would normally have been working on the product option architecture and the supply base qualification to doing specials, engineering and support of the factory builds for Spin.

And now that we've kind of come up that ramp and are kind of at a more steadied output base, we're going to be able to increase the application of engineering resources relative to what we're doing in Spin.

Great.

And just a follow up also on the Clean business, I think you'd mentioned in the past how your services capability has been a big driver for some of these market share wins particularly on the memory side.

Can you just discuss on the applications side and what some of the changes in the process manufacturing front are helping you to get some of these memory wins for the Clean, for the Clean business?

Well I think that as the memory manufacturers aggressively move into 4X and by the end of the year we'll see 3X in DRAM and we've got 3X in NAND and we'll see 2X by the end of the year for that product, what they're finding is that control of the Clean at various application steps in terms of particle performance, critical dimension reliability, repeatability, ultimately is having an effect on a device yield as well as a device performance parameters.

And so as companies are moving from very low volume activities to higher amounts of production, they're recognizing that they need to move more quickly to bring critical Clean capability.

And so in some cases we're doing that with our DV-Prime Spin tool in other-- particularly in the back end of the line but also in some front end of the line applications.

And then we're using our Linear-based technology to really come in and provide some very short contact critical capability at the front of the line both for Logic and for memory.

So when you have to do that, you go from an industry that largely was designing chambers and integrated systems and mechanical wafer handling with standard industry chemicals with kind of standard industry recipes to one where because each customer has a slightly different device design with different thicknesses and CDs and materials, you now need to do a process development in the fab.

You now need to engage in joint development projects where Clean engineers from Lam and Clean engineers from the customer really work together on developing uses of new chemistries, adjusting the time frames associated with the exposure of different materials and layers to different kinds of chemicals.

Because what they have found is that just taking the traditional approaches that used to be successful for them aren't working, and so that's how it plays into our hand because our business model in Etch has long been built around partnering in the fab, technology capability resources in the fab, along with what we do in our central R&D headquarters, and we are replicating that model with technologists working side by side and a whole host of fabs and that is resonating extremely well with our customers and contributing to our market share growth.

Great.

Thank you.

The next question is from the line of Jim Covello with Goldman Sachs.

Please go ahead.

Great guys, thanks so much for taking the question, I appreciate it.

Hey I guess first just sort of a mechanical question relative to the shipment level versus the revenue level, when do you think or what kind of algorithm can we think about relative to ship-- the higher level of shipments turning into greater revenues?

One of the things that you I'm sure have picked up is that with us shipping $735 million in March you might normally think that we would be up there in the $700 million range in revenue.

And in reality is that as we're shipping a lot of these tolls it was a pretty nonlinear shipping quarter with a lot of the early shipments in the quarter turning.

And then you had some of the March deliveries which they will turn in the June quarter but the June quarter if I were to look at where were we literally six weeks ago in terms of demand, we've seen that demand for shipments in the June quarter come up over $100 million over the course of how the first quarter played out.

So you end up with a little bit of a lagging effect and from an algorithm standpoint, haven't really thought about it from that standpoint, but I think that you could expect that we'll have somewhat of a lagging revenue environment relative to shipments, but that when you think about revenue quarter-over-quarter as it plays out over the year, I think you'll see a rising revenue environment as we go forward in 2010.

Great.

And if I can ask a follow up, you talked about your share right now in the various segments.

Could you just especially in Etch go back to the last cycle and give us sort of your apples-to-apples because I know you rightly in the last cycle talked about your kind of ship share versus your design win share, where that was in the last cycle, where it is today and then relative to your design win share today, what those numbers look like in the next cycle?

Thank you.

Jim, when you talk about the last cycle, which time period specifically are you talking about?

Well I guess 2007, the last time we got the revenues anywhere near this level, yes.

Okay.

I think that if you look at where we were in going let's say 2004 and 2005, we were at the 44% kind of range, maybe started off at the end of the downturn in 2003 it may be 42%.

We were able to get to a 48.5% share in calendar year 2007.

I think that if you look at what we've been doing over the last two and half years, it's been a very strong and consistent investment in Etch R&D.

We've had a team together here that I think is the most experienced and the longest tenured together team.

Our learning [roots] in Etch have become impressively fast, our working relationships with our customers have continued to build through the last up cycle and then our willingness to make the investment during the downturns and continue to spend in spite of the fact that our systems revenues were down 90%, 95%.

So I think that what you're seeing now is as the challenges for customers to be able to produce high yield devices at the 4X node and the 3X node, Lam has consistently had the solutions ready, had the productivity enhancements and cost effective situations readily available for these customers.

And so when you kind of look at how we're growing the market share to these levels it's really a manifestation of a lot of years of hard work of making the continuous investment and we're seeing it favorably for us in Foundry and DRAM and NAND, but I really think it's the accumulation of a strategy that we put in place in the early 2000s and we're now seeing a lot of momentum come together favorably in this cycle.

Great.

Thank you so much

You're welcome.

The next question is from the line of Jagadish Iyer with Arete Research Please go ahead.

Thanks Steve, thanks for taking my questions.

Two questions, Steve.

First question is how should we think about the contribution from double patenting in the Etch market segment from 2010 and 2011.

Is that a rate that you could quantify them, please?

I don't have in front of me the specifics in terms of how you might quantify that other than obviously with double patterning you end up with a growth in the number of Etch applications as well as in some middle of the line activities.

And so one of the ways to think about it at least in general without the specificity, which we can get back to you with after the call, is as [emerging] Litho comes into 3X and 2X and with it's cost structure sucks up a lot of wafer fab equipment dollars.

The fact that Etch, which has historically been a 12.5% to 13% of wafer fab equipment segment is essentially staying right on that.

The only way that that could be is because the overall number of applications and wafer passes that you have to run through etchers has grown.

A lot of that is double patterning, but it's also other things associated with some additional critical Hardmask steps that weren't present in devices at the higher technology nodes.

Thank you.

And one last question, how should we think about your market share performance in (inaudible) in 2010?

How would you compare that versus 2009.

Is there a way that you can throw some numbers on that please?

Thank you.

We don't break out with a great deal of specificity.

We'll talk in general about our market share in memory, we may talk about it DRAM and NAND, Foundry and Logic.

But when you start getting too specific, than we end up in situations where our respect that we want to maintain with our customers, contains a level of confidentiality that we want to preserve.

And so all I can tell you is that our market share growth have occurred at all the memory companies.

It has occurred in Dielectric and in conductor.

And when you look at some things that are occurring in the NAND market, which clearly is going to have strong growth and the expectations for some requirements for wafer start expansions, we've been very pleased at how we've been able to compete and win some new applications for NAND.

Thank you so much.

The next question is from the line of Stephen Chin with UBS.

Please go ahead.

Great.

Thanks.

Hi, Steve.

Just on the question of Etch market share.

Now each of the three big suppliers now talk pretty highly with high conviction that they're going to gain Etch market share.

I mean is it possible that Etch has increased as a percentage of total WFE, is that likely what's happened because you're more confident of that share gain, so is Applied and so is Tokyo Electron.

Is that's likely what's happening here?

It could be possible.

I don't know what assumptions they're using for the size of the Etch [sam].

I do think I would stack my track record up comments about our market share gains against any one of those competitors, one in particular who I think has claimed they were going grow market share every year for the last five years, yet has lost every year for last five years.

So when we, or when I speak about market share, it comes as a function of having nailed down the application win, understanding who the customer is, understanding what that application represents in terms of how many millions of dollars of the purchases that will go out in that year, we don't claim market share until we've actually won it.

And so when I talk about what's going on in 2010, the increase in market share comes from the application wins that we achieved in 2009 to some extent some that we've just recently won in the March quarter, but for the most part, it's a manifestation of the volumes that customers are choosing to put into production and as a function of that, if the mix is favorable, and in our case this year it is, then you get additional accelerated benefits from market share.

And so I can't speak to how the others calculated or look at it, but I think we have a pretty consistent track record of delivering on what we've said.

Yes thanks for that.

And the quick follow up is do you have any ball park estimate of what your June shipment by customer type might be in the June quarter?

Are you talking about for like DRAM, NAND and Foundry (inaudible)?

Right.

Yes we're expecting that we're likely to see-- memory is going to stay strong relative to March.

I think we're going to see stronger NAND in the June quarter than we saw in March and maybe slightly less in DRAM, but overall memory will be very strong quarter-to-quarter.

I think that the environment for Foundry in June kind of takes a little bit of a breather, not dramatically, but won't ship as strongly, excuse me in June.

But I think as I look out for the rest of the year and in the dialogue and discussions we're having with our Foundry customers, I think June will probably represent the low point for Foundry shipments, and I think that we'll continue to see strong memory activity in the second half of the year.

But that's some color on the make up for the June quarter.

Thanks, Steve.

Appreciate it.

Welcome.

The next question is from the line of Gary Hsueh with Oppenheimer & Co.

Please go ahead.

Hey, Steve I understand that things have strengthened but the way I look at it back when you talked about Q1 shipments kind of being around the $735 million level, you equated that to roughly a $28 billion WFE market.

You're on the call today saying that basically the WFE trajectory actually had dipped to something like $20 billion to $22 billion which would have been down for your shipment levels in Q2 somewhere around 25%, but now it's come back up to 24% to 26% which is still down from 28%, roughly 10% to 15%.

Your shipment guidance for June is down roughly 5%, does that-- I mean am I reading things correctly and stitching together your comments correctly, and does that imply that in September that shipments have to come down another 5% to 10% to equilibrate to that $24 billion to $26 billion WFE kind of number that you quoted?

I guess it all depends on the way you want to look at it.

If you want to go off of that kind of activity that occurred in March, which what I commented on is that the way that we really should look at it is if you average what shipped in December and what average what shipped in March, you would knock that down to an average of $625 million.

And so you can look at March as being at $735 million as a big deal, I don't.

I think it was a make up quarter.

When I then look at the fact we're down by 4.75% in shipments in June coming off of that really strong March I think that's very good.

And if you calculate the numbers out at the midpoint between $24 billion and $26 billion of $25 billion in WFE, you'll find out that at this point in time the drop off in the second half versus the first half is probably somewhere around 8% to 8.5% which I consider to be not significant at all.

I consider it typical of kind of a consolidation of a very significant continuous steady state investment.

If you knock off the-- that if you average December and March to a $625 million and then you use the $625 million with the $705 million, then you're likely to end up in a situation where the second half is essentially flat to the first half.

And that's the way I look at it.

I view it as a very ongoing consistent investment by our customers as a function of the demand environment that's there.

And so I don't think the way to think about it is that there's a drop off in the second half.

I think if you smooth these things it looks remarkably consistent for quite a period of time here.

Okay.

And just to get reconciled basically you're (inaudible) at this point I wouldn't think but you're not seeing any kind of benefit from some of these new fab announcements that were announced in the quarter materializing as orders yet or shipments in Q2 are you?

Which ones are you specifically referring to?

The NAND ones, the Intel Micron in Singapore, and Samsung, line 17, those.

Well I think if both of those two companies are in the middle of figuring out exactly when they want to take deliveries, and so I think that you're correct in the sense that essentially that's not factored into the comments that I'm talking about.

But having said that, I wouldn't be surprised if both of those companies that you mentioned decided that they wanted to take deliveries in in the later part of the year.

But we'll just have to see how that plays itself out.

Okay.

Thank you, Steve.

The next question is from excuse me, the line of Raj Seth with Cohen and Company.

Please go ahead.

(Operator Instructions).

Can you hear me.

Yes your line is open.

Thank you.

Thanks for taking the question.

Steve I wonder if I can follow up on a previous question around the Cleans business.

You talked about architectural and some supply chain optimization you were doing there.

I wonder if you can remind me what the margin model is and specifically I'm curious sort of how much leverage there is in that business beyond sort of obvious leverage on better absorption?

Where are the incremental margins today, and where do you think they can go, I don't know two or three quarters out?

Thanks.

This is Ernie, Raj.

So we had talked last year at Semicon about some inter margin goals that were in the 40% range give or take, and we obviously have a ways to go to achieve that.

And then on a longer term basis, we would like to leverage that similarly to Etch and believe that while you can't quite get there on a gross margin basis, certainly on an operating margin, when the business is operating at similar share levels and similar levels of R&D efficiency, we can get very, very close to the long-term operating model of Etch.

So the upside leverage as we've talked about earlier certainly lies in some of the outsourcing and the re architecting of the product line so that we can get more specific with the configuration of the products that we are shipping to customers.

And then secondly, the work that we need to do around engineering and optimizing the specials environment so that we can effectively execute those.

So you've a couple of fronts on which we can continue to make margin leverage in addition to getting the operating income leverage that would come from higher levels of shipments and share across a relatively fixed R&D investment.

Ernie, how long would you think that some of those initiatives will take to be fully realized?

And can you comment roughly on what percentage of the business this Cleans business is today?

Thanks.

Yes, so we're-- relative to the time frame as Steve indicated a lot of the cost work we think can be achieved over the course of 2010, which would position us well for 2011.

We've talked previously about having an interim share goal of in the mid 30s, Steve indicated earlier on the call today, thinking we were going to exit this year at 30 or north.

So we're well on track to that goal.

The 35 or mid 30s goal was something we presented at Semicon last year.

So still relative to the sort of Etch share that we've spoken about today in the low 50s, we would still have a ways to go and it would be not reasonable to speculate on when we could achieve north of 50% share in the Clean business, that would allow us to fully realize all of that leverage.

Sure.

And how big is the business today relative to the core business?

We don't segment report, but we can offline talk to you about the size of the market and you can impute share and that'll help you at least get a rough, a rough sizing.

Sure.

Look forward to that, thank you.

Raj, one other perspective I would give you is that if you look at the models we've kind of laid out depending upon what the size of the wafer fab equipment market is but also the timing, we had presented a $20 billion and a $25 billion model.

Our expectation was that $25 billion in wafer fab equipment spending probably occur 2011, and it's looking like it's just likely to occur in 2010.

So I think that we will still perform to that model even though it's a year ahead of the timing we thought.

And so if we end up with a good economic environment and strong demand and we end up as some have commented on an expectation that wafer fab equipment spending in 2011 will be higher than 2010, and we'll just have to see how that plays out.

One of the things we've talked about was that we wanted to be able to have an integrated operating income performance around 27.5%.

And that's a reflection of the fact that you've got mix issues in terms of the size of the install base business which we've made a lot of investments in and it is a good business but has a different margin profile.

And then Clean, as Ernie said, to kind of really get up there even higher is going to need both volume and higher market share which is not likely or we're not expecting to occur in 2011.

But I think what we're going to do at Semicon is we're going to lay out a model that will add to it that if the industry were to spend $30 billion, just to use a nice round number, what would we expect to be able to deliver in terms of financial performance, cash generation, et cetera in that kind of environment if it were to occur in 2011.

Right, thank you.

Our next question is from the line of Timothy Arcuri with Citigroup Group.

Please go ahead.

Hi, Steve.

I'm just trying to sort of look at the margins in the quarter x business, and you're not really excluding out Cleans revenue but it's-- if you assume it's sort of $60 million to $70 million a quarter, if you sort of impute that based upon some of your share comments and you take your guidance and you take the Op margin guidance, even if you give it zero Op margin to the Cleans business, you're still 200, 300, 400 basis points lower than you were last cycle at sort of similar revenue levels in the Etch business, operating margins.

A, is that math wrong?

And B, why would that be?

I guess maybe there's a more concentrated customer base this time around, one in particular that has lower margins.

But is there any sort of reason for that because it seems a bit odd relative to what some of the other companies are seeing?

Thanks.

Well I don't know what you're talking about relative to the other companies because if you're talking about my two competitors, I know for a fact you can't see their margins because they're buried in their financial statements relative to every other product line that they have.

So having said that, I think that we probably have a couple points of growth margin pressure that comes from the function of consolidation of the customer base, comes from the fact that I don;t run the business on an operating margin percent basis.

I grow it on total revenue dollars that I can drop to the operating margin dollar line.

We're clearly doing that.

If you see the amount of WFE spending and the total amount of revenue and operating income dollars that the Company's going to generate, it's significantly higher than when the industry spent $25 billion x number of years ago.

And so I think it would be correct to say there's some margin pressure and it's for the reasons that we've talked about.

And clearly we work hard to contain that.

But if I can grow eight to ten market share points and deliver increasing operating margins dollars which drives increasing EPS, I'm fine with that.

Just some additional perspective, Tim, I know it's really easy to make a comparison and say our June quarter guidance may be back to March of 2007, similar revenue levels and certainly some margin differences.

But I really think it's important to get underneath that and understand that relative to Etch, significantly different percentages of that revenue stream.

So I think that that may be to some degree where we may not share the same perspective because as we're talking about we're still operating in an environment of $25 billion if you midpoint the wafer fab guidance versus a $32 billion in that prior peak.

And so our Etch performance of $32 billion would be significantly different than what you're seeing right now.

Okay.

Then just one more thing, Steve, if you sort of look at what ASML's shipping and you sort of back into what that implies in terms of wafer fab equipment market size, it's closer to 30 versus the sort of mid 20 numbers that we're talking about here.

So do you think that in fact-- people typically kind of forward by lithography, but do you think that that would imply that there is relatively more sort of on the come for the non litho guys or is your number different actually?

Well I think that I can't speak for how ASML sees how this plays out but I think you're correct in that what the industry does as they absorb the available litho capacity that they had coming out of a downturn, they always recognize that the longest lead time equipment in the industry is litho and they've to get out in front of that.

I think that to impute a 30,000 wafer fab equipment spending environment for 2010 from that doesn't take into account that the reality is is that while they could if they bought the rest of the equipment that expands into that amount of litho, spend 30, everything that the customers are telling me is that that's not what they're planning on doing, but if they do believe at least at this point in time, that they're going to have an increasing unit demand environment and a favorable worldwide GDP, they've got to have that litho in place to be able to expand their investments in the other front end equipment in the 2011 time frame.

So to me, if I didn't see the increase in demand for litho, than I would be concerned that the customer confidence level in terms of the supply and demand balance and the sustainability of the unit demand environment and everything else they know about products and semiconductor intensity was not really being consistent.

So the fact that the litho is what it is says to me that they're behaving in a way I would expect them to but I don't think that translates to expecting $30 billion.

Have time for one more quick call.

And the final question is from the line of Ben Pang with Caris & Company.

Please go ahead.

Thank you for taking my question.

One clarification, did you comment that your Foundry business in the quarter was flat, and was that for shipments or revenues?

Ben, that was for shipments that the shipments that we executed for Foundry in the March quarter were flat relative to what we executed in December quarter.

And I think you'll remember that when you look at kind of what drove the increases in the kind of December which came out pretty strongly from September, it was largely-- there was a lot of foundry-related activity in that quarter.

And then one follow up also around the 1Q or March quarter.

You commented on the turns business, turning the shipments into revenues.

Do we expect the same type of behavior going forward if the mix stays the same?

Well I think that it's hard to predict that because some customers take equipment in and start it up very fast and accept it.

And because we're revenue on acceptance, we can have a high turns environment.

Other customers are historically take a much longer time to do their quals.

Logic companies in general take longer than the average memory company and so you kind of end up with a wide variety of things.

But one thing I would say is true is as we move to 4X and 3X and in NAND 2X, some of these quals are tending to take a little bit longer because the process windows are really narrow, the sensitivities are really high, and the customers are taking a little bit more time to make sure that everything's working right with the equipment to be sure that when they ramp they're going to get the yield and the reliable device performance that they're looking for.

Thank you very much.

So I think I want to thank you again for joining the conference call.

In summary I would say that we're seeing a good momentum in terms of what the customers are thinking they would like to do for the rest of the year.

We're certainly seeing strong momentum in our Clean business and we think we will exceed our share targets to be greater than 30% this year.

In Etch we've talked extensively about it and we expect our share to be up strongly and well in excess of 50%.

I think we are going to continue to aggressively invest not only in Etch and Clean but some other new products that are targeted at new markets.

We think that there's a real opportunity with some of the challenges that customers have at these leading advanced nodes that we can continue to grow our presence as their critical solution provider.

And so we continue to focus on making sure that we have the responsiveness from an operational standpoint and the technical solutions available in a timely manner.

But having said all of that, we expect that for this year, Lam will significantly outperform the growth rate of what you'll see in WFE in 2010 over 2009.

So thank you again for your attention.

Good day.

The audio replay of this call will be available on our website later this afternoon.

Our next scheduled update with the analyst event which we plan to host on July 13th concurrent with Semicon West of San Francisco.

We hope to see you then.

Ladies and gentlemen, this concludes the Lam Research Corporation March 2010 quarterly results conference call.

Thank you for using ACT conferencing.

You may now disconnect.