科林研發 (LRCX) 2011 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by, and welcome to the Lam Research Corporation September 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) I would now like to turn the conference over to Carol Raeburn, Managing Director of Investor Relations.

Please go ahead, ma'am.

Good afternoon, everyone, and welcome to Lam Research Corporation's 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 September 2010 quarter, and Steve will share our business outlook for the December 2010 quarter before opening up for Q&A.

The press release detailing our financial results for the quarter ended September 26, 2010 was distributed by Business Wire shortly after 1PM 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 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 assumes no obligation to update any of them.

This call was scheduled to last until 3 PM, and we ask that you please limit questions to one per firm, with a brief follow-up.

With that, I will turn the call over to Ernie for a review of the September quarter results.

Thank you, Carol.

Before I share the results from our September quarter, I would like to take a moment to recognize and thank Carol Raeburn who has done an exceptional job heading our Investor Relations team for more than three years now.

Carol is moving into a new role within the finance organization where she will be responsible for supporting Lam's regional business operations around the world.

As Carol is transitioning into her new role, Shaney Hudson will be now responsible for Investor Relations.

Shaney has been with Lam for over 10 years and has held engineering and business development roles, and I am pleased that she will now be applying her talent and heading up Lam's IR team.

Now, onto the results.

September was another strong quarter for the Company as we delivered record shipments, revenues and earnings.

Shipments for the September quarter were $808 million, up 16% from the June quarter.

Application and market segment breakdown for the quarter were as follows.

65-nanometer and below applications represented 89% of total shipments.

DRAM accounted for 38% of total system shipments and NAN comprised 19%, thus making the total memory segment 57% of system shipments.

Foundry customers accounted for 33% of system shipments, while logic and other constituted the balance of 10%.

September quarter revenues were $805.9 million, slightly exceeding the high end of our guidance range.

This represents a sequential increase of approximately 15% over the prior quarter, driven by all product lines and in particular, our clean product.

Ongoing gross margin was 46.8%, up slightly from that of the June quarter.

Ongoing operating expenses for the September quarter were approximately $158 million, $6 million higher than the previous quarter.

The increase is attributable to higher variable compensation associated with the Company's higher revenue and profit levels, as well as increased R&D investments to support and grow our market share.

Ongoing operating income was $219 million, reflecting a 27% growth over the June quarter and results in an ongoing operating margin of 27.2%, which exceeded the high end of our guidance.

US GAAP net income for the quarter was favorably impacted by a $3.1 million reversal of certain restructuring and impairment charges related to facilities.

This amount is net of taxes.

Our ongoing tax rate for the September quarter was 12.5%, a few percentage points lower than we had expected, primarily due to the favorable geographic mix of operating income.

For the December quarter, we expect an ongoing tax rate in the low to mid teens, and at currently projected levels of business, we would expect the fiscal year tax rate to be similar.

For the September quarter, our ongoing diluted EPS was $1.52 based on a share count of 125 million.

Relative to our guidance midpoint, approximately $0.10 of the incremental EPS was generated from our strong operating performance and approximately $0.07 was generated as a result of a favorable tax rate.

Turning to the balance sheet, our cash and short-term investments, including restricted cash, totaled $1.1 billion.

In September, we generated $256 million in cash from operations, translating to 32% total revenue.

During the September quarter, we continued to make share repurchases to offset the dilution from employee equity plans and repurchased approximately 3.4 million shares at an average price of $38.56 for a total of $130.7 million.

As we highlighted last quarter, a portion of the shares repurchased during the June quarter were settled in September and is reflected in our September quarter cash flow statement.

That amount is $13.5 million.

Accounts receivable days outstanding were 59 days, down from 65 in the June quarter, and inventory turns were 5.1, increasing from our June quarter end performance of 4.7.

At the end of the quarter, deferred revenue was $217 million and as usual, excludes shipments to Japanese customers that will revenue in future quarters.

The revenue value for these shipments totaled $50 million.

Non-cash expenses include, among other items, $13 million for equity compensation and $18 million for depreciation and amortization.

Capital expenditures were $19 million, and our employee headcount at September end was approximately 3,300.

With that, I will turn it over to Steve for his comments.

Thank you, Ernie, and good afternoon, everyone, and thank you for joining our call today.

As Ernie just covered results for the September quarter reflect both record revenue and earnings for the Company, and I'm certainly pleased with our ability to deliver high levels of profits and cash from operations in this highly competitive market.

Looking at the wafer fab equipment environment and our current customer delivery requests, we are forecasting wafer fab equipment spend for calendar 2010 to be in the range of $28 billion to $28.5 billion, which is approximately 120% growth over the 2009 spending level.

While underlying semiconductor demand fundamentals remain healthy, concerns over the macroeconomic environment and recent weakening in consumer PC markets have led customers to adopt a more cautious tone as they exit 2010 and plan for 2011.

Having said that, as we stated in our last earnings call, we still expect that the second half wafer fab equipment spending to approximate a $30 billion to $31 billion run rate for the second half.

Relative to the market segments, we have seen strengthening in foundry shipments through the second half of 2010 driven by broad-based customer demand and a wide technology mix.

Throughout the September quarter, utilization at the leading foundries remained in the high 90% range and as we move into the December quarter, we would expect utilization to remain high, moderated somewhat due to normal seasonality.

Looking at the memory market, the declining DRAM ASPs, coupled with softening in the consumer PC market have raised concerns over the near-term demand environment.

However, Enterprise Server and PC demand continue to be strong as corporations reinvest in their IT infrastructure.

While DRAM pricing is forecasted to decline by about 20% during the December quarter, we would expect that the leading edge DRAM suppliers will remain very profitable as they continue transitioning to the 4X and 3X technology nodes, and even suppliers manufacturing in the 6X, 5X nodes should remain above their cash costs.

In NAND, demand for tablet devices and high end smart phones continues to drive big growth.

Content rich smart phones are growing at nearly twice the rate as the overall cell phone market this year, and unit sales for tablet devices, which have approximately four times the average NAN content as smart phones, are projected two be between 13 million and 15 million units this year.

As a result, we see NAND bit growth in the range of 75% to 80% for 2010.

Relative to LAN shipments, we will strongly outpace the industry this year, develop our etch and clean product line supported by our strong position across all market segments, DRAM, NAND and foundry logic.

In etch, we continue to strengthen our leading market share position by leveraging our process capability to a new critical application decision, particularly in the areas of high-k and metal gate and metal hardmask which are starting to ramp in foundry logic.

We are also winning new application decisions for next generation memory development which will help support future market share gains.

In single wafer clean, we are capturing new applications, particularly in the front end of the line memory and foundry logic, as customers transition more process steps from batch to single wafer clean.

Our differentiated drawing technology and the Da Vinci Prime Spin Clean system and short contact times of the linear clean tool are helping customers gain tighter control of their clean processes, contributing to improved yields and device reliability.

As a result, we expect both our etch and clean system shipments to grow by greater than 180% this year, significantly outpacing the WFE market which, as I indicated earlier, forecasted to grow by 120%.

This would lead us to a 2010 year end market share position in etch of 53% to 54% and single wafer clean market share of approximately 30%.

As we look into 2011, consensus forecasts for worldwide GDP growth is forming around the 3% range, which is modestly below 2010 GDP estimates.

Though the pace of the economic recovery remains sluggish in the US and Europe, worldwide semiconductor demand remains healthy, in part due to Asian and emerging markets growth and their higher per capita spending for electronics.

Based on what customers are telling us today, we expect our first half 2011 shipments to be flattish to perhaps slightly down, relative to the average shipment run rate for the second half of 2010 as customers digest recent investments and continue to monitor trends in the macroeconomic and memory markets in particular.

As the spending environments for 2011 plays itself out, it is clear that Lam's track record in consistently winning new applications in critical areas positions us well to take advantage of whatever the future spending environment turns out to be.

Now, moving on to our December quarter guidance, which is as follows.

Shipments of 865 million, plus or minus 20 million,; revenues of $825 million, plus or minus $20 million; gross margin at 47%, plus or minus 1%; operating profit at 27%, plus or minus 1%, and earnings per share of $1.55, plus or minus $0.07 per share.

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

Ladies and gentlemen, at this time, we will begin the question-and-answer session.

(Operator Instructions) And our first question comes from the line of Jim Covello with Goldman Sachs.

Please go ahead with your question.

Great, guys.

Thanks so much for taking the question.

Congratulations on the great results.

Maybe first I can just ask, Steve, you guys do a great job of kind of modeling out a lot of the CapEx issues in the industry.

Have you guys created any kind of metric or algorithms yet as you think about tablets versus the impact of CapEx, netting out maybe a potential negative DRAM impact from the tablet market?

Well, we think that tablets are probably going to ship probably about 40 million units next year, and I think that from the standpoint of its impact overall on DRAM, not particularly significant.

I think tablets kind of cannibalize the net books, which are not very DRAM intensive anyway.

And so certainly with the NAND intensity of tablets and with a bunch of new tablets that are scheduled to come out later this year, it will be from interesting to see what kind of market penetration they generate, and where I kind of look for the impact is on the beneficial additional demand for NAND flash.

Okay.

And then on the cash and the buybacks, I noticed, while your comment is that you are going to buy back stock to offset the option dilution, I notice the share count did come down.

So, net, you're doing a little bit more than just offsetting the dilution.

Is that the game plan for the continued time being, with all of the cash you're generating?

Yes, Jim, this is Ernie.

That is generally the game plan.

We announced a new authorization from the board, which will transact at appropriate pricing levels, and we're thinking about dilution both in terms of fast dilution and as well as potentially looking at 2011 and understanding the dilution that may result from equity programs during that time as well.

So, we're being a little bit more broad-based in our thinking there.

Thank you.

Our next question comes from the line of CJ Muse with Barclays Capital.

Please go ahead with your question.

Yes, good afternoon.

Thank you for taking my question.

I guess first question, you talked about the first half of '11 looking like the second half of '10.

Can you talk about, I guess compare and contrast what differences you expect to see in terms of spending by segment?

And then I have a quick follow-up.

Well, as we had commented last quarter, we saw foundry coming up as a stronger percentage versus memory, and that certainly has played itself out in the second half of 2010.

And I see that continuing to be the case for -- if you take foundry and logic together, I think memory is beginning to look like it will -- it will be closer to 48% to 50% of total spending as opposed to where it was earlier, at 57% and then prior years even 65%.

And I think this reflects the capital intensity of what is happening at the 28 Nanometer node.

And as customers next year really ramp their wafer starts associated with that and logic and foundry, there is a lot of spending that is going to have to occur to deal with the needs of the 28 technology node.

Great.

And as a quick follow-up, I recall a quarter ago, there was some pushes on your shipments due to, I guess installation delays of other equipment at some of your customers.

Is that a recurring theme that is impacting your shipments here in the second half of the year, or has that been fully resolved?

I think, as we talked about, when you kind of get up and you have a pretty significant ramp, you have kind of a settling effect.

And in this case, there is somewhat of a settling effect, but it is still at higher output levels.

And so if you look at the little over 800 million that we shipped in the September quarter and going up another 8% or so to 865 million, reflects that there is still increasing shipments.

When you look at the guidance rate of plus or minus 20, that's where you see some of the issues around fab readiness.

There was a situation last quarter that we talked about where one of our customers didn't get some of their litho tool deliveries so therefore, they pushed out by three or four weeks some deliveries.

And that can move it out of the quarter.

So, there is always some of that kind of activity that is present.

But I think kind of the bottom line is that there is a -- well, customers are looking at the market very carefully, and there is kind of a cautiousness that is present in what they say.

If you look at their actions, it is kind of caution, but moving forward relative to the confidence that the demand is going to be there.

The need for the next technology nodes is critical from a cost competitiveness standpoint in DRAM and NAND, and the foundry logic people believe that there is quite a bit of demand that they can ship into for the performance and low power capability at 28 Nanometers.

So things, while not continuing to be so strongly up and to the right, are still a very strong consolidated output level.

Thank you.

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

Please go ahead with your question.

Thanks a lot.

Congratulations on another good quarter.

Steve, in terms of the commentary you made about the wet clean business and the foundry wins, are you seeing them both in terms of capacity buys for the back end of the line and also on the front end of the line?

And what type of process applications are driving these wins?

We're definitely seeing continued expansion of volume for the back end of the line and the back side cleaning which has been a historical strength.

And we continue to pick up some additional applications relative to that.

But the reason we kind of highlight the front end is because that's where the most significant change in conversion from batch to single wafer is occurring, and so if you kind of lock at where that is happening, there is, I think four of those wins that we had were foundry logic, and another three were in various aspects of memory, so we're kind of getting wins in -- kind of across the board.

And certainly, one of the things that customers are seeing is that as they move to 4X, they see some yield and lifetime reliability issues.

When they go to 3X and 2X, and they're seeing additional issues, so the clean is clearly moving to where we predicted it would be; becoming on a number of applications, and a growing number of application steps, a critical process.

And fortunately, in both our spin tools where the drawing technology is really creating an important differentiation, that is helping our market share growth.

And then in linear, with our short contact time and the ability to use some pretty aggressive chemicals without the use of solvents, but still control critical dimensions, both on the side wall and the underlying level, is resulting in some really nice yield and reliability benefits as well.

So, our family of products is competing well, and we like the momentum that we have across the board, both in terms of our traditional back end, but also the penetration in the front end.

Great.

And a broader just cycle question, as we look ahead into 2011, there are several big projects on the plate across the board, both memory and foundry.

And at this point in the game, do you feel confident that those projects will continue as planned and it is just more of a question of timing of when those CapEx plans proceed?

Yes, I think -- I have not had any discussions with any customers where stopping construction or slowing down the plant that they have in terms of when fabs are going to be ready to take equipment, but I think you characterized it right.

If you're smart in this industry, you do a couple of things.

One is you have the fab space that you can expand into and you have the litho already in place or locked up in the front end of when you want to spend the rest of your wafer fab equipment.

And so then ultimately, that leads then to flexibility that if they want to push out the delivery of equipment into these ready to go fabs, they can adjust that.

And so we will have to see how that plays out, which certainly, at this point, I think it is too early to really understand exactly how 2011 is going to play out, and we will certainly comment about that more in terms of how we see it on the next conference call.

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, in terms of next year's outlook, it sounds -- and this is kind of similar to what ASML said, that it could be in a flat to up kind of a CapEx year.

But listening to Iterra and Nanya overnight, and these guys are suggesting DRAM CapEx down 50% to 100% next year for them, and so I just want to understand, when you -- are you -- is this what these guys are telling you?

What is your assumption for DRAM being -- how much DRAM could be down next year?

Well, first off, Atif, I want to make sure that you heard me correctly, because actually, I didn't say flat to up.

I said in the first half flat to slightly down.

ASML may have said flat to up, but I didn't, and I think it is worth clarifying.

ASML kind of gives you an indication of what people think they're going to need.

But as I've commented many times, because our lead times are so much shorter, ultimately what they is decide to do for the rest of the wafer fab equipment will be a function of how that demand/supply picture paints out.

So I'm not commenting on 2011 at all.

I only made a comment on the first half of 2011, which was flat to slightly down.

So back to your question.

I think that when you look at some of these individual fabs, you're going to have some people where if you take Nanya and Iterra, I think we all know they had a very significant investment that was a function of doing their trench capacitor conversion to stack.

I think that the number of wafer start additions that they may be planning at this point in time are not where they're focused.

They're focused on technology conversions of the existing Iterra activity.

Some wafer start expansion at Nanya, if they go forward.

But their capital asset intensity for DRAM is going to be much better in 2011 because they're primarily going to be conversions, and conversions are much more cost effective than brand new wafer starts or in comparison to the trench to stack capacitor conversion.

So, and just one last thing, since you asked the question, was right now, while we will certainly kind of continue to firm this up, given where we see supply and demand and bit growth per wafer output and capital asset productivity from conversions for DRAM, I would expect DRAM to be down in wafer fab equipment spending anywhere from between 10% and 20%.

And we will just have to see how it plays itself out.

I would be surprised if it was up, given the supply and demand environment that we're seeing at this point in time.

That's very helpful.

And on the NAND side, I was wondering if you could give us some insight on what the NAND makers are thinking about doing, below 2X nanometer, which they're kind of moving in production right now?

So, without being too specific, we're hearing about 3D devices, read/write 3D devices and phase change.

So, if I look at etch spending as a percentage of wafer fab equipment spending, it has been up and to the right for the last five years.

So my question is, when we move to devices below 2X nanometer, what is your best assessment in terms of etch intensity?

What happens to etch intensity below 2X nanometer?

Thanks.

Well, I think that is an interesting question.

Probably the best answer you could get would be to ask the NAND guys what they're thinking about.

But certainly, as you go to low 2X, and as they look at the challenges and issues on high 1X, I think our expectations are that as a function of some patterning issues and some material issues and some potential architecture issues that X intensity is likely to increase slightly in NAND.

Exactly how that is going to play out, we will just have to see.

Because there is a lot of activity being done by different customers with different designs.

And -- but as it stands right now, I would expect the etch intensity to go up slightly.

Thank you.

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

Please go ahead.

Yes, thanks for taking my question.

I had a question and a follow-up.

Steve, if I look at your second half 2010 wafer fab given run rate, you say it is going to be 30 billion to 31 billion, and I remember last time you said it was more like 32 billion.

So is it a reduction of $1 billion to $2 billion coming from, is it memory, or which vertical is coming from?

And is it moving into the first half of 2001 or did it just go away?

Well I could say yes, yes, maybe and likely.

And the reason is, it is kind of a combination of a bunch of stuff.

And when we said it three months ago, which seems like right now in this industry, three months is a generation of your life, things adjust, and things change.

And that's why I try to make sure that when we communicate, that I say based on what customers are saying they want to do now, this is what it looks like.

So what has happened is that there has been a little bit of movement where some customers who wanted delivery in December have decided that they're not ready, they want to go and push it to March.

There are some customers that kind of change their wafer start profile, some of that is in foundry, some of that is in memory.

But I would say that probably, if you had to pick one area, some of the aggressive deliveries that customers were talking about in foundry that were going to be December deliveries are now more likely going to be in the March quarter and some of them even potentially into the June quarter.

But it is a pretty fluid environment.

Got it.

And when you look at the first half 2011 shipments, can you tell me like what percentage of those shipments is going into new fabs or shells versus capacity as it exists in facilities?

I couldn't tell you off the top of my head right now.

So, we will have to have somebody get back to you, Krish.

And we can break that down, but I don't have that right here.

Thanks, Steve.

Thank you.

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

Please go ahead with your question.

Yes, hi.

Thanks for taking my question.

Steve, I think -- if you look at the rolling forecast for your December and March shipment plan over the last, say month or two, did you see any net push outs on the December quarter into the March, June quarter, and is that what you referred to by this customer caution?

And if you did, was it driven more by a lack of litho or fab space or demand-related factors?

Yes, there was some.

It is kind of what I talked about, that if you look at some of the foundries that had been talking three months ago about taking more deliveries in December, some of them have backed off a little bit.

We're not talking huge amounts, but some aspects of things.

Some of that has to do with how much wafer start capacity can they actually get in and absorb.

Some of these companies may have a desire to kind of maybe have their CapEx intensity kind of smooth out a little bit.

Some of them may be rethinking exactly which technology node they want to accelerate.

So, there is a whole variety of factors.

But when I kind of look at this kind of activity, it is very common that when you stop going consistently up and to the right, when you stop having every quarter seeing the adjustments always moving to the high side, that you start seeing, as you kind of consolidate and slow down the rate of growth, you have a bunch of ins and outs that come in.

And depending upon which customer it is, that is kind of what you see.

And so while obviously our shipment trend is still rising, it is not rising as fast.

And I kind of view that as a good thing.

I view it as the industry kind of consolidating the gains, absorbing all of this capacity, continuing to focus on, in many respects, their technology transitions and taking a look around and looking at how the holiday season is going to play out and looking at their forecast for 2011, and then we will see in reality where people actually decide they want to invest.

But as it stands right now, like I said, there is some caution, but everybody is still going forward, albeit sometimes a month or two later than what they may have thought three months ago.

Okay, that is understandable.

And the follow up, what portion of your 2010 shipments are to tier two chip companies, memory and foundry companies?

By tier two, I mean companies that might have, under 10% of market share in their respected segments?

Yes, we're seeing, as we talked about last quarter, that there is a broadening of the number of customers that are participating in purchasing equipment.

And it is kind of what you see as a cycle continues on, that we all know who the major concentrated top five is.

But we're seeing kind of the other foundry players come in.

We're seeing some general purpose logic investment, and we're seeing more of a broader base of investment in a broader group of memory companies.

So when I look at the December and March quarters, they're much broader based than what we saw in the first half of 2010.

Thank you.

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

Please go ahead.

Yes, thanks, Steve, a quick question here for you.

The common wisdom here I guess is that NAND still is a pretty good secular growth mechanism for the industry, near term and long, at least for next year.

But if I look at your shipment numbers, NAND definitely ticked down as a percentage of the shipment mix in the September quarter, and you're saying basically in terms of your visibility, NAND really can't support flat to slightly higher shipments in the first half?

You're talking about flat to slightly down.

So, I was wondering if you can again square off to the near term shipment profile in your first half commentary, specifically around NAND.

Well, you're right in terms of NAND shipments in September were slightly lower than NAND shipments in June.

They're going to be a little stronger, at least relative to what we're scheduled to deliver in the December quarter than they were in September.

And then I think -- what we're seeing is a bunch of NAND shipments come in one quarter, less shipments the next quarter, then a bunch of NAND shipments come in the next quarter.

Kind of an alternating quarter type of thing.

And when I look at NAND finishing off the year where it was about 22% of our total shipments, I would expect that NAND is going to be somewhere in that same arena, maybe slightly higher, because I do think that the spending in NAND next year will be stronger than the spending for DRAM, at least from a percentage standpoint.

Because I expect NAND will be maybe flat to down 10%, whereas we've said DRAM could be down 10% to 20%.

So, I expect that NAND is going to stay a strong area of total spending.

Okay, great.

And a quick follow up here for Ernie.

You guys are doing a really good job here sticking with the financial model.

But if I look at the September quarter, and tell me if I've got this wrong, it looks like from an operating margin perspective you were a little bit light, but made up for it on the tax line.

I was wondering, going forward, how do you better kind of leverage your OpEx to get to that 28% operating margin sort of target.

And if you're still at the low teens in terms of the tax rate, how does that change your scenario for earnings on an annualized basis at $6 and at $7.50, how much does that move up on better leverage now in Op Ex and lower taxes?

Gary, I think it is important to remember that the 28% op ink projection was a projection at a fully quarterized 875, and obviously, if you look at our results and our guidance, we're just not quite there yet.

So relative to at least our tracking for the models, our belief is we're actually doing quite well and maybe even slightly ahead of where we thought we might be, relative to the discussions that we had in July.

One of the things we did is talk about the impact that that tax rate relative to our overall guidance, so you look at $0.07 this quarter, give or take, and if you assume that that is going to be roughly in that range, that says on an full year basis, you could see some upside of $0.20 to $0.30 related to tax rate, vis-a-vis what we had talked about in the model.

So, hopefully those are some good points for you to reference to going forward.

Thank you.

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

Please go ahead with your question.

Okay, thanks.

Hi Steve, Ernie, and also congrats on the results.

Steve, I was wondering if you could share what you think Lam's estimated etch share could be at foundry customers?

And the reason I was asking is that the foundry spend is higher in the first half of 2011/10, and Lam's etch share in 2011 increased meaningfully above the -- it appears 54% target, and I guess same question on the clean system as well, next year the foundries, spend the most.

Thanks.

Well, our etch share, as we've talked about over the last couple of years, is essentially plus or minus a point or two, the same as it is in memory.

So, one of the benefits we derived is if memory comes down a little bit as a percentage of spending but foundry goes up, then it doesn't have an impact in terms of negative leverage or positive leverage for that perspective.

We are growing our share in foundry this year in terms of application wins as we have grown again with application wins in memory, and we would expect that our etch market share will be higher in 2011 as a function of these application wins.

And it really doesn't matter too much to us in terms of how the breakout in spending is.

It is really more of a function of what is the total level of spending and how do we build the rest of our P&L structure around that, because from a market share standpoint, I think we will do well in any scenario.

In terms of clean, certainly from a back end of the line, the foundry segment converted from batch to single wafer a long time ago.

That has been a strength for our single wafer spin tools, and so we actually have, in that segment, I would say our market share is probably in the mid-40s.

I was just out in Asia talking to a bunch of our customers about how things are going and what they're thinking about next year, and got a lot of good feedback from the customers about how they see our clean tools working, both spin and linear.

And certainly, with the foundry market, a lot of foundry business being in Taiwan, we have a very strong share in the foundry business in Taiwan.

Thanks, Steve.

Thank you.

Our next question comes from the line of Timothy Arcuri.

Please go ahead with your question.

Hi, Steve.

A couple of things.

You guys have done a really nice job in the clean market.

Are there other markets, without specifying what they are, are there other markets that as you a sort of look across the spectrum that look to you kind of like clean that are big markets, that are relatively fragmented that you think, as you try to grow the Company into the next cycle that you could go into and do what you did in clean in that market?

Well, given that clean -- single wafer clean is over $1 billion and the total clean market is over $2.5 billion, there aren't too many markets that are that big anyway you look at it, let alone as you characterized it.

Fragmented opportunities to move from kind of what was more of a commodity aspect to a differentiated technical yield enhancing activity.

So, I would have to say I don't see any market to that size and scale and scope.

I think that there are other potential markets that are potentially going to emerge as we really look at some of the changes in silicon semiconductor associated with different gate structures, whether you're talking 3D memory or you're talking about [synthete] structures, you're talking about other advanced logic that could represent opportunities for a company to bring a differentiated technology, combine it with the kinds of operational strengths that Lam Research has that can bring cycle time benefits, cost quality, startup benefits.

And certainly, as we've talked about, we're looking at seeing whether there is anything that might fit the kind of competencies that we think we can bring to the market, but I don't think there is any, at this point, of the size and scale and scope of the clean market.

Got it, thanks.

And then just as a quick follow-up, just -- this is a hard question to answer, but if you take your hat as Lam's CEO off for just a moment, and just from a manager point of view, do you personally think that it makes sense for an equipment company to go private?

I know that you made an off-handed comment I think at SEMICON, and several folks have sort of jumped on that, but I'm just wondering, just from a cyclical perspective and from there not being many customers and from a consolidated customer base, does it make sense for an equipment company to go private?

To say nothing about your company, just in general?

Thanks.

Well, since nobody on the phone can see whether my hat is on or off, as a CEO, probably a lot of people would assume that it was still on, so take whatever I said at some official position from the standpoint of the Company, I will answer generically in a broader way, I think that every company, whether they're in the equipment business, and I realize there are some different issues around cash flow and timing of cash flow as a function of cyclicality, but I think every company has to evaluate on their own, what are the needs that they have in terms of being in a particular market, in terms of access to capital.

How do they believe they're going forward, capitalization situation is going to play out and I think as a function of that, you have to think about that and a whole bunch of other factors in terms of whether you would want to consider going private.

And I think that the parameters that you have to consider are the same.

I think that there are some aspects that, from a cyclicality standpoint, some companies deal with better and may have better balance sheets.

But at the end of the day, I think most companies have a different set of circumstances, and they have to make their own evaluations as a function of that.

Thank you.

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

Please go ahead.

Thanks for taking my question.

What is the difference in capital intensity or your served available market for etch, between a 2X NAND and 3X DRAM?

I think, I'm not 100% sure, but I do think that DRAM at 3X is more capital intensive.

I think that for 10,000 wafer starts per month of new DRAM, that you're going to be looking at a situation where you have to spend close to $300 million.

If you look at NAND, you're probably in 2011 going to have to spend something more like $265 million to $270 million.

So, I think that that is overall WFE.

And if you take the etch element of that, I think etch is running about 13.8% of WFE.

And I don't think the etch percentage is necessarily any different between NAND and DRAM.

So what that says is, is that there is more etch intensity in NAND than DRAM.

Okay, and then one follow-up on your wet clean business, you're single wafer wet clean.

You commented on the market share for 2010.

For calendar year 2011, what is the biggest potential in terms of share gain, in terms of application, meaning foundry DRAM, where do you see that you could gain share?

We have penetration evaluations going on with a number of the leading NAND companies.

We have is in DRAM and we have it in foundry, so from the standpoint of potential, all of them are in play.

And at this point in time, relative to where we are in those qualification cycles, it is a pretty balanced effort from the standpoint of where we're trying to penetrate.

Because if you think about who the big spenders are, they're obviously in NAND and DRAM and foundries, so that is our target, and I wouldn't weight one more than the other.

Thank you very much.

Thank you.

Our next question comes from the line of Peter Kim with Deutsche Bank.

Please go ahead.

Hi, thanks for taking my question.

So, I just wanted to get a clarification on what your end customer mix looked like for the shipments in the calendar Q4, the December quarter.

I think you mentioned earlier that you were looking for memory to represent about 48% to 50% of shipments.

Is that correct?

I said that when the year is over for 2010, memory will end up being about 50% for the year, and -- I'm sorry, memory will be about 58% for the year.

But it is coming down because in the first half of the year, memory was running about 67%.

And in the December quarter, memory will be less than 50% of the shipments.

So, could you give a clarification on what you think the end market mix is going to look like for the December quarter?

Foundry, NAND and DRAM?

I could.

A little bit hesitant because I'm not sure what you're looking to use it for.

And the reason that I am is that while we're sitting here and we're outputting, things can change and if they change by $10 million, the percentages change pretty significantly.

But what I would tell you is that NAND is scheduled to be a little over 20%, DRAM is scheduled to be somewhat over 20%, and the rest is going to be foundry and logic at somewhere around 55%.

Right.Thank you.

Thank you.

Our next question comes from the line of Jagadish Iyer with Arete Research.

Please go ahead.

Yes, thanks for taking my questions, Steve.

Two questions.

First is that if you have to make an apples-to-apples comparison, how would you characterize your market share in NAND in this upcoming cycle for next year versus 2007?

And do you think if there is an increase, is it sufficient to offset the DRAM weakness?

Well, given that -- if NAND was flat and DRAM, for example, was 20% down, you'd have to have 100% of the etch market to offset the decline in DRAM, so I don't think that is likely to occur if you had that kind of scenario.

But certainly, we're making penetration progress at a number of NAND flash leading edge applications, but really, I think it is too early to try and say that we, one, know what the spending is going to be in 2011 and how ultimately that will play itself out.

But all I will just say is that out of the 15 net application wins that we are achieving in 2010 in etch, that a number of them are NAND, so I expect our market share in NAND will grow next year.

The second quick question.

Steve, you have been very good in terms of giving the [shrinks versus capacity], so how would you characterize that for 2011 between DRAM and NAND, and how do you think '10 will end up between shrinks versus capacity?

Thank you.

Well, I think in 2010 in DRAM, I think you had -- you're going to have more conversions and there were more new wafer starts added than what we're kind of thinking at this point in time, but again, I know it is early.

I think that the overall capital intensity may decline in DRAM in 2011, because the ratio of conversions to new starts will be more favorable to conversions.

Having said that, slightly declining, and very slightly declining in DRAM, I think the capital intensity in NAND flash is more likely to go up, because I think that there is going to be more new wafer start adds for NAND or similar new wafer starts, but less conversions.

So, that will drive the capital intensity up, probably maybe 15% or 20% in NAND in 2011.

And again, that is just based on assumptions, forecasting demand, which we all ought to be very cautious about, because as far as I'm concerned, we really don't know how 2011 is going to play out.

Operator, we have time for questions from two more callers.

Thank you.

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

Please go ahead.

Hi, thanks for taking my questions.

First question on the clean market, as clear single wafers replacing batch, can you comment a little bit about front end of the line of penetration of the single wafer in that market?

And you talk about over industry might decline in the first half of 2011.

Do you expect that same trend to apply to single wafer clean as well?

One of the benefits of being in a market where even if spending is flat, that the market can grow in single wafer because of the conversions, we're kind of anticipating that.

Single wafer will be a -- at least flat unless the market significantly adjusts, and so I think that probably the single wafer market can grow 10% more than the market as a whole.

So if the market was down 10%, single wafers would be flat, the market is flat, single wafer would probably be up 10%.

Great.

That is helpful.

And then one more question, and I apologize for that.

If I go back and look at 2007, your shipment levels of $678 million for that calendar year, and it looks like you are approaching that at this level.

I understand you guys have clean business now and also, you've gained some share on the NAND market.

Is there any way you can quantify how much of that, given that your level is around the same, but the market was bigger back then, any way you quantify of how much of that was share gain versus just the added for single wafer clean business?

You're talking about in just the clean market or in the --

I was referring to the NAND shipment.

If I go back to calendar '07 and look at what you're' in track to ship this calendar year, it looks like you're around the same level, even though NAND market is smaller or the NAND capital spending is smaller this year versus '07.

Well, I don't have in front of me what our NAND shipments were in '07.

But certainly, the NAND market was much smaller from a spending standpoint.

I don't know, I should be careful about much smaller.

So, probably the best way for us to answer that question is to get back to you so we can do the research and answer it accurately.

Okay.

Thank you.

Thank you.

Our next question and final question comes from the line of Mehdi Hosseini with Susquehanna.

Please go ahead with your question.

Thanks for taking my question, I almost hung up.

As a follow-up to the DRAM commentaries, Steve, if market in the first half calendar year next year is going to be flat to down compared to the second half of this year, and assuming that DRAM bit supply about 50% growth next year, doesn't that suggest that there could be a significant step-down in DRAM spending from first half into the second half?

Not necessarily.

We had 45% bit growth this year and spent $8 billion or so in DRAM wafer fab equipment.

And when we look at a 55% bit growth, we have stronger bit growth, and the only reason that they are likely to be able to spend less is because the bits per wafer are growing faster in 2011 than in 2010.

And so I think that if we get that 50%, 55% bit growth, I don't think you will see a major step down in DRAM spending.

Because also, this year we had Nanya and Iterra migrating, changing technologies, so I thought maybe that going forward next year, they are just going to focus on the shrink, that that could have an impact.

Moving on to the clean, and if you continue to gain share in the clean business and if the market is going to be up 10%, if I understood your comment correctly, how is that going to impact the margin profile?

Because it is my understanding that clean carries a lower margin.

Well, first off, let me comment on what you just said about Nanya and Iterra.

What you said is exactly what I said.

They've going to focus on shrinks, shrinks are a lot more capital efficient.

And I said that I thought that the DRAM market would be down potentially from flat to 20%.

So, that takes into account the change in capital intensity, as well as the gigabytes per wafer.

So, I'm sorry, can you repeat your second question?

Because --

Sure.

I was just trying to understand the continued share gain in clean into next year and its impact on the margin profile.

If the WFE -- overall WFE is going to be flat to down in the first half and to that extent, it would impact the etch business, but you continue to gain share in the clean coming off of a smaller base.

How would that impact the overall margin profile?

I'm not going to attempt to quantify that for 2011, since I'm not going to sit here in this call and talk about what 2011 is actually going to be because I don't know.

But I will say is that our margins in clean have continued to grow, they're in the low 40% now.

So, there is still an overall net drag on the Corporation's overall gross margin.

But compared to where they were in the past, they're actually contributing to improvement because they are moving closer to the corporate average.

And as the volume grows, we will continue to get some volume-related absorption, and we will -- in terms of the above the line costs, and we will actually get some volume-related absorption as it relates to below the line costs.

But the overall operating margin contribution of the clean group, I expect will continue to improve relative to helping the Company's financial performance, and I think that is likely to be the case under most scenarios that I would put forth, could play out in 2011.

Obviously, if 2011 turned out to be a significantly down year in WFE, then you don't get some of those benefits I talked about.

But if we have the opportunity to grow share in 2011 in clean, which I think we will, if we have a reasonable spending environment in 2011, which at this point in time looks like it will be reasonable, then I think clean will be a positive contributor to the profitability profile of the Company.

I would make one additional comment.

So, we've thrown out three models, a $25 billion model, a $31 billion, $32 billion model and a $35 billion model.

All of those were two-year time horizon models.

And all of those contemplated, they're relatively quickly -- more quickly growing clean share versus etch, given our position in clean versus etch.

So, if you refer back to those models, I think you're going to get a good view of what the Company's performance could be at any of those levels.

And if you think about the range of wafer fab estimates that people are kicking around right now, certainly those cover it.

So, those would be really good reference points to think about.

Thank you.

Thank you for joining our call today.

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

That concludes our call.

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

You may now disconnect.

Thank you for your participation.