科林研發 (LRCX) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by.

Welcome to the Lam Research Corporation December 2010 quarterly results conference call.

(Operator Instructions).

I would now like to turn the conference over to Shanye Hudson, Director of Investor Relations.

Please go ahead, ma'am.

Thank you, Jeremy.

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

Joining me today are Steve Newberry, Chief Executive Officer and Vice Chairman of the Board, and Ernie Maddock, Senior Vice President and Chief Financial Officer.

Ernie will first discuss the financial results for the December 2010 quarter.

Steve will then share Lam's business outlook for the March 2011 quarter, before opening up the call for Q&A.

The press release detailing our financial results was distributed by BusinessWire shortly after 1 PM this afternoon, and is also available on our website at LamResearch.com.

Today's call contains certain forward-looking statements, including those related to our forecast of market share, shipments, revenues, expenses, margins, earnings per share and cash generation, 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 10-K Form with the Securities and Exchange Commission.

All forward-looking statements are based on current information and the Company assumes no obligation to update any of them.

This call is scheduled to last until 3 PM, and we ask that you please limit questions to one per firm with a brief follow-up, and with that, I'll turn the call over to Ernie.

Thank you, Shanye.

Lam delivered an outstanding close to 2010.

In the December quarter, Lam delivered strong cash flow, record shipments, record revenues, and record earnings per share.

The December quarter performance extends to the year, as Lam's full calendar year revenue, earnings per share, shipments and operating cash flows all set record levels as well.

This performance reflects the Company's continued progress in market share and ongoing enhancement of our business model.

Turning to the specifics, shipments for the December quarter were $892 million, up 10% from the September quarter.

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

65-nanometer and below applications represented 88% of total system shipments.

DRAM and NAND memory each represented 19% of total system shipments, with other memory comprising 2%, making the total memory segment 40% of system shipments.

Foundry customers accounted for 38% of system shipments, while logic and others constituted the balance of 22%.

December quarter revenues were approximately $871 million, exceeding the high end of our guidance range.

This represents a sequential increase of 8% over the prior quarter, and reflects strength in all product lines, particularly our single wafer clean products.

Ongoing gross margin was 46.8%, which is aligned with our guidance range for the quarter.

December quarter ongoing operating expenses were $166 million, sequentially up $8 million.

This increase is driven by continued investments in both core and customer-specific R&D programs, in support of our market share expansion.

Ongoing operating income was $241 million, reflecting a 10% growth over the September quarter, and resulted in an ongoing operating margin of 27.7%, which is at the high end of our guidance range.

Our ongoing tax rate for the December quarter was 10.3%, somewhat lower than we had expected, primarily due to the favorable impact of the federal R&D tax credit extension, which affected both the September and the December quarters.

In addition to the benefit reflected in our ongoing December quarter tax rate, our US GAAP net income was further favorably impacted by a $4.8 million R&D tax credit related to the prior fiscal year, bringing our December quarter GAAP tax rate down to 8.4%.

Going forward, we would expect an overall fiscal year tax rate in the low teens.

For the December quarter, our ongoing diluted EPS was $1.74, based on a share count of approximately 125 million.

About $0.13 of the difference between this result and the $1.55 guidance midpoint was generated from our strong operating performance, and the remainder was primarily attributable to lower taxes.

Turning to the balance sheet, our cash and short-term investments, including restricted cash and investments, totaled $1.2 billion.

In December, we generated $186 million in cash from operations, and there were no share repurchases under our existing Board authorization.

For the calendar year 2010, Lam generated $716 million in cash from operations, representing 24% of overall revenue.

Accounts receivable days outstanding were 72 days, up from 59 days in the September quarter, and reflect minor timing differences related to year-end customer payments.

Inventory turns were 5.6, up from the September quarter-end performance of 5.1.

At the end of the quarter, deferred revenue was $223 million, and as usual, excludes shipments to Japanese customers that will revenue in future quarters.

The revenue value for these shipments totaled $48 million.

Non-cash expenses include, among other items, $13 million for equity compensation, and $19 million for depreciation and amortization.

Capital expenditures were $38 million, and our employee headcount at December-end was approximately 3,400.

As we go forward, our focus will be on leveraging available market opportunities by increasing our investments in both field-based customer solutions and core R&D programs.

In addition, we expect to build upon 2010's strong cash generation by delivering even higher levels of operating cash flow performance.

The collective management capability of the Company will be focused on the successful execution of these objectives.

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

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

As our financial results indicated, Lam ended calendar year 2010 on a very strong note.

You'll recall that 2010 began with a lot of uncertainty about the level of spending for wafer fab equipment, and as I now reflect back on a year in which that spending progressively strengthened, I am very pleased by the number of financial firsts that Lam achieved.

For the first time, we surpassed the $3 billion mark in both shipments and revenue, we achieved a record $5.35 in earnings per share, and the record level of cash from ops that Ernie mentioned in his comments.

All of these achievements and more represent significant milestones in our Company's history.

This outstanding performance in a year of wafer fab equipment spending recovery demonstrates our ability to execute against our goal of delivering increasing revenue, earnings and cash growth cycle-to-cycle.

The achievement of our aggressive 2010 market share targets was a significant enabler of these financial firsts.

In Etch, we ended the year with approximately 54% shipped market share, making Lam the first and only company to achieve more than 50% share in the highly competitive Etch space.

In single Wafer Clean, we grew our market share position to nearly 30%, as our differentiated drying technology and process expertise bolstered our penetration to the new front-end-of-the-line memory and foundry logic applications, while defending and increasing our position in our traditional back-end-of-the-line and back side cleaning segments.

Looking at 2011, the industry consensus view for wafer fab equipment spending now falls within the range of flat to up 10%, even some at up to 20%, above 2010 spending levels, which we estimate was approximately $28.5 billion to $29 billion.

Our current view, which is based on both inputs from our customers as well as internal analysis, suggest that the current consensus views are reasonable, given a 3% to 3.5% worldwide GDP growth.

Having said that industry consensus forecasts look reasonable, the reality in this industry is that forecasting future wafer fab equipment spending is essentially impossible.

When spending is up, it frequently goes up higher than expected, and when spending declines, it is usually worse than expected.

So I don't know what it will actually be in 2011, but I am confident that barring a major global economic dislocation, there will be solid spending for wafer fab equipment in 2011, and Lam Research will do very well in that environment.

Let's take a look now at some of the major components of wafer fab spending expected in 2011.

With demand for tablet devices and smart phones continuing to strengthen, we now expect tablet sales to be in the range of 50 million to 55 million units this year, with a potential to grow another 15% to 20%, depending on the success of the new devices entering the market.

This bodes well for the NAND flash market, where we are currently estimating bit growth in the range of 85% to 95%, and we expect that NAND manufacturers will respond to this growth in demand by increasing new wafer start capacity by more than 200,000 wafer starts per month, and executing technology conversion upgrades of another 400,000 wafer starts per month.

Spending for NAND is expected to grow by 25% to 30% in 2011 over 2010.

This is a good situation for Lam Research, as our market share in NAND is very strong.

Looking at DRAM, despite relative weakness from the consumer segment, we are currently projecting PC growth in the range of 12% to 14% this year as the corporate refresh cycle progresses.

In addition to this unit growth, we expect average PC content to go from 3.3 gigabytes per box to 4.4 gigabytes, and are currently forecasting bit growth in the range of 50% to 55%.

At this level of bit growth, we expect manufacturers will need to add approximately 125,000 new wafer starts per month, as well as new technology conversions on 450,000 wafer starts per month.

Spending in 2011 for DRAM, then, is expected to decline from 2010 by 15% to 20%.

In the foundry space, continued growth in fabless companies, logic IDMs increasing the use of foundries, and the often commented-upon heated competition at the advanced technology nodes will drive increased spending this year.

We expect pure-play foundries will need to add approximately 130,000 to 150,000 new wafer starts per month capacity to meet this year's demand.

It remains to be seen whether additional wafer fab equipment spend will occur, as a result of foundry players positioning for market share and wanting to put capacity in place ahead of demand.

Spending for foundry is expected to grow 25% to 30% in 2011 versus 2010.

For the IT manufacturing industry in general, we see capital intensity increasing across all market segments with a move to 2X technology node and below.

We would expect this trend to continue for a number of years as customers deal with the complex technological challenges associated with new memory device architectures and new materials and new architectures in advanced logic, as well as rising investments related to an eventual transition to 450-millimeter.

As has always been the case, Lam Research will invest the necessary resources across all dimensions of our business to ensure that we successfully meet our customers' technology and productivity requirements.

Considering our proven track record of technology and operational leadership, I am excited about these opportunities, and I believe Lam is in an excellent position to further strengthen our market position going forward.

In 2010 we won nine new applications and single Wafer Clean and netted 15 new application wins in Etch, which will support market share growth in 2011 and 2012.

In the coming months, we will share with you our progress on application market share growth during 2011, which will form the basis of our ship share performance in future years.

As Ernie mentioned, our focus in 2011, in addition to supporting our customer technology and productivity needs, will be on strong cash generation.

We have the potential to achieve around $1 billion in cash from operations if wafer fab equipment spending grows 10% or more in 2011 versus 2010.

Moving on to the March quarter our guidance is as follows.

Shipments of $820 million, plus or minus $20 million, revenues of $800 million, plus or minus $20 million, gross margin at 45.5%, plus or minus 1%, operating profit at 23.5%, plus or minus 1%, and earnings of $1.30 per share(Sic-see presentation slides) plus or minus $0.07 per share.

With that, Ernie and I will take your questions.

Thank you.

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

(Operator instructions).

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

Please go ahead.

Yes, good afternoon.

Thank you for taking my question.

I guess first question, Steve, as we heard from you in late 2010, you were suggesting that shipments in the first half of 2011 would look pretty similar to the second half of 2010, and I guess with the uptick we saw above the high end of your guidance in Q4, does that still hold, or can you update us on what your thoughts are there?

Yes, I think when we look at what the customers are saying they want to do, obviously, for the March quarter, they are taking less shipments than the December quarter, and they are indicating that they are going to want to take a higher level of shipments in June, which will result in, I think, us being pretty dog-gone close to flat plus or minus a few percentage points So I'll have to see how that plays out , but first half of 2011 looks pretty flat to the shipment rates of second half

Thank you.

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

Please go ahead.

Yes, thanks for taking my question.

A couple of things.

Firstly on logic, it looks like your revenues are up over 140% sequentially, I guess that's the highest level I've seen in four years.

I was wondering if you can talk about what's driving the increase in logic shipments, whether there share gains or any logic customers and new products like Etch.

And secondly within the Etch group, I was wondering if you could talk to market share expectations in 2011 given the increase in spending mix we expect from microprocessors in 2011 and some of your competitors coming up with higher productivity in systems recently.

Thanks.

Okay.

Well, as we have commented for quite a long time, that our market share in logic is essentially very much the same as our market share in memory, and so as logic and foundry moved up, as a stronger percent of total spending, that our market share would track right along with that.

When we look at the market share gains that we made in 2009 and early 2010 that resulted in shipments, we were certainly successful in both Etch and Clean in increasing our market share in logic and foundry, and so while many are kind of concerned about the fact that DRAM spending may be down 15% to 20%, more than offset, by the way, by the increase in NAND spending, the increase in foundry logic spending will certainly allow Lam Research to hold our market share and grow our market share quite well.

Relative to Etch market share as a function of those 15 net wins, we would expect that we would pick up two to three market share points in a normalized year in 2011, but certainly with the increase in microprocessor spending by Intel, where we don't have an Etch presence or will be somewhat of an offset to that, if the year plays out as some are forecasting, somewhere in the 2.5% range, and so with our market share growth, we will probably just neutralize all of that.

In Clean, we are continuing the momentum in 2011 that we established in 2010, so I would expect we are going to see a growth in market share in Clean coming off of those wins that I mentioned in my comments, so overall, I think that we have an opportunity to grow a little faster than wafer fab equipment in 2011, with our market share strength.

Thank you.

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

Please go ahead.

Thanks a lot.

Two questions on the Clean business.

First, your margins performance continues to be strong.

On a qualitative basis, can you give a little color on some of the variables or levers on the wet Clean business that have allowed you to basically perform better than most of Street expectations?

And secondly, in terms of the single wafer Clean wins that you mentioned, can you just kind of give a percentage basis of what it was on the customer concentration of spending, the gains in the back-end-of-the-line, gains in the front end of the line, what were like the biggest drivers of this year, the past year?

Thank you.

Well, I think as we had commented about our efforts in single wafer clean, we architected the option architecture.

We were able to largely to complete that activity and as a function of that, then increase our ability to outsource various assemblies and modules, which we were aggressively in pursuit of, and so later in the year, as those activities began to flow through the factory and ship out the door and manifest themselves in revenue, we saw an increase in margin, which is what we expected.

As we go forward in 2011, we will continue to focus on option architecture improvements, we will continue to focus on expanding our supplier base in terms of their involvement in supporting our Clean activities.

The Clean market as a whole is going to grow faster than wafer fab equipment in 2011, and so that gives us an opportunity for that segment of our business to grow and grow stronger, and then if you have additional market share gains we got an additional accelerated bump, and I think we will deliver stronger margins in 2011 for single wafer Clean than 2010.

As it relates to the competition -- oh, the wins and losses, a lot of the growth in Clean is occurring as a function of the conversion of wet bench cleaning to single wafer in the front end of the line, and so we have been focused on delivering some capability with enhanced sulfuric acid that, with our reclaimed capability, has enabled us to penetrate in a number of critical applications in logic.

We continue to focus on opportunities where our memory segment becomes a potentially stronger segment.

Today, we probably shipped about 60% of our products into logic, and about 40% into memory, and certainly logic remains critically important because with the number of layers involved in a logic chip, it's a bigger market for Clean as a function of that.

But we were pleased with the progress that we made in front-end-of-the-line application penetrations, as well as defending our traditional back-end-of-the-line and backside positions.

Next question, please.

Thank you.

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

Please go ahead.

Thanks for taking my question.

I had a couple of them.Number one, Steve, I know you didn't want to give any specific outlook for the year in terms of wafer fab equipment, but can you give us some color, do you think it's going to be more front-half loaded or back-half loaded, or how the trajectory of equipment spending is going to be?

And my follow-up is for Ernie, they said there was no buyback in the December quarter.

What -- am I reading too much into it or is there any thought process behind it, and can you also update us on how we look at the excess cash you have?

Thank you.

I'll talk about shipments and Ernie will talk about use of cash and buyback, et cetera.

So, the first question was, where were the first half shipments relative to the second half?

We think the second half of 2010, we think that second half of 2010, that the shipments represented a $31 billion wafer fab equipment spending level, and because I think that the shipments in the first half are going to be flattish, there's a $31 billion run rate there, and depending upon if you're of the mind-set that spending is going to be up 10%, then you're going to see the second half be pretty dog-gone flat if you think spending is going to move up 15% or even 20%, then the second half shipments are going to have to grow right along with that, and so the run rate in the second half would have to be 34 or 35, if you're going to end up the year at $32 billion or $33 billion in total spending.

So the important thing that we look at is, this year is likely to be a reasonably stable environment.

We are all used to either rocket shooting up 150%, 200%- plus in one year like we saw in 2010, or retrenching like we did in 2008 and 2009.

So 2011 represents a reasonably stable year with different quarters kind of being up and down, and it's one of the reasons why you hear us talk about, we are going to really focus on consolidating our gains, investing very closely with our customers, reinforcing that the decisions that they made to buy more Etch equipment and Clean equipment from us was a good decision, and we are also going to take advantage that in a stable environment, our ability to generate higher levels of cash flow is much easier than when you're in a rapidly accelerating revenue environment.

Chris, this is Ernie, relative to your question, you shouldn't really read any significance into the no share repurchase, so nothing has changed from our perspective.

We have authorizations in place, and the necessary structure in place to execute at pricing we feel is appropriate for a Company that can only be a buyer of our shares and not a seller, and we are going to continue to execute on that, as we have planned.

So nothing has significantly changed this quarter versus our prior plans.

Thank you.

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

Please go ahead.

Thank you.

Just a question on the continued investment in the operating expenses.

How should we think about modeling OpEx as you go through 2011?

Should we continue to model OpEx up equally across both R&D and SG&A, and then I think when you talk about increasing investment in field-based support, are you trying to increase Lam's traditional service and sales?

Is that one of the goals?

Sure, Stephen.

I think it's a little misleading in terms of classification between selling and marketing expense and R&D, because we would classify things like evaluations, and a lot of the field-based work that we do with our customers ends up being in our sales and marketing expense, so really, you should think about the totality of those investments as R&D work, whether it's done here in the facility, or whether it's done closer to the customer, and so there just are some classification differences that take place, so we are not ramping what I think most people would consider traditional sales and marketing expenses as it might appear on the face of the P&L.

I think it is reasonable over the course of the coming few quarters to model in that continued investment.

Certainly, we recognize that it's going to be important to both secure the gains that we have as well as do the necessary planning and preparation work for sustained market share gains that Steve referred to earlier, and so we do think that over the course of the coming year, you will see some moderate increase in operating expenses that will level out probably sometime mid-year or so.

Thank you.

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

Please go ahead.

Yes.

Thanks for taking my question.

Steve, which inning are we in for NAND spending if I look at your NAND shipments, we are still 40% below what we saw in 2006, 2007 and then I have a follow-up.

Are you asking who is doing the spending?

No.

I mean, what inning you think we are in terms of NAND spending?

Are we just in third or fourth inning, or the level of NAND order, does it surprise you that the NAND orders are still quite below the levels that you saw in 2006 and 2007, with so many demand drivers in front of us?

Well, I think, I mean, when I look at the increase in NAND shipments, I think it's going to go up to about $8 billion.

If I go back in 2007, which was a pretty strong NAND spending year, from our analysis, we think they spent about $6.1 billion, $4.3 billion in 2008 and probably $1.8 billion in 2009, so I think this $8 billion probably would represent a higher investment in NAND capacity expansion than in prior years, and I think that makes sense as the industry is consolidated, but the total demand for NAND on a unit basis is going to grow a billion units.

To kind of contrast the DRAM, DRAM units are going to grow a billion, and so the absolute rate of units that are growing for NAND is right now equal to DRAM, but because of the lower base of installed base capacity, the investment in NAND is going to have to include more new wafer starts, which are much more expensive, and 400,000-something wafer starts of conversion, which while less expensive than DRAM conversion, would still represent a lot of money having to be spent.

Thank you.

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

Please go ahead.

Thanks for taking my questions.

My first questions relate to -- kind of touch on DRAM and maybe related to Korea.

I noticed that both shipments for Korea and DRAM was down the last quarter.

I suspect that they will come back.

I was just curious, is that any push-out related to that, or is it just customer reducing spending and do you expect that to pick up in the first half of 2011?

Well, we pretty much expected and I think we talked in our prior earnings call that memory in the calendar December quarter was going to decline as a percent of the total.

I think we always get some interesting behavior in the last calendar quarter of the year as some customers are trying to pull in and get a head start on having available capacity relative to what their competitors are doing, some customers tend to decide that they have spent enough capital, and sometimes they will push out, so the December quarter tends to have a lot of ins and outs and that's pretty normal.

As we go forward in the year, I think that the percentage of memory is going to come up from the 40% that we saw ship in the December quarter, probably for the first half, I would expect that to be somewhere around 45% of the total, and I think that's where we are going to see the other 60%, is going to be certainly a strong foundry investment for the first half, but also a very strong spending in other advance logic IDM players.

Great.

Follow-ups with regards to Clean market.

You mentioned you have nine application wins.

Any way you can quantify how much of that came from memory versus logic and where are they all DRAM or 22-nanometer or anything related to that?

Well, earlier there was a question about that, and I talked about the focus being on front-end-of-the-line, both logic and memory wins there.

I don't want to specifically quantify that, because I like to keep certain aspects of those wins as confidential as possible for as long as possible, but it's front-end-of-the-line, and it's both logic and memory-related.

Thank you.

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

Please go ahead.

Hi, Steve.

Two things, first of all, I just wanted some clarification on that question on the buyback.

I wasn't sure I understood the answer, Ernie.

Are you saying that the stock just wasn't at a price where you thought that you wanted to be a buyer?

Was that the answer?

And then the second question is really on your shipped share, which I know that I'm mixing service in here but if I take your shipments and I compare that relative to a $12 billion wafer fab equipment market in 2009 and I take your shipments this year and I compare it against a $28.5 billion wafer fab equipment market, it's about the same market share, it's like 10.8% to 10.9% in both 2009 and 2010.

Is there something happening there, is that like an Intel effect, because Etch seems to be growing faster than the market, and you're definitely gaining share in Clean, so I'm wondering what your view is on that.

Thanks.

Tim, I'll take the share buyback.

The reality is the share price didn't hit the trigger that we had in our repurchase plan so therefore no repurchases occurred.

Thank you.

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

Please go ahead.

Thanks so much for taking the question.

I appreciate it.

Steve, I know you talked about the number of new wafer starts that you project coming online.

But how many new fabs does that represent for this year, and then do you have any early view on how many new fabs that you could forecast out, as we look into next year?

Thank you.

Okay.

So, Jim, I'll answer that question but since we didn't get a chance to answer the second part of Tim's, I'll do that, if it's okay.

Sure.

Relative to shipped share, very definitely the makeup of the $12 billion in 2009 was light on Etch, and certainly Intel's spending as a percent was strong, and so we definitely benefited from a lower spending as a percent of the total, in terms of Intel's contribution, but we also benefited that Etch went up from probably a 12% to 12.5% of WFE to I think in 2010, probably pretty close to 14%.

That's one element.

And then we benefited that single wafer Clean mix as changed as we have gone forward, although Clean, because a lot of investments to convert to single wafer was done by some of the single wafer-oriented companies, Clean actually grew slightly less in 2010 than the wafer fab equipment market in whole, but our market share in Clean was able to offset that and even benefit Lam.

So also, I think that when you look at what our revenue was, the customer service business was a dramatically higher level in 2009, and so when you take the $12 billion which is just for systems and used equipment, and you divide the $12 billion by the $1.2 billion that we were in revenue, you get an incorrect number, because now the customer service business is less than 20%, whereas in 2009, it was probably 40%, 45% or something like that.

So that's how you get the market share growth when you have fundamentally a similar percent, but the mix is very different.

So, Jim, our look at new fabs is there's 12 to 13 new fabs that are going to take shipments this year.

There's 16 fabs out there that are -- some are under construction, some have been completed, some of the ones that have completed are taking shipments, some of the completed ones are really just kind of going to wait for a while.

But clearly, we have a number of fabs that will take shipments for the first time in 2011 and it looks like probably six to seven fabs will take their first deliveries in 2011.

Next question, please.

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

Please go ahead.

Thanks for taking my question.

Two questions, Steve.

First question is, last SemiCon, you had laid out the scenario for $31 billion to $32 billion in WFE with $6 in EPS.

The question is with Intel being such a big portion on the WFE spend, are you still holding up to that $6 in EPS, please?

Yes, that's a good question, and certainly, when we laid out that model, we didn't have Intel factored in at that high of spending and at that high a percentage so that will present somewhat of a challenge for us, but when we look at our various plans that roll up against various scenarios, I think that we have -- we continue to have even with a mixed shift we have a good opportunity to deliver that $6, even with Intel changing as a percent, but like anything else, it's not just Intel if terms of what their percent is.

It's what's the percent that other customers will ultimately end up being, and what's our share with them?

So it's definitely going to be more challenging, but we expect to be very much in that vicinity if the spending levels rise to that level.

And a follow-up would be, how do you break out between the silicon, the dielectric and the metal market in terms of year-over-year growth, please?

Thanks.

I think we are -- we have seen an acceleration of conductor becoming a bigger percent of wafer fab equipment spending for Etch.

I think that if you go back to 2008 and 2009, you saw that the dielectric segment was probably 58%, 56% and conductors coming up from about 42% in 2008, we think it's about 50/50 right now, and so clearly that's been beneficial to our market share gain, because we have a higher market share in the conductor segment than we do in dielectric.

Next question, please.

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

Please go ahead.

Thanks for taking my question.

Two questions, one a follow-up on the previous question.

If you look at the Etch growth rate relative to wafer fab equipment in 2011, which one of those segments do you expect to grow the fastest?

And, can you give some color around what the growth rates are?

And the second question is if you look at the qualification activities that you expect in 2011, is that at a similar level as 2010 in terms of the number of application wins that are possible for both Etch and Wet Clean?

Thank you very much.

The Etch segment growth rates for 2011, we are still really in the process of trying to quantify those activities.

I don't think they are going to be substantially any different in terms of the ratio of conductor to dielectric.

I think that clearly the trend that has caused conductor to come up is it's going to manifest itself in continued volume output because those are the technology nodes that customers are ramping right now, so I would not expect that we will see that much of a difference in 2011.

And as it relates to -- what was the second part of the question?

I'm sorry.

Can you repeat the second part of the question, please?

One moment.

I cleared his line.

Let me get him back.

Okay.

So I think the question may have been what do we expect the growth rate to be for single wafer Clean, and we look at 2011 as kind of a re-acceleration year.

We think that single Wafer Clean is likely to grow somewhere between 25% and 30% year-over-year and so depending upon what scenario you want to pick for WFE, I think we have an opportunity to see our Clean shipments increase as a function of a rising tide, and then in addition as a function of picking up some market share gains in 2011.

We haven't quantified how many application wins that we are going to forecast because the year has just started, so we haven't forecasted them for 2011 in Etch or for Clean, but as we go forward, whether we are at investor conferences or future conference calls, as we have always done we will continue to keep the financial community updated on the progress we are making, relative to new application wins in both Etch and Clean.

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

Please go ahead.

Thanks for taking my question.

Steve, going back to your earlier comment, I guess in order for shipment to hold up in the second half, we have to hit the high end of that WFE growth range of flat to up 10%, correct?

Yes, I think since the run rate in the second half of 2010 was about $31 billion, I think the run rate for the first half looks to be very close to $31 billion, so if we are flat for the rest of the year, then we would be up basically 8%, 10% depending upon which number you want to use, and that's why I said that when you look at the kind of the consensus forecast, you've got some people at flat, you've got some people up 5% or 10% and you even have some people that suggest that spending will be up 20%, which would get you closer to a $34 billion type of level, and so we will have to see how that plays out, and that's why I kind of said, almost any range you pick, unless we have some major financial dislocation that really drives up the capital flows and the demand and all of that, that we are going to really be focused this year on consolidating the gains that we made, and rewarding the trust that our customers have demonstrated to us.

Position ourselves for the next generation of new memory architectures and new logic materials, and new logic architectures over the next two generations, and in this kind of environment, while there may be a slight decline that Ernie talked about in terms of the operating margin performance, depending upon what the spending environment actually turns out to be, we are going to really focus on cash generation, because if these kinds of stabilized environments, we can be up in the high 20s, in the low 30s as a percent of revenue in cash generation, and really at the end of the day, I think our shareholders want to see that strong cash generation and they want to see the investment in our continuous pursuit of technology and productivity solutions for our customers.

I guess as a follow-up, when would you expect you would start shipping to global foundry their New York new fab, assuming you have some exposure there?

One of the things that customers have requested from us and others in the industry is to keep confidential the information they communicate to us relative to what their plans are in terms of delivery, so I think the best way to get that answer is to ask Global Foundries about what they want to say about when they are going to take shipments and begin operation in their multi-fab.

Let me rephrase that.

Do you think, in your opinion, do you think that there is minimal risk to the $5.5 billion CapEx that they have put out there or how would you compare that to spending that the UMC and Taiwan Semis that have been around for a long time, how would you compare the downside to these kind of CapEx guidances between the Taiwanese and Global Foundry?

One of the things I have learned over my 31 years in this industry is that the minute you think you may know what customers could do, they will absolutely prove you wrong, and so the reality is, there's always risk associated with any forecast that customers give you.

Sometimes the risk is on the downside, sometimes the risk is they are going to spend even more, and so I really couldn't tell you.

I mean, we, fortunately, are a Company that does business with every semiconductor company that's involved in this industry, and as a function of that, what we focus on is if the demand is growing and we understand how the supply is matching up with that demand, somebody is going to go and fill that demand, and exactly how it's going to play out in terms of who ends up spending more, or who ends up spending less, way too difficult to predict.

Thank you.

Thank you.

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

Please go ahead.

Hi.

Thanks for taking my questions.

I wanted to ask about the operating improvements, operating model improvements and wet Clean.

Obviously, wet Clean going to grow 25% to 30% this year it will probably be a larger mix of your overall revenues, and I was wondering if wet Clean revenues are larger, will not have a negative or positive impact on your operating margins.

Well, I think that one of the things that you've seen is that our margins at the revenue levels that we are dealing with, are in that low 46% to high 46% and I think that the challenge for us is as Clean ramps, and becomes a bigger percentage of the total revenue, that we've got to make sure we execute to the cost reduction activities that I've talked about and so our thought process relative to margins kind of reflects a recognition that even with that, the margins overall in Clean from a gross margin standpoint, tend to be somewhat less, and from a cash flow perspective, because the P&L carries various aspects of non-cash-related accounting associated with the acquisition of Clean, actually is a nice contributor to cash flow, and it's one of the reasons why we try to spend time really talking about cash generation, while recognizing that to the extent that we can execute, in the way that we'd like to, that we can potentially see improvements in our gross margin performance, both as a function of doing that if the volumes increase, but also even as Clean increases its percent of our total revenues.

Thank you.

Thank you.

Our next question is a follow-up from the line of C.J.

Muse with Barclays Capital.

Please go ahead.

Thank you.

Thinking about your OpEx, if you look at the midpoint of your revenue guide for March relative to pretty similar run rate in September, that's about $18 million more per quarter, so I guess you could -- could you help me understand precisely where that is going, and how long we will see that in the model, and if so, is this new part of your target model?

Well, I think that there's no question that if you go back a couple quarters, that our OpEx is up in the vicinity of what you just said, and it does in fact reflect increases in investment in both field-service-based people, process-engineering-based people that deal with the larger sustained volumes that we have, but as Ernie said, we are increasing the number of people who work on a dedicated basis at a lot of those major customers, because they are asking us, and we are responding to the difficulties and the complexities that they have when they are looking at going into the next generation devices, whether you're talking DRAM, NAND or logic chips.

So in the short term, we are going to make those investments because that's the right thing to do for our customers, it's the right thing to do for the business, and for our longer-term market share growth.

In a declining revenue environment, that could put a little pressure on the P&L, but certainly in the environment we are talking about, our cash generation is going to be better than it was if 2010, and so I would expect that if we can remain in a reasonably stable 3% to 4.5% GDP environment for a couple of years, and the customers maintain kind of rational and well-balanced investments in terms of supply versus demand, that we will likely have an opportunity to see higher revenues at some point in time in the future, and I think you will see us demonstrate the ability to move our operating margins kind of back up to our 27.5% model that we've kind of said is what we are trying to achieve, when we are in the higher spending phases of the cycle.

So I view this as kind of maybe a demonstration that what we are not going to do, if revenues kind of would slow down a little bit for a couple of quarters, we are not going to try and optimize P&L performance at the expense of making what we think are the right investments for our customers, the right investments for really continuing to build the capability that the Company needs and we are focused on making sure that when the spending and our market share is in the right situation and we have the ability to be a $4 billion Company, we want to make sure that we can execute to that very effectively in the coming years.

Thank you.

Management I show no further questions in queue.

Please continue with any closing remarks.

I'd like to thank everyone for joining our call today.

I'll remind you the audio replay will be available on our website later this afternoon, and that concludes our call.

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

You may now disconnect.

Thank you for your participation.