科林研發 (LRCX) 2011 Q4 法說會逐字稿

Welcome to the Lam Research Corporation June 2011 quarterly results conference call.

During today's presentation, all parties will be placed in a listen-only mode.

Following the presentation, the conference will be opened for questions.

(Operator Instructions).

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

Please go ahead.

Thanks, Michaela.

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

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

Shortly.

Ernie will discuss financial results for the June 2011 quarter.

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

The press release detailing our financial results was distributed over wire services a short while ago and is also available on our website at Lamresearch.com.

Today's call contains certain forward-looking statements, including those related to our expectations of market size, technology trends, and customer spending and behavior, our investment plans, the capabilities of our products and operations, our tax rate, and our forecast of market share, shipments, revenues, expenses, margins, operating profit, earnings per share, cash generation and free cash flow, 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 recent form 10-K filed 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 3.00 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.

Thanks Shanye.

Our June quarter was largely in line or better than our midpoint of guidance and represented a strong close for fiscal 2011.

For the quarter, shipments were at the high end of our guidance range at $793 million, a sequential decrease of 2%.

Application and market segment break down for the quarter were as follows.

Applications of 65 nanometer and below represented 91% of overall system shipments and 82% of overall system shipments were for applications at 45 nanometer and below.

System shipments for NAND were 44% of overall system shipments, followed by DRAM at 11%, and other memory at 1%, making the total memory segment 56% of overall system shipments.

Foundry shipments represented 31% of overall system shipments, and the remaining 13% were for logic and other.

I want to take an opportunity to highlight the fact that starting this quarter, we are using non-GAAP rather than the phrase "ongoing" to describe the results of our operations that we feel are relevant for comparing the Company's operating performance.

The only difference between the ongoing and non-GAAP nomenclature is the exclusion of the non-cash interest expense accompanied with the convertible note issued on May 2011.

Otherwise, the presented results are directly comparable to those previously described as ongoing.

Revenues for the quarter were approximately $752 million, slightly above our guidance midpoint, and down 7% sequentially.

Gross margin was at 45% at our guidance midpoint, and was down from 46.2% in the March quarter due to lower factory and field utilization associated with the decline in business volumes.

Total non-GAAP operating expenses were $180 million, up $3 million sequentially due to continued investments in strategic development activities at the customer interface.

Although we expected slightly higher levels of OpEx, we benefited from a release in our accounts receivable reserve.

As we discussed during our semicon analyst event, we plan to continue making the investments necessary to ensure that the Company will be well positioned to support our customers as we move through important technology inflexions during the next several quarters.

Non-GAAP operating income was $159 million, which resulted in a non-GAAP operating margin of 21.1%, near the high end of our guidance range.

During the June quarter, our non-GAAP tax rate was 9.6%, a few percentage points lower than anticipated, primarily due to geographic income mix.

As you know, we forecast our tax rate on a fiscal year basis, and as we look at the next four quarters, we expect tax rate in the mid teens.

Based on a share count of approximately 125 million shares, non-GAAP earnings per share were $1.14, $0.07 higher than the midpoint of our guidance range.

About half the $0.07 is attributable to operating performance and the other half to the favorable tax rate.

On a GAAP basis, our earnings per share were $1.01.

As a reminder, during the quarter we completed the issuance of $900 million in aggregate principal convertible notes.

This offering was designed to bolster our US-based liquidity and provide us with the flexibility to make investments in the business, fund future growth, and continue to execute on our share repurchase authorization.

Our non-GAAP results were reduced by $0.005 per share for the net impact of the cash interest expense on the convertible notes, while our GAAP results were impacted by approximately $0.035 per share.

Both the GAAP and the non-GAAP results reflect about a half quarter of these activity.

Looking at the balance sheet, we ended the June quarter with cash and short-term investments, including restricted cash of $2.3 billion.

DSO for the June quarter was 71 days, down one day from the March quarter, and inventory turns were 4.2, down from 4.9 days in the March quarter, as we increased on-hand inventory to respond to rapidly changing customer requirements.

Deferred revenue at the end of the quarter increased to $258 million, and excludes $70 million of shipments to Japanese customers that will revenue in future quarters.

Equity compensation expense came in at $15 million, while depreciation and amortization was $20 million, and capital expenditures were $35 million.

We ended the quarter with about 3,650 regular full-time employees.

As we discussed this month during our analyst event at Semicon West, we were in the market with share repurchases on a few days.

During the quarter, we repurchased approximately 18,000 shares at an average price of $42, and thus far in the September quarter, we've made additional purchases totaling 52,000 shares on a quarter-to-date basis, and would expect further repurchase activity in the September quarter, should the stock trade at similar levels.

As a reminder, we also repurchased 1 million shares in conjunction with the convertible debt offering.

In the June quarter, our cash flows from operations were $198 million, representing a strong level of 26% of total revenues, and we expect similar performance in the September quarter.

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

Thank you, Ernie, and thank you all for joining our call today.

As many of you are aware, we held our analyst and investor event at Semicon West a few weeks ago.

I would like to take a few moments to reiterate the key messages we outlined during that meeting, prior to providing our view of near-term market conditions and business outlook.

We remain encouraged by the opportunities in the wafer fab equipment industry over the next couple of years, which are supported by a couple of themes we discussed during Semicon West.

Those themes include trends in the mobile and computing space, where content-rich devices, such as smart phones, tablets, and notebook PCs continue to drive demand for IC units.

We expect that IC units will grow by 10% to 11% annually over the next three years, to roughly 275 billion units by 2014.

This bodes well for equipment suppliers as this strong IC unit growth will drive the need for additional wafer processing equipment.

The highly competitive mobile market is driving semiconductor device manufacturers to continue down the path of Moore's law to produce logic and memory chips capable of meeting the power, performance, and form factor requirements of these mobile products.

The scaling challenges presented by these demands are significant and will require new and highly complex device architectures, starting around the mid to low 1x node in memory and 20 nanometer or 14 nanometer node in advanced logic.

As device complexities increase with each subsequent technology node, capital intensity is rising.

As a result, IC manufacturers will need even more highly differentiated technology and productivity solutions, and Lam is well-positioned to deliver on both of those requirements.

These industry trends form the basis for our view of an annual WFE spend environment of approximately $30 billion, plus or minus 10% over the next few years and the potential to reach the $40 billion level within the next five years, as the new architectures move into high-volume production.

During this cycle, our customers have demonstrated the ability to keep supply and demand in reasonable balance.

Behavior, which is very different from prior industry cycles, where device manufacturers in pursuit of market share gains created an oversupply situation by adding capacity well in excess of demand.

This change reflects a consolidated customer base and the fact that some customers have reduced ability to raise needed capital.

In addition, given the relatively short lead times for most equipment, customers have the ability to better time their deliveries to match the expected demand environment.

As a result, even with overall healthy wafer fab spend levels, we expect that quarterly shipment variations in the range of plus or minus 25% will be experienced.

Evidence of that environmental is occurring now, in terms of our expectations for second half of this year.

Since our April earnings call, foundry players have adjusted their 2011 spending plans in response to reduced demand for 65 nanometer and above capacity, which has resulted in lower utilization rates.

With the cost to add capacity at the 32/28 nanometer node in the range of $1 billion for 10,000 new wafer starts per month, the leading edge foundry players are telling us that they plan to delay the earlier stated 32/28 nanometer ramp plans, while they address yield ramping issues that are fairly typical with any transition to a new major technology node.

As a result of these changes, we now project foundry and IDM advanced logic spend within range of $10 billion to $13 billion for the year, and where we end up will ultimately depend on demand and the pace with which yield improvement related activities can be completed.

Memory players are being very cautious with spending on DRAM capacity, reduced due to concerns over consumer PC demand.

While NAND capacity and conversion investment continues on track for the calendar year as forecasted.

Taking all of this into account, our view of 2011 wafer fab equipment spending is now in the range of $29 billion to $32 billion, or flat to up 10% relative to 2010.

At this point in time, if deliveries are executed as customers are requesting, we would expect closer to $29 billion, unless foundry and advanced logic companies decide to spend on the 32/28 nanometer node before the end of the calendar year.

If you exclude the microprocessor portion of that spend, a segment in which Lam does not materially participate, our resulting served available market would be flat to down by approximately 10% for calendar year 2011.

We believe that first half 2011 wafer fab equipment spending on an annualized basis was approximately $32 billion for the industry, and therefore, we expect second half 2011 shipments may be flat to down by as much as 19%.

Longer term, Lam is well positioned to deliver strong financial results and continued market share gains in both etch and clean, as a function of both sustained, healthy wafer fab equipment spending and the investments we are making today, extending our competitive advantage at the leading edge.

Our strategy remains focused on providing differentiated technology and productivity solutions for our customers, extending our leadership position in etch, leveraging our customer trust, innovative technology, and operational expertise into single wafer clean, and continuing to deliver solid financial performance.

Moving on now to our September quarter guidance.

As was discussed by many, in the industry trade show at Semicon West, customer push-outs have been occurring for the past few weeks, and for us as recently as only two days ago.

Therefore, we are guiding to September shipments of $580 million plus or minus $25 million, revenues of $670 million plus or minus $20 million, gross margin at 42% plus or minus 1%, operating profit at 14%, plus or minus 1%, and earnings per share of $0.63 plus or minus $0.07 a share.

While the current quarterly wafer fab equipment spending environment is certainly challenging for us in the near term, we remain committed to making the investments necessary to support our long-term strategies.

Our strong balance sheet and cash generation capability provide the Company with financial strength and flexibility.

As we close another solid quarter for the Company, I would like to take the opportunity to thank our employees for their dedication and contribution towards Lam's continued success.

They are the best in our industry.

With that, Ernie and I will take your questions.

Ladies and gentlemen, we will now begin the question-and-answer session.

(Operator Instructions).

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

Muse with Barclays Capital.

Please go ahead.

Hello, this is Olga calling in for C.J.

Olga, could you speak up, please?

Sure.

Thanks for taking my question.

My first question is on the commentary around shipments into the second half of the year.

You talked about how you see the potential for that to be flat to down 19%.

Is that for the industry or for Lam specifically?

Well, it's for the industry.

I think that if you look at what's occurring right now, that if we were at a $32 billion first-half annualized run rate, if we're going to end up at the lower end of our $29 billion to $32 billion range, then the potential is that the second half shipments for the industry to be down 19%.

For us, given that we don't participate in the microprocessor market, it really isn't any different from a percentage standpoint, because spending is pretty balanced between first half and second half relative to microprocessor.

So if we're on the low end of the range, then our shipments would likely be mirroring decline of the industry, with the exception of offset improvement for us as a function of market share gains in etch and clean.

Got it.

And then as a follow-up off of that, if you do the math around it, it would imply a pretty decent uptick in the December quarter shipments.

Are there any specific customers or lines that you are tracking that would give you confidence that would you see that level of shipment uptick in this fourth quarter?

I would have to say that I have no confidence or very little confidence based on the environment that we're in right now.

I think it wouldn't be appropriate for me to really talk about specific customers, but clearly what you are suggesting is that given where we think the shipments are going to be for September, that it implied that December is better.

That is certainly true if the customers execute the plans that they are currently communicating.

As I have said many times on these conference calls, it is with the consolidated industry, with short lead times, essentially impossible to predict with accuracy who is going to do exactly what, when are they going to exactly take deliveries.

And with consolidated customers spending large amounts of money, all it takes is one customer to decide to move a shipment out of or a set of shipments out of the September quarter or out of the December quarter, and things can change significantly.

So as Ernie and I have been talking about, I think the industry is going to be volatile on a quarter-to-quarter basis, and therefore, I tend to look at what happens on a rolling six-month basis and what happens on a rolling 12-month basis.

And that's why you hear me commenting on we think that on average, over the next couple years, we're likely to see $30 billion on a rolling 12-month-type basis, but what's going to happen on a quarter-by-quarter basis, I think is going to be volatile.

Got it.

Then just a follow-up question.

On the market share comments, any sense, given we're now halfway through the year, where you think your etch market share will be for the year and on the clean side as well?

As we said at Semicon West, we think we'll pick up one to two market share points in etch.

We think we'll pick up three or four, possibly even five market share points in clean.

Clearly market share is a function of total spending and the revenues, shipments that we generate, but also customer mix.

So with the volatility around customer mix, I think we'll be in that ballpark, but it's impossible to tell for sure with the volatility.

Next question please.

Thank you.

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

Please go ahead.

Hello, thanks.

Steve, I was thinking that you would guide shipments down 25%, based on what you said at the analyst day and what the other semicaps have said.

But you mentioned that you saw some additional pushouts just two days ago.

I was wondering if that were the case, why shipment guidance were not even weaker.

I was wondering if you could add a little bit of color on --

Satya, can you speak up?

It's very difficult to hear you.

I apologize.

I think at Semicon, based on what you guys said and based on what other semicaps are saying, a down 25% shipment guidance seems exactly par for the course.

But, on the other hand, you also said you saw some additional shipments two days ago.

I was wondering if that were the case, why shipments weren't even weaker.

Perhaps you can give a little bit of color on what was pushing out most recently and what is happening in the very near term.

You would know better than I, because I think some companies were spending time talking about that their bookings were declining.

Some companies didn't talk about shipments.

Up until a number of days ago, I would have expected that our shipment environment would not be down as much as it is.

We're essentially down 27% June quarter to September quarter.

The reality is with this volatility, if I had another conference call in two weeks, I might be telling you that it's gotten better.

It really is one of the most unpredictable environments that I've been a part of in many, many years.

And so I think that we're in the vicinity of where we thought, but I do think that as every day goes by, we just never know if somebody is going to call us and say, hey, pull something in, or push something out, so this is where we're sitting right now.

Unfortunately from a customer confidentiality standpoint, all I would tell you is that if I were to look at what has changed over the last quarter from what customers were asking us to deliver, I would say two-third of the change is coming out of the foundry space, and about one-third of the change is coming out of the memory space.

And most of that being DRAM related, which I don't think is a surprise to anybody, given most of the comments around consumer PC really not being as robust as people thought.

And that's caused DRAM bit growth to really be more around 45% than what was earlier thought to be about 55%.

So we've seen a pull-back in the DRAM segment.

And I think the utilization issues in the foundry and a change in ramp plans and expectations on the 28/32 nanometer node in the foundry has been well documented over the last month or so.

A quick follow-up.

In terms of your gross and operating margin guidance for September, perhaps relative to your semicon model, the gross margins, to me, look like they are maybe 50 bits to 100 bits lighter.

And OpEx is up about $8 million or so, which I would've thought perhaps a bit less than that.

I know you're investing in R&D.

Was wondering if you could add a bit of color to that.

Sure, if you actually look, Satya, this is Ernie.

If you actually look at the specific wafer fab environment that we're facing in the September quarter, it's significantly below that low end of the $28 billion model.

Depending on the perspective, it's somewhere in the $20 billion to $22 billion range.

So, if you took the $28 billion model and scaled it down, that puts you within a relevant range of the gross margins that you would expect.

So we do believe it's very directly attributable to this specific September quarter environment that we're facing.

Next question, please.

Thank you.

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

Please go ahead.

Thanks a lot.

In terms of the shipments outlook for the September quarter, can you give a little bit of color in terms of the customer breakdown?

How it's shaping up right now in terms of foundry, memory, and logic?

Yes, I can talk in generalities.

As Ernie said, in the June quarter, we had about 56% of our total system shipments were memory with most of that being NAND.

In the September quarter, we're going see probably February a little over 60% be memory, with again, a lot of that being NAND related.

Foundry and advanced logic would be about high 30s.

I think while the percentages are what I just said relative to mix, both segments, quarter over quarter, in terms of the amount of shipments they're taking, all of the segments are down.

It's just that the foundry logic segment in the September quarter is down even more than memory.

Great.

That's helpful, Steve.

Maybe a little bit of color in terms of the DRAM market given your exposure to that segment.

Obviously the consumer PC market is weak, as you stated.

But when do you see the industry making that transition from 4x to 3x and eventually to 2x where some of those technology transitions start to benefit Lam particularly.

What is going to be the catalyst there for them to get the cost benefits from those transitions?

I think the industry, it's clearly right now in a significant transition where 4x is the bulk of production.

But there's a lot of 3x production, as well that is beginning to come online.

And I think that a lot of companies are expecting to be converting to the 3x activity throughout the course of this year, but a significant ramp to 3x in calendar year 2012.

We think that there's a greater challenge to do technology conversions at the 3x node than there was to go from 6x to 5x to 4x.

And so therefore, if we get a reasonable amount of bit growth in the 2012 time frame, we may see that the DRAM spending in 2012 is going to have to come up, even if you had the same bit growth.

And then if we get a stronger consumer segment, because I think most of the companies that we talk to, the commercial, industrial segment and the server segment is strong and expected to stay strong in 2012.

So the consumer is the wild card, and PC, which really drives a lot of DRAM bit growth.

And so, the consumer comes back in 2012 stronger, and we have stronger bit growth in 2012 relative to 2011.

Then I think we could see $1.5 billion to maybe even $2 billion of increased DRAM spending, if we get that environment.

Next question, please.

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

Please go ahead.

Thanks.

Hello, Steve and Ernie.

Just a question on the shipment pushouts again.

Are they mostly capacity related, Steve, or are you also getting an equal amount of technology upgrade type pushouts from the customer base?

Well, when you're talking about memory, memory is a pretty dominant conversion-related activity this year, particularly in DRAM.

We think there's probably 450,000 wafer starts per month of conversion activity with only 60,000 wafer starts of new DRAM capacity.

NAND, it's a little better story in the sense that while there's 500,000 wafer starts or so of conversion, there's 240,000 to maybe even 250,000 new wafer starts.

So, when you're talking memory pushouts, you're always talking about some of the aspects of conversions are present.

But if they are pulling back on capacity expansion, which is certainly the case in DRAM, and not the case in NAND, you are going to have some of that be full systems that are a bigger part of the push out than just conversions.

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

Please go ahead.

Hello, Steve, Thanks so much for taking the questions.

Specific to the foundries, in particular the foundries that are pushing out in part because they may have some yield issues.

Do you think them fixing the yield issues alone could drive a resumption of order activity, or has it gotten to the point where they need to fix the yield issues, and then also see an improvement in utilization.

They're probably a heck of a lot more qualified to really answer what they're going to do.

I think that in some respects, the speed at which they're getting up the yield curve, at the 28/32 nanometer node, is actually at least on schedule, maybe even ahead of schedule I don't think any of us should be thinking that there's like huge yield problems that are not really the norm in what you would expect.

But when you talk to the customers who are going to be buying those 28 nanometer ICs, most of them really have it in their plans that they're going to start ramping up their demand in the first two quarters of 2012.

Certainly there's some output that's going into products at the second half of 2011, but that's relatively low.

So I think that when we talk about what's going on at 28, we're talking about six months ago, what did the foundry and advanced logic companies think the speed was going to be that they could potentially ramp?

What did they think the demand was going to be based on what their customers were either asking them to do?

In terms of where we are now, the reality is it's both they've got to get up the yield ramp curve, especially when you think about how expensive it is.

You don't want to just throw more equipment and throw more wafer starts at it, and have to amortize $1 billion for 10,000 wafer starts over relatively lower yielding.

They could afford to do that when it was half the cost for 10,000 wafers, and sometimes they did that, so I think it's a combination of demand.

I think it's a combination of that with yield, but I do expect that it's likely we won't see the 28-nanometer ramp in volume until the first half of 2012.

Thank you very much.

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

Hi, Steve.

One of your largest memory customers, in fact, your largest memory customer, one of the senior executives was on the tape on Monday, talking about raising memory CapEx.

And I think a lot of the people close to that company are believing that tomorrow, they will raise memory CapEx.

So speaking to the volatility of the environment, which is what you mentioned, how much of a potential raise from that company is in your guidance?

Because it seems like it's not in the guidance.

So I'm just wondering what you make of those comments.

Thanks.

Yes, we've heard those comments, too.

And none of any potential increase in CapEx spending is in our guidance.

And clearly, if more demand for deliveries comes from that customer, then that would be upside from the numbers that you've heard me talking about.

Got it.

Great.

And then just a follow-up.

Ernie, I'm just back to a question that was previously asked, I'm looking at the OpEx necessary to get to the guidance, and it seems like Op Ex is going to increase for both R&D and SG&A.

I guess I can understand why it's going to increase for R&D, given maybe some early 450 development.

But I'm curious as to why it is increasing for SG&A.

And I'm also wondering maybe how much of the increase in R&D is due to early 450 development, if any?

Thanks.

Tim, as we've talked about before, the vast majority of the increase in our OpEx is truly R&D-related based on our internal accounting for certain things that we are providing as a part of that R&D activity, specifically since it's customer facing and, for example, may involve providing a tool to a customer.

We might classify that as SG&A expense.

So in terms of what you would classically think of as SG&A, there's relatively little increase associated with that.

Relative to your question about 450, we are spending at about the level we feel we need to spend to be prepared when our customers are demanding of that diameter.

And so I would say that our level right now is relatively modest compared to what it will need to be at full scale, but it is certainly present in the spend.

So Tim, I would amplify one thing relative to 300-millimeter spending.

Normally, when you're focused on, let's say, ramping up what we'll call the 28-nanometer node and logic, and the 3x node in DRAM and the low 2x node in NAND, you're really out there with JDPs and the [valves] for one technology, no doubt.

We're out there now both for that one node, and then the second node, because the second node is where the new architectures are coming into play.

And customers are doing far more work, and running far more wafer starts on the development tools to work through all the issues associated with the new 3D NAND, the new finfet structures, the new DRAM capacitor structures, even MRAM activity.

So that's making R&D more intensive.

And as you well know, whether shipments go up or down and revenues go up or down, a customer's activity from the standpoint of next-generation technology, never ends.

And so you know, we're going to invest through this adjustment period, because we believe it's going to be short term in nature.

And that's why you hear me talking about what I think the rolling 12-month environment should be, $30 billion plus or minus $10 billion.

And we believe that the investments we're making now, while they put some pressure on our P&L, they are going to position us for the market share gains that we want to see.

And it's going to benefit us significantly in the three to five-year period, when those next-generation architectures ramp.

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

Please go ahead.

Thanks for taking my question.

On the --

Ben?

We lost you.

Operator?

Pardon me, Mr.

Pang, if your line is on mute, please make sure to unmute your phone at this time.

Looks like Ben has just dropped off the call.

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

Please go ahead.

Thanks.

Two questions.

Steve, if we look at your shipments in both June and September, how much of the etch portion is coming from dielectric versus conductor etch?

Well, let me think about that and reference a document, since I don't have that off the top of my head.

We have that data, but we don't really put it together for this call.

We tend to look at what's happening in the etch market relative to what's going into logic, flash and DRAM.

So I really can't answer that.

We'll have to get back to you with how that's breaking out.

But, the thing I would tell you is that fundamentally, conductor has grown.

It used to be somewhere around 40%, but over the last two years, it's now about 50% of the total etch market.

And it really doesn't matter whether you're talking about logic or you're talking about memory.

Conductor applications have grown, and so, therefore, I don't think you are going to see that there's much of a difference in terms of where the activity is going between dielectric and conductor.

If I could follow up, you said you're targeting three to five points share gain in the clean market this year.

I'm just curious, where do you think the opportunities are going to come from?

Is it going to come from Japanese competition or is it going to come from the local Korean suppliers?

Thank you.

Well, we're making a lot of progress in memory, which is important to us because if you look at the historical market share that we've had in single wafer spin clean, it's been largely logic back into the line.

And so what we've talked about at Semicon was that we expect to pick up 12 to 14 new penetrations.

The majority of those will be in memory.

The interesting thing is they come from a whole variety of competitors, from some Japanese clean companies to Korean clean companies, to even non-Japanese and non-Korean.

So it's actually a pretty wide distribution, and at the end of the day, we're not so concerned who it comes from.

We just want the win, and we want the market share.

The next question comes from the line of Edwin Mok from Needham and Company.

Please go ahead.

Hello, thanks for taking my questions.

Steve, I have a question regarding the NAND space.

It sounds like your commentary suggests that space is still progressing this year and that they are adding capacity throughout the year.

I was wondering, are you worried that the NAND space will be coming like DRAM in the coming year after all these capacity extensions, they will just switch the focus on conversion, and therefore, cause a slow NAND spending environment in the coming year?

Well, conversions are a function of whether or not, in fact, the next technology node from an architecture standpoint can be converted from a technology standpoint.

The other aspect of conversions are the more wafer or the more bit growth, and therefore silicon output you need, there's only so much that you can take and convert before you have to add new wafer start capacity.

And so the reason that you see NAND having to add a couple hundred thousand new wafer starts is bit growth.

Now, if the bit growth were to slow down, then I think the ability, at least until we get to 3-D NAND will be to have a greater percentage of conversions.

So, the real question is what happens to NAND bit growth in 2012 and 2013?

And I think a lot of that is going to be a function of what happens to SSD penetration, what happens to tablet growth, which is obviously SSD related.

And, how quickly can they get down to really low-cost, high-yield at the low 2x node?

What's the ramp profile for the high 1x node?

And I think that we'll have to see that play out, but I would expect that we'll see pretty healthy NAND spending, similar to what we saw in 2011.

But it is going to depend on what the bit growth profile is, and if it stays up around 80%, it will be about the same.

If it drops, then we would see some less spending, but the potential for bit growth to expand in NAND exists.

I think for next year it's all about whether or not you get more significant SSD penetration, and right now, I think the jury is still out on that.

I see.

It all comes to demand.

That's great.

Quick follow-up on the buy back.

Just curious how you do guys think about that?

Obviously your business is generating a lot of cash, even in a moderated demand environment.

Are you guys going to use a lot of that cash generated to buy back stocks given that you have already so much cash on your balance sheet?

Thank you.

Edwin, it is completely consistent with what we talked about Semicon.

So we have a purchase plan in place that is on auto pilot at this point, and based on the trading price of the stock, we will be buying back various volumes over the course of any given quarter.

And we have a question from the line of Ben Pang.

On the $10 billion to $13 billion that you commented on for the logic foundry, what was your outlook prior to the last couple of months, and then one follow-up?

Well, at one point, if you will, back three or four months ago, it was probably more likely to be $12 billion or $13 billion.

I think where we are now it's more likely that if more spending doesn't occur, it would more likely be $11 billion.

It could go as low as $10 billion, but I think it's right now looking like it's going to be $11 billion.

But you just really don't know.

All it takes is one or two of these companies to come in, decide to add 5,000 wafer starts at 28 nanometer, and the next thing you know, you've got another $1 billion, even $2 billion that could be added to WFE spending.

So when you're talking about 28 nanometer now, and you're talking $1 billion for 10,000 wafer starts, it can move the needle pretty quick.

So that was my follow-up, is the growth right now for foundry solely at the 28/32 nanometer that even 40/45 nanometer, there's no boost here, even with like a 10% and 11% unit volume for semiconductors?

No, I don't think that's true.

I think we tend to focus a lot on 28 and 32 because it's so capital intensive.

But if I look at -- in 2010 for the 40, 45 nanometer node, we think they probably added about 30,000 wafer starts.

We think they're adding somewhere around 40 to 40,000 wafer starts at that node this year.

So clearly, at about 650 for 10,000 wafer start, they're spending a fair chunk of change at the 40, 45 node, and they're adding more capacity there clearly than they're adding at the 28 nanometer and 32 nanometer node for now.

But as we go forward into 2012, I'm expecting that we'll see the 28/32 node will add more new wafer starts than the 40 to 45 nanometer node.

And therefore we'll see more foundry, more advanced logic spending in 2012 as the capital intensity of the node rises.

And we have a question from the line from Atif Malik from Morgan Stanley.

Please go ahead.

Hi, thanks for taking my questions.

I apologize if these questions have been asked before.

Steve, can you comment on the utilization levels in the leading edge, 40 nanometer and below, and maybe what utilizations are at foundries for 65 nanometer and above?

Well, I think it varies by foundry for sure, but in general, when you are looking at 65 nanometer and above, you're looking at utilizations anywhere from 65% to 80%.

You can find a foundry here or there where maybe that utilization is lower.

I think that when you look at the 40/45 node, the utilizations are rising.

They're pretty strong at the biggest foundries.

That's where there's a lot of demand moving, and there isn't as many total wafer starts at that technology node.

So if the demand is there, it's easier to have higher utilization at that node.

If you then look at the 28/32 nanometer node, you've got some capacity, relatively low, and depending upon which fab, the utilizations are anywhere from 50% to 75%, or even 25% to 75%, depending upon which customer and who they're trying to ramp for.

It really is all over the place.

But I do think the encouraging thing is if you look at, there's more wafer starts in the leading edge at 40/45, and it's growing.

Clearly 65 has the most wafer starts in terms of a technology node, but customers are moving to that 40/45 node, and the utilizations are in pretty good shape at that node.

Great.

Then just a follow-up.

Lam does not have high exposure to Intel in the US.

If I look at Intel's spending this year, it was quite high, over $10 billion in CapEx, and next year if I assume it's around $8 billion.

How can Lam close the gap between its growth rate year-over-year versus the peers, assuming all else is equal?

Can the share gains and the capital intensity increase on the NAND side offset your lack of exposure at Intel?

I think in a year like this where Intel really is 20% of wafer fab equipment, even with market share growth, we can't offset that in any one year, and so we focus on winning application market share at those customers that we do business with.

We can't change how much money Intel is spending right now, but we can certainly, in a normalized year, we can take those market share gains that we're getting at the other customers, and have that manifest itself in faster growth than the WFE environment, which we've clearly done over the last 10 years.

Certainly we are involved with ongoing evaluations, investigations, discussions with all of our customers, and certainly we recognize that if there's an opportunity to be able to be a supplier for Intel, we would certainly find that to be a situation that would ultimately make it easier for us to accelerate our growth rate faster than WFE, and so we'll just have to see how that plays out.

But I think with the market share gains that we're targeting in clean and in etch, that against a normalized Intel spending, we'll grow faster than WFE if we execute to our plans.

Thank you.

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

Yes, thank you for taking my question.

Steve, I'm looking at the mix of your NAND, and it seems like NAND shipment is up almost 50% year-over-year, if I were to take the June quarter and March, and if I were to look at the foundry, that was also up 20%, first half of this year versus the first half of last year.

So doesn't that imply that maybe the NAND guys are done spending, and unlike previous cycles, they're more cautious and industry has consolidated, so that they're not as aggressive with the spending?

And then on the foundry side, most of the large fabless chip companies that have reported, they have actually talked about decent yields at leading edge 20 nanometer.

And given the fact that foundry shipment is up 20% year-over-year, doesn't that imply that maybe foundry guys are also done and front-loaded and put together is just that the CapEx up side of the equipment industry was expecting is not materializing?

Well, to the extent that I can understand your question, I think at the end of the day, all spending has to be looked at in terms of what's the demand environment that is present for NAND, present for DRAM, present for advanced logic, what customer is ramping on what technology node, and what's the capital intensity for that?

And when you look at supply and demand numbers relative to NAND, they're very much in balance.

When you look at where the NAND companies are relative to cost and the pricing, they're making money.

When you look at DRAM, it's probably running a little bit below the normal cost curves.

There's probably a little bit of excess demand in the pipeline for DRAM, which is why I think you see that there's some slowing down of how much more conversions and capital is going into DRAM.

When you look at foundry, as I commented, I think they're doing fine relative to the targeted rate of yield improvement on the leading edge, but let's not confuse that with the yields at 65 and the yields at 40/45 are higher than the yields today at 28.

So a company has to be careful not to take too much demand relative to what it cost to output that demand.

And so while yields are still coming up as a function of the learning curve, you want to keep your investments in capacity expansion in sync with a reasonable demand that you can meet.

Because if you take on too much demand, and you make too many commitments, and your yields are running low, you have to offset that by putting a lot more equipment in, and the cost doesn't change, even though your output is reduced.

So I think when we look at the demand environment, when we look at capital intensity, I think we're in a period where the customers are consolidating their gains.

They're adjusting very rapidly, which they can, to align how quickly they bring capacity on, relative to demand and their forecast for demand.

And like I said, I think we've got volatility in the near term, but I don't think that it fundamentally is changing the trend of what the investment levels are that are going to have to be made to deal with 10% to 11% average IC unit growth over the next two, three, four years.

Thanks.

And just one final --

I'm sorry, we have time for one more question, operator.

Our last question comes from the line of Christopher Blansett from JPMorgan.

Please go ahead.

Thank you, guys.

A quick one, Ernie.

You have a restructuring charge in the statement.

I don't think you mentioned that.

So first could we figure out what that is?

Sure.

We have a restructured facility that was restructured actually probably the better part of a year ago that's covered under synthetic lease.

And as a result of that, we're obliged to do an assessment against our residual value guarantees for the lease.

And as we did that assessment, given market conditions, we took the $17 million charge, it was non cash, and we think that writes the building down to market values that we could reasonably anticipate over the remainder of the lease.

Thank you.

And I would now like to turn the conference back over to Shanye Hudson.

Thank you.

Thank you all for joining us today.

The audio replay of today's call will be available on our website later this afternoon, and that concludes our call.

Ladies and gentlemen, that does conclude our conference for today.

We thank you for your participation, and you may now disconnect.