科林研發 (LRCX) 2012 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the Lam Research Corporation June 2012 quarterly results conference call.

At this time, all participants are 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 Shanye Hudson, Director of Investor Relations.

Please go ahead.

Thank you, Douglas.

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

With me today are Martin Anstice, President and Chief Executive Officer and Ernie Maddock, Senior Vice President and Chief Financial Officer.

Shortly, Ernie will discuss financial results for the June 2012 quarter and outline some of the impacts associated with our Novellus acquisition.

Martin will then share Lam's business outlook for the September 2012 quarter and Combined Company guidance before opening up the call for Q&A.

The press release, detailing our financial results, was distributed over the wire services shortly after 1.00 PM this afternoon and is available on our website at lamresearch.com.

Today's call contains certain forward-looking statements, including those related to our expectations for the global macroeconomic environment of market size, wafer fab equipment spending, markets share changes, consumer demand, customer spending and behavior, and the factors that will influence those expectations.

As well as our spending projections, our investment plans, our business strategies, our aspirations of the benefits of our merger with Novellus, our intentions for research and development activities, our contemplated tax rate, and our forecast of market share, shipments, revenues, expenses, margins, operating profit, share repurchase activities, earnings per share, and cash generation on both a GAAP and a non-GAAP basis 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 you, Ernie.

Thank you, Shayne, and good afternoon, everyone.

The June quarter marks an important milestone in the history of Lam Research.

As you know, on June 4, we successfully completed the acquisition of Novellus Systems.

Our combined financial results, which are reflected in the press release issued earlier today, include only 20 days of Novellus activity.

With that in mind, I would like to begin my remarks today by reviewing Lam's standalone performance for the June quarter, as it relates to the guidance we provided on our April call.

We ended our fiscal year with solid performance and exceeded the midpoint of our guidance range for all metrics provided.

Specifically, shipments were approximately $727 million for the quarter, up 2% from the March quarter, supported by capacity additions for leading-edge foundry customers and DRAM capacity conversions for the 2x and 3x technology nodes.

Although moderating, leading-edge NAND capacity additions continue to be a meaningful part of the Company shipment profile.

Turning to the breakdown by application and market segment for Lam's standalone shipments, applications for sub-4x technology nodes represented 96% of overall system shipments.

Foundry shipments accounted for 48% of total system shipments, while the Memory segment accounted for 46% of total shipments, divided between NAND at 18% and DRAM at 28%.

Lastly, Logic and Other constituted the balance of 6%.

Revenue in the June quarter was $716 million, up 9% sequentially.

Non-GAAP gross margin was 41.9%, up 1 percentage point from the prior quarter, primarily due to a more favorable customer and product mix and improved factory and field utilization.

Non-GAAP operating expenses for the quarter were approximately $195 million, versus $197 million in the March quarter.

The operating expense level reflects our continued investment in strategic products and projects, offset by favorability related to deferred compensation plan obligations resulting from stock market decline.

Lam attempts to mitigate overall plan exposure relative to market fluctuations, and the decreased operating expenses were substantively offset in other income and expense.

Non-GAAP operating income was $106 million, versus $73 million in the prior quarter.

And, resulted in a non-GAAP operating margin of 14.7%, exceeding the high-end of our guidance range and a positive progression from the 11.1% in the March 2012 quarter.

Our non-GAAP tax rate for the June quarter was aligned with our expectations at 16.5%, compared to the 20.4% in the March quarter.

Based on a share count of approximately 117 million shares, June quarter non-GAAP earnings per share were $0.75, exceeding the high-end of our guidance range for the quarter by $0.03.

I will note once again, that all of the data I have just provided is for Lam's standalone, and is intended to be compared to our previously provided June quarter guidance.

Prior to presenting the balance sheet for the Combined Company, I would like to address a few housekeeping items.

First, as we think about fiscal year 2013 as the new Lam, we currently contemplate a tax rate in the mid-teens.

This estimate is subject to further revision as we more thoroughly complete tax planning activities for the Combined Company and would be favorably impacted should the Federal R&D Tax Credit be extended.

Relative to Novellus on a standalone basis, shipments for the June quarter were approximately $309 million, while the Combined Company recorded $816 million in shipments for the same period, which includes $89 million of Novellus shipments made after June 4.

Turning now to the balance sheet, the results that follow represent the Combined Company.

We ended the quarter with cash and short-term investments, including restricted cash and investments, of $3 billion versus $2.6 billion for Lam's standalone in the prior quarter.

This includes approximately $1.1 billion acquired as a result of the Novellus transaction, offset by the impact our June quarter share repurchase activity, which I will discuss further in a moment.

Relative to DSO and inventory turns, while there has been no significant change to the underlying operational performance of either company, June quarter financial results are significantly impacted by the 20 day sub period for Novellus and are not helpful for understanding the Company's overall performance.

We foresee a return to more normal external metrics in the September quarter, and we will discuss them at that time.

We ended the June quarter with deferred revenue of $335 million, excluding approximately $23 million in shipments to Japanese customers that will revenue in future quarters.

Approximately $87 million of the deferred revenue balance relates to Novellus products.

Combined Company non-cash expenses include, among other items, $29 million for equity compensation and $35 million for depreciation and amortization.

Capital expenditures were $37 million, and we exited the quarter with approximately 6,600 regular full-time employees, including approximately 2,750 Novellus employees.

During the June quarter, we spent approximately $676 million for share repurchases and took delivery of approximately 16 million shares of common stock.

In the September quarter, we expect to receive an additional 2 million to 3 million shares, associated with our June quarter expenditures, resulting in an effective purchase price between $36 and $38 per share.

These deliveries will be in addition to any new September quarter repurchases made under the Company's ongoing repurchase program.

Before turning over the call to Martin, I would like to discuss the impact of purchase price accounting rules related to the Novellus transaction.

In particular, I would like to call your attention to three areas where you will see the largest impact to our results.

I will explain more about the June quarter impacts in a few minutes; which in turn, provide the base line for the September-quarter guidance that Martin will be discussing in a few minutes.

First, the transaction required that all acquired assets and assumed liabilities be recorded at current fair value, including the inventory acquired from Novellus.

This includes finished goods, work in process, and raw materials; and for the next two to three quarters, we will have revenue recognized with cost of goods sold values that are higher than the Novellus historical cost.

These differences will be noted as a non-GAAP adjustment.

The second area that was impacted by the transaction was revenue.

Because Novellus and Lam have differing recognition policies, there will be a delay in recognizing revenue for some Novellus systems as we transition to Lam's customer acceptance based model.

Additionally, due to purchase price accounting rules, we will not be able to recognize the majority of Novellus' deferred revenue that was recorded on its balance sheet as of the day of the transaction closed, since the tools had already been physically delivered to customers.

This Novellus deferred revenue totaled approximately $37 million.

We expect that these timing differences will be fully normalized within a two- to three-quarter period; and until then, we will provide an estimate of their impacts.

These circumstances in no way impact the timing or collectibility of any customer receivables.

Finally, our non-GAAP results well now also exclude the amortization of intangible assets we acquired and valued as of the date of the acquisition.

I'd also like to call your attention to the fact that our GAAP a non-GAAP other income and expense will now include the expense associated with the coupon interest of the convertible debt we acquired as part of the transaction, currently estimated at approximately $4.5 million per quarter.

As has been the case, our non-GAAP results will continue to exclude acquisition and integration related costs, the amortization of discounts for both companies' convertible notes, and other certain nonrecurring items.

Please refer to the non-GAAP reconciliations in today's press release for a complete review of the exclusions.

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

Thank you, Ernie, and good afternoon, everyone.

Lam's June quarter was very successful, and I continue to be encouraged by the Company's achievements.

In addition to delivering targeted financial performance, we closed our acquisition of Novellus and immediately began executing on the objectives we established for the Combined Company, while at the same time ensuring continued focused on the commitments made to our customers as two previously standalone companies.

Before I expand on our progress internally, I would first like to share our views on the current business environment.

Since our April call, optimism around macroeconomic strength has waned somewhat, and while views for 2012 GDP remain in the 2.5% to 2.7% range, estimates for 2013 growth appeared to have weakened to below 3%, a level that now is more consistent with a stable growth outlook year over year with potential, we believe, for electronics growth in 2013 in excess of 2012.

It is premature to start predicting 2013 wafer fabrication equipment with any certainty clearly.

But, our initial modeling of IC unit supply and demand would cause us to anticipate that spend would remain around the $30 billion level for a fourth straight year.

Continued concerns over the Europe debt crisis, unemployment in the US, and questions about the level of China's growth outlook all have the potential to constrain, or negatively impact, consumer electronics demand.

We expect our customers to continue to focus on aligning their capacity additions with their own view of that demand outlook.

One reasonable conclusion is that our near-term future is quite unsettled due to these macro factors.

As such, we would now expect 2012 wafer fabrication equipment spending to be at the low-end of our previously communicated $30 billion to $32 billion range.

Turning first to the Foundry segment, we continue to expect foundry WFE spending within a range of $12 billion to $13 billion, driven primarily by demand for leading-edge capacity.

Specifically, we are still projecting approximately 90,000 wafer starts per month of new 32/28 nanometer capacity will be added throughout 2012, which supports our prior view for exiting the year with between 220,000 to 240,000 wafer starts per month of 32/28 capacity.

Given what appears to be a healthy demand for devices manufactured at this technology node, we continue to expect more than 300,000 wafer starts of total capacity to be ultimately installed; a figure that would surpass all prior foundry nodes.

Investment timing will depend on several factors, including economic uncertainty, competitive dynamics, and production performance of our customers.

However, our view suggests plenty of runway remains for 28 nanometer foundry spending.

Relative to the logic markets, the leading-edge 22 nanometer production ramp continues.

Our outlook for WFE spend is this segment has marginally declined as opportunities for reuse of existing equipment appear to have increased and the proportion of total CapEx for shelf space is now greater than previously expected.

Likely, this bodes well for equipment spending in 2013.

Our view of the DRAM segment has not substantively changed.

We continue to see muted investment level supporting big growth in the low 30% range this year.

With virtually no new planned capacity additions in 2012, there remains the potential for supply constraints exiting 2012.

Additionally, the sustained economic pressures caused by the proximity of DRAM selling prices to manufacturing costs motivate customers to convert capacity to the most competitive leading-edge capability.

While this scenario could result in higher levels of the DRAM spending in 2013, spending levels will largely be a function of the demand environment.

Again, the macros are likely to dominate.

Finally, looking at the NAND segment, we have lowered our second-half WFE spend forecast as a couple of customers appear to have delayed their investment plan slightly from the second-half 2012 into early 2013.

We had projected NAND's WFE spend to decline by approximately $1 billion year on year, and today that figure is likely closer to $2 billion.

While our 2012 forecast for NAND's demand drivers such as smart phones and tablet devices have remained healthy, the amount of NAND capacity in place today, we believe, can meet the consensus bit growth estimates of approximately 65% this year.

The pricing environment can certainly influence investment decisions.

NAND's pricing progressively worsened throughout the quarter, although we started to see pricing stabilize, the implications of that are not yet completely clear.

To summarize, despite today's muted macroeconomic environment, our 2012 WFE spend forecast in the $30 billion range is close to historic peak levels.

The outlook for sustains 28-nanometer foundry investment looks good through 2013.

The drivers for NAND capacity additions look good in the long term; but as stated, we are seeing some timing adjustments recently slowing investments.

The DRAM and microprocessor world both share PC as a primary underlying demand driver.

And, we consider it more likely than not there is positive unit momentum here in 2013.

Taken together, we remain cautiously optimistic about IC units demands next year but acknowledge the uncertainty of our global economy and share the common interest to see these macro questions get answered in the coming month.

Turning now to Lam's business performance.

While relatively few new application decisions were made by our customers in the first half of this year, we have made positive progress towards the number of targeted growth applications, while successfully defending critical positions in etch, single-wafer clean, and now deposition.

To capture a few headlines, in PECVD we gained a few critical backend logic applications by demonstrating minimal low-k film damage, combined with repeatable process results at high productivity.

Combined with our strong position in conductor etch patterning steps, we are well-positioned for the foundry transition to 20 nanometer.

Our engagements with leading NAND manufacturers position us well for opportunities resulting from the 3D devices broadly.

In dielectric etch, we gained momentum for high aspect ratio etches, considered one of the most challenging etch processes.

We have demonstrated the ability to provide tight CD and profile performance, without compromising productivity.

As a result of these capabilities, we are able to strengthen our position in memory applications and are well-positioned for next-generation DRAM decisions and 3D NAND applications.

In Deposition, the need to fill these very high aspect ratio features without voids has become increasingly critical to device performance.

We believe we are well-positioned to extend our leadership in tungsten CVD with our differentiated ExtremeFill technology, which delivers a seem-free fill, using low resistivity tungsten.

Similarly, in PECVD our ability to deposit multiple layers of ultra-smooth film stacks at high productivity has resulted in multiple customer engagements for 3D NAND device developments.

Finally, in single-wafer clean we continue our next-generation product development efforts which are well underway.

These systems combine our differentiated drying and chemical reclaim technologies with targeted, newly developed technical and productivity capabilities that will position us to better compete across a more comprehensive set of single-wafer clean applications.

As stated before, given the current wafer fab environments, the mix and timing of customer equipment selections, and spending, we expect shift market share will be relatively neutral for etch, deposition and single-wafer clean this year.

The headlines I've just described reflect our continued focus on our longer-term growth objectives for gaining 3 to 5 percentage points in etch, 5 to 10 percentage points in single-wafer clean, and now 4 to 8 percentage points in deposition over the next 3 to 5 years.

Overall, we are pleased to report again that reflecting back on the first half of the year, Lam and Novellus continue to execute to each company's established business plans of record, also engaging fully in integration planning and activities associated with closing the transaction.

We achieved our objective to transition on day one, without disruption to our customers, suppliers, or employees, which we considered our highest priority.

With the merger now complete, we are focused on competing as one company on a successful integration and executing the comprehensive plans targeted to achieve accelerated growth and profitability.

Our priorities must always include building customer trust, partnership, and collaboration, without which our plans are less probable and targeted results we believe less sustainable.

We began implementing plans to realize cost synergies immediately, starting with areas where we have identified duplicative resources and services.

Although not the primary definition of success for this transaction, we are already spending less money together than we would have done separately.

We are on plan and are pleased with the pace of our progress thus far.

In the coming quarters, we will share more specifics relative to our performance against target savings of $100 million, on an annualized basis, exiting 2013.

Our cost reduction synergies are anticipated to deliver benefits each and every quarter, this year and next.

They are not linear in their impact, however.

And specifically, in the middle of next calendar year, they include a step function reduction of costs related to business process and system streamlining.

We are executing plans to integrate key business processes, management systems, and infrastructure, which we target be largely completed within the next 12 months.

Especially important is our focus on employees during a period of transition of this scale.

Together, our focus has been rewarded by successes in our efforts to retain key employees as we move through the integration process.

Lastly, subsequent to reaching the June 4, 2012 acquisition closing, we were finally able to begin our efforts in earnest to engage with customers on the broad set of opportunities uniquely created by this merging to accelerate their success and ours.

As we spend more time meeting jointly with our customers, our confidence in achieving our growth objectives for the Combined Company has grown higher.

We look forward to sharing further details on our plans to achieve substantive revenue synergies over the coming years during our upcoming analyst event, which we have now scheduled for November 8.

I will now share with you our Combined Company non-GAAP guidance for the September quarter and provide some context that we consider important.

Shipments of $950 million, plus or minus $30 million.

Revenues of $900 million, plus or minus $30 million.

Gross margin at 42.5%, plus or minus 1%.

Operating profit at 10%, plus or minus 1.5%.

And, earnings per share of $0.40, plus or minus $0.07, based on a share count of 183 million shares.

Worthy of note, the revenue recognition changes that Ernie discussed for Novellus products will also impact our financial statements in the September quarter.

The September-quarter guidance I just provided would be improved by the following amounts, were it not for the revenue recognition changes.

Approximately $100 million of revenue, approximately 1 percentage point of gross margin, and approximately $0.25 of earnings per share.

I would like to reemphasize Lam's commitment on a standalone basis to maintain quarterly operating expenses at or below the $200 million level through the remainder of calendar year 2012.

And, we would expect overall OpEx levels to remain fairly flat in the December quarter from the level implied by our September guidance today.

In closing, I would like to extend my sincere thanks to the leadership and broad employee population of the Combined Company, who have worked tirelessly to support our stated goals and achievements.

And, thank all of our stakeholders for their continued patience and support to our Company through this period of significant transition.

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

Thank you, sir.

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

(Operator Instructions)

CJ Muse, Barclays Capital.

First question, Martin, I was hoping to get an update from you now that you've had some time with the Combined Company?

And, get a vision from you as to how you see the product portfolio here, whether there is anything that you feel like you need to add?

Or, given competitive positioning, you could exit and get an idea of what you'll look like 12, 18 months from now?

That's a really simple question to ask, and a really difficult one to answer.

We clearly just begun the process of assimilating the two companies.

And, certainly at this point in time, we remain absolutely committed to the full portfolio of products that define Lam Research and Novellus as two standalone companies.

As you might expect, we have a clearly stated ambition to be number one in market share in all segments that we compete in.

And, it is true in at least one Lam business and one or two deposition businesses from Novellus that we are not the number one player.

So, we clearly, as a management team, have some work ahead of us to rationalize the path to being successful against the definition of success that I just described.

The message today to our customers and to our investment community is we're absolutely committed to the portfolio of products that are active in both companies, and we've got some work ahead.

I would expect, potentially, that we will have some more helpful commentary in the November analyst meeting.

But frankly, even in that timeline, that is a pretty small amount of time for what I consider to be fairly strategic decisions.

That's helpful.

As a quick follow-up, a two-part question.

In terms of your net cash, roughly $2 billion, and so curious how should we think about share repurchase in the current quarter, particularly at current levels?

Also, in terms of the guide at 183 million shares, what are you embedding there in terms of additional repurchase on top of the 2 million to 3 million shares associated with the June-quarter program?

CJ, this is Ernie.

We would expect that our September-quarter purchases will be more systematic as opposed to some of what we saw in the June quarter with respect to some more structured programs.

What was embedded is, I would say, relatively more modest than what you saw us do in the June quarter, but nonetheless, will represent another significant step in the overall program.

And, we would be currently tracking at these levels during the calendar year, spending somewhere north of two-thirds or so of the overall authorization, with a little bit of wiggle room on either side.

Very helpful, thank you.

Terence Whalen, Citi.

I believe, Martin, you alluded to some progress in terms of foundry at 20 nanometer in 2013.

Very basic question, I was wondering for a fab of 45,000 wafer per month, what do you think the etch value is at a 20 nanometer foundry, versus at 28?

Thank you.

I'm going to get you there in building blocks, as opposed to answer in one way.

The assumption we are making for a 10,000 wafer starts capacity addition in foundries at 28 nanometers is about $1 billion, and we are estimating about $1.3 billion based on public commentary from customers at the 20 nanometer load.

And, maybe it's $1.3 billion, maybe it's $1.4 billion; it's certainly meaningfully more expensive.

Frankly, I would use the traditional 13% of wafer fab estimate for etch as a vehicle for backing into the etch-specific answer to your question.

There clearly is, in the 28 to 20 nanometer foundry transition, some pretty meaningful process flow related changes for high-k metal gates, and also in the area of multiple patterning, that I think are net positive to the etch segment.

And, we're positioned to exploit that opportunity when it presents itself.

Okay, that's helpful.

Then, follow-up is on NAND spending.

It sounds like, initially, you had some expectation of order activity in the second half that's been pushed into the first half.

Is a reasonable to assume that those orders will come in the first quarter '13, and is that what you are preparing for based on your schedule now?

Thanks.

A definition of reasonable in this industry is tough to get to.

Certainly, early 2013 is the expectation.

Frankly speaking, we have cycle times in the Company that allow us to respond pretty quickly to changes from customers, and I expect changes from customers as a natural course of business.

The reduction appears to be there less in terms of demand, more in terms of cautiousness from a profitability level point of view, and pricing from our customers.

I think we're still pretty positive around the long term on that as a segment of spending.

Thank you.

Satya Kumar, Credit Suisse.

Can you solve, Martin and Ernie, just a quick math on the OpEx?

I'm doing some (inaudible) it looks like your implied OpEx is about [$292 million], and I can get there by taking June OpEx and adding it to Novellus core OpEx (inaudible) quarter in March, which I think is pretty good considering I guess perhaps Novellus was under investing.

Going forward you're talking about potentially cost synergies with the Novellus acquisition.

I was just wondering how to think about the OpEx progression, beyond the September quarter, especially as it relates to how we should think about investments at Novellus?

Satya, this is Ernie.

Martin commented in his remarks that we would expect fairly consistent OpEx for the December quarter; and certainly, as we think about 2013, we're going to be doing that in the context of the environment that Martin described a little bit earlier.

So, it's a little too early for us to give a perspective on 2013 at this point, but I think you can expect relatively consistent performance to that implied number for the balance of 2012, certainly.

Satya, the only thing I would add is, maybe this is for everybody's benefit, I think it's a little unfair to characterize that Novellus wasn't investing.

I think we would all say that in terms relative to the investment profile of Novellus, we were certainly outpacing in terms of some of the engagements we had with some customers in certain application areas.

But, the investment profile for the Novellus business has been meaningful, substantive, even, I would say even including the 450 millimeter wafer size transition preparedness as well.

I think it's fine to consider, in relative terms, there being a slightly different reality.

But, it is not quite as binary as was implied by your question.

Thanks for the clarification.

Quick couple of follow-ups on foundry and NAND.

You seem to think that there is a bit of a (inaudible) 28 nanometer, and it seems like the major change in your CapEx outlook is really on the NAND flash side for the year from what you thought three months ago to now.

Just wondering if you could clarify if you saw any changes in demand for foundry shipments in the second half of the year versus your prior expectations, particularly, in the September quarter.

And, for NAND it's really a very simple question.

What to do you expect based on what you are saying right now for CapEx for NAND this year and your overall outlook for CapEx next year?

(Inaudible) would be for NAND in 2013?

Thanks.

I'm going to give you a little more data to kind of help you get frames thinking through answering that question.

If you look at our guidance, embedded in the $950 million of shipments guidance, obviously the primary component of that relates to our systems, and the Foundry component approximately is in the high 40%s, maybe 47%, plus or minus a bit.

The Memory component is about 43% of the shipments guidance, again plus or minus some points.

And, Logic represents the remaining 10%.

And, within that memory 43%, the NAND shipments actually are a little stronger in absolute dollars than the DRAM shipments.

So, that's the context I guess for answering the specific question.

Certainly, we have messaged exactly as you hypothesized in your question the primary change for us against our original assumptions is in NAND and not in foundry.

There's a little bit of movement, but it not material enough for me to add to what we have previously stated.

You are going to have to ask your question again on the NAND piece at the end; I missed it.

Where do you think is 2013 bit supply growth for NAND?

Thanks.

We are assuming today less bit growth in '13 than '12.

And, I would say the 50% to 55% range is a reasonable stake in the ground at this point.

Thank you.

Vishal Shah, Deutsche Bank.

Martin, I was wondering if you can provide some framework on how we should think about December quarter shipments in light of some of the comments you made about the NAND and DRAM customers?

Should we expect, at least the Foundry segment, to be strong in the December quarter, or should that also be a little weak?

We had said in our guidance last quarter, and in our commentary around the business last quarter, albeit as a standalone company, but frankly, I think the message is the same as the Combined Company as it was standalone.

We had anticipated the calendar 2012, from a shipments perspective, would be reasonably flat, plus or minus a little bit.

And clearly, in light of messaging today, that our wafer fabrication equipment spending outlook for the year is at the low-end of the range, we would now slightly modify the first half, second half commentary and say that the first half we believe is slightly stronger than the second half.

And, I would put in percentages, I would put the first half in the low 50%s and the second half in high 40%s.

So, that's how you should think about first half and second half at this point in time.

I would say that the ratio I just gave you, low 50%s and the high 40%s, first half, second half WFE is accentuated a little in the foundries.

For December, clearly there's a lot of moving parts, and it would be premature for us to be specific about guidance today.

Directionally, I'm thinking that our shipments levels will be flat to slightly up over September.

But, there's a lot of time ahead of us for that to change.

But, that's the assumption set that we would have today.

Great, thank you.

Just a follow-up, in the Logic segment, I know you guys have a lot of opportunity in your core etch business, have some of the decisions at 14 nanometer have already been made, or you think there's still an opportunity for you guys to gain some traction there?

Thank you.

I think a lot of decisions are made at this point; and clearly, there are still some remaining probably, I'm sure.

We work hard each and every day, as does competition I'm sure.

So, really no additional comment from what we have said previously there.

Jim Covello, Goldman Sachs.

Martin, question is really on the microprocessor segment.

It is going to be more important to, going forward both via global foundries, and of course through the Novellus acquisition with the exposure to Intel.

And, if you look at the inventory at the microprocessor companies, it's at a record level now.

So, the big CapEx in the last couple of years has created significant inventory on the part of the microprocessor companies.

So, I wonder relative to the commentary if you are feeling good about wafer fab equipment being at near-record levels again next year, if you perceive any risk in the microprocessor segment due to inventory?

Or, do you think the technology spending has to continue no matter how much excess inventory those customers have?

Thanks.

Yes, I think relative to the specifics on inventory, we are probably one of the least qualified companies to answer the question.

Hopefully our customers in that segment are more qualified.

We are not seeing a significant message there.

The commentary around 2013 was more a statement that when you look at a GDP outlook and what would naturally transpire in terms of electronics growth, there is presumably, we hope, not the same set of constraints imposed on the industry from a supply point of view.

Like, for example, the hard disk drive constraints in the first part of this year in 2013 and clearly with lifecycle extensions in the PC and a consumer environment that hopefully is somewhat similar next year.

There are a number of PC messages that, frankly, can be quite positive.

The 22 nanometer production is ramping and the 14 nanometer tool buys start by the end of the year, kind of ramping through next year.

And, we see that, typically, as a transition that would drive WFE in the microprocessor space.

Great.

I guess for my follow-up, I would just ask a slightly more directed question toward the foundry, your biggest foundry customer commented about weakness in their Q4 and Q1 utilization rate.

So, do you share any concerns in that segment due to your biggest customer's comments there?

Thank you.

I think consistent with our comments previously, our customers do a really good job, and as time passes, an even better job managing the equipment purchasing decisions to minimize the risk that you just described.

So, there is clearly always a risk profile, but I think as well as there being commentary from a foundry, there's also commentary for the fabless companies.

And, the fabless companies, the Qualcomms and the [Linox] of this world for example, are commenting to no slowdown in 28 nanometer demand; 28 nanometer design is continuing, ramping for the 28 nanometer's expected demand has not slowed.

Again, I guess it depends on your perspective.

If you are all the short-term, it's probably a different kind of message.

But, in the long-term, there's always this macroeconomic thing that everybody is going to hang their hats on because none of us know the answer to that question.

But, the basics and the fundamentals, I think, are actually quite favorable.

Thanks so much.

Chris Blansett, JPMorgan.

Ernie, I wanted to get an idea of the linearity of the delayed Novellus revenue we should expect over the next few quarters?

I would expect that most of the linearity issues that we highlighted today will be worked through by the time we provide our December-quarter guidance.

So, we really had a June issue; we had a September issue, which was quantified as we discussed.

Based on our current view, by December we will be back to a more normalized pace for the Combined Company.

Okay.

Then, I also wanted to get your thoughts on additional costs that may not be captured in a non-GAAP basis associated with integration of the two companies, and what this might mean to your overall operating margin structure for the next six months.

Clearly, the June quarter had embedded within it several things that I would consider more one-time than not.

Things like banker fees as well as some specific stock compensation issues related to the acquisition itself.

I think on a more ongoing basis, you are likely to see somewhere in the range of $5 million to $10 million a quarter for specific integration-related costs, perhaps for the next couple of quarters and then diminishing from that point forward.

All right, thanks guys, appreciate it.

Edwin Mok, Needham & Company.

First, just a follow-up question on the foundry side.

Since you guys haven't changed your view there, have you seen any changes in terms of your customer mix on the foundry side?

In other words, have you seen more broadening to smaller foundry customer, or is it still really concentrated?

Well, there aren't that many foundries in the world, so it's hard to step away and start declaring broadening.

There's a little bit of movement, but I wouldn't speak to a particular message with any conviction.

So, there's a few guys participating, you know who they are, and they are all participating at some level.

Okay, that's fair.

And, a question on your product.

I think on your prepared remarks, you talked and you guys have previously talked about single-wafer clean, and you're developing this next-generation product to expand opportunity there.

I was wondering any concern -- it takes time to develop a product and sometimes product timing with a certain customer no cycle, you might take a few years before you start to see growth there.

Any kind of concern that the timing of the development might be a little bit late for 20 nanometer cycle?

And, you might run the risk of not gaining the share that you're targeting?

I think it's a very good question.

And clearly, we are paying a lot of attention to doing everything we can to synchronize timing of product releases to the decisions of our customers.

We have a huge amount of energy invested in that particular issue.

I would say -- if there's ever a segment of our business, of our Company where the risk profile is lowest it is in clean.

And, the reason that is true is because clean is a yield-enhancing investment by the customer.

It's not a feature-creating investment by the customer.

Even in a scenario where you didn't synchronize necessarily a new product to a ETOR, or a first phase PTOR decision, clean is one of those segments where, if you can demonstrate a value to the customer in terms of yield solutions in excess of a previously selected equipment set, then you have a much better chance of establishing co-PTOR positions and ultimately displacing a competition in a buy.

If there's ever a place in the business where you feel better around the risk you have just spoken to, clean is definitely the segment.

Great, that was helpful.

Thank you.

Patrick Ho, Stifel Nicolaus.

Martin, in terms of the foundries and the transition from 28 to 20 nanometers, do you see this continued build out that you mentioned about 28 potentially pushing out the adoption and the ramp of 20 nanometers?

Really hard to tell.

I don't think -- frankly, what is the biggest influence of that?

The biggest influence is the design decision of the customers of the foundries.

Everything that we have been able to analyze would cause us to conclude what we are concluding, relative to the 300,000 wafer start message for 28 nanometer.

I think at least one other equipment company has messaged something very similar recently.

I think the foundry public announcements have tended to talk about 28 nanometer spending in '13 and 20 nanometer beginning to production ramp in '13 but primarily in '14.

It hangs together as best we can tell.

That all being said, clearly every semiconductor company in the world is motivated to achieve lowest cost unit output and if a 20 nanometer solution achieves that, that may be their motivation.

But again, I put that in context of the WFE message that I shared in an earlier question.

The cost consequence of 10,000 wafer start addition of 20 nanometers is in the range of 30% to 40% more expensive than 28 nanometer.

So, it is not an easy trade off.

It's definitely stressing what has been a fairly kind of simple set of decisions historically.

Great, that is helpful.

Maybe moving to some of the announcements recently by your peers as well as Intel, in terms of the 450 in EUV investments with ASML.

How does that announcement potentially change your outlook for (inaudible) investments you need to make in that program?

There is a joke that I could respond with, but I'm going to control myself.

Just tell the joke.

I would say the fundamentals of thinking through preparing our Company to participate in 450 are exactly the same today they were previously.

I think high-volume manufacturing is still assumed to be in the 2017, '18 timeframe.

There potentially is a higher probability today of a more broader equipment profile being available in a pilot line environment earlier.

But frankly, that doesn't impact the plans of our Company in a very meaningful way.

We were invested in preparing to support customers in pilot line transitions that begin potentially with the G450 transition, and then other pilot lines that have followed in industry, and that is our focus.

I don't know that it really changes anything fundamentally to the existing plans of record we had in our Company.

Great, thank you.

Stephen Chin, UBS.

Follow-up question on the September shipment guidance.

Can you share any color on Lam's standalone or Novellus' standalone shipment guidance, are both segments seeing similar shipment declines in the near-term?

Stephen, this is Ernie.

I would say that's a reasonable conclusion to draw.

Perhaps the Novellus product down -- actually is pretty equivalent, so I would say they're both impacted similarly.

Okay.

Then a follow-up question, Ernie.

Can you elaborate by what you meant by a step function decrease in OpEx in the middle of next year?

Is that related to possible product rationalization, or is it something else?

I think the comments were specifically related to the realization of our synergy targets.

I think, as we have talked about now, we have a very large systems integration project that is currently scheduled to be concluded about the middle of 2013, and certainly relative to realizing synergies in the IT world, synergies in certain support functions like finance where having a common general ledger, a common ERP system, makes things much more simple.

And, as a result of that, enables us to drive a very significant step function reduction relative to those synergy targets.

So, it is important to keep in mind that the statements relate to the achievement of that synergy run rate.

A nice, simple example going from to two SAP systems to one.

Okay.

Thanks Martin, Ernie.

Krish Sankar, Bank of America Merrill Lynch.

I don't know if the question is for Martin or Ernie.

The $100 million synergy that you mentioned stood between COGS and OpEx, what is the baseline COGS number, and what is the baseline OpEx you are using?

Those targets, Krish, were prepared in the context of the information presented in the proxy.

So, that would be a baseline, so it's a 2013 view, which actually includes that 2013 view of wafer fab and associated revenues.

I think I've mentioned before that there is a relatively modest OpEx increase for Lam forecasted in there, a bit more significant OpEx increase for Novellus.

But, I think it's important at this point to understand that those estimates are now many, many months old.

And, what will become relevant, which we will be sharing here in the November timeframe, will be our view for 2013 that's going to be derived in a timeframe that is much more relevant to the actuality of '13 than existed at the time we put the proxy together.

As a follow-up, when you look at your 450 millimeter coming down the road, what order of magnitude should we think about giving to your multiple product line?

And, does it really make sense to migrate all your products to 450?

Or, would you mind dropping some of the lower market share ones like the PVD at Novellus?

Thank you.

I'm going to specifically decline to answer most of the question for reasons that I hope are obvious to everybody.

A big part of value proposition is competitive differentiation, which if you tell everybody what you're doing, you tend to lose.

We are clearly encumbered, as is every equipment company with a complex set of trade-offs.

It is not obvious that walking away from 300 millimeter positions because you have imperfect market share is the right answer to questions.

It is not obvious how any of us can parallel process multiple nodes 300 millimeter investments with 450.

And, one of the dynamics that exists for the entire industry in a 450 millimeter transition that's different than 300 is you don't have everybody talk about all at the same time.

Rather than shoot from the hip, which is what we would be doing at this point in the process, we have an analyst meeting scheduled for November, and we will take an action to give as much color as we can on this particular point without compromising the competitive position of the Company.

Operator, we have time for two more quick questions.

Ben Pang.

On your 2013 assumption for wafer fab equipment spending, is there a difference in the relative growth rate of the etch 2012 to 2013 versus the products that you picked up from Novellus?

In terms of the market size, I would say no.

I think the types of things that are positive to the etch business in terms of 3D transitions, materials transitions, High-K metal gate transitions and patterning are relevant in the Novellus products as much as they are in etch and clean for Lam.

The one thing that potentially is slightly different, in relative terms, the Lam position in the areas that are impacted is relatively stronger than the Novellus position.

But obviously, that's something we are working hard to address.

Okay.

My follow-up is you talked a little bit about the market share not changing too much.

What is your expectation for your ending market share for the clean?

Ending as --?

Ending this year.

Ending 2012.

I think we'll be -- we said we are in the mid-20s level, frankly, as an approximate area for market share, and it's a pretty neutral year for us.

I would expect, to the question that was raised a little earlier, the market share momentum in the Company against the 5 to 10 percentage points of share that we're targeting over 3 to 5 years to begin the kick in next year.

Thank you very much.

Weston Twigg, Pacific Crest Securities.

I'm curious a little bit, given the large increase in double patterning steps that we expect at 20 nanometer at the foundries, why you're not more bullish on the opportunity for etch to out perform or grow faster than (inaudible) in general?

Can you explain that?

As is always true, there's a lot of complexity to answering simple questions.

One of the things that we are very convicted on is that when you look at these transitions, the process time consequences to etch and clean and deposition are quite significant.

We have talked about in the 3D transition, generally a 5% to 15% process time increase.

In the 28 to 20 foundry transition, we have talked about a meaningful 15% to 25% process time increase for the etch segment.

The challenge is how are everybody else's process times changing?

While we have really good knowledge about our business, we don't have really good knowledge about everybody else's business, number one.

Number two, the ultimate consequence of all of this is defined on an income statement.

And, what shows up on an income statement isn't process time, what shows up on an income statement is the sum of the invoices that you get paid by customers for.

So, relative pricing road maps of customers and how that ultimately plays out is important.

So very, very simple message.

We are very convicted about delivering a message that there is some positives in segments that we will benefit from in these transitions.

And, it is our job to make sure that we position that value very well at the customer, and then we get paid for it fairly.

What that turns out to be and how it plays out is a function about what we do, what our customers do, and those of our peer groups as well.

Complicated answer.

Okay, good, very helpful.

Then, just a quick follow-up.

Clarification of the Novellus contribution that was not recognized in terms of revenue.

Was that $37 million in fiscal Q4 that was not recognized?

No, the $37 million actually represents the totality of revenue that Novellus had previously recorded.

There are two impacts for the quarter.

The first is the part of that revenue that would have been recognized.

The second relates to the revenue recognition policy change.

So, I would estimate the totality of that for the quarter to be more in the range of $60 million to $65 million from a top line perspective.

Okay.

Then, $100 million next quarter and then winding down by December?

That's correct.

Did you say that there are associated costs with that that you will break out for us each quarter?

We're certainly going to reconcile between GAAP and non-GAAP results the differences in the inventory values.

So, that is what allowed us to make commentary that, relative to the guidance that we provide earlier, were it not for this change, you would have an improvement in margins by about 1 percentage point and the result in EPS impact of about $0.25.

Okay, very helpful.

Thanks a lot.

Thank you.

I'd now like to turn the call back over to management for closing remarks.

Wonderful.

I'd like to thank you all for joining us today.

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

And again, thank you for your interest in Lam Research.

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

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