科林研發 (LRCX) 2013 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the Lam Research Corporation December 2012 quarterly result conference call.

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

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

(Operator Instructions)

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

Please go ahead, ma'am.

Lorenzo, thank you.

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

Here 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 December 2012 quarter.

Martin will then share Lam's business outlook for the March 2013 quarter before opening the call up for Q&A.

The press release detailing our financial results was distributed over the wire services shortly after 1.00 p.m.

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

Today's call contains certain forward-looking statements, including those related to our expectations for the global macroeconomic environment, of market size, wafer fab equipment spending, the revenue expectations of shipments to our Japanese customers, technology trends and transitions that may affect our Business, market 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 expectations of the benefits resulting from our Novellus acquisition, 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-Q 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 p.m., and we ask that you please limit questions to one per firm with a brief follow-up.

And so with that, I will turn the call over to you, Ernie.

Thank you, Shayne, and good afternoon, everyone.

Before I begin my prepared remarks, I would like to add a few words to the press release announcing my planned departure from the Company in April.

First, I would like to convey how much I have enjoyed working with each of you since my appointment in the CFO role in September 2008, and that I look forward to continuing to do so in the next couple of months.

I also appreciate the experience of being part of a value space management team that put customers first, and I am committed to ensure a smooth and orderly transition to my successor.

Now, on to business.

The December quarter results reflect a solid finish to our calendar year, as we met or exceeded the midpoint of our guidance in all areas.

Total shipments were $803 million, down 14% sequentially.

Approximately 78% of our systems shipments were for applications at the sub-4X technology node, and by segment breakdown as follows.

Foundry shipments accounted for 51% of total system shipments, the memory segment accounted for 20% of total system shipments, which includes NAND at 11%, and DRAM at 9%.

Comprising the remainder were logic and other at 29%.

Revenue in the December quarter was $861 million, down 5% from the prior quarter.

Non-GAAP gross margin was 44.2%, down just 20 basis points from the prior quarter reflecting favorability in our product mix, complemented by our continued focus on operational execution.

Non-GAAP operating expenses for the quarter were approximately $281 million, down $3 million from September and aligned with our expectations of synergy achievement.

We will remain focused on our integration efforts, and are making strong headway towards achieving our costs-related synergy targets of $100 million.

Two key elements of this achievement are the transition to a single ERP system, and the completion of activities related to supply chain rationalization.

And in the December quarter, we made significant progress in both areas.

This progress will pave the way for the remaining $60 million of annualized run rate operating expense and cost of goods sold synergies which we have committed by the end of calendar year '13.

Although Martin will be providing March quarter guidance in a few minutes, it's worth noting that the March quarter of 2013 will see both an extra week of operating expenses together with our normal seasonal increase in employer taxes which represent approximately $10 million.

Back to December, non-GAAP operating income was $99 million, and non GAAP operating margin was 11.5%, slightly above the midpoint of our guidance range.

Our non-GAAP tax rate for the quarter was 17.3%, compared to16.3% in the prior quarter.

With the extension of the Federal R&D tax credit earlier this month, we would now expect our tax rate for the fiscal year to be in the low double digits.

Under this scenario, we expect a March quarter non-GAAP tax rate near 0%, and a June quarter non-GAAP tax rate in the low single-digit range.

Based on our share count of approximately 173 million shares, non-GAAP earnings per share for the December quarter were $0.45.

Moving to the balance sheet, we ended the quarter with cash and short-term investments including restricted cash of $2.7 billion in total, versus $2.9 billion for the September quarter with our cash generation again being exceeded by our ongoing share repurchase program.

Approximately 40% of the December ending cash balance was onshore.

DSO and inventory turns for the December quarter were both slightly improved at 62 days, and 4.1 turns, respectively.

We ended the quarter with deferred revenue of $282 million, excluding approximately $46 million in shipments to Japanese customers that will revenue in future quarters.

Cash from operations was $193 million, or 22% of revenue in the December quarter.

And combined Company non-cash expense include, among other items $24 million for equity compensation, $44 million for amortization and $34 million for depreciation.

Capital expenditures were $39 million, and we exited the quarter with approximately 6,600 regular full-time employees.

In closing, I want to provide an update on our share repurchase activity during the December quarter.

We bought back around 10 million shares of common stock for approximately $354 million, at an average price of $34.74 per share.

For the full calendar year 2012 we have repurchased nearly $1.4 billion, at an average price of $35.74.

We have continued to execute our share repurchase program subsequent to the close of the December quarter, and as of today have approximately $100 million of the authorization remaining.

Consistent with our comments on our Analyst meeting, we will provide a further update on our capital deployment strategy, once we have completed the current authorization.

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

Thank you, Ernie, and good afternoon, everyone.

As Ernie just reported, we had a solid finish to 2012, including a transformative year for Lam Research.

The year began following our announced merger with Novellus Systems, and we aggressively executed plans to integrate both companies.

On the strategic front, we presented a single face to our customer starting day one, which is a function of our rigorous planning efforts, and we executed to the commitments made as two stand-alone companies.

We enhanced our focus on core businesses, and made the decision to divest the Peter Wolters business, and transition PVD to a sustaining mode with existing customers.

We have successfully combined organizations and made progress in streamlining our infrastructure.

We have established an ambitious plan for integrating business systems, and remain on track to complete the majority of that work by the middle of this year.

We are well down the path toward achieving our target of $100 million in cost synergies related to capital structure.

We repurchased approximately 39 million shares of stock returning nearly $1.4 billion to our shareholders through 2012.

This financing strategy monetized overall industry and economic conditions, lowering the effective purchase price of Novellas by approximately $200 million.

Within our Etch business, we have our customary opportunities and threats, successes and failures, but after more than a decade of absence for Lam, we are pleased to report today that we have now been successful in achieving a production tool of record selection by a leading logic company.

We have received our first production tool order, and expect business to continue to materialize in calendar year 2013.

We are very pleased with these accomplishments, and many more not called out today.

They are a testament to the dedication and hard work of our employees, and the commitment to our values and vision by our leadership team.

A big thank you is due to all.

Relative to market share, we believe we are number one, or strong number two in each of the product segments we now serve.

We view this as crucial, given the increasing focus by our customers and strategic partners to work with a select few leading equipment suppliers.

Worthy of note for calendar 2012, in deposition and strip we were successful in gaining critical back end of line applications in PECVD at a couple of key logic manufacturers for both leading-edge production and next-generation device nodes.

We acquired Axcelis dry strip intellectual property, further strengthening our product roadmap, particularly for non-oxidizing strip applications for advanced memories and logic.

Overall, we are on a positive trajectory broadly, achieving shipped share across our targeted deposition markets in the mid-30% range, and are realizing initial plans beyond traditional WFE growth to advanced packaging.

In etch, we had forecast and we delivered in 2012, a relatively neutral year in terms of shipped share.

More specifically, we successfully defended over 90% of the N and N plus1 P2OR decisions that were made in 2012, and we positioned penetrations to gain a percentage point or so in the remaining selection decisions in 2013.

We introduced next-generation uniformity control hardware for our conductor products.

This capability is targeted for advanced logic and memory applications at the sub-20 nanometer technology node, and is gaining traction with customers already.

And as stated earlier, we achieved our goal penetrating a leading logic company after a long period of absence.

Turning to the single wafer clean market, we have spoken about at a few trends that have developed over the last couple of years.

First is the transition from batch to single wafer processing for front-end applications, and second is the introduction of high productivity platforms.

Lam is focused on developing the a next-generation clean product which will enable us to more effectively compete for a broader range of applications inclusive of these areas.

We were successful in defending essentially 100% of the positions we held with our existing products in 2012.

However, until the new product is released, our opportunity for share expansion are limited, and our shipped share will likely remain in the 20% range, plus or minus a couple of points until that time.

2013 is a critical year for us in clean.

We are actively testing and characterizing the new products, and are on track to begin shipping beta units for key customer evaluations around the middle of this year.

Overall, we remain committed to deliver against our long-term share gain targets of 3% to 5% in etch, 4% to 8% in deposition, and 5 to 10 percentage points in single wafer clean.

We have confidence in our ability to develop best-in-class products, and leverage our recently expanded adjacencies to deliver a differentiated solutions to capture a disproportionate number of the opportunities created by technology inflections.

As discussed extensively before, the inflections include patterning, finFET, 3D NAND, and TSV are all creating growth opportunities.

Sometimes those are measured in terms of market share expansion, and sometimes in terms of market size expansion.

Our continued execution and decision-making to reinforce customer trust, are fundamental to achieving our goals.

Touching briefly on the industry environment, we have outlined a scenario for WFE spending to be within a range of $30 billion in 2013 last November.

From our perspective, at the second level, NAND investments remains the primary concern influence over 2013 spending.

Obviously, the macro remains a major consideration also.

Based on our analysis since November, a couple of additional inputs have been made available.

Slight uptick in outlooks for WFE in 2013 from two of the top three semiconductor companies, and a slight reduction in NAND spending due to likely higher proportion of conversion than originally planned.

Taken as a whole, the $30 billion WFE level, plus or minus $2 billion, remains our planning assumption.

As we discussed during our recent Analyst events, our view is based on the following primary functions.

For a third straight year, we are forecasting essentially no new capacity additions for DRAM.

With bit growth demand in the range of 30%, investments are limited to upgrades and conversions.

In NAND, we are forecasting demand growth in a range of 50%, which would require capacity investments to resume towards the middle of this year.

Absent any new capacity additions, we believe supply will be limited to around 40% bit growth through conversions.

3D NAND investments are seen to be late in the year, and we currently forecast approximately 20,000 wafer starts of 3D NAND capacity to ship by the end 2013.

We project foundries to strongly continue making 28-nanometer investments, and forecast 28, 32-nanometer capacity in the range of 330,000 wafer starts, plus or minus per month, exiting 2013.

Additionally 20-nanometer will begin to ramp in the second half, and we currently expect total capacity to reach approximately 40,000 wafer starts at that node by the end of the year.

Finally, our forecast reflects a slight decline year-over-year in other logic spending, with the potential for upside given recently announced spending plans.

Using the $30 billion as our baseline, our resulting expectation is for spending to increase through the year, with approximately 55% of total spending occurring in the second half.

In this environment, given the consolidation of our customer base and overall competitive dynamics, we continue to fund long-term strategic investments, and execute the strategies that we articulated during our recent Analyst events.

To name a few areas of focus, we are engaging with customers on conformal film applications by leveraging our ability to deposit metals and dielectrics in high aspect ratio structures with the atomic layer precision required for finFET devices.

We are engineering tungsten films with the lowest resistivity for filling these structures, which ultimately benefits the electrical performance of the device.

We have introduced proprietary hardware on our conductor etch tool, which enables selectivity at the atomic level required by high aspect ratio features.

We have designed that same proprietary hardware for our dielectric tool, which widens the process window enabling customers to achieve their stringent requirements associated with high aspect ratio processes also in 3D NAND.

In addition in 3D NANDs, we are combining our strengths in defectivity control and process repeatability, both important in logic applications with the productivity advanced offered by our multi station sequential deposition architecture to strengthen our DTO oppositions in PECVD.

In through-silicon via, we are leveraging our knowledge as market leader in electrofill, and advanced pretreatments to grow our market share.

We are also working towards capturing all available benefits of the merger with Novellus.

Ernie outlined our progress to achieving our stated cost synergy targets.

Beyond that, our focus is on executing plans to achieve accelerated growth and deliver on the value proposition this union brings to our customers and shareholders.

Finally, we remain focused on prudently managing spending which includes our commitment to contain quarterly operating expenses to a level no greater than $305 million per quarter, at $1 billion revenue level through 2013.

Turning now to our outlook for the March 2013 quarter, our non-GAAP guidance is as follows.

Shipments of $880 million, plus or minus $30 million.

Revenues of $830 million, plus or minus $30 million.

Gross margin at 43.5%, plus or minus 1%.

Operating profit at 8%, plus or minus 1.5%, and earnings per share of $0.35, plus or minus $0.07, based on a share count of approximately 170 million shares.

Prior to taking the questions, I would like to take a moment on behalf of the Board of Directors, the management team, and the employee population to recognize Ernie for his dedication and service to Lam for the past 15 years, and especially for his service as CFO.

Ernie has made a big impact on the Company throughout his tenure.

He has a work ethic that is truly remarkable.

He sets a standard for performance that challenges those around him to achieve more than they thought possible, and he has a versatility level that has accommodated the significant breadth of responsibilities held during his time at Lam.

As noted in our press release today, Ernie's planned departure will be handled smoothly, and without disruption to our customers, our shareholders or our employees.

We have an active search ongoing, and Ernie will remain until a new person is in place, and plans to assist in the transition.

I would like to extend my sincere thanks to Ernie for his service, for his accomplishments, and his commitment to the Company, our shareholders and our employees throughout his career, and wish him every success in his future.

We will now conduct open the call for Q&A.

Thank you, sir.

We will begin the question and answer session.

(Operator Instructions).

Jim Covello, Goldman Sachs.

Great, thank you so much.

Ernie, let me offer my congratulations up front.

You have done a great job, and it's a -- you are a real glutton for punishment, as you kind of stuck with everything to the tough part of the cycle.

And as things start to look up, you are moving on.

So congratulations on that.

Thanks, Jim.

I guess, Martin if I could just to start off.

Certainly, it's a unique time in the cycle, because we have obviously of couple of the big customers talking about record CapEx, and some of the other big customers talking about things coming down a little bit.

And then you mentioned the comment about better expectations in the back half.

How do you balance out the very likely prospect, as you highlighted, of NAND getting a lot better in the second half of the year versus TSMC's comments that two-thirds of their CapEx was kind of front-half loaded?

Do you think that NAND can pick up enough to offset the expected declines at TSM?

Well, I think, to your point, they are obviously very unconnected variables.

I guess, if there is a connection it would be a macro.

But that aside, our view is that if you believe in the $30 billion baseline that we have talked about, we would expect a 45/55 split in the calendar year.

So, I think in the foundry space, the commentary from TSMC in the public domain is exactly as you articulated.

My expectation is that a broader foundry participation exists in the second half of the year.

But first half, second half, overall, we're assuming 45/55.

And by segment, I would assume DRAM is about 50/50.

The foundry world, all-in is probably 50/50 with every participant.

And the world of flash looks more like a 30/ 70 kind of split.

So, it's a very kind of diverse segment-based progression in the year, and we are kind of focused on execution, and depend on that, frankly.

That's very helpful.

If I could just ask for my follow-up.

On the big opportunity in logic that you penetrated, first of all, congratulations on that.

Second of all, what -- how big do you think that opportunity could be?

In other words, of the process to a record that you could eventually have there, what percentage do you think you're currently shipping?

Our aspirations extend beyond our penetration, that's a fair statement.

(Laughter).

We owe respect to a lot of our customers.

And as you might expect, answering a very specific question like that is kind of one of them.

So we are focused on building upon the momentum we have clearly established.

We are excited about the opportunities.

At the end of the day, we have tough competition and we have to execute well.

But I think calendar '13 is a very instrumental year, relative to the position that we have established.

Great.

And thank you very much.

And Ernie, again, congratulations.

Thanks.

Next question please.

Edwin Mok, Needham & Company.

Hi, thanks for taking my question.

My first question is on the 3D NAND.

I think in your prepared remarks, you said you expect somewhere between 20,000 wafer starts for this year to be coming in the second half?

I was curious what technology you expect to come in?

Understanding on some of the 3D NAND technology, there is not much change in two [set] from existing NAND technology?

Can you make some comments around that as well?

Yes, we are not assuming, frankly, an immense proportion of investment directed to 3D NAND production.

We clearly are expecting some in the second half, and that is important in terms of the size of the opportunity and the share growth that we believe we are targeting.

But the inflection points, even for the most ambitious customers in the transition will only kind of show evidence of tractional spending towards the end of the calendar year.

So -- and I think, just giving you may be a little bit more data beyond the comment I made to Jim's question, we do see some evidence that there is a little bit more of a bias to conversions today in the calendar year than we previously anticipated.

And our assumption remains that there is about 115,000 wafer starts of new capacity added in NAND this year, and about 500,000 wafer starts of conversion.

And that kind of it delves into the original plan of record that we had -- it's probably about $0.5 billion.

I am not sure it is that material in the scheme of things.

But that's the kind of the estimates of our outlook today.

Great.

That was very helpful.

And then just kind of going back to your win at a logic customer.

Just curious, is there a way that you could kind of describe what type of advantage you have on that, too?

I know you probably don't want to put in too much, in terms of your contacts and your opportunity there.

But maybe just talk about, is it only in conductor?

Is it branching beyond conductor?

Or do you see yourself branching beyond conductor in the current technology node that customer is ramping?

I am going to substitute the word probably, for definitely.

It's a big deal to make any change, and one of this scale and scope, where the customer is very significant.

I did speak to the fact that this was a conductor penetration.

The reason I believe the penetration was successful is because a lot of people worked very hard over a long period of time.

I believe we have technical differentiation that is valued and recognized by the customer.

And in a very important phase of delivering that, we executed very well, and our challenge and our opportunity is to continue to execute very well.

And I believe that if we do that, we will hopefully have opportunities ahead of us.

All right, thanks.

C.J. Muse, Barclays.

Hi, this is Olga Levinzon calling in for C.J. Thank you for taking my question, and congratulations on a solid quarter.

Just wanted to follow up on the logic win.

If we take your -- the wins that you have been able to get there, coupled with the comments that we heard from the customer last week, and I guess some of the incremental 3D NAND and 20-nanometer etch opportunities that you highlighted for this year, what sort of etch share gains could we count on for it either on the shipment or revenue basis for 2013?

Yes.

That's a really interesting question, and thank you for your comments at the beginning there.

There are clearly opportunities in front of us still in the 20-nanometer transition, but frankly speaking -- and I think it was kind of true for everybody, because the next transition in foundry to the finFET structure is such a significant one, if the customer can find any way possible to retain their 28-nanometer selections, they're biased to do that.

And that is something that affects us all as equipment companies.

And I believe that will continue to play out as a fairly dominant reality.

There are opportunities to displace other people to grow.

There are also risks.

And from my perspective, it will all be defined around execution, and it will be defined around kind of productivity.

I think the focus of the customer, when they have the full spectrum of challenges in front of them with a finFET adoption, is going to clearly buy us more stability and share in 28 to 20 in significant swing.

We are really focused for the reasons we talked about in our analyst call on the significant inflections, including the finFET.

And that is one of the things in the mix of the 3% to 5% share gain in etch that we talked about as a long-term objective.

And although perhaps a little discounted to the average because of the dominance of lithography investments in logic, the investment in patterning as a market is something that affords the Company opportunity as well.

Okay.

So I guess could you see I guess a decent move in that 3% to 5% edge share gains for this year?

Or will the 20-nanometer more meaningful ramp in 2014 be kind of the key driver to getting that 3% to 5% goal?

I think directly to your question, I just said, no.

And then on the kind of maintaining the WFE outlook, and talking about NAND being much more second half weighted, have you seen any -- I know you don't disclose orders -- but any sort of order activity from any of the NAND customers, to sort of support your view on both the demand growth and the capacity that would be necessary -- for the second half of the year?

Very slight, but I don't think that's particularly relevant, with due respect.

Because the cycle time, the lead time now between a purchase order and the additional capacity is so short.

A second half ramp will be kind of bookings towards the end of the first half of this year.

So that will be the reality.

That is the reality for all of us.

And I think the best I can offer you is the commentary around the demand, which in the areas of the smartphone, the mobile space generally, the SSD roadmap, the kind of server and cloud space.

There are some decent catalysts of demand in NAND flash, and the supply is really tight.

We ended calendar '12 with about the tightest balance of supply and demand that we believe has existed in several years.

And I think that should give folks confidence that unless there is a very significant input in terms of technical challenges or macros, the investment will kind of play out.

Or frankly, the bit growth that is necessary to support some of this roadmap, we believe won't be available.

Thank you very much.

Terence Whalen, Citigroup.

Hi, I wanted to echo my congratulations, and best of luck to Ernie.

Thank you.

The first question -- thanks, Ernie.

The first question that I have is regarding a comment you made on 20-nanometer capacity being 40,000 wafers per month by the end of calendar '13.

When you made that comment, were you referring to only one customer's foundry capacity?

Or does that assume multiple foundries having 20-nanometer available?

Not one.

Correct.

Okay, terrific.

And then as my follow-up, I just wanted to actually, one that relates to the OpEx side of things.

In terms of cost synergy, you made the comment that you remain on track with an additional $60 million of cost synergy by end of calendar '13.

Can you just remind us, for the remainder of the cost synergy, what the split is between OpEx and COGS?

Terence, this is Ernie.

You are probably going to see something like 80%, 75% to 80% COGS, and 20% to 25% OpEx over that remainder of work that you have to be completed over the course of this calendar year.

Okay, great.

And then just one last one, is again coming back to the 20-nanometer comment.

As we look into the beginning of 2014, and see sort of a morphing between 20, 16 and 14 tri-gate, do you expect that will be led by one customer?

Do you expect two customers to be spending on tri-gate foundry in the beginning of '14?

Thanks.

That's getting awfully specific about the plans of the second of the foundries.

I would say you should assume there is a lot of credence in kind of two public inputs.

One of them is the input from TSMC around the speed of ramping that they expect in 20-nanometer.

And the public commentary from the fabless community which tends to speak to an interest in having multiple supply alternatives.

So, I guess that is the best I can give you, in terms of response there.

Crystal clear.

And again, best of luck.

Thanks.

Thank you.

Krish Sankar, Bank of America Merrill Lynch.

Yes, hi.

Thanks for taking my question.

And congrats again, Ernie, for a terrific career.

And I am pretty sure all the investors, besides your employees are going to be missing you.

Thank you.

So I am going to have -- I have a couple of questions.

Number one, Martin, is there any way to quantify -- we are hearing TSMC going to 20-nanometer planar at the end of the year.

And there is recent chatter about Samsung looking at 16- or 14-nanometer or whatever you call that.

And it appears it might be a finFET approach.

So when a foundry moves from a 20-nanometer planar to a 16- or 14-nanometer finFET, what are the incremental opportunities for Lam, just going from planar to finFET at the node?

I am probably -- I will give you a general answer, which is I think a lot of the specifics are going to deal with the patterning consequences in that transition.

I mean, clearly, the importance of etch in the formation of the transistor is going up, which would tend to suggest that the complexity is increasing and process times, if anything, will get longer, so that will kind of feed into answering your question.

And I do believe there is incremental growth for the Company in the finFET transition.

I don't believe that increment is quite as great as the increments we saw from 40 to 28 with high-k/metal gate, or 28 to 20, but we will see.

I mean, I think there is still a lot of unanswered questions there.

Got you.

And then just as a follow-up.

Congrats on your win with the logic customer on the conductor etch side.

My question was, what was your conductor etch market share you think exiting 2012, and do what you think it will be, baking in this logic win?

So, I believe our shipped market share exiting 2012 was in the kind of high 40s range.

And you have heard us talk about kind of 3 to 5 percentage points as a long-term growth objective.

And while specifically, the position that you just referred to is not a prerequisite to execute that, it certainly helps us manage risk, and it certainly helps this kind of get to the high end of the range in the plans that we have.

And what was the -- just conductor specifically market share in 2012?

I think mid-40s is probably --

Yes, I -- everyone is the room looking at me, going what are you saying?

And now I know why.

So, yes, we are typically in the 75% range, 80% range as a baseline for conductor etch.

So 70% to 80% is probably a decent range to be thinking of.

Thank you, and congrats, Ernie.

Thanks.

Thanks.

Mark Heller, CLSA.

Thanks for taking my questions.

Ernie, I am going to put you on the spot here.

So you maintained the $30 billion wafer fab equipment number.

I think on the Analyst Day, you said revenues for the year would be about $4.1 billion on a $30 billion WFE, so I am just wondering if that still stands?

Yes, it does.

However, I would hasten to point out that we were really clear on our Analyst Day presentation that, that was not a 2013 forecast.

And that presumed, for example, the disposition of the Peter Wolters business, as well as some incremental share gains.

So as it turns out, all the great news that Martin has shared may actually allow all that to come true in 2013, which would be a little earlier than we thought.

But in general, and we have taken a look at our progress vis-a-vis our model, and we are pretty happy with where we stand in light of what we shared with you back in November.

Okay, great.

Just a question on the quarter.

So looks like the logic part of the shipments were up pretty significantly in the quarter.

I am just wondering what drove that, as it sounds like the logic customer isn't ramping until another couple quarters or quarter or so?

Yes.

I mean, one, I think you need to think about the overall shipment number in total, and we are dealing with a percentage.

And so, given the incremental lack of representation from the memory segment, that also will have the effect of making the foundry segment appear a little bit larger than it had.

And we had a pretty strong representation from the other logic segment.

And so, at the end of the day, it was a combination of those three things.

So at an application level, the comment that I would add is, image sensors, kind of server, as well as kind of general microprocessor, there was -- that is the composition of that segment.

So, the image sensor space was definitely kind of a decent -- a decent component.

Okay, got it.

And the next for Q -- calendar Q1, any thoughts there?

For calendar Q1 we would expect to see probably a little bit stronger representation from the memory segments, continued strong showing in the foundry world.

And then the logic and other segment perhaps dropping back to more normalized levels.

Okay, great.

Thank you.

Vishal Shah, Deutsche Bank.

Yes, hi, thanks for taking my question.

Just wanted to understand your trajectory for the year.

You mentioned 55% in the second half for WFE.

How should I think about your revenue profile, with assuming the 4.1 plays out this year?

I mean are we talking about 40/60, first half, second-half, given the share gain prospects in the second-half?

Well, I am not going to directly answer.

But you should -- I think you are smart enough to kind of -- you understand the timing differences between shipments and revenues, and the shipment is the best correlation to the timing of WFE.

So certainly, it's going to be kind of closer to that than the 45/ 55 baseline.

But it's frankly highly dependent on the timing of shipments within a quarter.

The difference between a first month [based] shipments quarter, and a last month's shipment quarter is significant, in terms of answering the question you are asking.

But making an assumption that there is a one quarter delay on average between a shipment event and a revenue event is not an unreasonable baseline.

Great, thank you.

And just wanted to understand your -- now that you are getting close to the buybacks, buyback that you had announced, what are your thoughts around cash, and use of cash as you think about the next couple of years?

Thank you.

I think the consistency is hopefully, loud and clear.

Our primary investment bias in the profitable growth of this Company.

And to the extent that we have cash that is excess to that need, then we review all options available to us in terms of distribution.

But beyond that, frankly nothing to say until we're done with the authorization in place.

Patrick Ho, Stifel Nicolaus.

Thank you very much.

And Ernie, also like to extend my congratulations, and best of luck on your future endeavors.

Thanks.

Martin, on your Analyst Day you talked about TSV as being one of your growth opportunities, and one of the inflection points for Lam on a going forward basis.

I guess, what do you see at this point, in terms of the traction, the adoption.

And what you believe right now is maybe inhibiting I guess the increasing use of TSV?

My assumption is a little bit economic still, but presumably kind of at the end of the day, the form factor requirements of the device, or kind of [pile of] answering your question as well.

And for the Company, we are very pleased about the positioning of the Company in that application area.

It is early days, in terms of the size of that marketplace.

I don't know if the TSV-specific SAM is going to be much more about $100 million of WFE this year.

But that's a 70% expansion year over year, so it's an important component of growth opportunity.

It is a very important inflection, but in relative terms it's still early days.

Okay, great.

And a question for you, Ernie.

In terms of the cost savings, targets and the integration.

You mentioned ERP and the supply chain rationalization.

Are they still the biggest drivers on a going forward basis?

Is it (technical difficulty) or is there still one major project that you have to do internally to get to that remaining $60 million that is still out there?

Patrick, as we talked about before, obviously the supply chain work is the most impactive to cost of goods sold.

The ERP integration is going to enable the remainder of the operating expense synergies.

So for sure, there are a number of other smaller projects with other milestones, but it's hard to think of any more that approach that scope and scale and impact.

Okay.

Thanks a lot again, and good luck, Ernie.

Thanks.

Weston Twigg, Pacific Crest.

Hi, thanks for taking my question.

First, just wondering if you are seeing yet, any inflection in orders related to double patterning ramps this year?

I would say always.

I mean, the patterning environment generally is a perpetually expanding marketplace.

And as we articulated, the spending concentration in the leading foundry space and logic space is significant.

So, yes, each and every day, we show up to work, the answer that question is yes.

But I guess specifically, not just patterning, but double patterning orders starting to benefit your order book?

Yes.

Okay.

And then, also just on the Axcelis agreement collaboration on materials, just wondering if you can help us understand maybe the importance of implant etch interactions, and what you might be potentially working on with Axcelis?

Yes, we are in the very early stages of kind of developing the plans and frankly, there is a very obvious competitive consequence to saying too much on this call.

But, I am optimistic that the types of things that are available to one of my competitors as a result of their acquisition is available to us in terms of joint development activities.

So we are going to work hard to make that possible, and I think we are pretty excited about developing opportunities and plans in the weeks and months ahead.

Very helpful.

Thank you.

Satya Kumar, Credit Suisse.

Hi, thanks.

Just a clarification to start off, Martin.

What was your estimate of 2012 wafer side spending?

Ask the question again?

2012 what?

(Multiple Speakers).

$28 billion -- I think it's --

WFE, is that your question?

Yes.

28 -- $28 billion.

28?

Okay.

And related to your March guidance, there is a slight decline in your gross margin, 50 basis points, even though you are taking up your shipment guidance 10% or so.

And customer mix shouldn't hurt you as much I guess.

It's more to Taiwan I would think.

Could you still talk a little bit about pricing, any volume discount and the like affecting gross margin?

And then on OpEx, there is a fairly sizable step up in OpEx I guess, and better than your guidance.

Again, it is below what you are saying your model is, but there is a sequential increase in OpEx of $14 million.

Is there any increase in OpEx that's being driven again due to competitive reasons?

Because [plate] materials is going through a management transition, or are these programmatic spending that is happening?

So, Satya, this is Ernie.

I tried to give you as much color on that as I could in my comments when I suggested that given that the Company had an extra week's worth of OpEx in the March quarter, so we literally have a 13 week quarter, or a 14 week quarter.

Plus you have the normal seasonality of payroll taxes.

That is a $10 million lump for a Company that is the size, scope and scale of the new Lam.

And I will -- and Martin will provide commentary on the customer agreements.

But if you look at the gross margin performance vis-a-vis the revenue decline, actually I think it does speak to the continued work we are doing on the synergy activities, as well as some amount of benefit gained from the factory.

So my view would be that the gross margin performance in the March quarter is pretty consistent with the ebb and flow of the business, and the customers, and the products.

And so we are actually pretty pleased with that.

Okay.

Thank you.

Tom Diffely, D.A Davidson.

Yes, good afternoon.

Maybe another question on NAND here.

Do your comments includes NAND that was taken off-line last year, that is coming back online?

Or is it strictly -- is the NAND portion running full out right now, and they are going to convert from DRAM to NAND?

Well, our comments include our best understanding of available capacity and current utilization, correct.

Okay.

I am just wondering if you think the conversion is going to pick up here, does your view of DRAM change at all this year?

I don't know if I would make a big connection between those two things.

I think the kind of dominant answer to the DRAM investment is the PC.

We have gotten kind of maybe a little bit more conservative on the PC in the last two months, having been kind of -- maybe articulating a view of neutral to slightly up, to being kind of neutral to slightly down.

I think that is kind of the overwhelming driver.

I mean, there is some kind of nice headlines in terms of mobile-related DRAM growth and the non-PC proportion of DRAM is very important.

But I think the catalyst for investment in terms of capacity addition is going to be tied to the PC story.

Okay.

You don't see a big difference in your tool set between mobile DRAM and PC DRAM?

That's kind of hard for me to speak to that.

I don't think so.

Okay, thank you.

Ben Pang, B. Riley Caris

Thanks for taking my question.

You commented on 2012, you defended 90% of your positions in etch.

How is that historical over the last three years?

Is that about the number that you have or is that better?

We are usually in the kind of I would say -- maybe 85 % to 95% range is probably like our history.

I wasn't really kind of trying to focus too much on the number, more focused on the quality, the commentary.

The strength of the differentiation is there, evidenced by an overwhelmingly successful kind of defect stance.

To one of the question that was asked a little earlier around spending profile in the Company, our focus is on our offense.

We clearly have to defend effectively -- we don't defend everything, never do.

But on average, if we defend more than we don't, and win more of our penetrations than others, then the share of the Company goes up.

And that is the plan, and that's why we stand committed to our 3% to 5% long-term goal.

Okay.

And is there any pattern around that the 10% or 15% you don't get?

Is it just pretty random, or is there some specific application that is more difficult to defend?

I was going to be really cute and say, the consistent theme is we weren't good enough or someone else was better.

But I guess what I would tend to conclude as a summary here, is that a big part of the focus of the Company, a big part of the strength of the Company has been in and around the more critical applications in the fab.

And so when we do have a defense exposure, it is much more likely to be in a non-critical space.

And there's a reason why the commercial dialogue becomes more relevant there.

But in the long term, our belief is still the same today as it was five years ago or ten years ago, that if we focus on critical applications, our cycles of learning will be greater than anybody else's, and we will continue to be able to succeed to the ambition we are speaking to.

Thank you very much.

I am sorry, I was going to say we have time for two more questions.

Stephen Chin, UBS.

Thank you.

Hi, Martin, and thank you, Ernie for your help these past few years also.

Just a follow-up question on the win at the leading logic company.

Congrats on that.

I was just wondering, Martin, if you could share any color on what kind of a ramp in shipments and sales we might think about at this new customer?

Is it more of a sales ramp, two to three years from now?

Is that kind of how we should consider modeling?

Well, I am kind of sorry I can't share too much with you.

It's a production tool, so that means it's part of an active production buy.

Okay, fair enough.

And as a follow-up question, just to follow-up on a possibility of paying the dividend.

Is there any decision to leave Lam, impact the timing of the Board's decision on the dividend?

Can Lam or does Lam need to find a permanent CFO first?

Or can the dividend discussion and decision be made with the search ongoing?

Thanks.

Well as much as Ernie is a tremendously important component to our Company, there is no relationship to a decision on capital structure and whether he is here or someone else is here.

We don't want to kind of dump the surprise on somebody, but we are not going to do that.

So we will as a Company make the right decision, at the right time with support from our Board of Directors independent of individuals and individual transitions.

Okay, thanks, Martin.

Chris Blansett, JPMorgan.

Martin, I had a question about this win at your leading logic customer.

And it really comes down to -- although you just announced the win, you probably have been spending money on this for maybe over a year.

So, I wanted to understand the leverage on the OpEx going forward, as revenue from that customer ramps.

And is the business big enough and is the leverage large enough that we'll actually see it in the financial model?

Well, the operating -- the answer to the question is yes.

I think you will see it in the financial model.

We certainly will see it, but we have more access to information I guess.

But the commentary from Ernie at the analyst meeting, which we repeated again today, speaks to the leverage in the Company, the operating expense levels in the Company, the targeted profitability levels in the Company.

So I -- you shouldn't be kind of like separating the two conversations.

They are part of the same.

Okay.

And then the second question I have is related to the CFO replacement.

Are you likely to look for someone internal inside Lam, or is this an external search?

We have an active search today.

We have a really talented finance organization and a great team.

And, we are blessed with that, but we have decided, given the scale and scope of the Company and our needs, and active search is an appropriate conclusion.

All right.

Thank you.

Thank you.

At this time there our no further questions.

I would like to pass the call back to Shayne Hudson for closing remarks.

Thank you, Lorenzo.

I would like to thank everyone who has joined us here on the call today.

An audio replay can be available and found on our website later this afternoon.

And then on behalf of the entire management team, we appreciate your interest in Lam Research.

Ladies and gentlemen, this concludes the Lam Research Corporation December 2012 quarterly results conference call.

We would like to thank you for your participation.

You may now disconnect.