科林研發 (LRCX) 2014 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the Lam Research Corporation March 2014 quarterly results conference call.

(Operator Instructions)

At this time I'd like to turn the conference over to Shanye Hudson, Senior Director, Investor Relations.

Please go ahead, ma'am.

Thank you, Vince.

Good afternoon, everyone, and welcome to our quarterly conference call.

With me today are Martin Anstice, President and Chief Executive Officer, and Doug Bettinger, Executive Vice President and Chief Financial Officer.

During today's call, we'll share our outlook on the business environment and review our financial results for the March 2014 quarter and our outlook for the June 2014 quarter.

The press release detailing our financial results was distributed over the wire services a little after 1 PM this afternoon.

It can also be found on the Investor Relations section of the Company's website, along with the presentation slides that accompany today's call.

Today's presentation and Q&A will include statements about our expectations and beliefs regarding certain future outcomes, including our guidance.

A more thorough list of forward-looking topics that expect to cover is shown on the slide deck accompanying my remarks.

All statements made that are not historical in fact are forward-looking statements based on current information and are subject to risks and uncertainties that may cause actual results to differ materially.

We encourage you to review the risk factor disclosure in our public filings, including our 10-K and our 10-Q.

The Company undertakes no obligation to update forward-looking statements.

Today's discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified.

A detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings press release.

This call is scheduled to last until 3 PM Pacific Time and, as always, we ask that you limit questions to one per firm with a very brief follow-up such that we can accommodate as many questions as possible.

As a reminder, a webcast replay of this call will be available later this afternoon on our website.

Finally, I'd like to announce plans to host our investor and analyst event on Tuesday, July 8. This event will be held in San Francisco in conjunction with the Semicon West Industry Conference.

You can expect to see further details in the coming weeks on our investor relations website.

With that, I'll turn the call over to you, Martin.

Thank you, Shayne, and good afternoon, everyone.

I'll start today's call by sharing highlights from the quarter and then update you with a short commentary on the industry environments before concluding with our perspective on Lam's opportunities and progress against our growth objectives.

Then Doug will summarize our financial results and provide guidance for the June quarter.

Lam Research is off to a really great start in 2014 and we are pleased to report another quarter of strong execution across key areas of the business.

We delivered great financial performance in the March quarter, with results topping the mid-points of our guided ranges across all metrics, and meeting or exceeding our long-term models in absolute terms as well as in timing.

Our business models are focused on driving profitable growth.

Consistent with expectations, we grew revenue by 10% sequentially and grew operating income nearly twice that pace, with excellent cash from operations performance at 24% of revenues.

We're very busy with new technology and product release activities, taking advantage of industry transitions and increasing support from our key customers.

We continue to solidify -- to solidly gain traction across each of our targeted market segments, and enjoy increasing market share in etch and deposition both, a claim recently endorsed by independent industry research.

In 3-D NAND, production qualifications are underway for our high productivity dielectric deposition platform, our latest generation dielectric etcher and our tungsten extreme fill tool.

These transistors are defined by uniformly depositing alternating films using our PECVD system.

Next, these transistors are connected by precisely etching a very high aspect ratio down through the entire film stack, using our dielectric etch tool.

Finally, that hole is filled with tungsten using our CVD system, which electrically connects the transistors in the device.

Essentially, from selections made by our customers, every critical step in the all-important transistor formation in 3-D NANDs is addressed by Lam equipment.

In DRAM, complementing our strong etch positions in the area of multi-patterning, we secured production application wins with our dielectric AOD tool for 20 nm technology node.

Importantly, we have demonstrated the ability to achieve our customers' stringent uniformity requirements without compromising productivity.

In the area of advanced packaging, we were successful with two new systems -- two new customers for our 3-D copper electroplating tool, thus extending our lead in copper film.

And in our clean business, we have leading-edge joint development activity now with three leading device manufacturers to evaluate our next generation clean system, and we're pleased to report that one of these systems has being released for production for multiple front end of line applications.

While we're still in the early stages of assessing this tool's production capabilities, we're of course encouraged by our early progress and remain optimistic about the opportunity ahead.

We continue to focus on delivering technology and productivity solutions that enhance the value we offer to our customers.

The ability to do so correlates directly to our long-standing focus on unit process excellence, customer trust and industry collaboration leadership, which we believe are differentiators of substance for our Company.

This differentiation is more important and more valuable than ever in an environment which is being impacted by the scale of customer and equipment industry consolidation, at the same time that customers are demanding the very best supports to their most complex and pressing technical challenges.

We believe the results we report today further illustrate how customers are demonstrating their commitment to Lam as a technology and productivity solutions partner for their most critical challenges and inflections.

Turning now to our industry outlook, we continue to forecast wafer fabrication equipment spending at approximately $32 billion in calendar 2014.

The headline here is we've seen some strengthening in DRAM, largely with multi-patterning and technology conversion, some slight delays in 3-D NANDs to our earlier expectations, and a sustained commitment in logic and foundry to 20 nm and FinFET adoptions and multi-patterning integration schemes.

Starting with the NAND segments, we saw very strong investments in the March quarter both for Planar and 3-D NAND devices.

We continue to expect WFE spend for Planar devices will represent the majority of spending this year, and remain relatively steady as customers transition to the sub-20 nm technology node.

Specific to 3-D NAND, the timing of second-generation device ramp appears now more likely to extend into early 2015 for some.

As a result, we now estimate that the cumulative amount of 3-D NAND ship capacity exiting 2014 to be at the bottom end of our prior range of 80,000 to 120,000 wafer starts per month.

This shift has not impacted our outlook for 2014 NAND supply bit growth, which remains essentially in the lower 40% range.

In DRAM, we saw an acceleration of investment plans in the March quarter to convert capacity to the mid-2X and 20 nm nodes.

We expect similar DRAM investments to continue through the balance of calendar 2014 -- for Lam, more than offsetting the delays I just mentioned in 3-D NANDs.

As a result, we've maintained our projections from memory WFE spend in a range of $12 billion to $13 billion in 2014.

Finally, in both the foundry and broader logic segments, our outlook remains pretty consistent with what we outlined in our January call.

Although it seems there is a perpetual debate around pulls and pushes, the ramp plans for 20 nm foundry and 14 nm logic appear, from our perspective, to be progressing largely as expected through the first half of this year, and we started to see initial pilot capacity installation for foundry FinFET.

Overall, we estimate that approximately 25% of total WFE investments this year will be directly associated with inflection technologies, including 3-D NAND, FinFET devices for the foundries, multi-patterning and advanced packaging.

Our customers are motivated to transition to these next generation devices because they can offer a competitive advantage in their markets in cost and/or performance.

Again, based on the importance of these technology inflections and the current pace of pilot and production ramps, we're still projecting overall WFE spending within a $32 billion range.

We assume spending is relatively balanced between halves, with memory investment slightly stronger in the first half and logic foundry slightly stronger in the second half of this calendar year.

For Lam, we believe we are well-positioned with these inflections, and have the opportunity to outpace the industry growth once again in calendar 2014 as our customers begin to transition to these devices.

More, if we execute to our plan, this outperformance should accelerate as a greater proportion of total spending relates to inflections in the next 2 to 3 years.

Further adoption of multi-patterning schemes is a sizable cornerstone of sustainable growth for the Company.

We're continuing to benefit from the ongoing investments in leading-edge foundry capacity.

However, this trend's maybe most pronounced currently in the DRAM segments.

With the transition to the 20 nm node, the number of multi-patterning passes increases from four or so steps at the 25 nm node to 15 or 20 steps at 20 nm.

These critical applications play to our leadership position in conductor etch and have supported equipment buys.

We're already benefiting from the initial 3-D NANDs production buys and have further strengthened our development share positions, which bodes well for the Company as other NAND manufacturers commence technology transition to 3-D devices in volume next year and beyond.

In addition, Lam's exposure to each of the industry segments is more balanced today than ever in the Company's history.

In the last 18 months, we strengthened memory positions for deposition products, particularly NAND positions, and AOD technology broadly.

We've also fortified positions for etch in microprocessor and foundry both.

Noteworthy, across the some of our product portfolio in calendar 2014, we believe our global market share in foundry is expected to be within 5 percentage points of our market share in memory.

In addition, year-over-year 2014 versus 2013, our logic shipments market share, including microprocessor, general-purpose logic and packaging, is likely to increase by 10 percentage points, approximately two-thirds coming from deposition and one-third from etch.

At the end of the day, we believe Lam exited 2013 having gained 2 to 3 points of shipped market share in etch and a point or so in deposition, with essentially no change to our positions in clean.

In a world that at times offers confusing or conflicting industry claims on growth and market share, perhaps there is no more fundamental measure than relative revenue growth.

In that regard, we established an industry benchmarking calendar 2013 with year-on-year revenue growth that outpaced the industry and all of our primary direct competitors by a significant margin.

We are increasingly confident in our product positioning and particularly the support we are receiving from customers at this time.

In addition, to the beneficial deposition and etch market expansion opportunities available for the long term, particularly with multi-patterning and 3-D transitions, we are poised to gain another 1 to 2 percentage points of ship share in both etch and deposition this year.

Our strong performance within the quarter and outlook underscore Lam's unique value and growth opportunity, we believe.

We are executing at a high level and believe our customers are very invested in Lam addressing their most critical challenges long-term.

With that, I'll turn the call over to Doug.

Thank you, Martin.

Good afternoon, everyone, and thank you for joining us today on what I know is a busy earnings day for all you.

I'll just reiterate a little bit about what Martin said.

We're starting 2014 with some very positive momentum.

We continue to execute on our growth plans and to deliver solid performance very much in line with our financial model.

Shipments for the March quarter again hit an all-time high.

We achieved record revenues for the fourth consecutive quarter.

Operating income continue to outpace revenue growth this quarter by almost double the rate.

Gross margin came in toward the upper end of our expectations.

Earnings per share exceeded the high end of our guidance range, and we truly demonstrated the cash generation ability of our business model by more than doubling our operational cash flow on a sequential basis.

Shipments in the March quarter were $1.264 billion, which is up more than 10% compared to the December quarter and, again, above the midpoint of our guidance range.

Memory shipments continued at a healthy pace.

Relative to our expectations at the beginning of the quarter, DRAM upside compensated for slightly softer NAND spending.

The combined memory segment represented 66% of total system shipments, about flat in percentage terms with the December quarter.

Of that, NAND shipments contributed 36%.

The build-out of initial 3-D NAND production capacity made up a large portion of NAND shipments in the March quarter.

I would point out, however, that we still expect Planar NAND node conversion spending to represent the majority of NAND investments for the full year.

DRAM shipments were 30% of system shipments.

These shipments were targeted at 25 nm conversions and initial 20 nm pilot production.

We are benefiting disproportionately in this area, due to our strong market position and multiple patterning applications.

Foundry shipments were 28% of total system shipments, flat on a percentage basis compared to last quarter; however, in total dollar terms, up sequentially by nearly 15%.

In addition to ongoing capacity expansion for the 20 nm node, we're starting to see shipments for FinFET pilot production.

And finally, logic and other shipments comprised 6% of total system shipments, which was down from 8% in the prior quarter.

Revenue for the March quarter was $1.227 billion, representing a 10% increase from the December quarter.

We saw a revenue growth significantly above 10% sequentially in both etch and deposition, driven by share expansion in the memory space.

March quarter gross margin came in a little better than expected at 45.5% and, again, was in line with our financial model.

I'll just remind you that we expect to see quarterly variability our gross margin performance based on multiple factors, such as product mix, customer mix, and business volumes.

We continue to manage our operating expenses, which were within expectations for the March quarter at $311 million.

This spending was 25% of revenue, compared to 27% of revenue in the December quarter.

We remain focused on driving efficiencies in SG&A in order to enhance funding for strategic R&D investments.

R&D grew to 60% of total operating expenses in the March quarter, while we slightly lowered SG&A expenses.

The incremental R&D spending supported areas like the 3-D copper electroplating, AOD, and tungsten CVD that Martin mentioned earlier.

We delivered solid operating income in the March quarter at $248 million, which was up 19% from the $209 million in the December quarter.

Our operating margin came in at 20.2%, near the high end of our guidance range, again reflecting leverage in our model.

The tax rate for the March quarter was approximately 12%.

I expect the rate to hold steady in the low- to mid-teens for the balance of the fiscal year.

The resulting earnings per share for the quarter came in at $1.26, exceeding our expectations.

The majority of the upside is attributable to our operating performance and, to a lesser extent, a more favorable tax rate.

The earnings per share were based on a share count of roughly 172 million shares.

The share count includes the dilutive effect of 6.8 million shares from the 2041 convertible note.

Let me just remind you that the dilution schedule for this note is posted on our investor relations website to assist you with your modeling.

We generated very strong cash from operations in the March quarter at $290 million, which was about 24% of revenue.

Our operational cash generation more than doubled from the $129 million in the December quarter, due to a very strong focus on [collections] (technical difficulty) approximately 930,000 shares of common stock.

At quarter-end, we had completed about $186 million, or approximately 75% of our current $203 million authorization at an average cumulative share price of [$15.19].

We are anticipating (technical difficulty) share purchases under the authorization in the near term.

You should expect us to update you on our evolving plans in this area as we complete this authorization.

We remain committed to a prudent return of available cash to our shareholders.

Now let me turn to the balance sheet.

We ended the quarter with gross cash and short-term investments, including our restricted cash, of $2.9 billion.

This compares with $2.7 billion in the December quarter.

We had deferred revenue of $432 million, which does not include $57 million of shipments to Japanese customers, which will convert to revenue in future quarters.

Let me now turn to our non-GAAP guidance for the June quarter.

We expect shipments of $1.150 billion, plus or minus $50 million.

We expect revenue of $1.240 billion, plus or minus $50 million.

Our expectation for gross margin is 46%, plus or minus 1 percentage point.

We're forecasting operating margins of 20%, plus or minus 1 percentage point.

And finally, we forecast earnings per share of $1.21, plus or minus $0.07, based on a flattish share count of approximately 172,000,000 shares.

Based on our current outlook, we expect our shipment profile to be relatively balanced between the first and second halves, perhaps with a slight bias towards a little bit stronger first half.

We are seeing a slight pause in shipments during the middle part of this year.

Consistent with our prior remarks, we would expect variability quarter to quarter given our consolidated customer base and the ongoing uncertainties about the scope and timing of investments for next generation devices.

Operator, that concludes my prepared remarks.

Martin and I would be pleased to take your questions now.

(Operator Instructions)

Our first question is from the line of John Pitzer with Credit Suisse.

Thanks for taking my question.

This is Farhan asking the question on behalf of John.

I was just wondering, you talked about your multi-patenting (inaudible) and it seems like there is a huge growth for you going from 25 nanometer to 20 nanometer.

I wanted to know, relative to the previous guidance that you have provided at the analysts day, how do you see your SAM growth in terms of percentage on a [per-payer] basis when you go from 25 nanometer to 20 nanometer data?

We don't actually get to precisely answer that question.

The context for first-time expansion in the company obviously includes the DRAM transition, but there's kind of much more to SAM expansion than that.

I guess at a very high level, if you look at the inflection in DRAM from the mid-2X mode to 20 nanometer, we would expect SAM expansion in the 30% to 40% range and a big part of that, obviously, relates to patenting.

As best we can tell, and I think today's results are a decent amount of evidence of that, the share momentum from the Company is positive.

The headline I would ask that you keep in mind is that, that's inflection sits in the context of four or five and the total SAM expansion opportunity for the Company is in the billion dollar range.

Got it.

Thank you.

Then talking about the shipment mix in terms of your (technical difficulty) quarter, how do you see different mix by different segments?

Obviously, we're guiding -- this is Doug, by the way -- we're guiding shipments down a little bit.

Within that, memory is down a little bit.

NAND probably down, and DRAM is flat to slightly up.

Logic is up a little bit and foundry is flattish; maybe flattish to slightly down.

Thank you.

That's all have.

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

Good afternoon.

Thanks so much for taking the question.

Can you talk a little bit about the breath of the DRAM activity?

Is it just one or two guys, or is it more than one person who's driving the changes there?

Well, there aren't so many customers left in our world (laughter)

Is it just one, or is it two or three?

It's more than one.

There's a decent amount of conversion activity happening today and, my expectation, Jim, is that there's probably in the range of 500,000 wafer starts of DRAM conversion going to take place in the calendar year, kind of all in.

That will mean that we -- if it plays out that way they'll still be in the range of 400,000 wafer starts of capacity at kind of 3X or greater in terms of technology notes.

So, a decent amount of conversion but at the end of the year, even with that assumption, there's still a fair amount of capacity still at 3X or above.

That ultimately could still be converted next year, right?

Exactly.

On the 3-D NAND, is your view there that the reason that the changes you are seeing in that market, is that because of yield on those products or is it because maybe we already have what we need for NAND right now before we add any more?

What's the color on what the changes are being driven by?

It's obviously a question that, at the end of the day, the customer is the only one that can really answer it.

I'm sure everything that has been written is probably relevant in some way to this.

There continues to be evidence of really good discipline in terms of supply and demand balance in memory period and that's true in NAND as much as it is in DRAM.

As we've talked about a number of times, the transition from planar to 3-D technology in flash memory is extremely challenging.

And, clearly, this is the year where the four customers are making, in varying levels of commitments, investments in that evaluation.

And obviously, there's one kind of big guy that's a step ahead in terms of their commitments but, frankly, as best we can tell, everybody's in investing at some level beginning to evaluate the technology and the commentary from customers today is very similar to the commentary a year or so ago.

There's up to kind of a 2 to 3 year timeline associated with transitions to 3-D device, depending on the customer.

I am sure the complexity of building a device, yielding a device, delivering performance in a device and the committed discipline of customers to only add capacity when it is matched by demand are all relevant in answering your question.

Really helpful.

Thanks so much.

Good luck.

Krish Sankar with Bank of America.

Thank you for taking my questions.

I had two quick ones.

One, Martin, I notice that in your [X market] you talk about -- you mostly focus on dielectric etch.

(Inaudible) is the incremental opportunity mostly dielectric etch, because it kind of maxed out really of a high seven connector etch, or is it something else going on?

By virtue of the market share in dielectric etch being lower than conductor etch, I would always say that the opportunity to gain is greater.

I would not agree that we are maxed out in conductor etch.

We have a set of business objectives to grow all segments of our business.

That's clearly more difficult when you have a very strong leadership position, but it's not impossible.

Frankly, we're making investments to grow both areas of etch but we have been approximately a 35% market-share company for some time in dielectric, and as I've talked about a number of times, particularly the evidence by market share momentum in memory already and we're seeing some really nice signs of pickup and support from customers in logic emerging as well.

I believe we have a product at this point that is very competitive, and for the first time in a long time, I think we're optimistic, very optimistic, about the growth potential in dielectric.

That's very helpful.

And then a quick follow-up just in terms of the capital, which in obviously you have (inaudible), and it looks like you guys got actually a great start recently.

I'm kind of curious what your appetite for debt, taking on debt as of this point, during the deal a delicate value between debt and (inaudible).

Krish, we're working our way through the current buyback authorization and that's what we're going to do until that's completed, at which point we'll develop a new plan and communicate to you what we're going to do.

I wouldn't tell you that raising debt is completely off the table, but I think will be able to develop a pretty good plan and have a pretty good cash return opportunity without doing that.

But having said that, we still have an ability to put a little debt on if we choose to do so.

Haven't made the decision yet.

Got it.

Terrific.

Thanks a lot, guys.

Harlan Sur with JPMorgan Chase.

Thank you for taking my question and solid job on the quarterly execution.

As a follow up to Jim's question, the equipment spenders have been fairly limited here in the first half but with your balance kind of first half/second half outlook, do you see a pipeline of more customer than program spending in the second half versus the first half?

On the NAND side, as you mentioned, you've got the transition to 15 nanometer Planar by the one of two of your customers.

You've got 20 nanometer DRAM transitions and the initial ramp of 16 nanometer FinFET by foundry customers.

Does the spender base continue to broaden into the second half?

Absolutely, yes.

I think in every segment that's a true statement.

As I mentioned in the question from Jim, concentration is inevitably high today, but the first quarter of our year is the most concentrated.

And we're above 70% of our output to three guys.

That three-guy reference point probably drops to the 60% level -- 50%,60% level for the rest of the year.

At a macro level, definitely more diversity; at a specific level, NAND transition more participants second half to first half, for sure.

DRAM pretty stable.

More of the foundry is definitely opening up in the second half of the year and I think that's very consistent with kind of the comments from TSMC around their concentration of spending in the first half.

The microprocessor world obviously is overwhelmed in investment terms, at least by one customer and their [reese] strategy, which kind of played out last year in a big way is still very relevant to them, but original equipment buyers, an emergent theme as we step through the year for them.

Great.

And then, solid job on the operating margin expansion in the March quarter and holding it here in the June quarter.

Obviously the team has a lot of new development initiatives ongoing.

If WFE's spending growth plays out as you would expect, how should we think about the OpEx profile as the year unfolds off of the June quarter base?

I think the most important guiding principle is, we're not going to compromise the long-term success of the Company for kind of a short-term event.

Having said that, we're not sitting here today with a belief that we have kind of fundamental disconnects between investments levels and opportunities.

Always, there's an appetite to do more and spend more and I wouldn't expect us to look very different, frankly, from the rest of the capital equipment community in terms of increasing investments in the year ahead.

I think more or less we track together today.

None of us are really kind of shocking in terms of disproportionate increases or decreases in investment.

Harlan, if you do the math on the guidance for the June quarter, you'll note spending is ticking up a bit.

It's the timing of our annual merit cycle as well as new equity grants.

I wouldn't -- you shouldn't expect that to occur again for the remainder of this year.

That's an annual type thing.

That's the reason for the step up right now and I wouldn't expect that to continue.

Okay.

Thank you very much.

- qualitative expansion that is a little more biased for foundries in H2 this year.

Qualitatively, do you see spending on 20-nanometer or do you see on the next generation of 16-and 14-nanometer in H2?

-- That's a really perceptive question [inaudible].

But I'll try and triangulate for you a little bit.

I do believe for the year that the 20-nanometer and FinFET investments will represent probably 80% or so of spending.

-- and I do believe that for the year, the relationship of 20 nanometer investments to FinFET investments probably kind of 60/40 or something in that range.

So you're going to have to work with that, because I don't think I have specificity at a half level to take you beyond that at this time.

No, that's fair enough.

You mentioned that you got some new clean products out in the marketplace.

You're trying to get some traction back in that area.

Should we look at 2014 as kind of the seeding year and 2015 as the year where you expect to generate some more revenues and market share gains in that business segment?

I think it's fair to say that.

Of all the plans of the Company, it's the one in long-term that's the more hockey sticks that is a byproduct of being disadvantaged in a couple ways for the last three or four years.

We were not competitive in terms of productivity.

We believe we now are.

We have a 16-chamber configuration, which has mechanical throughput capabilities that I think are very competitive, and the process and chamber offerings we've designed to allow us to participate in the front end of the blind clean segments in ways that we were not able to historically.

But as I will always state, getting penetrations in a segment of the industry which is not feature creating, it's all about yield, obviously, is a very tough proposition, and we respect our competition enormously.

This is a very important year for us, no question, and we exit the year with one of two paths -- either a lot of confidence around the plans of the Company and spending a level consistent with that or a redefinition of the outlook for the business.

We're certainly, as we sit here today, the customer engagement is very positive.

In fact, we are getting more poles than we are actually satisfying today.

A couple of customers are interested in the product and we're kind of holding back a little until we validated some of the offering in the existing engagements.

Great.

Thank you.

Timothy Arcuri with Cowen and Company.

A couple things, guys.

First of all, Martin, I wanted to fit what you said about a pause in midyear.

You said that there was going to be a pause midyear, but then you also talked about shipments being only a little bit front-half loaded this year.

So I guess you probably don't want to give guidance for calendar Q3, but that would sort of imply that the September shipments are not going to come down much if they come down at all.

That's the first question, then I had a follow-up.

Well your assumption is right.

I'm not going to give guidance for September.

Good try, though, Tim.

The answer, obviously, for September is a byproduct not just of June but also December.

So really it's kind of crazy early for me to be calling a quarter at this point.

I would not expect September to be up.

I think it will be about flattish or down a little, but I might be wrong.

There's a lot of weeks between now and then and the real kind of decision point, I think, relates to a September and December uncertainty.

At revenue level, again, it's an imperfect science for us to be articulating a view for the calendar year.

But I would say that our expectation is that the second half quarters -- if we're going to track to this $32 billion WFE number that we believe is the case -- the second half quarters will have a revenue level that's kind of plus or minus $100 million of the average of the first two quarters of this year.

So that's our kind of reference point for the second half as we see it today in revenues.

And obviously, some part of that is answering your question, because revenues are a byproduct of shipments.

Perfect.

Awesome.

As always, thanks for that.

Just a question more for Doug.

Clearly you guys are taking a lot of WFE share this year.

If I go back to the slide you put up at Semicon West and you have your long-term financial model, you're basically at $5 billion revenue run rate right now and gross margin is 46%, operating margin is 22%.

So you're pretty much already at your 2015, 2016 model.

Is this just sort of some one-time mix issues that helped you in December and March, or should we think that there's headroom to that model, particularly given the huge second generation 3-D NAND opportunity you have?

Thanks.

Tim, I'm not changing that model as we sit here today.

We're not quite at the $5 billion run rate.

It's kind of high $4s billion.

Part of the margin improvement from where we are today -- were a little bit shy of that 22% approaching the revenue level.

Part of it is time, in terms of maturing products and getting everything ramped and manufacturing.

Could there be headroom?

Maybe, but it's too early to call it right now.

Semicon and our analyst event isn't too far away.

We may be updating some things for you then, but why don't you sit tight for now.

To supplement that, I would say a couple of things.

It isn't kind of a mix thing and it just looks good for the quarter.

There are very fundamental SAM expansion opportunities that are relevant to our Company.

As I've said a number of times, I don't think there's a better positions company in the equipment space, by virtue of what we have in the product portfolio and what we don't have in the product portfolio, to exploit the four or five inflections.

I think we're in the right place at the right time with the right products.

The patenting expansion is very real and, as I mentioned in the last call, we were positively surprised by the scale and scope of that in DRAM and we're only just at the beginning of it in the kind of logic rollouts and all of the commentary, that I read at least, says that, that opportunity is an increasing opportunity of substance for us through at least the 10 nanometer technology note.

And the longer that install base gets positions, the more challenging the intercept points are for EUV relative to kind of Greenfield trade-offs.

That's a very real opportunity.

I think one thing to keep in mind in terms of calling it too early or calling it too late, in terms of whether we revise models, is let's not forget the intensity of the conversation from the customer on cost.

One of the most important complexities that we have to walk through as an industry and as a company in the next number of years, all of these inflections are getting more expensive.

Capital intensity almost in every transition is either not going down as much as it used to our, quite the reverse, it's going up.

And so we have tremendous SAM expansion opportunity.

We are at least flat or positive in market share in these transitions, but the industry -- and we're part of the industry -- is going to see increasing pressure, I'm sure, over the next several years as this goes from kind of pilot and technology evaluation in the case of 3-D NAND into, ultimately, HVM manufacturing.

But just to kind of finish off the thoughts, let's go back to first principles.

In our last analyst meeting, we articulated deposition (technical difficulty).

And so the proportion of spending that leads to these inflections are increasing and higher than the numbers I just gave you.

As a baseline four our market share, we're about a 40% market share company in the segments that we compete.

About a 50% share company in etch, mid-30%s in deposition and high teens, low 20%s in clean.

And through the decisions that customers have made to date, we believe that our market share around the inflections exceeds the 50% level.

So that's a kind of 10-point increase in market share before and after inflections.

And so, one of the most important headlines for everybody to process for the Company is, if we continue to execute, and that isn't easy; the challenge from competitors and the expectations of customers are incredibly demanding.

But if we execute to the plans of the Company, the result is that the outperformance you are seeing today is only going to accelerate as a greater proportion of spending of customers is associated with these inflections.

That's not a guidance segment; that's a statement of understanding and belief.

We've got lots of work to do to pull that off, but that's what this Company's focused on executing.

Wonderful, Martin.

Thank you.

Sorry for the long answer, but I felt it was time for me to make that statement.

Weston Twigg with Pacific Crest Securities.

Thanks for taking my question.

Just real quickly wanted to ask a little bit more about second half expectations.

It sound like you do have some level of conviction in a rebound in the second half, largely weighted toward foundry, but I'm just wondering on -- related to FinFET, from the conversations that you are having with customers, does it feel to you that they're really moving full steam ahead or does there seem to be some risk or hesitation perhaps to a second-half spend?

Just kind of gauging your level of conviction of on that spend.

I sense conviction.

It seems a very important transition for the (inaudible) community.

I think a lot of the data around cost and performance for the 20 nanometer node tends to suggest that there's significant opportunities for performance improvements on both of those definitions in a FinFET device and architecture.

And, not surprisingly, it's a very competitive space for the foundry.

At least as far as the interactions that I have, there's a lot of conviction to be successful through this inflection.

Okay.

Good.

And then a similar question on 3-D NAND.

Now you're indicating that maybe 80,000 wafer starts might be installed by the end of the year.

I'm wondering if you think there may be more downside risk or upside potential to that number at this point?

Really hard to tell.

I don't know that there's a lot of either, frankly.

I don't think there's a tremendous amount of downside because the 80,000 wafer start level, that is a pretty minimalist investment in the industry to evaluate the technology.

And it's a critical period for evaluating (inaudible) technology.

I think every customer -- every NAND customer is talking about evaluating the technology and they have their own timelines and own road maps in terms of HVM adoption, but I don't think any one of the NAND-flash memory customers can afford to be on the outside looking in at the technology transition.

They'll make their own choices about what the right point of intercept is, how many layers in a device makes sense in terms of cost comparisons, but I sense there's very minimal downside to the number that we've shared today.

Okay, good.

Very helpful.

Thank you.

Mahesh Sanganeria with RBC Capital Markets.

Martin, I just want to follow up on your SAM expansion with multiple patterning comment.

The conventional wisdom has it that with multiple patterning [litography expands the most].

But looking at your results and comparing, it looks like you're benefiting a lot more than some of your competitors as some of your first segments.

Is there something we're missing here?

Is there something in the technology that is helping you more than others in terms of SAM expansion in multiple [patenting]?

Well I think -- I don't know that there's anything you're missing.

You just described the substance, the opportunity, the strength of the Company's position in etch and deposition both.

The specific integration scheme in DRAM is very beneficial to us.

Certainly with the predominance of investments in DRAM, except for a kind of patenting probably being upgrade related, you're going to see a bias in the waiting to the action deposition space, I think, by the very nature of that scheme.

The second follow-up on your clean tool -- is there opportunity or the venue you are getting, is it specific to -- is it more towards foundry/logic, or it's memory?

Can you give us a little bit more color on where you are and what kind of results you are getting by device?

It's -- the engagement is memory and logic both.

The win is memory.

And the win is front-end of line, which is an important kind of test for us, because that's the area of the single-wafer clean segment that we have been lease competitive in the last 3 to 4 years.

So I feel that it is an important statement from a customer, but it's one.

And that is not the definition of success.

The definition of access is establishing market share leadership in all of the products of our company and we're not there yet by a long way.

All right, that's very helpful.

Thank you so much.

Ben Pang with Northland Capital Markets.

Thanks for taking my question.

On your $32 billion WFE, if I understand you correctly, the only thing that's changed on your forecast from the beginning of the year til now is that 3-D NAND and DRAM is higher but foundry is pretty much the same?

Is that right?

More or less.

Plus or minus $100 million here or there, but that's the headline.

What's the lead time for your products right now for [depon] etch?

The expectation from the customers typically is, they place an order today and get the product tomorrow.

Just occasionally, we get somewhat close to that.

The typical lead times for the products in our segments are going to be inside of a quarter.

And sometimes they'll be less than eight weeks and sometimes more than eight weeks.

One of the important transitions for us in clean, one of the reasons why going to next-generation clean is so important to us, is the lead times on the clean systems are the longest in our Company today with the old generation, the new generation, they will be very competitive with the deposition and next portfolios.

A much shorter lead time play than Lithography, if that's your question.

Is it fair to characterize a majority of your business in the quarter as a turns business, then?

We turn a decent amount of our business, absolutely, in the quarter.

That's true from order placement to shipments and shipment to revenue.

We can run shipment to revenue turns of 60%.

Perfect.

Thank you very much.

Good quarter.

Thank you very much.

Mehdi Hosseini with Susquehanna International Group.

Thanks for taking my question.

Martin, during the January conference call you were talking about the 20 nanometer foundry to be more of a first half and then 60/40 FinFET kicking in the second half.

But today's commentary suggested maybe there's a little bit of a 20 nanometer foundry push-out into the second half since you described 20 nanometer as 60% of the foundry spend.

Could you clarify or reconcile the general commentary with today's commentary?

And I have a follow-up.

No, I didn't say 20 nanometer was 60% of foundry spending.

I said in the relationship between 20 nanometer and FinFET investment, there would be a 60/40 split.

There is still an investment in foundry at the 28 nanometer node and even a little at 40.

There's some upgrade and technical node transition as well as equipment buy.

I actually don't think there's much to reconcile here.

I think, evidenced by the commentary from TSMC about their first half concentration, the 20 nanometer and the plans that the industry has for second-half pilot light adoption, at least the math that I do today would kind of refresh and repeat what we said in January.

I think we just provided more color today, but basically the same headline and certainly no message to the investment community about delay.

Got it.

Going back to the share gain, how should we -- should we assume that the share gain is coming against the larger competitors that are consolidating, or is that against a smaller one?

Especially, the way I'm looking at the competitive landscape, maybe customers would prefer you gaining share because the larger two competitors may be becoming too big?

This is something that keeps coming up in the conference call, but your results show -- (technical difficulty)

(Technical difficulty) I actually think any industry, any customer that sees a significant scaling through consolidation (technical difficulty).

Absolutely.

Do I see that as opportunity for Lam Research?

Yes.

I see that short-term and a new long-term opportunity (technical difficulty) to work very hard partnering with customers to make sure that we explore the opportunities as they exist.

Now, it doesn't kind of detract from the headline that I shared before, which is we take our competition very seriously.

Big company, small companies, the companies that survive today are generally very capable and very competent.

And so we're going to have to kind of keep working as hard as we are and partner with customers and I have every confidence that the partnership of Lam Research in the customer is always going to sustain the economics and story we've characterized today.

Got it.

Thank you.

CJ Muse with ISI Group.

Thanks for taking my question.

First question, I think you talked about second half being slightly down than first half and I was hoping to see if you can put some numbers around that.

Is that around 55%, 45%?

How should I think about that?

It's pretty well balanced, honestly, CJ.

It's high 40%s, low 50%s.

It's plus or minus our error of forecasting ability on this.

I'd call it flattish, CJ.

In terms of your relative of performance, at least how I'm modeling WFE versus your number, what do you think you're seeing in terms of rising capital intensity etch in deposition this year, as well as share gains that you've mentioned on the call, as well as the 14 nanometer logic that's coming in.

What do you think those three things add for you that other guys are not seeing?

Well, honestly speaking, I don't spend a huge amount of time focused on capital intensity in the way that the industry measures it, because I think that it's really misleading.

I have no idea what the value of correlating investment levels to current year revenues is for the industry.

It's just a bizarre data point from my perspective.

But there is clearly SAM expansion for etch in deposition and clean and we've kind of sized that at about the $1 billion level and there's clearly market share expansion that we've kind of framed multiple times, including in our analyst meeting and again today.

I believe that the SAM expansion opportunity is bigger than the market share, but the market share is pretty big as well.

If we can continue to execute from the positions that we've established, we've got a 5 to 10 percentage point gain in share here through these inflections, which is a really important headline for the Company.

We don't kind of go out there with kind of guidance, but connecting the dots that we've describe today, we've talked about flattish revenues first half, second half and I've tried to frame for you the plus and the minus around the average in the second half.

In calendar 2014, we are turning to outperform industry and I would expect, if there's a $32 billion way from fabrication equipment year, which is up maybe 10 to 12 percentage points or so, depending on your baseline, I would expect that our revenues grow year over year by approximately 20%.

And if you do the math on that, you're going to kind of answer a lot of your questions.

And if we execute at 20% year-over-year growth, that means that we're focused on targeting operating income growth twice as much as revenues and delivering cash from operations growth twice as much as operating income.

And if we do that, we're going to generate $1 billion of cash from operations this.

So that's how it all kind of walks itself through the financial statements.

If the $32 billion year prevails.

That's helpful.

Thank you, Martin.

I think we'll try to take two more quick questions if we can.

Edwin Mok with Needham & Company.

Hi.

Thanks for squeezing me in.

First question is on -- if I look at logic out of shipment bucket, I see that, that has been trending lower over the last few quarters.

How do you think about that business?

Is it just the customer not spending there?

Understand, I remember a few quarters where you guys talked about share gain in that area, right?

How do you think about long term?

Edwin, one thing, you're right.

It's ticked down a little bit.

There's a lot of reuse going on in this space, especially in deposition.

That's one of the things that is impacting our shipments.

It's not so much that anything has been moving around from an application standpoint, just being reused.

Obviously, you heard me talk about our expectation for June is that is ticking up a little bit and I would expect it probably does that again in December.

I see.

That's helpful.

Talk a little about the ALD win you have on the DRAM.

Do you see opportunities for AOD in NAND?

That's the first part.

Second part, I understand the AOD process is different from the ones we have seen in the logic side to extend what you have done in logic, do you think you have options to grow in logic for AOD?

I think yes and yes.

We're going to see emerging opportunities for atomic-level control, period, through traditional scaling and 3-D architecture.

The most prominent win that we communicated today, to your point, is AOD in DRAM but we have very active engagements, AOD, Logic, different dielectric, but a very active engagement and I would expect that, that continues to be true for us.

A lot of focus and big guys, small guys, will try to take share from everybody.

All right.

Tom Diffely with DA Davidson.

Good afternoon.

I was hoping that in your slide deck you talked about some wins in events packaging.

I'm curious how big events packaging is today and how do you expect the growth to ramp over the next couple years?

It's the smallest SAM for the Company; $150 million, something like that.

And it's the fastest-growing.

It might be the most difficult to predict.

I think the 2.5 and 3-D interposer road map is still subject to some debates.

You know, it's something we've clearly prioritized in the Company as an important growth opportunity and being present with competitive action deposition clean products to pursue that is our objective.

It's the smallest of the four by a long way and it's growing very quickly, but from a small base.

Okay.

(Multiple speakers) Just wondering if you're seeing the leaders in that space for the drivers being more the memory or the logic side at this point?

I think it's more a logic play than anything today.

Okay.

All right, thank you.

Thank you.

Gentlemen, at this time I'll turn the conference back over to you for any closing remarks.

Great, thank you.

A webcast replay of this call will be available later this afternoon on our website, and then on behalf of the entire Management team, I'd like to thank you for joining us here today.

We do truly appreciate your interest in Lam Research.

Thank you, ma'am.

Ladies and gentlemen, that concludes the conference for today.

Thank you for your participation.

You may now disconnect.