LAM Research F1Q10 (Qtr End 9/27/09) Earnings Call Transcript

 |  About: Lam Research Corporation (LRCX)
by: SA Transcripts


Good day ladies and gentlemen, thank you for standing by. Welcome to the LAM Research Corporation September 2009 quarterly financial results conference call. During today’s presentations all parties will be in a listen only mode. Following the presentation the conference will be open for questions. (Operator’s Instructions) This call is scheduled to conclude at 3:00 PM PST. I would now like to turn the conference over to our host, Ms. Carol Raeburn, Senior Director of Investor Relations. Please go ahead, ma’am.

Carol Raeburn

Thank you Operator. Good afternoon everyone and welcome to LAM Research Corporation’s quarterly conference call. Here with me today are Steve Newberry, President and Chief Executive Officer and Ernie Maddock, Lam’s Chief Financial Officer.

Today we will discuss the financial results for the September 2009 quarter and Steve will share our business outlook for the December quarter before opening up for Q&A.

A press release detailing our financial results for the quarter ended September 27, 2009 was distributed by Business Wire shortly after 1:00 this afternoon and is available on our website at Today’s call contains forward-looking statements, including those relating to our forecast of shipments, revenues, expenses, margins and earnings per share as well as other statements of the company’s expectations for weeks 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 facts can be found in the slide package accompanying this conference call and on our most recently filed Form 10-K. All forward-looking statements are based on information as of today’s date and the company assumes no obligation to update any of them.

This call is scheduled to last until 3:00 PM and we please ask that you limit questions to one per firm.

With that, I’ll turn the call over to Ernie for a review of the September quarter results.

Ernest E. Maddock

Thank you, Carol. As you may have seen from our press release earlier today the September quarter marks a return to profitability for LAM Research and come to think of it, for the first time in my tenure as CFO.

September quarter shipments were inline with our guidance range at $355 million, a 44% increase over June quarter levels. These levels correspond to higher shipment rates in each of our systems and service business groups.

Application and market segment shipment breakout for the quarter are as follows; 300 millimeter applications represent 95% of total system shipments. Applications at less than or equal to the 65 nanometer technology node or 94% of system shipments.

Memory segment customers comprise about 58% of the system shipments. And as a subset the nano component represents approximately 36% of total memory. Foundry customers were 28% of system shipments with logic and other at 14%.

September quarter revenue of $319 million exceeded our guidance range and represents an increase of 46% over June. September revenue levels were driven by strength from both memory and foundry customers and an increase in our install base revenue as a result of higher utilization levels and the resulting demand for spares and service products.

Versus the June quarter, a larger percentage of September quarter shipments converted to revenue within the quarter reflecting customer requirements for rapid installations and qualification of new capacity.

September quarter ongoing gross margin of 41.2% exceeds our guidance range and reflects an increase of more than 1,000 basis points from the June quarter. Our stronger gross margin performance is the result of revenue growth, improved absorption in the factory and a more favorable product mix as the proportion of revenue attributed to systems increased.

Ongoing operating expenses were $123 million for the September quarter, $9 million higher than the June quarter levels.

You will recall that in the June quarter we enjoyed one-time credits of $4 million that we knew would not reoccur in September. The balance of the change is attributable to planned increases in R&D spending and increase variable compensation consistent with our return to profitability.

In keeping with our prior commentary and effective in the December quarter, we have eliminated additional mandatory shutdown days and salary reductions for most employees. Together with variable compensation increases resulting from increased profitability we expect that these items will add between $6-$8 million to quarterly OpEx beginning in the December quarter.

Our ongoing operating income was $8 million for the September quarter, versus the guidance of a $10 million operating loss. The operating income performance is consistence with revenue and gross margin performance noted earlier.

Other income and expense was an expense of $400,000 and consist of foreign currency fluctuations partially offset by interest income.

Non ongoing items for the September quarter include $21 million in income primarily attributable to the partial settlement of matters associated with the company’s 409A expenses resulting from the 2007 voluntary options review.

The ongoing tax expense for the September quarter was $3 million and represents a tax rate of 45%. Our total tax for the quarter was $12 million and includes $9 million for non ongoing matters.

As we have previously discussed as our operating profits improve we expect our ongoing tax rate for fiscal 2010 to be in the high 20s. GAAP earnings were $0.13 per share based on accounts of 128 million shares and ongoing earnings were $0.03 per share versus our June quarter operating loss.

Turning to the balance sheet, cash and short term investments including restricted cash were $761 million, an increase of $3 million from the June quarter ending balance. Positive cash flow is generated by inventory accounts payable. And operating profits were offset by increase investments and accounts receivable associated with rising shipment levels.

Although our current view indicates continued positive cash generation we remain diligent in monitoring our ongoing cash requirements and do not expect to resume purchases under our share buy-back program at this time.

Accounts receivable days outstanding decrease from 106 days in the June quarter to 93 days in the September quarter reflective of more shipments with standard versus extended payment terms. Inventory term increase from 2.6 in the June quarter to 3.3 turns in the September quarter, and it’s consistent with the growth in shipment levels.

At the end of September our differed revenue balance was approximately $90 million, an increase of $25 million over the June quarter. This amount does not include approximately $23 million in shipments to Japanese customers that will revenue in future quarters.

Total capital expenditures were $6 million for the quarter and depreciation and amortization were the same as the June quarter at $18 million.

Employee headcount remained constant at approximately 2,930. For a more complete details of the geographic breakdown of shipments and revenues, please see today’s press release and our website for a reconciliation of our shipments, revenue, differed revenue, cash and operational cash disbursement.

And now to Steve’s comments.

Stephen G. Newberry

Thank you, Ernie. And thank you all for all joining our call today. As a results for the September quarter indicate, the business environment is clearly improved during the September quarter. With revenues exceeding our guidance range we are pleased to see this level of business occur so quickly coming off such a substantial decline in shipments for the past three or four quarters.

Very important result of our strong top line performance was our ability to return the company to profitability at a level of revenue lower than our targeted break even and at least one quarter earlier than many in the financial community expected.

Looking at the environment, we see shipments are continuing to strengthen as we head into the final quarter of the year as foundry fabrication at the leading edge technology nodes is running in the mid to high 90s at many foundries. And many companies and memory companies are increasing the rate at which they are bringing next generation D-Ram and nano wafer starts online.

Tool purchase and memory are still largely for technology convergence and remain concentrated amongst though companies who have adequate financial resources to make capital investments.

There has been significant improvement in NAND and D-Ram pricing with pricing on some devices in both segments more than double what they were only six months ago.

As we look to 2010, we expect the first half wafer fab equipment shipments will likely remain in a similar to slightly higher range as compared to the second half of 2009, which we estimate to be running at an annualized rate of around 15-16 billion for wafer fab equipment.

As the global economy continues to improve and demand from consumers and corporations increased though 2010 we expect at this time a demand for semi conduction wafer fab equipment will be stronger in 2010, likely in the 18 billion plus or minus 2 billion range.

Although the past year has been extremely challenging, we have maintained our investments in new product R&D and are focused on improving customer productivity in our install base and delivering continuously improved high performance, lower cost designs for our etch and clean proceeding chambers.

As always we have focused on defending application based market share and winning new application share. As the mix of customer spending is becoming more favorable to us with both foundries and memory manufacturers spending more in the current environment we expect our market share performance to show improvement in 2009 relative to 2008.

In (inaudible) we have won a number of new development tool of record decisions with both our spin cleaner and linear technologies, year-to-date in 2009. These wins at 65 nanometer and below are the results of our tools abilities to deliver superior chemical flexibility in critical dimension line width control contributing to improved yield and devise reliability.

While some of these tools of record decisions will not results in shipments in 2009, many of them will ship in 2009 contributing to market share growth for us in single wafer clean in 2009 and these wins will place us well on our path to achieve wafer clean market share in the mid 30s over the next couple of years.

In nets we continue to extend our leading market share position adding 12 net applications wins year-to-date. These wins are largely in the emerging critical X segments, such as high K metal gate at 23 nanometer and below. As well as through silicon via applications. As DRAM manufactures transition to copper at the five X node, NAND manufactures transitions to three X production and capacitor technology at (inaudible) moves from trench to stocks, we are expecting increased etch market share in the memory market over the next couple quarters.

Overall, we expect LAM Research will go faster in the second half of 2009 and into 2010 relative to the overall wafer fab equipment market as the segments and customers, we enjoy strong market share positions and new market share wins in both etch and single wafer clean resume or accelerate equipment purchases and as a result increase the proportion of spending in our favor.

Now moving into the December quarter our guidance is as follows. Shipments of $480 million plus or minus $15 million. Revenues of $450 million, plus or minus $10 million. Gross margins at 44% plus or minus 1.5 percentage points. Operating profits at 15% plus or minus 1.5 percentage points. And earnings per share up $0.38 plus or minus $0.05.

We posted significant growth in shipments and revenues from the June quarter to the September quarter. And based on our guidance you can see that progression continuing into December. While the industry is clearly made a strong move off of an under invested first half of 2009, legitimate concerns remain about the robustness of the macro economic recovery, particularly in the United States.

The electronics and semi-conductor industries remain very linked to world wide GDP and consumer spending. And while we continue to use our operational flexibility and rapid response capabilities to meet the shipment needs of our customers we will remain cautious with the level of our expenditures.

Throughout the depths of the downturn we chose to invest some of our healthy cash balance into maintaining our strategic investments and R&D as well as field and factory joint development projects with our customers. As a result of this continuous investment we don’t expect at this time to significantly increase our R&D investment in the coming quarters.

Going forward we plan to continue our strong focus on managing and growing our cash positions. As Ernie indicated in his comments related to Op Ex progression, we have reinstated full salaries to our employees with the exception of the top senior executives. And with the level of revenue and profit expected in the December quarter we will begin increasing accruals in our very low compensation plans associated with our increased profit and cash flows.

I want to thank each and every employee at LAM Research for their personal sacrifices during this period of unprecedented economic and financial turmoil. Their efforts on behalf of our customers and the company is why we have been able to quickly return to profitability and why we are well positioned to achieved further market share gains in 2009 and 2010. With that, Ernie and I will take your questions.

Question-and-Answer Session


Thank you, sir. We will now begin the question and answer session. (Operator’s Instructions) Our first question comes from the line of Stephen Chin with UBS.

Stephen Chin - UBS

Great. Hi, Steve. Hi, Ernie. Congrats on the strong sales and shipment guidance there. My question is what customer types, Steve, would you say is driving this upside? Is it mostly (inaudible) spending aggressively to move from trench to stack or is it also these foundry customers continuing their strong equipment activity?

Stephen G. Newberry

It's fairly broad based. You have a number of DRAM players, certainly the ones that you mentioned, but also there's investment going on with the leading band players, and then certainly as a percent of the total, the foundry players, particularly the two biggest ones are spending at levels that are historically greater than what they typically have, at least as a percentage of the total market. So the shipment activity at this point in time is actually pretty broad based and that's encouraging.


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

Satya Kumar - Credit Suisse

Yeah. Hi, Steve. Just wanted to parse your statements and your thoughts on what shipments might look like as we head into next year. You mentioned that the first half next year equipment spend rate would be slightly higher than the second half, and as I sort of look at your shipment run rate in the second half of this year, you're sort of implying a 425-ish average run rate in the first half. I just wanted to think about how you think about your shipments in Q1 because I guess you're also gaining some market share and getting some traction in clean. So I was wondering if you can add some color on how you see directionally shipments holding up into Q1?

Stephen G. Newberry

Well, what I said in my prepared comments was that at this point in time, if you take the shipments in the second half of '09, that what customers are indicating they're going to want us to ship in the first half of 2010 would be flat to slightly up. And so if we look into the March quarter where we have some degree of visibility, the March quarter looks to be, from a shipment standpoint, up from the December quarter and the reality relative to June is at this point in time with the lead times for a company like us being so fast that really kind of trying to forecast June as just that.

It's just a forecast. It's not a function of dealing with known orders and known backlog and so I think that you kind of just have to take that overall perspective that it's kind of flattish to slightly up, and I think what'll actually happen is as we get through the holiday season we'll get to the March quarter which will be a seasonal low from an output standpoint, but what deliveries they really take in March and June will be a function of how do they think the middle to the latter half of 2010 is shaping up and June deliveries will be a function of how do they see the holiday period shaping up?

And so right now we have a lot of spending that's associated with the continuing technology conversions, particularly in memory without resulting in really any wafer start expansion, whereas what we see from NAND is that you have the same technology conversion occurring, but based on the expected bit growth per NAND, we're actually going to see wafer start expansion in NAND, and then of course in the foundries with the utilizations really essentially sold out on 65 nm, very strong at 45, and the equipment going in is for wafer start expansion at the 45 nm node.

So, I think that we have some good trends in that there's a need to continue to do the technology conversions, what they have to spend money on, and the leading edge logic looks like the fab like companies are wanting to move aggressively to 45 nm.


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

Jim Covello - Goldman Sachs

Great, thanks so much for taking the call. Good afternoon. I guess a couple questions I would ask. If we can only do one I might say what are you going to need to see to initiate the buyback again, Steve?

Stephen G. Newberry

Well, we have been focused in the last year on making sure that we had enough cash to potentially survive a disastrous global economy. We've all managed to dodge that bullet and for the first quarter we managed to eek out a $3 million positive cash flow.

So to be perfectly honest with you, the board discussions to date have not been about gee, when can we get back and start doing share buybacks? And so we'll begin to have that discussion, but I think we can safely assume that we are going to be in a cash accumulation mode for the next couple of quarters. We're going to want to see how this economy continues to play out. I think you can expect us to be relatively conservative relative to rebuilding the cash position and it's probably a question that we might better be able to answer sometime two to three quarters from now, but certainly right now we have no plans and have made no decisions as to when the share buybacks will restart.


Thank you. Our next question comes from the line of CJ Muse with Barclays Capital.

CJ Muse - Barclays Capital

Good afternoon. Thank you for taking my question. I guess considering your outlook for roughly 18 billion plus or minus wafer fab equipment, what you're thinking about for clean and I guess how you see the trajectory for spares and service. At the 450 and 500 million revenue level, I guess considering that mix, what would you say is your target gross margin level?

Ernest E. Maddock

Well, since we guided 450 million for the December quarter and we guided 44% gross margin, I'd say that’s probably a — kind of being able to specifically answer your question. I think as we move up to 500 million, I think you would expect that we would gain some benefits from additional absorption in our factories around the world and with our field service organizations around the world.

I think you'll also see, as we move up to those levels, that some of the cost reduction programs that we have, particularly those in clean, will be able to manifest themselves. And so, I would hope that again depending upon how quickly we get to 500 million that we could pick up a couple of margin points. But having said that, the current environment is so concentrated relative to — really five customers make up about 70% of what the December shipments are going to be. In fact, I think it's about 73%. And so these customers tend to be the largest in the world and they tend to enjoy some of the best pricing environments. And so at these revenue levels, really it's hard to really know exactly what the margin situation is going to be because there’s pricing elements that come into play along with those beneficial elements that I talked about in terms of absorption, but clearly right now we're at the 44% plus or minus 1.5 and hopefully as we progress quarter to quarter that we can have the right customer mix have the right product mix, and we can see that move up a point or two, but we'll just have to see what the mix issues are and the timing are.


Thank you. Our next question is from the line of Tim Arcuri with Citi.

Tim Arcuri - Citigroup

Hi, Steve. Something very interesting seems to be happening because if you look at what ASML's orders are in December, kind of what they’re guiding to, and you sort of assume that litho gained a big share next year of WFE, it sort of implies WFE next year, even if you just annualized that as sort of 25-27 billion, and you're talking about 18. And so there's like a $10 billion gap there.

So I'm wondering, it sort of seems like one of two things has to happen. Either litho orders have to roll back over in which case most other orders probably roll back over, or we're all sort of underestimating what these companies spend next year. So how do you sort of think about that? Is there something different happening this time where you can explain that big of a gap?

Stephen G. Newberry

I don't take litho run rates and annualize them in terms of what that really means for total WFE spending. Litho is a segment that has to get out in front of the semi manufacturers ability to go ramp wafer starts. While I haven't studied extensively how litho behaved coming out of the 2002-2003 downturn, what I am seeing in terms of what's going on with ASML doesn't surprise me. Every semiconductor company has to have in place, litho capacities with which to ramp whether it's technology needs because they're converting to the need for immersion or it's just waver start capacity output needs where they need more litho capacity.

And so I think that what you typically see is that they're going to over-order relative to litho so that they ensure that they have the right amount of capacity available. And so I don't see what ASML is reporting as being inconsistent with an $18 billion overall wafer fab equipment environment. And I think you said that they would annualize out to somewhere around a $25 billion, I'm looking at this time is that's $18 billion plus or minus two, if it's on the high side it's 20, and given the price of these immersion tools I would very much expect that you would kind of see the kinds of deltas that you see, but I wouldn't annualize litho. I would look at what the other companies are reporting outside of litho.

And my guess is that I think you'll see the rest of the industry somewhere in the vicinity that I'm talking about, but I haven't had the benefit of hearing what some of the other companies are saying, but that would be my guess.


Thank you. Our next question comes from the line of Gary Hsueh with- Oppenheimer & Company.

Gary Hsueh - Oppenheimer & Company

Hi, Steve. I can't help but compare you guys to Novelis. They also reported the quarter unguided. And you're guiding your sequential revenue growth up at least 10 percentage points higher on a sequential basis at the top line revenue compared to Novelis. Now, I'm not sure it's right to take Novelis as appropriate for the overall industry, but in terms of that 10 percentage outperformance in your guidance, I was wondering if you could help us understand exactly what is driving that. What portion of that qualitatively is coming from your better exposure to the memory segment, what portion is perhaps coming from double patterning within memory, and what portion of that outperformance is coming from market share gains back in your SEZ business in your linear wet clean business. Just try to help me understand why you might be guiding better than Novelis as an industry proxy?

Stephen G. Newberry

I think you kind of called out a lot of the issues. One is clearly market share growth, another is customer mix where in spite of what people continue to think, it doesn't matter to us whether the order growth is in memory or foundry. We have very high share in both segments and so the only place that we are impacted is when Intel spends a whole bunch. And so, given that we have a lot of memory spending, we have got a lot of foundry spending, that's beneficial to us and certainly relative to my understanding of Novelis where they clearly have Intel business.

In addition, we're going to benefit by the fact that we are in a new segment and we're growing market share in the clean segment. We're penetrating the clean segment. If you look at who the single wafer clean spenders are this year, there's a couple foundry companies that are spending much more than what they spent in 2008 and we have good market share in the foundries. We’re growing market share in the foundries relative to wet clean.

So I think all of those factors add up and so I think if you take them in combination, kind of in my prepared comments I said that you should expect that LAM Research would grow much faster than the wafer fab equipment market as a whole, and I think that's a good example in reinforcement of the fact that it's occurring.


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

Edwin Mok - Needham & Company

Hi, Steve, can you help me out with the etch and the clean market, how do you view that in 2010 in terms of how it compares to WFE? Do you expect both markets to outperform WFE and if so, what would be the drive for that?

Stephen G. Newberry

I don't think necessarily in 2010 that the etch market is going to outgrow WFE. One of the things that you have to think about is the makeup of WFE is shifting as litho becomes a greater proportion of the spending, given certainly the average costs of litho tools with the introduction of much more immersion.

When we look at the amount of money relative to each 10,000 wafer passes, whether you’re talking DRAM or NAND or foundry, there’s more etch wafer passes. Some of that's because of additional double patterning opportunities. There's more mask open activities that are favorable to etch and in particular as the foundry market increases its percentage of spending relative to the total WFE, I think that that's also favorable to etch. But you will not necessarily see etch as a percentage of the WFE spending change very much, and that's because of the impact of litho and how much of that spending it's taking.

And single wafer clean, I think single wafer clean in 2009 actually grew as opposed to — well, actually it declined about 5%. Which, if the total market declined about 38%, that only occurred because in a technology shift environment, the customer emphasis to move to the leading edge technologies to make their investments there, clearly there's a strong shift from batch processing to single wafer clean. As we go into 2010 and you get more of general spending, at least to a greater extent than the almost pure technology spending of 2009, the growth rate of single wafer clean will probably be slower than the growth rate of wafer fab equipment — maybe just slightly, but there will be some effect where a lot of batch cleaning will still be sold into the commodity of noncritical activities.

And so I realize that that's kind of a complicated answer, but there is no simple answer given the makeup of where WFE spending occurs is shifting, but I do believe that it will be a good environment for both etch and single wafer clean and LAM Research next year.


Thank you. Our next question comes from the line of Krishna Sankar with Bank of America-Merrill Lynch.

Krishna Sankar - Bank of America-Merrill Lynch

Hi, thanks for taking my question. Steve, you had mentioned in your comments that you do not plan on increasing R&D (inaudible) significantly. Is the thought process that you have gained or pretty much gotten most of the market share that needs to be gained on single wafer clean, and that's why you didn't need to increase R&D going forward?

And also along the same path, if I remember right, your single wafer clean actually had probably three customers last year. Can you quantify how many you got this year and how many you expect to have in 2010?

Stephen G. Newberry

So, my comments about not increasing significantly our R&D investments is because we have been investing significantly all through the downturn and that has nothing to do with their not being any more single wafer market share. We’re spending significant investment in single wafer clean and we intend to continue to invest in single wafer clean. And when I look at the opportunities that we've had relative to market share in single wafer clean, we have been focused on, first off, defending our positions around the world, which we've done well at — and to just give you a flavor in the logic and foundry space we've had seven new penetrations year to date for clean and penetrations in the logic are important because there tend to be a lot of wafer passes as you look at eight level, 10 level, l and even 12 level logic devices. Which isn't to say that we're not focused on memory penetration because we are, but we've been very successful with both our spin DD prime and our linear technologies at penetrating the logic space.

My comment relative to not significantly increasing the spending was really one that we've been spending, we're seeing the market share benefits from that, we're going to continue to spend, but we're not in a situation where we suppressed our spending and now all of a sudden we have a whole bunch of things that we wanted to spend on and we didn't. We've been spending on those things. And while we may see and are likely to see some increase in R&D as a function of as the market grows and the number of GDPs and the number of evaluation tools go into the field, but you're not going to see a significant increase in R&D because we've been making the investment and will continue with it.


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

Patrick Ho - Stifel Nicolaus

Can you just comment on the ability of the company to ramp up, particularly as shipments grow sharply with this past quarter as well as into the December quarter. Given all this cost cuts and the restructuring you've done, how do you feel the response time from your end on a going forward basis as you get back the historical levels that you've done in past upturns?

Stephen G. Newberry

Well, maybe the best way to kind of characterize that is if you look at our shipments in the March quarter were 159. We ramped 55% in the June quarter to 246. We ramped 44% to 355. We've ramped another 36% to the 480 guidance number. So that's probably the best way to characterize that that's a pretty dramatic increase, yet we're shipping on time, particularly in etch. I would say where our biggest challenges have been is in our spin clean activity as the shipment level sin the spin clean have dramatically increased and they have ramped significantly. We have a little bit different product structure. We've talked about the fact that we’re re-architecting the production option architecture and that we're outsourcing what was largely a vertically integrated manufacturing process.

And so our lead times in clean are a little bit longer and the good news is that our customers have significantly increased the demand and we're working with our customers to make sure that we prioritize the sequence and the priority of the right tools but I would expect that as we get through the December and the March quarters, as we shrink the lead times, as our supply chain improves in single wafer clean, that we'll be in the same vicinity in terms of ramp expansion capability that we have in etch, and we're dealing with this operational excellence, flexibility, and responsiveness, one of the strengths of Lam, and we're continuing to see that play out well for us in this up term.


Thank you. Our next question comes from the line of Atif Malik with Morgan Stanley.

Atif Malik - Morgan Stanley

Hi, thanks for taking my question. Steve, I was wondering if you can help me understand qualitatively, when you say the first half of next year (inaudible) could be flat to higher over second half of this year. In terms of segments, how would you see — I mean, foundry spending and (inaudible) spending are probably the biggest drivers for second half of this year so do you expect foundry to start to come down next year offset by NAND and DRAM kind of stands on an upward trajectory? Is that the right way to think about the segment distribution next year?

Stephen G. Newberry

Actually, I don't think so. For us, and we're not necessarily a proxy for how the actual distribution is for all of WFE, but memory is really running about 55%-60% of our total system shipments. And foundry is running closer to 35 and with logic closer to 40 or 45. So I'd see that trend continuing in the December quarter. I think that in terms of what we can see in March where we have some visibility, I think we're going to see memory in that same 55%-60% and we’re going to see foundry logic with the remainder and I think that we're not yet in a situation where at least in the first half that we're seeing a bunch of wafer start capacity output activity going on in DRAM. It's still converting. The 1.2 million wafer starts per month of 300 mm capacity, they're focused on converting the existing wafer start lines and I see that trend continuing.

In NAND we're going to see that there's significant conversions from 5X lines to 3X and then there's some conversion from 4X to 2, an then there will be some wafer stock capacity expansion and so when I look at 210, and it's still early, we're expecting that with bit growth in NAND likely to be 80%-100% that it may be that for the first time we'll see wafer fab equipment investment for NAND capacity and NAND conversions will spend more than what's being spent in DRAM and that's in spite of the fact that I see unit output for DRAMs as about 15 billion units pear year and NAND is only 5 billion units per year, but it speaks to the fact that there's some really nice growth opportunities in NAND and we'll see how that plays out as 2010 kind of goes forward what we can see in March.

But I do expect that the foundries and logic, as a percent, will be a greater percent than what we saw in the 2007 and 2008 timeframe.


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

Ben Pang - Caris & Company

Thank you for taking my question. First in terms of your application wins, you gave a metric of the applications that you won there. Can you give us an idea of what is that in total? How many did you lose, just so we can get a sense of how dominant you guys are in terms of being to win these new applications?

Stephen G. Newberry

Well, at etch I gave you 12 net wins so we won 14 and lost two, and in clean we've got six net wins and we lost two. So we had eight wins and we lost two and so we had a net six.


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

Peter Kim - Deutsche Bank

Hi. Thanks for taking my question. I was wondering if you would be good enough to provide a mix of end customer types for shipments next quarter?

Stephen G. Newberry

Kind of consistent with what I said earlier discussion, our mix in the September quarter was about 62% of our systems were memory and of that 62%, 21% NAND and 41% DRAM so that's of the total. And I think Ernie talked about NAND was 38% of memory. But another way to look at it is NAND flash was 21% of our total shipments and DRAM was 40% and the rest being logic and foundry.

In the December quarter it's actually going to be very similar, but a little less memory, about 55%-60% memory and the foundry logic will be more like 40%-42%. So not all that much different in December versus September and the trend for March is pretty similar as well and we'll see how that shapes up because with the lead times as short as they are, customers ability to add or subject to the March shipments is readily available and so it's too early really to define that, but it's very similar to September December.


I show there are no further questions at this time. I would like to turn it back to management. Please continue.

Carol Raeburn

We'd like to thank you for joining us today. Please be advised that the webcast of today's call will be available on our website later this afternoon. Thank you for your interest in LAM Research and for participating in today's call.


Ladies and gentlemen, this concludes the LAM Research Corporation September 2009 quarterly financial results conference call. Thank you for using ACT Conferencing, you may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!