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Applied Materials, Inc. (NASDAQ:AMAT)

F2Q 2014 Earnings Conference Call

May 15, 2014 16:30 ET

Executives

Michael Sullivan - Vice President, Investor Relations

Gary Dickerson - President and Chief Executive Officer

Bob Halliday - Chief Financial Officer

Analysts

Jim Covello - Goldman Sachs

C.J. Muse - ISI Group

Timothy Arcuri - Cowen & Company

Romit Shah -Nomura

Krish Sankar - Bank of America-Merrill Lynch

Weston Twigg - Pacific Securities

Patrick Ho - Stifel Nicolaus

John Pitzer - Credit Suisse

Stephen Chin - UBS

Mahesh Sanganeria - RBC Capital Markets

Chad Dillard - Deutsche Bank

Edwin Mok - Needham & Company

Mark Heller - CLSA

Ben Pang - Northland Capital

Tom Diffely - D. A. Davidson & Company

Mehdi Hosseini - SIG

Operator

Welcome to the Applied Materials’ Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in a question-and-answer session. As a reminder, this conference is being recorded. I would now like to turn the conference over to Michael Sullivan, Vice President of Investor Relations. Please go ahead, sir.

Michael Sullivan

Thank you, Jennifer. Today, we will discuss the results for our second quarter, which ended on April 27. Joining me on the call are Gary Dickerson, our President and CEO and Bob Halliday, our Chief Financial Officer.

Before we begin, let me remind you that today’s call contains forward-looking statements including our current view of the company’s industries, our performance, products, share positions, profitability, announced business combination with Tokyo Electron and business outlook. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied and they should be interpreted in that light. Information concerning these risk factors is contained in our most recent Form 10-Q, Form-8-K and other SEC filings. Forward-looking statements speak as of May 15, 2014 and we assume no obligation to update them.

Today’s call also includes non-GAAP adjusted financial measures. Reconciliations to GAAP measures are contained in today’s earnings press release and in our reconciliation slides, which are available on the investor page of our website at appliedmaterials.com.

Before we begin, I would like to make a calendar announcement. On the afternoon of Monday, July 7, Applied will hold its 2014 Analyst Briefing in San Francisco, with a live webcast for anyone who is not traveling to SEMICON West this year. We will provide you with more details as we get closer to the event.

And now, I would like to turn the call over to Gary Dickerson.

Gary Dickerson

Thanks, Mike and good afternoon. In our second fiscal quarter of 2014, Applied Materials delivered earnings near the high end of our guidance and we expanded our operating margins for the sixth quarter in a row. These results reflect healthy investment by our semiconductor and display customers, strong execution against our strategic plans and significant improvements in our financial performance. Across the company, we are focused on accelerating our momentum for profitable growth. We are strengthening our field technical engagements with customers, our R&D capabilities, and our ability to ramp new products faster with lower cost and better quality. At the same time, we are making great progress getting the organization ready for our merger with Tokyo Electron.

We continue to believe that we will receive regulatory approval for the merger in the second half of this year. Our S-4 securities registration statement has become effective and our shareholder meeting to approve the combination with Tokyo Electron is scheduled for June 23. The detailed plans to integrate our two companies are taking shape. The level of engagement and strong working relationships within the integration teams are tremendous. This gives us high confidence that we can rapidly bring together the critical areas that will enable the new company to achieve its strategic and financial goals. We have also been developing the mission, vision and values that will be the foundation of the combined company’s culture and we will share more information about our progress at SEMICON in July. As we work through the integration planning process, we are even more confident that we can accelerate materials innovation for the industry and increase the value we deliver to our customers and shareholders.

Turning to our market outlook, evolving trends in mobility and connectivity are driving industry growth and accelerating innovation in mobile chips, solid state storage and interactive displays. The advanced processors, sensors and memory needed to enable high end smartphones have driven significant growth in the silicon content of these devices. Consequently, the foundries continue to make substantial investments as they ramp 20 nanometer capacity and accelerate their pilot lines for 16 nanometer and 14 nanometer FinFET technology.

We expect foundry spending to increase 10% to 20% in 2014 and be distributed over a broader customer base compared to recent years. Mobility and cloud computing are also driving demands for NAND memory and we expect bit growth to be about 40% this year. As a result of strong investments in advanced planar NAND, we believe total NAND spending could reach $7 billion for this year.

Adoption of 3D NAND is progressing at a slower pace than previously anticipated, but we still see increasing investment as customers work to solve technical challenges in a transition from planer to 3D devices. DRAM customers are also investing more as they upgrade capacities at their advanced nodes to meet demand for mobile DRAM. We expect 2014 DRAM spending to be 10% to 15% higher than last year. Overall, while there have been some adjustments in customers investment plans in recent months, we maintain our view that 2014 wafer fab equipment could be up 10% to 20% relative to last year.

In the display market, there are two primary factors driving growth. The first is TV, where average screen sizes are increasing at 1.5 inches to 2 inches annually, which is significantly higher than historic rates. Three, new Gen 8.5 factories are being built in China as our customers race to meet this growing TV area demand. The second is mobile, where displays are an important area of differentiation for smartphones and tablets. Higher definition screens are driving demand for low temperature polysilicon backplanes and we expect multiple new Gen 6 factories to be built in the next two years to meet the market’s needs. These strong market drivers in display have enabled us to book $340 million of new orders in our second fiscal quarter and while we expect our revenue patterns to be uneven due to shipment timing, our outlook for the display business remains positive.

In semiconductor and display, new materials innovations are enabling key inflections by providing our customers with solutions that improve device performance, yield and cost. We see tremendous customer pull for Applied’s differentiated technologies and precision film deposition, materials modification, materials removal and interface engineering margin which are at the heart of key transistor inflections. We are also working with our customers to drive significant materials innovation and interconnect.

Earlier this week, we launched our Volta CVD Cobalt system, this precision film deposition technology can be used to form CVD based cobalt liners and selective cobalt capping films that allow customers to overcome critical yield limiting issues as they scale copper interconnects at advanced nodes. This breakthrough strengthens our leadership position in interconnect, while growing the available market for Applied’s CVD products.

Over the past 18 months, we have taken actions to support our growth strategy by shifting spending to our best opportunities, strengthening our processes and adding talent in critical areas of the organization. We have increased our technical capabilities in the field to better support new applications development for our customers. We strengthened our product development engine to accelerate new precision materials engineering innovations and we aligned our product portfolio to increase our focus on those programs that make the biggest impact for our customers and for Applied. We are starting to convert these actions and investments into market share momentum.

In calendar 2013, we gained 1.4 points of wafer fab equipment market share ending the year at our highest level since 2006. We delivered positional share gains across the majority of our leadership businesses. Our PVD business gained 7 points of share in the year. epitaxy gained 5 points while our implant, thermal and CMP businesses all delivered strong gains.

We also built positive momentum in areas that are large growth opportunities for us. We won 6 points of share in overall etch driven by gains in conductor etch. We continue to build momentum and expect to gain additional conductor etch share in 2014. Equally, our process diagnostics and control group is demonstrating its growth potential. We gained 5 points of share in wafer inspection and 3 points in litho metrology in 2013. And this past quarter, the group delivered its second highest revenue on record. We continue to see strong customer pull for our inspection technology, particularly in defect review. We are extending our leadership in this market with the strong adoption of our new G6 e-beam review tool. This market is also one of the fastest growing segments, with customers using the G6 more extensively to solve defect problems as they ramp new foundry and memory device technologies.

Across the organization, we are focused on creating a strong pipeline of new, highly differentiated products to enable future inflections in logic, memory, and display. While we are making the required investments to grow, we are also driving superior financial performance. And as Bob will explain in a few minutes, we are making good progress towards our 2013 Analyst Day models. We have reduced the impact of our solar business on our overall performance and expect our EES group will achieve breakeven or better performance for the year. We continue to strengthen the organization in many critical areas, attracting top talent in engineering and the field. We are increasing our focus on high-value services for our large installed base of tools. Our customers are planning to ramp challenging new devices in existing fabs. We see an opportunity to work with them to accelerate yield, improve performance, and drive lower cost for these new device technologies. And we are driving improvement in performance, time, cost and quality across the company, so that we can execute better and be ready to effectively scale after we combine with Tokyo Electron.

In summary, as we approach the midpoint of the year, 2014 is playing out largely as expected with global trends in mobility, connectivity, and display providing a strong foundation for customer investments in capacity and technology. We remained focused on applying our unique capabilities in precision materials engineering to enable major technology inflections for our customers. We are driving profitable growth, gaining market share, and making progress towards our long-term financial model. Our preparations to combine with Tokyo Electron are accelerating and we are incredibly excited by the opportunities this merger will bring for our customers, shareholders, and employees.

Now, I will hand the call over to Bob who will provide additional details about our performance and outlook.

Bob Halliday

Thanks, Gary. We have been highly focused on investing to drive profitable growth over the short, medium and long-term. We have also very tightly managed our spending to increase our product development and field technical support, while simultaneously driving for higher levels of profitability.

As Gary discussed, we gained market share in 2013. This progress was made with limited leverage from the new and disruptive products that have been funded and are making their way through the development pipeline to our customers. In fiscal 2014, we are on track for profitable growth, compared to the same period in 2013. Second quarter orders were up 16%, with SSG backlog at the highest level in the past six years. Revenue was up 19%. On a non-GAAP basis, gross margin was at the highest level in six years. Operating profit exceeded 20% for the first time in nearly three years and earnings per share increased 75%, significantly outpacing revenue growth.

We continued to focus on margin improvement even as we invest for growth. Our non-GAAP gross margin in the second quarter was 44.2%, up 1.7 points sequentially, including 0.5 point of one-time benefits. We now expect to increase it by approximately 1.5 points in 2014 versus the prior year. R&D as a percentage of net sales has been running several points higher than in recent years. This is a headwind to our operating margins, which will become a tailwind as we introduce new and disruptive products in the future. Even with this higher level of investment, we are making progress towards our target operating model. All of our business segments delivered sequential operating margin improvement this quarter and the best performances in some time.

On a non-GAAP basis, SSG operating margins were the highest in seven quarters. AGS’s were the highest in seven years. Display had its second highest result in 10 quarters and EES was profitable for the first time in 2.5 years. By focusing on margin improvement, even as we invest for growth, we believe we can deliver approximately 5 points of non-GAAP operating profit expansion for the year.

Next, I will provide more color on some of the changes in our Q2 results versus the prior quarter. Orders of $2.6 billion were up 15% as growth in display and SSG orders were partially offset by a decline in AGS orders, which reflected the seasonal timing of service contract renewals. Net sales of $2.4 billion were in line with our guidance. Non-GAAP gross margin of 44.2% grew 1.7 points including 0.5 point of benefit from the partial recovery of a customs assessment charge we recorded in Q4 2013. Non-GAAP operating expenses of $559 million were within our guidance and higher sequentially due to the absence of Q1 shutdown savings and the addition of merit increases.

We expect quarterly OpEx to be about $555 million, plus or minus $10 million for the remainder of the year. Our non-GAAP effective tax rate was 24.7%, which was up from 22.5% in Q1. Both the quarterly rate and the expected annual rate have been impacted by a change in our forecast of regional revenue mix for the year. As a result, we expect the full year rate to be approximately 24%. Non-GAAP EPS of $0.28 was in the high end of our guidance. Cash from operations of $437 million or 19% of revenue grew 17% reflecting higher profitability. We paid $122 million in dividends and ended the quarter with cash and investments up $313 million to $3.4 billion.

Next, I will comment on our segment results as compared to the prior quarter. SSG orders of $1.7 billion were up 6% with increases in DRAM and logic more than offsetting declines in foundry and NAND. SSG net sales of $1.6 billion were up 7%, in line with our expectations as increases in DRAM and foundry offset decreases in NAND and logic. SSG non-GAAP operating margins increased 3 points to 27.3% on higher volume.

AGS orders of $537 million were down 10% due mainly to the seasonal timing of service contract renewals. AGS net sales of $534 million were up 5% in line with our expectations. AGS non-GAAP operating margin increased over 3 points to 28.1% driven by higher revenue, favorable mix and the recovery of customs assessment charges.

In display, orders grew substantially to $340 million reflecting large orders related to new TV facilities in China. These orders should result in revenue growth later in the year. Display net sales of $147 million were down 8% in line with our expectations. Display non-GAAP operating margin increased by 1 point to approximately 18% reflecting operational improvements. EES orders were $88 million and net sales more than doubled to $88 million in line with expectations. EES non-GAAP operating income was $7 million.

Now, I will provide our third quarter business outlook. We expect our overall net sales to be flat to down 5% sequentially. This range represents expected growth of 13% and 19% year-over-year. Within this outlook, we expect SSG net sales to be down 2% to 6%. This range represents expected growth of 17% to 22% year-over-year. AGS net sales should be flat to up 5%. We expect display net sales to be down approximately 20% and EES net sales should be up 5% to 10%. We expect non-GAAP earnings per share to be in the range of $0.25 to $0.29.

In summary, we are investing for profitable growth and now on track for year-over-year increases in revenue and profitability. We are very excited about our planned merger with Tokyo Electron, which will provide us with more strong products and technologies to enable our customers’ roadmaps, a larger installed base of systems to service, substantial economies of scale, and a unique opportunity to return more value to our shareholders. Applied and Tokyo Electron hope to see many of you in San Francisco on July 7. After the Applied Materials Analyst Briefing, we plan to hold a joint briefing to provide you with an update on our progress.

Now, let me turn the call back over to Mike Sullivan for questions.

Michael Sullivan

Thanks Bob. And to help us reach as many of you as we can, please ask just one question and no more than one brief follow up. Jennifer, let’s please begin.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Jim Covello with Goldman Sachs.

Jim Covello - Goldman Sachs

There has been a lot of controversy in the market relative to how the year was to going to play out, especially relative to people’s expectations as a couple of the bigger suppliers in the industry that have talked about weaker trends and then Lam and yourself have talked about things kind of stand pretty much as they were. Do you guys have any views as to what the differing views would be or why there is differing views from the major suppliers? Thanks.

Bob Halliday

I will take a shot at it, Jim. I will give you some data points. Number one, we did have strong orders in the quarter for both SSG and display and we ended the quarter with our highest backlog in years. So, that feels pretty good about little bit of wind at our back. Positionally, we are doing very well as a company on these transitions, whether they would be VNAND or FinFET. There has been speculation on a couple of concerns I think. One is some of the VNAND things may have pushed out and I think there is a general consensus, a little less spending in the short-term on that although we see that as very powerful longer term trend. But on the other hand, we do see a serious commitment by our customers to getting there on FinFETs. So, there might be a little bit of optimism coming on that in the intermediate term.

And then I think specific to Applied, as I mentioned we have the strong backlog. We have very strong display wind in our back also for both TVs and the smaller displays. And the solar business is doing okay for us. So overall, I would say there is a little bit of pushes and shoves, maybe a little bit of softness people have talked about, but overall we feel pretty good about our position.

Gary Dickerson

Yes, I would say also if we look at across the market with what we are hearing from customers, the foundry spending is expanding to additional customers above what they were in 2013. So, based on what we are seeing from customers and even some increase in demand short-term from some customers, we see that business being pretty good for 2014. NAND demand is pretty strong and again we see that up. DRAM, we also believe is up. Logic, we think maybe flat or down. But if you look at all of the different customers in the segments and you add it all up based on what we are saying, we are still in the range of the 10% to 20%, maybe it’s more towards the bottom end of that range, but still in that range.

Jim Covello - Goldman Sachs

That’s helpful. Thanks. And if I could just ask one quick follow-up and you guys had commented last quarter that you saw pretty healthy margin trends over the course of the year. Obviously, there is pushes and pulls based on what segments are spending and customers and timing and things of that nature, but how do you feel about the margin trajectory over the course of the year at this point?

Bob Halliday

Yes, I think we are making progress, Jim. You have to segment. Obviously, you segment it by our segments, that’s obvious. And if you look at it, Solar is doing a lot better. I think the costs have come down. We are into the black there. Display is doing really well as a business. If you go look at – if you also look at AGS, the margins were up. Then you look within semi and we are making sustainable progress on some of the underlying things, which are the costs are somewhat down, the positioning is good, the new products are starting to appear. And then you have some mix issues that helped us a little bit on the quarter. We had a little bit less etch and we had that one-time Korean thing, but I would say underlying progress is pretty good. We think it will be pretty good next quarter and up on the year.

Jim Covello - Goldman Sachs

That’s great. Thanks so much. Good luck.

Gary Dickerson

Thanks.

Operator

And your next question is from the line of C.J. Muse with ISI Group.

C.J. Muse - ISI Group

Good afternoon. Thank you for taking my questions. I know you guys don’t guide to orders, but curious if you could talk about your visibility there, expectations for volatility there, and then how you see spending linearity for WFE first half versus second half of the year?

Bob Halliday

Yes. We don’t – honestly, C.J., we don’t give exclusive guidance on orders. We feel that the business environment is okay. I think it’s not as a big concern as people say. We see pretty good strength in the second half. We see the FinFET stuff okay. As Gary said, the foundry spending is more spread out. I think to get greater visibility into the mix you have got to look below the top three guys. You have got to look at all those other spenders, the next four or five. And that strength year-on-year is more powerful than sometimes people focus on with the top three. So, I think the second half is okay. Traditionally, last few years, the fourth calendar quarter tends to be a little bit bigger than the third calendar quarter, but still too early to say.

C.J. Muse - ISI Group

That’s helpful. And as my follow-up, as you build on the market share gains in silicon in 2013, how do you see yourselves in ‘14 relative to the market? Can you give some color on what kind of outperformance you think you can do in silicon?

Gary Dickerson

Yes, sure. We have had a really good start to 2014 in a number of different businesses. This last quarter was very good and we look over the next two quarters, it’s kind of hard to see beyond the next six months. Those next two quarters also look pretty good for us. Major driver for the next few years is the transition customers are making in foundry and memory to dramatically different device architectures with FinFET and 3D NAND. These transitions are very good for us really enabled by materials innovation and we are optimistic that these transitions will grow our business and share as they happen. And beyond those leadership businesses, we are also seeing momentum in etch and PDC. And so you combine all of those factors together, we believe we are in a good position to grow our market share in 2014 and beyond.

Operator

And your next question comes from the line of Timothy Arcuri with Cowen & Company.

Timothy Arcuri - Cowen & Company

....give us the SSG order breakdown by a customer bucket?

Michael Sullivan

Okay. Tim, sorry, your phone was on mute for just a moment. Do you mind repeating the question, so we can make sure we had it?

Timothy Arcuri - Cowen & Company

Sure, Mike. Can you provide the order breakdown by customer type for SSG?

Bob Halliday

Yes. Let me look you out there on that one. I think what we said on the call was from quarter-to-quarter, foundry was – flipping pages.

Timothy Arcuri - Cowen & Company

Sure.

Bob Halliday

Yes, if you look at quarter-to-quarter as we said in the call, we had pretty strong orders overall but we found foundry Q1 to – if you want to hear about ‘13, I will tell you right now.

Gary Dickerson

So why don’t we come back – Tim, do you have any other questions, when we get the data, we can come back?

Timothy Arcuri - Cowen & Company

Okay. Sure, Gary. So Bob then the question just, I am trying to stick to the guidance, so it looks like you are guiding OpEx about flat, so to get to the middle of the EPS range it sort of implies the gross margin has to be up like 100 basis points sequentially on down revenue, is that the right math?

Bob Halliday

For Q2 to Q3?

Timothy Arcuri - Cowen & Company

Yes.

Bob Halliday

Yes. We had pretty gross margins in Q2 and we think in Q3, we are pretty strong too. I don’t want to be specific, but I think it’s in the ballpark, slightly up a little bit, I don’t know if it’s 100 basis points.

Timothy Arcuri - Cowen & Company

Okay great.

Bob Halliday

Now, the other thing you got going Tim is you said the tax rate in the quarter, next quarter is probably a little lower because we guided for the year in 24.1%. And this quarter was 24.7%, so if you figure some benefit probably on gross margins, some benefit on tax, the math does the work.

Timothy Arcuri - Cowen & Company

Okay. Then if you guys get those SSG order breakout, that would be great? Thanks.

Bob Halliday

Yes and I will give you some color, so Q1 to Q2 as we said on the call, foundry was pretty strong in Q2, but not as strong as in Q1 bookings, our fiscal quarters, right. We had – DRAM was up a fair amount, flash is down slightly and logic and other was up.

Gary Dickerson

Go ahead Jenifer.

Operator

And your next question comes from the line of Romit Shah with Nomura.

Romit Shah -Nomura

I wanted to ask about just the deal with Tokyo Electron, it seems like the markets maybe a little bit more skeptical about the deal closing versus how you guys are thinking about it and particularly around just the regulatory approval process in some of these major countries, Gary could you just share with us your thoughts on getting regulatory approval. And then what milestones we should be focused on beyond, I know you mentioned the filing as well as the shareholder approval meeting later in June, what else should we be focused on? Thank you.

Gary Dickerson

Yes. Again, as we have more to announce, we will. But rather to their process, we really continue to expect the merger to close within the second half of 2014 and the process is proceeding pretty much as we expected. And we look forward to closing within the original timeline. The other thing I would say is that the level of engagement and working relationships within the integration teams are really tremendous. And as I also mentioned earlier that we really have increasing confidence that we can rapidly bring together their critical areas and enable the new company to achieve its strategic and financial goals. So again, from a timing standpoint pretty much similar to what we had originally communicated and no real change in expectations there.

Romit Shah -Nomura

And then can you – as you have spoken to some of your top customers about this deal, what’s been the reception?

Gary Dickerson

We are not going to comment on all of those discussions. What we have said before is, those discussions went pretty much as we expected. And I have engaged with pretty much all of our top customers in the last month and there really have been no surprises in any of those discussions.

Romit Shah -Nomura

Alright. Thank you.

Operator

And your next question is from the line of Krish Sankar with Bank of America-Merrill Lynch.

Krish Sankar - Bank of America-Merrill Lynch

I think in your prepared comments, you mentioned that your gross margin year-over-year should be up about 1.4 points and Op margin around 5 points, if that is the case is it fair to assume that Op margin level Q3 and Q4 would be flattish and would it imply sales to be flat Q3 to Q4 or am I reading too much into it?

Bob Halliday

Yes. Well, this is the trap I get into when I give full year numbers. I don’t want to give Q4 guidance, Krish. We do want to give you some color, so I think our gross margins and Op margins in Q3 are in pretty good shape, I wouldn’t see why they would go down in Q4, but I don’t want to give specifics soon.

Krish Sankar - Bank of America-Merrill Lynch

Got it. Fair enough. And then a question for Gary, I mean good job on the share gains last year, I am kind of curious you guys definitely had some pretty good share gain momentum in etch and process control last year and overall net share gain last year, I am kind of curious, after the deal is announced or has that share gain momentum continued the first five months of this year or over the last six months or do you think that share gain momentum has slowed down?

Gary Dickerson

Well, let me talk about etch first. We are really happy about the progress. We are making in conductor etch. We focused on investing in areas where we had the best opportunities to grow. And as we discussed this is paying off. As we discussed earlier with the 6 points of share gain last year, we have added a great talent into the team. The level of excitement is tremendously high. In the second quarter, we had the highest conductor etch revenue in the last seven years. And based on the interactions with customers, we believe that we will have further conductor etch share wins this year and continue to grow share in 2014 and beyond, so very, very good momentum in conductor etch. Inspection, last quarter we also had the second highest revenue quarter for PDC. And we anticipate 2014 could be a record year for this business, so very, very strong pull from customers in all segments including inspection and defect review.

I think one thing that people really maybe are not fully aware of is that we have leadership in e-beam review. We introduced the G6 e-beam review tool this year, very strong pull from customers extending our leadership. And this is also one of the segments that is the fastest growing as customers are focusing on how to solve defect problems as they make these major transitions in foundry and memory, so very strong growth in the market, in the total available market in e-beam review and very strong share position. So really in both of those businesses in 2014 the perspective is very positive.

Krish Sankar - Bank of America-Merrill Lynch

Got it. Thank you very much, Gary.

Operator

And your next question comes from the line of Weston Twigg with Pacific Securities.

Weston Twigg - Pacific Securities

Question, first just on the foundry piece, I was wondering if you could give us an idea of roughly how much of the foundry spend this year you think will be on 28 nanometer and above and how much might be on say 20 nanometer, 16 nanometer, 14 nanometer?

Bob Halliday

And so we think the Fin stuff is around 25%, right. I think we think the Fin stuff is around 25%, the 20 nanometer grouped in there is net above that.

Michael Sullivan

That 25% is going to be 28 nanometer still…

Gary Dickerson

So most of – I would say 25% or so around FinFET technology this year. And really the bulk of the rest is 20 nanometer in 2014.

Weston Twigg - Pacific Securities

Got it. Okay, that’s helpful. And then I was just wondering on the cobalt cap announcement, it’s really interesting, can you give us an idea of what you think the incremental revenue opportunity might be and then what the rate of adoption is by customers maybe just roughly by nodes, which nodes they may be introduced into?

Gary Dickerson

Sure, absolutely. So interconnect scaling is really a major challenge for customers, they need to fill smaller and higher aspect ratio of structures with good device performance and high yield and this is getting really hard for future devices. So to address these issues we developed the integrated cobalt liner and also a selectively deposited capping layer to enable customers to continue to use copper for future nodes. The cobalt liner is integrated on the same platform with our PVD chambers, which is a really great opportunity to expand our market in interconnect. And the capping layer is really a unique selective film similar to epi where we have a huge growing business and enabling new capabilities for customers. If you look at the size of the markets, you have two steps that will go across five different layers, so it’s about 10 steps. And it’s about a couple of million dollars for every 1K wafer starts roughly in terms of the size of the business. And this year in CVD we anticipate this is going to be a strong year. We anticipate gaining several points of share and part of that is this new Cobalt CVD film. So we anticipate very strong adoption in logic and foundry for really all of the customers and that will add a fair amount of business in 2014.

Weston Twigg - Pacific Securities

Very helpful. Thank you.

Operator

And your next question comes from the line of Patrick Ho with Stifel Nicolaus.

Patrick Ho - Stifel Nicolaus

Maybe first going to the DRAM market and seeing the pickup in the CapEx spending as you look over the next couple of quarters and even to 2015 with some projected projects that are out there. Can you discuss the type of capital intensity you maybe seeing in future DRAM spending as it relates to your process segment versus some of the market share gains you maybe able to expect to gain in that customer segment?

Bob Halliday

DRAM, we think is up this year, Patrick. As we said, Q2 was up on Q1 for us in bookings. Q3 and Q4, we feel are better than Q1, but maybe not quite as good as Q2 for us. If you look at what’s going on there, on the periphery stuff, we are benefiting particularly in medium current and high current implant as it gets more logic like there is all sorts of gap fill stuff going on that’s helping us. We are going to be introducing cobalt with our PVD tools. Dielectric mesh looks good for us. And in etch we are making pretty good progress too. So, there is a bunch of transitions that are going on for us in the periphery, which is getting more logic like and also some of this capacitor stuff looks pretty good.

Patrick Ho - Stifel Nicolaus

Great, that’s helpful. And maybe my follow-up question on the NAND side of things, what I was getting, I guess really customer specific, how do you see the challenges for most of the other players in terms of deciding to go to planar NAND versus their time of adoption or their rate of adoption of next generation 3D NAND?

Bob Halliday

Yes, what we see Patrick is really all of the customers are focused on the transition from planar to 3D NAND, because of the bit scaling opportunity that they have. Now, there are challenges in that transition. And we actually have a very strong position. In etch, that is really our strongest market segment, the planar and 3D NAND. And we have new applications that we are growing in that segment. We also have some unique technology that is focused on addressing the major challenges, yield challenges that customers have as they are making this transition from planar to 3D NAND, some new deposition technology. So, we really look at that being a really great opportunity. As we have talked about before the switch from planar to 3D NAND is really focused on thermal deposition and etch products. And we have made a lot of investment in those areas. We see this as a great opportunity for us to grow share as these transitions happen. What we have said is that our available market growth was 25% or 30% in the first generation. And then as you continue to scale the number of layers as they drive bit scaling that growth is even stronger for us. So, we believe that we are in a very good position as that transition happens. Now, it is the tough transition, but every single one of our customers are very focused really on technology buys to drive the development of that technology. Certainly we see 2015, the spending ramping a fair amount above what we see in 2014. So, most of the customers are really planning to ramp in ‘15 and ‘16. And this as we said is a very good opportunity for us.

Patrick Ho - Stifel Nicolaus

Great, thank you.

Operator

And your next question comes from the line of John Pitzer with Credit Suisse.

John Pitzer - Credit Suisse

(indiscernible) results, thanks for them. May I ask the question? Gary, I guess my first question as it’s becoming clear that Moore’s Law capital intensity is going up, you are starting to see your customers and your customers’ customers kind of evolve their strategy. Last week, SanDisk kind of talked about a 3D CapEx spend that seems to be targeting flat dollars off of their ‘14 spend level intentionally. Talking about a longer period to ramp 3D, you have got Samsung this week talking about fully depleted SOI. I am just kind of curious as the economics start to become challenging and customers do things to extend nodes or slow progress, how does that impact kind of your view that you had at your Analyst Day in 2013 about a WFE number that can approach $37 billion?

Gary Dickerson

Well, Patrick [ph] as we talked about in the Analyst Day, we really sized our business at $30 billion. So, we are improving our profitability in our profile – sorry, we are really driving improvements in our business model at $30 billion. So, relative to the increasing CapEx spending, if you look at the planar to 3D NAND more spending is in the areas that are – where we participate and really where we have enabling technologies. So, you look at deposition etch and thermal processes that CapEx is going up and litho as a percentage is going down. So, that is a really very good opportunity for us.

The other thing I would say just as I travel around and I visited pretty much all of the major customers in the last month or two, the drive – this is a real war for mobility leadership that’s happening. So, if you look at the memory area, the transition from planar to 3D NAND is a big bet that these different customers are focused on. And so they are all trying to get there first with the best technology. And the foundry competition is even more fierce, because people are focused on driving low-power, higher performance, more features. And so you look at this battle that’s going on, we absolutely see stronger pull from those customers. And as you said that the CapEx does go up as they are moving to those new devices. Fortunately, for us, they are very heavily leveraged with our materials, precision materials engineering technologies. So, the transitions are good for us, but it is a big battle and a big bet for all of these different customers as they go through this transition. So anyway, John, those are my thoughts, I don’t know, Bob, do you have any….

Bob Halliday

I think that’s accurate. I mean, we do see increase in capital intensity. We do see it playing well in the areas, where we compete. We do see that our customers are competing and then things like FinFET and VNAND are very powerful devices down the road. Now, VNAND when they go to second generation, it probably becomes more cost effective than first generation. FinFET, we will have to play out a little bit. One of the more intriguing things that’s starting to pop up on the FinFET stuff too is the interconnect which we talked about a little in the call. So, how it all plays out commercially in a couple of years, I am not sure. The other thing I think I said to you on an earlier call, John we are managing the company to achieve significant levels of profitability, a $30 billion wafer fab equipment, so that we are a very attractive company in terms of growing market share profitability at $30 billion to $37 billion.

John Pitzer - Credit Suisse

Yes, helpful guys. And then Gary I guess as for my follow-up, you guys have historically been well-levered to do the largest foundry in the world over in Taiwan. I am just kind of curious how I should think about your relative share at sort of some of the other foundries like Samsung and GLOBALFOUNDRIES as you talked about it in your prepared comments, the foundry customer base kind of broadens out in the back half of the year. How different is your share position was kind of the number two, number three guys versus the number one guy?

Gary Dickerson

Yes, John, really the foundry segment is our strongest segment really across the board. So, the more foundry is growing, that’s really great for us. And we have a great opportunity as customers are introducing these new technologies, you gave more epi stuffs. You have a number of other areas that we talked about, the Cobalt CVD. A lot of these technologies we are seeing a broad adoption across all of these different customers. And so as this broadens out, that’s very good for us as that mix shifts towards stronger foundry spending.

John Pitzer - Credit Suisse

Perfect, thanks guys.

Operator

And your next question comes from the line of Stephen Chin with UBS.

Stephen Chin - UBS

Thank you. Yes. Maybe you could just follow-up on that last question on the sustainability of foundry orders coming from multiple customers. In your quarter, we saw two of your foundry customers announce a major strategic collaboration. I was just wondering historically have you seen these customer collaboration typically help improve order visibility in the near-term, but maybe this becomes a headwind for orders later on as they choose to build less fabs and do more sharing?

Bob Halliday

Yes, we have had some of this in the past, Stephen. You worry about all these things, because it’s a reasonably big deal, but in the end it hasn’t had huge impact. There are a few things going on that touch on what Gary just said. We do very well at places like foundry because we are enabling technology, if you look at PVD to metal gauge, look at epi, our products really help them solve, again as Gary says high value problem. So the benefit and value of our products is really high on foundries and particularly at inflections around metal gates, FinFETs and also in inflections in VNAND frankly. The inflection we are pursuing on DRAM is a little bit more in the periphery. So then if you go to customers consolidating, we have strong share in all the foundries and our enabling technology we had very high market share in those because we are enabling, so I think it will work out.

Stephen Chin - UBS

Okay. And then maybe for my follow-up question, just on the general silicon order trends, did you guys discuss that your silicon customer overlap is now close enough with Tokyo Electron, are you seeing the same big picture industry trends for silicon orders (indiscernible) after Tokyo Electron talked about I mean just a short order pause the June quarter with a recovery and maybe July, just wondering if you think you are close enough to them that you see the same big picture trends? Thanks.

Gary Dickerson

We really don’t – we are not sharing any of that kind of information at this point, so I don’t think we would have a perspective on that.

Michael Sullivan

Thanks Stephen.

Operator

And your next question comes from the line of Mahesh Sanganeria with RBC Capital Markets.

Michael Sullivan

Jenifer is Mahesh’s line un-muted because we are not hearing him.

Operator

And Mahesh your line is open.

Mahesh Sanganeria - RBC Capital Markets

Hello.

Michael Sullivan

Hi.

Mahesh Sanganeria - RBC Capital Markets

Sorry, I was (on a) headset, I apologize. So on your backlog it looks like you are getting better visibility in terms of orders on silicon SSD, your orders were up 6% and you are guiding revenue down 4%, is it specific to a customer or some segment that you are getting better visibility on the orders?

Gary Dickerson

I think we just have some good timing on backlog. We have pretty good positions in share. So typically, there are typical customers who give you backlog and lead times that tends to be logic and a little bit more foundry, a little less so memory. But I think I wouldn’t read too much into that.

Mahesh Sanganeria - RBC Capital Markets

Okay. And another question on DRAM, we have seen a pretty interesting trend in DRAM, we have seen lithography and process control guys have not seen the strength you and Tokyo Electron and Lam has seen, is there anything going on technologically in terms of the transition to 25 nanometer and 20 nanometer that is driving more of deposition in etch versus litho and process control?

Gary Dickerson

Yes. Those are the areas that we see that are the strongest. I mean as Bob mentioned, the periphery is really changing to be more logic like, I mean it’s lagging certainly the foundry and logic people by a couple of nodes, but we are seeing really strong pull for implant. I was just in Asia with one of our customers and really very, very strong pull as they are moving to next generation DRAM devices. We talked about cobalt, some other films for the capacitors, etch, different etch steps, so I would agree that those areas we are seeing pretty strong pull.

Mahesh Sanganeria - RBC Capital Markets

Okay. Thank you very much.

Operator

And your next question is from the line of Chad Dillard with Deutsche Bank.

Chad Dillard - Deutsche Bank

Yes, thanks for taking my question. So can you compare your market share in 3D NAND to-dare where you are in planar NAND and if you can give numbers, just through some general sense. And then also of that $7 billion in NAND spending for this year how much of that breakout to your 3D?

Bob Halliday

My memory is we are gaining share on both planar and 3D NAND. And I think our percentage of wafer fab equipment is slightly higher in 3D NAND because there is more deposition in etch. So our share of wafer fab equipment is up in both in – our share is up in both. The relative share is up more in 3D for two reasons. We are winning positions. And it’s more deposition etch-intensive. In terms of the spending mix between the two, it was about 30%...

Gary Dickerson

30% this year. But as we talked about before there is may be 25%, 30% growth, just in first generation, I mean some people will also quote kind of what the growth is from planar to 3D NAND. But you really have to look at the number of layers in the stack, so for us it’s 25%, 30% as you go to first generation 3D NAND devices. And we did see an increase in market share in the first customers that were moving from planar to 3D NAND. We didn’t give an exact number and how much that share was going up, but there was a fair increase as we went through that transition.

Chad Dillard - Deutsche Bank

And then I just want to probe further into AGS margins, which were pretty strong in this past quarter, can you talk a little bit more about what’s driving that margin outperformance, is it mix, is there something else going on and is this how to think about the segment as a new normal?

Bob Halliday

Yes. The margins for AGS were strong. They were the beneficiary of that 0.5 point of gross margin improvement for the overall company that was a recovery of a Korean customs audit that we did well on, that we reserved in Q4 ‘13. So it’s a little bit of one-time item in that. Generally, our AGS margins are doing better, I don’t know if the current quarter is exactly going to stay the same for the foreseeable future probably because of that Korean customer’s audit.

Gary Dickerson

Yes. One thing I would say, a couple of things I guess on AGS. If you think about what is happening with our customers in foundry and memory and in logic, they are making major transitions in device technology. So as they are moving to FinFET, they are moving from planar to 3D NAND. As they are shrinking these devices, defects become a bigger issue, uniformity becomes a bigger issue, edge die yield, tool stability. So for our customers to extend our large install base of tools as they are making these transitions, they are really pulling on us more and more and that really gives us an opportunity in AGS. The other thing is we really are making major changes in our organization to drive lower cost and also improve our ability in the parts business to grow that parts business, lower cost for customers and also providing parts that do give lower defects, better uniformity these types of capabilities. So we are making – really, it’s a big drive for us and we see this as an opportunity for us to grow that business.

Chad Dillard - Deutsche Bank

Great that’s all for me. Thanks guys.

Operator

And your next question is from the line of Edwin Mok with Needham & Company.

Edwin Mok - Needham & Company

Just wanted to revisit your – how your book to bill or booking versus revenue for SSG, it’s been above 1 point for like three quarters, but you guys guided down, but I was just wondering, is it just based on timing of shipment. And then maybe some color on the linearity of shipment in the June quarter?

Bob Halliday

Well, the book to bill has been north of 1, as you said Edwin, we are guiding down on revs because even though we don’t think there is any big time pause, it’s typically the last few years that Q3 in terms of order trend isn’t quite as high as other quarters. So I don’t think it’s a big time pause, I think we are being helped by second tier buying, but it’s probably off a little bit in orders.

Edwin Mok - Needham & Company

Actually that’s very helpful. And then just you talked a little bit about the etch and inspection share gain, sounds obviously very impressive, just curious, is there anyway you can kind of quantify where is it coming from, any particular area like foundry, memory or logic that you are seeing stronger pull on your customer side for those products. And as you integrate with TEL, do you see those two areas being further rooms for gaining share and area with the most opportunities or do you see other areas that you see, that you might have a lot of opportunity to gain share?

Gary Dickerson

Well, I think kind of the big picture for us is that these major technology transitions that are happening within foundry, logic, memory, huge changes in the transistor, from planar to 3D NAND, those – that’s the big picture. And we talked about significant growth in PVD and epi and a number of different areas and we really see that continuing. There really are more steps that are being added as the customers are trying to drive device scaling and it is very hard for them to make these transitions. And really more and more focused on materials innovation, so I would say that is the major theme for us. And that provides a very good environment over the next few years as the customers ramp those new devices.

Now within etch, we were fortunate last year that we had the 6 points of share gain in overall etch. And really based on our gains in conductor etch and as I said earlier, we had last quarter the highest conductor etch revenue in seven years and we really have very strong pull from customers. Certainly in NAND flash, we see that market being very strong. We are also – we also anticipate that we will grow our business in foundry this year.

And then the other area that is an inflection is around selective material removal, where we have very strong products and we see that technology continuing adoption as the customers are implementing these new device structures. So, we really see a really great opportunity in etch for us to continue to grow in conductor etch. One of the things I talked about also is that we are not trying to boil the ocean. So, we have focused on the areas, where we thought that we had the best opportunities. And certainly, we saw that conductor etch was a great opportunity. We have very strong pull from customers in conductor etch and we have increased our investment, shifted money into that segment and that’s where we see continued growth in 2014 and beyond.

Edwin Mok - Needham & Company

Thanks. That’s all I have. Thank you

Operator

And your next question is from the line of Mark Heller with CLSA.

Mark Heller - CLSA

Good afternoon. Thanks for taking my questions. I had a question on the foundry orders, the mix within that and also when you noted broader foundry spending in the second half, are we talking – is this mostly on FinFET spending or is it 20 nanometer or 28 nanometer?

Bob Halliday

Yes. What you are seeing in the second half, you are starting to get a little bit bigger pull recently for FinFET stuff. So, we said on the year, it was about 25% FinFET stuff across foundries and about 75% planar. The planar stuff was more weighted to the beginning of the year and the FinFET stuff is more weighted to the end of the year. And recently, it’s been in public domain a lot last month or so. People have become a little bit more worried about VNAND timing this year versus next year. I think there is a little bit more pull recently for FinFET.

Mark Heller - CLSA

But are you seeing any increase in more lagging etch demand like 28 nanometer?

Bob Halliday

A little bit.

Mark Heller - CLSA

And the other question, any thoughts on the recent Samsung ST announcement with silicon-on-insulator, what is your view on that technology and the potential implications for equipment spending?

Bob Halliday

Yes, we know about silicon-on-insulator technology for a while now. It’s been around for a while. It’s hard for us to see a big inflection here, but we haven’t spent a lot of time on it either.

Mark Heller - CLSA

Thanks. Thank you.

Operator

And your next question is from the line of Ben Pang with Northland Capital.

Ben Pang - Northland Capital

Thank you for taking my question. On the outlook for spending, I think you mentioned an answer to a previous question that you are looking at the low-end now rather than the high end of the range, what’s the change – what segment has changed the most year-to-date?

Bob Halliday

I don’t think we have changed a lot. We didn’t change our range. We are probably a little bit lower in the range. I think it’s the stuff people have talked about a little bit. NAND – the total NAND is a little bit off probably, not big time. We are still at around the $7 billion number, but a little bit and I think it’s mostly timing between years also.

Ben Pang - Northland Capital

Okay. So, it’s primarily NAND spending is where you see the – just to be clear about it, that’s kind of where you guys also – this is not based on – I guess, this is based on your own view from your customers, correct?

Bob Halliday

Yes, it’s in the….

Gary Dickerson

Yes, absolutely. And again, I think that as Bob talked about, timing really can make a difference as you get to an end of the calendar year and someone pushes out any of these technologies by one quarter, but we basically are in constant communication with our customers and the forecast that we have right now is pretty much aligned with what we hear from them.

Ben Pang - Northland Capital

On the flipside, what gets you to 20%?

Gary Dickerson

If you pull in, as they get more aggressive on FinFET or pickup NAND back to where they were.

Ben Pang - Northland Capital

Okay. And then one quick follow-up, on the capital intensity, you commented on lithography having lower capital intensity, is that because the number of critical layers is slowing down as you go to FinFET?

Gary Dickerson

No, we talked about really on 3D NAND versus planar and the feature sizes are increasing as that’s the reason why they are going. Again, they are going to the 3D scaling versus 2D scaling. So, it’s not shrinking the dimensions as there is the transition from planar to 3D NAND. So again, what we see from the big – our large customers etch, deposition and thermo processors are going up and litho because you are scaling vertically, not horizontally, the feature sizes are not as demanding and that is reducing the percentage of litho CapEx in 3D NAND.

Bob Halliday

Yes. It’s more of a NAND discussion, Ben.

Ben Pang - Northland Capital

So, if I look at it for the total WFE space, even your guidance NAND, 3D NAND outlook is like 5% right of total, right like $2 billion or 7% or something of the total. So, the overall WFE waiting, do you really expect a big change in your sort of developed market, because litho goes down for this year?

Bob Halliday

Ben, you are saying, you think NAND spending is only 5% of…

Gary Dickerson

No, Ben, again what we are seeing is…

Ben Pang - Northland Capital

Yes, I think you guys have 7% and then 30% of that, right?

Gary Dickerson

Yes. So, what we are saying is basically when that transition happens, we are not talking specifically about the mix, where we did give those numbers on 2014, but as the 3D NAND ramps, our total available market goes up and then it’s just a function of how much of that spending is happening in ‘14 versus ‘15 and ‘16, but definitely as that device ramps, that’s good for us.

Michael Sullivan

Thanks, Ben. And Jennifer, we are running a little over. So, I would like to ask you if we have maybe two more questioners in the queue please.

Operator

And your next question is from the line of Tom Diffely with D. A. Davidson & Company.

Tom Diffely - D. A. Davidson & Company

In your outlook for the next year, how many new fab, the new greenfield fabs do you see versus just upgrades to existing facilities?

Gary Dickerson

Well, typically again when you say what ends up happening as the customers now will divide these investments into multiple phases. So, they are counting differently. Let me give you some color. So they are going to sort of these mega fabs for bunch of reasons. So, if you look at the Xi’an Fab, the total Xi’an Fab is I think 220,000 wafer starts in multiple phases. The total fab ‘14 build out eventually is over 200,000 wafer starts, I think. So, these mega fabs make it a little bit harder to count a greenfield fab, because they do it in phases now. If you look at wafer starts and pulling up that data, that’s a fair amount. Do you have the wafer starts?

Bob Halliday

Five segments.

Gary Dickerson

So, if you look at – we think 3D is up to about 80,000 by the end of the year. That’s including about 30,000 from last year.

Tom Diffely - D. A. Davidson & Company

Okay.

Gary Dickerson

And so wafer starts are up a fair amount. We have foundry there. I mean, foundry is up quite a bit too, but it’s more about wafer starts than greenfield fabs, I think.

Tom Diffely - D. A. Davidson & Company

Okay, thank you.

Operator

And our final question comes from the line of Mehdi Hosseini with SIG.

Mehdi Hosseini - SIG

Yes, thanks for taking my question. Most of the good questions have already been asked. I will just ask couple of follow-ups. The first one has to do the breakdown of the backlog. Bob, I am looking at your display backlog is up 65% Q-over-Q and up almost 30% year-over-year and then on SSG, backlog is down 7% year-over-year. How should we think about the margin profile, especially some of these display equipments are shipped in the latter part of the year? And I am asking this because I am under assumption the display margins are much lower than SSG, so if nothing happens or nothing dramatic happens to the SSG backlog, how does the larger mix of display is going to impact the overall margin? And I have a follow-up.

Bob Halliday

There are a couple of things. Display backlog is up significantly, but year-on-year, I think the SSG backlog is also up. So, we are in okay, pretty good shape on both in terms of the mix. Gross margins are higher as you know in SSG versus display, but display operating margins have been trending up reasonably well. So, the gap isn’t as big as it used to be. Third, the lead times for display equipment are much longer. So, I don’t think we are going to have a big bump in our operating margins in any given quarter, because of unusual display disparities either in operating margins or in huge volume of business. I think it will be manageable.

Mehdi Hosseini - SIG

Got it. And then one follow-up to your commentary about managing the business for WFE of $30 billion, should I assume that your SSG operating margin would grow back towards low 30%. I am looking at July of 2012, for the same revenue as you did in April of this year, operating margin was about 400 basis point higher. So, should we think about cost cutting to the point that you would be able to squeeze that much margin expansion?

Bob Halliday

Well, if you go look at the model, we showed you last Analyst Day July 7 or 8 last year, we trended up to 25% operating margins at $37 billion number. And now some people including John earlier on the call, was worried that it wouldn’t be $37 billion environment. Our model, we showed also on that day was at a $30 billion environment. We are going to do about $22.5 billion. And so to make that model work between the $30 billion and the $37 billion, you need to have an improvement in SSG operating margin. As we said today earlier, across the whole company if you look at our spending in $8 billion revenue environment, which was 2004, ‘08 and sort of ‘12/13, we are spending about 4 points higher as a company on R&D as a percentage of sales. And most of that’s in SSG. So, we expect not only that our spending as a percentage of sales will be more favorable, but we will start to get growth in sales, especially in SSG as these new products hit the market. So, the short answer to your question is, yes.

Gary Dickerson

Yes, Mehdi, the other thing I would say is that we have talked before about shifting over $200 million maybe as much as $300 million of OpEx spending. EES is now getting back into the black. We have shifted a lot of money out of that. We have shifted a lot of money out of headquarters functions into the semiconductor R&D. So, the operating margins as you pointed out correctly are lower, but we really believe that those investments that we are making in SSG are important for our customers as they move to these new device technologies, FinFET, first generation, future generations, the interconnect technologies, new memory technologies. We really think those investments are important for our customers for the industry and we believe that we will get a good return on those investments. So, there is not going to be any reduction in that R&D spending in the near term.

Bob Halliday

Yes, I think that operating – to resonate what both of you said, I believe we can get to the type of numbers you are saying in a moderate spending environment. And I believe the way we will do it will largely be – we will start to kick in some revenue growth that we are investing in for now.

Michael Sullivan

Great. So, Mehdi thanks for your question and we would like to thank everyone for joining us this afternoon. A replay of this call will be available on our website by 5:00 p.m. Pacific Time today. And we would really hope to see many of you in San Francisco for the SEMICON West briefing on July 7, the afternoon of July 7. So, thank you for your continued interest in Applied Materials.

Operator

Thank you. Ladies and gentlemen, this does conclude today’s conference call and you may now disconnect.

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