Executives
Robin Yim -
John Hertz - Chief Financial Officer, Principal Accounting Officer, Vice President and Corporate Controller
Richard Hill - Chairman and Chief Executive Officer
Timothy Archer - Chief Operating Officer
Analysts
Atif Malik - Morgan Stanley
James Covello - Goldman Sachs Group Inc.
Mehdi Hosseini - Susquehanna Financial Group, LLLP
Stephen Chin - UBS Investment Bank
Christopher Muse - Barclays Capital
Patrick Ho - Stifel, Nicolaus & Co., Inc.
Krish Sankar - BofA Merrill Lynch
Edwin Mok - Needham & Company, LLC
Timothy Arcuri - Citigroup Inc
Benedict Pang - Caris & Company
Satya Kumar - Crédit Suisse AG
Mahesh Sanganeria - RBC Capital Markets, LLC
Novellus Systems (NVLS) Q2 2011 Earnings Call July 11, 2011 4:30 PM ET
Operator
Good day, and welcome to Novellus Systems Second Quarter 2011 Earnings Conference Call. As a reminder, this call is being recorded today, July 11, 2011. I would now like to turn the conference over to Ms. Robin Yim of Novellus Systems. Please go ahead.
Robin Yim
Thank you, Melissa. Good afternoon, everyone, and thank you for joining the Novellus Systems Second Quarter 2011 Earnings Conference Call. Joining me on the call today are Rick Hill, Chairman and Chief Executive Officer; Tim Archer, Chief Operating Officer; and John Hertz, Chief Financial Officer. Financial results for our second quarter 2011 were released on Marketwire shortly after 1 p.m. Pacific Daylight Time. You can obtain a copy of the news release in the Investor Relations section of our website at novellus.com
Today's earnings call contains forward-looking statements about Novellus' business outlook, the future performance of Novellus, our products and forecast of key metrics for the third quarter of 2011. Specific forward-looking statements include, but are not limited to, our expectations regarding our future interest expense and tax rates; estimates, projections and forecasts for our industry, PC unit growth, semiconductor and smartphone markets; contract prices for DRAM and NAND; and our customers' capital expenditures. It also includes our expectations for growth in 2011 and 2012; demand for mobile devices, cloud computing and storage and the need for further investment in 3D NAND; advanced wafer level packaging and advanced logic applications; the forecasted bookings, shipment volumes, revenue, gross margins, earnings per share and tax rates for the third quarter of 2011 and other unanticipated future events.
We caution you that forward-looking statements are projections and expectations regarding future events, which may involve risks and uncertainties that could cause actual results to differ materially from the results contemplated, including an inaccurate basis for our financial forecast. Information concerning risks that could cause actual results to differ materially is contained in today's press release, our filings with the Securities and Exchange Commission, including our Form 10-K for fiscal 2010, our Form 10-Q for the first quarter of 2011 and our most recent Form 8-K.
Forward-looking statements are based on information as of today, and we assume no obligation to update any of these statements. John Hertz will begin today's call with a review of the financial results for the second quarter. Then Rick Hill will discuss the state of the business and our industry outlook, followed by guidance for the third quarter of 2011 and then open the call for the question-and-answer session.
Now I'll turn the call over to John.
John Hertz
Thank you, Robin. I'm pleased to report another quarter of solid performance despite some softness on the top line and that all of our results were within guidance range as provided on our mid-quarter update call on May 31, 2011. As expected, our second quarter net bookings came in at the low end of our guidance range of $312 million, down 25% sequentially. Shipments in the quarter were down 5% from Q1 at $359 million, which is at the midpoint of our guidance range of flat to down 10%.
Second quarter revenues were $350 million, down 15%, also at the midpoint of our guidance range of down 10% to 20%. I'd like to note that at the beginning of every quarter, we perform a review of our customers' credit quality and in conjunction with the review at the beginning of the second quarter, we converted a certain customer from cash basis revenue recognition to accrual basis revenue recognition based on that customer's improved operating performance and cash flow trend as well as our collection history with that customer.
As a result, $20 million of revenue was both contemplated in our initial Q2 guidance and recognized in our Q2 results. The geographic breakdown of our revenues in the quarter were as follows: United States, 26%; Greater China, 42%; Korea, 17%; Japan, 4%; Europe, 11%.
Now turning to gross margins. In the second quarter, we achieved a 50.3% gross margin, which came in above the midpoint of guidance range of 50% plus or minus 1%. Despite lower factory throughput, we were able to maintain margins above 50% due to product mix.
Operating expenses in the quarter totaled $95 million, which was flat from Q1 levels and in line with guidance. Our Q2 operating margin while down from Q1 record levels was a still robust 23%. In the quarter, our interest expense increased to $3 million as a result of the issuance of $700 million in 30-year convertible bonds. We felt it was an opportune time to access capital markets and increase debt as an overall component of our capital structure and lower our cost of capital.
The bonds carry a cash interest coupon at 2 5/8% and 20% conversion premium. The debt was initially recognized in the financial statements at $270 million and will accrete to the $700 million face amount similar to a 0 coupon bond at an 8.1% effective interest rate over the 30-year period. For the remainder of the year, we expect interest expense to be approximately $6 million per quarter.
Our second quarter tax rate was 17.6%, consistent with the guidance at our mid-quarter update. Going forward, our projected tax rate for fiscal 2011 remains unchanged at 15% plus or minus 2%. However, we expect to be at the high end of that range for the third quarter as a result of changes and assumptions in geographical revenue mix from the beginning of the year.
Our second quarter net income and fully diluted earnings per share came in at $65 million and $0.79, respectively. That's based on a fully diluted share count of $82 million. Looking to the third quarter and including the full effect of share repurchase in Q2, we are forecasting a fully diluted share count of approximately 74 million, and that is prior to any incremental share repurchases.
Now turning to the balance sheet. We ended the quarter with $1 billion of short and long-term cash in investments, which includes $133 million of restricted cash. We generated $95 million in cash flow from operations in the second quarter or 27% of revenue. Our total cash and investment balance increased by $165 million sequentially.
In Q2, we purchased 18.3 million shares at an average all-in cost of $34.19. Year-to-date, we have purchased 23.4 million shares for $825 million at an all-in cost per share at $35.31. The stock repurchase program remains active, and there's approximately $415 million left under authorization.
Capital expenditures for the first quarter were $5 million. Noncash expenses in the quarter included $9 million of depreciation and amortization and $11 million of equity compensation. Net accounts receivable at the end of Q2 totaled $236 million, and DSOs were flat with Q1 at 61 days. And inventory turns declined slightly to 3.1x compared to 3.8x in Q1. So all in all, despite some headwinds, we had a good quarter with continued solid earnings performance and improved capital structure and strong cash flow generation.
That concludes my prepared comments on the financials. Now I'd like to turn the call over to Rick to provide an update on the state of business and guidance for the third quarter of 2011.
Richard Hill
Thank you, John, and good afternoon, ladies and gentlemen. I'd like to start by saying I too am pleased with our results on a very strong second quarter given the sharp decrease in shipments and revenues.
We generated 18.5% net margin and $95 million in cash from operations. We recapitalized the company with a $700 million convertible debt financing at 2 5/8%, and we spent $625 million of those proceeds to purchase 18.3 million shares at an average price of $34.19, as John reported, which more than covers the 17.7 million shares underlying the bond.
Therefore, as you can see, we basically replaced roughly 20% of the company's equity with debt at 2 5/8% in replacing equity, which typically was at the cost of about 12%. That being said, now I'd like to talk about market conditions and our expectations for the third quarter.
Since our mid-quarter update on March 31, I have visited our top 6 customers. And in each case, we have been given a cautious tone and a feeling of uncertainty on the part of each of those customers. It's no surprise given the recent reports of weak economic data posted to our business. The persistently negative forecasts for single digit growth in PC units, coupled with lower volumes for smartphones and tablets forecasted for the remainder of the year, are causing our customers to be more cautious. Given this uncertainty, our customers have warned us they could curtail their capital expansion plans.
In addition, to those negative sentiments, average semiconductor factory utilization rates have declined to slightly below seasonal levels, and contract prices for both DRAM and NAND are forecasted to decline in Q3. This forecast is by industry pundits on the heel of those weak PC and smartphone demands.
With the weaker near-term outlook, growth in our industry could trend towards the midpoint of our forecasted range of 10% to 20% for 2011. So while we have grown more cautious for the current quarter, we're still confident that the long-term drivers of Semiconductor Equipment business remain intact.
To that extent, 2011 sees lower -- to the extent 2011 sees lower year-over-year growth than originally forecasted, we would expect to see that demand pushed into 2012 because of the fundamental drivers from the standpoint of expansion of network services, the cloud and new applications for NAND Flash memory in PC will continue to evolve and drive the industry. With that, I'll provide guidance for the third quarter.
Just in the last several weeks, we've seen our foundry customers take a more cautious stand and as a result, we are taking a cautious view on bookings and we expect bookings to range from flat to down another 20%. We're backing down our shipments as well. We're forecasting shipments down and to be in the range of $300 million to $400 million. That's down 5% to 7% sequentially -- $300 million to $340 million, I'm sorry. Similarly, revenue is forecasted to the range from $300 million to $340 million, which is down 3% to 14% sequentially.
By driving these numbers down, it will continue to have us focus on our operating expenses. Our gross margins will come in at the range of 49% plus or minus 1%. And despite these declines with sharp focus on operating expense, despite these reductions in shipments and revenues, we'll generate an EPS, which is approximately 14.8% to 16.3%, after-tax income amounting to 60% to 75% earnings per -- $0.60 to $0.75 earnings per share.
That concludes my prepared remarks and our guidance for the third quarter. Now I'll open it up to any questions you might have.
Question-and-Answer Session
Operator
[Operator Instructions] And our first question will come from Krish Sankar from Bank of America Merrill Lynch.
Krish Sankar - BofA Merrill Lynch
Couple of questions. Number one, in terms of your booking guidance, a few weeks ago, you expected the 2Q pushouts to come into 3Q. Now it seems like that's being pushed out further. Are the pushouts primarily on the foundry segment? Are you seeing even the memory guys not coming back quite yet?
Richard Hill
Primarily on the foundry segment, and I was warned they could push even further.
Krish Sankar - BofA Merrill Lynch
Could push even further. And on the foundry side, are these sort of leading edge 28-nanometer? Are they even for, like, 45-nanometer technologies?
Richard Hill
It's a combination of both.
Krish Sankar - BofA Merrill Lynch
Got it. And then final question, in terms of the Peter Wolters side of your business, how is that business trending? And are you seeing any wobbling on the industrial cycle too?
Richard Hill
Actually, we're seeing our industrial segment to be at a very, very strong level and continuing to grow, particularly due to our increased focus on China with this business.
Operator
Our next question will come from Mahesh Sanganeria from RBC Capital Markets.
Mahesh Sanganeria - RBC Capital Markets, LLC
Rick, can you talk a little bit about the composition of the Q3 orders? Is it primarily NAND now or there's some other segments there?
Richard Hill
Well, there's always a base component of logic in the business, and then primarily, it runs into NAND and very low levels from the standpoint of foundry business.
Mahesh Sanganeria - RBC Capital Markets, LLC
And if you can a little bit -- go in a little bit more details on -- your earlier comments said that the foundries might push out further. Are you implying that maybe for this year, the spending is done and the next round of spending probably comes for next year's -- next cycle or next year's holiday season? Is that the way to look at the spending pattern now?
Richard Hill
There were implications to that effect made to me, but no commitment. They asked us to remain flexible, but overall, their sentiments had turned negative and wanted to make sure that we were prepared. And as such, we're taking precautionary measures relative to our expense structure and everything else in the event a severe downturn were to follow.
Mahesh Sanganeria - RBC Capital Markets, LLC
And will it be fair to say that NAND is the most to look most, I would say, robust part of the -- if we'd look at 3 -- logic NAND, those are the most robust of all the 4 segments?
Richard Hill
I would say that the most robust of the segments would be NAND technology, yes.
Operator
And next we'll go to C.J. Muse from Barclays Capital.
Christopher Muse - Barclays Capital
I guess my first question, now when you look at the current pause and the uncertainty out there, what do you think gets us kind of turning around and driving an inflection? I would love to hear your thoughts, I guess, around foundry, NAND and DRAM and how you see a recovery playing out.
Richard Hill
Frankly, C.J., I'm somewhat perplexed because when I look at overall end demand, it seems to remain fairly strong. Although within the recent week, we started to see somewhat of a softening on some of our checks vis-à-vis the China market, and we haven't seen that in the past. Clearly, there is a burgeoning worldwide feeling of caution on economic expansion. That's the simplest way that I can articulate it. One of the phenomena is that when we're talking at the lower levels within corporations, there's this continual belief that they need to add capacity expansion. But by the time it gets to upper management, it's basically shut off. And so it seems that there's a top-down driven capital expenditure strategy being implemented virtually across the board with our customer base. And when I look at end demand, it doesn't seem to be that bad. While PC end demand is down, I think you can look at pockets, particularly like Mac Air, where you see strong demand. And I think that there's pent-up demand for laptops with solid state drives, all of which should play into stronger investment for NAND technology and stronger demand for logic and foundry. But clearly, the words to us that have been articulated that they are not seeing that. And so we can't delude ourselves. We have to make sure that we don't let our expense structure get out of whack, and so we're resetting the bar.
Christopher Muse - Barclays Capital
And I guess just a follow-up on that train of thought. What's the thinking here in terms of OpEx over the next quarter? How should we be thinking about the trajectory there?
Richard Hill
At this point in time, it's going to be flat. Flat, and we'll be paring that back if we see that this is going to last any period of time, significant period of time.
Operator
And now we'll go to Timothy Arcuri from Citi.
Timothy Arcuri - Citigroup Inc
Rick, couple of things. First of all, it if I take your June -- sorry, your Q3 bookings guidance and if I sort of annualize that, and I assume that you're not losing any share of overall WFE, that would imply that the sort of run rate of WFE in September is down to like below $25 billion. So you're talking about $23 billion to $24 billion. So I guess my first question is, do you think that that's the right math, or do you think that there's something specific going on with Novellus? And secondly, I wanted to ask about foundries because it seems like some of the pullback in bookings in the foundries is due to their yield problems, and I'm wondering whether you would share that sentiment.
Richard Hill
Everything expressed to me was the pullback had nothing to do with yield because there was, in fact, pullback at the 45- and 65-nanometer nodes where we've seen some of the most significant pullback. I don't believe there's anything specific to Novellus, and the only thing wrong with your math is that there's an assumption that Q3 -- it stays at the Q3 run rate. And I'm surprised Q3 could be as low as we're seeing it right now. A month ago, I couldn't imagine Q3 being below Q2. So it just doesn't pass the common sense test that CapEx can stay down that long given the fundamental drivers. But I'm not going to sit here and try to buck -- if my customers' telling me to be cautious, then I'm going to be cautious.
Operator
And now we'll go to Satya Kumar from Crédit Suisse.
Satya Kumar - Crédit Suisse AG
Rick, in terms of those pushouts from foundries, which seems to have increased from last quarter to this quarter, is this coming from more established foundries or smaller Tier 2 foundries? How low do you think utilization rates are at the foundries in aggregate in Q3? And when do you think we'll reach trough utilization rates?
Richard Hill
Well, I think, first of all, that it's across the board from a foundry standpoint. It's not second tier or whatever, however, you want to classify it. I think it's pretty much across the board. I would think this represents the trough for foundries. I can't envision it going lower. So I think we're at the trough with foundries. The question is when does everything lineup again.
Satya Kumar - Crédit Suisse AG
Okay. I guess in terms of the P&L, just a few questions. Could you clarify what the interest expense is going to be for Q3 and the share count? And I was wondering if you could explain once again on how the accounting works on the converts.
John Hertz
Okay. Satya, this John Hertz. Interest expense for Q3 and Q4 should be around $6 million, and our share count, assuming no buybacks, will start at 74 million. Can you give me a little bit more specific on the accounting?
Satya Kumar - Crédit Suisse AG
So I just wanted to understand this correctly. So you issued $700 million of debt. So that cash proceeds, part of it was used in the repurchase of stock, which has affected in the lower share count and the remainder on your balance sheet on the asset side. I guess the liabilities, you have lower than $700 million, which is going to accrue over time. I was just trying to figure out how that works.
John Hertz
Yes. That will accrue up to the $700 million face because you have an effective interest rate of 8.1%, which is greater than the cash interest rate of 2 5/8%. The difference between the $270 million and the $700 million proceeds that we got is the conversion feature. Because of the conversion feature, you allocate a chunk to equity, and then there's some deferred tax elements because of the nature of the structure as well.
Operator
And next we'll take a question from UBS' Stephen Chin.
Stephen Chin - UBS Investment Bank
Rick, just a follow-up on the foundry pushouts. Do you get the sense that foundry CapEx could be up significantly in 2012 with some of these pushouts?
Richard Hill
I get no sense whatsoever for 2012. I think the only way to characterize the sense of the foundries is uncertainty. Given the fundamental drivers in the business, it's just difficult to imagine, but it's not up.
Stephen Chin - UBS Investment Bank
And just changing topics onto DRAM, could you share what your thoughts are on industry DRAM bit growth in 2011?
Richard Hill
Tim, do you have the bit growth by chance?
Timothy Archer
Estimated 50%.
Richard Hill
50%. Yes, 50% bit growth. And as you know, a 50% bit growth, a lot of the shrinks and everything else can take care of that level of bit growth.
Operator
Our next question will come from Jim Covello from Goldman Sachs.
James Covello - Goldman Sachs Group Inc.
Rick, just in terms of the forward outlook. Well, I know there's a fair amount of technology spending going on, and Intel has some strategic things going on. As it relates to memory and the foundries, should we really just be thinking about memory spending is going to go in the direction of memory pricing from here and foundry spending is going to go in the direction of foundry utilization rates from here? Is that really a fair way to think about the next 6 or 9 months?
Richard Hill
Well, I think there are -- are you excluding technology?
James Covello - Goldman Sachs Group Inc.
Yes. So recognizing there's a fair amount of technology spending going on, and that Intel has some strategic things going on that's driving their spending, but really with the foundries and memory.
Richard Hill
Well, I think in foundry and memory, there are some significant technological investments that are being made that are going to stimulate some short-term nonlinearities in the order pattern. Meaning that I think you're going to see some dramatic increases to replace older technologies with newer technologies. But in general, clearly, the foundry business and the memory business have to track either the utilization rate, in the case of foundries, or the availability of cash generated by pricing in memory. And so the real big question is, where is the demand coming for in memory? And I think when you look at the underlying fundamental demand with the expansion of the cloud, the expansion in the opportunity with solid-state drives, it's difficult not to see an expansion in investment in memory. It's only a question of at what point do they pull the trigger, and are we trying to constrain supply to get price up. I don't know the answer to that.
James Covello - Goldman Sachs Group Inc.
And then specific to foundries, any sense for what kind of utilization rate declines or what percentage utilization rate declines or what's causing the pullback? And then would it just take a stabilization of the utilization rates, or would utilization rates have to pick up a little bit for them to kind of kick back in on the orders, do you think?
Richard Hill
Well, I think from our standpoint, we would estimate that you're probably off 20% on utilization rates currently is what you are. You're off 20% on utilization rates. I think you would need to see those rebound up into the 90% utilization rate or less than 10% down in order to begin to have them say, "Okay. We're going to stick new investment in here."
Operator
Our next question will come from Atif Malik from Morgan Stanley.
Atif Malik - Morgan Stanley
I know Tim asked a question on the similar line. Can you quantify -- assuming the low end of your guide for third quarter, can you quantify the technology mix of the orders versus the capacity? And within that capacity, how much is strategic?
Richard Hill
I don't have that in front of us at this juncture. We can ferret that out. You can probably talk to Robin offline.
Atif Malik - Morgan Stanley
Because if you take the low end of the guidance, I mean, you'll be pretty much at the $250 million level. And then 2005 cycle, which was more of an inventory correction, you were at $280 million level. So if you take the low end of the guide, you're already below the correction level. And assuming that this is not a big financial crisis, you are actually already at the inventory correction level. Let me ask a second one. You guys announced an LED product recently, a plasma-enhanced LED. If you can talk about -- is that a serious venture by the company to enter the LED market, or is that more like a niche market?
Richard Hill
Well, I think LEDs are a niche market from the standpoint of there is productivity and there are quality improvements in the deposition of certain films in the LED market that can greatly aid LED companies in lowering their overall cost. And by the same token, they don't require huge capital investments on our part. And as a result, it's an opportunistic niche that we can take advantage out in the short term, and we're constantly looking for those opportunities.
Operator
Our next question will come from Needham's Edwin Mok.
Edwin Mok - Needham & Company, LLC
Rick, just curious. Previously you talked about that you believe DRAM might come back in terms of equipment order by the end of this year. Does your recent trip change your view on that?
Richard Hill
No. I think there will be technological changes that are going to cause an investment cycle in DRAM. It isn't going to be so much a cycle caused by gross capacity expansion, but more upgrading of technology in order to be able to put out current generation DRAM.
Edwin Mok - Needham & Company, LLC
Great. And then just follow-up question to the foundries utilization comment that you made. Do you see a lower utilization on trailing edge and higher utilization on the leading edge? Or any way you can quantify that?
Richard Hill
Yes, I mean, I think everybody, when you're short on your ability to output at the leading edge, you're always sort of short capacity but that's because your yields aren't high enough. And so there's many ways to expand capacity, one is improving yield, the other one is buying new equipment. I think the one that more impacts the volume purchases for us are the trailing edge, where you're talking 65 and 45, which is the really probably the most surprising piece to see that tail off so quickly.
Edwin Mok - Needham & Company, LLC
I see. Do you think the challenge is burning some inventory on your customer side and that might blow over quickly?
Richard Hill
It's possible. That's a possibility, and I think it's one of that could be a very, very good possibility given that end demand doesn't seem to be just dropping. So parts have to come from somewhere.
Operator
Our next question will come from Ben Pang from Caris & Company.
Benedict Pang - Caris & Company
First, on the order guidance, is the 20% between the high end and the low end only due to foundry? Are you worried about other segments as well?
Richard Hill
It's largely foundry.
Benedict Pang - Caris & Company
And then the follow-up here, talk about the 20% disconnect. Are you talking about sequentially the drop in the utilization rate for the foundries?
Richard Hill
Yes.
Benedict Pang - Caris & Company
Okay. And the final question, on the memory side, in your conversations with your clients, do you think they were anticipating a higher bit growth kind of in April time frame and they've taken that down now, or it's kind of been flat at the 50% level?
Richard Hill
I think it's been flat. I don't think they're taking it down.
Operator
We'll now go to Patrick Ho with Stifel, Nicolaus.
Patrick Ho - Stifel, Nicolaus & Co., Inc.
Rick, first off, in terms of the pushouts and just your feelings about the NAND Flash and memory pushouts from last quarter, how do you feel about those as you head towards the second half of the year?
Richard Hill
Well, I don't feel as good as I felt a month ago regarding them. But I think that overall, I don't think they go away. I just think they're delayed, and the question is, this would make it a 2-quarter delay. And the real big question is, would they push out of this year. Our feeling is right now, they won't push out of this year. But if I have to plot a line, and I spend a lot of time with customers, I see their mood, the executives' mood on investment deteriorating rather than becoming more confident. And I attribute that to overall macroeconomic impact on all of us. It impacts me as well in my confidence level. And I think the things that we see going on around us are tending to make more and more of us pessimistic rather than optimistic, and that's not a good sign.
Patrick Ho - Stifel, Nicolaus & Co., Inc.
Okay. Great. That's really helpful. And maybe a bigger picture, since you guys have a pretty decent exposure to Intel and their move to the whole tri-gate transistor structure, can you just give a little color of how that helps your overall business in terms of how much it expands your TAM and whether you can actually increase your penetration within Intel on a going forward basis with this industry transition?
Richard Hill
Yes. Well, we can't talk about any individual customers, of course. But needless to say, we're in all key technologies across the board with all customers. And certainly, Intel, as a customer from a standpoint of all the industry, is one that's been very bullish and continues to beat numbers day in and day out. And so if there is a consistent -- such a thing as consistent CapEx spending that's like clockwork, certainly, Intel manages that probably second to none. So we're happy they're around, and we hope that they continue to outperform what you all -- what at least the analysts have expectations for them.
Operator
[Operator Instructions] And our next question will come from Mehdi Hosseini from Susquehanna International.
Mehdi Hosseini - Susquehanna Financial Group, LLLP
Two things. Rick, do you see something taking place in the end market where you have conversion of -- convergence of different devices where even technology buys are more -- are not taking place as early as they used to over the past 2, 3 decades? And is this why the industry [indiscernible] is having a hard time to forecast?
Richard Hill
Well, I think as we get down the technology curve and we start running up against the physics wall, there is a more uncertainty in our ability to be able to deliver solutions. There is more difficulty in the ability to make the selection for the materials, and all of these things become more and more complex. So I think from that standpoint, I don't think the path to 15-nanometers is as clear. I think it's clear in people's mind. I don't think this is clear technologically on whether it's going to make the yields that are necessary, whether it's going to make the reliability that it needs to make. I think those things are still open. Can we make a device at 15-nanometers? I think there is no question we can make a device at 15 nanometers. But it has to meet reliability goals, it has to meet cost goals, it's got to meet power consumption goals, all sorts of things that just aren't hammered out yet.
Mehdi Hosseini - Susquehanna Financial Group, LLLP
Sure. And then I'm a little bit confused. We keep hearing of a pushout, a pause. But what would your customers want to commit to additional spending when we were heading into a seasonally slow period, assuming that it would take 3 to 6 months to receive the equipment and install it?
Richard Hill
Well, I mean, it is a good question, but capital is a long-term investment, right? And I think you really have -- there's a lot of equipment that could come on and being put in place here in the October time period, which still can get product out the door and make it to the market. Cycle times have come way, way down. And as you know, the Christmas season isn't the Christmas season anymore because everybody waits until it's on sale until January. And so what used to be the normal cycle isn't quite the normal cycle. So it all depends upon the product. I think the biggest single problem getting everything somewhat slowed down is you've got Apple clicking away with the Air Mac, and there's really no viable competitor to it, no real substantial solid-state drive yet. And until these products come out and there is other offerings, people are waiting. They say, "I'm going to wait for the next car to come out." And I think you have a little bit of that pent up in the marketplace, because the PC is not going away. As much as the tablets are a great entertainment vehicle, they don't replace PCs and I don't see that going away. And I see more functionality, lighter weight, lower power consumption coming in personal computers. And so I don't think that market leaves us.
Operator
We now have a follow-up from Krish Sankar from Bank of America Merrill Lynch.
Krish Sankar - BofA Merrill Lynch
Rick, a follow-up question on your share buyback. You have $415 million left you said. What is the time frame for repurchase?
Richard Hill
The time frame right now is through the end of October. But given the incremental funds that we brought on, we might extend that to a longer period of time.
Operator
And we have another follow up from Timothy Arcuri from Citi.
Timothy Arcuri - Citigroup Inc
Rick, there has been more chatter from the big chip makers Intel and Samsung and TSMC on 450 and trying to pull that forward. And there's sort of this delicate act between you getting paid because the whole industry got sort of screwed last time when you moved to 300. So I'm wondering what sort of early discussions you're having on 450 and whether you're willing to commit money to it without some very solid financial agreements with your customers on it?
Richard Hill
Well, it's a good question, Tim. Clearly, the common interest we all have, both from an equipment standpoint and a semiconductor manufacturing standpoint, is to continue to make this industry grow and continue to make it a vital part of every product that's purchased throughout the globe and part and parcel to that is to continue to lower costs. If 450 is the best way to lower overall costs, we're on board and we're going to do 450. When you have cycles like we're having and you have the cycle turn as quickly as we've seen here, it's certainly much more difficult to invest in these downturns in advanced technologies and justify building larger increments of capacity, which will make downturns longer and deeper. And those are serious conversations we have to have with the customer because to the extent you create an unprofitable supply chain, you'll create an unprofitable industry, and that's in no one's interests. So I think there's still a lot of conversations that have to go on, and I think everybody's got to see a path on the ability to be able to maintain a successful profitable industry and that will surely [ph] happen.
Timothy Arcuri - Citigroup Inc
So just to be clear on that, so you're not going to invest -- can you quantify the dollar amount that you'll be investing this year or in 2011 in 450? Is it meaningful or is it not meaningful?
Richard Hill
I think at this particular point in time, I wouldn't call it that significant. It's one that's really trying to determine what are the roadblocks that could potentially stop us from being able to develop certain types of film that are essential to the industry. But we're not wholesale building tools at this juncture.
Operator
And at this time, we have no further questions in the queue, and I'd like to turn the call back over to Mr. Hill for any additional or closing remarks.
Richard Hill
Thank you very much for joining us on this call. I'm sorry that I had to bring you news that wasn't delightful. But as you always do with Novellus is you get the straight scoop, you get everything we're thinking and how we see the business in an unvarnished way. I look forward to seeing a lot of you at 4:00 here at the Yerba Buena Center, 3:30, 4:00, and I look forward to talking with each of you more then.
Thanks very much, and we look forward to seeing you at the mid-quarter as well. Bye-bye.
Operator
That does conclude our conference for today. Thank you for your participation.
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