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Lam Research Corporation, (NASDAQ:LRCX)

F4Q07 Earnings Call

July 24, 2007 5:00 pm ET

Executives

Steve Newberry - President and CEO

Martin Anstice - CFO

Carol Raeburn - Director of IR

Analysts

Timothy Arcuri - Citigroup

Steve O'Rourke - Deutsche Bank

Satya Kumar - Credit Suisse

Jim Covello - Goldman Sachs

Robert Maire - Needham & Company

Gary Hsueh - CIBC World Markets

C.J. Muse - Lehman Brothers

Keith Kavarsky - Goldman Sachs

Harlan Sur - Morgan Stanley

Jenny Yun - JP Morgan

Steven Pelayo - HSBC

Stephen Chin - UBS

Brett Hodess - Merrill Lynch

Patrick Ho - Stifel Nicolaus

Zhao Ping - Caris & Company

Mark Fitzgerald - Banc of America

TRANSCRIPT SPONSOR
Wall Street Breakfast

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Lam Research June Quarter Financial Results Conference Call. During today's presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for your questions. (Operator Instructions)

I would now like to turn our conference over to Carol Raeburn, Investor Relations Analyst. Please go ahead, ma'am.

Carol Raeburn

Thank you, Rose. Good afternoon and thank you for joining us today to discuss the June quarter and near-term business outlook. By now you should have received a copy of today's press release which was distributed by Business Wire at approximately 1:05 p.m. We’re webcasting a slide presentation in conjunction with today's commentary. The presentation can be accessed through the investor section of our website at www.lamresearch.com, and will also be available as a podcast following today's call.

Joining us today are Steve Newberry, President and Chief Executive Officer, and Martin Anstice, Chief Financial Officer.

As we described in our form 8-K filed July 18, 2007, a special committee of our Board of directors is conducting a review of our historical stock option practices and generally to the accounting. As a result of this review, we are unable to present complete financial results for our June quarter.

We will not respond to questions on our financial performance related to the June quarter or our expected financial performance for the September quarter at site of the financial results and forecast contained in our prepared comments.

The following discussions will contain several forward-looking statements including those related to revenue and shipments forecast, customer demands and industry condition, as well as statements, that express the company's expectation, relief, funds and forecast. There are important factors that could cause their actual results to differ materially from those discussed in these forward-looking statements.

Additional information concerning factors that could cause results to differ and defined on our report Form 10-K for the year ended June 25, 2006.

This call was scheduled to last until 3 p.m; we ask that you please limit questions to one per firm. With that I will now turn the call over to Martin for a review of the financial results.

Martin Anstice

Thank you, (Caro). Good afternoon, and thank you all for joining us. Last week, as you all know, we disclosed that the Lam Research Board of Directors have initiated a voluntary independent review of the accounting and reporting related to past company grounds of employee stock option.

While the activity is ongoing we do not expect it to have any impact on the company’s focus on execution both operationally and financially.

As I discussed last week because of the review we are unable to present our complete financial results or complete guidance to you today. However, we can provide some limited information on the June 2007 quarter that should provide insights into our performance.

Highlights include shipments of $694 million, up 12% quarter-on-quarter. Revenues of $679 million exceeding the upper end of our forecasted range, and a gross cash and short-term investment position of slightly more than $1 billion. While we cannot give the specific operating cash flow number for you today, I will give you a few data points in a moment that should add some color through our continued strong cash generation capability.

Shipments of $694 million represented 12% increase over the March quarter, coming in at the mid point of 10% to 15% guidance range. Memory segment customers in the quarter represented 73% of total system shipments, with the NAND components accounting for approximately 31% of total memory. Logic/Other was 8% and foundry was a strong 19% of the total system shipments, favorably impacted by some customer requested plans this quarter.

For more complete details on the geographic breakdown of our shipments and revenues, please see today's press release and our website for a reconciliation of shipments revenues and deferred revenues.

While we cannot provide detail around operating expenses for the June quarter, I can't share but in general we executed the plan in terms of investments in support of our new product developments and market share growth objective.

Our total net cash balance including restricted cash was $781 million at the end of June, down from $1.244 billion at the end of March. During the quarter we completed our stock repurchase authorization buying back approximately $768 million of common stock at an average price of $52.98 per share.

We did not repay any debt during the quarter. Employee equity plans generated proceeds of $19 million to the company and capital expenditures were approximately $14 million. Taking together, the data points should provide some insight as to the strength of cash generation in the quarter, although we cannot be more specific at this time.

I also want to spend a moment on the share count following the completion of our stock repurchase authorization. If will you recall, we gave EPS guidance for the June 2007 quarter assuming a weighted average diluted share count of approximately 139 million shares, which reflected a full quarter's impact of March quarter repurchase activity but no specific guidance on June quarter repurchases.

We are pleased to report that June quarter 2007 stock repurchases totaled 14.5 million shares absolute, and shares issued to employee equity plan totaled approximately 800,000 shares.

Total shares outstanding as of June 24, 2007 were 123.5 million compared to 137.2 million at March 25, 2007. Elsewhere the differed revenue balance is higher at $296 million that is approximately $51 million of anticipated future revenue value for previously made shipments to Japanese customers, representing an increase in these combined balances of $21 million relative to the prior quarter.

Restricted cash balance is unchanged from $360 million in the previous quarter, accounts receivable days outstanding was 55 days. Depreciation and amortization was $11 million. Also employment levels held steady with the headcounts of approximately 2900.

Now, I would like to turn the call over to Steve.

Steve Newberry

Thank you Martin, and good afternoon to everyone. I am pleased with the company's outstanding June quarter, which met or exceeded my expectation across the broad range of performance metrics. In particular, the ending cash balance of the company was very strong, especially considering the aggressively purchased activity that Martin highlighted in his comments.

At our Analyst Day event in San Francisco last week, I focused my comments on the favorable outlook for wafer fab equipment spending over the 2007 to 2010 timeframe, which is supported by strong growth in IC unit demand, up approximately 14% on a compound annual basis over that period.

We responded to a number of questions at the event about our outlook for the balance of 2007 and into 2008, and I will recap an extend on that a bit here. We're forecasting overall IC units to grow 10% to 12% in calendar 2007, compared with 2006. Memory unit growth is expected to be up approximately 27% in 2007 driven by an expected 44% growth in DRAM units and approximately 42% in NAND Flash units. Faster than expected declines in average selling price of DRAMs has helped to accelerate the pace of increasing gigabyte content per PC.

PC makers are increasing their shipments of 2 gigabyte configurations to support Vista resulting in an expected average configuration of 1.7 gigabytes by the end of the calendar year. With the expected seasonal DRAM demand increases, prices are expected to stabilize over the balance of the year.

The NAND Flash market meanwhile is seeing modest increases in pricing in the second quarter and as we move into the second half of the year. With devices like the iPhone, next generation iPods, and other digital consumer electronic products expected to drive stronger unit demand in the second half of the year relative to the first half.

These demand dynamics in memory support the strengthening of our overall outlook for wafer fab equipment spending in 2007 to grow approximately 5% to 7% to the $30 billion range. Memory has strengthened as well from a previously expected 8% growth to approximately 16% to 19% for calendar 2007 compared with calendar 2006.

Within the memory segment, NAND Flash wafer fab equipment spending is expected to be down approximately 15% in calendar year 2007. However, capacity additions will begin to increase in the second half versus the first half. DRAM wafer fab equipment spending is expected to be up greater than 40% for the year with capacity additions slowing in the second half versus the first half.

Foundry and Logic other are now expected to be down approximately 5% to 7%, and microprocessor spending is now expected to be down approximately 7% for the calendar year 2007.

Moving on to NAND research specific activity, we continue to expect our revenue to be up 15% to 20% for calendar 2007 versus 2006. And shipments for calendar year 2007 are still expected to be up 5% to 10%. Lam's memory shipments in calendar year 2007 are expected to grow at 25% to 29% compared with the expected 16% to 19% growth in memory wafer fab equipment spending.

We expect our shipment performance to out pace the projected wafer fab equipment spending in both NAND and DRAM which is a strong validation of our continued market share gains in memory.

We expect that foundry shipments for Lam will be weak in the September quarter as a function of the pull-ins to June and we expect that shipments in foundry will strengthen in the December quarter. Shipments for Logic, Flash other and MPU are expected to be flat in the second half compared with the first half.

Turning to 2008, as we discussed at our Analyst Meeting last week, we believe that 50% CapEx intensity and memory is not sustainable existing 2007, and in fact the rated capacity additions has already begun to slow. The depth and duration of this reduction in capacity additions will be dictated by the actual demand environment as we go forward in the next 6 to 12 months.

Demand trends to watch here included adoption rates of major products such Vista and the iPhone, as well as, the overall demand for the broad range of other semiconductor intensive consumer digital electronic products.

As we move into 2008 it will also be important to watch the conversion of 200 millimeter memory production to 300 millimeter as memory manufactures ability to generate acceptable profits of 200 millimeter will force additional production to move to 300 millimeter.

Based on current industry dynamics, our very early assessment for calendar year 2008 is that overall wafer side equipment spending is likely to be flattish with memory spending to be down potentially 10% to 15%, and an expectation that foundry logic/other and MPU spending will increase sufficiently to offset the decline in memory spending.

Moving to LAN specific guidance for the September 2007 quarter, revenue is expected to be in the range of $668 million to $688 million essentially flat at the mid-point with the June quarter, but shipments are expected to be down in the range of 7% to 12%.

Our overall performance will continue to be driven by our growing market position in Etch which we anticipate growing from 46% in shipment share at the end of calendar 2006 to approximately three points higher by the end of 2007. We continue to see positive momentum in application wins with six new wins in the first half of calendar 2007 at the success through 4X technology nodes.

In summary, LAM Research continues to perform very well. We continue to execute our long-term strategic focus which gives us the opportunity to build a $4 billion revenue company in the 2007 timeframe. As we move forward I continue to be very pleased with the performance of LAM research employees across the company, and I thank all of them for their outstanding contributions to our success. We will now open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Timothy Arcuri from Citigroup.

Timothy Arcuri - Citigroup

Hi Steve, relative to your comments about capacity has fallen down in the memory space, if you’d like pretty much all the memory companies that are reporting earnings, you know tonight there was one that also took up their big growths expectations for the year and they you know did -- they produced more bits in June then they had guided. It seems like pretty consistently all the memory companies are actually producing more bits and not less bits, you know thus far this year. So, I was hoping you can reconcile that relative to your comment about capacity has fallen down? Thanks.

Steve Newberry

Okay, when I talk about capacity additions, I am talking about the shipment in additional capacity, not that there is additional capacity coming online in the wafer fab which actually has shipped in from prior periods. And so there is no question that unit output is growing, peak growth is growing and that make sense, given that we are coming into the seasonal increase in demand for memory. But if we look at the amount of shipments going into the memory fabs in the September quarter and the December quarter, the total amount of shipments is less than what we have shipped in prior periods.

Operator

Thank you. Our next question comes for Steve O'Rourke from Deutsche Capital.

Steve O'Rourke - Deutsche Bank

Hi, thank you. Steve just as a follow-up to Tim's question, when you reconcile all of that, you look out at the 2008, you made a statement that memory is going to be down about 10% to 15%. Foundry and MPU will more than offset. What's giving you confidence, one that is only 10% to 15%, and two that foundry and MPU can offset, I mean how do you look at that, how do you rationalize that?

Martin Anstice

First off, what I am providing for you is based on where we stand today which is the third week of July 2007, that this is how we see it likely to play out in 2008. And reality is as we go forward in 2007, that look at 2008 is going to go through a series of adjustments. So I think that's the first thing that people want to recognize whenever we are talking about periods that are far out in the future.

Now, specifically as it relates to why memory potentially being down 10% to 15%? And that relates to the fact that you have capital intensity today or assume to be in looking at the total spending for 2000 versus the expectation for revenue in 2000 -- that capital intensity will be 50%. Historically that level of the capacity intensity results in a rapid decline in average price per unit, which we have clearly seen, which puts enormous pressure on profitability, which we've also clearly seen as each of the memory companies has been announcing their results for second quarter.

Historically, when capacity intensity gets up into the 50% or higher range, which is indicative of excess supply relative to demand, the memory companies will begin the process of slowing down the rate at which they order delivery of new capacity editions and bring the balance of supply and demand into a better ratio. And in the case of memory, that's about 40%.

So if you look at the forecast that we have for unit demand growth for memory which we believe is about 18% for 2008; that combined with a stabilization of memory pricing that if spending in memory declines about 10% to 15% that would bring the capital intensity around to about the 40% range, which is where it needs to be to get the pricing at the point where the memory companies can generate the profitability they need to sustain the investment. So that's the rationale for the memory scenario at this point in time.

As it relates to foundry, logic/other and MPU and we believe that the capacity utilization in the foundry is beginning to rise. We believe that the logic companies who have been in a rationalization process in 2007, i.e. Texas Instruments ST, Fujitsu et cetera, that in the 2008 timeframe that will become clearer, we expect that spending from those companies whether it is in their own fabs or is in the foundries will result in an increase in foundry logic spending and we believe that Intel and AMD, who have been cutting back their capital expenditures in 2007, are more likely to increase their capital expenditures in 2008, as a function of the fact that we expect that PC demand will be much stronger in 2008.

Operator

Thank you. Our next question comes from Satya Kumar from Credit Suisse.

Satya Kumar - Credit Suisse

Yes, thanks Steve for taking my question. I just wanted to follow up on similar lengths, a couple of thoughts here, if I look at the memory industry margins for the company it tends to be a pretty good leading indicator for CapEx and one of the reasons why we have seen such a strong memory spend at there which is surprising people, was margins were very good ending last year. When I look at the industry on a year-on-year basis I see that margins are substantially weak and I do understand that things are improving seasonally. So, when I combine that with what you are saying in terms of 40% CapEx to revenue for the memory industry and when I look at these profitably numbers, they seem to be 10% to 15% numbers in assumption that, when I think about cost of capital, that's not something that -- it's only something regarding meeting the cost of capital for next year. And secondly, as you apply this logic to Lam, when I look at your shipments, they have actually exceeded the growth of wafer fab equipment and particularly within memory it has exceeded that as well. First, memory CapEx were to be down at least 10% to 15% next year, what would that mean to Lam shipments given that you actually outperform the memory market so far?

Martin Anstice

Okay. I want to make sure we are talking about the same thing relative to your comment about 40% capital intensity. 40% capital intensity is what I am forecasting will occur in 2008, if memory CapEx in 2008 declines 10% to 15%. Our forecast for 2007 is that memory capital intensity for the year as a whole will be 50% and so I believe we are talking the same thing where profits for memory makers were strong in 2006, a lot of capacity, which added and as a function of the capital intensity rising the supply rising relative to demand prices fall, profitability falls and we are going to need to adjust for that and slow the related capacity addition.

So, what I am suggesting is that the current capital intensity in 2007 is going to need to decline and if it reduces, the spending reduces by 10% to 15%, that should put it back in the 40% range which is a healthy number.

Now when you look at RAMs memory shipments 25% to 29% up in 2007, versus wafer fab equipment spending being up 16% to 19%, that's what we would expect given that we have seen strong market share growth for us in 2007. So if spending goes down 10% to 15%, and we expect that if we continue to win new applications in the memory space then we will have an opportunity to mitigate the impact of that decline with two or three more market share points -- market share in 2008.

We also expect to be able to mitigate that with some additional amount of revenue for new products that were not yet going to quantify, and we expect that we could mitigate whatever decline may be present by flowing through some of our differed revenue and will be taking revenue for our Japan shipments that Martin talked about are also in our differed revenue situation. So we believe that we can certainly mitigate to a certain degree a 10% to 15% decline in memory spending, but we also believe that will be helped by the fact that foundry, logic and MPU will be up in 2008.

Operator

Thank you. Our next question comes from Robert Maire from Needham & Company.

Robert Maire - Needham & Company

Yeah, two questions actually. If you could fill us in as to what percent of shipments or revenues were products other than additional -- in other words, the new products you rolled out over the last year or so, and if you could give us some update on that?

And secondarily, in terms of memory spending, particularly in DRAM going forward, could you give us some sense as to how much of that is 200 millimeter capacity replacement and are we now at a point where 200 millimeter fab is one of the profitable, is that sort of the second label spending that we can expect here going forward?

Martin Anstice

Yeah, I'll take the first one there. From a revenue point of view, one of the messages that I think we can convey pretty consistently here is, we do not have segment reporting in the company, nor are we about to. So, I realized that there is interest in getting after that number what we invested a lot of time and effort in last week in the Analyst meeting -- is giving what we consider to be the very critical data to you -- relative to new product penetrations, and that's the targeted shipment and the targeted qualification windows, and that will continue to be the orientation of the closure relative to new products for the company in the coming quarters.

Steve Newberry

So relative to your question about where we are at in the spending for the conversion of 200 millimeter to 300 millimeter? We believe that over the next three or four years, there is going to need to be about 19 billion spent to add 300 millimeter capacity to replace 200 millimeter. We believe that by the time 2007 is completed, 2 billion out of that 19 billion will have then completed. It’s also possible that in 2006, another one or two may have occurred out of that 19. So it’s possible that there is really, 17 billion or so, 16 billion or so, that it’s going to need to be spent in the next three or four years. It’s really hard to quantify that, but that range, and so we expect in 2008 that we are going to see that accelerate to probably 5 billion and then in 2009 and 2010 we’ll see kind of the remainder convert out.

Operator

Our next question comes from Gary Hsueh from CIBC World Markets.

Gary Hsueh - CIBC World Markets

Hey, thanks for taking my question. My question revolves around CapEx and your guidance for flat CapEx next year. Certainly, the best guidance I have seen so far on fundamentally basing it on CapEx intensity. So I was wondering if you could help us out a little bit more here on CapEx next year. Do you see it being heavily front-half loaded again? If it is, it would suggest basically that we'd see a low point in terms of year shipment, roughly around $600 million level in December, that's the kind of work it plays back up. Is that kind of the forecast, or is that what your visibility is kind of affording right now?

Steve Newberry

Well, Gary, I'm not going to comment on what our December shipments may or may not be at this point in time. But I do think that since we've already begun to see that the memory spending for shipments and therefore capacity that's coming into the fab declined in the second half, more specifically it's DRAM because actually NAND flash is actually beginning to increase the shipments into the fab.

And I would expect that the shipment environment that we're going to see in the third and fourth or in the September and December quarters is likely to be similar in the March quarter, and then may begin to tick back up in the June and then September and December quarters. So, I don't think that we'll see a heavily rated front-half, first half I think actually I would think in memory that the first half will be lower than the second half next year.

As it relates to foundry and logic and microprocessors, it's way too early to tell how that's going to kind of play out by quarter. But memory is a little bit more something that I think we can kind of forecast now given where it is today and the adjustments I think it needs to make, and then where it's going to end up at the end of the year in 2008.

Operator

Thank you. Our next question comes from C.J. Muse from Lehman Brothers.

C.J. Muse - Lehman Brothers

Hi, good afternoon. I am going to sneak in two questions. I guess first off, Martin, I am wondering if you resolved whether or not you can buy back more shares given the options overhang? And then secondly, given that this is fiscal year end, can you share with us what your backlog is? Thank you.

Martin Anstice

The first question is relative to stock repurchase. Well, one of the realities I hope of today's presentation -- it's clear to everybody as we exercise completely the Board authorization that was in place kind of come into the quarter. So we came in with $768 million outstanding and we executed to that plan completely.

And so currently there is no authorization from the Board to be in the market repurchasing stock. Obviously, there continues to be a dialogue at the executive level and Board level around capital structure, around optimal cash positions, around how best to return excess cash to the shareholders. But there is no decision to communicate today.

Technical answer to your question in a hypothetical situation where there was an authorization in place, is we are allowed to be in the market repurchasing stock to the extent we are not in possession of material nonpublic information. And so that is the best I can do relative to you giving your guidance counsel. But the headline that you should be walking away with from today is that there is no authorization to be bought in the market buying stock. The second question was a fiscal year back on question, we are planning to disclose that figure in the 10-K, when we file it.

Operator

Thank you. Our next question comes from Jim Covello from Goldman Sachs.

Keith Kavarsky - Goldman Sachs

Hey, this is [Keith Kavarsky] on behalf of Jim Covello. I have a question regarding your shipment guidance for the September quarter. If I remember correctly on last quarter you talked about some of the shipments that were intended for June quarter from your memory customers being pushed out into the September quarter, I was just curious whether those shipments are in fact going to ship by the September quarter or whether there was some incremental push outs perhaps since in the December quarter? Thank you.

Martin Anstice

Well that stands right now, those push-outs that we were talking about three months ago in the September are March standing as the rest of the planned shipments that we've expected to ship. I think that when you get to where we are in the cycle, where the shipment output begins to decline, there is always the potential that customers will begin to do some joking as it relates to exactly which path they want to ship into, particularly in the case of memory customers, where if they are producing both NAND Flash and DRAM you see a lot of movement back and forth which can result in the need to change the configuration of the product, and if that occurs in a system that's scheduled to ship in September there is always the risk that it might slip into October until there is a little bit of volatility that occurs whenever you have customers kind of looking at what their shipments are and how they want to sink them up in terms of which particular line they want those products to go into. But as it stands right now when we look at the second half, we are still comfortable that our guidance for the year are up 5% to 10% will manage us to tell when we look at the results at the end of the year.

Operator

Thank you. Our next question comes from Harlan Sur from Morgan Stanley.

Harlan Sur - Morgan Stanley

Hi, good afternoon. Question for you Steve with respect to the '08 outlook, I know that last week you also mentioned your view on a flattish growth outlook for the hedge segment next year. And we recently did some analysis from the incremental dollar opportunity as your customers transition to sub 65-nanometer technology, and I think we came out with a fairly conservative view that the etch dollar opportunity actually increased by about 15% to 20% as your customers achieved to make these technology transitions, and the question for you is given, you know, that increase in number of critical etch steps and overall complexity as we make new technology transition, why wouldn't you expect the etch market to grow next year even in apply CapEx spending environment?

Steve Newberry

I think that there is, like we heard, that etch intensity is beginning to increase, but all of our analysis would not suggest in the range of 15% to 20% because the vast majority of spending for etch today is 7x, 6x and you know if you are saying that 6x and below as opportunity goes up 15% to 20%, that would really relate to a significant growth in about the etch market today we think is about 4 billion, and so 15% to 20% is a really significant increase and so I don't think it’s that high, at least our analyst wouldn't suggest that. What we think is that the etch intensity may be moving from around about a 13% of wafer fab equipment to potentially 13.5% of wafer fab equipment, which more equates to a 4% or 5% type of etch intensity increase.

Operator

Thank you. Our next question cones from Jay Deahna from JP Morgan.

Jenny Yun - JP Morgan

Hi it’s [Jenny Yun] in for Jay Deahna. A couple of quick questions. As you are ramping these new products, is that pressuring your gross margin in any way? I know you can't talk specific, but just generally? And also can you give us a sense of where shipments would be in the December quarter in terms of overall and among the different segments?

Martin Anstice

I'll take the gross margin question as much as I would like to help you. Generally and specifically I am unable to talk about gross margins at this time. And then relative to shipments in December, the best I can suggest to you, because I am not giving specifics for December, is to take our shipment guidance for September and combine it with our shipments guidance for the year as a whole, and you will get a pretty good number relative to what you can expect December to be.

And there is no point in giving any specificity relative to the segments because when you are sitting here in the third week of July, lots of things start moving around in terms of what the exact shipments are that go out in December. Sorry.

Operator

Thank you. Our next question comes from Steven Paleo from HSBC.

Steven Pelayo - HSBC

Just a question. Steve do you think secularly if this 40% to 50% number capital intensity memory is really just the bible or should it really climb more, and unless in the face of many businesses you're going to have 40% EBITDA in terms of core tech kind of level of activity.

And then a question quickly for you in housekeeping for promoting them. You guys did break out, and it’s a clear injury, your top customers last year -- you had a couple of Samsung and Toshiba, 15 and 12, I was wondering if you can give us some new numbers down there in top customers. You don't want to be specific on it, may be qualitatively, if we speak to how many top 10%, and it may be the existing to increase or decrease that would further support your market share gain point? Thanks.

Steve Newberry

Okay Steve, so relative to the sustainability of a 40% capital intensity, looking back over a long period of time when the ratio is 40%, the semiconductor memory manufacturers are profitable. When it gets into the 50% and above range, it’s when they are not profitable and so I think that 40% is sustainable. I think that certainly there is a ratio of growth that would suggest that if you keep the supply and demand relationship high so that pricing does not fall faster than capital intensity per unit, that you probably could sustain even a 41% or 42% capital intensity. But the reality is that spending can grow up aggressively as a function of unit growth or unit compounded annual growth.

But if supply gets out in front of demand, prices will fall. And if prices fall too much, then the ratio is poor, whether you use capital per unit, ASP per unit, or you just use overall CapEx versus revenue. And we see it time and time again that that ratio has to be kept in the 40% range if you are looking at CapEx versus revenue, or the profitability that's generated by the industry is not sufficient to sustain that level of investment.

And historically, the rate of investment drops which then causes supply to fall, matches up with demand, ASP rises and profitability rises. So, it's a pretty predictable trend. The only question is making sure that you get the revenue right, you get the capital right, and you get those ratios right. And then you look at what the expected going forward environment is relative to unit demand, assumptions around ASPs which are going to give you the revenue that's going to be generated by that unit demand, and that kind of tells you what the affordability is of what you can spend on CapEx and keep the profitability at the right level.

Steve Newberry

And relative to the second part of the question, we've obviously planned the customer-specific disclosure for the fiscal year in the filing of 10-K and respectively quality requirements of the process, so we have no disclosure today.

Operator

Thank you. Our next question comes from Stephen Chin from UBS.

Stephen Chin - UBS

Hey, great. Thank you. Steve, given all the information you have now, do you get the sense of this September or December quarter to be likely marked the top quarter for LAM's shipments in this spending cycle? And just secondly, do you have any color that you can provide on any shipments by geography going forward?

Steve Newberry

I will take the first part and we will take a look at whether there is any subsequent change in the geographical shipment distribution that we expect in the second half in just a moment. I would expect, and if you look at our shipping guidance for September and you take our shipment guidance for the year, that December will have slightly lower shipments than September if everything goes forward with the customers who are planning to take shipments today.

And so if you look at the 7% to 12% down shipment guidance for September and you look at the shipments for the year, it would tell you that shipments are -- we are shipments to be lower in December. Whether that represents below for where we are in the cycle, I think we are going to have to see how memory spending plays out, because I think that at the end of the day, given that memory spending is probably now about 60% of wafer fab equipment spending in 2007, certainly memory is a very important factor in terms of where things go as we head into the first of 2008.

Operator

Thank you. Our next question comes from Brett Hodess.

Steve Newberry

Well hang on, we are going to answer the second part of question. Sorry.

Martin Anstice

There was the geographic you mentioned, to shipments of second half of the year; it is not a kind of very strong trends but if I would communicate anything, I would say in the second half particularly more so in the December quarter, the trend is probably advising a little strengthening in Japan and a little retaining in Asia, and that's the strengthening or weakening statement relative to the percentages of total system shipments.

Operator

Our next question comes from Brett Hodess from Merrill Lynch.

Brett Hodess - Merrill Lynch

Steve, lastly at the analyst meeting you did a great job, talking about the new products and the opportunities, if attach to given us some sort of objective you had in terms of shipments and revenue in recognition for those I know quantitative to 1.18 segment reporting, but I was wondering -- I didn't catch the meeting if you updated sort of the shipments and how much revenue you are going to expect from new products from the second half of the year, if the timing of that was still on track or changed any?

Martin Anstice

Okay. What we had talked about was that we will have shipped the revenue equivalent of about $80 million worth of new products which includes new products that we actually ship and take revenue. New products that we ship in to evaluations, new products that we ship into JDP's and that what we found is that the penetration cycle in 2007 is taking a little bit longer than we anticipated because our products are primarily targeted for the 4x technology note and I think as everybody is aware, on a lot of the decisions around Forex technology no decisions have been pushing out later into time.

And so what we talked about was that the pace of our penetrations is on track to what we have wanted to achieve and expect to achieve in 2007, but how many of those shipments actually will turn to P&L reportable revenue is going to be less than what we had originally anticipated. But given that our objective in 2007 is certainly not revenue generation and any of the revenue that occurs from new products has always been factored in as upside to our revenue forecast for the year, we are very pleased with and we are very focused on continuing to make the kind of progress that we are making into the shipments that represent penetration opportunities and then getting those penetrations converted to acceptances and then getting the production shipments that follow -- which we would expect will occur primarily in the 2008 time frame relative to the shipments that we are making today.

And so we'll comment later on, probably early in 2008, we’ll have some commentary about how we think our new products are shaping up and what their combined, collective contribution to 2008 revenues will be at that time. So anything I would add is -- obviously Steve in his prepared comments made the point that we continue to expect our revenue for the total company to be up 15 to 20 percentage points calendar 2007 over 2006.

Operator

Our next question comes from Patrick Ho from Stifel Nicolaus.

Patrick Ho - Stifel Nicolaus

Thanks a lot. Steve can you describe did you see any changes in the quarter or shipment close to the foundries; are they being more gradual, are they being, I guess, more seasonal or are they ordering or shipping while receiving the shipments in typical fashion?

Steve Newberry

The foundries have been and I've kind of looked at this over the last six to eight quarters -- they are up one quarter down one quarter; up one quarter down one quarter, and I think a lot of us expected that the shipments into the foundries in the second half of the year were going to be higher than the first half, at least that's what we thought in the January and February timeframe, it now looks like what the foundries did was they accelerated their shipments into the foundries in the June quarter which is creating this weaker shipment posture in the September quarter, and then we see that currently the December quarter is stronger.

And so what I look at -- capacity utilization that rose in the second quarter, we expect capacity utilization in the foundries to rise again in the third quarter from all of my discussions with the foundry customer say that they expect that the first quarter of '08 will be a strong quarter when it’s typically seasonally their weakest quarter. So they are relatively optimistic about what the demand profile is going to be for wafers in the first half of '08, and if that's the case than this uptick in shipments that we see in September has a good opportunity to manifest in strong shipments in the first half of '08 as well.

Operator

Thank you. Our next question comes from Zhao Ping from Caris & Company.

Zhao Ping - Caris & Company

Hi, yes, thanks for taking my question. I just wanted to go with the numbers for the shipment guidance versus your wafer fab equipment growth in 2007 and how that matches up with the new business that you talked about. You commented that your 5% to 7% wafer fab equipment growth and your shipments were up 5% to 10% and you also gained three market share percentage points in 2007. And you’d point half of that when you add the additional 80 million shipments in new product?

Steve Newberry

The shipments for new products that we were talking about -- there are some shipments for new products that are in that number, but approximately half of the shipments that I talked about, specifically the shipments that go into (NASDAQ:EVAL) and shipments that go into JDPs, we do not include those in our shipment numbers that you hear us talk about. When those products are accepted by the customer, then they will be booked and shipped and revenued in the same quarter.

Operator

Thank you. Our next question comes from Mark Fitzgerald from Banc of America.

Mark Fitzgerald - Banc of America

Thanks. My question for Martin here is about the forecast that Steve has given us – is this correct, is there anything from a capital spending point of view or investment in new products that would suggest cash flows are going to change dramatically in the next fiscal year?

Martin Anstice

Next fiscal year seems a long way away to answer that question, but I would say I don’t feel super-motivated today, because there are so many different things than we talked about in April, certainly from that timeframe point of view. We talked about targeting cash from operations in the 25% of revenues. And although I can't speak to that specifically today, I think there is a long-term strategic target for the company. That's an appropriate metric for us to focus on. And last quarter one of the things that I did communicate is relative to our investments in operating expenses, the pace of expansion in operating expenses that we had seen a couple of quarters in a row was a kind of slowing down. And again although I can't speak to the specifics today, generally that statement is helpful to you today as it was in April. Hope that helps you a little bit.

Carol Raeburn

We have time for two more questions.

Operator

Thank you. We have a follow-up question from Timothy Arcuri.

Timothy Arcuri - Citigroup

Hi, Steve. In terms of the shipments, you came in just about at the mid-point of the shipment guidance. But you are saying that there were some family problems at the end of the quarter so something else had to be pushed out. And so what was that and where did it push you? Thanks.

Steve Newberry

Well, what hold in was not. I mean we knew at the start of the quarter that there were pull-ins that occurred. And we didn't speak specifically at the April conference call about what the make-up of foundry and the other segments were going to be in the June quarter. And what we saw was we knew that in our shipment plan -- because by the time we communicated on the conference call, we had already gotten the word from our foundry people. They wanted those things to be pulled in, and what you never know is whether or not what's going to follow it is additional orders and additional request for deliveries in September. But as it turned out, that was an acceleration.

So we had already encountered that but we didn't specifically talk about the fact that our guidance being up 10% to 15% was a function of just pull in that activity, etcetera. So I hope that somewhat helps you because what we see here today, we are three weeks into, even four weeks into our quarter. So we have a pretty good ability to know what's going to happen in the shipment environment and we will think certainly have the potential to change. One of the reasons why we talk about shipments, because it's a much more predictable and co-relatable event in terms of ultimately looking at what you can expect our revenues to be.

Operator

Thank you. Our final question is a follow-up from Satya Kumar. Please go ahead.

Satya Kumar - Credit Suisse

Yeah. Few housekeeping questions actually. Could you give an estimate as to what your shipments were for calendar '06 IDM, NAND, foundry and logic? And could you also give me a sense as to how the break-up will be in calendar Q3 of this year?

Steve Newberry

Well, we know what those shipments were and what I will tell you rather than potentially pouring some of the people who may not yes to no those numbers, I will give you some generalities. NAND flash as I commented in my commentary, we expect our NAND flash shipments will be higher in '07 than they were in '06, even though NAND flash spending will be down 15%. Our spent year-over-year for DRAM as well as other memory will be up about 48% relative to DRAM spending and other memory spending, or our DRAM spending that's probably up 40 something percent low 40s. But again indicative of market share gains and then when we look at logic and others and microprocessor and foundry and we've had combined all of that our shipments will be down in '07 and the spending in those areas we believe will be down in '07. And as a function of mix as it stands right now we might be down a little bit more in '07 than but the markets doing -- its kind of hard to say and a lot of that has to do with some of our customers, particularly in the 300 millimeter IDM logic space, just aren't spending this year. And some of the spending that is going on in certain segments in microprocessor, I think, everybody knows we don't really have any revenue with the biggest microprocessor spending. So those things can affect what happens to our market share and our shipments in those segments without affecting our application market share. And then given that our current view is that memory spending is about 60% of wafer fab equipment and Foundry and Logic and MPU is down to 40%, we are still going to have that three market share points gain in '07 because of our very strong and even improving market share in memory. So with that I will turn it back over to Carol.

Carol Raeburn

Thank you everyone. That's all we have time for this afternoon. I would like to thank you again for dialing into this afternoon's call.

Operator

Ladies and gentlemen this does conclude the LAM Research June Quarter financial results conference call. You may now disconnect. Thank you for your participation and please have a pleasant day.

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Source: Lam Research F4Q07 (Qtr End 6/24/07) Earnings Call Transcript

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