Carol Raeburn - Managing Director, IR Ernie Maddock - SVP, CFO Steve Newberry - President, CEO

Satya Kumar - Credit Suisse C.J. Muse - Barclays Capital Stephen O'Rourke - Deutsche Bank Krish Sankar - Bank of America/Merrill Lynch Patrick Ho - Stifel Nicolaus Jim Covello - Goldman Sachs Stephen Chin - UBS Gary Hsueh - Oppenheimer & Company Raj Seth - Cowen & Co Ben Pang - Caris & Company

Good afternoon, everyone and welcome to Lam Research Corporation's quarterly conference call. Here with me today are Steve Newberry, President and Chief Executive Officer; and Ernie Maddock, Senior Vice President and Chief Financial Officer.

Today we will discuss the financial results for the March 2010 quarter and Steve will share our business outlook for the June 2010 quarter before opening up for Q&A. A press release detailing our financial results for the quarter ended March 28, 2010 was distributed by the business wire shortly after 1 p.m.

this afternoon and is available on our website at Lamresearch.com. Today's call contains forward-looking statements including those relating to our forecast of market share, shipments, revenues, expenses, margins, and earnings per share, as-well-as other statements of the company's expectations, beliefs and plans.

There are important factors that could cause actual results to differ materially from those described in these forward-looking statements, and a list of these factors can be found in the slide package accompanying this conference call and on our most recently filed Form 10-K. All forward-looking statements are based on information as of today's date and the company assumes no obligation to update any of them.

This call is scheduled to last until 3 p.m. and we ask that you please limit questions to one per firm with a brief follow-up.

With that I'll turn the call over to Ernie for a review of the March quarter results.

Thank you, Carol. I'm pleased to report results for the March quarter that met or exceeded guidance in all areas led by record shipments and strong revenue performance for the company.

Indicative of market share gains and in response to customer demands, Lam’s March quarter shipments were $735 million, up 41% sequentially. The flexibility and responsiveness demonstrated by our operation’s groups and global supply chain enabled the company to effectively respond to our customer’s request for short cycle timed delivery in the March quarter.

Virtually, all of our systems shipments are now for 300 millimeter applications and sub 60 nanometer applications comprised 89% of system shipments. Components of our shipment activity by market segment are as follows.

DRAM represented approximately 44% of total shipments and NAND comprised 21%, bringing the total memory segment to 65% of system shipments. Foundry customers were 27% of system shipments and logic and other were at 8%.

Revenue for the March quarter was 633 million slightly exceeding our guidance range. Revenue was up 30% sequentially over the December quarter and reflects increased system shipments and customer acceptances in all product lines as well as strong performance in our installed base business.

For the March quarter, ongoing gross margin was 46.3% up from 44.8% in the December quarter. This improvement was the result of strong revenue performance coupled with favorable product mix and improved factory absorption.

Ongoing operating expenses for the March quarter were $144 million and reflected only partial quarter expenses related to employee equity brand and non-recurring benefits related to R&D materials and supplies. Our employee headcount at March end was approximately 3,100.

Ongoing operating profit for the March quarter was $149 million roughly double that in the December quarter with a corresponding expansion in operating margin to 23.6%. Ongoing other income was $1.6 million derived primarily from interest income.

Our ongoing tax rate for the March quarter was 20.2% in line with expectation. We are anticipating a rate of between 20% and 22% for fiscal year 2010 and expected the rate in June will be similar to that in March.

This rate would be favorably impact the Congress ratified the extension in the federal R&D tax credit prior to the end of our fiscal quarter. Based on a share count of 129 million shares, earnings per share was $0.94 exceeding the mid point of our guidance range by $0.14.

Turning to our balance sheet and cash flows, our cash in short term investments including restricted cash totaled $844 million we generated $109 million in cash from operations in the March quarter and used that cash to repurchase shares in the amount of $69 million and made an $18 million of repayment of certain loans and $11 million in capital expenditures. Lam repurchased $2 million shares during the quarter, consistent with our goal of offsetting dilution relating to employee equity plans.

Our priority remains on building on cash balances before considering more aggressive stock repurchases. Accounts receivable days outstanding were 75 days down slightly from 79 days in the December quarter and inventory returns were 4.8 up from 4.4 returns in the December quarter.

At the end of March, our deferred revenue balance grew by $104 million to $238 million which excludes $23 million in shipments to Japanese customers that will revenue in future quarters. With that, I’ll turn it over to Steve for his comments.

Thank you, Ernie. Good day every one, and thank you all for joining our calls.

As Ernie noted, our March quarter shipments represented an all-time high for Lam Research. We sharply increased shipments into both DRAM and NAND fabs and our foundry shipments while flat, remained at a strong level versus the December '09 quarter.

There are some who are concerned that achieving a record number for shipments may signal a peak for the industry. As a fact, we were able to achieve such a result at the current level of semiconductor capital equipment spending, is the result of other factors that are associated with Lam’s specific performance.

Our short lead times resulting from the rapid response capability in our business operations and supply chain organizations, allow us to respond very quickly to increases in customer demands. In addition to Lam’s execution capability, this strong shipment performance is indicative of continued strong market share gains in both etch and single wafer clean and an increased revenue contribution from our installed base businesses.

Our broad based technologically differentiated clean solutions are shipping in increased volumes to our historically strong back end of the line and back side in cleaning applications and logic while winning new penetrations at emerging front end of the lined applications as well as winning new customers for back end of the line and back side cleans with both our spin based DV-Prime tool and our linear based product. Our plasma based double clean tools have also been shipping out in increased volumes as well.

We now expect by the end of the year, we will grow our spin based product shipments by greater than 200% and our entire portfolio clean products by greater than a 175% year-over-year, a clear indication of our strong market share growth in these applications. With all that said, we still look to improving our financial results in our clean businesses as we go forward.

We have more work to do around continued improvement in our efficiency and effectiveness of our product option architectures in bringing up an expanded set of global suppliers to support our new product builds in both linear and spin.

As we saw new application market sure wins, as the industry moved to new critical technologies and applications like high-k metal gate, critical hard mask opens and double patterning and we grew shares as well as a function of the adoption of stack capacitor technology at (inaudible). We are expecting to exceed our etch, strip market share expansion goal of 5 to 6 points in 2010 which I talked about on our last earnings call to a new level of 8 to 10 points of share gain in 2010 to the 50 plus percent level.

In support of these market share gains, we now expect our etch shift consignments to grow greater than a 150% year-over-year. We will continue to invest strongly and appropriately in etch R&D to ensure we maintain our leadership in developing next generation products.

Overall, we are leveraging our investments in R&D into new capabilities and products which are enabling our penetration wins at the next technology note and all the areas of our business and our new product pipelines are enabling us to compete very effectively in a broader ray of new applications. We expect to share with you some of these etch and clean product enhancements at our upcoming Analyst Day which we plan to host Semicon West in July of this year.

As we look at the industry environment today, almost four months into 2010, there is increasing customer demand for shipments throughout the year relative to three months ago. At that time, the plans our customers had shared with us combined with our views on the demand for semi-conductors and capital equipment suggested wafer fab equipment spending would be somewhere in the $20, $22 billion range.

As the global economy has continued to improve and demand for semi-conductors have continued to strengthen. Our customers have adjusted their plans for delivery of our equipment to high levels in the remaining three quarters of the year.

If our customers indeed follow through with what they are currently planning for shipments for the rest of the year, it looks like they will end up spending in the $24 to $26 billion range for wafer fab equipment spending in calendar year 2010. With memory prices having remained strong through out this first quarter, despite the March quarter being typically seasonally weak, this suggest there is a tight supply in demand balance at the moment, and if consumer electronics demand and corporate IT spending increase in the upcoming quarters and as expected in the 2011, there will have to be a need for a sustained level of WFE investment throughout 2010.

Over the past year or so most of our customers have concentrated on transitioning their technology, leading increased bit demand in memory by strength and increasing their own capital efficiency by reusing as much of their existing tool sets as possible. In many of these technology transitions etchs and single wafer cleaner, a critical applications were new tools for chamber upgrades were required and Lam Research has benefited from these transitions.

As the industry moves forward and continues to add capacity at a steady rate, we expect our etch and single wafer clean products were strongly out performed relative to the growth of wafer fab equipment spending in 2010. With these comments, I will now move to guidance for the June quarter.

Shipments of $700 million plus or minus $15 million revenues of $650 million plus or minus $10 million. Gross margin at 46% plus or minus 1%, operating profit at 23.5% plus or minus 1% and earnings of $0.89 to $0.99 per share and with that Erne and I will take your questions.

Steve those good color on the equipment spending that you were able to provide, I was wondering if you are having any improved visibility right now into shipment if you look into September in terms of directional or other qualifications you can provide.

Well as I mentioned in my comments over the last three months the customers’ plans relative to what they want us to be prepared to ship to them in June quarter as well as the September and December quarters has come up very strongly. I think that indicative, the IC unit demand environment are seeing the receptiveness of the IC's that are coming out of the advanced 14 nanometer logic lines as well as the demand for memory which I think inspire the fact that we really haven’t started a corporate PC refresh cycle demand for PC’s remains strong as well as for other mobile devices particularly smartphones.

So I think that what we are seeing is an environment where confidence is growing and the demand is sustainable and as function of that we are seeing a much more steady request environment emerge relative to shipments throughout the year.

Okay. I guess I will do the math as well, a bit of a longer-term oriented question.

If you look at the productivity of bids for the memory companies you talked about them using more equipment and more shrinks, the amount of bids per wafer that DRAM and NAND companies are getting from just shrinks has gone up substantially in ‘09 and ‘10 compared to what it was at the peak of the last cycle back in ‘07. Do you subscribe to that and do you see this productivity growth coming back to some kind of a normalized level and what that could do to capacity addition as the wafer starts as you look into 2011?

Well I think that what we are seeing is that there is an ability to increase the bids per wafer as a function of the strengths and probably more important as a function of the strengths that they are able to do wafer conversions where both in DRAM and in NAND probably about 40% in DRAM and 45% in NAND require new pieces of equipment but they are able to buy a lot of upgrade chambers at least as it relates to Etch and so their capital asset intensity is running at very low levels. If we look at the, historical situation in memory, it’s very common for them to be spending anywhere from 35% to 50% and we see that wafers had equipment for DRAM for 2009 is going to be around 20% and for NAND probably somewhere around 25%.

So all of those strings are good in terms of the efficiency in which these memory providers are operating at. But I think that when we look at how much money they are having to spend per wafer start, if its all new capacity they have to spend somewhere around $250 million for 10,000 wafer starts per month.

NAND is currently spending about 105 million, DRAM is currently spending somewhere around 120 million, I think that as we go forward in time, they won’t be quite as efficient. I think they will have to increase the ratio of new equipment and so I think that if we continue to see a good demand environment, we are going to have to see more new equipment and new wafer start capacity ads later in the year or into 2011, then what we are seeing right now.

Yes, good afternoon. Thank you for taking my questions.

First question Steve, what are your new targets internally for Etch and Clean share for calendar ‘10. And I guess as part of that question last quarter you suggested NAND upside could drive even better results and I think what you said in your prepared remarks is that, that’s clearly happening.

Is there another lever on top of that, that could drive these targets even higher through the year?

Well I think that, what we’ve talked about before was, we thought etch market share would be up five to six market share points, now we think, 8 to 10. That’s going to put us where I said in my comments was 50 plus percent probably somewhere around 52% to 54% some of that comes from mix changes probably somewhere around 4% of that and just kind of one of the reasons why our market share declined in 2009 was because the mix was unfavorable to us and so now the mix is moving favorably but we are still picking up four to six market share points from application wins.

I think that when we look at where we have well known strong market share in memory, memory is probably as things go as customers are currently planning somewhere around 60 plus percent of the shipments in 2010 with logic and foundry being 40 and so if memory decides that they need to accelerate later in the year to meet what might be a strong demand environment in 2011. I think that will be favorable to us, I think that would probably help us grow share a little bit.

I think in the Clean space we are making penetrations in the memory manufacturers where historically with our single wafers been increased to they were largely logic related and foundry related and so again if memory picks up some more I would expect it to help us in Clean as well

And in terms of your target there for Clean, has that changed at all?

No our target for Clean as we expect to be greater than 30% market share. I think again you know how much above 30 that is will be a function of mix that will be both customer mix but also could be memory versus foundry mix related as well.

Thank you, good afternoon. Steve, just a couple of quick questions here.

Last quarter, there was a lot of talk about second half shipments down over first half albeit better, do you still see that? And secondly, has the incremental strength you’ve seen over the past few months involved more customers or is it just an improvement in orders from the usual suspects?

Yeah, I’ll take the customer mix issue. We’ve seen a much broader based activity level relative to customers, I mean certainly we’ve seen strong spending by the typical memory guys with the NAND guys coming in this time period but when I look at the total amount of shipment volume going into the so called Second Tier, they’re definitely moving into the market in the June quarter and going forward.

I think that when I look at how the year is starting to shape up particularly if you think about in terms of $24 billion to $26 billion in WFE. We’re seeing a strong strengthening of expected request for shipments from the customers and one of the things that I kind of look at is I think we have a tendency that sometimes look too much at any one quarter and in this case, some of the strong shipment activities that certainly Lam had and the way I look at it then I’ll share that with you is, in my mind, the industry under-invested in the September-December of ‘09 timeframes and then particularly in December.

And so if you were to take the December shipments that Lam had which were about $520 million and average it with the shipments that we had in March which were 735, you would end up with a $625 million shipment activity, averaged over the December and March quarter. If you then look at what we are guiding for June at 700 and then when I look at what the customers are telling us their planning to want to take its actually a pretty smooth environment, it’s a very steady demand environment and so I think that this drop off that was visible or at least was what people were talking about at the beginning of the year significantly disappeared and I think that if we continue to have a good economic environment my expectation will be that its far more likely that we’ll see a flat second half relative to what we are shipping as an industry in the first half, and so I am much more optimistic that we are seeing a sustained level of investment and we are certainly seen a movement up in the demand profile for the second half.

My first question is around last week the (inaudible) talked about book to bill expectations of one plus or minus 10% second half of this year, are your expectations for your business in line with this view or do you see things differently in second half.

Well I just commented pretty extensively about kind of our view relative to what the customers are saying and that I think that things have strengthened. We don’t really get to wrapped around the actual of our bookings because they are very lumpy.

I would just say that when you look at the order environment for the next three quarters of the year, they looked very good relative to what you would expect for a $24 billion to 26 billion wafer fab equipment market. Again, we talk about this is that I don’t know whether 24 billion to 26 billion of wafer equipment is actually going to be what’s spent.

Could be more, could be less. What I'm telling you is that there is a momentum change in the customers in terms of what they are thinking they want which is based on how they feel about the demand environment.

They are clearly more optimistic about the demand environment, not only in terms of how its’ going to play out in 2010, but when I talk to customers about what their expectations are for the environment in 2011, they are optimistic at this point in time that its going to continue to be an increasing demand environment. And so what you hear me talking about now is a reflection kind of how the industry thinks about what’s going on.

Okay, and a quick follow up specifically on foundries. There has been some recent news flow down Q1 foundry wafer start cuts.

And potential double ordering, have you seen any shift or push outs in the [foundry schmit] recently?

Haven’t seen any, from an equipment ordering stand point, you have to talk to the foundry manufacturers in terms of exactly what they maybe seeing with their customers, I have asked the question of a number foundry executives and their most recent view which was only couple of weeks ago was that they were not concerned, it didn’t feel like we at a double or were in type of environment of any significance. Whether that change is going forward, I can’t speak to you’d have to ask them.

Steve, I just wanted to follow up on your market share commentary, probably a potential of 52% to 54% share this year in etch, how much of that actually happened in Q1, was the upside driven predominantly from your 1-Q shipment for the factor trench capacitor transition and also had a follow up

When we look at market share I mean its based on the total cumulative amount that we will ship in that calendar year versus what the size of the Etch served available market or the clean for that matter. Clearly, we benefited from the shift to stack capacitor that occurred relative to (inaudible) micron.

We are clearly benefiting from a shift that [Intel] where we don’t have any etch business was a greater percentage of total wafer fab equipment in the last couple of years that is shifting back down to a more normalized pattern. So that benefits us, and then when you combine it with the application wins that we talked about last year which are now manifesting themselves as production volume wins.

Its not all that surprising that we are going to see this kind of market share, we typically want to make sure that we remain relatively conservative in terms of how we talk about our market share, but as we look at the technology nodes that are ramping in logic and those that are ramping in NAND and DRAM, our confidence level is very high that if the customers execute and spend the kind of money that they are talking about. Our market share is going to move up significantly.

Great I just have a follow up, you had spoken about broadening of the customer base from what you are seeing [fast] in the second half of the year. What does that mean to gross margins given the fact that you could probably have better pricing with some tier 2 guys, is it a fair enough assumption?

This is Ernie, so you have the impact of the customer mix as well, but you also have the timing of shipments on clean versus etch and obviously as we are talking about the clean margin profile right now are looking a little bit different than etch. So we have got things moving in different directions that would essentially generate the kind of margin guidance that was provided for the second quarter.

Thanks a lot, first on the clean side of the business Steve, you mentioned that you are trying to enhance I guess the global supply chain as well as you know improve the efficiency and the effectiveness there. Can you give us a little bit of the timeframe of when these changes are going to be implemented?

And then when we could see some of the benefits to the business model.

Okay, whatever things we had talked about when we were talking about our business model for the future was that we expected it would take us most of 2010 to really complete the product option architecture re-designing that we wanted to do. With our spin clean products and get that supply base really working toward more of our traditional outsource model.

In addition, we are in the process of shipping beta tools for our next generation linear technology product which also requires a qualification and ramping of a new supply base, so I would expect that we will be through the vast majority of activity by end of calendar year 2010 and that if we end up having a favorable environment in terms of spending and product shipment volumes that we will see much improved margin performance for the playing group consistent with what we’ve talked about when we shared the model. One of the things that’s actually been a challenge for us is that with this ramp in business coming faster and at stronger levels than we had anticipated at the end of 2009, we’ve had to convert some of our engineering resources that would normally have been working on the product option architecture and the supply base qualification to doing specials engineering in support of the factory build for spend and now that we’ve kind of come up that ramp and are kind of at a more steadied output base we are going to be able to increase the application of engineering resources relative to what we are doing in spend.

Great and just a follow up also on the clean business, I think you’ve mentioned in the past how your services capability has been a big driver for some of these market share wins particularly on the memory side, can you just discuss on the application side and what some of the changes in the process manufacturing front are helping you to get some of these memory winds for the clean business.

Well I think that as the memory manufacturer aggressively move into forex and by the end of year, we’ll see 3X in DRAM and we’ve got 3X in NAND and we’ll see 2X by the end of the year for that product. What they’re finding is that control of the Clean at various application steps in terms of a particle performance, critical dimension reliability, repeatability, ultimately is having an effect on device shield as well as device performance parameters.

So, as companies are moving from very low volume activities to higher amounts of production, they’re recognizing that they need to move more quickly to bring critical Clean capability. And so, in some cases we’re doing that with our DV-Prime spin tool particularly in the back at the line but also in some front end of the line applications and then we’re using our linear-based technology to really come in and provide some very short contact, critical capability at the front of the line both for logic and for memory.

So when you have to do that, you go from an industry that largely was designing chambers and integrated systems and mechanical wafer handling with standard industry chemicals with kind of standard industry recipes to one where because each customer has a slightly different device design with different thicknesses and CDs and materials, you now need to do a process development in the fab you now need to engage in joint development projects where Clean engineers from Lam and Clean engineers and Clean engineers from the customer really worked together on developing uses of new chemistries, adjusting the timeframes associated with the exposure of different materials and layers to different kinds of chemicals because what they found is that, just taking the traditional approaches that used to be successful for them aren’t working. And so that’s how it plays into our hand because our business model in etch has long been built around partnering in the fab, technology capability resources in the fab along with what we do in our central R&D headquarters and we are replicating that model with technologists working side by side and a whole host of fabs and that is resonating extremely well with their customers and contributing to our market share growth.

Fist just sort of mechanical question relative to the shipment level versus the revenue level. When do you think or what kind of algorithm can we think about relative to the higher level of shipments turning into greater revenues?

I am sure I have picked up is that with those shipping 735 in March you might normally think that we would be up there in the 700 range in revenue and the reality is that as we are shipping a lot of these tools it was a pretty non-linear shipping quarter with a lot of the early shipments in the quarter turning and then you had some of the March deliveries which they will turn in the June quarter but the June quarter if I were to look at where were we literally six weeks ago in terms of demand, we’ve seen the demand for shipments in the June quarter come up over a hundred million over the course of how the first quarter played out. So you end up with a little bit of the lagging effect and from an algorithm standpoint, I haven’t really thought about it from that standpoint, but I think that you could expect that we’ll have somewhat of a lagging revenue environment relative to shipments but that when you think about revenue quarter-over-quarter as it plays out over the year, I think you’ll see a rising revenue environment as we go forward in 2010.

If I could ask a follow-up, you know, you talked about your share right now in the various segments, could you just especially in etch go back to the last cycle and give us your apples-to-apples because in the last cycle you talked about your kind of shipped share versus your design win share, you know, where that was in the last cycle, where it is today and then relative to your design win share today what those numbers looks like in the next cycle?

So Jim, when you talk about the last cycle, which time period specifically are you talking?

Well, I guess 2007, the last time, we got the revenues anywhere near this level?

Okay, I think that if you look at where we were in going let’s say 2004 and 2005, we were at the 44% kind of range, maybe started off at the end of the downturn in 2003, it maybe 42%. We were able to get to a 48.5% share in calendar year ’07.

I think that if you look at what we’ve been doing over the last 2.5 years, it’s been a very strong and consistent investment in etch R&D. We’ve had a team together here that I think it is the most experienced and the longest tenured together team, our learning loops have become impressively fast, our working relationships with our customers have continued to build through the last up cycle and then our willingness to make the investment during the downturns and continue to spend in spite of the fact that our systems revenues were down 90% - 95%.

So I think that what you are seeing now is that the challenges for customers to be able to produce high yield devices at the 4X node and the 3X node, Lam has consistently had the solutions ready, had the productivity enhancements and cost effective situations readily available for these customers and so when you kind of look at how we are growing the market share to these levels its really a manifestation of a lot of years of hard work of making the continuous investment and we're seeing it favorably for us in foundry and DRAM and NAND but I really think it’s the accumulation of a strategy that we put in place in the early 2000s and we're now seeing a lot of momentum come together favorably in this cycle.

First question is how should we think about the contribution from double patterning in the edge market segment, what for '10 and '11. Is there a way that you could quantify them please?

I don’t have in front of me the specifics in terms of how you might quantify that other than obviously with double patterning you end up with a growth in the number of such applications as well as in some middle of the line activities. And so, one of the ways to think about it at least in general without the specificity which we can get back to you with after the call is as immersion litho comes into three X and two X and with its cost structure, sucks up a lot of wafer fab equipment dollars.

The fact that edge which is historically banned a 12.5% to 13% of wafer fab equipment segment is essentially staying right on that. The only way that that could be is because the overall number of applications in wafer fab have to run through (inaudible) has grown.

A lot of that is double patterning but it is also other things associated with some additional critical hard math steps that weren’t present in devices at the higher technology nodes.

Thank you and one last question, how should we think about your market share performance in Korea, in '10? How would you compare that versus '09 in better ways that you can close some numbers on that please, thank you.

We don’t break out with a great deal of specificity. We'll talk in general about our market share in memory.

We may talk about it in DRAM and NAND, foundry and logic, but when you start getting too specific then we wind up in situations where our respect that we want to maintain with our customers, contains the level of confidentiality that we want to preserve and so all I can tell you is that our market share growth have incurred at all of the memory companies. It has occurred in dielectric and in conductor and when you look at some things that are occurring in the NAND market which clear is going to have some strong growth and the expectations for some requirements for wafer start expansions we've been very pleased at how we have been able to compete and win some new applications for NAND.

Just on the question at etch market share. You know each of those three big suppliers now talk pretty highly with high conviction as they are going to etch market share.

I mean is it possible that etch has increased as a percentage of total WFE? Is that likely what’s happened because you are more confident of that share gains so its supplied in Tyco Electronics.

Is that likely what’s happening here?

It could be possible, I don’t know what assumptions they are using for the size of the etch (inaudible). I do think I would stack my track record up of comments about our market share gains against any one of those competitors one in particular who I think has claimed that they were going to grow market share every year for the last five years, yet has lost every year for the last 5 years.

So when we or when I speak about market share it comes as a function of having nailed down the application win, understanding who the customer is, understanding what that application represents in terms of how many millions of dollars for the purchases that will go out in that year. We don't claim market share until we’ve actually won it and so when I talked about what's going on in 2010, the increase in market share comes from the application wins that we achieved in 2009 to some extent, some that we just recently won in the March quarter.

But for the most part, it is metaphor station of the volumes that customers are choosing to put into production and as a function of that if the mix is favorable and in our case this year it is. Then you get additional accelerated benefits from market share.

So I can’t speak to how the others calculated or look at it. But I think we have pretty consistent track record of delivering on what we said.

Do you have any ballpark estimate of what your ado shipment by customer type might in the June quarter?

We thought about for DRAM, NAND and foundry?

Right.

Yes. We are expecting that we are likely to see memory is going to stay strong relative to March.

I think we are going to see stronger NAND in the June quarter then we saw in March and maybe slightly less in DRAM but overall memory will be very strong quarter-to-quarter. I think that the environment for foundry in June kind of takes a little bit of a breather.

Not dramatically but won't ship as strongly in June. But as I look out for the rest of the year and in the dialogue and discussions we are having with our foundry customers June will probably represent the low point for foundry shipments and I think that we will continue to see strong memory activity in the second half of the year.

That’s some color on the make up for the June quarter.

Hey Steve, I understand the things have strengthened but the way I look at it back when you talked about Q1 shipments kind of being around the $735 million level. You equated that to roughly a $28 billion WSE market.

You are on the call today you are saying that basically the WSE trajectory actually had dipped to something like $20 billion to $22 billion which would have been down for your shipment levels in Q2 somewhere around 25%. But now it's come back up to 24 to 26 which is still down from 28 roughly 10 to 15.

Your shipment guidance for June is down roughly 5%, does that I mean does my reading seems correctly and stitching together your comments correctly and does that imply that in September that shipments have to come down another 5% to 10% to collaborate to that $24 billion to $26 billion WSE kind of number that you quoted?

I guess it all depends on the way you want to look at it, If you want to go off of that kind of activity that occurred in March which what I commented on is that the way that we really should look at as if you average what shipped in December and what average what shipped in March you would knock that down to an average of 625, and so you can look at March as being a 735 as a big deal. I don’t I think it was a make up quarter.

When I then look at the fact that we’re down by 4.75% in shipments in June, coming off that really strong March I think that’s very good. If you calculate the numbers out at the mid point, between $24 billion and $26 billion and $25 billion in WSE, you’ll find out that at this point in time, the drop off in the second half versus the first half is probably somewhere around 8-8.5% which I consider to be not a significant at all.

I consider it typical kind of a consolidation of a very significant continuous steady state investment. If you knock off a few average December and March, do a 625 and then you use a 625 with a 705, then you’re likely to end up the situation where the second half is essentially flat to the first half and that’s the way I look at it.

I viewed it as a very ongoing consistent investment by our customers as a function of the demand environment that’s there and so I don’t think the way to think about it there is drop-off in the second half I think if you slew these things it looks remarkably consistent for quite a period of time here.

Okay. And just to get a reconcile basically you’re assuming kind of few at this point I wouldn’t think but you’re not seeing any kind of benefit from some of these new fab announcements that were announced in the quarter, materializing as the orders yet or shipments in Q2, are you?

Which one’s are you specifically refereeing?

The NAND one. Intel, Micron in Singapore or Samsung?

While I think that but both of those two companies are in the middle of figuring out exactly when they want to take deliveries and so I think that you are correct in the sense that essentially that’s not factored into the comments that I am talking about but having said that I wouldn’t be surprised if both of those companies that you mentioned, decided that they wanted to take deliveries in the later part of the year or we’ll just have to see how that plays itself out.

Thanks for taking the question. Steve I wonder if I can follow-up on a previous question around the Clean’s business.

You talked about architectural and some supply chain optimization you were doing there. I wonder if you could remind me what the margin model is and specifically I am curious sort of how much leverage there is in that business beyond sort of obvious leverage on better absorption.

Where are the incremental margins today and where do you think they can go, I don’t know the 2-3 quarters out? Thanks.

This is Ernie, Raj. So we had talked last year at Semicon about some internal margins goals that were in the 40% range give-or-take and we obviously have ways to go to achieve that and then on a longer term basis we would like to leverage accumulative action, we believe that why you cant quite get there on a gross margin basis certainly on an operating margin basis when the business is operating at similar share levels and similar levels of R&D efficiency we can get very, very close to the long-term operating model of Etch.

So the upside leverage as we talked about earlier certainly lies in some of the outsourcing in the architecting on the product line so that we can get more specific with the configuration of the products that we’re shipping to customers. And then secondly, the work that we need to do around engineering and optimizing the specials environment so that we can effectively execute those.

So we’ve got a couple of fronts on which we can continue to make margin leverage in addition to getting the operating income leverage that would come from higher levels of shipments and share across that relatively fixed R&D investment.

Ernie, how long would you think that some of those initiatives will take you know, before we realized and can you comment roughly on what percentage of the business this clean business is today? Thanks.

Yes, so we were relative to the timeframe as Steve indicated. A lot of the cost work we think it can be achieved over the course of 2010 which would position us well for 2011.

We’ve talked previously about having an interim share goal up in the mid 30 as Steve indicated earlier on the call today, I think we’re going to exit this year at 30 or north. So we are well on track to that goal, the 35 or mid-30s goal with something represented at Semicon last year.

So it’s still relative to the sort of extra share that we’ve spoken about today, in the low 50s, we would still have the ways to go and that would be not reasonable to speculate on when we could achieve, north of 50% share in the Clean business that would allow us to fully realize all that leverage.

Sure. And how big is the business today relative to the core business?

We don’t segment report but we can offline talk to you about the size of the market and you can impute share and that will help you at least get a rough sizing.

Sure, I’d look forward to that, thank you.

Raj, one other perspective I would give you is that if you look at the models we’ve kind of laid out depending upon what the size of the wafer fab equipment market is but also the timing we had presented a 20 billion and 25 billion model. Our expectation was that 25 billion in wafer fab equipment is going to probably occur 2011 and it’s looking like it’s likely to occur in 2010.

So I think that we will still perform to that model even though it’s a year ahead of the timing we thought and so if we end up with a good economic environment and strong demand and we end up as some have commented on in expectation that wafer fab equipment spending in ‘11 will be higher than ‘10 and we’ll just have to see how that plays out. One other things we’ve talked about was that we wanted to be able to have an integrated operating income performance around 27.5% and that’s a reflection in fact that you’ve got mixed issues in terms of the size of the installed base business which we’ve made a lot of investments in and it is a good business but has a different margin profile and then Clean as Ernie said, its kind of really get up there even higher it’s going to need both volume and higher market share, which is not likely or we are not expecting to occur in 2011.

But I think what we’re going to do at Semicon is we are going to layout a model that will add to it that if the industry were to spend 30 billion just to use a nice round number, what would we expect to be able to deliver in terms of financial performance, cash generation etcetera in that kind of environment if it were to occur in 2011.

Hi Steve. I'm just trying to sort of look at the margins in the core, your etch business.

And you’re not really splitting out cleans revenue, but if you assume its sort of $60 million $to 70 million a quarter, if you sort of impute that based upon some of your share comments? And you take your guidance and you take the out margin guidance.

Even if you give a zero out margin to the cleans’ business. You are still 200 or 300, 400 basis points lower than you were last like sort of similar revenue levels in the etch business.

Operating margins, A, is that math wrong and B why would that be I guess maybe there is a more concentrated customer base this time around one. One in particular that has lower margins, but is there any sort of reason for that because it seems a bit odd relative towards some of your other competitors, thanks.

Well I don’t know what you are talking about relative to other companies because if you are talking my two competitors. I know for a fact you can’t see their margins because they are buried in the financial statements relative to every other product line that they have.

So having said that, I think that we probably have a couple points of gross margin pressure that comes from the function of consolidation of the customer base comes from the fact that I don’t run the business on a operating margin percent basis. I grow it on total revenue dollars that I can drop to the operating margin dollar line.

We are clearly doing that. If you see the amount of WFE spending and the total amount of revenue and operating income dollars that the Company is going to generate, its significantly higher than when the industry spent 25 billion X number of years ago.

And so I think that it would be correct to say there is some margin pressure and is for the reasons that we have talked about and clearly we work hard to contain that but if I can grow 8 to 10 market share points and deliver increasing operating margin dollars which drives increasing EPS I am fine with that

One additional perspective Tim, I know its really easy to make a comparison and say our June quarter guidance may be back to March of ‘07 similar revenue levels and certainly some margin differences, but I really think its important to get underneath that and understand that relative to etch significantly different percentages of that revenue stream so I think that may be to some degree where we may not share the same perspective because as we are talking about we are still operating in environment of 25 billion if you miss point the wafer fab guidance, versus the 32 billion in that prior peak and so our etch performance of 32 billion would be significantly different than what you are seeing right now.

Steve if you sort of look at what ASML’s shipping and you are sort of back into what that implies in terms of wafer fab equipment market size. Its closer to 30, versus the sort of mid 20 numbers that we are talking about here.

So do you think that in fact people typically kind of forward by lithography. But do you think that would imply that there is relatively more sort of on the Comp for the non-litho guys.

Or is your number different actually?

Well I think that I can’t speak for how ASML sees how this plays out but I think you are correct in that what the industry does as they absorb the available litho capacity that they had coming out of a downturn. They always recognize that the longest lead time equipment in the industry is litho.

And they have got to get out in front of that. I think that to impute a 30,000 wafer fab equipment, spending environment for 2010 from that, it doesn’t take into account that the reality is that while they could if they bought the rest of the equipments that expands into that amount of Litho, spends 30 everything that the customers are telling me is that, that’s not what they are planning on doing.

But if they do believe at least this point in time that they are going to have a increasing unit demand environment in a favorable world wide GDP, they got to have that litho in place to be able to expand their investments in the other front end equipment in the 2011 timeframe. So, to me if I didn’t see the increase in demand for litho, then I would be concerned that customer confidence level in terms of the supply and demand balance and the sustainability of the unit demand environment and everything else they know about products and semiconductor intensity was not really being consistent so the fact that the lithos what it is says to me that they are behaving in a way I would expect them to but I don’t think that translates to expecting $30 billion.

One clarification, did you comment that your foundry business in the quarter was flat and was that for shipments or revenues?

Ben, that was for shipments, the shipments that we executed for foundry in the March quarter were flat relative to what we executed in the December quarter and I think you will remember that when you look at kind of what drove the increases in kind of December which came up pretty strongly from September, it was largely there was a lot of foundry-related activity in that quarter.

And then one follow-up also around the March quarter, you commented on the turns business, turning the shipments into revenues, do we expect the same type of behavior going forward if the mix stays the same?

It’s hard to predict that because some customers take equipment in and start it up very fast and accept it and because we are revenue on acceptance we can have a high turns environment, other customers historically take a much longer time to do their calls, logic companies in general take longer than the average memory company. And so, you kind of end up with a wide variety of things but the one thing I would say is true is as we move to 4X and 3X and then, 2X, some of these calls are tending to take a little bit longer because the process windows are really narrow.

The sensitivities are really high and the customers are taking a little bit more time to make sure that everything's working right with the equipment to be sure that when they ramp, they're going to get the yield and the reliable device performance that they're looking for. So I think I want to thank you again for joining the conference call.

In summary, I would say that we're seeing good momentum in terms of what the customers are thinking, they would like to do for the rest of the year. We're certainly seeing strong momentum in our Clean business and we think we will exceed our share targets to be greater than 30% of share and we’ve talked extensively about it and we expect our share to be up strongly and well in excess of 50%.

I think we are going to continue to aggressively invest not only in Etch and Clean but some other new products that are targeted at new markets. We think that there’s a real opportunity with some of the challenges that customers have at this leading advanced nodes but we can’t continue grow our presence as their critical solution provider and so we continue to focus on making sure that we have the responsiveness from an operational standpoint and the technical solutions available in a timely manner.

But having said all of that, we expect that for this year, Lam will significantly outperform, but the growth rate what you’ll see in WFE in 2010 over 2009, so thank you again for your attention. Good day

Audio replay of this call will be available on our website later this afternoon. Our next scheduled update will be our analyst event which we plan to host on July 13 concurrent with Semicon West in San Francisco.

We hope to see you then.