Randy Bane - Vice President of Investor Relations : Thank you and good afternoon and welcome to Applied Materials’ Fiscal Q4 2006 and year end Conference Call. Joining me today on the call are Mike Splinter, President and CEO; George Davis, Chief Financial Officer; Nancy Handel, Senior Vice President; Joe Sweeney, Senior Vice President, General Counsel and Corporate Secretary. Today we will discuss our results for the period ending October 29, 2006. The financial results were released this afternoon at 1:05pm Pacific Time and a copy of the news release is available on Business Wire and on our Website at www.appliedmaterials.com. Today's earnings call contains forward-looking statements including those related to Applied's financial performance, our technology leadership, served markets, growth, strategy and opportunities, new product development, operational efficiencies, tax rate, cash generation and deployment, financial targets, and the outlook for the semiconductor industry, display and solar industries. All forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ from those expressed or implied by such statements. Information concerning these risk factors is contained in today's earnings press release and in the Company's filings with the SEC. Forward-looking statements are based on information as of November 15, 2006 and the Company assumes no obligation to update such statements. Today's call also contains non-GAAP financial measures. A reconciliation of these measures to GAAP are contained in our earnings press release issued today and in our earnings call highlights document, both of which are available on the Investor's page of our website. George Davis will open with some remarks on our new segmentation reporting and then hand it over to Nancy who will discuss financial results for Q4 and year end. After Nancy, Mike will highlight Company results for 2006 and outline our strategy for…

Just a quick question here on the order breakdown. Could you try and qualitatively talk about where you're seeing most of the decline, is it down 5% to 10%? Is that mostly coming from flat panel display or silicon? What's the split here? A – Mike Splinter: I think what you're seeing is clearly a big drop in display, as we said, a much more modest drop on the Silicon side, and then a seasonal up tick, as you would expect, in the Fab Solutions segment.

Okay. Because it looks like bookings are probably dropping on a gross basis around $200 million and that's exactly the drop in flat panel display. So you're just seeing a slight drop here in Silicon Systems, right? A – Mike Splinter: Yes. I think we're comfortable with the guidance.

Okay. George, quick, a longer term question here. When can we expect you to kind of emerge out of the woods in terms of integration of these dilutive deals? And when do you think you'll be able to articulate a longer term financial model that's somewhat back on track with what the model was pre-options? A – George Davis: Pre-options. Well, you've got a fair amount of moving parts there. But I think we're very comfortable with the M&A activity that's taking place this year. We think it's very positive towards our growth. We're committed to model performance and we'll talk about the model later, but we don't anticipate the model changing. We anticipate performing to that. I'm not sure what your point was on the options?

No, it was just the model prior to FAS 123. Last question here, real quick, how much are you baking in for the Brooks automation in terms of opex in the January quarter? A – George Davis: Well, first off, we have to close the deal. So there's nothing in the forecast at this time.

Your next question comes from the line of Satya Kumar with Credit Suisse.

Thank you for going through the disclosures by segment, I think it's extremely useful. A couple of questions. I have in my notes here back in 2000, in Q4, service was about 12% of your revenues. Is it fair to say it has approximately doubled in percentage terms from back then to now? A – Nancy Handel: If you go back to 2000 and then look at where we are today, it's roughly doubled. I can grab that 2004 number in a second here, yes. We have basically have doubled since 2000 and the numbers in 2004 would have kind of been the midpoint in that transition.

Right. I know you're going to talk about the profitability in your K but can you give us a sense whether this doubling was neutral or accretive or dilutive to your overall margins? A – Nancy Handel: You're referring to the service business?

Right. A – Nancy Handel: The service business really contributes very strongly to the bottom line because it doesn't have the same kind of BLE and R&D infrastructure that the equipment business has. So, the profitability there is a strong contributor for the Company.

Okay. And a final question here. When you look out to your bookings guidance for January, can you give me a sense as to what the order composition is doing in memory for the semiconductor portion? A – Mike Splinter: Well, the order book will be over 50% on memory. Again, it was 53% in the last quarter. We don't think there's going to be major shifts there. Memory is going to continue to be over 50% of the orders.

Your next question comes from the line of Edward White with Lehman Brothers.

Thanks. Looking at the Silicon business for a moment, I think you mentioned that you have about 50 new products in the pipeline. Can you talk about the area that you'll focus on in terms of product market share in the Silicon business over the next year? What are the real goals and objectives as you look at 2007? A – Mike Splinter: Sure, Ed. A couple of things I'd say about that. First and foremost, we want to continue to make progress in Etch. We've increased our investment there. We've increased the number of products we have in the pipeline there. So, that's a very important area to us because of the size and size of the overall market and the fact that we think that that market is going to continue to grow. The other area is that we're investing heavily in is inspection from our PDC unit. We're growing the solutions there in a number of products in applications we'll have out of that area. And then you can expect us to continue to invest across our broad array of products and renew all those. But then, we're expanding in display. And then we're going into solar area, which is going to require some significant new product ideas, concepts. And we right now have a number of new products coming up in that area that you've already seen a few of those but you'll see a few more of those as we go through the year. Those are our big equipment areas. But I don't want to shortchange our service area, where we have a lot of new service products and are efficiently developing those products as well. I think when you sum it all up, we're renewing our product line and expanding it at the same time, so that we really get the growth of the Company moving ahead with new products as well as our existing products.

Okay. And then finally, with the growth prospects, at least in the first half of the year for the whole semiconductor capital equipment industry coming from memory, how do you feel about your position now with memory manufacturers? I know that was the focus to gain the share there. You've done that. Where do you think your position with them today? And does that need to be enhanced further as you go ahead? A – Mike Splinter: We've made a lot of progress in 2006. We want to continue to enhance that in 2007 but it's no longer the major disadvantage it was for us in 2005. So, we're pretty happy with the excellent progress that we've made there in 2006. And Ed, as we move from really 90 to a buildout on 65 to technology buys on 45, we're gaining share in each one of those nodes.

Your next question comes from the line of Jay Deahna with J.P. Morgan. Q - Jay Deahna - J.P. Morgan Chase & Co.: A couple of questions. First of all, for the tax rate in Q1, should we be using a similar tax rate for the rest of the year? And then the second question is, if you look at the midpoint of your order guidance, it's down $200 million, so display accounts for all of that. So it sounds like the pickup in service orders and the dip in Silicon Systems is a wash. My question on that is, if that's a pause, do we see some sort of a dip in Silicon Systems orders before they turn up in order to drive that 6% away from equipment growth in 2007? And I presume you were talking calendar 2007 and not fiscal. A – Mike Splinter: I was talking about calendar 2007 for the projection, Jay. But I don't think that we're going to see particularly anymore drop than what we're thinking about in Q1 because of our share movement. The thing I tried to express was that with our share gains, despite the fact that we think that the wafer Fab equipment spending will be up 6%, our Silicon business should be over 10% really in our fiscal year. I'm kind of talking about the growth in the market and the growth in our Company. As you know, we always mix those on calendar year and fiscal year. Q - Jay Deahna - J.P. Morgan Chase & Co.: What's important in what you're saying, then, is that you really are talking about an incredibly mild pause. Because if that's what you're going to deliver and orders most likely, it sounds like you're saying they flatlined in April at…

Your next question comes from the line of James Covello with Goldman Sachs.

Thanks again for the segment detail. I find that really helpful. Mike, big picture question. If you go back from your experience in the industry, and I know you were at a different company, but just from an industry perspective back to the mid-90's. Before the industry recognized that there was kind of excessive DRAM capital spending that we weren't going to see again for another decade, we didn't see that coming. Why can't what's going on in NAND now be a repeat of that, from the standpoint of, you never see it while it's going on? It's only in retrospect that you realize there was an awful lot of excess capacity. And with pricing in NAND having been down a lot more in 2006 than we expected. And now margins in NAND being worse than margins in DRAM, there's no cushion for the NAND manufacturers. If the excess capacity sustains into 2007, these guys are going to have to take a more conservative approach with the capital spending. And how do we know we're not looking back two years now saying; "the 2005, 2006 period was a lot like the '95, '96 period in DRAM"? A – Mike Splinter: You can look at this a number of different ways. What's been happening, the big growth has been going up at a very dramatic rate. And we've been trying to look at, NAND particular, at capex versus revenue. And it's nowhere near the '95 peak, which was, I think, almost 80% capex to revenue numbers back then and it almost hit that high again in 2000. I think the key here is; do the applications and do the bit growth continue? So far they have and the excess demand has been able to be absorbed by pricing declines. And I think as you know, the last, I think, four months or so pricing on NAND has flattened out and even up slightly in the past two months.

But if I can interrupt for a second, the difference between last year and this year is that there was a lot of cushion in NAND margins starting 2006. That cushion has been arbitraged away, as we've gone throughout the year because margins have come down so much because pricing has come down so much. There is a ramification of the elasticity. You cut prices, you cut margins. And there's no margin leeway or cushion as we enter 2007 to see the kind of price declines that we had in 2006 and still continue to spend on the capital spending. A – Mike Splinter: Well, then you have to look at who's actually spending and so we know that there are big companies here. But they're moving very fast to the next generations of technology, which give them, again, a lower cost per bit and are moving as fast as they can to preserve those margins.

Terrific. One quick follow-up and then I'll go away. On the stock buyback, did I understand you said no buyback in January but resuming in April? And if I got that right, how come no buyback in January?

The buyback is a result that the agents that we had completing the ASB in the market. So, we're going to wait and turn our repurchase program back on in Q2.

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

Okay, great. Thank you. The commentary you gave about fiscal 1Q flat panel orders being down about $200 million. Is this due mostly to one customer or is it spread basically evenly across multiple customers? And as a follow-up to that, how do you see the flat panel display spending for 2007 trending after this record year in 2006? A – Mike Splinter: So, it's in part due to a couple of things. One, we have very strong orders in Q4 and so it's coming down off a high. So one big customer placed their Gen 8.5 orders in Q4. And I think you know that there are two other manufacturers that are in a state of reassessment. One in Korea, one in Taiwan, one due to a merger. So, I think we're kind of in a wait and see mode on flat panels. The estimates that we look at say down roughly 20% on the year. But when I look back at a year ago, we also said that it was going to be down 20% and then after great sell-through during the holiday period through Chinese New Year, the orders picked right back up and we had a terrific year. But right now, we're thinking that the spend in the industry is going to be down 20% year-over-year.

And if I could take a second question. So you've made some comments about spending in the equipment market being up about 6% and you called out some specific market share gains that you've had, Mike, in some of the thin film groups and in the Etch segment. Do you think some of those market share gains there will let you outperform some recovery in the industry faster than prior cycles, given the strength you're seeing here in 65 nanometer and 45 nanometer? A – Mike Splinter: Well, yes, we think so. Anytime you change the profile of your Company, which we've pretty much been able to do in getting into much better position with a memory manufacturers, it allows us no matter who's spending the money now to move a little faster than the market and have much better balance than we previously have.

Your next question comes from the line of Harlan Sur with Morgan Stanley.

Good afternoon. First question for Mike. If I look at the EDA companies or the chip design software suppliers, they're currently tracking about anywhere from 250 to 365 nanometer chip design starts. And many of these designs are being done by the major fab with semi companies. And I think most of these design starts today are going to be resulting in tapeouts sometime middle of next year. And so given that and given your commentary about sort of the foundry spending in the second half of the year, I just wanted to get your thoughts about what your foundry customers are saying about 65 nanometer in 2007? A – Mike Splinter: If I look back six months or a year ago, we expected them to be running a lot more 65 nanometer than they are today. So they're already in a delay mode on 65 nanometer. But the real question is, when do the big volume designs get into high volume production? That's the real question. At two of the major foundries right now, the 65 nanometer lines are not full. So I do expect new designs to come in and for those to start filling up the lines in Q2 and then on through the year. And they're going to make investments along with that. I think you probably have the data on foundry utilization at this point projected to be in the middle to low 80's for this next quarter. So that's not a point where they're going to be making aggressive investments.

Great, thanks. And then just one other question, if I may. Looking at the overall possibility of the business, just wanted to know the percentage of your R&D workforce that are located in low-cost geographies currently and how you see that growing over the next one to two years? A – Mike Splinter: So today, we have about 1,000 people in those regions in Bangalore and Xi'an China. We'll increase that a bit over time but our main R&D centers are going to remain in Santa Clara and Rehovot, Israel and Horsham.

Your next question comes from the line of Timothy Arcuri with Citigroup.

Hi, Mike. Maybe if I can just run for a second here with your scenario on the downturn. I'm not sure that I agree. But if memory is down, just as logic and foundry picks back up, just like it argues that there's not much of a downturn, it also argues that there's not much of an upturn. And if you look at your business and you look at the stock, you spent about $5 billion on acquisitions and on buybacks during the last 12 months and the stock hasn't really gone anywhere. So, if the same downturn scenario argues that there's not going to be much of an upturn, what's going to make the stock go up? The kind of big picture question here is, if you look at your competitors, they're kind of looking at the business and they're eliminating product lines that have lower margins. And I'm wondering, could we see a shift in your strategy? A – Mike Splinter: So the question is, Tim, about strategy. But first of all, I don't think what we said was anything about a memory downturn. And we're still expecting memory to be strong for the foreseeable future. Of course, if the way it plays out is memory goes down when foundry goes up, there won't be much of a downturn but there won't be much of an upturn either. We're always looking at our products that don't meet our profitability objectives, believe me. And trying to understand either how to get them healthier or how to disposition them out in other ways. So I don't think that that's necessarily a new strategy, that's just taking care of business. But we are really looking at being strong on portfolio management in the Company. I think that's a key part of our overall strategy.

Well, to that point, do you think that, given all the money you've spent the last four quarters and the fact that the stock hasn't really gone anywhere; do you think that maybe we have to rethink the business and rethink some of the segments that you're actually in? A – George Davis: Let me just say, this is George. Let me make a comment about the investment as you're describing it. I think number one, we need to separate the activity for the balance sheet and the investments in M&A. The balance sheet activity is really a reflection of returning excess cash on the balance sheet to our stockholders. And that's a decision that I think we're comfortable that our investors are encouraging, just as they're encouraged by a higher dividend. And we believe that our cash needs are in the $3 to $4 billion range going forward and we're positioned well for that now. On the M&A front, we are in an investment mode and I think if we could find more opportunities like Applied Films, we would do them in our current business model. We have, through this process significantly strengthened our PVD capability in flat panel and in solar. And we've brought new technologies and flexible electronics. So we're comfortable that we have to at times invest and go through an investment period, which is really what we're experiencing through 2007 with Applied Films. But we're encouraged by what we're seeing.

Your next question comes from the line of Steven Pelayo with HSBC.

Sorry about that. Just some clarification, first of all. I'm looking at your assumption for growth, about 10% in the Silicon business. I'm looking at it relative to the composition of what you just showed your break out. About 2/3 of that was your Silicon business. About 20%, 25% service business. And then your expectation for flat panel to be down about 20%. If you roll those up, based on the kind of composition that we saw for this last quarter, you're thinking that Applied Materials can grow more than 10% net year. Now, then we've got to talk about; well, what's the profile in 2007? You said you didn't expect to see much more of a drop. If you're talking about 10% growth in 2007, that's like an incremental $1 billion versus the $9.5, $9.6 or you're doing this calendar 2006. So, can you talk a little bit about the profile of 2007? And then I just have one more follow-up question. A – Mike Splinter: I think you have it pretty close to right, Steve. We expect our service business to grow substantially faster than 10%. Silicon business to grow 10%. And our display business not to decline as much as the market. We're positive on 2007.

So essentially, you're saying that growth resumes starting in your April quarter? A – Mike Splinter: Yes.

Okay. And then my last follow-up was, congrats to Nancy and George on the $0.40 per share in free cash flow. That's great. What's your expectation for Q1? Can you pull more from the working capital counts? It looks about $400 million, excluding the working capital counts, so that would be pretty good. A – George Davis: In terms of free cash flow generation, we're at about $2.5 billion. We've been generating plus or minus, right around $500 million. And so I think you can kind of scale it down a little bit from there.

Okay. And your expectation for share count in January, that's my last question?

It should be on the order of what we have now, maybe a few for the stock option activity or whatever but we won't be doing any buybacks. A – George Davis: So we're at about $1.48 billion.

I just didn't know what the timing of the last buyback, if the weighted average worked out, it actually went lower again next quarter. Thank you, I'll model flat.

Your next question comes from the line of Mark Bachman with Pacific Crest.

I would like to go back to that last question, George. I think that Steven was onto something there. Didn't you buy back at the middle of the quarter and shouldn't you have a lower share count in January?

We did do a buyback at the middle of September and I think they're looking at a projected share count here of about 1.4, 1.3 maybe something like that. It was down a little bit or so from the year end here. A – George Davis: I'm sorry, I gave a year end number. My apologies.

So we should be looking at 1.4, 1.3, is what you're saying?

Yes. Looking at it as reflecting the old quarter's worth of share versus the average over Q4.

Perfect, thanks. Mike, can you discuss some of the share gains in your Etch segment? In particular, can you give us some qualitative commentary on both the dielectric metal and the poly segments, where you think you won and maybe where you might have lost? A – Mike Splinter: Well, sure. I think that we've had strong metal, reasonably strong. I wouldn't say any of our segments are overly strong but we've been able to gain, particularly with the memory guys, coincident with our other efforts with the memory companies during this year. We started out stronger with the memory guys in our Etch area as well. So, what we've been working on in dielectric Etch, most of the gains have been in the less intense areas in Via(?) and Bondpad(?) opening, some of those areas. We're starting to win more in the dual damascene area, as we go through time. As our machines show good uniformity, better uptime, less cost of ownership, those are things that customers are particularly interested and are particular strengths of our machine. Our introduction in the Silicon area this year that pretty dramatically improved uniformity for gate Etch has helped us also quite a bit in the logic area.

When you talk about share gains, when the Gartner numbers come out at the end of the year, at the start of next year, should we be looking for share gains in each one of those segments from you? A – Mike Splinter: It will vary, but, yes.

Just one last question for Mike or George, whoever wants to take this. Any thoughts on not supplying order guidance going forward? Kind of along the same lines of what Lam has already done? A – Mike Splinter: No, we haven't. We're not considering that at this time.

Your next question comes from the line of Brett Hodess with Merrill Lynch.

Two questions. First, I know that FPD was record for the year, but was the growth rate in FPD similar to the Silicon business? And the second question is, have the 45 nanometer decisions started to be made? How far long are we in that process? Because, you did mention that you expected to pick up more share there. A – Mike Splinter: First of all, Brett, in the flat panel area, the growth there was very similar within 1 point or 2 of the overall growth of the Company. So it was pretty substantial and it really makes three consecutive record years for our AKT division. On 45 nanometer, of course it depends on the company, but the leading logic companies are already making major decisions here, have made a lot of the decisions on 45. The Foundry guys are in the process of making them. And the memory guys have a little different dimension but let's just say 50 to 55 nanometers, they'll be in the selection process here over the next six to nine months.

Your next question comes from the line of Steven O'Rourke with Deutsche Bank. Q - Steve O’Rourke - Deutsche Bank Securities: Thank you. Can you break down backlog by reporting segment as well?

No, we don't plan on doing that. Q - Steve O’Rourke - Deutsche Bank Securities: Not in the 10-K either?

I don't think so. A – George Davis: No. Q - Steve O’Rourke - Deutsche Bank Securities: Okay. And one other question. We've talked a lot about market share on this call, can you give us an update on where you think you are with respect to ion implants and market share? A – Mike Splinter: Well, in our implant area, we haven't really been particularly happy with what has transpired this year but we continue to work hard in that area. It's one of those areas that we have a focused R&D program on. Our strengths are in beam purity and high dose implant. We're working to utilize some of our platform strengths in software and in robotics to help improve the productivity that we really need to enhance to be competitive there. Q - Steve O’Rourke - Deutsche Bank Securities: Okay. You mentioned backlog adjustments of $97 million. Was that just the one customer, or was there some other dynamic here too with other customers? A – George Davis: Steve, it was mostly normal puts and takes and then one large customer in the display area.

Your next question comes from the line of Robert Maire with Needham. Q - Robert Maire - Needham & Company: Congratulations to Nancy and George on future and past roles. And question, I seem to be hearing from people in the industry and other equipment companies of a shift in the memory segment away from flash to DRAM with the anticipation of the rollout of VISTA and such. And we've heard some manufacturers of that fungible capacity, perhaps moving capacity in that direction. First of all, I'd like to hear your comments on that, if you are seeing that reflected in the order book? And secondarily, related to that, would that perhaps soften any potential for excess capacity in the Flash market and where do you see capacity in the Flash versus the DRAM market? A – Mike Splinter: I think there were a number of questions there, Robert. Let me see if I can comment on a few things. First on fungible capacity, this is a thing we've discussed with the customers quite a lot. The two major Korean DRAM manufacturers have varying degrees. One has a lot more ability to move from DRAM to Flash and back again. The other one has a small amount of ability to move. Most people, at the current time, DRAM manufacturers and those two companies that have the flexibility are moving more of their investments to DRAM in the current time, for the obvious reason of DRAM prices are holding. There seems to still be a shortage of supply and VISTA is coming and more DRAM's are going in cell phones. So all those things make you tend to think that DRAM's are going to continue to be strong for the foreseeable future. So, yes, we're seeing more DRAM play. But then…

Your final question comes from the line of Mark Fitzgerald with Bank of America Securities.

Thanks. Given your outlook for the different segments in 2007, is there any implications for margin impact on the model? A – Mike Splinter: No, not at this time. We see the mix affect being immaterial.

Okay. Thank you very much. We would like to thank all of you for joining us in our discussion on Applied Materials financial results and outlook for the upcoming year. We would also like to remind you that a replay of this call will be available on our Website starting at 5:00 p.m. today and will be remain posted until November 30. Thank you for your interest in Applied Materials. This now concludes our call.

This concludes the Applied Materials Q4 FY2006 conference call. You may now disconnect.