Good afternoon and thank you for standing by. Welcome to the Applied Materials First Quarter Fiscal Year 2007 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards you will be invited to participate in a question-and-answer session. As a reminder this conference is being recorded today February 13, 2007. I would now like to turn the conference over to Mr. Randy Bane, Vice President of Investor Relations, Applied Materials. Please go ahead, sir.

Thank you, Marvin. Good afternoon and welcome to Applied Materials fiscal 2007 first quarter conference call. Joining me on the call today are Mike Splinter, President and CEO; George Davis, Chief Financial Officer and Joe Sweeney, Senior Vice President, General Counsel and Corporate Secretary. Today we will discuss our results for the period ending January 26, 2007. The financial results were released this afternoon at 1:05 pm Pacific Time. A copy of the news release is available on Business Wire and on our website at www.appliedmaterials.com. Today's earnings call contain forward-looking statements, including those relating to Applied's performance, technology leadership, growth opportunities, operating efficiencies, tax rate, cash generation and deployment, restructuring activities, financial targets, our customers' fab utilization trends and capital spending and the outlook for semiconductor, display and solar industries. Our forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially 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 February 13, 2007 and the company assumes no obligation to update such statements. Today's call also contains non-GAAP financial measures, 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 page of our website. George Davis will open the call with a discussion of our financial performance for the first fiscal quarter. After George, Mike will highlight the current industry environment and the company progress. George will close our commentary with our targets for the second fiscal quarter of 2007. After these remarks we will open the call for questions. With that I…

Thanks George, and good afternoon. Our first quarter results demonstrate our success in meeting our operational objectives even in a challenging environment. At this point in the year, we are where we thought we would be, and I remain confident that our team will execute effectively throughout the year and deliver on the results we forecast for 2007. Let me begin with some comments about the business environment. In our Fab Solutions segment, the semiconductor industry is experiencing a seasonal slowdown as anticipated. Wafer starts drop during the quarter with fab utilization in logic and foundry fabs approaching 80%, which is slightly lower than we had anticipated. The lower levels of fab utilization to a downward pressure on spares and service revenue. We expect to return to revenue growth in Q2, as fab loadings bottom out and begin to increase and ramp through the remainder of the year. Wafer start outlook is good for 2007 projected at 8% to 10% growth. And our Fab Solutions results are expected to exceed that level. Our Silicon segment bookings were up in Q1 and we expect them to grow again in Q2. Memory orders were strong demonstrating the success of our new products that are growing share in this critical market segment. We expect our overall memory business to remain relatively strong and balanced over the year with NAND flash growing in the second half. As we look out over the next three years, we see more than 20 new memory fabs being planned for production enabling new applications for both DRAM and flash to replace disk drives and enhance user experience in cell phones, PCs and game platforms. The foundries, however, continue to hold back on capital investment and are very much in the bottom of the trough at only 11% of…

Thank you, Mike. Our targets for the second quarter reflect the industry dynamics that Mike just discussed. With that as a foundation, we expect orders to be up in the range of 2% to 7%. We expect revenue to be flat to up 5%. We expect EPS to be in the range of $0.27 to $0.28, with a tax rate assumption of approximately 34%. These targets do not include the effects or the impacts associated with the announced closure of our implant operations in the United Kingdom, or the costs incurred as a result of a comprehensive move to managed services in our IT function and some additional minor costs for operational efficiency improvements. The total cost of these initiatives is expected to be in the range of $105 million to $145 million, and will be expensed over the next few quarters. Thank you. And Randy, let's now open the call for questions.

This completes our prepared remarks we will now begin our question-and-answer session. Operator let's begin with the first question please.

Our first question comes from the line of Jay Deahna with J.P. Morgan

Thank you, congratulations on your execution there Mike, George, couple of questions. First of all on the cycle -- we've heard some of your competitors characterize it as the memory is front half loaded and IDM and foundry comeback in second half. Just wondering to what extent you see the foundry, any idea if it's coming back. You said flash might be backend loaded as well. Just wondering whether you see kind of shipments being higher in the second half of the calendar year than the first half and what is the risk in memory in the first half? That's the first question. Then the second question is, Intel and IBM recently made some announcements about metal gates, potentially coming in at 45 nanometers, just wondering if you can explain what that means for Applied Materials? Thank you.

Sure. Jay, well I think you asked more than a couple. At any rate, on the -- a few comments on how the memory foundry -- how we view that. Right now as you could tell from George's comments, the front half of our year is very DRAM intensive and 50% of our orders were DRAM. We are shipping heavily to the DRAM manufacturers. That seems to be going along. We expect DRAM to phase down a little bit going into our second half and a few very big flash projects to go through and that's really what we are counting on. We do expect foundry to come back. It has been trending down over the last three quarters. Last quarter if you recall it was 16% of our orders, this quarter it's 11%. I don't think I can get a whole lot lower, we are seeing some signs now that there are some 65 nanometer and 45 nanometer buys. We see roughly 300 -- almost 300 new 65 nanometer designs in the foundries and that's usually the point where the volume really starts to take off. So, we are pretty confident about the foundries coming back in the second half of the year, it just depends how much. And if they spend what they say they were going to do, we will meet our objectives for the year. You asked at the end of your question there about risk in the first half. For us I see very little risk in the first half, we are building to commitments and shipping our mix here for the next 13 weeks. I don't think we see much risk there. As far as high-k metal gates and what it means for us by metal gates, I think we are in very-very good position, not only with those two customers, but we've been doing our own R&D in this area and working with customers across the industry. I think we are going to see accelerated adoption here and I think we will win all the metal gates, high-k dielectrics I think is -- high-k dielectrics is a story where we have very good technology as well and you will see us be strong as more and more companies announce their capability in that area.

Mike is that a situation where a batch oxide deposition could -- from one of your competitors could transition into a single wafer tool sold by Applied?

It mostly, Jay, in the dielectric area we have a very-very strong share with our DPM product. So, where we see some potential changeover, maybe in the memory area, where most of the capacitor dielectrics are done in a batch system. But, I think most of the people who are working on advanced logic are using single wafer for this layer today.

Okay, thanks Mike.

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

Hi, thanks for taking my call. Mike, I am totally with you in thinking that the memory guys have to spend a lot between now and 2008 in terms of trying to hit their opportunities. But, if I look at the pricing in the memory market more recently, particularly focusing on DRAM. It has been down more like 25% to 30% in just the last six weeks and in all debatable with what's really going on. But, when you are saying that you don't see much risk for memory in the first half, is that based on what you are hearing from your customers today? Are you handicapping that to any extent for the big memory prices?

We have to look at the memory pricing over a little bit longer-term, and if you look back to 2006, DRAM prices were incredibly strong, I think probably set a record for strength. And so seeing 20% plus downside here in the first part of 2007, I don't think is very surprising at all as some additional capacity comes on. But I think people are going to continue to put on this capacity with the projected big growth as the conversion to Vista occurs. And I think there has been a lot written lately about Vista hasn't spurred any increased demand in PCs, I don't think it would. I do think that it will spur increased growth in DRAMs and PCs over the year as more and more of the computers are incorporated with Vista onboard and the experience improves with utilizing increased DRAM onboard with those machines. So that's our view, and I think that's going to drive an awful lot of bit growth in DRAM in the second half of the year. Also if you look at the DRAM makers' profitability also set records last year. I think they have a lot of room to move down in pricing without much affecting their profitability.

Okay. Specifically looking out into the April quarter, when you are guiding up for bookings. What are you assuming for Silicon bookings and within Silicon what's the assumption for Memory and Logic and Foundry?

Yes. Satya, hi, this is George. We are not going to be guiding on a segment basis. So overall I think the general industry trends that we talked about are going to have to suffice.

Okay. Thank you

Our next question comes from the line of Tim Arcuri with Citigroup

Hi guys, couple of things. First of all, if I listen to your biggest customers in the memory space and I listened to their public conferences calls last month, they pretty strongly indicated that the CapEx would be front-half loaded this year by about two to one and since then NAND pricing has gotten worse than what they even thought it would be in Q1. And of course as the prior question indicated, DRAM price was worse as well. But do you see memory splitting being more balanced for the year, so you don't actually agree with what they said, is that kind of what I should read from this?

You should take our call -- Tim you should take our comments on our fiscal year and the way we see our revenue playing out here in our delivery discussions with them, we think that over the year, it's going to be pretty balanced. DRAM will be loaded in the front-half and more flash in the second half.

Okay. I guess then, just as a follow-up, George. If you are not going to give out what silicon orders will be in the April quarter, which is embedded in your up two to seven. You did say that silicon orders would be up, is that right? And I just want to confirm that also that means that memory orders will be up as well?

Yeah I think that's right. Tim, you can assume -- one thing that you are going to assume is our AGS orders will follow their traditional seasonal pattern with Q1 being by far the highest quarter.

Okay guys, thanks.

Our next question comes from the line of Stephen Chin with UBS

Okay, hi thank you. So Mike, is it fair to assume that you think that just January quarter was the trough order quarter in this cycle? I guess that's my first question.

Well I believe it was certainly trough orders for logic and foundries. Yes.

Okay and --

And Display.

Yeah, and display thanks.

Okay. Fair enough. And then, could you please share with us what your estimates for 2007 semiconductor CapEx could be? And do you think AMAT can grow faster than that?

Sure. We think semiconductor CapEx is going to be roughly a little over 4% increase year-over-year. We think WFE will grow a little faster than that, closer to 6. So, pick a small range there. And then we think Applied Materials will grow faster than that, primarily because during the last year and half we've gained an awful lot of share in the memory area and we are gaining node-to-node. So as 65 nanometer builds out and 45 nanometer starts to get a little bit beyond the R&D stage, I think we'll see positive effects.

Great, thank you.

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

I was wondering if you could talk a little bit about -- more about the dynamics of logic trends. We've talked about some of the memory trends, but how do you see that playing out as the year unfolds?

What we think you want is calendar Q1 will be the bottoming out of the utilization fall. We have seen it fall to 80% and probably go a little bit below that before it starts to come back in particular, in the foundries. But then I believe with a number of products, and you've heard announcements in the last few days from the likes of QUALCOMM and Broadcom how they are moving their product line to 65 nanometer. We think that build out of the 65 nanometer and ramp-up of those products is going to help drive the rest of the year for the foundries. And really that will be the thing that gets them to spend their projected capital that they've talked about earlier in the year. As far as logic -- as the big logic players go there, they seem to be dwindling as more companies announce that they're going to depend more on foundries. That kind of -- that will also help push more volume to the foundries as well. But we see the two big logic makers continuing on their plans to spend their capital. And we think that will be more balanced over the year.

Okay. And then secondly, do you see any lasting cost benefit from the Horsham shutdown? In other words, any financial benefit that goes beyond the one-time charges you've talked about?

Hi, this is George. Yes we certainly do. Clearly that business was going to be operating at a loss this year and based on the investment that would have been required competitively, it would have been operating at a loss for at least the next few years after that as well. So, in essence, that's an avoidance obviously you have the cost structure associated with that as well, that was talked about in the release.

Great, thank you.

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

Hi, good afternoon. Mike, you talked a lot about the chip design and tape-out activity at 65 nanometers and we have seen quite a few of the leading fabless semiconductor companies, as you mentioned, making aggressive moves to that technology node. My guess is that with the design cycle times as they are, the foundries will need more capacities to put all these tape-outs by the middle of this year. And so with that in mind are you expecting the foundry order contribution for 65 nanometer in the April quarter to be up significantly, or is that more of a July quarter ramp?

We believe it will be up in this quarter, but we believe it will be up modestly and then we think it will be strong in our July quarter -- our quarter that ends in July.

Okay, great. And along those same lines, do you still expect memory to represent about 50% to 60% of the semi-product mix for the foreseeable future or do the foundry and logic guys start to increase as a part of the mix, second half?

Our current projection, Harlan, is for -- for memory spending this year to be about half of the overall WFE spending. And obviously when you look at the overall mix that the percentages are higher in the front half because foundry and logic is so relatively low. So, I think that covers it.

Okay great. And then question for you George. With the reestablishment of the R&D tax credit, I thought your tax rate would have dropped by a percent or two but you are guiding 34%, is that correct going forward?

Yeah it's -- the R&D tax credit Harlan, is a little less than 1% benefit for us and so obviously we have -- we will have the full year effect of the refund spread out over the year, but that was all taken in the first quarter.

Got it. And what was responsible for the -- just last question, what was responsible for the lower than expected tax rate in the first quarter?

In Q1, we had a settlement of some prior years Federal Tax Audits that resulted in about a four point impact on our tax rate and again about $0.02 per share on EPS.

Great, thank you very much.

You're welcome.

Our next question comes from the line of Gary Hsueh with CIBC World Markets

Hi guys. I am going to switch gears a little bit here and focus down on cost. You guys have done a pretty good job here in Q1 on renting and cost, if I look at your Silicon business, your core business, you are hitting around 35% gross margin and if I look at a comparable run-rate in the last fiscal year, you are 200 basis points lower. So you are obviously doing something in the right direction in your core Silicon business. Now, I just wanted to ask a quick question George, it sounds like a lot of the equity compensation seems to have affected or benefited in the quarter, the unallocated costs. Just wondering what specifically drove margins up in the silicon business in Q1, whether the shutdowns or anything else that you might be doing. And a follow-up to that would be, at the current $1500 million revenue run-rate throughout the rest this year, given that you are cutting the ion implant business. How much can you grow margins with that sort of flattish revenues?

Yeah, let me just talk about the cost picture in general and again we don't break out gross margin by saying that, but I think the answer is instructive across all of our groups. First of, in the first quarter we knew that revenue was going to be down for the quarter. So, its going to be a little bit of a challenging quarter. So, across the Board, cost controls were put into place and these are cost cutting in addition to shutdown. But, longer-term we also have a number of initiatives that you are aware of, will be in manufacturing and their moves to modular tests and the merge and transit. Obviously, we constantly are working on lowering our material costs, which also impacts gross margin and in particular for Silicon and for Fab Solutions. And then on the OpEx side, we are actually in an investment mode right now on business transformation. So, we will be investing in that and you see that, that shows up in unallocated expenses in '07, but we expect to start to see the real benefits from that in '08. So in general, in a period particularly -- quarter where we were challenged like Q1, we are going to be very cost conscious, which means we have to be very thoughtful about it. But at the same time, we are going to continue to invest in the new product introductions that Mike talked about and other strategic priorities of the company.

George, I guess my question was that, basically the knife on AMAT has been that its going straight from its former financial target and now you've had one quarter where it looks like you are making up or gaining some lost ground there. Are you going be able to kind of give us some targets here by the different segments in terms of revenue run-rate and what your targeted operating margins should be in those businesses? I think that would be pretty helpful?

As you noted, we are right on model this quarter. But I think the -- I mean you have to take into account that the model when it was established, the company had a very different mix, it had a different capital structure, and it didn't take in to account anything -- it didn't have a option expensing in place. And so, one of the things that people struggle with is, doing the adjustments to the model. But the fact to the matter is segment reporting really makes the comparison to the old model less relevant. You have far more visibility into the business than you've had, and I don't think we intend to put targets out for each segment. But rather I think it gives you -- you'll have an opportunity to really see how the segments improve overtime, and I think that will be the indicator whether the improvements that we are driving through the organization are making it to the bottom-line which is a key priority for me.

Okay. And finally George, if I just can try and pin you down here on operating margins for the Silicon business, you hit 35% operating margins. Now if revenues were to be flat at the current $1.5 billion and you are cutting your implant business. Just on cutting the implant business, how much more could you see your operating margin expand off 35% in Q1?

And Gary, we'll have a lot better view of that after we go through the process of evaluating all of our customer commitments and working with our customers over this quarter as we wind down Horsham. Why don't we talk about this next quarter?

Alright, perfect. Thank you so much.

You bet.

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

Good afternoon. Just a follow-up on the -- it sound like that the cost savings from shutting down Horsham and changing the ion implant business, aren't necessarily built in sort of to the forecast yet?

That's correct.

Okay. And then if you look at the process you went through in deciding to shutdown the ion implant development Mike, are there other product lines that you think might not be meeting your hurdle rates going forward or is that pretty much yet?

Well we don't -- we are not going to make any announcements today Brett. We made one I think that's -- that kept us pretty busy, but we are looking at all of our underperforming businesses and evaluating their strategic position in the company and whether we think that they can grown and be significant contributors to the overall company and to our shareholders. So I don't have much to say on that other than we are going to use the same kind of process and we are using that same kind of process to evaluate every one of our businesses.

Very good thing --?

And that applies to our products as well, we are taking a look at whether or not a new product investment is likely to provide a sufficient return.

Now this is a good thing, George is driving throughout the company. So you can expect kind of better performance or else kind of --

Thank you.

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

Hi Mike. In the press release today, there was a comment attributed to you, and I think you mentioned again on this call that you felt that the implant market had moved towards commoditization. Can you explain what this means and how the implant segment would be any different than the other segments of the cap equipments space, say at your planarization or deposition?

Well ion implant is -- I think there is very little differentiation between the five suppliers in the market, and everybody can accelerate ions and embed them in Silicon in relatively similar ways. The difference between almost any other area is the other areas are very application intensive and whether that -- just an example in our CVD area, advanced patterning films or stressed nitride, these kind of things are very difficult, very interactive. And unlike implant, where you can see prices under pressure and the end market not getting the kind of gross margins that we would expect short-term or long-term.

I was just wondering there, if the products are so much alike, wouldn't there be equal market share then across all the competitors there?

Then it get's down to who is really in pricing games. So -- but that's what it ends up being.

Mark, this is George. I think also if you just look historically at the financial returns for all the players within the implant segment. I think it kind of supports that view as well.

Okay, let me see. Also in that press release today, the only location that was mentioned was Horsham. Is there going to be any changes to your implant activities at Beverly, Massachusetts?

Well Beverly is incorporated into the overall implant division that's correct, so there will be changes there as well.

Okay. And then just the last thing there, on the release also you only discussed beamline architectures. Does this suggest here that Applied has not given up on its non-beam technologies?

Yes that's correct.

Thank you so much.

Also I want to add, we have a very healthy and growing service business -- service and spares business that's supporting implant and that will continue.

Our next question comes from the line of Robert Maire with Needham.

Yes, by the way congratulations on some nice numbers. Two questions, given that we've gone through what to me appears at least to be a relatively benign down cycles, you can call it a down cycle really more like a soft period. And the upper part of the cycle was relatively benign as well. Are we moving into a sort of a new period here where the delta between the peak operating revenue is off by perhaps 20% 30% from what we would experience during the weak period as compared to the bad old days when we had 60%, 70%, 80% variations?

I guess I would answer the question in two different ways Robert. In this particular part of the cycle that we've -- let's just kind of go back over the last few quarters. The downside and the depth of the trough of the foundries have been massed by continued investment by the memory manufacturers, and a significant growth in the memory manufacturers. So, I think that in part, the trough has been massed. Now, lots of things have happened in the industry, including shorter lead-times, better management of inventory. All those kind of elements that help mute the peaks and the troughs. I think because we see better management in our customers, we are trying to do a better job of running our operations and being more responsive in allowing our customers to add capacity quicker. So, I do think that peaks and troughs will be muted. I don't know how to give you an estimate, if we take a look at 2005 to 2006. I think that -- and then 2007, I think 2005 capital spending was off 10%, but it wasn't off as much because memory was spending more. 2006 was up 25%, nominally 20% to 25%, but that was probably up a little more than we might think, because memories were spending and then at the end of the year it massed the troughs. So, I think once we get through this big growth cycle in memory, we will be able to tell. I do expect peaks and troughs to be more muted. But hard to judge whether that means plus or minus 20%. I am much more apt to think it's in that range than plus or minus 60 or bigger percentages that we saw in the past.

Okay. And the other question was, in terms of the assets from Horsham and your beamline implant, any potential thoughts about selling any of those assets or would you be holding on to those, given perhaps other technologies or any disposition of those?

Sure, hi Rob, it's George. Our view on that is it's really a function of -- we needed to take action today we felt and going down a path of selling or an acquisition just was inconsistent with that time table, but that's certainly something that we can consider overtime. Our key thing is to meet our customer requirements and to make sure that commitments that we made are fully met and their needs going forward are anticipated. Once we get through that process and are obviously making sure that our employees are treated as fairly as possible. Then we can consider some other alternatives.

Okay, great. Thank you, congrats again.

Thanks.

Our next question comes from the line of Jim Covello with Goldman Sachs.

Hi, this is [Kate Kozlowski] on behalf of Jim Covello. Most of my questions have been answered, but I was hoping to get a clarification in terms of what your non-GAAP gross margins were during the quarter? I noticed there was 13 million items associated with the write-up of the inventory fair value. I was wondering if that's something we should be taking out of the gross margin line?

Yeah, I would say that the impact on gross margin was less than half a point from acquisition activities.

Okay. And then just one other question. In terms of your services bookings, how did that do quarter-over-quarter compared to your product bookings?

Service bookings were up. Again the service business has their peak orders in Q1, whilst customers renew their service contracts. Silicon orders were also up but to a lesser extent.

Okay, thank you.

Our next question comes from the line of Mark Fitzgerald with Banc of America.

Thanks. The guidance about the $200 million in bookings in for the Solar business, is that into the traditional Solar markets or is there evidence here that this amorphous Silicon application that you guys have been working on is taking off?

That $200 million will be mostly -- if not all, in flat -- in thin film amorphous silicon. We will and we already do have orders for nitride deposition systems for the crystalline silicon. But we are very focused on thin film solar cells which we think will drive cost down, Mark. So we are excited about that.

Hey Mark, it's George. Just let me add one point to that, you used the term bookings. So we have been very careful to use the term contracts. These are -- this is a new market that we are entering and new business models will be used and so we are not using the term bookings, we are really reflecting to contractual commitments that we make with customers.

Okay. And just a follow-on to that. In this -- the contract that you guys have written here, is there any evidence that people -- that this -- what you are selling here is into these large megawatt facilities that somebody is actually putting in other than development [minds] your capacity for this amorphous silicon application?

No, this will be real capacity Mark. In fact one of the things that we -- one of the indicators we intend to give you as we start mounting these up is how many megawatts of capacity we have sold. In my mind, this is kind of the measure of how much progress there we will be making over the year. So you can look forward to us, keeping a running indicator on how many megawatts of solar power we are selling.

Okay. And then just one quick follow-up question here, on the share count for your EPS, for the guidance here what are you using?

We are not giving a guidance, I can give you the weighted average shares for the quarter if that would be helpful?

For the April quarter?

No for the January quarter?

Okay I have got that one. I am sorry, okay.

Okay.

We have to buy the shares back first Mark. Well I am not sure how many, but we have got a range.

We have said 300 million to 400 million in shares.

Our next question comes from the line of Steven O'Rourke with Deutsche Bank Securities.

Thank you. What drove the Silicon segment backlog adjustments, and can you quantify what they were?

Most of the adjustments were deep bookings, and so again just being pushed outside, we had minor cancellations, about 25 million in cancellations, which was split between the Silicon business and the [refer] business in our Fab Solutions.

Can you say what segments? Was this a memory segment, was it logic, foundry or --?

No we don't break it out to that level of detail.

Okay. And one other follow-up. On the 45 nanometer metal gates, is there a way to quantify the incremental opportunity per fab that Applied Materials can address?

It's a little bit difficult, I haven't really done it in the average of a 30,000 wafer fab, but you can expect that there will be a different system for P-channel transistors, different systems for N-channel transistors as these products start to move out into production.

Fair enough, thank you.

Our next question comes from the line of Mehdi Hosseini with FBR .

Yes, thank you for taking my question. Two, one is a follow-up. Mike in your prepared remarks, you were talking about the one large flash order that could possibly materialize in the second half of calendar year. Could you give us some idea as to what are the milestones for these large orders to actually take place? Is that mostly driven by a strategic investment or is something else out there? And then also the markets in the Silicon business, the markets still are strong, I assume CVD, PVD. What is the growth projection you are seeing if the WFE is going to grow at 6% plus this year? Would you expect a double digit growth out of the CVD, PVD segments?

Well we don't really give that kind of projection down to the product level. But on your first question Mehdi the -- actually what I said was there were several orders. A small number of major factor of flash factories are going in, in the second half of the year and that's really where -- what we are counting on is the three big flash guys, I don't think there is any secret about who they are or where their big fabs are. We are expecting them to -- those three companies to continue their capacity expansion as planned. So I don't think its any more fancy than that. I will say that we do expect CVD to continue to grow faster than the overall WFE market by a substantial amount. As there is so many more applications coming in the CVD space.

Okay. And then going back to the flash commentary, Micron was talking about maybe as much as a 40% reduction in the dye costs, but they have to get their fab capacity up to 40-k to 50-k per month. And so to that extent, these three flash projects that are scheduled for second half, it seems to me is more a strategic and as long as flash prices don't drop to zero or less than zero, they are going to go ahead and execute that. Could you share your opinion on that?

I believe they are going to execute their plans. I don't know that I would use the word strategic, these companies are very competitive and hard driving, trying to capture share in a fast growing mark. At least the unit is -- at least units are fast growing. We still expect that growth to be 150% this year, so as still our thought process I think that's much the thought process of many other customers and why they are investing.

Okay, thank you.

Excuse me, operator, we have time for one more question.

Okay. Our last question comes from the line of Patrick Ho with Stifel Nicolaus.

Thanks a lot. You answered a lot of my questions already, but hearing from some of your competitors this earning season about near-term order trends, some of which are guiding flat to down sequentially. Can some of your upside be attributed to your strength or your better than expected market share gains, particularly in the memory market. Am I correct to assume that?

Patrick we believe that you would be correct in assuming that, that if we look back to 2005, our share in memories was -- I don't want to use the word dismal, but maybe it's the best description and we have worked very hard on the applications that are affective for the memory makers. We have actually made more progress with the flash manufacturers than the DRAM manufacturers, but we have made very-very good progress there as well.

Okay great, and I guess as a follow-up to the market share story is this also correct to assume that you remain highly leveraged to the foundry group and once they pickup their spending trends as you are forecasting, perhaps in the second half of this calendar year. That should also allow you guys to benefit from that recovery?

Yes we feel like we have maintained and even strengthened our position with the foundries a bit. We have invested and worked hard in particular with the IBM group and invested in Albany. We have very solid and strong relationship with DSMC, UMC Chartered and SMIC. So, if they comeback in the second half in the year in a way we expect, it should be very positive for us.

Great, thank you.

Thank you. We would like to thank you all for joining us today. We would also like to remind you that there will be a replay of this call available to you on our website beginning at 5:00 pm today, and will be there and remain posted until February 28. Thank you for your interest in Applied Materials this concludes our call.

This concludes today's conference call, you may now disconnect.