Good afternoon and thank you for standing by. Welcome to the Applied Materials second quarter fiscal year 2007 earnings conference call. (Operator Instructions) I would now like to turn the conference over to Mr. Randy Bane, Vice President of Investor Relations for Applied Materials. Please go ahead, sir.

Thank you, Marvin. Good afternoon and welcome to Applied Materials' fiscal 2007 second 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 April 29, 2007. The financial results were released this afternoon at 1:05 p.m. Pacific Time. A copy of the news release is available on business wire and on our website, appliedmaterials.com. You can also access our slide presentation supporting today’s discussion on the investor relations section of our site. Today’s earnings call contains forward-looking statements including those relating to Applied’s performance, technology leadership, growth opportunities, costs, integration of acquired businesses, cash generation and deployment, strategic position, our solar business, financial targets, customers’ capital spending and fab utilization trends, and the outlook for the semiconductor, display and solar industries. All 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 containing 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 May 15, 2007 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 page of our website. George Davis will lead the call with a discussion of our financial performance for the second quarter. Mike will follow with the highlights on the current industry environment and company progress. George will close our commentary with our targets for the third fiscal quarter of 2007. After these remarks, we will open the call for questions. With that, I would like to turn the call over to George. George.

Thank you, Randy. Good afternoon, everyone. Applied Materials' Q2 results were strong. We exceeded the targets set for revenue and earnings per share and were within targets for orders. This quarter was a continuation of the memory story, in particular DRAM, as manufacturers added capacity in line with end market demand. Our fab solutions business continued its steady growth and display customers remained on the sidelines during the quarter, although Q2 clearly signaled the move off what we believe to be the bottom in display orders experienced in Q1. During the quarter, we also announced the signing of multiple solar contracts, a significant emerging market for our nano manufacturing technology. In line with our guidance, overall orders increased 4% to $2.65 billion, driven primarily by strength from DRAM and flash memory customers in our silicon segment, offset by continuing weakness from our display customers. Q2 ending backlog was $3.67 billion, driven mainly by increased silicon segment orders. The cancellations and adjustments of $42 million were partially offset by increases to backlog from the Brooks Software acquisition totaling $31 million. Our ending backlog does not yet include amounts for the announced solar contracts. Revenue increased 11% over Q1, significantly exceeding our target and reflecting our improved position in memory. In particular, strong demand for silicon systems drove increased business in etch, front-end products, inspection, and thin films. Gross margin was just under 45% and included charges of $50 million related to our previously announced decision to cease development of Beamline implant products. The implant charges equate to about two points of gross margin. We are supporting our customers’ needs for implant products and adjusting inventory balances in line with demand. Future costs for implant are estimated at $25 million to $35 million for infrastructure and employee related costs. These costs will…

Thank you, George. Good afternoon. As George summarized, this was a strong quarter for Applied Materials, particularly in our silicon segment, which drove 13% revenue growth year over year. We also successfully completed the integration process for Applied Films, made great strides in establishing our solar business, and closed the acquisition of Brooks Software. From a financial perspective, we performed well while at the same time expanded our strategic opportunities to improve growth and performance. Let’s start with a look at the key areas of progress in the silicon segment. According to both Gardner and VLSI Research, we achieved market share growth across a broad set of our products. This was a strategic objective for the company, to win through technology differentiation by driving leading edge process innovations for patterning and transistor performance. I would like to highlight a few areas of improvement. We grew our position in etch, where multiple memory application wins in the dielectric area have enabled over five points of share gains. We expect strong growth in etch revenue at a rate of 25% to 30% in 2007, and to grow our share with our new silicon and metal etch products. In CVD and PVD, we made great strides. Our high aspect ratio, or HARP films, are replacing traditional HDP films because they deliver superior performance. Logic and foundry customers are increasing their use of HARP films in strain engineering to improve transistor performance and our PVD solutions to achieve superior interconnect. Today, we announced Celera, our next generation CVD stress nitride product that will further improve transistor performance by creating dramatically increased levels of strain not achievable in the past. In addition, we are quite pleased about the traction of the producer GT platform, where in just two quarters we have placed 60 systems in…

Thank you, Mike. Our targets for the third quarter reflect the industry dynamics that Mike just summarized. With that as a foundation, we expect orders to decline in the range of 10% to 15%. We expect revenue to be within the range of flat to plus or minus 2%, and we expect EPS to be up modestly $0.30 to $0.32. Thank you, and Randy, let’s now open the call for questions.

Operator, let’s begin with the first question.

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

Thanks very much. Mike, it sounds like you are talking about a little bit of a I guess you could say a moderation in the rate of recovery in the cycle. I’m just wondering what you see beyond the July quarter, as inventories further deplete in logic potentially and when do you see the likelihood of pricing changing in DRAM? Just kind of getting a sense -- are we just kind of moving the recovery out of quarter or what do you see happening out there on the semiconductor side of things?

Well, it’s a little bit hard to say what’s going to happen beyond this next quarter with so many parts moving around right now, Jay. DRAM pricing has continued to go down but bit growth has been at a very, very high level in the first part of the year at something like 80% year over year. Right now, we think the DRAM is pretty much where we thought it would be. In fact, overall memory is pretty much where we thought it would be. What is a little bit different for us right now is foundry has not come back as quickly as we thought it would, and that we’re really going to be monitoring on a day-by-day, week-by-week basis here over the next quarter. Foundry was up last quarter but not nearly what we thought. It will be up again this quarter and the question is, is it really going to meet the numbers that the foundry companies have put out there for their CapEx spending?

Just as a follow-up, Mike, there was some commentary last week suggesting that Intel was cutting its CapEx, your former employer. I presume you have some insights there. I’m just wondering if you want to generally talk about microprocessors, what are you looking at in terms of spending expectations this year, next year? Assuming that AMD’s Barcelona is competitive, how does that impact it? Does that create an arms race? And if it’s not competitive, then Intel takes its foot off the gas pedal? What do you see the outlook for processor spending?

Well, I’m not going to -- it gets down to some pretty specific customers here. Maybe I can talk about the market. The situation with microprocessors, as you know, has been a very, very tough war on an architectural basis. We see growth continuing in that space pretty much as we had said last time, in the high single digits up to 10% or so. It is too early to tell about AMD’s product. AMD was clearly stronger a littler more than a year ago. Intel has come back. Will AMD’s product really take off? Hard to tell for us at this point but we do see increased efficiency in the microprocessor fabs. That’s been improving for most companies over the last year.

So if you wrap that together, what’s your outlook for processor spending this year and next?

CapEx spending, it gets down to two companies. I’m going to hesitate giving you our number on that.

Thank you.

Operator, next question, please.

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

Last quarter, Mike I think that you were a little more optimistic on what bookings would do through the rest of this year. Now we have seen some push-outs from some pretty significant customers. As you look out into the back-half of the year, on a real-time basis is the silicon business, is it continuing to deteriorate? It would seem that there have been a lot of push-outs that are impacting the third quarter so that maybe things even get worse in the third quarter before they get better. Can you talk generally about what the real-time trend is in the silicon business? Thanks.

Well, obviously this number is our real-time assessment since we were on the call today. We said down 10% to 15% and that’s with a background of display certainly being off its bottom, so you can judge where it is. I don’t think we have a good picture of what it’s going to be like in the fourth quarter at this point. I think in the fourth quarter again it will really depend on how strong memory stays. We think the investments are going to continue there, so then it really gets down to whether the foundry and logic guys are going to make their spending for the second-half of the year.

If I just quickly run some numbers, Mike, it looks like silicon business, silicon bookings guided down maybe 20% roughly sequentially, which would be embedded in your down 10% to 15% overall number. Is that the right way to think about it?

Well, larger than our 10% to 15% number, yes. We are not giving guidance by segment but you know how to add up the numbers.

Yes, okay. Thanks, Mike.

Operator.

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

Thanks for taking my question. I just wanted to touch upon gross margins a little bit. Excluding the implant charges, gross margins appear to have increased 30 basis points and revenue is about 11%. It seems like incremental margins might have been a bit lower than I would have thought. Could you talk about what was driving that? Does it have anything to do with the mix shifting more towards memory?

I think what you are seeing there -- your math is right. Gross margin would have been up with pulling out the implant charges. I think overall you had some mix issues going on there that had an impact, but really it is -- I don’t think there’s any real story on the gross margin side other than it was up modestly with the pick-up in revenue, and then you have some impact obviously on the display side and what’s going on there. That’s what really had the most significant impact on the downside.

Okay, and just a quick follow-up; I get the same math if silicon orders down 20%, if I assume that most of that decline is coming from memory, I get memory down more than 30% sequentially. Obviously a big chunk of that is probably coming from DRAM. I just wanted to understand how you are recognizing bookings from the solar part. You talked about taking up that portion of $400 million. Is any of that going to flow through into bookings in the October or January quarters?

No. That’s a good question. The outlook for bookings really starts in the first part of ’08, so right now we will be talking about these in terms of the signing of contracts. But we will get to the point where we will be within a bookings window around the first part of ’08.

Thank you.

Our next question comes from the line of Robert Maire with Needham. Robert Maire - Needham & Company: Just to follow on a previous question, in terms of fab projects that are out there in the memory market, would you say the number of projects out there is coming down or remaining the same, just timing changing? In terms of similar overall industry positioning for foundries, is most of the foundry orders that you were hoping for primarily expansions and upgrades? If you could just give us a little more granularity on new versus upgrade in the segments.

In the memory area, the number of projects is actually going up. The timing of how these get completed I think is always a question but the DRAM guys continue to invest as bit growth grows. Still a huge amount of the capacity is on 200-millimeter, someplace between 40% and 50% of the capacity on 200-millimeter. We are expecting over the next couple of generations that we will need at least 10 to 12 new factories to take over the total 200-millimeter capacity that is currently in flash and in DRAM. So the DRAM projects continue to grow and they continue to create new ones. Foundry right now is much more filling in capacity that’s open in buildings around the various four or five foundry companies that you would track in a group. Robert Maire - Needham & Company: Just as a follow-on to that for a little more detail, is there an inflection point at a particular price at which 200-millimeter memory capacity will come offline or 200-millimeter fabs become less viable, so to speak? Are we at the $2 price or $1.75 price, or is there some way to look to see out in the future where the inflection would be of the memory industry shifting at a faster pace to 300?

We haven’t looked at it from a pricing standpoint. We look at it more from a technology standpoint, Robert. These technologies keep shifting and 200-millimeter really isn’t cost competitive in the 55-nanometer range and beyond, so it just kind of runs out of gas and especially in the flash area where the technologies have been moving so rapidly to the leading edge, really driving technology now. We think those older 200-millimeter fabs are going to run out of economic steam fairly quickly. Our prediction is over the next two generations of technology. Robert Maire - Needham & Company: Thank you.

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

Thanks a lot. Mike, can you just give a little more color in terms of the order flow between this past quarter and the outlook? Would it be fair to characterize that in terms of the industry, you guys obviously provided better-than-expected guidance last quarter versus the industry and this quarter, it seems like it is down a little more. Could you just -- is it more timing of when these orders came in and that’s why you are seeing a little bit of the deviation between 2Q and 3Q?

Well, a little bit of it is but really I think most of it is what is happening with DRAM and the foundry companies. From our standpoint, really the whole memory area is not really any different than we thought in general. It is really the foundry guys that are not coming back as fast as we had anticipated earlier. You can see how little change there was in our Q2 book. You’d look at that and if you are examining our Q2 bookings, obviously display wasn’t as strong as we would have liked to have seen it and memory was probably a little bit stronger than we expected and foundries substantially weaker.

Okay, and I guess the final question in terms of the foundries, you mentioned that a lot of these are filling capacity buys. I guess the leading foundry out there is migrating over to 65-nanometers. Is there any issue there with their yields that is causing them to delay or is it some other factor that is causing them I guess to slow down their new order intakes?

I don’t think it is yield, particularly. It is just how many new products they have and whether they are winning the business at 65-nanometer and the projection is on how much capacity they need. The number of products continues to go up. There is now something like over -- something close to 450 65-nanometer products being tracked. About a quarter of those are approaching production and that will accelerate quarter after quarter, so I don’t think there’s anything fundamental there. It is just a matter of how fast the capacity is going to ramp.

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

Good afternoon. Mike, you spent a lot of time talking about DRAM. Do you still see NAND as a meaningful contributor in the second-half of this year?

Yes, of course. In fact, NAND I said would be up in the quarter in orders, so it becomes even more significant with DRAM down.

Okay, and then as it relates to your order guidance in the silicon business, can you just maybe give us a rough order mix as a percentage by segment type -- memory, logic, DRAM and foundry in the July quarter?

We are -- I think the story is pretty much DRAM coming down, foundry not moving much, NAND picking up some of the slack and logic pretty much has been pretty stable throughout the year and we don’t see any change in that pattern. So overall, that’s about as much guidance as we can give on a segment basis.

Got it. George, your services revenues were up about 4% sequentially, yet operating margins were down about 200 basis points. It sounds like there were some IPRD charges embedded within expenses and some transition costs to Asia, so how long are both of these going to pressure services operating margins going forward, do you think?

I don’t think you are going to see a lot of pressure built in. If you look at what fab solutions operating profit would have been without those charges, it would have been over 27%. I think that’s in line with their operating model. I think what you are really seeing again is just the impact of the fact that their customers are experiencing low utilization rates and that’s impacting the mix of products that they are asking the fab solutions folks to provide. I don’t think there’s really any change in the business model there at all.

Thinking about the July quarter, do you expect operating margins to actually improve, as I would think utilization begins to improve in Q2?

I think they should improve from where they were, certainly where they were in Q2.

Okay, great. Thank you.

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

Good afternoon. Mike, I was wondering if you could clarify two things; on the etch market, your comment that it could grow 25% to 30% this year, could you break that down for us in terms of what you think would be market share gains versus is there actually market growth going on in the etch market?

Was there another thing, Brett, or do you want to ask it after I get done with this one?

The other question was unrelated, was on the flat panel side. I think George said at the beginning that he thought 2Q was the bottom and I was wondering when you thought flat panel growth would continue once you passed the bottom.

Why don’t I jump in and take that one now and then maybe Mike can come back to the first question? On the flat panel side, what I said was we believe we hit the bottom in orders in Q1, so we had orders at $67 million in Q1 and even though we were up $20 million from that in Q2, it was a modest up-tick. We think that Q1 was the bottom.

We think on the etch market, from a market standpoint, it will grow a little bit faster than WFD, with our estimates on WFD around 5% it will grow in the 5% to 10% range. Everything else is share movement.

Thank you.

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

Thanks for taking my questions. A quick question here on your margin assumptions and your guidance for the July quarter. I’m just looking at the non-GAAP numbers including stock-based compensation and I see that the number is basically $0.34, and if I look at your guidance, you are guiding revenues flat but you are guiding in the EPS range of $0.30 to $0.32. Are there any other moving parts here that I’m missing in going from April to July in terms of costs?

No, I think obviously the mix is going to be a factor in the ultimate performance and you’ve got, as Mike talked about what’s going on in the industry, you have a lot of puts and takes that can affect ultimately what comes down to EPS. I think the other piece is we are going to be increasing our investment in solar. I don’t expect that to have an incremental impact of more than $0.01 for the next quarter, but I think those are factors. So our guidance is actually up quarter over quarter, but your point is from an ongoing standpoint, we are down from the $0.36 and I think that’s just a reflection of the mix issues in the quarter and we’ll just see how it plays out.

Okay, so I should be basically taking in the shorts in terms of modeling gross margin slightly lower on flat revenues -- is that just reflecting the mix issue that you are talking about in terms of puts and takes?

I think what we are saying, for all the same reasons we talked about gross margin, gross margin is going to reflect the changes that are going on in silicon. Obviously the silicon segment has the highest operating profit in the group so whether you look at it from a gross margin standpoint or from an operating profit standpoint, that’s the area of most uncertainty and what’s driving the order outlook.

Okay, I think I understand that. Just based on your order guidance, I think people have pretty well articulated that it looks like your silicon systems business is down 20%. Just looking out longer term in the back-half and looking at DRAM, what is the singular point driving a worsening view here over the next two quarters in DRAM. Is it really pricing? Because I think pricing, if you want to really think about it, is sort of a lagging indicator. Is that really just it in terms of worsening feedback from your customers on the DRAM order outlook?

I think it’s pretty much just timing. I don’t think that it’s particularly worsening. It’s just where the investments are and the timing of filling out those fabs. There is still dramatic bit growth so I think they are really trying to fulfill demand at the current time. I don’t sense major pull-back from the DRAM companies or executives. I think most of them, as you know, are still quite bullish.

I think my only point here is that basically pricing is a lagging indicator but looking prospectively, I think a lot of the DRAM chipmakers, your customers, are actually accelerating or aggressively transitioning to 70-nanometer. From the reports that I hear, there’s a 45% to 50% cut to cost. I think at that point, DRAM is a little bit more profitable and assuming the bit growth is there, like you said, I think this is a temporary hiccup. But I’m just wondering if you can confirm it either way.

I’m pretty optimistic about this part of the market and have been really for two-and-a-half years, despite pricing, the prices have kept moving downward, particularly in these first six months. I think the DRAM manufacturers are set to fulfill the demand and that is what they are after.

Thank you.

Our next question comes from the line of Jesse Pichel with Piper Jaffray.

Thank you for taking my call. When will you debut your tandem structure thin film product? Will you have any IP barrier to entry to prevent Oerlikon Unaxis or Energo from also making that tandem structure equipment?

We are already selling tandem junction lines. We are working on our IP position but can somebody else make a product? Sure, and every competition so far, we’ve won, of any substance.

How many of your five lines sold are tandem structure lines? Can the single junction lines be later upgraded to tandem?

We announced the Sun film contract in April and that is a tandem junction project.

And on could you possibly upgrade, yes you could possibly upgrade a single junction to a tandem junction.

And your Brilliant JV with Q-Cells, is that also tandem?

Brilliant is a JV of Q-Cells. It is not our --

Right.

That is crystalline silicon line that -- well, that’s a thin film line at a smaller size then Gen-8.5 delivers, so that’s a specific line that we’re selling into.

Great, congratulations on the traction on that division.

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

You updated us on the solar outlook for this year but you’ve talked about it being a $500 million business in 2010. Have you got any new swags at that or are you giving up forecasting the business?

Mark, I made the comment that the magnitude of this kind of surprised us, so I’m staying out of the long-term forecasting business right now and just taking orders and -- taking contracts, excuse me and trying to plan how to get them executed in a very efficient and expertise way, the way our customers expect. If you would have asked me last September would we expect $400 million of contracts, I certainly would have said no. So I’m pretty happy we’re in the space thinking we can do more than $400 million in contracts, and we’re really working to organize to execute right now.

Just a follow-on, can you give us any sense of the timeline for bringing the cost per watt down and where are you today with cost per watt?

It’s almost -- it really depends on the particular customer. You mean cost per kilowatt hour, I assume. That’s what really matters, as opposed to capital cost per watt or those kinds of things. So right now, it really -- almost every one of the lines is quite different because it depends on what specific contract that we’ve made. Our goal is to really drive this down over the next couple of years to be very competitive with any form of energy generation. We think our Gen-8.5 has the scale and productivity to be able to do that as we drive up efficiency.

Thank you.

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

This is Jagdish on behalf of Stephen. Two quick questions, first is looking at the foundry CapEx and with the commentary by the foundries their second-half of ’07 is going to be CapEx loaded, and with your display orders likely trending up, is it fair to characterize that July orders would likely be [inaudible]?

I think you’ve asked the right questions. If display comes back in the second-half or in the fourth quarter and certainly if foundries come back stronger than what we are seeing in the third quarter, then that will be very helpful.

I just have a quick follow-up. My question is Mike, can you help us understand how much percentage of equipment are you selling for the regular crystalline versus the thin film and what is your assumption for capital spending for solar equipment in 2008? Thank you.

All of the things that we have called contracts are for thin film silicon lines. I think George talked about a few machines that we are selling into the crystalline line but the predominance is in thin film.

That’s right.

I don’t have a good CapEx spending target estimate for 2008. This industry has been kind of going up 40% a year for the last six years. For us, we are more interested in the significant movement to thin films and the credibility that we’ve established in thin film capability. That is much more meaningful to us at the current time. Actually, CapEx could stay flat for us and we could do dramatically better in 2008. I doubt that’s going to happen though.

Thank you.

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

Good afternoon. Thanks so much. First of all, congratulations on the profitability this quarter. Secondly, I apologize if I’m going to ask a repetitive question because I got dropped from the call for a second, but relative to the outlook in DRAM, is it anymore complicated than that last year DRAM makers had record profitability and they spent record CapEx and now they are losing money and so they are going to cut back on the CapEx and they will probably stay cautious on the CapEx until they start making some money again? I know that the DRAM spending isn’t any different than what you had thought today, but I’m just thinking about going forward. Don’t they need to start making some money again before they start spending again?

Probably a discussion that people need to have with the DRAM guys, Jim. I don’t sense any pull-back from those guys. They are very aggressive. The bit growth was 80% in the first part of the year. They get an advantage from going to the next generation of technology. I think they are going to continue to invest. I see the pricing curve too. I know what the contract prices have been and what the spot pricing is and it’s down dramatically. But I don’t sense that they are going off their strategic plans particularly.

Historically, we’ve had the downturns in cap equipment before and the downturns have been driven by lack of customer profitability, so do we think it’s a little different this time? Is there more urgency for strategic spending or do you think ultimately that profitability is what drives the intermediate term spending outlook for these guys?

Well, eventually profitability -- they have to be profitable, right, to keep investing and to acquire financing however they do it, so it is certainly not unrelated. For some period of time, they can invest where they think bit growth is going to outstrip capacity and they will get back to a pricing or get back to stable pricing, which they certainly haven’t seen in the first six months of this year. But as you know, for the previous year it was pretty darn good.

Final question to George; George, can you help us understand when you think the solar business would get to corporate average profitability? If I heard it right, I think you are talking about recognizing revenue later in ’08. At what point do you think the solar segment equals the overall corporate average, let’s call it, on operating margins?

What I said and I still believe this to be true is these first few projects are going to be our learning projects. So whereas they start with -- and I would say rather than overall, I think now that we are reporting at the segment level, I think they are similar to -- they will be similar to a blend of the display and fab solutions market as you think about it, because they will have both an equipment component and a services component. I think we will have some learning curve spending that goes with these first few contracts in establishing everything from line efficiency to some of the process work that we are doing for our customers. I think once we get through this, there is no reason to believe that future business won’t reflect the kind of mix that I talked about.

And you think that’s 2009 or -- ?

Well, as I said, we’ll start recognizing revenue on the announced contracts at the end of ’08, maybe growing a little bit into the first part of ’09. I think after that, we should expect to start seeing a more normalized margin.

Great. That’s very helpful. Thanks so much.

Our next question comes from the line of Steven O’Rourke with Deutsche Bank. Steven O’Rourke - Deutsche Bank: This is Peter in for Steven O’Rourke. Thanks for taking my questions. I wanted to follow-up on the solar. It looks like solar, on an orders basis, is going to be comparable or larger than your display business in 2007. I was wondering, you provide a turnkey solution, of which a certain percentage of that business is your own equipment. I was wondering if you were recognizing the overall revenue from the turnkey solution or only for your equipment? If I could follow-up and ask about the gross margin potential for one versus the other.

We will recognize revenue on a turnkey basis. Now, the mix of the equipment and the capital value is really largely dominated by our equipment, so it is probably not as a big a difference as you might imagine if you are trying to model it. Pretty much I would just view the turnkey business to have a modest impact overall on the gross margin. Steven O’Rourke - Deutsche Bank: So now that you’ve been in it for a little while and have had several orders and have had significant interaction with your customers, I was wondering if you are looking at the overall turnkey solution, do you see any opportunities where other technologies that you currently have expertise in could lend itself to the solar business, whereby you can grow your portion of the business?

Well, let’s start with thin films. As George alluded to, the vast amount of CapEx and value-added in any one of these lines is Applied Materials related. The way we got into this business really was by applying in an effective way, was by applying our capability in thin films and our platforms from our display area to be able to put together a solution really that no one else has at this time. So we are certainly looking at the rest of our product portfolio to see where it could apply here, either in thin films or crystalline. But right now, the contracts that we talked about are in the crystalline area. We also offer a tool that does PVD nitride for crystalline silicon at the current time.

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

Thanks for taking my question. I want to keep the focus on a non-silicon and to that extent, on the fab solution, if I recall last year, you had a lot of high hopes. If you could just give us an update where you see the fab solution, what are the growth prospects there, especially with reorganization of the Metron acquisition? And then, on the solar, especially on the thin film, don’t you think that the growth of this particular business line more so depends on your customers being able to form a business model, especially given my assumption that your technology is most suitable and economic for a solar farm business model?

Let me try to answer the fab solutions questions first. We are still quite bullish about fab solutions. On a relative look at this market, we have a small share. We have been adding a lot of products into what was formerly Metron and getting rid of some that did not make sense for us. So we are still really quite bullish here about our potential. If you look at what we’ve done with our chamber performance services, our abatement products, now with software in that, software solutions will be in that group as well. I think you can expect to continue to see us add more and more full fab service kind of products.

Would it exceed $2.5 billion over the next four quarters? Is that what you imply by being bullish?

I’m not sure I’m giving a forecast for the segment, but we have said we expect double-digit growth out of this segment so I think it’s pretty easy to get in the ballpark.

That’s on a fiscal year basis, right?

Yes, well, that’s how we do our finances.

In fiscal ’06, they had $2.26 billion in revenue and so if you grow that at half a percent a couple of years, I think you get to your number.

Sure. And then on the solar side, more of a long-term and whether the risk and rewards for you -- help me understand what your customers are doing, or what you see them doing in terms of a solar farm business model?

So all of these company customers are at the current time international. One of the great things about the thin film approach is because of the potential for big panel size, it helps you reduce some of the cost of installation and you can imagine having, as you said, a solar farm or on a big box building where you are going to put megawatts of solar, you can imagine having a crew with cranes, a real construction operation that’s efficient as opposed to somebody with a toolbelt trying to carry things on top of a roof where you are retrofitting. The markets that we are trying to go after are like solar farms, like new construction. Those solutions are being worked by the customers we are working with but in every case, we’ve been convinced that they have a channel to sell the product that they are building capacity for. Our global capability has allowed us to help them and earn their trust to deliver the solution.

You know, it’s interesting. I think a lot of people are trying to figure out exactly what is going to be the end driver of demand as they try and put together forecasts on this, and I know it has been a tough analysis. But one of the things that we see and certainly our customers see and we certainly get the sense of it from some of the government officials that we talk to in various countries, if the cost of subsidy for solar could come down, alone that would drive a tremendous interest in a number of countries that don’t currently provide these subsidies because they are very expensive. So right now it is pretty localized where governments are driving these things. What you are seeing is I think increasing confidence that if these kinds of technologies, this kind of technology that we are bringing can lower the cost per watt, then you are going to see first increased subsidies around the world and then continued investment and continued cost reduction to get to the point where then you are competing with grid electricity.

Just as a quick follow-up, or rather a clarification, did you say that operating margin for solar when the revenues are recognized is going to be comparable to the corporate average?

No, what we were talking about, what I said is it would be -- if you think about it, it is a lot like -- it’s a combination of our display business and the fab solution businesses, at least today in terms of the equipment composition and the types of services that we would be providing. So I would use that as a guide. Really, once we get through the first few projects, which are really the existence proof, and that’s really our focus over the next year.

Operator, we will take one last question and then make our closing remarks.

Our last question comes from the line of Mahesh Sanganeria with RBC Capital Markets.

Thank you. Thank you for the quote, “memory is it”. I just think I can use this quote two years down the road because if I look at your top 20 customers, it looks like the four foundries and two big large, they are pretty stable and steady and whatever the fluctuation is coming from the memory guys, that some of the business is being driven by memory. I wonder if you can comment on that.

I think that that’s a pretty good observation and we do think that there is some shift going on in the industry. Clearly during this last couple of quarters, the people we thought were in the logic business for the long haul have moved to more of a foundry model. I think that is going to continue. That trend is going to continue over a period of time so more of the wafers in the world are going to get built in foundries. If I was going to maybe make a little bit of an alteration to the view in two years from now, it is going to be foundry and memory is it, because the foundries are going to drive over a period of time a larger number of the wafers in the industry, and then we just all believe that there’s no ability to quell the need for more and more memory anytime in the foreseeable future. SanDisk introduced their solid state drive today and the Vista experience is on the scale that Microsoft gives almost double that of a normal hard disk drive, so that’s the kind of performance that moving in this direction is going to have. I think it is going to be gigantic for our business and for our competitors’ business. But it is going to be foundry and memory in a couple of years. The logic companies I think will stabilize over the next few years. I don’t know whether that’s two or longer but I think they will stabilize.

I’ll just sneak in one last question. You talked a little about PDC being strong. Can you give us some more color, particularly on reticle inspection? I don’t know if you’ve talked about reticle inspection business in the past and how that is doing.

What are you hearing about reticle inspection?

I am hearing that you are being evaluated at a large customer.

Well, I think that I’ll suffice it to say that our PDC unit has had a very successful 2006. They are having a much more successful 2007. We like the products that they have. They are coming out with really excellent technology, and yes we have a lot of work to do in products like UVision and you can understand we are coming out with more products. This is one that I think is quite interesting for the future, but the core products are what’s driving the record revenue.

Thank you very much.

Thank you and we would like to thank all of your for joining us in our discussion on Applied Materials' financial results. We would like to remind you that a replay of this call and the supporting slide package will be available on our website starting at 5:00 p.m. Pacific Time, and will remain posted until May 30th. Thank you for your interest in Applied Materials. This concludes our call.

This concludes today’s conference call. You may now disconnect.