KLA Corporation (KLAC) Q3 2008 Earnings Report, Transcript and Summary

Good afternoon. My name is Rachel and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA-Tencor Corporation Third Quarter Fiscal Year 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Mr. Lockwood, you may begin your conference.

Thank you, operator. Good afternoon and welcome to KLA-Tencor's third quarter fiscal year 2008 earnings conference call. I'm Ed Lockwood with KLA-Tencor Investor Relations. Joining me on our call today are Rick Wallace, our CEO; and John Kispert, our President, COO and Chief Financial Officer. We are here today to discuss our third quarter results for the period ended March 31st, 2008. We released these results this afternoon at 1:15 PM Pacific Time. If you haven't seen the release, you can find it on our website, www.klatencor.com or call 408-875-3600 to request a copy. Rick will lead off today's call with highlights from the quarter; updates on current market environment and key product activity, and provide guidance for the June quarter. Afterwards, John Kispert will review preliminary financial details for the quarter, and then we will open the call for questions. On the Investors section of our website, you will find a simulcast of this call, which will be accessible on-demand for 90 days. On the website, you will also find a calendar for investor events in Presentations and Investor Conferences. You will also find links to KLA-Tencor's securities filings, including our most recent 10-Q filing for the period ended December 31, 2007, and our 10-K for the period ended June 30th, 2007. In those filings, you will find descriptions of risk factors that could impact our future results. As you know, our future results are subject to risks. Any forward-looking statements we make, including those we make on this call today are subject to those risks. KLA-Tencor cannot guarantee that these forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking statements; and although we take no obligation to update those forward-looking statements, you can be assured that any updates we do will be broadly disseminated and available over the web. With that, I will turn the call over to Rick. Richard P. (Rick) Wallace - Chief Executive Officer: Thank you, Ed. Good afternoon, everyone and thank you for joining us. Q3 was a period of solid execution for KLA-Tencor in a tough overall market environment. Despite our persistent weakness in the global semiconductor equipment market, we met or exceeded each of our financial targets for the period and took a significant step to expand our potential market opportunity through the pending acquisition of ICOS Vision Systems. We also delivered stronger operating performance than the comparable revenue levels in the past. A relatively strong performance in this very challenging demand environment reflects the continued strength of our market leadership, the superior value we deliver to our customers in helping them meet their yield demand and continued great execution by the KLA-Tencor team. Revenue in the March quarter was $602 million, above the range of our guidance for the quarter. Net income, excluding some one-time charges, was also above the range of guidance at $121 million or $0.67 per diluted share. And we generated approximately $148 million in cash flow from operations in the period. Orders for the March quarter were $554 million, down approximately 4% from Q2 and above the midpoint of the range of our guidance for the period. I would now like to provide some more perspective on the current demand environment. In general, the weak demand climate that began late in 2007 has not improved to any significant degree in the first calendar quarter of 2008. And although there are some pockets of strength among our larger customers, as they ramp investment in 45 nanometer, current indications are that weak overall demand environment will continue to persist into the second half of 2008. I'll now provide some perspective on the current bookings environment in our various customer segments. Memory was once again our largest customer segment during the March quarter. Memory customers today are investing in advanced technologies and new materials to enable smaller design rules and higher density application as well as reduced costs. In turn, driving increased adoption of process control to reduce defectivity. In March, we saw strong brightfield adoption among memory customers investing in 45-nanometer development. Foundry demand improved in March. Historically, foundry customers have been heavy adopters of process control, given the nature of their business. Unique to foundries is the challenge of managing an ever increasing number of products and processes, while at the same time continuing to reduce their time to market. These conditions make achieving targeted yields in a shorter period of time critical to success in this segment. Project orders in the March quarter affected bookings for advanced development pilot lines. Investing in leading edge technologies continues to be a major driver of demand in the Logic segment. To summarize, although our customers remain cautious with their capital investment, the increased complexity from advanced technologies is creating new yields and defectivity challenges, driving the need for advanced inspection in measurement technology and accelerating adoption of process control. As a result, even in a period of slowing overall wafer manufacturing equipment demand, we expect process controls to continue to outperform the industry on the order of 5% or more in 2008. Now, I would like to discuss some recent highlights for KLA-Tencor on our four strategic objectives; customer focus, growth, operational excellence, and talent development. Customer focus is the first of our four strategic objectives at KLA-Tencor. We work hard to understand our customers' requirements and to provide solutions in every market we serve. The keys to our success are to collaborate closely with our customers, innovate to develop creative, differentiated solutions to meet their inspection and measurement needs, and then execute in bringing new products to market and supporting them throughout the product lifecycle. I am pleased to report that in the March quarter, we sustained our market leadership in each of the key markets and product lines that we serve. As always, a great deal of hard work which required to win the business made even more challenging in an environment when capital is tight, and I applaud our team's hard work and successful execution in this particularly difficult period. I'd like to share some key product and competitive highlights from the quarter. First, in defect inspection, where our customers are ramping their investments in development of 45-nanometer technology, we continue to maintain a leading market position. We had a strong quarter of brightfield adoption in March, placing 281x full spectrum brightfield tools at three different logic customers. The 281x features new optical modes that enable increased defect detection at twice the computing speed of earlier generation tools, while demonstrating superior sensitivity, capture of unique defect signatures and throughput. KLA-Tencor's full-spectrum DQV broadband technology is unparalleled in the marketplace in delivering increased sensitivity required to tune for TV effect in critical patterning layers at advanced technology nodes. In darkfield Inspection, we won orders to for our Puma 9150 platform for both DRAM and Flash customers. Our Puma 9150 delivers desired sensitivity at twice the throughput of competitive offerings. We expanded our market penetration and EB review marketing material. Our new eDR-5200 is a medium review solution that offers enhanced resolution, improving the productivity of the inspectors and providing connectivity to improve brightfield recipes, but also delivering high resolution and stage accuracy, allowing maximum capture of defects on the review system. The eDR-5200 provides a great solution and positions us for growth in this important market segment. In metrology, KLA-Tencor continues to be the market leader by offering a comprehensive suite of metrology products to give our customers the ability to maintain tight control of their process window. In the March quarter, our next generation overlay metrology platform was chosen through a record with logic customer, demonstrating significant performance improvement over our existing product line as well as providing important product extendibility. Moving on to reticle inspection; last week we introduced our latest mask inspection technology from Wafer Plane Inspection or WPI. Designed to serve the 32-nanometer mask node, WPI is a single system tool that provides the versatility to find all defects on a mask and show the defects that will print in an actual device wafer. WPI also operates up to 40% faster than previous inspection systems, reducing defect inspection cycle times and reducing cost of ownership for our customers. The ability to accurately define printable defects on the inspection systems means that this is the first direct link between defect inspection and printability, a major innovation over traditional techniques which require multiple inspection systems or print check methods. There has been extensive field testing of this revolutionary technology to support 32 nanometer process development. These are just a few examples of recent successes we achieved during the March quarter in solving our customers' mission critical production challenges and expanding our market leadership. Across the industry, the technical challenges our customers are facing are significant, and we are working closely with them to solve those problems. Looking forward, our strong product pipeline and high level of R&D investment positions us well to meet our customers' next-generation inspection and measurement needs. In these periods of contraction and capital spending, we've leveraged our strong financial resources, technology expertise, and solid customer relationships to step up our investment in innovation anticipating our customers' requirements, so that when the demand climate improves again, we will be in a stronger position than ever. Our second strategic objective at KLA-Tencor is growth. Our goal is to continue to outgrow the industry and our growth prospects continue to look good. Even in this challenging CapEx environment, based upon the level of investment by customers in each of our market segments in driving forward their advanced technology roadmap and the increase in need for inspection measurement, as device makers address the greater complexity of their yield challenges in advanced design rules. We estimate the increased adoption of process control by chip makers at 45 nanometers translates to an incremental revenue opportunity for KLA-Tencor of 30% or more as compared with the 65-nanometer node. We look to compliment our core market growth through strategic acquisitions in adjacent markets. We have a disciplined approach to M&A, we are very selective about the growth prospects that we pursue with the strategy. We will only enter markets that feature prospects of profitable growth comparable to our own and where we can differentiate and add value. In February, we announced the intent to acquire ICOS Vision Systems, a leading supplier of packaging and interconnect inspection solutions for the semiconductor industry. ICOS Systems also performs inspection of solar wafers and solar cells, enabling solar manufacturers to effectively monitor the production process of different stages of production. The ICOS transaction would fit our acquisition criteria very well, setting the stage for additional growth and diversification outside our core inspection and metrology markets. We are currently in the tender offer phase of this transaction and if it is successful, we expect it to close in the current quarter and be accretive to EPS within the first year. In addition to the new markets that we have entered over the past 18 months, we have more growth initiatives in place at KLA-Tencor, and we will be providing update as they materialize. Our strategy will be to continue our organic effort, as well as leveraging our ability to successfully use acquisitions as a way to enter new markets. Our third strategic objective at KLA-Tencor is operational excellence. In June of 2006, we laid out plans to improve efficiencies in our business model and deliver operational excellence throughout the company. At the core of our operational excellence efforts is a company wide effort to leverage what was already a very good business model in our industry and drive operational improvements throughout our cost structure, optimizing our business model through better management efficiency, reducing the number of common engineering platforms and leveraging globalization of our workforce with the ultimate result being sustainable, higher margin performance and significant scale advantage at higher revenue levels. John will go through some of the details of these results in his prepared remarks. But the bottom line is that these actions have helped us achieve a higher level of profitability in our business than we delivered at comparable revenue levels in the past. Our fourth objective at KLA-Tencor is talent development. None of the success that KLA-Tencor enjoys would be possible without our world class workforce. While historically, we have developed world class talent and achieved outstanding financial results throughout the cycles of the industry, we are increasing our efforts in talent development as we know that our people are the key to our success. In summary, KLA-Tencor continues to be a company with an unparalleled portfolio of inspection measurement technologies and great people who are driven by unwavering passion for innovation and commitment to ensure our success. And we enjoy relationships with every major IC manufacturer. These attributes help to position KLA-Tencor to continue to outgrow the industry in 2008 and beyond. I would like to wrap up my comments now by giving you our guidance for the June quarter. Orders are expected to be down 5%, plus or minus 10% from the March quarter. Revenues are expected to be between $560 million and $580 million. And EPS in the range of $0.56 to $0.60 including stock-based compensation and excluding one-time charges. Now, I will turn the call over to John Kispert.

Thanks, Rick. Once again, revenue for the quarter was $602 million, and fully diluted GAAP earnings per share was $0.61, non-GAAP earnings per share was $0.67. The difference between the two EPS numbers are first, acquisition-related charges, which in this quarter were actually a net gain of $2.2 million, or $0.01 of EPS. This was caused by unrealized gains resulting from the euro call option contract related to the pending ICOS acquisition. Second, restructuring, severance and inventory-related charges of $13.5 million, or $0.07 per share, and finally, more option investigation charges of $5.2 million, or $0.03. This adds up to about $0.09 pre-tax or $0.06 after tax, again a difference between $0.67 per share and $0.61 per share. In our press release, you'll find a GAAP to non-GAAP reconciliation, which covers the non-GAAP adjustments I just mentioned in far, far more detail. The reminder of my comments on the quarter will be focused on the non-GAAP results, which excludes the adjustments I just mentioned, but does include stock-based compensation. This is reflective of the financial performance of KLA-Tencor and how we run the business and enables a transparent comparison of results across periods and among peers. Operating results were driven by our expectation of orders received during the quarter, and we're managing the company according to our best estimate of the business environment over the coming quarters. For the March ending quarter, net bookings were $554 million, down 4% from the December ending quarter, and above the midpoint of our guidance of down 10%. At the end of the quarter, we initiated a $31 million de-booking. This was due to recurring delivery date changes by two customers and not due to a cancellation by either customer. We anticipate these orders will rebook sometime over the next six to nine months. Looking back over the last two quarters; new orders, that is gross value of orders before the previously mentioned adjustments were for the December ending quarter, of $602 million and new orders for the March ending quarter were $585 million. So, the new order environment and business level has changed a little for KLA-Tencor over the last six months. Customers are focusing on new technology development and pilot lines for next-generation production nodes, and our differentiating products play a significant role in that effort. The slowing demand environment we first began to experience late last year continues in each of these markets. Macroeconomic instability is adversely impacting demand for our customers' products and as a result, it's clearly affecting their capital investment decisions, both in size and in timing. While our business level appears to be stabilizing around current levels, visibility into meaningful growth inflection points continues to be very low. In total, we ended the quarter with over $1.2 billion of backlog, which is approximately the same as last quarter. You can break this out as $795 million of shipment backlog or orders that have not yet shipped to customers and $416 million of revenue backlog, or products that have been shipped, but have not yet been signed off by customers and, thus, we have not taken revenue for them. Keep in mind that we do not include any service bookings or service revenues in any of our backlog numbers. The regional distribution of orders was the U.S. was approximately 22%, down from 28% from the December quarter. Europe was approximately 6%, down from 11%, Japan was approximately 29% and that's up from 22% last quarter, Korea is approximately 15%, down from 20%. Taiwan is approximately 20% and that's up from 18% last quarter. And the rest of Asia was approximately 8% [ph], and that's up from 1% a quarter ago. Our new products continue to do well at 45-nanometer and below. The market segment distribution of orders did not change significantly from last quarter. The approximate distribution was wafer inspection at 43%, reticle inspection was 11%, metrology was 22%, service was 23%, and other markets including LEDs, storage, and some solar was 2%. 45-nanometer and below investment continue to be a compelling customer spending trend for us, and those orders made up 53% of the orders received in the quarter. Looking at our income statement, operational execution was solid in the March quarter. As I said earlier, revenue was $602 million, slightly above our guidance range of $575 million to $595 million. This level is down 5.3% quarter-to-quarter and down 16% from the same quarter last year. Non-GAAP gross margin was 56.9%. We continue to focus on the productivity and efficiency of our manufacturing and service organizations as we ramp new products globally and improve our service delivery and spare parts distribution in the face of lower shipment volume. In our current fiscal year, service revenue is expected to be about 20% of total revenues, up from approximately 16% two years ago. While the significant growth of our service business is becoming a dilutive mix factor in our overall gross margin percentage, our belief is that gross margin dollars of this business drops to the bottom line serves as a solid and predicable cash flow generator for the company. As we told you about 24 months ago when we laid our operational plan, the company remains committed to a number of key operational initiatives focused on operational flexibility and operating cash flow. In fact, over this period, we have increased our sustainable cash flow yield to find its operating cash flow as a percent of revenue by over 25%. We have done this while integrating four acquisitions, adding customer development support resources, investing heavily in channel development and infrastructure for adjacent markets outside of semiconductors, and transitioning major product lines offshore. We have successfully ramped our Singapore operation to ship our SP2 product line to ramp down portions of our U.S. operation. So, not only we are encouraged by the predictability and efficiency of our team there, we are meeting our customer commitments and seeing better than expected cost savings. Currently, our Singapore plant is only 20% of capacity and we have multiple products that are due to transition from the U.S. to Singapore over the next several quarters. The operation continues to yield a cost advantage to us, our customers and our shareholders. In addition, this facility along with the operations in the U.S. and in Israel provide a global footprint that enables us to focus more on continued outsourcing of non-core manufacturing activities in the supply chain worldwide. In terms of working capital management, we are continuing to focus on cycle times across our businesses. Across the company, we have improved over 30% over the last year in manufacturing and in long lead time material flexibility. These initiatives will provide us with a long-term operational flexibility that is required to respond quickly to changes in customer demand, both down, and believe it or not, soon enough up, while generating more operating cash flow in any scenario. In the June quarter, we expect gross margin to be slightly lower, due primarily to revenue mix, as we expect product revenue to decline $20 million to $30 million quarter-to-quarter and we expect service revenue to be up another 3% to 5%. Non-GAAP operating expenses were down $2 million quarter-to-quarter to $189 million. R&D was $94.8 million, up $1.8 million from the December ending quarter, as we continue to accelerate key research and development activities driving organic growth in our core businesses as well as in programs and recently acquired companies, and we have several new product introductions planned over the next two months. SG&A for the quarter was $94 million, down $3.7 million quarter-to-quarter. We continue to focus on the sales channel efficiency and elimination of acquisition redundancies. Over the last year, we have made significant progress in integrating acquisitions and streamlining our core business cost structure. In fact, since the June quarter of last year, SG&A per quarter is down $19 million. While we are pleased with this progress, we believe there is additional opportunity here and we expect to continue to focus on these areas over the next several quarters. Historically, downturns have been an opportunity to strengthen our leadership position as our backlog level and product differentiated business model enables us to sustain profitability, while continuing to invest in key product development programs and to enhance the many key customer collaborations we have going. [Technical difficulty]. As a result, we expect total non-GAAP fixed costs on the core businesses will be roughly $190 million over the next several quarters. Other income for the quarter was $24.2 million. We realized gains from the redemption of our investment portfolio to fund the cash requirements for our proposed acquisition of ICOS. In the June quarter, we expect other income to be approximately $10 million as we use cash to fund our proposed acquisition of ICOS if as expected; we get it closed in the June quarter. The tax rate was 31.8% in the quarter, higher than the 28% discussed in the last conference call, due to the reduction in tax exempt interest. So, incremental other income was almost fully offset by the higher tax expense. Non-GAAP net income was $121 million, or $0.67 per fully diluted share. This number includes share-based compensation expenses of $25.9 million. In the June quarter, we expect expenses for share-based compensation to be roughly flat, at about $26 million. Turning to the balance sheet, cash and investments ended the quarter at roughly $1.3 billion, an increase of $17 million quarter-to-quarter. In the quarter, we have purchased approximately $180 million of stock and paid a dividend of $27 million. Cash from operations was $148 million in the quarter. Inventory decreased by $39 million to $444 million. The results of the quarter include $18.3 million of charges from the scrapping and disposing of service inventory, due to fundamental changes in our spare parts delivery model, primarily in two key areas. First, we have improved in service efficiency, particularly in the areas of diagnostic capability, service engineered training, and most importantly, the overall reliability of our products from our engineering teams. And second, our push over the last 24 months towards more commonality across our platforms and new products. These common platform initiatives, which are a key component of our operational plan, have enabled platform maturation, which has led to earlier product performance stabilization, requiring lower average parts usage versus what we have seen historically. We believe these improved areas in the service delivery model are sustainable and will enable us to support this growing business at lower inventory levels in the future. As a result, due to the nature of this event, we initiated a one-time action to scrap the now-not-needed spare parts from inventory. Accounts receivable finished the quarter at $573 million, down $5 million from the prior quarter. And net capital expenditures were a negative $5 million. Note that the brief proceeds from the sale of three of our buildings in San Jose offset capital acquisitions by approximately $10 million in the quarter. Depreciation was $15.8 million, so on a net basis including retirements, fixed assets decreased by $21 million quarter-over-quarter. Fully diluted shares ended the quarter at just under 181 million. For the June quarter, fully diluted shares are expected to be about 179 million. Headcount ended the quarter at 5,770 employees, essentially flat to the December ending quarter. And finally, as we commented earlier, we believe that our business appears to be stabilizing at roughly these levels. However, we continue to be in a period of very low visibility. As a result, like last quarter, we remain very cautious. Given this environment, we will continue to run the company in a way that will enable us to maintain key investments, while ensuring sustained profitability and cash flow. Our guidance for the upcoming quarter does not include the financial impact of our announced intent to acquire ICOS Vision Systems. With that, to reiterate Rick's guidance for the quarter, bookings are expected to be minus 5%, plus or minus 10%; revenue between $560 million and $580 million, EPS including share-based compensation, but excluding one-time charges, at $0.56 to $0.60. This concludes our remarks on the quarter, and I'll now turn the call back to Ed to begin the Q&A.

Operator, will you please poll the audience for questions? Question And Answer

Yes, sir. [Operator Instructions]. Your first question comes from Jay Deahna. Your line is open, sir.

Okay. Can you hear me?

Jay, we can hear you fine.

Okay, can you address this issue that's come up recently about the competition in the mask inspection business. Obviously, it regards Applied Materials; and just kind of wondering do you see your market share at risk, is there a differential between the fab and the mask shop? If there is a viable threat, does it impact pricing across your entire line and to what extent for the overall company can you offset a little bit of pricing pressure with your offshoring in your Singapore operations? So that's on the mask side, if you could go into that in detail, I would appreciate it. It seems to be the core issue regarding your stock right now. And then secondly, do you see any threatening products on the brightfield side of the equation? Thank you. Richard P. (Rick) Wallace - Chief Executive Officer: Jay, thanks. This is Rick; I will take both of those. Let me start on the mask side. As you know, we've had a strong market position in mask for a number of years and we are always dealing with competition and that's why our market share tends to be in the 80% range. It certainly fluctuates over time in modest amounts based on where we are in the cycle and product cycles as well. But we feel pretty good about our mask position. And we just announced and introduced as I mentioned during the prepared remarks, our WPI. And we think that that capability, in addition to the things that we have been doing on our product roadmap in general, positions us well. There are different mask segments for wafer fab and for mask shop and they are both competitive and they are both... it's both, in both cases, you've got to prove your differential performance. And we have done a good job of doing that. So we don't really see that the mask situation is significantly different than it's... than in the past. We've always had competitive pressures and we tend to do pretty well in spite of that. It's an attractive market; it's a growing market, so we know that that's going to attract competition. With regards to the second question about brightfield, it's a similar story actually. Brightfield, because of the importance of it and the increased adoption of inspection metrology at advanced nodes, we definitely see a lot of interest from competitors in trying to get into the space, and they have for a number of years. But we believe that our broadband DQV technology is uniquely differentiated and when we go head-to-head with alternatives in the market, we tend to do very well. And as I talked about in my prepared remarks, we had a very strong quarter in our brightfield product line as we help our customers deal with their advanced designs rules. So overall, competition is always tough for us. We always work hard to win orders, but we feel pretty confident of our position now and going forward.

And then a quick follow-up; to what extent is your order guidance for the June quarter impacted by that typical end of the fiscal year sales push phenomenon? And to what extent is it reflective of true demand in the market and how would that roll out into September? Do you view June as the bottom for orders for this thing or is it kind of a rolling second quarter, third quarter thing? How do you see that?

Hey, Jay, John Kispert. The guidance is our very best attempt to size what we think is out there and doesn't take into account any, any I guess forecasted pull-ins or push-outs for that matter. I can say that we have taken a conservative approach relative to what we see actually in the sales funnel over the next two quarters. But it's... we haven't forecasted in the bookings number or the revenue number, anything that would tie to stuff being pulled in. The second question, Jay, was --

Well, do you see 2Q or 3Q as a... together as a rolling bottom or do you see one stronger than the other, just kind of give a sense --

Yes, I got it, I got it. Yes, I think going forward; the best we can see today is we are looking at numbers kind of mid 500s to high 500s across all of our businesses. And of course, timing of those orders and the subsequent revenue is always the hard part in times like this. But I think if you think about modeling it through the second half of the year, that's what we see. I know conventional wisdom would say that there is a pick up somewhere in the second half of the year, and I can't... I wouldn't say that we are discounting that. But we will wait to see it before we start to rev up production and start shipping more.

Yes. One last real quick one. If you are going to experience a 30% increase in your revenue for fab opportunity at 45-nanometers versus 65, blended between logic and memory, when would you start to see out performance in your orders relative to the industry? I mean, is that happening now relative to this opportunity or when we see a concerted upswing in capacity expansion, are you going to see your orders shoot out faster than the industry?

Yes, it's the last part... you answered the question yourself, Jay, it was the last part. When they start going to more capacity like buys, kind of pilot line into capacity is historically when we'll see the adoption shoot up. Right now, what we're shipping clearly is early pilot stuff and R&D, which are more a one system per fab, per mask shop, per R&D project.

Great, thanks very much.

Your next question comes from Gary Hsueh. Your line is open, sir.

Yes, hi. Thanks for taking my question. John, just on the back of Jay's last question, just looking at orders and the potential sort of bottom here in the back half, if I just sort of flat line your midpoint of your order guidance in the June quarter, all the way out to September and December; for the full year, your orders would only really be down 10%, but yet, everybody is claiming that CapEx is down 20. I understand that basically KLA will outperform given inspection metrology and its importance on the next kind of technology node. But a 5% difference would still argue for a little bit more downside. Are you just getting a little bit more visibility here in the back half and maybe getting some visibility on booking 09 CapEx in the back half? Can you shed any light there?

I understand the question, Gary. It's tough to say right now. And the reason it's tough is our customers are certainly confused themselves as far as what they want to do in the second half of the year, or even this quarter. So, there is lots of things moving around. Best we can tell is, people are focused more in the latter half of '08... calendar year 08 and that is as of today. We've been doing this too long to go and hang our hat on that. Things could either get pulled in or pushed out from there. I wouldn't say we have much more visibility than most folks. We tend to have some of our higher end products will be longer lead time, which gives us a little bit more visibility. But I've got to tell you, one of the big changes in the industry over the last couple of years is the lead times as we try to help our customers more and more in their profitability and helping their flexibility, the lead times have come way down. So, to the extent we used to enjoy longer, a better visibility in times like this, it's really not there as much now as we really have shortened our cycle times and have put ourselves in a position to deliver quicker to our customers.

Okay. My next question is just on gross margin, you talked about the product mix and increasing a bit about service sort of negatively impacting gross margin. Other peers have talked about a consolidating base of buyers, particularly in this downturn. And they've spoken about pricing pressure. Are you seeing any pricing pressure and what exactly are you doing here on the cost side to sort of offset any kind of pricing pressures that you do see?

Gary, we've been seeing pricing pressure since I've been in the company, that's 13 years; Rick, 19 years, 20 years? Richard P. (Rick) Wallace - Chief Executive Officer: 20 years.

Yes, 20 years, every quarter. What we're really focused on in times like this with our customers, have been for probably over a year now, is you'll see a lot more loaner tools out from KLA-Tencor, a lot more consignment tools. We'll extend warranties, all these are cost of ownership benefits to our customer. We are doing a lot more extra support; ramp support, move support, application support. That doesn't have to get paid for today, but can be pushed out over time. We are... we've not cut at all in any of our applications support, so we've really pushed a lot more advantages to our customers. And pricing, of course, we are seeing pricing pressure, and we are doing our best we can to help our customers with that, because they are clearly under profit constraints. But I wouldn't say it's any different than any other time over the last 10, 15 years. Richard P. (Rick) Wallace - Chief Executive Officer: Yes. And one thing we do, Gary, in times like this, as John mentioned consignment. You have to understand, sometimes that just means that we'll have capability on a tool, or we'll provide a tool with a little less capability with the option to upgrade it later, so allowing people to get in at a lower price point early on, but then have the extendibility in the platform to take them later. And I think that's an important offering for our customers when they are really constrained on their capital, but they want our technology.

Got you. And one last housekeeping question, I don't think you broke out your orders by memory, foundry, and logic, iDM bucket. Could you do that?

By percentage?

Yes.

Yes, it's kind of interesting, and it was kind of a quarter, a quarter, a quarter and a quarter. Quarter, logic was about 25%; foundry, 25%; DRAM, 25%; and NAND, about 25%.

Okay. So you did see a pretty nice pop in foundries. Okay, great. Thank you.

Your next question comes from Timothy Arcuri. Your line is open, sir.

Hi guys, several things. First of all; John, can you give us what the shipment number was for margin? Tell us what you are planning on shipping for June?

Yes, I know the June number better, Tim. What I am thinking is somewhere between 550 and 575 for June. And the reason for the range, obviously, is begin the back half of the quarter, some larger shipments, so we are sitting right on the cusp. So, I think it's somewhere in that range. And I am looking for a shipment number this last quarter was 582.

582, okay. And then John, did you say in answering a prior question, you were talking about kind of a trough run rate in the mid to high $500 million. Were you talking about orders or were you talking about revenues?

I was kind of talking about both.

Both.

Yes.

Okay. So don't you see the business getting materially worse from here from a bookings point of view?

Not today.

Okay, and then I guess, can you also John, can you update what your new financial model might look like? I mean, I know there is a lot of different moving parts, but do you have any sense of... you kind of gave this model last SEMICON, so do you have any sense of kind of how that model would look now and particularly, say, at the same revenue level that you peaked out at during this last cycle, would your margins once they get back to that point, given the new state of the company, would the margins be better than that now?

You know, we're going to spend a lot more time on this at SEMICON, and I think we have an analyst day coming up in I don't know, about a month; I will spend a lot more time on it for everybody. But we are ahead of plan. As you guys all remember, we said that this wasn't a big bang plan. We are going to work on it over a two to three-year period. We are ahead of all the plans we've put in place. So, I am not concerned that at any level of revenue that we won't outperform where we have been in the past. I think we are in pretty good shape there.

Okay. So John, just to be clear on that. So, I think you said maybe six months ago, you said like at the $625 million level that you were talking about kind of mid-59 gross margin. Is that still intact, you don't think you are actually better than that now?

I think that's about right. And the tough part about getting on the 625 is what's the mix there and particularly around service, so when does it happen? But we're probably at that or if not, a little bit better.

Great. All right. Thanks, John.

Your next question comes from Harlan Sur. Your line is open.

Good afternoon, and great job on the quarterly execution. We continue to hear about customers especially in memory sort of struggling with yield issues as they make their current technology transition. So, I guess my question is where are the major pressure points as it relates to yield; is it lithography, is it the use of new materials, is it etch? What are your customers telling you and how much of this is contributing to your book of business now versus next-gen tool buys? Richard P. (Rick) Wallace - Chief Executive Officer: Yes, Harlan, great question. Absolutely, memory and you hit on the main things that are happening. I think what happens in the last six to nine months is as the memory guys shrink what they found was the fleet of tools they had, mostly our tools, inspection and measurement, were not finding the later defects that they had to find, the smaller ones as they shrank in design rules. So, they fixed some of the big problems. But then they got into two things; one is the defects, just the size themself and then the signatures and this kind of goes to a theme we will talk about more in the future of the systematic defects became a larger percent of what they are trying to find. And you really need higher resolution to do that. And it does happen around lithography, both immersion lithography, but just advanced lithography in general. But also certainly when new materials come in and even new device structures. So, certainly, it was a part of the business, and we talked about success we had in the March quarter, serving the memory market with our brightfield tool. And those kind of universal across our memory customers is a realization that they needed that advanced capability just to see what was going on in their process to make improvements. So, I think a lot of them felt that they were not reaching their yield entitlement, and that's why our thesis is there'll be a higher percent of their capital will be spent on inspection metrology, just to make sure they are getting leverage out of the capital that they've purchased for their process.

Okay, thank you for that. And then on the reticle inspection side, what's... maybe share with us the early feedback on your new TeraFab tools as customers start to ease out work. And I think at a high level, is it fair to assume that your reticle inspection business will go inline with their overall business looking out over the next couple of years? Richard P. (Rick) Wallace - Chief Executive Officer: Yes, great question. It is... to start with the WPI, I think the number one thing we are seeing in the reticle right now, and I just was meeting with some customers this week to talk about this, is just really desire to get the capability in their hands faster. And so part of the challenge that we've got is how do we deliver and deploy the advanced technology we've got like WPI. Because it's not just hardware, it's also the application support for that. So we're having that discussion with a lot of customers around the world, and how do we deploy. We do think there is a big opportunity. One of the things that's happening, of course, is as we push lithography it's putting more strain on the reticles which drives the need for inspection metrology. And with the EUV looking like it's being pushed out further and further, a lot of people as they're facing some of the additional challenges coming up are looking to the reticle strategy to help bridge the gap. So, we are seeing increased interest in the current generation of products we have and also a lot of discussions about our roadmap, and how can we get more capability to them sooner.

All right, thank you. Richard P. (Rick) Wallace - Chief Executive Officer: Thanks, Harlan

Your next question comes from Jim Covello. Your line is open, sir.

Great, thanks so much. Good afternoon, guys. First, quick housekeeping, I might have missed it, but did you give the shipments for this quarter?

Sure did, Jim, I can't remember what I said, 582.

582. Okay, thank you. And my real question is your last cycle was obviously driven by memory. We hadn't seen anything like that in ten years, and there is some argument that we wouldn't see anything like that in 10 years again. So, working under the assumption that memory as a percentage is going to kind of normalize downward, I would think that that's a good thing for KLA. Can you talk about that a little bit, your penetration in memory versus the other areas of the market? Obviously, you have a lot business in memory, but on a relative basis, what that means from margins and what that means about your ability to potentially outperform in the next cycle, which would presumably not be as dominated by memory as the last one was?

Jim, yes, you are right in that... this is the way memory built it, the level of repetition to the production line. As you get 30, 40, 50, 60, 70,000 wafer starts a month, you don't need as much inspection and measurement. At least that's what our customers try to do. And that is certainly not the case in the microprocessor logic or in foundry world. Now, we worked hard over the last year to introduce new products after new problems, new issues on the memory side of the business. So, we think that we are fine, no matter what happens to be hitting as far as who is spending money. But clearly, in the years where the foundry side of business, the logic side of the business is having a better year or better quarter, a better half, it's usually better for KLA-Tencor just because of the level of complexity in quick turns and price per unit that's at play for our customers, because they want to spend more in this, what is essentially insurance for their yield. Richard P. (Rick) Wallace - Chief Executive Officer: Yes, and just to build on John's point; I think one of the differences is the memory guys figured out that they really needed the inspection measurement to optimize and get their entitlement in yield, and that drove our business. I think a lot of the guys know when they push the design rule, it's enabling, so they've got to have the capability earlier and that drives more advanced tools. And I think the one thing we've seen is the 45-nanometer start, even 65 is not so prevalent in foundries right now and as those... the iDMs convert more of that, we think there is a big potential for more inspection metrology there.

And I don't know... this is not an easy question. But do you guys have an idea or an opinion of what the sort of normalized breakdown between memory, foundry and logic is going to be. Obviously, it's not as memory intensive, but memory may be a little bit bigger a piece of the pie sort of five years out than it was five years ago, but obviously not as big as it's been in the last couple of years. What you guys think the normalized breakdown is? Richard P. (Rick) Wallace - Chief Executive Officer: It's really hard to forecast that. I would say that it likely often tilts more to what it's been, with the one big exception to that being NAND is a new driver and has a kind of a new long-term potential. And we didn't really have that in the past as driving leading edge. So I think you are right, but the difference being there is just more application space that NAND can serve and so that's kind of, if you will, almost a fourth market, because DRAM is more tied, as you know, to the PC side.

Sure. Richard P. (Rick) Wallace - Chief Executive Officer: But I do think that you know, and we are seeing it now some of the correction in the overbuild for memory is clearly what's being going on in the last couple of quarters.

Terrific. Well, thank you very, very much.

Your next question comes from Satya Kumar. Your line is open.

Yes, hi thanks. Is your outlook for mid-500s to high 500s on April bookings that actually embeds an increase in bookings, I guess, from your seasonally slow September quarter. Just wanted to confirm if that includes or excludes any contributions from ICOS, what do you expect that to be in the second half?

Satya, I said in the prepared remarks, nothing we've talked about includes any impact from ICOS.

Okay. Okay. Can you help me understand bottoms up what's sort of driving that sequential increase in the second half for you versus most of your peers looking at significant declines? Specifically, you mentioned that one of your... some of your larger memory customers are still very active and strong in the first half. What do you see in terms of linearity of orders in these large memory customers and also you seem to have a pretty good increase from the foundries here in the March quarter as in terms of the orders in the second half.

Satya, I am little bit confused, we haven't said anything about an increase in the second half.

I'm looking at your June order guidance of 525ish, right?

Yes.

And so mid-500s to high-500s.

Yes, well, all right. I see what you are doing; okay. It looks relatively flat to us out to the second half today, and we are putting some conservative windage in that just because we don't know what's going to happen in the second half of the year in all cases. But I wouldn't build in an up second half for KT right now under the environment we're operating in. When I said mid-500s to high-500s, I also... if you listen to the prepared remarks, pointed out that our gross new orders for the quarter were 580.

Okay.

So, if you put those two together, our midpoint and the 580 you end up with about a 550 number going into what's seasonally usually a soft period for us, which is the summer time.

I am still a little confused; I think your guidance on this 525 for June, is that higher than --

Well, it's a range as you --

Because down 5% is off of your gross number, is that right?

It's a net number and it's a range, plus or minus 10%.

Okay. So we should be really thinking of the like 525 run rate in the back half of the year for bookings?

I don't know what you want to think, Satya.

I am just trying to figure out what you meant by that mid-500s to high 500s, because --

That's what I think our order range is going forward.

Okay. And so... and you are saying that doesn't imply an increase in second half from June.

Not that I know of, no.

Okay, maybe I'll circle back with you offline. Just a bigger picture question, Rick. When I look at process control as a percentage of WFP over multiple years, I see that it's actually sort of stabilized around this 13% level. It used to grow quite a bit in the early 2000, and you mentioned that KLA can significantly outgrow process control. What were you saying going forward that's going to help process control increase as a percentage that wasn't there before? Richard P. (Rick) Wallace - Chief Executive Officer: Yes, Satya, primarily 45-nanometer. I mean, what we are seeing now, the preliminary look at 45, and as John mentioned, we're really in the development phases of that in pilot production, but not large scale production of 45. It's pretty clear to us what our customers are telling is that there is just a lot more challenges they face, both that are related to defectivity and systematic defects, size of defects and also metrology. And so that's when we've modeled that and the early data supporting that there's going to be a larger percent of their spent as they ramp 45-nanometer, and that's what drives the out perform in terms of... relative to the rest of the space. And the early data looks pretty good on that, and as we move forward, I think we're fairly confident that that's how it's playing out.

Okay. Thank you.

Your next question comes from Mahesh Sanganeria. Your line is open.

Yes, thank you very much. I have a question on year-over-year deferred revenue and shipments. So, last year, your shipment was up 6% and the revenue was up 17%. This year, can you give us an idea whether the... since you are entering with a much lower deferred revenue, will the revenue growth will be inline with the shipment growth?

Mahesh, it's John Kispert. Difficult question to answer. We're just in April. It really is a function of how quickly our customers sign off on the shipments. We like to... we have in the past for many years run the business with essentially what we call five to six months of on-ship backlog. And that essentially means that we could with no orders shipped for another five to six months at the current rate. And then it's... and then we've run for a number of years with two to three months of deferred revenue; and that model really hasn't changed over the last couple of years. So, to the extent you are looking at modeling KLA-Tencor, I would stick with those assumptions, because that's just how we like to run the business and it really works well with our customers too, so I wouldn't deviate from that.

The other thing I want to check is, it looks like your service revenue is increasing significantly. And if I take your 550 number and flat line that, it looks like your... and take your equipment, just the systems revenue down 20% and service down... up 10% that will give us the kind of revenue you are talking about. And I think that's what people are confused about that, everybody is talking about 20% to 25% kind of CapEx or 25% to 30% and you are not implying that and I think probably it's the service in growth that is helping you in the revenues. Is that a good way to look at it?

Certainly, service is... for really two fundamental reasons is doing well. One is the, what I would call, older installed base to create more cash flow for our customers, KLA-Tencor maintenance can certainly help with there and that's been a big shot in the arm in the service business. And the other one is just newer tool shipments, far more complex, far more connectivity, which helps with the growth of the service business. As I mentioned in the prepared remarks, the... it's... it dilutes our gross margin. It's not a... but the bottom line is about the same as the rest of our business. And so it's... it is growing nicely and does offer us a buffer in tougher times like right now when it's well over $100 million a quarter, it gives us kind of a lower bandwidth that we won't drop down too low because we have that annuity stream.

It grew 24% last year. Can we going forward model on a steady state 5% to 10% growth, because last year I think you had couple of acquisitions on service side. 5% to 10%, is that a good way to model?

I think you're very safe at 10%.

Okay, thanks a lot.

Yes.

Your next question is from Steven Pelayo. Your line is open, sir.

John, just a quick question, the gross margin guidance for June. You suggested down, that's obviously... obvious on little revenues. But then you also talked about mix impact as service moves kind of 20% to revenue from the mid-teens to couple of years ago. So, I guess two questions then. You talked about June service revenue is growing, so what was March revenue? Was it inline with the kind of 23% service bookings that you had?

It's in the press release, Steve, so it's right there.

All right. I missed that one, then. So can you just quantify the margin range on products versus service?

Bottom line, they are about the same. Operating margin level are about the same, at the company average.

And the gross margin level?

Very dilutive on the gross margin; essentially, all the cost of service... all the cost of service is in gross margin. So, it's heavily dilutive in gross margin.

We can talk about a number later. Your tax rate for the June quarter, what do you can make [ph] up?

32%.

Okay. And then last question is, that I am just curious, given kind of the increased competitive environment and industry wide reductions in lead times, have you guys changed your goal of trying to carry a couple of quarters of backlog deferred revenue. Do you think you have to manage that now, down lower going forward?

Steve, we've been managing it for a couple of years. I don't think the competitive landscape for KLA-Tencor had changed a great deal in the last three of four years. We are forever trying to help our customers by giving it to them exactly when they want it. So, it's to the extent, we have... and we're still able to keep the essential model that we've had for that same period of time, so I wouldn't guess that you will see it change very much.

Great, thanks.

Yes.

Your next question comes from Raj Seth. Your line is open. Raj Seth - Cowen & Company: Hi, thanks. Rick, a couple of quick follow-ups on the previous discussion. On the technology transitions and the industry shrinks et cetera, obviously a key driver for you. Are you seeing outside of the memory space, where they seem to be very aggressive; are you seeing people back away in any sense from the aggressive scaling we've seen in the past? TSMC has kind of talked about half node transitions, et cetera. Is there anything meaningful there from your perspective? Richard P. (Rick) Wallace - Chief Executive Officer: Yes, I think that it's a good observation. There is definitely... it's been slower outside of memory with the exceptions of microprocessor advances. So in the logic space, there has been slower transition in terms of the design rule. I think it's a function of a couple of things. One is the desire not to over invest and I think a lot of the foundries have been careful. And the other one is I think there has been not as much demand for the advanced design rules from their customers. But we also see signs that that's changing and I think that will result in an increased need for advanced capability. But it's still early in that. Raj Seth - Cowen & Company: So not a secular trend that in some way affects you as more and more goes to the foundries and people go fab light, et cetera? Foundries ought to get back on track is what are you saying? Richard P. (Rick) Wallace - Chief Executive Officer: I think in order to be competitive, they are going to have, otherwise they are going to face more competition from what are traditionally iDMs getting into their space. And there is enough pressure on that, but if they don't shrink, some of these fabless guys will find another path. So I think they are going to get pushed into it, that's our sense. Raj Seth - Cowen & Company: Thanks, one more if I might. Back on the reticle side, you've introduced this wafer plane inspection. AMAT has something that sounds similar in terms of printability, stimulation, et cetera. Is there something that is happening here that could cause a discontinuity in terms of an investment cycle or is this stuff all kind of evolutionary? And what is driving this fundamentally? Is it increased sort of face shift masking and OPC that's now requiring this kind of functionality or what's happening here and is growth in the reticle space, is there any reasons to believe, it will be less than fairly linear? Is there an upgrade cycle coming from the industry, given what's happening in litho? Richard P. (Rick) Wallace - Chief Executive Officer: Raj, good question. I think that the general answer is, the reticles are bearing more of the brunt of trying to extend design rules. Because lithography immersion is out there, people will see what they can and they are trying to avoid, of course, going to double patterning although there is some inevitability to that for some customers. So the reticles are just getting pushed harder and the cost of reticles... the cost of design is high. So, a lot of that goes to reticle inspection. So we view that as a good opportunity. In terms of technologies, as you know with our market position in reticle, we model all the available architectures and we chose the WPI approach because when we look at that and we work with our customers, we are pretty confident we've got the best approach to dealing with that. So there have been competitors in this space and we believe there always will be. But we think we are uniquely positioned to benefit from the increased complexity of reticle, both in the mask shop and as it plays out for inspection measurement in the fabs. Raj Seth - Cowen & Company: And are we at a point... just a quick follow on, are we at a point where incoming inspection, which is something I think you've tried for a while to encourage to expand the market, that incoming inspection in fabs becomes a larger and larger part of this business? Richard P. (Rick) Wallace - Chief Executive Officer: I think it's... I think it has pretty good growth, but the mask shop growth is driven a little bit more on complexity. The... to answer your question, there are other ways to qualify reticles. And so the question is do people use the wafer inspection products to do it through print downs or do they use incoming and we think they are going to do some of both, and it's really customer preference. But I don't think it's... in particularly faster growing segment, I think it is consistent with the kind of growth we have seen in our reticle in the past. Raj Seth - Cowen & Company: Right. Richard P. (Rick) Wallace - Chief Executive Officer: So I... I mean, your first question, I don't see any revolutionary change, I think... I just think it's an increased challenge for the reticle guys and that drives the need for more and more inspection. Raj Seth - Cowen & Company: Got it. Thank you. Richard P. (Rick) Wallace - Chief Executive Officer: You got it.

Your next question comes from Olga Levinzon [ph]. Your line is open.

It's Olga calling in for C.J. Muse. I had a couple of questions. Assuming that ICOS closes in June, I know you suggested it would be accretive in the first year, would we see any sort of dilution in the September quarter?

Olga, really difficult to tell right now. We haven't spent enough time with the folks from ICOS, we haven't finished the deal. So it's difficult to forecast that.

All right. And then can you talk about what sort of CapEx assumptions you're making at the low end versus the high end of your order guide and then that 500 to high 500s outlook that you have for the second half? Richard P. (Rick) Wallace - Chief Executive Officer: You mean matching industry CapEx to our market position?

Yes. Richard P. (Rick) Wallace - Chief Executive Officer: Yes, I mean we said, what, six or eight months ago, I guess now that we thought calendar 08 was going to be down 10% to 15%, and at the time obviously we appeared pessimistic, now that would be optimistic from a lot of people's perspective. So I think it is... again, we model it anywhere from down 20 to down 30, and --

Okay. Richard P. (Rick) Wallace - Chief Executive Officer: That's... but so much uncertainty out there.

Got you. Do you think, I mean you saw a pretty big uptick in foundry orders this quarter. Do you think... have you become a little bit incrementally more positive in that front? Or is this just kind of initial uptick like one to type of total deal? Richard P. (Rick) Wallace - Chief Executive Officer: No, we do see the foundries... I think again investing more heavily in inspection and measurement then in production capacity, because of the new technologies and capabilities that they have to deal with. And then we think that looks pretty stable as we go forward. So we're not forecasting a big uptick in that. But we think it looks pretty solid in terms of their overall needs, and as you might imagine, we're in discussions with them all the time.

Got you. And then I guess one final question. Would you... I mean you've talked about this higher need for reticle inspection as you go to 45-nanometer and below. Which of, I guess, within all of the spaces that you currently participate in, which ones do you think would outgrow the overall process control spaces or under grow? Richard P. (Rick) Wallace - Chief Executive Officer: We don't actually have to spend a lot of time working on that problem, and I will tell you why. As years ago, we figured it out, it's better to have portfolio solutions and let our customers pick. So some people think darkfield, some people would feel brightfield, some people think fair wafer. But our approach is to provide the capabilities our customers need and let them decide. So from that standpoint, it's a bit of non-answer. But part of our strategy is to have a large portfolio and let our customers do it because if they are very interdependent and people can emphasize one technology over the other. So we're not... we don't really have to play winners and losers when it comes to the specific segments inside our space.

Although we have 25 general managers around here, all say that it's going to grow faster than the others.

All right.

And we sure don't want to anybody that they're not. So --

All right. Thanks so much. Richard P. (Rick) Wallace - Chief Executive Officer: Thank you.

Your next question is a follow-up question from Timothy Arcuri. Your line is open.

Hi guys. John, you know you've now gone basically two cycles. If I look back at the trough of the last cycle and I assume that things don't get too much worse from here. You've now basically gone two cycles where you are earning significantly in excess of your cost to capital, in the trough of the cycle. So I am wondering, now that you have proven that model, what your view is on putting some leverage onto the balance sheet? Thanks.

You're not going to give me the day off here, are you, Tim? You know our strategy hasn't changed, our vision hasn't changed, just off the top of my head, if I think about last two years, we've returned about $2 billion worth of cash to shareholders, either through our dividend or through buybacks. We're focused on growing the company in process control or inspection and measurement. We see plenty of opportunities as the world comes up with smaller and smaller things that become more and more complicated that have to get measured and data that has to get shared from process step to process step. And if we have to change the... we continue to change the capital structure, the company do that well... clearly we will. But no need at this point.

Okay. Thanks, John.

Your last question comes from Ben Pang. Your line is open sir. Benedict Pang - Caris & Company: Thank you for taking my question. You commented that over 50% of your orders are 45-nanometer. Do you expect that that is the mix that you see for the second half of the year, calendar year? And if that's true, does that mean you don't really need to see the DRAM capacity spending come back in order to get your kind of flattish outlook here for order?

No, Ben, we don't... I couldn't answer what it is past the June quarter. But I definitely see 45-nanometer and below being above 50% again for the June ending quarter. God, I hope DRAM doesn't go away, but we feel pretty good about what we call the technology buys across our entire product line going forward with the transitions to the smaller line versus the smaller... the changes in the transistor et cetera. Benedict Pang - Caris & Company: And could you provide the share count guidance again?

Off the top of my head, I think I said 179 million. Benedict Pang - Caris & Company: Perfect. Thank you very much.

Be good, Ben.

Thanks everybody for attending the call and we will talk to you again in 90 days.

This concludes today's conference call. You may disconnect your line.