Good afternoon. I would like to welcome everyone to the KLA-Tencor Fourth Quarter Fiscal Year 2014 Earnings Call. My name is Liane, and I will be your conference operator today. [Operator Instructions] Ed Lockwood, KLA-Tencor Investor Relations, you may begin your conference.

Thank you, Liane. Good afternoon, everyone, and welcome to our conference call. Joining me on our call today are Rick Wallace, our President and Chief Executive Officer; and Bren Higgins, our Chief Financial Officer. We're here to discuss fourth quarter results for the period ended June 30, 2014. We released these results this afternoon at 1:15 p.m. Pacific Time. If you haven't seen the release, you can find it on our website at www.kla-tencor.com or call (408) 875-3000 to request a copy. A simulcast of this call will be accessible on demand following its completion on the Investor Relations section of our website. There, you'll also find a calendar of future investor events, presentations and conferences, as well as links to KLA-Tencor's SEC filings, including our annual report on Form 10-K for the year ended June 30, 2013 (sic) [ 2014 ], and our subsequently filed 10-Q reports. In those filings, you'll 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, including those we make on this call today, are subject to those risks, and KLA-Tencor cannot guarantee those forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking statements. More information regarding factors that could cause those differences is contained in the filings we make with the SEC from time to time, including our fiscal year 2013 Form 10-K and our subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K. We assume no obligation and do not intend to update those forward-looking statements. However, any updates we do provide will be broadly disseminated and available over the web. With that, I'll turn the call over to Rick.

Thanks, Ed. Thank you all for joining us for our call today. Given that we provided a thorough update just 2 weeks ago at SEMICON West, I'll focus my commentary on summary highlights of our results and provide guidance for September. Then Bren will follow with a more detailed review of the Q4 financials. KLA-Tencor's fourth quarter results culminate a year of strong operating and financial performance for the company, as well as solid execution of our strategic objectives. Our June quarter report is highlighted by achievement of the second highest net bookings result of the company's history in fiscal 2014, including record bookings for our wafer inspection products in the year. This demonstrates our customer focus and market leadership, as well as the critical role KLA-Tencor plays in helping our customers address the higher cost and complexity associated with competing at the leading edge. Additionally, we announced earlier this month, our Board of Directors has authorized significant increases to the company's program to return cash to stockholders. These enhancements include an 11% increase in the level of the company's quarterly dividend to $0.50 per share, as well as an increase of 13 million additional shares to the company share repurchase authorization, which brings the value of the shares remaining available for repurchase under our program to approximately $1 billion using our current stock price. This meaningful increase and the targeted amount of cash being returned to stockholders is reflected -- reflective of our more assertive capital deployment strategy. Now for some perspective on the current demand environment. New orders for June were $898 million, 24% above the midpoint of guidance with strong foundry bookings for the sub-20 nanometer and upside to DRAM forecast leading the way. In foundry, we're encouraged by the strength of the upside in the June…

Thanks, Rick, and good afternoon. My remarks today will focus on highlights of the financial results for Q4 and my perspective on current trends in the marketplace and our outlook for the second half of calendar year 2014. Revenue for Q4 was $734 million, just above the midpoint of guidance, and fully diluted GAAP earnings per share were $0.77. Non-GAAP earnings per share finished the quarter below the midpoint of the guided range at $0.80 per share. In our press release and our supplemental financial data accompanying our results, you will find a GAAP to non-GAAP reconciliation of the $0.03 difference in EPS. My comments on the quarter will be focused on the non-GAAP results, which excludes the adjustments covered in today's press release. New orders in Q4 were $898 million, significantly above the guided bookings range for the quarter of $625 million to $825 million as we saw upside in our original order forecast from one of our foundry customers and from DRAM. We are encouraged by the strong demand in the June quarter as we believe it speaks to the value of process control in helping our customers navigate the complex transition from planar to 3D structures. Also, as Rick mentioned, since these orders are largely scheduled to ship in revenue in calendar '15, we think this very strong order activity sets the stage for 2015 to be another year of strong relative growth for process control and what industry analysts expect to be a growth year for the semiconductor equipment industry. We expect to have multiple customers simultaneously ramping new leading edge capacity featuring 3D designs in foundry, logic and memory in 2015. Turning now to our customer segment commentary for the June quarter. Foundry demand was 68% of new orders for Q4, consistent with our expectations…

Okay. Thank you, Bren. At this point, we'd like to open up the call to questions. [Operator Instructions] Feel free to requeue for your follow-up questions, and we'll do our best to give everyone a chance for further questions as time permits. So Liane, we're ready for the first question.

[Operator Instructions] Your first question comes from the line of C.J. Muse with ISI Group.

I guess, first question, considering the extended lead times that you're seeing, particularly on the foundry side, I'm wondering if that extends also into other customers into 2015. What I'm trying to get at is how do you see the ramp in terms of '16, '14 spend and, therefore, the linearity to shipments the foundry gets for you guys into the next year?

C.J., good question. Thanks, it's Bren. So I think as we look out going forward here, I think that clearly, this -- and I talked about it at SEMICON West where we had effectively one customer that we're expecting to ship somewhere close to $100 million to -- in the September quarter and we plan to book those orders in June. That business fell out; other businesses came in to replace it. And so it did put a bit of a hole into the shipment forecast for the quarter. I think going forward, as we said in the prepared remarks, we see the shipment trajectory of being positive, and we'll see a resumption of growth into December. And as we said in the remarks, it looks like it's greater than $800 million or so. I think it's interesting. It is fairly fluid in terms of timing or it has been, although, I think that those -- these orders that we did see in the quarter in foundry are a, I think, a good confidence point in terms of timing and when we expect that capacity to get added as we go into the first part of 2015. So we'll see. I mean, there has been a fair amount of fluidity around the shipment plan over the last couple of quarters. Clearly, this one in particular, it was a large sizable order, and those orders are slotted in -- mostly in the first half of the year.

Okay. And I guess as a quick follow-up, in terms of roughly the $1 billion buyback, is that something that if you were to see weakness, you would look to be more aggressive or is that something you're still planning over the next 12 months?

Well, our plan is, as we put in the press release, was that we were going to execute that over the next 12 to 18 months. Obviously, there are conditions you would look at as you go through that period in terms of -- that would impact how you think about the timing. But that's as far as I want to go in terms of how we would execute that going forward.

Your next question comes from the line of Harlan Sur from JPMorgan. Harlan Sur - JP Morgan Chase & Co, Research Division: So given the order upside in the June quarter, I believe at SEMICON you said you sort of now anticipate a flattish second half versus first half, so sort of 2 questions on that front. Given your pipeline, do you still expect flattish second-half orders? And then your first half order mix was roughly 63% foundry, 23% memory, 14% logic. How do you see that mix in the second half? And can you point to specific programs or initiatives sort of dragging that order mix?

So, this is Bren. Harlan, I think that -- in consistent with what we've said at SEMICON, and we see the second half lining up roughly flat with the first half given the strength of June where we thought -- initially, we thought second half would be stronger but then we had the strength in June, which drove that view where I think it's sort of flattish now. So I don't think that that's changed. As I look at the data, I think that foundry is probably up half-on-half, memory's up half-on-half, and logic is probably lower. Harlan Sur - JP Morgan Chase & Co, Research Division: Okay, got it. And then gross margin performance, Bren, as you highlighted for the June quarter, came in roughly about 110 basis points below the low end of your guidance range. I know you mentioned mix and lower revenues. Is the mix impact due to lower shipments of your high-end tools? Maybe you can just provide a bit more color there. And then for the gross margin guide for September, is that weighted more towards mix effects or just lower absorption from lower revenues?

Yes, so on the Q4 performance relative to guide, I mean, systems mix was about 1/2 of the delta there. And it was really just driven by what ends up revenue in the quarter, and that is all driven by acceptance cycles and so on. So that is how we just finished up, and it was weaker than I had expected. I think in terms of which product lines, I think there's a lot of -- always a fair amount of movement in that in terms of what actually gets accepted. The other piece of -- the other half of the margin weakness was driven by just higher-than-expected costs, parts costs in our service business, and I think it's just related to the mix of service business that we had in the quarter. So if you think about Q1, I think Q1, most of it to your point, I think, is you -- when you think about the revenue decline, I mean, as I said in the prepared remarks, we're expecting to have output going forward in excess of $800 million. So you're taking your costs associated with the ability to deliver that kind of output and spreading those across a lower revenue base, and certainly, that dilutes margin. I think the other dynamic that's in there is service is up just a little bit quarter-on-quarter. So service, which we believe is dilutive to gross margin -- it's accretive to operating margin but dilutive to gross margin as a greater percentage of the revenue mix, and that has an impact as well. So those are the dynamics that are affecting Q1.

Your next question comes from the line of John Pitzer from Crédit Suisse. Farhan Rizvi - Crédit Suisse AG, Research Division: This is Farhan, asking a question on behalf of John. I just wanted to probe you a little bit more in terms of the FinFET ramp. How it is progressing? The order backlog that you have already from one customer as you mentioned and what you're seeing from the other customers, where do you think the expected capacity is by end of this year and how do you see that progressing through the next year?

Yes. This is Rick. We continue to see a lot of customer interest in FinFET development, but I think that when you get to large-scale production, we're really looking out in the foundry space in particular to see what happens in 2015. We're not as dialed in to some of the other suppliers in terms of the actual number of wafer starts. There are a lot of estimates out there. But we do see activity across several foundries in terms of FinFET. The expectation there'll be pilot -- continue to be pilot work this year and then ramping into production and high volume by the end of calendar '15. Farhan Rizvi - Crédit Suisse AG, Research Division: Got it. And then my second question is on gross margins, the gross margin guidance for September quarter. If I think about the gross margins, your gross margins at that level were only way back in 2009. So I just wanted to understand like going forward after the September quarter, how should we think about gross margin? Is there some sort of a decline that has happened going forward or is it just a onetime issue?

Well, I think as I mentioned, I think how we're sized relative to the revenue levels is a factor certainly in that -- in September. I think going forward, over the long run, you always have some volatility in terms of the mix of products that we end up revenue-ing, and that has some impact on gross margin. I don't see anything fundamentally different or structural in the overall business in terms of gross margin performance. And I think you ought to continue to see us, over broad periods of time, perform fairly consistently with the gross margin model that we cited many times at 60% to 70% incremental gross margin on revenue growth. So I think given where we're starting from here, I think if mix holds the way I think it is today and obviously, that moves around a little bit, I think we'd probably end up performing towards the higher end of that range early on. But we'll have to see how it plays out. But nothing, as I said, that's sort of structural that, over broader periods of time, that would indicate that there's anything different than what we've seen in the past.

And this is Rick. To that point, if you look at the order book for the June quarter and you would analyze the expected margin, once those tools revenue-ed, then it's very consistent with what we've seen historically.

Your next question comes from the line of Atif Malik from Citigroup.

Rick, can you talk about the timing of the next phase for 3D NAND orders? If [indiscernible] on their call, they talked about the economics of 2D being better than 3D in the second half. Can you talk about what are your expectations in terms of the timing for the 3D second phase orders?

I think that's -- sure. I think the soonest we would see the next tranche of orders for additional capacity for 3D, the soonest would be the end of the calendar year with anticipation of early calendar '15 ramp-up. So I don't expect anything to happen before then. I think there's a lot of questions out there continuing to be addressed by our customers but when we talk to them that's the kind of timeframe we see is orders if they happen this calendar year would be at the end of the calendar year supporting buildout in '15, and I think you get to multiple suppliers -- the soonest you get to multiple suppliers is by the end of '15.

Okay. And then as a follow-up, can you talk about the action or the steps you're taking to combat ASML offering an on-board metrology and lithography, too, that can you talk about your historical relationship with Nikon and what you're planning to do in the future?

Well, we don't -- I guess, certainly from our customers, there's an interest as EUV pushes out to get more capability to be able to support the multi-patterning challenges with overlay. But -- and it's not just overlay, it's all the patterning challenges. So we have been pulled, I would say, by customers to support an initiative but what we're -- we talked about is 5D, which handles several discipline aspects of the patterning challenges. And that includes allowing our customers to interface with multiple suppliers of lithography but also looking at feedforward and feedback for match as well. So we're engaged with several customers on that, trying to support their efforts to get control of the -- of their litho strategy. And I think that, that includes support with other suppliers and I think of litho in particular. And so we're working those avenues. But there's a very active engagement by customers as they deal with the challenges on multi-patterning.

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

Rick, I just wanted to follow up on the big $300 million order that you got from that foundry in the June quarter. Do you think the product mix from that customer will be favorable to your fiscal 2015 gross margin?

Yes, I mentioned in a response to an earlier question that if you look at the order book -- I'll be more general than specific to that one quarter, but if you take June and you look at the overall orders for June, the gross margin from that quarter looks more typical of what you would expect and what we've historically had. So rather than getting into specific margin per customers, I'll just say, overall, June looks more typical of what we've done in the past. And as Bren said, there's some anomalies in the June quarter and September that are impacting overall margins, but it does resume as he indicated back to our historical levels as you get out further into '15.

I think the other thing I would just add to that is if you look at the mix of the new products and a lot of the products that we talked about at SEMICON West with some product launches, the margin profile of the new products is on par or better than what we've seen in the past. So we feel very comfortable, I think, with the margin position of the latest products that are part of that order book but also, just in general, what we're shipping out of the factories today.

Okay. And then maybe just a follow-up on the December quarter shipments, getting back to the $800 million level. Do you think there will be DRAM shipments or capacity adds helping in that December quarter also?

We're still in excess of $800 million into December. And I think a lot of that -- I mean, there's capacity that's being shipped, I think, in general in the book for memory. But I think a lot of that depends on timing of orders. But it's certainly possible we could see some capacity shipping in the December quarter for DRAM.

Your next question comes from the line of Timothy Arcuri from Cowen and Company.

I just have a couple of things. First, Bren, I don't know if you're going to answer this. But given how much the numbers are whipping around, you gave us shipments for December. I'm wondering if you can give us some sense of revenue for December and maybe margins, just given how margins are also whipping around because of some of the absorption around this big order? And then I have a follow-up.

Tim, I don't want to guide out to the December quarter. I wanted to, I think, provide a little bit of color on how September is sort of setting up and some of the unique dynamics that are affecting September on the negative side and our expectations going forward. Certainly, there's a -- a portion of our revenue is going to come from shipments. So to the extent that we can deliver the shipments, 40% to 50% typically of shipments end up being revenue to the quarter. So that obviously has an impact on where we end up. But to your point, I mean, it's clearly -- in the short term, there's a little bit more volatility around the numbers. I think over the long term, given a lot of the dynamics that we talked about at SEMICON West, I think it's -- perhaps there's some moderating cyclicality, but in the short term, there can be volatility. When you have just a few customers placing orders and they're large orders and the ASPs are high, units are lower, it does have an impact. Those dynamics do have an impact quarter-on-quarter when one customer makes a decision on their plans. And I think one aspect to these plans, in terms of how people buy process control, is they tend to front-load it. And so to the extent there are challenges around progressing nodes and they're -- it obviously impacts the timing of how they add process control. And they get in the Q I think a little bit earlier for that. And as a result to that, you do see some movement when there are challenges in terms of trying to ramp new capacity. So I think those are dynamics that we're just going to have to live with. I think there are a lot of positives to it in terms of just our exposure to foundry logic. But over the long run, I think it has very little effect. And as I said, I think over time, I think it makes things a little bit more predictable in terms of how we look at it.

And then I guess, just a big-picture question for Rick. Rick, I've been covering KLA for like 16 years and KLA never used to miss on any number. They never used to miss guidance, very predictable results, operate with a lot of backlog. And now every quarter it seems like we're guiding below or margins are whipping around a lot, yet you still have about the same amount of backlog that you've always had. So I was just wondering if you can sort of wax poetic a little bit about maybe what's different about the company today because it seems like it's becoming a lot less predictable and a lot less operating with a lot of backlog as it used to, and I'm just not sure why?

Yes, great question. I think -- 2 thoughts, and I'll let Bren weigh in on part of this answer. It's interesting if you look back in the last 4 or 5 years. The predictability year-on-year has actually never been higher. Our ability, when we go back and look at our plans for our calendar year, our internal plans, fiscal year-on-year, it's actually pretty close to what happened. The volatility has dramatically increased on a quarter-by-quarter basis, however. And I think it speaks a little bit to what's going on in terms of fewer customers, fewer units, larger ASPs. And the backlog is partly affected by our customers not needing to take things early or not wanting to take things early but not wanting to have them late. So they want all the equipment to come in at the same time kind of to Bren's comment earlier, when they're looking at a ramp, they want to front-load it with process control. But when something moves out as it did in the September quarter, the guys that want to move in, did -- it's not a plug-and-play in terms of being able to fill in that revenue. So I think the backlog is still very solid, it's just not as fungible in terms of short term as it was. Bren, if you want to add anything to that.

So Tim, I think over the last 3 or 4 years, we've seen shipment backlog actually come in a fair amount. It used to be consistently around 6 months. And over the last few years, it's come down between 4 and 5. There is a bit of a pop in June but it's related to some long lead-time business that we booked. I think that's a little bit of an anomaly compared to what we've seen where we're generally booking in one quarter and shipping a fair amount in the next quarter. So that has changed a fair amount. And to Rick's point, it's not necessarily fungible customer-by-customer, and the timing is a factor in terms of when they need the equipment. So as a result of that, we are reacting I think much faster to the bookings number or really the shipment number, I think, in terms of where the P&L is. And so to the extent that there's predictability quarter-on-quarter in shipments, then that enables us, I think, to drive a little bit more predictability in the P&L. But it does react much faster, and in the past, we had more backlog to, I guess, absorb or cushion some of those swings, one direction or the other.

Your next question comes from the line of Mahesh Sanganeria from RBC Capital Markets.

I actually wanted to follow up, Rick, on the comment you made about the timing of the customers trying to take all the tools together. The thing -- it's -- what's surprising is, I would think that to your tools, [ph] goes with the lithography tool and if I look at your guidance ASML, they guided the shipment down 20% almost in Q3 and then another down 15% in Q4, whereas you are seeing a pick-up in Q4. So where does that discrepancy coming from? I would think that foundry guys will be looking for lithography tools first, or at least lithography and process control together.

Well, you might imagine, we don't spend a lot of time trying to figure out what's happening in the litho tools space as much as dealing with our own dynamics. But a couple of thoughts for you: One, in the case of technology transition. Essentially, the world is on 193, by and large, 193 scanners now. And so there's really not a lot of change in new technology for scanners with the pushout of EUV. So may well be, they -- there's some modest changes in the scanner but they're not moving wavelengths. So they -- you don't really have necessarily technology by as much as you do and -- with some of our tools with new tools coming in. And also, if you look at memory, then in the memory case, again, the extension of litho. So we have some of the overall, probably same dynamics but I don't think it's necessarily as linked as it might have been in the past when the new litho technology isn't really that new. What we do see, too, is in the case of the order we received that we've talked about in June is the timing for that, part of the customer's goal, and we were working with them, was to secure the slots to support a RAM but also to get us in place to provide the training and resources to do all those things. In that case, they have the lithography that they need. What they were talking about is bringing in the other tool set and particularly ours because they're feeling very pressured by the yield challenges as they do 20 and sub-20 nanometers given their portfolio. So on that one, I think there's a clear difference between what we would experience in other tool providers. So I don't think it's always true that it's the same -- we're not dealing with many greenfield fabs these days. Mostly, what we're talking about is the extensions to existing capacity. In the case of greenfield, then, of course, you'd be right. You'd want to get litho tools and the other new ones, but that's not a big part of what's going on right now.

Okay, that's actually very helpful. And I conclude from that, that the tools you are shipping are more newer version of your tools rather than the repeat buyers kind of thing for that 300-millimeter big orders.

Correct. New -- new in that customer. Not necessarily new everywhere, but new for that customer.

Right. And then one quickly on the OpEx. With the revenues going down so much, won't OpEx should be going down because your bonus allocation probably should be going down for the quarter?

Well, when we look at OpEx, I mean, the way we think about sizing the business is relative to the roadmap requirements to maintain the product investments that we need to make. And so we're less sensitive, obviously, to a quarterly change in that. And I think given our expectations of the ramp in business, we think given the -- what we feel like we need to do and our expectations of our fiscal year, but also as we look at into calendar '15, we think that's sized right. I think over time, depending on performance, you start to see variable comp move both directions. But it doesn't do that necessarily in one quarter. It all depends on what happens on sort of annual views in terms of how we pay that out. So for now, I think it's reflecting, I think, the -- some higher program investments and I expect to see those going through over the fiscal year, and I'm currently sizing the business right now around -- on an annual basis, somewhere between $925 million and $935 million for a fiscal year, and that translates into the guidance range that we gave you. Business is a lot stronger. That probably doesn't change all that much. Probably a little bit related to comp. If the business is weaker on the margin, probably doesn't change much the other direction. I think significant moves either way, obviously, will have us reacting to it, but that's how we're looking at it today.

Yes, let me just add to that. We are starting a new fiscal year, so September is the first quarter. Obviously, we're well aware of the plans for September as we make our plan for the fiscal year. And we feel very confident about our plan for the fiscal year. And we think we'll have a very strong FY '15 for KLA-Tencor. And we're obviously aware of what that means in terms of the -- starting with the September quarter. So I think we're actually well positioned to outgrow the industry as we go forward.

Our next question comes from the line of Romit Shah from Nomura.

I just want to go back to the cash balance and buyback that I think C.J. touched on. Bren, when you made the buyback announcement at SEMICON West, I think some people were expecting more just given that if you were to execute that over 12 to 18 months, it would seem like you could cover most of it with your strong cash flow generation, and therefore, barely make a dent in the cash balance. So could we get your perspective on that and just the capital structure more broadly?

Well, certainly. As I talked about at SEMICON West, I think for a lot of the reasons that I talked about around secular dynamics, our business model, our ability to generate cash through cycle, that there's an opportunity, I think, for the company to be -- to adopt a more service capital structure as part of our long-term strategy. And so I think we've done a lot already with what we've done in terms of our dividend and the growth rate in the dividend, but there's an aspect or an opportunity to do more there. So the buyback announcement was that the sort of the recognition of that, I think the logical first step in terms of moving in that direction. I don't want to show all my cards on it, but it is something that we continue to look at additional opportunities to drive value for our shareholders by using the capital structure of the company in a more assertive way. So -- also, I think, given a lot of the dynamics I talked about, it does offer an opportunity, I think, to rely more on leverage as an opportunity to fund the company's needs, either strategic or operational down the road. And so certainly, that's an aspect of how we're thinking about it as well. So we will -- I think, on execution of the buyback, it will take our U.S. cash balance. I think, reducing the U.S. cash reserves, which is how we're going to fund that with the logical first step there, and then they'll take our U.S. cash balance because I'm not generating any new cash in the U.S. because I'm already paying it all out. We'll take it down to somewhere around $1 billion, which we think is at the right level given our views of just a strategic -- the ability to fund strategic needs and operational requirements.

Would you consider raising your debt levels to bring your net cash down to a level below $2 billion?

Well, I don't want to get in the specifics. I think to your point and the point I made, I think there are opportunities to -- and I think this has changed a lot in the last 12 months and I think as we look at it today, I think there are opportunities to use more leverage to drive more value over time. And I'll leave it at that.

Your next question comes from the line of Krish Sankar from Bank of America Merrill Lynch.

A couple of them. Rick, I have a question. Your 2 foundry customers that are doing 14-nanometer FinFET and they have a technology tie-up. Are the DTOR[ph] or PTOR[ph] tools the same between the 2 or can they make independent decisions?

I'm trying to think about the confidentiality of that question. I think that, in general, our customers, the ones we deal with, are unique and able to make their own decisions.

Got it. All right. And then just a 2-part question for Bren. On the December quarter shipments over $800 million, can you talk a little bit about what it is in the composition of the review between foundry and memory and other guys? And also did you give the June quarter order breakdown by geography?

I think the breakdown of the geography is on the web, in our supplemental information. So you can get it there. And it's -- we talked about it at SEMICON West, so it's probably not at all different from there as we finalized the quarter. I don't want to get into the mix of the shipments. We don't typically look at it that way and it all lines up based on when customer request dates are and that's how we end up driving the shipments. So I -- we think a lot about order -- incoming orders from a customer segment perspective. But to our operational guys, it's all about shipping the tool, not necessarily where it's going.

Got it. Did you guys give a breakdown of DRAM versus NAND in June?

DRAM in June, of the memory number, which was 23%; NAND flash was 29% of that.

Your next question comes from the line of Srini Nandury from Summit Research.

This is Srini Sundararajan. I have 2 questions: one positive and one negative. The first question is when you look at calendar Q3, would you see that there's a breadth of foundry orders like how you're getting foundry orders from like the 28-nanometer customers right down to 16 nanometers?

Yes, there is some breadth in the order book for foundry in September. We look generally, across the second half but in September also.

Okay. And considering that your big order that -- for like the shipments have been likely to be later, isn't it fundamentally different than whether Apple and Qualcomm go with the one set of foundries or the other? And therefore, do you have some contingency plans on what might happen if there are cancellations?

Generally, I mean if you look historically, our orders tend to shift. I mean, our cancellations in our backlog tend to be very low. I mean less than 1%, over time. So it's usually very good backlog. And obviously, the timing moves around a little bit. So I don't have any reason to believe in this case that this isn't quality backlog that will ship over the next 6 to 12 months.

Yes, we're heavily engaged with the management team and have had a lot of meetings about support. So I'm confident as well that there is -- to Bren's point, that these orders are very solid. I think one thing we have seen in the recent past as the customer has consolidated more, we do see, I think, we have pretty good visibility into people's confidence in their plans. And usually, they'll let us know if it's not going to happen. But once they place the orders, it's pretty good indication. The only exception would have been what happened during the 2009, right after the financial crisis, I'd say then, in those environments, all bets are off. But since then, I think it's been very solid.

Your next question comes from the line of Mehdi Hosseini from Susquehanna International.

Rick, when you were talking about outgrowing the industry back at SEMICON, outgrowing by 5%. Is that revenue-based or shipment?

Well, we generally look over our timeframes in terms of -- ultimately, it has to be revenue. So it varies. But as you know, Mehdi, depending on the start and endpoint, you got to integrate it over time. But ultimately, if it didn't turn into revenue, it doesn't really count, right?

Because early on, you said the year or fiscal year is very lumpy, which I understand, customer concentration. But the year has progressed in line with what you were expecting in January. But when I look at your shipment guide, even for December, even if I put in more than $800 million, it would give me calendar year shipment down 3%. So either you're saying or suggesting that WFE is going to decline by more than 5%? Or is that just an anomaly?

I'll let Bren take the year, but we're looking out at FY '15 press, whereas we're referring to as opposed to calendar '15, which is the next 4 quarters. But again, Bren can address calendar '14.

So when we think about calendar '14, I mean, we --- back in January, I think we were in a much more bullish view that we've moderated as we went into the April call, and I don't think that view has changed today. That we think the industry is probably plus 5% to plus 10% in that range. And so -- and when I -- and to Rick's point earlier, and just try to think about revenue performance relative to industry. This year, calendar '14, I think because of these pauses related to leading edge foundry, I think because of memory composition, I think we're setting up for this year to probably be somewhere around the market perform in calendar '14. I think as we look at calendar '15 and we -- to Rick's point earlier about our fiscal '15 given the dynamics expect about foundry and the progression of 16- and 14-nanometer ramp, we think that the company is positioned to see some of the relative outperformance that we saw in 2011, 2012 timeframe.

I'm just trying to understand the thought behind the forecasting because in January, you were saying that foundry is going to be weak, but then 3D NAND is going to be very strong. And back then, you were saying that June quarter, you should be able to do around $750 million, $800 million of shipment. That has entirely changed. And now you're saying there's a big turn coming in December. So I'm just wondering what gives the confidence that these turns or these pauses don't change or is -- are you -- are we setting ourselves up for more disappointment down the road?

Well, I mean -- and we talked about it a lot over the last 6 months about just, I think, the challenges our customers have been facing in trying to ramp some of these new technologies, in the memory side with V-NAND, I think there were expectations in the industry. It's certainly a much stronger investment in V-NAND and certainly, I think that has pushed out into '15. Certainly, the next phase of that. We talked about a lot about foundry push. I think, given what we're seeing in the order book now, it seems that we're starting to see these commitments in the industry towards putting production in place to start to ramp this capability for FinFET into the middle of next year. And that would line up with timing of shipments in the fourth quarter, calendar quarter and into the March quarter to be able to have that capability come on line. But these have been very challenging transitions for our customers and they've all, I think, crossed whether it's memory or even in foundry. We've seen a slowdown there that has continued through the middle of the year. It looks like it's going to be -- it's turning the corner now, but I think it's been a tough transition.

And Mehdi, to your point, and you've made this point in the past as I recall, our inability to forecast short term. It is -- I made the comment earlier on the call. It is interesting, when I look back, we actually have done -- certainly, internally when we plan out the year, we've actually done a pretty good job of forecasting on an annualized basis. But what is interesting also is it's usually not exactly how we thought it would happen. So if I look at the fiscal year that just ended, our booking's target for the year and what we ended up achieving internally is very close to what we have modeled and process control intensity was very close, and we actually had some strength in share. But when you go back and look at the specific customers in the mix, it wasn't necessarily at all what we thought. So it came from different regions, it came from different customers, it came from different -- sometimes even different products. So I would say, we're better over the longer term and more on an annualized basis than we are on a quarterly basis. And even to your point, things move and have moved quite a bit during this calendar year. And to your point, it's pretty likely that they'll move again based on this history. So we're -- we pointed out at SEMICON West, it's very hard for us to predict WFE, so we base our business on what we think in terms of share and adoption and how we can drive process control intensity and try to be flexible to handle the normal gyrations we see in the customer base. But we have consistently proven your point, we're not great at forecasting certainly over a 3-month period.

Your next question comes from the line of Patrick Ho from Stifel, Nicolaus. Patrick J. Ho - Stifel, Nicolaus & Company, Incorporated, Research Division: Rick, maybe first, a big kind of picture question on the reticle inspection business as a whole. We've seen a pickup in orders in recent quarters. But do you see any big structural changes in that business itself given that you are at much higher run rates coming out of the market correction in 2010 and '11 but we've kind of seen it really muted for the last, I would say, 3 years. Are there big changes coming around? Or do you see maybe a more sustained pickup as we enter 2015?

Patrick, great question. I would say the following: One, the biggest inflection that would come for reticle inspection would, of course, be EUV and high volume. And we said at SEMICON West and continue to say, we don't see that happening in the foreseeable future. However, we are seeing indication that a sub-20 nanometer, some of the lithography challenges being presented by people having to extend 193 is creating a buying cycle both in -- and certainly, in mask shop, it's not as robust as it would be if it were an entirely new generation of mask. But I think that what we don't know and our customers don't know is how much capacity they're going to need to add. And part of that is how many starts are going to actually happen in the sub-20. But we have seen some support for that. The other thing that goes on is in the fab line. And I think that the customers have enjoyed a holiday, a mask makers holiday, if you will, because of the double patterning on relatively simple mask. But again, when you get to sub-20, there's some challenges associated with that. That business is different, we have different offerings for it, that tends to be more cost competitive and not as high tech. And so there's some challenges in terms of satisfying, and there's more competitive pressure in that market. But we have offerings, and we think we can compete in that market. But it's not going to be as the same as what you've seen in the mask shop. So until high volume, EUV comes in, which is several years out, I do think there's going to be some opportunity as we look at sub-20 and some of the lithography challenges. But frankly, it's new enough that our customers don't yet know exactly the implications for their reticle strategy. Patrick J. Ho - Stifel, Nicolaus & Company, Incorporated, Research Division: Great. And my follow-up question on the wafer inspection business. You've seen a pickup, and you talked about the record orders this year. You've also mentioned that DRAM spending was up. I think in the past, you've noted that you expect the process control intensity for DRAM to be kind of split between metrology and inspection. I guess, after the last few quarters with DRAM spending has been up, are you seeing more of a bias towards inspection given that metrology is trying to hold steady? Or is that something where metrology will catch up down the line with, I guess, the capacity build on the DRAM side?

Great question. I think that the immediate answer is right now, we're seeing probably a little more opportunity in the wafer inspection. But the truth is, there's not enough out there yet at the advanced nodes and DRAM or frankly and what's going on in flash, for our customers to fully appreciate what they're going to need. We've talked about our process control intensity going up. But if you look at -- for example, our 3D NAND model, part of the reality is there hasn't been enough out there to really validate the model yet. But I would say if there's any bias, it would be towards higher levels of adoption and probably more in the inspection side. The caveat being is if in the -- our ability in OCD, in optical CD, to take on more some of the historical SEM-based inspections, I think that does provide some opportunity particularly as people go to more 3D structures then there's probably more growth in that segment. So still early to tell, but I think, right now, to answer your question, I'd say the bias might be a little more towards inspection.

Your next question comes from the line of Mark Heller from CLSA.

Rick, I'm just wondering what your view is for calendar '15. Do you see any pull-in for -- potentially for 10-nanometer of foundry spending? And if so, do you have any view whether EUV will be used on 10-nanometer?

We do see some interest in 10-nanometer. In fact, there's -- I don't know, I probably couldn't explain [ph] but there's certainly been customers talking about accelerating 10-nanometer development and very aggressively. And I think, there's a bit of a competitive battle going on in the foundry space to get to the next node. My expectation is that we'll not see high-volume EUV for 10-nanometer, but because there is some capacity out there, I think it only stands to reason that if people want to use 10-nanometer, want to use EUV in 7-nanometer production, they're going to definitely try to get it into 1 layer or 2 for 10-nanometer just to debug it and prove it out. But I think on -- at the same time, customers I talked to about 10-nanometer have -- that is a nice-to-have, not a must-have, to be able to do 10-nanometer. They're certainly going to be capable of doing 10-nanometer without it because they feel like there's some challenges with the productivity in 10-nanometer. But of course, the -- especially those that have some capacity would like to get some learning out of it and some productivity out of it.

Got it. And on the second half order outlook, you said that memory would be up half-over-half. Do you think that's weighted more toward DRAM or NAND?

I think in September, right now it looks like it's -- NAND is a higher percentage. We're -- right now, for September, we're forecasting memory overall to be about 27% of the mix or so, 27%, 28%. And NAND will be the bulk of that. I think there is -- but there is investment in both areas. And so -- I just don't have the detail on December but that outlook is for September right now.

I'll now turn the call back over to Mr. Ed Lockwood with KLA.

Thank you, Liane. I'd like to thank everyone for joining us today on our conference call. An audio replay of today's call will be available on our website later on this afternoon. Once again, we appreciate your interest in KLA-Tencor.

This concludes today's call. You may now disconnect.