Lam Research Corporation (LRCX) Q1 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Lam Research Corporation September 2011 Quarterly Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Shanye Hudson, Director of Investor Relations. Please go ahead.

Thank you, Alicia. Good afternoon, everyone, and welcome to Lam Research Corporation's Quarterly Conference Call. With me today are Steve Newberry, Chief Executive Officer and Vice Chairman of the Board; Martin Anstice, President and Chief Operating Officer; and Ernie Maddock, Senior Vice President and Chief Financial Officer. Shortly, Ernie will discuss financial results for the September 2011 quarter. Steve will then share Lam's business outlook for the December 2011 quarter before opening up the call for Q&A. The press release detailing our financial results was distributed over the wire services shortly after 1 p.m. this afternoon and is also available on our website at lamresearch.com. Today's call contains certain forward-looking statements, including those related to our expectations of market size; GDP; consumer demand; consumer spending and behavior and the factors that influence those expectations, as well as our investment plans; our intentions for research and development activities; our contemplated tax rates and our forecast of market share; shipments; revenues; expenses; margins; operating profits; collections; share repurchase activities; earnings per share and cash generation, as well as other statements of the company's expectations, beliefs and plans. There are important factors that could cause actual results to differ materially from those described in these forward-looking statements, and a list of those factors can be found in the slide package accompanying this conference call and on our most recent Form 10-K filed with the Securities and Exchange Commission. All forward-looking statements are based on current information, and the company assumes no obligation to update any of them. This call is scheduled to last until 3 p.m. [Operator Instructions] With that, I'll turn the call over to you, Ernie.

Thank you, Shanye. Good afternoon. I'll comment on our September quarter results, which reflect performance within our guidance ranges for all financial measures. For the quarter, shipments were $580 million, down 27% from the prior quarter and in line with the midpoint of our guidance. Application and market segment breakdown for the quarter were as follows: applications at 65-nanometer and below represented 95% of overall system shipments, while 90% of overall system shipments were for applications at 45-nanometer and below. System shipments for NAND were 40% of overall system shipments, followed by DRAM at 13% and other memory at 5%, making the total memory segment 58% of the overall system shipments. Foundry shipments represented 24% of overall system shipments, and the remaining 18% were for logic and other. Revenues for the September quarter were approximately $680 million, down 10% sequentially and above our guidance midpoint with good performance across both systems and service products. Gross margin was 41.7% versus our guidance midpoint of 42%, attributable to product mix and lower factory utilization associated with business volumes. Gross margin for the June quarter was 45%. Total non-GAAP operating expenses were $183 million, up $3 million from the June quarter as we continue making the R&D investments that we've discussed over the past few quarters. We believe that these investments are critical in ensuring that we remain well positioned, and we will sustain and increase these investments, as appropriate, to ensure that we're able to provide best-in-breed technology solutions to our customers over the upcoming technology inflections. Non-GAAP operating income was $101 million, which resulted in a non-GAAP operating margin of 14.9% near the high end of our guidance range. During the September quarter, our non-GAAP tax rate was 19.6%, which is higher than the mid-teen rate we anticipated. The change in…

Thank you, Ernie. Good afternoon, everyone, and thank you for joining us today. Since our June quarter call, macroeconomic uncertainty has continued, including concerns over European debt issues and ongoing struggles in the U.S., with high unemployment and a growing budget deficit. These and other factors have contributed to analysts now projecting 2011 global GDP in the range of 3%, down from 3.5% earlier this year. The impact of this reduced GDP growth outlook on the electronics industry is evidenced by weaker consumer demand across a range of products, including digital TVs, game consoles and in developed countries, consumer PCs. The impact of this economic uncertainty has caused corporations to manage capital budgets more closely, resulting in some slowing of the pace of growth for the PC refresh cycle, while the server market continues to maintain positive growth. These dynamics are largely U.S. and European oriented, and are offset by a continued healthy demand for tablets and smartphones in strong emerging market PC demand. This overall demand environment creates reduced expectations for electronics growth this year and current forecast project 2011 IC unit growth in the low-single digit range with semi-revenue expected to be in the $300 billion range or essentially flat to slightly up versus 2010. Looking to the IC segments, tablet and smartphone market demand has supported a relatively strong demand environment for NAND. Our projections for 2011 NAND wafer fab equipment spend remains essentially unchanged with a fair amount of spending driven by new capacity additions. While our customers remain optimistic about the long-term growth prospects for NAND demand, the pace of the capacity ramp has started to slow as customers absorb the sizable amount of equipment already delivered and adopt to more cautious short-term outlook. Based on our current view, we expect some shipments originally planned…

[Operator Instructions] Our first question is from the line of Patrick Ho with Stifel, Nicolaus. Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division: Steve, it's also been a privilege to have worked with you over these years. So best of luck in your new role going forward. And Martin, also, good luck on a going forward basis.

Thank you. Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division: First question, in terms of the outlook for the December quarter shipments, can you give a little bit of color in terms of the application breakdown between memory, foundry and logic and where you see strength, not only from December, but maybe on a going forward basis into the March quarter?

Yes, I think, certainly from the standpoint of any given quarter, we shouldn't really constitute it as a trend. But specifically for us in the December quarter, we're going to see a greater set of shipments to foundry and logic, probably around 60% of our shipments. As we go forward, I think we'll see memory really being closer to 50%. I think that, that's pretty much how we see in a $28 billion to $32 billion kind of rolling 4 quarter spending environment. It really is going to average out to about 50% memory and 50% logic. For Lam, based on our market share positions in etch, as well as a slightly different profile for market share in clean, which is more -- slightly more logic-weighted than etch's. Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division: Right. And maybe a bigger-picture question for you, Steve. In terms of the EUV delays that they're experiencing in the industry right now, can you just give a little more, I guess, color in terms of the opportunities for Lam again over the next couple of years as EUV is delayed, how it affects both etch and clean?

Well, I think, certainly, as it relates to etch, we'll see an extension of more application steps at double patterning. And also we see a lot of customers who are working to implement quadruple patterning, all of which will clearly provide for an expansion of etch market size and opportunity for Lam Research. Quantifying that exactly is something that we're working on as we go through our annual planning process, and it's something that we could probably articulate more next quarter when we talk a little bit about what we want to do in 2012. As it relates to clean, certainly, as you have each application, there is a requirement for a post-etch clean. And so there will be some additional expansion of the clean market. But the longer-term trends for single-wafer wet clean has been to consistently grow as a percentage of the total clean market and as a percentage for wafer fab equipment. And I think that the push out at EUV will help contribute to that to some degree.

The next question is from the line of Jim Covello with Goldman Sachs.

Steve, let me add my congratulations. You've been absolutely unbelievable to work with in driving the company. So congratulations on a terrific job and good luck in the new role.

Thank you.

I feel like I shouldn't even ask a question after that, but I'll go -- I'll give it a shot. The -- it seems like we're heading into a period here where we're going to focus much more on technology buying than capacity buying. So I guess the first question is, some of the biggest customers in the industry like Intel, which I understand you don't have exposure to, talk a lot about how much equipment they reuse from one node to the next. And I was wondering if you could give us your perspective on the rest of the industry's reuse and especially as it relates to etch equipment? And then the second question would just be understanding it's going to be technology buys for a while here because your customers are struggling and utilizations are already not that high. What segments do think are most likely next in the pipeline for capacity buying?

Okay. Primarily, most of the technology conversion activity has been in DRAM, and a significant amount in NAND. I want to comment about those 2 segments first, and then we'll talk about conversions in foundry and logic which exist to a much lesser extent. So our perspective for 2011 was that with 75% bit growth in NAND that there was probably around 550,000 wafer starts per month of conversions and about 200,000 wafer starts of new capacity adds. And that's important because for new capacity adds, there's about $235 million spent for every 10,000 new wafer starts. For a conversion, they only spend somewhere around $52 million, so your capital intensity is far less. And so we believe that if you kind of average the 550,000 conversions of the 200,000 new that capital intensity for 750,000 conversions in new was about $100 million for each 10,000 wafer starts per month. And that's one of the reasons why you see capital intensity for NAND being low or relatively low. If you go to DRAM, you have a situation where we ended up in a situation where bit growth was lower at 44%, and we only had about 60,000 of new wafer starts added and a little over 400,000 of conversions. So DRAM is more expensive. It's probably about $300 million for 10,000 new wafer starts and $68 million for conversions. So we think when you take that mix, it was approximately about $100 million for 10,000 wafer starts, very similar to NAND except, of course, NAND converted, it added a lot more total wafer starts, which resulted in a lot more money spent for NAND. When you go into 2012, just very quickly, we think DRAM is going to add maybe 40,000, maybe 50,000. It depends on bit growth. Forecast per…

The next question is from the line of Stephen Chin with UBS.

Steve, also my congratulations on your successful tenure.

Thank you.

Thanks for sharing your views on 2012. I was also hoping that you could share your early thoughts on WFE trends in the first half of 2012 for the industry? It does look like second half WFE was down a little bit more than you originally thought. Just curious how Lam is preparing to manage the first half of 2012? And then my follow-up question is, on the December shipment guidance, did you mention the pushouts were mostly at the NAND flash customers? And when do you think those NAND flash pushouts might be rescheduled for?

I'll talk a little bit about the question relative to December and then have Martin address what the plans are and the thinking as relative to first half of 2012. Interestingly, when we sat here 3 months ago, when we looked at the December quarter, my comment was that we expected the December quarter shipments to be higher than September. That was true all the way till the middle of September when we saw some significant pushouts in the memory space, which was both NAND and DRAM. It was stronger pushouts in NAND, but it was also present in DRAM, and then it was offset a little bit by some pull ins in the logic/foundry space. And so -- and that of course, is that instead of being up, our shipments are down 5%. I think that it -- what -- the environment that we're in is consistent with what we've talked about. On a quarter-to-quarter basis, the ability to accurately forecast what's going happen within a quarter is very difficult given the concentration of customers and the ability for customers to push $25 million, $50 million or more out of a quarter. And when you talk about the next quarter out, in this case March or even June, we can tell you what customers are saying they want us to do. But whether they'll actually execute that, I don't know. So let's have Martin kind of give you some perspective to how we're thinking about the first half of 2012.

Steven, the first thing I would say is that perhaps stating the obvious, the visibility for the company is pretty low. And I don't think that's a new message. And so very logic stem, the types of things that really drive the answer to your question in terms of outlook are kind of macro-related. And so as best as I can tell, kind of the emerging consensus around WFE is that it ranges between 5% and 20% down year-over-year, and Steve kind of spoke to that in his prepared comments. And our thesis for the kind of fundamental drivers of spending around content-rich smartphones and the overall cellphone market also kind of shift to mobile computing and the emergence of data centers and high-speed connections, I mean, that still kind of plays out as a fairly prominent theme. Quite what that means precisely for the first half of next year or the March quarter, clearly, a bunch to still learn. I would say directionally and this is not a statement of guidance because it doesn't need to be and shouldn't be based on what we're learning from customers. But directionally, I would expect that it is more likely that our shipments in March are higher than they are in the December quarter guidance today. Certainly, more likely, they will be higher than flat or down. But as we know, lots can change in a pretty short period of time evidenced by the fact that sequentially, in September, our shipments declined by 27 percentage points. So there's clearly the potential there. And directionally, the conclusion is the one that I've just given you relative to managing the company, one of the most important messages is the one we're communicating for some time, which is a commitment to invest in the long-term future of the company. And that remains a prominent part of the decisions we make on a day-to-day basis and the implied guidance for operating expenses really doesn't kind of speak to what we'll kind of be exiting the quarter at. So I would expect that by the time we get to the December month, we'll be run rating operating expenses closer to the $190 million level. And again, directionally, I would expect that our March quarter operating expenses are some higher than December. But we're right in the middle of an important planning in process, and we have some significant learnings ahead of us in the remaining months of this quarter. And we have some significant decisions to make as well. So the directionality statements were made in that context.

The next question is from the line of Ben Pang with Caris & Company? Benedict Pang - Caris & Company, Inc., Research Division: Let me add my congratulations as well. It's a very informative call, as usual. Two quick questions. First, on the capital or the wafer fab equipment outlook you have for next year between the high and low point, do you think the key factor is foundry spending?

Well, we didn't really kind of define it because what we talked about is, directionally, it's 5% to 20% down. So if we center on 31 wafer fab equipment spending for '11, 5% down puts you at 29.5%, 20% down would take you all the way down to 25-ish. I think that my expectations are that we're going to see probably somewhere around $12.5 billion in spending for memory. I think microprocessor, which we kind of classify now as really Intel spending, we think is going to come down probably somewhere around the $4 billion level or more normalized level of spending for Intel after an accelerated expansion in '11. And then logic/foundry, I think, being somewhere in the 10%, 11% range. I do think that if the macroeconomic environment is stronger in '12 then what maybe some of the low-end GDP forecast of 2% to 2.5% are saying that, that will manifest itself in leading-edge product demand. That will result in the need for more wafer starts in logic/foundry, which as we've talked about is very capital intensive. I do think that in memory, whether it's DRAM or NAND, spending will still be relatively muted because the conversion capability of even more 4x to 3x still exists in 2012. So I think that where the more upside is, is clearly in foundry and logic. Benedict Pang - Caris & Company, Inc., Research Division: And one real quick follow on just in terms of the OpEx. Is -- a lot of the, I guess, the increase that you guys are talking about going forward is related to your comments around working on the next wafer size.

No, it's actually not. I mean, there is an element of spending associated with our 450-millimeter programs, and that's being true for a little while. As Steve commented already again today, a big part of the investment or the increase in investment is a byproduct of a broad collection of technology inflections and whether we're talking FinFET from this environments or 3D memory and next-generation memory. I mean, there is a lot of decisions to be made by our customers. And in that context, if we're wise, we make a set of investments to position the company to be successful when those decisions are actually made. And so, the increase is much more a byproduct of the success of the company historically. And the costs to defend our success and the opportunity to continue to grow and to make investments in the context of a fair amount of uncertainty in the world of our customers from a technology perspective.

The next question is from the line of Krish Sankar with Bank of America Merrill Lynch.

Steve, congrats on my behalf, too, for such a spectacular career so far.

Thank you.

I have 2 questions. Number one, I know you said that the mix of foundries in December have increased in the shipment. Is it fair to assume that most of that increase is coming from single-wafer clean, or do you think it's evenly split between etch and clean?

Well, I think that there is there's clearly a situation where etch is about 40% memory and 60% foundry, and clean is kind of similar in that regard on any given quarter. It can kind of float around a little bit. In fact, for clean in the December quarter, they actually have closer to 48% or so in memory and actually a little bit lower in logic. But when you go forward, clean returns back to its normal trend, which for us is -- it's about 60% logic, 40% memory. Etch is, as I said, typically 50, 50-ish and our etch business is so much larger than our clean business that it pretty much dominates what the percentage mix is going to be for our entire system shipment mix.

Got it, got it. All right. And then just a quick follow-up. Since you've been in this Industry so long, just wanted to get your perspective of when do you think, which year EUV will be implemented in production, and which your 450 millimeter will hit the tape?

I have, probably, from trying to answer that one, I haven't been in that industry whether it was 30, 40 or 50 years isn't particularly helpful given some of the challenges that EUV has. And clearly, I think, the best qualified people to answer the EUV or ASML and Siemer and certainly, I'm sure you are asking them about how they're going to get the throughput up, and I think all I can do would be to speculate and pass on customer concerns, which I don't think is necessarily helpful in terms of accuracy. Now relative to 450, maybe having been around this industry as long as I have, there's some perspectives and that could be brought to bear. One of the things I think about 450 that a positive is, in the past when wafer size changes were conducted, this is going way back to even 5-inch conversions and 6-inch and then 200-millimeter, they were led by an individual company and trailers came into play. And it was typically expensive, messy and a slow transition. At 300-millimeter, it was also slow and messy as customers individually tried to define when they were going to market. This time, with the public announcement of the G450 project in Albany and we have, in essence, 5 companies that are going to participate in an early pilot, early device warning line, I think that's going to provide for an opportunity for more focused investment, the need in the next 3 years or so for fewer pieces of equipment that have to get scattered around the world at various individual customer sites. I think that it provides the industry, both the semiconductor manufacturing customers and the equipment and materials industry, an opportunity to really learn what are the true costs associated with moving to 450, what are the real as opposed to forecasted technical challenges and how quickly or how long will it take really to work through the technical and the productivity challenges that are clearly going to be present at 450. So with all of that said and done, with the thought process around 2013 timing for the G450 activity, 1.5 years to 2 years of that joint activity, various customers at some point wanting to put their own pilot lines in, whether that's late '14 or '15, another 1.5 years of activity associated with that, I think the reality is, you're looking at -- on the very optimistic side, 2016, more likely 2017 and potentially, even 2018 in terms of when this industry will really start to ramp 450 for high-volume manufacturing.

The next question is from the line of Timothy Arcuri with Citigroup.

This is Wenge for Tim. Steve, congratulations on a great career. A couple of things. First, in term of stock buyback, was the stock price picking up above the $40 level, what's the company thinking about the buyback moving forward?

Wenge, we're unchanged in terms of the overall programs that we've talked about. So our buyback activity will be a function of how the market moves.

Okay. In terms of the foundry spending, Steve mentioned about 28- and 32-nanometer clearly has begun investment. And based on your discussion with customers, when do you think they expect the capacity to be online for their production?

Well, there is a certain amount of 28-nanometer capacity that came online this year probably to the tune of 40,000 to 50,000 wafer starts per month by the end of 2011, whether all of that is fully qualified and fully outputted, that's a -- kind of a big question mark. I think that when I talk to a number of the leading-edge foundry and logic players relative to a 28-, 32-nanometer ramp, there is a certain amount of caution that's associated with -- when they look at the demand that their customers are telling them they are going to need to meet, there's some degree of concern that their customers are too optimistic about whether that demand will really materialize. And so the foundry/logic players are stuck a little bit in a cache 22 in the sense that if they don't put the capacity in place and the demand materializes, that's going to cause some serious problems with their customers. If they do put it in place and it doesn't, it's far more expensive to deal with idle capacity when you're spending $1 billion for 10,000 wafer starts than just 2 generations ago at 65-nanometer, you had $500 million tied up for 10,000 wafer starts. So the impact on cash flow and the carrying cost associated with idle capacity at 28- and 32- is much more impactful to the foundry/logic companies. And so as it stands right now, they're going to try and position as best they can. But clearly, they're going to look to certain segments of the industry where they may put their litho in place because of the long lead times. And they'll obviously try to take advantage of a lot of the short lead times and very fast response capabilities that companies like Lam Research can do and wait for as long as they can before committing to putting additional capacity in place.

The next question is from the line of Edwin Mok with Needham & Company. Edwin Mok - Needham & Company, LLC, Research Division: Congrats, Martin, and good luck to you Steve. So, quickly, so first, if I look at your -- if I think of full year -- sorry, the fourth quarter guidance and look at your full year calendar 2011, I noticed that your revenue and shipment are down year-over-year. Is that just -- but when we look at WFE, it's kind of flattish. Is that just Intel or are the etch or the clean market actually underperforming WFE this year? And if so, why is that the case?

Yes, good question, Edwin. It's actually both. Clearly, in the context in the $31 million spending for 2011 versus $29 million, a lot of that increase in terms of spending is Intel. Our served customer market is actually down in 2011 on a total WFE basis. But it's actually down even more when you look at the etch SAM. Historically, the etch SAM will fluctuate as a percent of WFE anywhere from 12% to 14%. In 2010, it ran pretty close to 14%, maybe 13.8%. And certainly, that was favorably impacted by the NAND to Inotera conversion to stack DRAM, which required a significant investment in etch. Interestingly, when we look at 2011, there has been a greater amount of leading edge spending, particularly in foundry associated with litho and metrology and less early spending relative to etch so that the etch SRAM combined with the high level of technology conversions which are -- which do impact etch to a greater degree than some other segments, our estimate is that we think etch is actually going to run about 12% of wafer fab equipment in 2011. So our customer have been spending slightly less. The SRAM being down to 12% results in what we think is about a 7% to 7.5% decline in etch SRAM. And when we look at where we see our revenue situation, we'll be down year-over-year, offset by some favorability in our customer service business somewhere in the 13%, 14%, 15% on a systems basis. And so what you end up with is, we are essentially flat from a market share perspective in 2011 versus 2010 as it relates to our customer base. And clearly, on a totality basis, because of the Intel effect and reduced etch spending in '11 at NAND and Inotera, our overall market share on a total basis will be down probably about 5% or 5.5% due to all those mix issues I just talked about. Edwin Mok - Needham & Company, LLC, Research Division: Great. That was extremely helpful. And then I have a follow-up question on the leverage of the model. So if I take a down 20% 2012 scenario and take a look at your 4Q guidance, that would imply that on a quality basis, 2010, 2012 is roughly around where you're guiding on the fourth quarter. If that's the -- if that's what kind of happening for the industry, how do we think about the leverage of the model? Are we satisfied with the 7.5% operating margin room for the company? And if we are not, where do we expect cost saving could come from?

I'm going let Martin and/or Ernie answer that since they'll be the ones primarily responsible for delivering whatever it is that we do.

So I'm going to let Ernie deal with specific model questions and leverage, but I'm just going to make a few comments relative to being happy or unhappy with 7.5% because there are obviously many answers to a question like that. And I think the important answer is that we are committed to make investments for the long-term success and growth of this company. That doesn't mean that we go spend money independent of thinking through the implications in terms of financial performance through a cycle. But positioning the company to turn on and turn off long-term R&D investments and projects is a very unwise thing to do. Hence, the commentary that the company has been communicating for some time. And so none of us are happy with 7.5%. We have earned more than that of this revenue level, and we would like to earn more than that at this revenue level. And the investments that we're making for the period of time we're making them are made with the pursuit of that growth objective and that profitability objective in mind. And so it would be way premature for us to speak to profitability outlooks for '12 because we haven't spoken to the wafer fab outlook in any detail today. But that's the set up for, hopefully, giving some perspective around how we're processing, making investments vis-a-vis a cycle and an underlying profitability level. And I don't know if Ernie has anything to add in terms of the model.

Yes. So, Edwin, the one thing that I would add, we're currently looking at second half in '11 that is sort of below the indicated ranges or the midpoint of the indicated range that we've talked about relative to '12. So I don't necessarily think that you could take our fourth quarter performance and fully extrapolate that forward. I would add, we have obviously provided some commentary around, intentions around OpEx and so I think there will be some potential leverage upward at the gross margin line if business volumes improve. We've talked about the continued investments we plan to make. And so I think the net-net of that would be depending on the level of wafer fab that ultimately occurs flat to slightly up overall performance, but we're really going to have to see ourselves getting through our annual planning process and making those final decisions when we get through the final planning process.

The next question is from the line of Satya Kumar with Credit Suisse. Satya Kumar - Crédit Suisse AG, Research Division: Steve, let me also wish you the best going forward. Obviously, there have been necessary follow-throughs but I hope there will be opportunities for us to [indiscernible].

Thank you. Satya Kumar - Crédit Suisse AG, Research Division: I just have a question on market share. I guess, Steve, I understand that Intel is 6 billion in the WFE equation this year. If I take that out, you mentioned second half was 35 to 36 sort of run rate for the industry. That should get you to about 22, 23 excess of. And in September, and I think the shipment on those was close to about 22. Even accidental, I find the down shipments in December a bit less than it should be. Is there other stuff -- I know year-on-year, you see an impact of Inotera. But from the beginning of this year to end of this year perspective, within your segments that you're participating in, how does the math sort of add up in terms of market share, or are there segments moving around? For example, NAND is moving around. They have the highest share. Is that sort of the reason for the relatively lower shipments?

The relative what? Satya Kumar - Crédit Suisse AG, Research Division: Relatively lower shipments in December.

I think that when everybody gets done with their announcements of what they're shipping in December, we'll probably have a better feel. Clearly, given that we don't ship to Intel and Intel is shipping or taking deliveries pretty much in a balanced way throughout 2011, that would contribute to our shipments being down lower. I think the other aspect of things could very well be timing associated with some pushouts that we had expected to ship in December, got pushed into March. We fully expect that they will, in fact, ship in March. And given that our speed of delivery and maybe more importantly, our speed of start-up cycle time potentially enables customers to delay our etch deliveries maybe with more capability than some others. But if you think about my comments that I made to have been relative to market share, I do think that when you take the Intel effect, when you take the fact that I think etch, as a segment in 2011, is growing or is negative growth year-over-year, particularly outside of Intel, other segments are not necessarily seeing their percent of wafer fab equipment spending change nearly to the extent that it played out in 2011. So having said that, I do think that when we look at what we think the spending will be in 2012, that we will see etch move back up at least to 13% as a percent and probably more likely somewhere around 13.5% in 2012 because historically, when it runs low like we see in 2011, it doesn't do that for very long and for a very sustained period of time.

Alicia, we have time for 2 more questions.

The next question is from the line of C.J. Muse with Barclays Capital.

And Steve, let me, too, extend my congratulations to you. I guess first question, trying to understand the kind of the breadth of spending you're seeing in Q4. You talked about foundry, advance logic. And I'm assuming there's some NAND in there. And I'm curious whether that incorporates all of kind of the big boys. And if not, should we start to see greater breath of spending across those spenders in Q1?

You mean in the NAND big boys?

The top 5 guys.

Yes. I mean, the reality is that when you look at -- in September, you had all of the players, the spend that you would expect from the GLOBALFOUNDRIES, Samsung, IMFS, Toshiba, et cetera, et cetera. And that when you look at December, it's fundamentally the same cast of characters with maybe some additions here or there. And slight differences in terms of how much money is being funneled into which particular line if you're a company that kind of has multiple products sets. And the reality is, we've got 7 significant customers and 3 to 5 of, let's say, people who spend somewhere between $500 million and $1 billion a year. And when I look out at the first half, Martin said that if we look at what customers want delivered in March, they are certainly asking us to deliver more in March. But just like this quarter, 3 months ago, whether they'll actually do that, none of us know. And there is a broader mix of shipment request when you look at -- there's a few more foundry players in the mix. There's more total consistency of spending in terms of those companies that do both NAND and DRAM. They're going to do both. And so there is a broader orientation of spending across different types of ICs. But again, we're sitting here, and I think my sense is that what we're seeing is a reflection of the customers and their forecast for 2012, their customer demands that are being communicated to them for the first half of 2012. And they're clearly communicating to us, based on this, we're going need X, Y, and Z. And I think that even if we're down 10% or 15% in 2012, the reality is that most equipment companies, if not all, are going to be reporting that their shipments and revenues are probably bottoming out in the December quarter. And if we're going to be down to 10% or 15% overall throughout the calendar 2012, at some point, shipments are going to have to come up on a quarterly basis because the current run rate is below a 10% or 15% down.

That's helpful. And as a quick follow up, I know it's early, but curious, in your discussion with NAND customers, are you seeing any discussion in terms of the Thailand flooding and the desire to add more solid state capacity relative to hard disk drives that have been most impacted?

Not in my discussions. And I don't -- Martin, have you heard anything?

I don't think there's anything incremental that I'm aware of, no. I mean, there's definitely an emerging kind of price point that makes that transition more attractive, not less. But I mean, the kind of road map in front of us is not kind of overwhelming, at least, in terms of the near term. But there clearly is a broader set of penetrations for SSD anticipated for '12 than '11 quite how that plays out in the scheme of consumer confidence and basic messages in terms of PC growth, kind of anybody's guess. But there is more, how much more to be determined. And I'm sure the investment that Steve characterized in terms of new capacity additions in NAND is predicated on a set of assumptions that SSD growth is reasonable.

C.J. it's always interesting when there is a natural disaster or some specific potential disruption to the supply chain that people start to worry about what's the magnitude of that. And in many respects, sometimes get overly concerned about it. I mean, we could also talk about Apple's factory in China that makes their solid aluminum for their iPads and for their -- maybe it's not for iPads, it's for MacBook or MacAir. And its supposedly shutdown, and they produce somewhere around 60% of Apple's frames. So if that's true, Apple better have some alternative sources by which they can tap into that or that could have an impact throughout the entire semiconductor IC supply chain, given Apple really takes up a significant amount of NAND flash capacity on a global basis, as well as the advanced logic chip. So let's see how it plays out.

The next question is from the line of Atif Malik with Morgan Stanley.

Congratulations, Steve and Martin. I just want to clarify the 2012 down 5% to down 20%. That view, is that based on company's bottoms up model, or is that based on global GDP, or is that sell-side? And then I have a follow-up.

It's -- I would say it's much more of general statements that is influenced by the opinions from you guys, who spend lots of time analyzing the details. Whatever perspectives at a very early, honestly, from customers that we can garner. And as we started this call, commentary on our GDP and consumer confidence and corporate confidence. So I would say a much more general response than a specific one at this point in time.

And then the next one for Ernie. Ernie, any consideration for a dividend here, or a share buyback is still the best way of returning cash to shareholders?

You know, we haven't revisited that discussion for a little bit. So right now, it's -- as we have previously discussed, no change foreseen.

So we want to thank everybody for their participation in the call and also, specifically, take the opportunity to thank all of you for your kind words as I didn't necessarily acknowledge that for each person who did. But I want you to know, I appreciate the comments. And I look forward to you staying in touch and continuing to have dialogues about this very interesting industry. And with that, I'll turn it over to Shanye to close the call.

And thank you all for joining the call today. I'd remind you that the audio replay of today's call will be available on our website later this afternoon. And with that, that concludes our call.

Ladies and gentlemen, this does conclude the conference call. You may now disconnect and thank you for using AT&T Conferencing.