Good day, and welcome to the Lam Research Corporation's March Quarter Financial Conference Call. At this time, I would like to turn the conference over to Tina Correa, CVP of Investor Relations. Please go ahead, ma'am.
Thank you, and good afternoon, everyone. Welcome to the Lam Research Quarterly Earnings Conference Call. With me today are Tim Archer, President and Chief Executive Officer and Doug Bettinger, Executive Vice President and Chief Financial Officer. During today's call, we will share our overview on the business environment and review our financial results for the March 2019 quarter and our outlook for the June 2019 quarter. The press release detailing our financial results was distributed a little after 1 o'clock p.
M. Pacific Time this afternoon. The release can also be found on the Investor Relations section of the company's website along with the presentation slides that accompany today's call. Today's presentation and Q and A includes forward looking statements that are subject to risks and uncertainties reflected in the risk factors disclosures of our SEC public filings. Please see accompanying slides in the presentation for additional information.
Today's discussion of our financial results will be presented on a non GAAP financial basis unless otherwise specified. A detailed reconciliation between GAAP and non GAAP results can be found in today's earnings press release. This call is scheduled to last until 3 pm Pacific Time. A replay of this call will be available later this afternoon on our website. With that, let me hand the call over to Tim.
Thanks, Tina, and hello, everyone. After Doug and I go through our prepared comments, we look forward to your questions. Lam delivered a solid March quarter and continued to demonstrate strong execution in a challenging near term industry environment. Key metrics including revenue, gross margin and operating income margin all came in above the midpoint of guidance that we gave on our last earnings call. EPS of $3.70 exceeded the high end of our range, helped by a favorable tax rate and the benefit of ongoing share repurchases.
This performance and continued execution in the business is attributable to the support of our customers and partners and as always, the exceptional efforts of Lam employees around the world. Turning now to our perspective on the current industry environment and outlook. Industry conditions are directionally unchanged from our January call. We continue to expect customer WFE spending for calendar year 2019 to be in the low $40,000,000,000 Though since our last call, we now see a marginal downtick in memory spending, offset by slightly better expectations in foundry and logic. Also consistent with our prior commentary, we expect memory supply growth as we exit 2019 to be below the long term demand trend line for both NAND and DRAM.
In DRAM, we continue to believe the spending correction will extend through this calendar year as customers continue to rationalize long term profitability with near term focus on reducing channel inventories and bringing supply and demand dynamics into balance more quickly. In NAND, recent industry data indicates that bit shipments were better than normal seasonal trends for the February month. And we continue to believe that market conditions are setting up well for a future recovery as demand and supply balance improves through the year. On the foundry and logic side, 2019 WFE spending is slightly higher than our prior baseline as customers appear to be ramping leading edge nodes faster than we previously forecast, which we believe is partly due to increased semiconductor content in smartphones related to 5 gs. While predicting the exact timing of cyclical change is always difficult, our confidence in the long term demand drivers for Lam's business is unchanged.
We are positioning Lam to capitalize on long term demand through execution on our 3 growth vectors of served available market expansion, share gains and revenue generation from our installed base. Semiconductor demand drivers such as Industry 4.0, artificial intelligence, 5 gs and IoT are creating compelling served available market expansion opportunities for Lam. All require innovations in the transmission, processing and storage of data using a minimum number of compute cycles at lower power and lower cost. This is leading to changes in compute system architecture and driving growth in new on chip and off chip memory designs. Key trends include the use of high bandwidth memory interfaces for leading accelerator designs, heterogeneous integration for system on chip solutions and the move to MRAM for embedded memories.
I would like to provide a few specific examples of how Lam is set to benefit from these trends. First, new memory devices like GDDR6 improved bandwidth by adding, among other things, more bit lines, which increases etch and deposition intensity. 2nd, high bandwidth memory and heterogeneous packaging integration are driving an increased need for through silicon via and other novel wafer level packaging technologies. Lam's SABRE 3 d electroplating and Syndion etch tools are recognized technology and market leaders in the TSV market and provide the stable etch depth and VFIL capability required for high volume production. For wafer level packaging, the market leading Sabre3d system delivers technology enabling co planarity on a production proven platform.
And 3rd, emerging memory devices such as MRAM are employing novel materials which require the introduction of new ion beam etch technology. Lam's ion beam etch technology is differentiated by its control over both ion energy and angle to deliver superior device profiles and ultimately increased yield and bit density for our customers. Broadly, we believe the product and services portfolio of Lam Research is unmatched in its fit to these emerging technology inflections, and our focus is to deliver disruptive customer enabling technologies to expand our served available market. From a market share perspective, we continue to perform well on penetration and defense activities. In the 1st calendar quarter, we successfully defended all key positions in addition to winning multiple new opportunities.
And we remain committed to our goal of growing market share in both etch and deposition. Our confidence in our share gain opportunity is rooted in fundamental product architecture and technology differentiation. Lam's unique Quad Station Module or QSM is rapidly becoming the process chamber architecture of choice for 3 d NAND. The QSM serves as the core high productivity platform on which Lam's process teams build differentiated 3 d NAND technology solutions. Examples where the QSM is delivering a capability advantage for our customers include our market leading films for the ONON stack, wafer bow management using backside deposition, new ALD films for high aspect ratio gap fill and low resistivity tungsten fill for word line.
Our ability to deliver compelling technology and productivity, including fab space savings using the QSM architecture is unparalleled. We hit a milestone this quarter with our 7,000th module shipped, a metric that signifies the growing importance of this platform for 3 d NAND and other markets. In logic and foundry, gate contacts and interconnect layers require new materials for better device performance, reliability and scaling beyond 10 nanometer. In recent engagements, we have shown our ability to leverage Lam's long held leadership position in copper electroplating to win applications for new materials such as cobalt at leading edge nodes. And in memory, we continue to penetrate key semi critical etch positions through our focus on productivity innovation.
An example of this focus is the separate press release we issued today stating that in partnership with a leading semiconductor manufacturer, we have successfully demonstrated 1 full year of uninterrupted production on a Kiyo Etch system equipped with a unique productivity focused hardware set. We believe the Kiyo Etch system utilizing our Corvus R technology ushers in a new era of self maintaining equipment. Today's announcement is also a demonstration of Lam's commitment to leverage Industry 4.0 technologies, advanced computing and big data to bring innovative products and services to our customers. And finally, in our customer support business group, we saw continued sequential growth in revenues we drive from our installed base. Our Reliance Systems business grew strongly in the March quarter, reaching its highest quarterly revenue level in our history.
This was driven primarily by investments in non leading edge nodes and foundries as well as spending on more than more in IoT initiatives. Overall, our installed base business is on track to deliver another record year, growing again at a rate faster than the installed base. In summary, Lam is well positioned to capitalize on the long term demand drivers in the semiconductor industry. We are performing well in a challenging near term industry environment. And by continuing to focus on execution and investing to meet our growth objectives, we believe we will emerge stronger as WFE spending recovers.
With that, let me turn the call over to Dust for his prepared remarks. Great.
Thanks, Tim. Good afternoon, everyone, and thank you for joining us today on what I know is a busy earnings season. Lam executed well on the March quarter with our results exceeding the midpoint of guidance for all financial metrics. Earnings per share exceeded the high end of the guidance range that we provided, mainly due to a lower tax rate that we realized in the quarter. We had a more favorable tax benefit from our annual employee stock cash from operations came in at $933,000,000 which on a quarterly basis is the 2nd highest cash generation in the history of Lam Research.
As we discussed during our last quarter earnings call, we believe WFE spending for the first half of 2019 would reflect lower memory spending levels and spending would be driven more by foundry and logic investments. Our view today is largely unchanged. Full year 2019 foundry and logic WFE might be a little bit stronger than we expected a quarter ago and DRAM might be a little bit weaker. We continue to expect WFE will be down in the mid to high teens percent year over year from 2018. WFE spending as a percentage of semi industry profit dollars has been running at a fairly consistent level over the last several years.
We continue to track a double digit number of new fab projects this year, spanning leading edge foundry, memory and IoT driven legacy nodes. Overall, Lam's system revenue for the combined memory segment decreased to 61% of total systems revenue from the 79% we saw in the December quarter. The composition of the memory segment was mostly driven by conversions and included non volatile memory spending at 40% and DRAM spending at 21%. NAND spending continues to be focused on both 6x and 9x layer wafers. And DRAM spending is focused on the 1x and 1y nodes.
The foundry segment more than doubled quarter over quarter accounting for 27% of system revenue, which is the highest level in foundry we've seen since March of 2017. Fundraising in 2019 is focused on 7 5 nanometer. As a comparison, the profile in 2017 was targeted at 10 and 7 nanometer nodes. And finally, the Logic and Other segment was also up contributing 12% of systems revenue. Let's turn to the P and L performance for the March quarter.
We delivered revenues of $2,439,000,000 which was down slightly from the December quarter and above the midpoint of the March guidance we provided. Gross margin for the quarter came in at 45.1%. We came in slightly better than expected primarily due to product mix and spending control. As I always do, I'll remind you that our actual gross margins are a function of several factors such as business volumes, product mix Operating expenses in the March quarter were $488,000,000 which increased by approximately 11% from the prior quarter. Spending in the March quarter was negatively impacted by the appreciation of the stock market during the quarter and the resulting impact on the cost of our deferred compensation plan.
We do hedge this to mitigate the exposure, However, the offset to this expense shows up in other income and expense. It's neutral to earnings per share at the end of the day. R and D investments continue to be a focus for us with R and D comprising nearly 2 thirds of our spending in the March quarter. In June, total operating expenses are expected to be lower on a sequential basis compared to the March quarter. I'd also just point out one spending item that you'll see in the GAAP to non GAAP reconciliation table of our press release.
We incurred a charge of approximately $11,000,000 related to severance payments for a workforce action we took during the March quarter. Operating income in the March quarter was $611,000,000 and operating margin was 25.1% pretty much in line with the midpoint of the guidance range. The non GAAP tax rate for the March quarter was approximately 8%, which is lower than our long term rate due to the tax benefits related to the employee stock vesting that I described earlier. For the June quarter 2019 calendar year, we continue to expect a tax rate in the low to mid teens. And there will be fluctuations in this rate quarter by quarter.
In March, we completed the issuance of $2,500,000,000 in principal value of senior notes as we decided to take advantage of a favorable interest rate and credit environment. The note proceeds are for general corporate purposes including among other things to fund our stock repurchase program and to pay dividends. For other income and expense, our newly issued debt added approximately $8,000,000 in interest expense for the March quarter. However, as I pointed out, this was offset in OI and E by gains on assets related to obligations under our deferred compensation plan. Going forward, we expect to have approximately $26,000,000 of quarterly interest expense related to our new debt.
And total interest expense on a quarterly basis is now around $45,000,000 We continue to demonstrate our commitment to capital return during the quarter, funding more than $1,000,000,000 in dividends and share repurchases. For the March quarter, we paid out $171,000,000 in dividends and we completed 8 $62,000,000 in share buybacks through a combination of open market and structured repurchases. These repurchases were made under the new $5,000,000,000 authorization that we announced at our earnings call in January. And I just point out to you that in the last year we have lowered quarterly diluted share count by approximately 20,000,000 shares. That's over an 11% reduction.
Earnings per share came in at $3.70 which was over our guidance range for the March quarter, mainly driven by that favorable tax rate. Diluted shares per EPS were 158,000,000 shares, which reflects a decrease from the September quarter related to the share buyback program. The share count includes a dilutive impact of approximately 5,000,000 shares from the remaining 2,041 convertible notes in the March quarter. And I'll remind you the dilution schedules for the remaining 2,041 convertible notes is available on our Investor Relations website for your reference. Let me now turn to the balance sheet.
Our cash and short term investments including restricted cash increased notably in the March quarter to $6,400,000,000 from $3,900,000,000 in the prior quarter. This was driven by the $2,500,000,000 debt issuance that I mentioned and the over $900,000,000 operational cash flow. DSO improved by 6 days to 61 days. Our inventory levels decreased and consequently inventory turns increased to 3.4x compared to 3.2x in the prior quarter. Company non cash expenses included approximately $53,000,000 for equity compensation, dollars 46,000,000 for depreciation $36,000,000 for amortization.
Capital expenditures were $76,000,000 in the March quarter, which was a decrease from 106 in the December quarter. Due to the timing of certain projects, December quarter CapEx was somewhat on the high side and the decrease in the March quarter was in line with our expectations. The majority of the CapEx in March was directed towards investments supporting our installed base business. We exited the March quarter with approximately 10,800 regular full time employees, which is down slightly from the prior quarter due to the workforce actions that I previously mentioned. For the long term, we continue to prioritize headcount that is supporting Lam's SAM expansion, market share gains and installed base business growth.
Looking ahead, I'd now like to provide our non GAAP guidance for the June 2019 quarter. We're expecting revenues of $2,350,000,000 plus or minus $150,000,000 gross margin of 45.5 percent plus or minus 1 percentage point operating margins of 26 percent plus or minus 1 percentage point and finally earnings per share of $3.40 plus or minus 0.20 share count of approximately 155,000,000 shares. Operator, that concludes my prepared remarks. Tim and I would now like to open up the call for questions.
Thank Our first question will come from John Pitzer with Credit Suisse.
Hi, guys. This is Ada calling in for John. I was wondering if you could maybe talk through what your OpEx trajectory is looking like for the remainder of the year given the lumpiness that we saw in March?
Yes. I mean, we only really guide this 1 quarter at a time. The best, I guess, way I would give you to think about it is, it's going to be plus or minus where we're at in the June quarter. But again, we only formally guide numerically 1 quarter at a time.
Thank you. And then if you could maybe provide us with an updated view of the domestic China opportunity, what you think that looks like this year in terms of WFE and any puts and takes around that given the macro situation?
Sure, I can do that. We said on our last call actually that we had expected China domestic WFE this year to be a little bit greater than $5,000,000,000 We haven't changed our view on that. And our position in China, we've also said, is a bit stronger or at least as strong as elsewhere in the world. So we gave guidance on the last call that our business in domestic China would be up as well. There really has been also no change in the regulatory environment that is impacting our results.
And while we're monitoring it closely, we don't really expect effect on our business at this point.
Thank you.
Thanks for the question. Yes.
We'll now take a question from C. J. Muse with Evercore.
J. Muse:] Yes, good afternoon. Thank you for taking the question. I guess first question, given the backdrop of weak pricing across both segments in memory, I think it's a great job on your part in terms of getting what I imagine roughly $1,000,000,000 plus per quarter in tool shipments just on technology buys alone. And so I guess the question is, as you look into the back half of the year and you think about the transition 96 layer and if we take into account what we've heard from ASML in terms of the second half ramp at YMTC, how should we think about that trajectory?
Are there green shoots there into the back half of the year or is that something that would shine in the first half of twenty nineteen 2020, sorry? Yes. Tim and I will take in this a little bit I think. C. J, our outlook isn't really changed at all from what we communicated at earnings a quarter ago.
We don't see a recovery in memory this year. We do think it sets up well for what likely happens in 2020. We expect the exit rate of supply in both NAND and DRAM to be under where demand is, meaning it's consuming some of the inventory, which I think sets us up well. But we really don't see a meaningful recovery or recovery at all this year. Tim, do you want to add anything?
Yes. No, I think that's a it's a very clear statement of position. We've been saying that we really don't see the recovery this year. You mentioned a couple of other items though like the 96 layer conversion. And I guess from the standpoint of the job we're doing, Lam is squarely focused in the middle of technology conversions and technology conversions are great way for customers to reduce their cost, increase their capability through cycles like this.
And so Lam is just focused on helping our customers execute those technology conversions and when they come and there's capacity additions, that will be, as you say, an additional green chute. But right now we've said we don't see that right now through this year.
CJ, just maybe one more comment for me as I sit here. Yes, and thanks. I do know it recovers at some point, whether it's later in this year or early next year, to me is somewhat interesting from a timing standpoint, but obviously it will recover at some point. The industry is working through inventory in the channel and whatnot. That will take some time and at some point investment will be more than it is right now.
Okay, very helpful. And as a follow-up, considering the magnitude of the debt offering in the quarter, can you kind of walk through what net cash or gross cash rather you need to run the business? And are you contemplating perhaps a more aggressive buyback with the funds? Thank you. Yes, C.
J, nothing new to communicate relative to the buyback. We just announced the $5,000,000,000 a quarter ago. We executed $862,000,000 last quarter. We viewed this as a favorable debt market as I described in my prepared remarks relative to rates and credit demand and whatnot, we decided to take advantage of that. It really doesn't impact too much how I'm thinking about the timing of the buyback, the quantum of the buyback.
Obviously, I think we've been pretty judicious with returning cash to shareholders in the past and we'll continue to do so in the future. But I don't really have anything new to tell you except that debt issuance helps fund what we plan to do. Thanks, CJ.
We'll now take a question from Atif Malik with Citi.
Hi, thanks for taking my question and good job in a tough environment. Tim, I have a question on your market share. We all understand WFE share is a complicated mix of end market, your customer mix. The Gartner data came out today and it shows your WFE share declined modestly last year. I just wanted to understand moving forward as EUV becomes a little bit bigger a portion of the logic spending, what are the things that you can do with your products that can offset kind of the natural headwind from EUV?
And then looking beyond 1 to 2 years, when I was at SPIE Conference, there was a lot of discussion on NAND migration. So just your thoughts in terms of from 2 d to 3 d NAND migration. So just your thoughts in terms of when your logic share can start to improve because of architectural changes? Thank you.
Okay. Sure. A lot of great questions in there. So I'll do my best. I mean, first, maybe just taking kind of the share question head on.
Obviously, we looked at the Gartner report and we will be the first to acknowledge we don't win everything we compete for. But I want to point out, we feel when we think about market share, we feel very good about what we've accomplished the last few years relative to our positions in critical applications. You know critical applications are the hardest to win, but once you have them, they're also the stickiest. I mean, they're the applications that our customers are least likely to change. And so we really did.
We focused on those and we made sure that in key growing segments of WFE like 3 d NAND, we made sure that we secured those critical applications because that's really the foundation on which we then can go build everything else. And those are the applications that get you closely collaborating with customers. I think when we think about share, I've said it last time and I'll say it again, I want us to do better in the semi critical applications. But again, you have to do the critical application foundation first, then you build semi critical on top of that. What can we do in that area?
A lot of that is you just saw in this press release. We're focused on productivity innovation. And as our customers scale up and you see it this year with focus on the pricing environment and spending environment in memory, productivity innovation is welcomed by our customers. So semi critical is usually a battlefield about productivity. The press release about the Kiyo Etch with Corvus R, I think Lam will continue to try to set benchmarks for productivity in this space and that will drive share for us.
Those are all things that are within our control. Things that are not so much within our control, device mix. And so just to point out as you look at some element of spending last year, what took place was that 2017 to 2018 saw a significant increase in DRAM WFE and not such a large increase in, in fact almost no increase in NAND WFE by our calculation. So again, based on choices we've made and strategic positioning, we have positioned Lam to be extremely strong in 3 d NAND and I think you all know that. And so some years it will go, some years it doesn't work out quite as well.
Now but we feel really good and quite honestly I wouldn't trade our position we have right now for anybody else's. Now your point about logic, kind of just finished on that one. We intend to improve. We're always investing to improve our position across the entire spectrum of applications. I'm not I won't claim I'm an expert on your 3 nanometer horizontal nanosheets application though, but we have our CTO office looking at every new inflection that comes and those inflections kind of we've proven our ability to use those inflections as a share gain opportunities for ourselves and we'll continue to do so.
So hopefully that answers your question. Thanks.
We'll go to a question from Patrick Ho with Stifel.
Thank you very much. Tim, maybe first off in terms of the 2019 outlook, you detailed about the memory outlook remaining pretty much muted through the rest of this year. I guess what are some of the key variables investors should look out for whether it be in NAND and DRAM? Is it just the pricing environment? Is it the inventory situation?
What are some of the key variables that you guys are monitoring that will lead to a change or a turn in positive spending for the memory market?
Okay. Yes, I mean, it's a great question. I mean, it's one we're asking ourselves all the time every day. Our customers have a much better view on what their strategies are and what the trigger points are for them to begin investing. But what we're trying to say is that at least from our view, what's happening right now is very rational.
I mean the pricing environment, you've seen some talk about taking small amounts of capacity offline. These are all things that we believe will accelerate improvement in the supply and demand balance. And so we just watch we're watching those. We're talking to customers continuously. And what we're making sure is that regardless, as Doug said, we know it's going to come back.
I talked to him about a lot of the demand drivers. There's no question for us about when whether memory comes back. And so we're just focused on staying close to customers and making sure that when they do want to place orders for tools, there's no limitation in our ability to ship to them on the dates they want the systems.
I mean Patrick, this is Doug. How I think about it is, I think we all understand there's inventory in the channel. There's inventory with the hyperscale guys, there's inventory with our customers that needs to clear itself out. And we can all do our best to model that. You can do it as well as we can.
Obviously, we model it. I know you do too. To me, when I think about pricing, pricing is an indication of how supply and demand are clearing and until all the inventory is worked out, a lot of what you're seeing in pricing will be determined by how that inventory is moving through the channel. So you got to pay attention to that because that tells you how things are clearing out. And as Tim said, at some point it will clear out and we're all waiting to see when that is.
Great. And as my follow-up question for you, Doug, I know you've talked about the installed base business as being kind of a hidden growth driver for the company and we've seen it now over the last couple of years. Can you just qualitatively perhaps give a little bit of color of both where the leading edge installed base continues to grow obviously with more shipments to 3 d NAND and that front, as well as some of the opportunities on Trailing Edge where you're seeing upgrades, productivity improvements. Can you just give a little bit of color of how much of that installed base growth is driven from both leading edge versus trailing edge?
I mean a lot of it Patrick is leading edge stuff, right? That tends to be the most technically complex chambers we have in the field and as a result, it tends to consume more spare parts than stuff that's out in the field. But as we've talked about in the past, our tools will run for decades. That's a great part about this business and this part of the business model is things need to be upgraded, things need to be maintained. They all need spare parts on a regular basis.
At some point, one customer might be done with the tool, we'll buy it back, refurbish it, sell it to somebody else. So there's a very long tail to the profit generation from the stuff in the field. That's how I think about it. And we've described this in the past as being roughly a quarter of the company's business. Now in a year like this year when new equipment sales are down as much as it is, it'll be more than that obviously, likely this year well north of 30%.
And so that's a great part of the business this year is this is actually growing this year Patrick. So it just keeps going. I don't know, Tim, would you
add anything? Yes. And I think the only thing I would add is maybe even to reinforce Doug's point about the performance in this business this year. This is the kind of business that quite often when our customers are looking for opportunities to increase their capability without having to go to that next increment, which is to actually add capacity, which is definitely their mindset right now this year. They turn to us for productivity upgrades, capability upgrades, services that help them get more out of the existing installed base.
And that's what this whole business is intended to do. It's to help them leverage the tools that they've already put in place. And
that's how it's kind of
a win win, but it means that in a year like this year, it's a very good business.
Thanks, Patrick. Great. Thank you.
We'll take our next question from Timothy Arcuri with UBS.
Thank you very much. So I had 2, I guess, Tim, first, I wanted to dovetail on an answer that you just had. And obviously, you guys are very levered to 3 d NAND, but I still get a lot of questions sort of on capital intensity and what your share is on the wallet in a layer migration world versus kind of a planar to a 3 d conversion world. So can you sort of help us baseline that sort of per 1 ks or per 10 ks? How much you think the WFE spending is and what's your capture is about wallet?
Oh, boy. Here's what I'd say. I mean, it's a great question and maybe I'll refer back to a few of the things we've said and we can then see how close we can get to the level of detail you're looking for. Obviously, we participate as you're just talking specifically for layer conversions in 3 d NAND, we participate quite significantly in the technologies that are required to make the stack taller, right, basically to increase bit density. So we're talking about going from, say, 64 layer to 96 layer.
I don't believe and Doug can correct me if we have, but I don't believe we've actually quantified exactly what we think our share of that spend is
externally. Yes, we haven't quantified it numerically.
Clearly, we've done it internally. We understand that all. What we did show at the Investor Day last year was that obviously for a greenfield investment, Lam's opportunity increases meaningfully at every layer transition as you might expect. I mean you're building a taller stack and it's the taller stacks, deeper etches, the new films that I mentioned 1, when you get to a taller stack, these new films required to control wafer bow are critical to being able to build those taller stacks on the wafer and still be able to process and yield the wafer. Those things do increase capital intensity for us when you're moving between layers.
I think the other piece though that we did mention at Investor Day and I guess we can reiterate is that from a conversion perspective, while the absolute dollars spent are less, our share of wallet, I should say, our share of WFE actually increases quite significantly because the primary tools that are required to affect that layer transition are etch and depth heavy. And so in a year like this, when most of the attention is turned toward conversion, It becomes a year in which maybe we would be achieving and obtaining a higher share of total spend in that area. But I know that doesn't quantify it for you, but I don't believe we've done it externally. We're probably not prepared to do so today.
Thanks, Tim. Yes, that was I mean, that was kind of what I was getting at, just a layer migration versus the 2 d to 3 d world. So thank you for that. And then Doug, just quick follow-up. So on free cash flow payout, I think you paid a little more than all of your free cash flow this quarter.
Is that still the thought to sort of pay out all of your free cash flow going forward? And I guess the question really is on repo and how opportunistic you were when the stock was lower versus none of the stock's higher? Thanks.
Yes, Tim. I mean our formally committed metric that we are committed to return is, I think we did this at our Analyst Day last year, is at least 50% of the free cash flow. And your observation is right. Last quarter it was more than 100%, in the last several years it's been close to 100%. The way I think about it is we are opportunistic.
We are sensitive to what we perceive fair value of our business to be and where things are trading. We announced at our last earnings call a new authorization $5,000,000,000 I didn't communicate a timeframe for that. And we'll see as it goes. But obviously, the fact that in the June quarter, we're guiding share count down again, You know we're going to be in the market again in June. And I've described it as I think about it as being opportunistic.
I'm not going to exactly say what that means, but we do pay attention to the value of the stock as we're executing.
Awesome, Craig. Thanks so much.
Thanks, Tim.
We'll now take a question from Krish Sankar with Cowen and Company.
Hi, thanks for taking my question. I had 2 of them. First one, Tim, just to touch upon the market share last year, it looks like you guys did lose some share, especially on dielectric etch in NAND versus TEL. And my understanding was that TEL has gotten 2 of the customers because of productivity. Just trying to figure out, I mean, maybe the press release you had was probably related to that.
Is there a way that loss can be stemmed? Or do you think that your share gains in the more challenging channel hole etches will more than offset any weakness in split etch? And then I had a follow-up question for Doug. Okay. Well, I'm not going
to talk about any specific applications. But in general, my comments about semi critical applications, where both your technical capability to do the application as well as productivity are, if not equally important, certainly like in the mix of the decision, that's an area where obviously it's more competitive. And what I'm basically messaging is our company is going to focus on delivering best in class products that are best in class both for technology and productivity. In many areas, we already do that. I talked about the QSM, the deposition tool for like the Strata ONON tool.
In terms of productivity delivered to 3 d NAND on many dimensions, cost per wafer, fab space per wafer out, these are all dimensions where, as we said, we believe we're unparalleled in terms of productivity delivered. Some of the etch applications, we may have some room to go. And so when you say can it be stemmed, it's an area of focus for us. And I think our track record of both equipment and process development in critical applications demonstrates we have the capability to do it. We have the productivity know how inside the company to do it as well.
And I would say I'm not overly concerned, but it is somewhat coming from our strategy if we needed to ensure we were securing critical applications that will continue to pay off for us for many years to come first. And I think now we can definitely take on some of the challenges we've had in semi critical.
Got it. That's helpful, Tim. And then a follow-up for Doug. If I look at your OpEx and try to normalize it on a weekly basis, given that March had an extra week in the quarter, it looks like the OpEx run rate really hasn't changed. It looks like it's about $35,000,000 on a weekly basis, but you guys did take out 150 headcount.
So I'm just wondering, was it more flexing on the COGS side or should we expect maybe a downside to OpEx going forward?
Yes. I mean the best I'll give you prospectively is that we described the June quarter. I don't know what it will be precisely. I'm not going to tell you September December and beyond. What I said in response to an earlier question is, best guidance I give you is plus or minus where we are in June.
And I think Chris, in the first half of the year, you have some unique things that happened. The first, you're absolutely right, it was our 14 week quarter that occurs every 6 years, something like 6 years. We had that elective deferred compensation program drive spending up that was offset in OINE. I don't anticipate that happens again, but if the market significantly moves, you'll see some permutations for things like that. In the first half of the year, also you get payroll taxes come in that go away later in the year.
So that dynamic comes and goes. And then quite honestly with our R and D spending, it's based on programs and projects and schedules and it's not perfectly linear. It's not the same every single quarter. There will be some lumpiness to that. And that's why we'll guide you quarter by quarter as we go.
We're conscious of the profitability of the last thing I'd say is, part of that workforce action, Krish, we And last thing I'd say is part of that workforce action Krish was in cost of goods sold. It wasn't just indirect spending. So there is lots of things moving around.
We'll now take a question from Harlan Sur with JPMorgan.
Good afternoon. Nice job on the quarterly execution. Great to see the focus on semi critical layer applications. The market doesn't tend to focus here a whole lot, but there appears to be a lot of opportunity here as you mentioned where the team can win on attributes like productivity, reliability, tool footprint and all of these obviously have a significant impact on overall wafer cost to your customers. So of the share gain targets that you guys have set forth in your 2021 model, how much of this share capture is due to winning semi critical applications?
We haven't quantified it Harlan, but a piece of it certainly is. A piece of it certainly is. And when I think about this and what I hear Tim say all the time is, honestly, productivity is a technology challenge, right? The most productive platform doesn't necessarily mean the cheapest, it doesn't, right? You innovate in productivity, you innovate with the architectures, as Tim talked about.
You can win business at nice profitability, which is what we're aspiring to do. Yes.
No, it's a great question. Some element of it, I mean, in many ways you're improving performance even on critical when you're working on things like architectural differentiation for semi critical. So this isn't where you need to drive completely different attributes. I think it's just a natural part, especially in the 3 d NAND space actually of how the technology has also evolved and matured as well. I mean, if you go back a couple of years ago, maybe there was a lot more focus on the technical enablement of 3 d NAND meant a lot more applications looked critical.
And I think now as it's matured, we figure out which ones we can push the boundaries of throughput and cost reduction in a way that we can make 3 d NAND lower cost for our customers to produce and therefore maybe drive increased volume, I mean basically through elasticity. So it's a focus of ours. And like I said, it's not something new. I mean the many of the deposition applications for a long time have competed in this semi critical space. And that's why you see unique tool designs that bring back up the QSM architectural differentiation specifically for productivity.
It's a winner. The Keyo Etch and Corvus R announcement, Doug's point about almost every cost problem requires a technology solution. That's a technology solution. I mean, it may sound easy, but the idea of a tool that can replace its own hardware without human intervention, that's a technology solution to a cost and productivity problem. And I think it's just the first example of the types of things that we want to drive out of our technology organization focused on cost.
Yes. Thanks for the insights there. And then as my follow-up, as your memory customers continue to focus on profitability and free cash flow, they started off by cutting CapEx, now they're limiting supply into the market by building inventory and then more recently, idling capacity or even cutting wafer starts.
And I
know that utilization and fab activity does drive a part of your installed base business. And so wondering if you can comment on whether or not you expect to see any potential impact of these customer actions on your services business on a go forward basis?
Yes, maybe a little bit Harlan. Honestly, as I think you well know, our spares consumption often well not often is correlated with fab utilization. So if utilization comes down the consumption of spare parts will reduce a bit Independent of that, we still see a nice growth year for the installed base. We still are going to deliver record levels of revenue and profits in that part of the business. So yes, we're still feeling great about what's going on.
Tim, anything to add?
Yes, no, no. I think I'd just point you back to the comment I made. The utilization portion, that was what Doug just commented on. Obviously, there's some dependence there on utilization to things like spares and consumables, etcetera. But I made the comment, which I think is also shouldn't be lost.
It's in years like this, the customers are looking to us to help them improve productivity of their installed tools through upgrades and services. And so you may be getting a little bit of a balance between those two elements of our installed base business. And that's why even in the face of this, we're telling you
We'll now take a question from Weston Twigg with KeyBanc.
Hi, thanks for taking my question. I actually wanted to follow-up on the installed base business. I'm wondering that if you have a significant slowdown in tool shipments this year, does that impact your installed base revenue growth trajectory next year? And kind of more importantly, does it put that 2021 target model at risk?
No, Wes, we're still tracking to where we want to be relative to the growth drivers in this business. You're right, if the growth of chambers slows, there will be a lag effect to the growth of the installed base business, but we're still feeling really good about where we're headed here.
Okay, good. That's helpful. And as a follow-up, you talked about the self maintenance chamber. This sounds really interesting. I'm wondering who would be the typical customer?
Is that something that could help you accelerate revenue growth next year as the memory CapEx begins to recover?
Well, that's why we're doing it. Obviously, it could apply to all applications. Its first application here was in a memory focused edge application. And I think that we it's just again, it will be more sensitive to places where you're wanting to manage very high volume production with minimal human intervention. I mean, what it really does is it allows us to not have to interrupt the tool by opening it to replace parts.
And so I guess any high volume application could be a target for it. If it's successful as it's proving out right now, then sure it represents a share gain opportunity for us and therefore better position when spending recovers.
All right. That's helpful. But just to clarify, so you think that that will be a product in the marketplace next year helping generate revenue growth?
Yes.
It's in the product. Wes is in the market right now.
Yes. That was the announcement announcement was that it is in manufacturing right now, high volume manufacturing.
Okay, perfect. Very helpful. Thank you.
Thanks, Mike. Yes. Thanks, Wes.
We'll take our next question from Mitch Steves with RBC.
Hey, guys. Thanks for taking my questions. I have 2. Maybe I'll start off with the first one. During your prepared remarks, you guys stated that you saw a little bit more softening in DRAM, but then you didn't have a comment on NAND.
So am I reading so much in between lines, like thinking that maybe NAND pricing bottomed out of DRAM? Or is that, I guess a bad assumption to make?
Mitch, just read it to me, our outlook for NAND is unchanged.
Okay, got it. And then secondly, in terms of the
hello? Yes, Ben, in terms of the
China demand right now, obviously, there's been a lot of movement in terms of what the impact has been between the tariffs. So do you guys have any view of what to kind of quantify the impact of the tariffs in the U. S.-China relations?
Well, if you mean specifically the impact of the tariffs on Lam's results, what we have said is that we've been able to mitigate those to the point that I mean they're included and reported in our financials and they're part of our guidance. And I would say that they've been a very minimal impact at this point.
Okay. We figured out how to mitigate what might have occurred, Mitch. It's got an immaterial impact on anything you're seeing from us right now.
Okay, perfect. Thank you.
Yes, thank
you. We'll now go to a question from Vivek Arya with Bank of America Merrill Lynch.
Thanks for taking my question. Tim, I'm wondering how is the visibility and outlook for the second half now versus what you thought a quarter ago? Ago. We have heard from some of the memory customers. They are expressing some optimism about the second half, but the inventory situation is not getting much better.
So I'm just wondering how you are looking at the second half, what's on your dashboard as you look at visibility? And at what point do you think you will be under shipping demand? Has that view changed in the last quarter or so?
Got it. Yes, it's a great question. We have been I mean, what do we look at? I mean, we're, as I said, in constant contact with our customers. The message we delivered today and are delivering on this call is that the year is playing out pretty much as we stated on the last call, which is no meaningful recovery in memory spending through this year.
And we exit with supply growth meaningfully below the long term demand both in DRAM and NAND. And so we've said 2019 is a year in which kind of the balance of supply and demand and the inventory issues get resolved in a way that we exit the year and are set up for a much stronger outlook in 2020. That's what we said in January. I guess I'd say we just are reiterating that we still see it playing out that way and that's how we're looking at it.
Got it. Thanks, Vivek. Yes, we'll give you one follow-up. Operator, just a heads up, we have time after this for one more call.
Sure. Thanks, Matt. So very quickly, I don't know whether you answered it before, but what's the sensitivity of services business to what you're seeing on the tools business this year? So if, let's say, tools are down this year historically, does it mean services go down next year? Or do you think there's enough growth in the installed base and consumables to still have conceptually a positive year next year?
Vivek, when we look at this, we see this as a growth year for the installed base business and it will grow next year too.
Okay. Thanks.
Yes. Thanks, Barry.
We'll take a question from Mehdi Hosseini with SIG.
Yes, thanks for squeezing me in and all the good questions that we asked. I just have one quick follow-up. When you talk about Logic, Foundry and others, does that include advanced packaging and image sensor? And if not, what does that put in? Which bucket is it?
Yes, Mehdi, for us, it's logic and other, as you rightly point out. So yes, that's where image sensor goes. That's where advanced packaging goes. It's logic plus everything else.
When you talk about a slight upside to logic and foundry, would that include better than expected advanced packaging and image sensors?
That's not what's driving the upside in spending that we're seeing, Mehdi. It's more leading edge stuff.
Got it. Thank you.
Thanks Mehdi.
That does conclude today's question and answer session.
At this time,
I will turn the conference back to Ms. Tina Correa for any additional or closing remarks.
Thank you all for joining us today.