Good day, 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 Correia, CVP of Investor Relations. Please go ahead, ma'am.
Thank you. 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 1:00 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&A includes forward-looking statements that are subject to risks and uncertainties reflected in the risk factor 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 3:00 P.M. 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. 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, 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 billion. Though since our last call, we now see a marginal downtick in memory spending offset by slightly better expectations in foundry and logic. 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 5G. 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 three 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, 5G, 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 improve bandwidth by adding, among other things, more bit lines, which increases etch and deposition intensity.
Second, 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 3D electroplating and Syndion etch tools are recognized technology and market leaders in the TSV market and provide the stable etch depth and via fill capability required for high-volume production. For wafer level packaging, the market leading SABRE 3D system delivers technology-enabling coplanarity on a production-proven platform. Third, 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, 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 first calendar quarter, we successfully defended all key positions in addition to winning multiple new opportunities, 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 3D NAND. The QSM serves as the core high productivity platform on which Lam's process teams build differentiated 3D 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, low resistivity tungsten fill for wordline. 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 3D 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've 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.
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 one 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. Finally, in our customer support business group, we saw continued sequential growth in revenues we derived from our installed base. Our Reliant 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 Moore 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. 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 Doug 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 in 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 grant vesting due to the increase in our stock price during the March quarter. I'd also like to highlight that during the March quarter, our cash from operations came in at $933 million, which on a quarterly basis is the second highest cash generation in the history of Lam Research.
As we discussed during our last quarter's 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% 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. 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. Foundry spending in 2019 is focused on 7 and 5 nanometer. As a comparison, the profile in 2017 was targeted at 10 and 7 nanometer nodes. Finally, the logic and other segment was also up, contributing 12% of systems revenue.
Let's turn to the P&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, and customer concentration, and you should expect to see variability quarter-to-quarter. Operating expenses in the March quarter were $488 million, 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&D investments continue to be a focus for us, with R&D comprising nearly two-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 million related to severance payments for a workforce action we took during the March quarter. Operating income in the March quarter was $611 million 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 and 2019 calendar year, we continue to expect a tax rate in the low to mid-teens. There will be fluctuations in this rate quarter by quarter. In March, we completed the issuance of $2.5 billion 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 million in interest expense for the March quarter.
However, as I pointed out, this was offset in OI&E by gains on assets related to obligations under our deferred compensation plan. Going forward, we expect to have approximately $26 million of quarterly interest expense related to our new debt. Total interest expense on a quarterly basis is now around $45 million. We continue to demonstrate our commitment to capital return during the quarter, funding more than $1 billion in dividends and share repurchases. For the March quarter, we paid out $171 million in dividends, and we completed $862 million in share buybacks through a combination of open market and structured repurchases. These repurchases were made under the new $5 billion authorization that we announced at our earnings call in January. I'd just point out to you that in the last year, we have lowered quarterly diluted share count by approximately 20 million 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 for EPS were 158 million shares, which reflects a decrease from the September quarter related to the share buyback program. The share count includes a dilutive impact of approximately five million shares from the remaining 2041 convertible notes in the March quarter. I'll remind you, the dilution schedules for the remaining 2041 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 $6.4 billion from $3.9 billion in the prior quarter. This was driven by the $2.5 billion debt issuance that I mentioned and the over $900 million operational cash flow.
DSO improved by six days to 61 days. Our inventory levels decreased, and consequently, inventory turns increased to 3.4 times compared to 3.2 times in the prior quarter. Company non-cash expenses included approximately $53 million for equity compensation, $46 million for depreciation, and $36 million for amortization. Capital expenditures were $76 million in the March quarter, which was a decrease from $106 million 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 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 $2.35 billion ± $150 million. Gross margin of 45.5% ± one percentage point. Operating margins of 26% ± one percentage point. Finally, earnings per share of $3.40 ± $0.20, based on a share count of approximately 155 million shares. Operator, that concludes my prepared remarks. Tim and I would now like to open up the call for questions.
Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. 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.
Yeah, we only really guide this one quarter at a time. The best, I guess, way I'd give you to think about it is it's going to be plus or minus where we're at in the June quarter. Again, we only formally guide numerically one quarter at a time.
Thank you. 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 billion. 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. 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 any effect on our business at this point.
Thank you.
Thanks for the question. Yep.
We'll now take a question from C.J. Muse with Evercore.
Yeah, 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-plus billion per quarter in tool shipments just on technology buys alone. 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 2020, sorry.
Yeah. Tim and I will tag-team 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. We really don't see a meaningful recovery or recovery at all this year. Tim, you want to add anything?
No. I think that's a very clear statement of our 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. From the standpoint of the job we're doing, Lam is squarely focused in the middle of technology conversions, and technology conversions are a great way for customers to reduce their cost, increase their capability through cycles like this. Lam is just focused on helping our customers execute those technology conversions. When they come, and there's capacity additions, that'll be, as you say, an additional green shoot. Right now, we've said we don't see that right now through this year.
C.J., just maybe one more comment from me as I sit here and think. 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. 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? Are you contemplating perhaps a more aggressive buyback with the funds? Thank you.
C.J., nothing new to communicate relative to buyback. We just announced the $5 billion a quarter ago. We executed $862 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. I don't really have anything new to tell you, except that debt issuance helps fund what we plan to do. Thanks, C.J.
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? Then looking beyond one to two years, when I was at SPIE conference, there was a lot of discussion on horizontal nanotubes or nanosheets being used for three-nanometer logic devices, similar to what we have seen from 2D to 3D NAND migration.
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, I'll do my best. First, maybe just taking kind of the share question head-on. Obviously, we looked at the Gartner report, we will be the first to acknowledge we don't win everything we compete for. I want to point out, 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. Once you have them, they're also the stickiest. They're the applications that our customers are least likely to change.
We really did, we focused on those, and we made sure that in key fast-growing segments of WFE like 3D 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. Those are the applications that get you closely collaborating with customers. I think when we think about share, I said it last time and I'll say it again, I want us to do better in the semi-critical applications. Again, you have to have 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. Semi-critical is usually a battlefield about productivity. That press release about the Kiyo 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. 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 fact, almost no increase in NAND WFE by our calculation.
Again, based on choices we've made and strategic positioning, we have positioned Lam to be extremely strong in 3D NAND, and I think you all know that. Some years it'll go it doesn't work out quite as well. We feel really good, and quite honestly, I wouldn't trade our position we have right now for anybody else's. Your point about logic, kind of just finish on that one. We intend to improve. We're always investing to improve our position across the entire spectrum of applications. I won't claim I'm an expert on your three nanometer horizontal nanosheets application though, but we have our CTO office looking at every new inflection that comes, and those inflections, we've proven our ability to use those inflections as share gain opportunities for ourselves, and we'll continue to do so. Hopefully that answers your question. Thanks.
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. Yeah. It's a great question. 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. What we're trying to say is that, at least from our view, what's happening right now is very rational. The pricing environment, we'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. We're watching those. We're talking to customers continuously. What we're making sure is that, regardless, as Doug said, we know it's going to come back. I talked about a lot of the demand drivers. There's no question for us about when we know whether memory comes back.
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 on our ability to ship to them on the dates they want the systems.
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, 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 is an indication of how supply and demand are clearing. 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. You got to pay attention to that because that tells you how things are clearing out. As Tim said, at some point, it will clear out, we're all waiting to see when that is.
Great. As my follow-up question for you, Doug, I know you've talked about the install 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 install base continues to grow, obviously with more shipments to 3D 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 install base growth is driven from both leading edge versus trailing edge?
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. 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. There's a very long tail to the profit generation from the stuff in the field. That's how I think about it.
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%. That's a great part of the business this year, is this is actually growing this year, Patrick. It just keeps going. Tim, would you
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, that's what this whole business is intended to do, is to help them leverage the tools that they've already put in place, that's how it's kind of a win-win. It means that in a year like this year, it's a very good business.
Thanks, Patrick.
Great. Thank you.
Once again, if you'd like to ask your question, please press star 1. We'll take our next question from Timothy Arcuri with UBS.
Thank you very much. I had two, I guess, Tim, first, I wanted to dovetail on an answer that you just had, and obviously you guys are very levered to 3D NAND, but I still get a lot of questions sort of on capital intensity and what your share is of the wallet in a layer migration world versus kind of a planar to a 3D conversion world. Can you sort of help us baseline that per 1K or per 10K, how much you think the WFE spending is and what your capture is of that wallet?
Oh, boy. Here's what I'd say. It's a great question. Maybe I'll refer back to a few of the things we've said, we can then see how close we can get to the level of detail you're looking for. Obviously, we participate, as you're talking specifically for layer conversions in 3D NAND, we participate quite significantly in the technologies that are required to make the stack taller, basically to increase bit density. We're talking about going from, say, 64 layer to 96 layer. I don't believe, 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.
Yeah, 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. You're building a taller stack, it's the taller stacks, deeper etches, the new films that I mentioned one. 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. I guess we can reiterate, is that from a conversion perspective, while the absolute dollars spent are less, our share of wallet, as you'd say, our share of WFE actually increases quite significantly because the primary tools that are required to effect that layer transition are etch and dep heavy . 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. I know that doesn't quantify it for you, I don't believe we've done that externally. We're probably not prepared to do so today.
Thanks, Tim. Yeah, that was what I was getting at, just the layer migration versus the 2D to 3D world. Thank you for that. Doug, just quick follow-up. On free cash flow payout, I think you paid a little more than all of your free cash flow this quarter.
Yep.
Is that still the thought to sort of pay out all of your free cash flow going forward? I guess the question really is on repo and how opportunistic you were when the stock was lower versus now that the stock's higher. Thanks.
Yeah, Tim, 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. Your observation is exactly 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 billion. I didn't communicate a timeframe for that. 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. 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, Doug. Thanks so much.
Thanks, Tim.
We'll now take a question from Krish Sankar with Cowen and Company.
Yeah. Hi, thanks for taking my question. I have two of them. First one, Tim, just to touch upon the market share. Last year, looks like you guys did lose some share, especially on direct write etch in NAND versus Tel, and my understanding was that Tel has gotten two of the customers because of productivity. Just trying to figure out, 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 slit etch? 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 in the mix of the decision. That's an area where obviously it's more competitive. 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 the Strata ONON tool. In terms of productivity delivered to 3D 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, 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. 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. I think now we can definitely take on some of the challenges we've had in semi-critical.
Got it. That's helpful, Tim. 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, looks like the OpEx run rate really hasn't changed. It looks like it's about $35 million on a weekly basis, but you guys did take out 150 headcounts. I'm just wondering, was it more flexing on the COGS side or should we expect maybe a downside to OpEx going forward?
Yeah, the best I can give you a perspective is that we just guided 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, the best guidance I can give you is plus or minus where we are in June. I think, Krish, you know in the first half of the year, you have some unique things that happen. First, you're absolutely right, it was our 14-week quarter that occurs every six years, something like six years. We had that elective deferred compensation program drive spending up that was offset in OI&E. I don't anticipate that happens again, but if the market significantly moves, you'll see some permutations from things like that.
In the first half of the year, also, you get payroll taxes come in that go away later in the year. That dynamic comes and goes. Then quite honestly, with our R&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 company, obviously. We're conscious of wanting to maintain that profitability. It's why we undertook the workforce action we did. The last thing I'd say is part of that workforce action, Krish, was in COGS. It wasn't just in direct spending. There's lots of things moving around.
Got it. Thanks, Doug. That's helpful.
Thanks, Krish.
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 for your customers. 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?
Go, Mike.
We haven't quantified it, Harlan, but a piece of it certainly is. 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. 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.
Yeah. It's a great question. Some element of it. In many ways, you're improving performance even on critical when you're working on things like architectural differentiation for semi-critical. This isn't where you need to drive completely different attributes. I think it's just a natural part, especially in the 3D NAND space, actually, of how the technology's also evolved and matured as well. If you go back a couple of years ago, maybe there was a lot more focus on the technical enablement of 3D NAND, meant a lot more applications looked critical. 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 3D NAND lower cost for our customers to produce, and therefore maybe drive increased volume, basically through elasticity. It's a focus of ours.
Like I said, it's not something new. Many of the deposition applications for a long time have competed in the semi-critical space. That's why you see unique tool designs. I bring back up the QSM architectural differentiation, specifically for productivity. It's a winner. The Kiyo and Corvus R announcement, Doug's point about almost every cost problem requires a technology solution. That's a technology solution. 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. 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.
Yep. Thanks for the insights there. 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, then more recently, idling capacity or even cutting wafer starts. I know that utilization and fab activity does drive a part of your installed base business, 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.
Yeah, maybe a little bit, Harlan. Honestly, as I think you well know, our spares consumption is correlated with fab utilization. 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. Yeah, we're still feeling great about what's going on. Tim, anything.
Yeah, 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, et cetera. I made the comment, which I think also shouldn't be lost. It's in years like this that customers are looking to us to help them improve productivity of their installed tools through upgrades and services. So, you may be getting a little bit of a balance between those two elements of our installed base business, that's why, even in the face of this, we're telling you we're going to deliver a record year in installed base.
Yep, great.
Thanks, Harlan.
Thank you.
Yep.
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? 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 chamber slows, there will be a lag effect to the growth of the installed base business, we're still feeling really good about where we're headed here.
Okay, good. That's helpful. 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 etch application. I think that it'll be more sensitive to places where you're wanting to manage very high volume production with minimal human intervention. What it really does is it allows us to not have to interrupt the tool by opening it to replace parts. I guess any high volume application could be a target for it. If it's as successful as it's proving out right now, sure, it represents a share gain opportunity for us and, therefore, better positioned when spending recovers.
That's helpful. Just to clarify, you think that'll be a product in the marketplace next year helping generate revenue growth?
Yes.
Wes, it's in the market right now.
Yeah. The announcement was that it is in manufacturing right now, high volume manufacturing.
Okay, perfect. Very helpful. Thank you.
Thanks, Wes. Yep. Thanks, Wes.
We'll take our next question from Mitch Steves with RBC.
Hey, guys. Thanks for taking my question. I had two, maybe I'll start out with the first one. During those prepared remarks, you guys stated that you saw a little bit more softening in DRAM, but then you said you didn't have a comment on NAND. Am I reading too much into between the lines by thinking that maybe NAND pricing bottomed out of DRAM, or is that a bad assumption to make?
Mitch, just read it to be our outlook for NAND is unchanged.
Okay, got it.
Okay.
Secondly, in terms of the Hello?
Yeah, go ahead.
Yeah, in terms of the China demand right now, obviously there's been a lot of movement in terms of kind of quantify the impact of the tariff 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 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.
I think 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, thank you.
Yeah. Thanks, Mitch.
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's the visibility and outlook for the second half now versus what you thought a quarter ago? We have heard from some of the memory customers, they are expressing some optimism about the second half. The inventory situation is not getting much better. 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 undershipping demand? Has that view changed in the last quarter or so?
Got it. Yeah, it's a great question. What do we look at? 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. We exit with supply growth meaningfully below the long-term demand, both in DRAM and NAND. 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. We'll give you one follow-up. Operator, just a heads-up, we have time after this for one more call.
Sure. Thanks, Pat. Very quickly, I don't know whether you answered it before, what's the sensitivity of the services business to what you're seeing on the tools business this year? If, let's say, tools are down this year, historically, does it mean services go down next year? 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, it will grow next year, too.
Okay. Thank you.
Yep, thanks, Vivek.
We'll take a question from Mehdi Hosseini with SIG.
Yes. Thanks for squeezing me in and all the good questions that we ask. I just have one quick follow-up. When you talk about logic foundry and others, does that include advanced packaging and image sensor? If not, where does that put in? Which bucket is it?
Yeah, Mehdi, for us, it's logic and other, as you rightly point out. 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 Correia for any additional or closing remarks.
Yep. Thank you all for joining us today.