Good day, and welcome to the Lam Research Corporation September 2018 Quarter Earnings Call. At this time, I would like to turn the conference over to Ms. Tina Correa, Corporate Vice President of Investor Relations and Communications. Please go ahead.
Thank you, and good afternoon, everyone. Welcome to the Lam Research quarterly earnings conference call. With me today are Martin Anstice, Chief Executive Officer and Doug Boettinger, Executive Vice President and Chief Financial Officer. During today's call, we will share our outlook on the business environment and review our financial results for the September 2018 quarter and our outlook for the December 2018 quarter. The press release detailing our financial results was distributed a little after 1 p.
M. Pacific Time this afternoon. It 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 o'clock p. M. Pacific Time.
As a reminder, the replay of this call will be available later this afternoon on our website. With that, let me hand the call over to Martin.
Thank you, Tina, and thank you all for joining us today. Lam delivered results stronger than targeted for the September quarter with revenues, gross margin and EPS all exceeding the midpoints of our guidance. In addition, consistent with the commentary made during our last earnings call, we are forecasting the December quarter up sequentially and we would still characterize based on engagements with our customers in our markets and outlook for the first half of twenty nineteen that is somewhat stronger than the second half of twenty eighteen. In aggregate, there has been more semiconductor capital investment volatility, both upside and downside in 2017 2018 than in the recent prior years. And that is only accentuated by broader by the long term drivers for data economy enablement from the world of silicon and the complements of our products and services portfolio to the technology roadmap of the industry.
In our opinion, next generation device and systems architectures, the expansion of the materials in chip design and manufacturing creates compelling opportunities for our strength in etch and deposition. We remain committed to invest and innovate for the success of our customers and our company. As always, the performance of Lam is defined by customer trust and employee commitments to our vision and values. We sincerely appreciate that partnership, the opportunity created and the numerous contributions made. Since our July updates, current year WFE expectations continue to track up slightly year over year, although to a modestly reduced extent.
At a segment level, 2018 WFE looks a little stronger in logic, a little weaker in NAND and Foundry to the assumptions we made 3 months back. With customer and Lam performance consistent with our December quarter revenue guidance provided today, calendar 2018 would represent a healthy revenue growth year of 14% for the company with profit performance marginally stronger versus the calendar year 2017 benchmark. In deposition, we continue to see evidence of Lam's growing strategic relevance to the success of our customers with key penetrations of new films for patterning, new specialty applications for 3 d NAND and deeper partnership models emerging for 3 d NAND applications. In etch, perhaps our most critical area of focus in 3 d NAND is the continued enablement of customers increasingly challenging technology roadmaps, where we continue to strengthen our leading capabilities in high aspect ratio applications. Our solutions are invested in customers' vision for continued 3 d NAND scaling targeted to accelerate demand elasticity in their markets for the next several years.
Combined etch and deposition market share penetration and defense activity is a net positive so far for Lam in calendar 2018. Fundamental to the quality and sustainability of Lam earnings is the performance delivered by our customer support business group. Our installed base business has grown year to date at a pace more than 2 times faster than our installed base unit growth during the same period. Our worldwide process chamber counts now exceeds 55,000 units compared to 36,000 units at the end of 2014 and this is the foundation for ongoing spares, service and upgrade revenues. We are increasingly focused on value creation for our customers through investments made in equipment intelligence products.
We are providing performance enhancements in areas such as tool analytics, preventive maintenance and chamber matching to enhance productivity for our customers and create opportunity for Lam. In addition, driven by our customers' aspirations of better asset utilization in addressing the non leading edge and also the emergence of new IoT and MEMS silicon opportunities, our Reliance business recorded calendar year to date growth of more than 35 percent versus the same period in 2017. A good illustration, we believe, of Lam's ability to be flexible in addressing the full scope of our market opportunities. In closing, the September quarter and our outlook on December are largely as we shared with you last earnings call and should deliver more than $3,000,000,000 in cash from operations this year. We remain focused on investing in our profitable growth objectives at the same time delivering value through cash redistribution to shareholders.
In this regard, incorporating December 2018 quarter guidance provided today, year over year operating expenses increased by 9% with 75% of that growth focused on R and D and our fully diluted quarterly share count reduces by approximately 10% end of year 2018 versus end of year 2017. We anticipate a healthy long term opportunity for our customers and our company both with continued attention placed on strategies intended to deliver targeted returns on the investments that each market participant makes. With that, I'll turn the call over to Doug. Great.
Thank you, Martin. Good afternoon, everyone, and thank you for joining us today. Lam executed well in the September quarter with our results exceeding the midpoint of guidance for all of our financial metrics. Operating margin and earnings per share were at the high end of the guidance range provided, demonstrating what I think is discipline in our spending during a decline in industry capital equipment investments. We're pleased with our execution and ability to respond to the challenging business environment.
As a reminder to everybody, we adopted ASC 606 in the September quarter, which is the Q1 of our 2019 fiscal year. Under 606, we generally record revenue at the time of shipment rather than at the time of customer acceptance. With this new standard, we are no longer providing shipment numbers. Our market segment disclosures will be based on the composition of our revenue numbers for the quarter and we'll do that now as well as into the future. So let me
get into
that. Memory revenue continued to be strong with the combined memory segment making up 77% of total system revenue. Our overall non volatile memory revenue remained strong representing approximately 51 percent of the system revenue and that despite the anticipated reduction of spending in nearly every one of our NAND customers. DRAM represented 26 percent of system revenue. DRAM spending in the quarter continued to be focused on conversions to both the 1x and 1y nanometer node.
The foundry segment was stronger in the quarter accounting for 17% of system revenue. And finally, the Logic and Other segment contributed 6% of system revenue pretty much consistent throughout calendar year 2018. We continue to see strength in the China region with 25% of our revenue being generated there. The strength in China came from both foundry as well as memory. Nearly 2 thirds of the revenue in September came from domestic Chinese customers.
We delivered revenues of $2,331,000,000 in the September quarter, a decrease of 25% from June and slightly above the midpoint of our guidance. Gross margin for the quarter came in at 46.4%. And as we've shared before, 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 some volatility quarter to quarter. Operating expenses in the quarter were down to $451,000,000 which was a decrease of $57,000,000 from the June quarter. R and D comprised nearly 2 thirds of our total spending consistent with the composition of the June quarter operating expenses.
We continue to maintain a higher concentration of spending in R and D as we believe that disciplined R and D investments are critical to achieving our future revenue growth. One thing I'd like to mention to help you with your future P and L modeling. When we get to the March quarter of next year, we will have an extra work week in our fiscal quarter. This occurs approximately every 6 years due to our fiscal calendar cutoff. March spending will be higher as a result of the extra work week.
So keep that in mind as you put your March models together please. Operating income in the September quarter came in at $630,000,000 Operating margin came in at the top of the guidance range at 27%, primarily due to stronger gross margin performance as well as flexibility in our spending in a quarter of lower business volumes. The non GAAP tax rate for the September quarter was 11.9% in line with the guidance provided last quarter. In the longer run, the tax rate in the low to middle teens is the right level to include in your models. And I will point out that you'll see fluctuations around this quarter quarter.
Based on a share count of approximately 165,000,000 shares, earnings per share for the September quarter were $3.36 again at the high end of our guided range. The primary driver of the upside versus our guidance was stronger profitability. The share count includes dilution from the 2,041 convertible notes and the 2018 warrants that are still outstanding. The total dilutive impact for each for both of these, excuse me, was approximately 8,000,000 shares. 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.
In the September quarter, we had about $80,000,000 in early conversions of the 2,041 notes. The remaining balance of the 2,041 notes is $248,000,000 We continue to execute on our capital return program. In the September quarter, we committed approximately $1,700,000,000 towards share repurchases, deploying all of our current Board authorization from a dollar perspective. Our repurchases were executed largely through accelerated share repurchase programs that will cover repurchases until the March quarter of 2019. For dividends following the declaration of $1.10 per share last quarter, we paid out $174,000,000 in dividends to our shareholders.
Let me now shift to the balance sheet. Cash and short term investments including restricted cash decreased in the quarter to $3,900,000,000 and that compares with $5,200,000,000 at the end of the June quarter, the change largely due to our capital return activities. We continue to make progress bringing our cash onshore. Cash from operations for the September quarter remain strong at $720,000,000 which was roughly flat with the $718,000,000 we generated in the June quarter. DSO increased by 9 days to 72 days, which is related to the linearity of revenue during the quarter.
Inventory was roughly flat in dollar terms, while inventory turns declined to 2.7 times. This compares to 3.5 times in the prior quarter. We do expect to see turns improve in the December quarter. Company non cash expenses included approximately $50,000,000 for equity comp, dollars 36,000,000 for amortization and $44,000,000 for depreciation. Capital expenditures were $56,000,000 which was down from $80,000,000 in the June quarter.
For the calendar year, we expect CapEx in 2018 will be flat to slightly higher compared to 2017 levels. CapEx this year is going towards investment in manufacturing expansion for our installed base business as well as strategic R and D investments. We exited the quarter with approximately 11,000 regular full time employees, which was relatively consistent with the June quarter. So now looking ahead, I'd like to provide our non GAAP guidance for the December quarter. We are expecting revenue of $2,500,000,000 plus or minus $150,000,000 We're expecting a modest uptick in customer spending across multiple segments.
Gross margin of 46% plus or minus 1 percentage point operating margins of 27.5 percent plus or minus 1 percentage point And finally, earnings per share of $3.65 plus or minus 0 point September quarter marks a near term trough for our business. While near term forecasts are subject to change, we remain optimistic on our longer term growth prospects that we highlighted during our investor event back in March. We continue to prioritize disciplined investments that drive competitively differentiated products as well as Lam's outperformance opportunity into the future. That concludes my prepared remarks. Operator, please open
up the call for questions.
Thank We'll take our first question from C. J. Muse with Evercore.
Good afternoon. Thanks for taking my question. I guess first question, as you think about your first half outlook for calendar 2019, definitely coming in stronger I think than many of us thought. Can you walk through, I guess, what you're seeing in terms of tools versus service? And then if there's anything that we should be thinking about that is perhaps maybe land specific or timing of say image sensors coming in, we'd love to kind of hear your thoughts on that front.
Yes. And needless to say, we're much more qualified to speak to our business than we are kind of like the overall kind of WFE headlines. So when we think about kind of calendar 2019, obviously there's been some continued, I would say, muting of investment expectations primarily in NAND flash since our last earnings call. We're looking at 14 new projects next year, 5 projects next year. And I would expect honestly in the second half twenty eighteen to first half twenty nineteen comparison that our kind of revenue levels will be incrementally higher in DRAM, logic, other including image sensors to your point and also foundry.
I would expect NAND to be down half over half second half twenty eighteen compared to first half twenty nineteen. Relative to the proportion our kind of revenue headlines that is the spares and service, the installed base business, obviously, it's a very important part of the economics of the company. And we've given some color today on the pace of growth of that business by referencing the installed base and the annuity that comes with it. And it's an important part of the value proposition here. But I would say our headlines for first half WFE, are true systems headlines for the markets and the customers that we have.
So hopefully that helps CJ.
Very helpful. And if I could ask a follow-up, you've always done a great job of managing OpEx and given I guess the increased volatility Doug, how are you thinking about incremental lot margins from here? I think target model is roughly 40%. Is that still the right kind of model up or down depending on the revenue run rate? Well, C.
J, I think you rewrote our model. Our model is 32% to 33% in the longer term. Yes. You see you're too used to CJ these memory companies of 40%
to 50% operating income these days.
It's tainted you. Yes. But C. J. To more directly ask your question, at these revenue levels kind of high 20s, you just saw us print 27% and guide 27.5%.
And as things recover and get stronger, you'll see us kind of inch our way towards that low 30s level. That's the right way to be thinking about things. There will be variability in spending. And one of the things I purposefully pointed out is the March quarter is a 14 week quarter. So there's an extra work week in there.
And I'll remind you that in the first half of the year you get certain spending coming back in like payroll taxes and things like that. So don't forget those things as you're modeling the next couple of quarters. But hopefully that answers your question. Very helpful. Thank you.
Thanks, C. J.
Thank you. We'll take our next question from John Pitzer with Credit Suisse.
Yes, good afternoon guys. Congratulations on the solid results. I guess, John, my first question really kind of a planning question around 606 of deferred revenue. There was a big drawdown in the September quarter sequentially in deferred revenue. How does that line sort of transition over time?
Under 606, will that get to 0? How quickly will you get there? And is there any uptick in the December sort of revenue guidance, a function of just deferred revenue coming down off the balance sheet?
Yes. So briefly, I'll go through it, John, and you can ask me more if you want understand a little more. I mean basically what happened as we crossed into the new fiscal year is there was a bucket of deferred revenue that just fell straight to retained earnings. So that just fell off and is largely why deferred revenue went down so much quarter on quarter. You'll continue to see deferred revenue though John for first of a kind tools and certain BPA accrual type things that isn't completely delivered yet, it will bounce around a little bit.
And generally the way I think about the difference between 605 and 606 is it's all just timing. We're still shipping tools. We're still collecting cash. All of that happening in the same timeframe that it otherwise would have. In some quarters, 606 revenue recognition will be higher than 605.
In some quarters, I would expect it will flip and go the other way. But at the end of the day, this is all just timing. And what really matters in my mind is when cash is coming into the company. And as I think you saw, we had a really strong cash collection quarter at $720,000,000 Does that help, John?
That's helpful. It does. And then maybe for my follow-up to Martin. Martin, I think one of the investor concerns out there is as the industry transitioned from planar to 3 d NAND and the rush to get there by your customers just created kind of a once in a lifetime kind of bulge in NAND CapEx that's not repeatable. I'm kind of curious as we go through this soft period in NAND, has your view of capital intensity, your SAM or the rate at which your customers are making these transitions change?
And are you still in the mindset that 32% to 64% was probably the most efficient transition for the industry? And as we go from here, things get more difficult? Any color there would be helpful.
Yes. I mean, there are a lot of questions here. So at a fundamental level, no real change in our long term outlook. And that's a commentary on capital intensity needed for the industry and we floated a $70,000,000,000 reference at the Flash Summit Conference a year back, I think, or maybe repeated again this year actually. So 2 years in a row, same message.
I'm not sure we've ever really offered an opinion about efficiency of one node or another, but I would certainly align to the fact that the challenges get more complex over time as aspect ratios increase, which is a big part of the opportunity for us. That's where we're strong and differentiated. So I think that trends well. And we don't see the opportunity for 3 d NAND as a once in a lifetime gig or a one time event, right. Clearly, there were some transitional investments associated with playing a capacity to 3 d.
There are also investments associated with 1 generation of 3 d to the next. And we did opine in earlier disclosure that over the next 5 years, I think we expect about 1,000,000 wafer starts per month of incremental capacity to get brought to the system associated with the long term outlook for non volatile memory in this world of data. So from an industry point of view, more or less the same. And I guess the one thing I didn't say is independent of what your view is good or bad, you should recognize that the segments of etch and deposition are entirely central and fundamental to that transition. And so, if everybody does well or everybody has opportunity, we should have more and if nobody does so well, we should outperform.
So that's an important headline as well.
Helpful. Thanks guys.
Thanks, John.
Thank you. We'll take our next question from Krish Sankar with Cowen and Company.
Yes. Hi. Thanks for taking my question. 2 of them, first one, Martin, if you look at this downturn, clearly or this downdraft clearly led by memory, looks like the CapEx or the WFE cuts have been in retaliation to pricing declines. So from your vantage point, do you think pricing is a key metric to look for to see when it troughs?
And if so, do you think WFE troughs for memory along with pricing? And do you have any view on when that will happen?
I have a follow-up.
Well, I mean, I think that's a very important question and quite a complicated one. Clearly, there's a relationship of pricing to investment levels. And I would say that's in 2 ways. The first one is ASPs should reflect supply and demand balance of capacity. So to the extent the prices are going up or going down, there's an implied message around the need to add capacity or the need to kind of rein in capacity.
So that's been the world we've lived in for many, many, many years. What's a little different today is that pricing is not actually a great leading indicator now of the customer's ability to afford to make investments. So back to my rather amusing response to Tim's earlier question, when the memory companies are making 40% to 50% profits, when DRAM is $100,000,000,000 business, when Flash has grown in the way that it has. The sustainability of investments is clearly enabled in ways that wasn't true 3 or 5 years ago. Now having said all of that, I think our customers spend money adding capacity when they have demand from their customers to ship devices.
So I don't think people get carried away at any level these days. So it's a bit more complicated than it used to be. Pricing is relevant to help you understand supply and demand, but it's not so relevant in assessing sustainability and the customer's ability to make capacity or technology related investments. So good luck with your modeling, I guess.
Got it. Got it. That's very helpful, Martin. And then just a follow-up. Clearly, everyone understands the long term upside potential for Lam and the industry and WFE rebound.
I'm just trying to frame the downside. If you look at the 1st year to drop was NAND followed by DRAM. Do you worry that things will get worse before they get better? Or do you think we are kind of a troughing at these levels?
Well, we're if anything, we're super consistent, right? So my approach has always been to describe what I see and we've done that. And we'll always do that, good or bad, we'll tell it how we see it. And so we've offered perspective that says December is stronger than September, and we expect the first half of next year to be stronger than the second half of this year. And of course, we might be wrong.
And you have to kind of judge the confidence level of our disclosure and kind of move forward, I guess. So, best I can offer you.
Got it. Thanks, Martin. Thanks for the insight.
Thank you. Thanks, Krish.
Thank you. We'll take our next question from Timothy Arcuri with UBS.
Thanks much. I had 2. I guess the first question Martin is, if I just hold your wafer fab equipment share and now I'm putting everything in there, but if I just calculate your WFE share for this year and for last year, it's up a little bit this year. So if I just hold that into the first half of next year, you're still annualizing if I give you say $5,000,000,000 worth of revenue in the calendar first half, which was just up a little bit half on half, that would imply that we're still annualizing to like high 40s to close to 50,000,000,000 WFE. So I guess the question is, who really knows about the calendar second half, but would you sort of endorse a number close to $50,000,000,000 for 2019 WFE?
Technically, it's too early for us to answer that question. It's pretty customary that we have a response to that in the January earnings call. But fair question. I don't have the crystal ball, so I can't answer it with the same level of confidence that I can answer the near term questions. But a variance of your question might be, how do I feel today about the $100,000,000,000 2 year reference that's been floated around for the last kind of few months.
It's not a bad reference. We're trending a tweak below that right now to our analytics. But we've trended a little above it at times and a little below. And I can't really tell you what the variability is around it. But that would probably be the best I could give you at this point in time.
Awesome. Thank you. And then Doug, it was a a pretty big repo this quarter and I understand that it's going to sort of play out through the end of March. But I'm curious if you can help us on share count for December March as this kind of flows through? And then also how you think about when you're going to kind of re up for the repo, how you kind of think about that?
Thank you.
Yes. I mean, Tim, it's always an ongoing conversation at a Board level. And we described when we first launched this current authorization at 12 to 18 month timeframe, maybe we've gotten through it a little sooner. I did purposefully point out that those ASRs are going to execute kind of over a 6 month time frame. So we're not out of the market even though all the cash got deployed.
And when I have something to update you on, I'll update you relative to what we're going to do in the future. Obviously, it's something we're going to be talking about, but I don't have anything to tell you today.
But just on the share
count though, how it actually plays out? How it actually plays through for December March? Thanks.
Yes. I just guided you a December number of $163,000,000 I didn't give you anything for March and we only guide 1 quarter at a time Tim.
Okay, awesome. Thanks so much.
Yes, thank you.
Thank you. We'll take our next question from Harlan Sur with JPMorgan.
Good afternoon. Thanks for taking my question. We were at the flash memory summit when the LAN team had its investor event and we also had the opportunity to hear from some of the existing NAND leaders in the market as well as some potential entrants from China who seem to be making some progress and talked about increasing their manufacturing footprint next year. We've also heard the same thing from some of the China domestic DRAM suppliers, albeit at lower levels of production activity. Do you think that China domestic memory starts to become a bigger part of your memory WFE mix looking into next year?
Yes. Yes, probably does Harlan, yes.
Both NAND and DRAM you think?
Yes, probably. I mean, I think as you observed from flash memory, the NAND guys in China were a little more visible, maybe a little more confident there. But I think they're both going to increment.
But I don't think our fundamental view on China is any different today than it was for the last kind of couple of years. I mean, it's clearly an ambitious, but in our opinion, quite rational strategic agenda. And as each quarter passes, there's more substance to what they're doing. And we don't have anything more to add than what I think they're speaking to in the public markets on their own. And obviously independent of all of that, the long term market participants are also investing for next generation device architectures and market share growth and so on and so forth.
So I mean it's a global system and that's what we respond to. But I think it's likely that the investment level in China increases in absolutes and proportional terms next year per Doug's response.
Great. Thank you. I just had a quick follow-up. It's pretty amazing, right, the amount of supply side discipline and focus on profitability and free cash flow by your memory customers. And clearly, they want to maintain strong profitability levels by modulating supply.
If I look at the last time there was a strong focus on sort of reining in supply that was kind of 2016, Took about 2 quarters of strong equipment spending declines before we did see a positive response in memory pricing fundamentals and economics for your customers. Is that how the Lam team still thinks about it as well, I. E. That supply discipline in the second half of this year potentially positively impacts supply dynamics and maybe stronger profitability in the first half of next year for your customers?
Wow. I'm not sure we know how to answer that. I mean I would say everything faster. So I think our customers adjust faster and therefore that's probably true on the upside as much as it is on the downside. We're a big part of feeding variability along with other market participants for the economics of their business.
And I think they take actions anticipating risks as much as ever. And that's a lot more than would be true 5 or 10 years ago when action would get taken when there was a clear problem statement. So yes, there are supply and demand imbalances that are getting adjusted to, but there's also proactive actions to manage the risk of that. So that's a good thing I think in the long term.
Yes. I mean it kind
of gets to the message that the secular headlines for us feel like they're more important and stronger than the cyclical ones. But you have to make your own decision, I guess.
Thanks for the insights.
Thank you.
Thank you. We'll take our next question from Joe Moore.
Great. Thank you. Following up on that last question, I guess I was surprised at how strong China was in the September quarter. And I think you talked 2 thirds of that being from domestics. That seems like a pretty big deviation.
Is there anything we should be aware of there? And how much of that is kind of memory versus your sort of the foundry customers who you've seen more frequently?
Yes. I mean, Joe, I pointed it out because it was an uptick from the local guys and I wanted to let you know that. I don't know you're going to see that every single quarter. In fact, I know you won't. And interestingly, when I look at kind of who the customers are and I won't name them by name, there was relative balance between foundry as well as memory.
And logic actually. Actually in logic, you're right, Martin. So it was a strong quarter for us in China and it was a balanced quarter.
I mean, my take on the same answer is we tend to talk about collectively 2 or just 2 or 3 core domestic participants in China. Reality is there are kind of 6 or 7. Yes, this morning. And some of them are active at 300 millimeters, some of them are active at 200 millimeters, some of them are active at Leading Edge Technologies and some less Leading Edge. But there's a fairly meaningful population that doesn't maybe get fully internalized.
Great. Thank you very much.
Thanks, Joe.
Thank you. We'll take our next question from rahmet shah with Nomura Instinet.
Yes, thank you. I guess just as outsiders, the all the data points on memory equipment CapEx and fundamentals just seemingly seemed all bad during the quarter and yet you exhausted your entire buyback and you're reiterating your expectations for growth in December. So is it fair, Martin, to sort of sum up this report by saying that maybe your business is more diversified than we realized and you're confident in September being the bottom. And the question really is just sort of shape of the recovery from here being either U or V shaped?
Well, I think we've been talking to the subject of diversification now for kind of 3 or 4 years. No question we're more diversified today than we were. I think we've tried to reinforce that message even more than talking about share gains in foundry and share gains in logic by speaking to the SAM expansion headlines. And in the last kind of year or so, we've segued into the installed base business of the company, which is not only a great asset relative creating an opportunity for competitive differentiation in the core systems products of the company. It's a source of revenue and profit growth at a rate that is faster than the pace of growing our installed base.
I mean, there's a massive difference between 55,000 process chambers and 36,000 process chambers relative to the annuity. So that's all kind of in the mix as well. So the business is more or less as we had anticipated, slightly muted to the expectations of 3 months ago, but not that much different. I mean, I actually think our calendar 2018 WFE number is 98% or 99% exactly what it was 3 months ago. So I mean that's kind of basic headline there.
And we've expressed an outlook for the first half of next year. We're not going to put numbers on it now. We'll kind of deal with that in January. So that will be the time when V or U becomes an obvious disclosure from the lab.
Okay. Thanks for that. And just on the buyback, Doug, you've exhausted it. So do we have to wait till the next conference call to hear about the size and scope of the next authorization?
Well, even though the cash like I said, Ramit, the cash got all committed. We're still in the market through these structured products. So and that was purposeful, right, taking a view of pricing, where things were at and wanting to get on with it. But the way this generally works is Martin and I all agree here's what we think we should do. We'll go on and we'll have a conversation with the Board and the Board will have opinions and we'll modify it.
And when we have a decision, we will communicate it to you and we're not at that point yet.
Okay. Thank you.
Yes. Thanks, Ramon.
Thank you. We'll take our next question from Vivek Arya with Bank of America.
Thanks for taking my question. Martin, maybe a question on your services business. If say hypothetically WFE goes down 5% or 10% next year, What does that imply for your services business? Can you still keep it flat or even grow it? Just what is just the conceptual sensitivity to WFE?
Well, in the calendar year, there's not so much sensitivity because in general when we ship a system to a customer it has a 12 month warranty. So it's kind of on our dime during that period. The single biggest influence over the size of the installed base business is the number of kind of units in the installed base for which we disclosed and then the utilization of fabs. So if you if we show up in a world with the WFE reduction that you've just characterized and there's no change in utilization of the installed base then there's no consequence. If utilization of installed base goes up, you're likely to see accelerated growth.
And if installed base utilization goes down, you see a contraction in spares and service business in the industry. So our assumption is in the context of customers have done a really good job kind of managing this issue, utilizations will run pretty high and we have no reason to be anxious about a dip in our installed base revenues. In an independent world, as spoken to for some time now, a little bit here today in prepared comments, we are perpetually building a portfolio of installed base productivity related products and service offerings and invested in contributing more to the success of our customers and creating opportunity for Lambs. So there's some things in our control and things that are out of our control.
Got it. And as a follow-up, from what you see today, do you think memory CapEx overall is up or down next year? And when do you typically get visibility around what the spending environment will be?
Perfect. The normal timing where we'll give you more color on next year would be in next quarter's earnings call. It's just a little bit too early for us to give the specificity you're asking for.
Thank you. Yes. Thank you.
Thank you. We'll take our next question from Toshiya Hari with Goldman Sachs.
Yes, thank you. Thank you so much. Martin, you talked about Logic revenue being up in the first half of twenty nineteen relative to the second half of twenty eighteen. Is the big driver there basically your key customers CapEx budget going up or is it more due to your positioning improving from say 14 to 10 nanometer or
is it both? It's both. It's a little bit of both.
Okay. And then kind of related to that, if you were to in terms of magnitude, you guided DRAM, logic and foundry up half over half. If you had to rank order those 3 in terms of the magnitude increase from the second half to the first half? Is that something that you guys can do?
I haven't written that on a piece
of paper in front of me and now I've decided
So rank order without any numbers, I would say, logic and kind of other logic, which includes the image sensor opportunities and the legacy stuff, it's probably the fastest growing. And DRAM is the slowest growing and foundry is probably in the middle. That would be kind of and I'm not speaking to kind of industry level here. I'm just characterizing the revenue kind of outlook for Lam. And as I said NAMS contraction.
So that will be our rank order. Okay. Again, it's like pretty early to be having this conversation. So take it for what it's worth at this point.
Sure. As a quick follow-up, I had a question on market share. Martin, clearly, if you're growing your business 14% this year, you're gaining a bit of share. In your prepared remarks, you talked about some of your net wins, both in DEP and ETS. Is it fair to say in relation to your long term model where you attached $1,000,000,000 incremental revenue from market share gains, are you tracking in line or ahead of that plan?
Or how would you describe where you stand today relative to those long term plans?
It was never linear. So it's a tough question to answer, but a couple of data points. So when we talk about kind of penetrations defense activities this year, we're actually talking more about the economics that will play out a year from now or maybe even in 2020, right? Because there's a leading time frame on DTOR decisions and TTR decisions. And you might remember that in the last earnings call, I think I made reference to the fact that there were tons of decisions in relative terms in the second half of this year compared to the first half of this year.
So there's kind of a lot still ahead of us. So fair game for you to ask the same question, me to try and answer it in January. So far, again, we don't win everything nor do we defend everything, but we have a net positive to forward looking kind of economics from the penetrations and defenses in the 1st 9 months of this year. So pretty pleased. Thank you.
Thanks, Josh. Thank you.
We'll take our next question from Patrick Ho with Stifel.
Thank you very much. Martin, first off, just I guess follow-up on some of your comments on NAND capital intensity. But looking at it from the DRAM front, as the industry continues to push to 1X, 1Y and eventually to 1Z, we're seeing a lot of new fab projects in DRAM. Do you believe these capital intensity trends are also impacting DRAM and this could provide a little bit of, I guess, sustainability on some of the equipment spending trends that we're seeing today?
I think it's all about kind of the economics on the revenue of the customer, honestly. I think what we've seen in the last couple of years is obviously an emergence of significant managing supply and demand and there has been an ASP consequence. But more than that, we've seen a transition away from units to content and density in a broader set of demand drivers. And that has allowed our customers to kind of reset the value of the bits that they're selling to their broader cognitive computing environment. And so if there continues to be discipline and if our customers continue to be success getting paid for the enablement in their industry, the fact that from 1 generation to the next, the DRAM cost transitions are kind of less significant compared to the baseline of 5 to 10 years ago, it's much less relevant, right.
I mean clearly, when no transitions deliver less than they did in history, there's a lot of intensity by the customer and there's a lot of intensity by Lam and our peer companies, I'm sure, to try and continue to improve the productivity of the DRAM installed base, because we have a collective interest in that. But I think the bigger question to answer relative to DRAM capital intensity is the revenue side of it, not the cost side of it. But as I've said, 3 times a day, you might be wrong. Go ahead.
As my follow-up question for Doug, in terms of the services and spare parts business, You mentioned that a little bit of the CapEx spend that increase is incrementally going into that business segment. How much can you leverage, I guess, your existing workforce in terms of growing that business on the labor side of things? Or is that an area where you'll also have to increase OpEx to keep up with the fast pace of growth in that business?
Yes, Patrick, it's a different physical factory in a different location. So there's not a lot of leverage from a labor standpoint. And we have to invest to manufacture the parts we're manufacturing. So it's all goodness at the end of the day. It's supporting a higher installed base and we got to make investments for that.
Great. Thank you. Thanks,
We'll take our next question from Mitch Steves with RBC Capital Markets.
Hey guys, thanks for taking my question. I just had a quick one on kind of 90 Sinclair technology. Is there any of your customers that have already started working on that? Or is that something that's still to come next year?
Unfortunately, our customers have to answer that question.
Okay, got it. And then secondly on the DRAM side, do you guys see any, I guess when would you guys think that the pricing would stabilize in DRAM in general? Or do you guys have no view right now?
Well, we have a view, but I think the view of our customers again is worth a lot more than ours. I mean, it's all about supply and demand and our customers have taken action, I would argue proactively as much as reactively. And everything moves pretty fast these days. So again, customers' disclosure is worth a lot more than ours on ASPs of devices.
Got it. Thank you.
Thanks, Mitch.
We'll take our next question from Weston Plee with KeyBanc.
Hi. Thanks for taking my question. First, I'm just wondering if you're seeing any change in customer behavior related to trade war concerns, whether that's in terms of the conversations you're having with them or the visibility that they're providing or commitments regarding new fab capacity heading into 2019? Any color would be helpful.
Yes. To the best of my knowledge, nothing's really changing directly related to that, although I've kind of heard a few statements and read a few things quoted about customers kind of referencing tariffs or the costs of tariffs when it comes to the pace at which they're making investments. In fact, I think I read one today out of Taiwan. So I'm sure it's not irrelevant. I mean to the extent that a company has more cost because of tariffs and we probably all do at some level.
There's a consequence of that and there's a reprioritization of things in the company. So not irrelevant, but hard for us to kind of directly correlates. I'm just conscious that I'm seeing statements and I'm hearing some things. And so it's in the mix of the outlook that we've described today.
Okay. That's very helpful. And then my follow-up question is just on DRAM strength in the first half that you mentioned. Is that strength from more from some of the push outs you're seeing from this half? Is it related to new capacity or is it more just ongoing conversion activity?
It's mostly as originally planned. I don't think it's a massive kind of statements. So there are not so many industry participants in any segment these days. So you probably got a sense of who's chasing who and who's investing where for what purpose. So I think it was pretty much originally as consistent with plans.
Okay. Thank you very much.
Thanks Russ.
Operator, we'll take one more question please.
Thank you. We'll take our next question from Mehdi Hosseini with SIG.
Yes. Thanks for squeezing me in. Doug, going back to your commentary about the extra week in the March quarter, which is leading to higher expenses. Should I also assume that your revenue will be positively impacted by an extra week?
Well, technically, we have an extra week to shift product, Mehdi. I don't know that it's going to meaningfully move the revenue number. I do know definitively it will impact the expenses. We'll give you the hard guide when we did the end of the quarter though.
Okay. And then just I just want to go back to your comment about the deferred revenue. And if I just do a simple math, I get to shipment down 35% on a sequential basis. Does that make sense to you?
Mehdi, we're not guiding shipment anymore. We're not talking about shipments
anymore.
That is
for the September quarter.
We're done talking about shipments publicly. Revenue is all we're going to be describing now. You can do analytics on whatever you want to get shipments. But at the end of the day, given the change in the revenue recognition timing, revenue is what we're going to be talking about.
Okay. That's fair. Just a follow-up on your services, given the increased installed system, are these service contracts long enough to actually have an impact on your backlog? Does that help you with better visibility? Yes.
So if that's the case, and assuming that services is becoming larger part of your revenue mix, why not offer a longer guide on the revenues rather than just referring to WFE?
We'll think about it, Mehdi. I mean, at the end of the day, we try to describe what we think is important for you to understand what's going on in the business. There's still just a large amount of the business in any one quarter that's turns based. And to me, backlog isn't that meaningful for service, it certainly is as Martin said. So we'll give it some thought.
Because just the growth in installed system is very compelling, but it still hasn't made a difference to how you guide. And I'm just wondering what is the disconnect here?
I'm not sure that's actually true. I think for the last couple of quarters you've had perspective, sometimes quantitative and sometimes qualitative on the progression for a couple of quarters including today. So it's pretty hard to do what we're doing. And as many people characterize that we don't have the visibility to say what we currently say as those that do. So take it for what it's worth.
We're doing the best we can. Thanks, Mitti.
And speakers, if you have no more questions, I'll turn it back to you.
Okay. With that, we'll conclude the call. Thank you, operator.
Thank you, ladies and gentlemen. You may now disconnect and have a great rest of