KLA-Tencor Corp KLAC
Q3 2013 Earnings Call Transcript
Transcript Call Date 04/25/2013

Operator: Good afternoon. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA-Tencor Third Quarter Fiscal Year 2013 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

I'd now like to hand the call over to Ed Lockwood, Senior Director of Investor Relations. Please go ahead, sir.

Ed Lockwood - Senior Director, IR: Thank you, Jay. Good afternoon, everyone, and welcome to our conference call. Joining me on our call today are Rick Wallace, our President and Chief Executive Officer; and Mark Dentinger, our Chief Financial Officer.

We're here to discuss third quarter results for the period ended March 31, 2013. We released these results this afternoon at 1.15 PM Pacific Time. If you haven't seen the release, you can find it on our website at www.kla-tencor.com, or call 408-875-3600 to request a copy. A simulcast of this call will be accessible on demand following its completion on the Investor Relations section of our website. There you'll also find a calendar of future investor events, presentations and conferences, as well as links to KLA-Tencor's SEC filings, including our Annual Report on Form 10-K for the year ended June 30, 2012 and our subsequently filed 10-Q reports. In those filings, you'll find descriptions of risk factors that could impact our future results.

As you know, our future results are subject to risks. Any forward-looking statements, including those we make on this call today, are subject to those risks and KLA-Tencor cannot guarantee those forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking results. More information regarding factors that could cause those differences is contained in the filings we make with the SEC from time-to-time, including our fiscal 2012 Form 10-K and our current reports on Form 8-K. We assume no obligation and do not intend to update those forward-looking statements. However, any updates we do provide will be broadly disseminated and available over the web.

With that, I'll turn the call over to Rick.

Rick Wallace - President and CEO: Thanks, Ed. Thank you all for joining us on our call today. The March quarter results for KLA-Tencor were in line with the Company's expectations. New bookings in the March quarter were $738 million, down about 3% compared with December. Orders were concentrated among our foundry and logic customers with particular strength from logic customers in the period. Third quarter revenue was $729 million and non-GAAP EPS was $1.01 per share, applying an effective tax rate of 14%, resulting from a one-time R&D tax credit taken in the quarter. Non-GAAP earnings would have been $0.89 at our modeled tax rate of 24%.

So, a good start for KLA-Tencor in calendar year 2013, following the year a very strong relative performance for the Company in calendar 2012. In fact, according to Gartner's recently published industry report, KLA-Tencor sustained its strong relative market position in calendar 2012, in an environment in which overall process control market revenues were flat in 2012 and the industry CapEx was down approximately 10%. These results highlight a continuation of the trend we've seen in this cycle of increasing adoption of process control, as the mobility markets fuel growth in foundry and logic demand and the increasing cost and complexity associated with managing yields makes process control critical to our customers' success at the leading-edge.

Turning now to our view of the current business environment; consumer demand for mobile technology continues to be the primary force behind semiconductor industry demand, with strong smartphone and tablet unit growth, competition in increasing device cost and complexity, driving our markets today.

For KLA-Tencor, the Q3 bookings profile was highlighted by strength in logic demand with these customers accounting for 25% of bookings in March. We expect logic orders to comprise 32% of our orders next quarter and to be strong into the second half of calendar year 2013, though below the first half levels.

Foundry customers accounted for 47% of new orders in March. We expect foundry orders to comprise 35% of the orders next quarter and our foundry customer forecast for the second half of 2013, show growth over the first half of the year with more breadth of demand among these customers, because foundries tend to be the highest adopters of process control, the sustained high level of foundry investment we've experienced is favorable to KLA-Tencor and a key contributor to our strong relative performance.

Finally, orders from memory customers represented 28% of total orders in March, nearly double the percentage from the December quarter. We expect that memory will be 33% of new orders in the June quarter and that memory demand will strengthen in the second half of calendar 2013. Although, we are not currently forecasting significant capacity investment from memory customers in the year, we're encouraged by signs of higher relative adoption of process control and strengthening market share for KLA-Tencor among the leading-edge memory customers.

Looking ahead to the remainder of 2013, our outlook for the industry CapEx investment in the year has moderated somewhat from our initial commentary in January. As our customers adopt to more measured outlook for new wafer capacity investment in the near-term and prepare for the next node. We believe some of the major factors impacting the timing of equipment demand in the near-term include uncertainty as the potential magnitude and breadth of participation among fabless customers for the 20-nanometer node. Challenges associated with the transition from planar to 3D device architectures and a persistently weak global economy. As a result our current market outlook for modest incremental improvements in overall equipment demand in the second half of the year, driven more by the breath of foundry demand, sustained levels of investment from logic and a strong resurgence of demand from Korea both for logic and memory applications.

That said, given the factors I just mentioned are biased today as per industry CapEx in 2013 to trend toward the lower end of our original down 5% to 10% range for the year. The driving force behind KLA-Tencor's market leadership continues to be our focus on the customer. With each successive generation of new technology, our customers are facing increased process complexity, shorter market windows and more challenging yield requirements.

Process control is on the critical path to successful management of these complex technical challenges and as the market leader, KLA-Tencor is positioned to continue to benefit from strong relative adoption of inspection and measurement technologies as our customers move ahead with their advanced technology roadmaps.

Turning now to guidance for the June quarter; gross bookings are projected to be in the range of $625 million to $775 million. Revenue in the June quarter is expected to be in the range of $670 million to $730 million and non-GAAP earnings per share in the range of $0.66 to $0.86 per share.

With that I'll turn the call over to Mark Dentinger for his review of the numbers. Mark?

Mark Dentinger - EVP and CFO: Good afternoon, everyone. As most of you know, we present our income statement in two formats. One under U.S. GAAP and the other in a non-GAAP format, which excludes amortization and write-downs of intangible assets associated with acquisitions, restructuring related charges and credits, and any costs or credits which are outside of our core operations including unusual tax items. There was a $0.03 after-tax difference between this quarter's GAAP and non-GAAP EPS. Our balance sheet and cash flow statements are presented in GAAP format only. Most of my prepared remarks on operations will refer to non-GAAP information. A reconciliation of our GAAP to non-GAAP income statement is attached to our press release and available at our website.

Q3 new orders were $738 million, down slightly from $760 million Q2. Q3 net orders were $736 million. The regional distribution of new systems orders and the quarter-to-quarter change in distribution were as follows. The U.S. was 17% of new systems orders in Q3, down from 33% in December quarter; Europe was also 17% of new systems orders, up from 1% in Q2; Japan was 9%, up from 7% last quarter; Korea was 10%, down from 13% last quarter; Taiwan was 35%, down slightly from 39% last quarter; and the rest of Asia was 12%, up from 7% in Q2.

The distribution of new orders by product group and the quarter-to-quarter change in distribution were as follows; wafer inspection was 51%, compared with 48% last quarter; reticle inspection of 6%, down from 10% last quarter; metrology was 20%, up slightly from 19% Q2; our non-semi businesses were 3%, even with last quarter; and service was 20% of new orders in Q3, the same as Q2.

Finally for semiconductor systems, the distribution in new orders by segment and the quarter-to-quarter change in distribution were as follows; 47% of new systems orders in Q3 were from foundry customers, compared with 67% in Q2; logic customers were 25% of new orders in Q3, up from 16% in Q2; and memory orders were 28% in Q3, versus 17% last quarter.

Looking forward, we expect that new orders for fiscal Q4 will be within the range of $625 million to $775 million.

In Q3, we shipped $694 million, up from $673 million last quarter. The shipment numbers include both system shipments and services revenue and we expect shipments between $740 million and $800 million in Q4. Total backlog at the end of Q3 increased slightly from the end of December, and we ended the quarter with about $1.1 billion in systems backlog. The backlog at March 31, 2013 included $218 million of revenue backlog for products that have been shipped in invoice but had not yet been recognized as revenue, and $880 million in systems orders that have not yet shipped.

Total revenue for Q3 was $729 million, up 8% from $673 million last quarter. Systems revenue in Q3 was $580 million and services revenue was $149 million. Our expectation for total revenue in Q4 is a range between $670 million and $730 million. Non-GAAP gross margin was 57.9% this quarter, up from 55.1% last quarter. The major contributors to the quarter-over-quarter improvement to gross margin percentage were higher systems revenues and lower reserve requirements. For Q4, we are expecting gross margins between 56% and 57.5%. Operating expenses were $213 million in Q3 almost even with the $214 million we posted in Q2. We expect operating expenses in Q4 to be up between $3 million and $7 million from Q3.

OIE was a net $10.1 million expense in Q3, up about $1.7 million from Q2. Most of the quarter-over-quarter increase in OIE was due to a gain on the sale of a non-operating investment during Q2. For modeling purposes, we expect OIE to be a net expense of about $10 million in Q4. In Q3, our non-GAAP income tax expense was $28 million or 14% of pretax income, versus 29% rate in Q2. The Q3 rate drop was mostly due to the current quarter and catch up effect from the reinstatement of the U.S. federal R&D tax credit in January. Our estimate for the non-GAAP tax rate for Q4 is about 24%. Non-GAAP net income was $171 million or $1.01 per share in Q3. Using our planning tax rate of 24%, our Q2 EPS would've been $0.89. At the revenue range I'd previously mentioned and applying our tax rate of 24% we would expect our Q4 non-GAAP earnings to be somewhere between $0.66 and $0.86 per share.

The weighted average share count used to compute EPS in Q3 was 169.2 million versus 169.1 million in Q2. During Q3 we spent $68 million repurchasing about 1.3 million shares and as of March 31, 2013, we had approximately 7.1 million shares available under our current authorization. For guidance purposes, we are modeling an average share count of about 169 million for Q4. We also paid $67 million in dividends in Q3. We anticipate continuing to repurchase shares, as well as paying a quarterly dividend of $0.40 per share in Q4.

On our balance sheet, cash and investments ended the quarter at $2.9 billion, up $301 million from December 31st. Cash generated from operations was $415 million in Q3 compared with $77 million in Q2. The significant improvement in quarterly cash flow from operations was largely attributable to an increase of $190 million in customer collections, as well as lower outlays for trade payables, income taxes and interest on our debt. In all likelihood Q4 operating cash flow will revert to a more typical result.

Net accounts receivable ended the quarter at $454 million, down from $606 million at the end of December. DSO was 57 days at March 31 versus 82 days at December 31. Both DSO figures are net of allowance for uncollectible accounts and factoring. Net inventories were down $13 million from Q2 and ended the quarter at $650 million. Inventory turnover based upon GAAP cost of revenues was 1.9 turns in Q3, slightly higher than 1.8 turns in Q2. Capital expenditures were $18 million in Q3, up slightly from $17 million in Q2.

Full-time headcount at March 31st was 5,830 versus 5,816 at December 31, 2012. We expect our headcount to remain about flat in Q4. In summary our guidance for Q4 is new orders between $625 million and $775 million, total revenue between $670 million and $739 million and non-GAAP earnings between $0.66 and $0.86 per share, applying a 24% tax rate.

This concludes our prepared remarks on the quarter. I will now turn the call back over to Ed to begin Q&A.

Ed Lockwood - Senior Director, IR: Thank you, Mark. At this point, we'd like to open up the call up to Q&A, and we do once again request that you limit yourself to one question given the limited time that we have for today's call. Please feel free to re-queue for your follow-up questions, and we'll do our best to get everyone a chance for follow-ups as time permits. So, Jay, we're ready for the first question.

Transcript Call Date 04/25/2013

Operator: Satya Kumar, Credit Suisse.

Satya Kumar - Credit Suisse: I guess I was wondering – there is a fair bit of disconnect between what you gave regarding for the year and what we saw from one of your peers yesterday and also what you're looking into June. Is this a segment concentration type situation that's going on or are there any market share changes that's happening – that's affecting your outlook?

Rick Wallace - President and CEO: Yeah Satya, it's Rick. I don't see any particular segment difference. I think that was just about our perspective on the year. When we look out and talk to customers, we do see some improvement in the second half, but still we see, as we said, a little bit trending down based on all the factors we cited. I think that if you go case-by-case, I think you've got memory is a technology but not a lot of investment for capacity. I think foundry continues to be relatively strong and we'll see logic probably continuing, although probably cooling off a little bit in the second half. That's how we roll up to the annual. As far as share, our share continues to be very strong. I think that we see, from overall perspective, some opportunity actually to gain share this calendar year. We've got some really strong product positions and making pretty good investments in close collaboration with our customers. So, we don't see share overall for KLA-Tencor to be – obviously we have to work for it, but we're not modeling any share loss through this year. As we talked about last year, we actually did quite well in share 2012.

Operator: Timothy Arcuri, Cowen & Co.

Timothy Arcuri - Cowen & Co.: I just wanted to dive into that a little more, because there's just such a difference between what you're saying and what others are seeing. Rick, do you think that there's been any change in your view that process diagnostic is still 15% of wafer fab? Can you maybe discuss what could push that up from here and what might be pushing that down if only in the short-term?

Rick Wallace - President and CEO: Sure Tim, I think that the – I guess overall, we model memory to be improving in terms of adoption or process control, but not at the level of what we see for foundry and logic. So, the degree there is a mix change in the near term that would mean that process control overall would probably not see as much appreciation as somebody that was more exposed to memory. However, for the overall, for the year, we think that foundry continues to invest, although the build out of 20 nanometers is – largely people are making those investments, but we think that will possibly be light participation with more customers gearing up for the transition to below 20 nanometer whether its 16 nanometer or 14 nanometer depending on who. So yes, there is a bit of a mix in the near-term scenario but long-term overall capital intensity for foundries I think probably we are modeling it pretty consistent with others. I think that process control for foundries continues to be very strong.

Operator: Krish Sankar, Banc of America Merrill Lynch.

Krish Sankar - Banc of America Securities-Merrill Lynch: Rick just to follow-up on that. Your foundry booking for June quarter it looks like it would be the lowest over the last three years and is it just purely a timing issue or do you see your foundry customers actually stalling the spending because of the planar FinFET transition or maybe they have not decided which way to go?

Rick Wallace - President and CEO: No. I think right now what we're saying is in the June quarter that we do see some, a bit of pause in some of the foundry business. There is another factor, which may be we talked about in the prepared remarks and I can address a little bit. We did guide shipments to be quite a bit up in this quarter, up to in the $740 million to $800 million and part of what that is, is there a number of tools in that that are really in development and that will – it'll take us a little while to revenue recognize those. Those will probably not fall under the June quarter and in some cases what we are at looking at for those tools is, those are more oriented to our future development process technology nodes. So there may be investment leading into the FinFET development in the foundry space that maybe offsets that a little bit. But we don't expect to see that necessarily be as large in the June quarter, as what we see in the last couple of quarters. Then we see resumption of that spending in the later part of the calendar year.

Operator: Edwin Mok, Needham & Company.

Edwin Mok - Needham & Company: Just a follow-up to that, for those developments that you're talking, well, are you saying those are targeting 20-nanometer or are they 40-nanometer? Are they specifically for foundry? I guess, on your outlook for the year, are you not factoring in much 20-nanometer investment in the second half of this year?

Rick Wallace - President and CEO: No. Not a lot of investment on the second half for 20-nanometer, still some, but I would say a little broader participation. So maybe some of the players that haven't been as active in 20-nanometer already will participate. But we're modeling relatively modest on a compared basis. Towards the end of the year, more investment associated with the – maybe the later phases of 20-nanometer and some of the sub-20-nanometer work.

Operator: Stephen Chin, UBS.

Stephen Chin - UBS: Just a question on your view on the order trends for the second half of the year. It sounds like you said you're still planning for orders in the second half to increase from foundry and also to be up for memory, but logic might be down a bit. So, I just want to clarify, despite your more cautious view on CapEx this year, are you still planning for total second half orders to be flat or slightly up versus the first half?

Rick Wallace - President and CEO: We see second half being better, but I'd say when we modeled earlier in the year, and we were – the bias was a little bit more toward down 5%, our bias for the year is still down but a little bit toward the down 10%, which I think is consistent with actually most of our peers, but one, and what we see in that is that, you see a second half comeback as we said, a little bit more investment happening primarily on a broad-based foundry investment on the second half. So, memory, but not a lot of capacity in memory, more capacity related and logic perhaps cooling in the second half. The other thing that affects us a little bit too is we're looking at some of the ancillary markets like the wafer manufacturers, which we have not seen a lot of investment out of them. Historically, if you look at past cycles, we would have seen more investment on our wafer guys. We just don't see that happening and that's usually an early indicator on overall capacity buys. So, we don't see it happening and that kind of aligns with our thinking of overall trends for the year.

Operator: Vishal Shah, Deutsche Bank.

Vishal Shah - Deutsche Bank: Rick, just wanted to get a sense from you. You made a comment around second half growth in the foundry bookings, but just wanted to understand the magnitude of upside or growth that you're expecting. If you look at the first half bookings run rate, I mean, your booking would have to almost double in order for overall bookings to be down slightly compared to last year's and I'm just wondering, what kind of magnitude of bookings growth, you're expecting in the second half?

Rick Wallace - President and CEO: Yeah, well obviously, we don't guide beyond the quarter but I can tell you as we modeled the overall year and you could do the math on as you said on how you look at it, as you model the overall year, we think the capital intensity investment for the industry is on a relative basis pretty flattish and the overall CapEx down anywhere from flat to down 10%, and we're saying it's more the down 10%, but we do see mix coming back a little bit and a little bit strength in the foundries and breadth in the foundries and strength in memory. So that's kind of how we get that memory more on technology than on overall capacity buys at this point. Logic flattish but maybe a little bit more first half loaded than the second half. Obviously if you want to walk through the models our guys can do that with you.

Operator: Mehdi Hosseini, SIG.

Mehdi Hosseini - Susquehanna Financial Group, LLP: Rick your September quarter has historically been a down quarter given how your fiscal year ends in June. Given the kind of picture that you painted for us and I appreciate all the details and sincerity, how should we think about seasonality and historical trend playing into the September quarter?

Rick Wallace - President and CEO: Again, I appreciate the desire to get that. We don't have a good view of September, right now. We are still working on finalizing what June looks like and that's why there is such a large range on there. I'd also offer that at SEMICON West we will have a much better picture and be able to talk in more detail. But you're right we do view – September historically has been seasonably softer for KT and counterbalanced by what's often a very strong end of the calendar year. So we don't know exactly where we are going to get it in the calendar year quarter-by-quarter, but we are modeling. If we see this overall CapEx down 10 then it kind of fits with our thesis that process control will at least hold our overall intensity and probably outperform. But it will come later in the calendar year.

Operator: Mahesh Sanganeria, RBC Capital Markets.

Mahesh Sanganeria - RBC Capital Markets: Rick, so in terms of your incremental flat to minus 5% to flat to minus 10%, is there one specific segment which has – you've become more incrementally more cautious on?

Rick Wallace - President and CEO: What we really haven't seen is any strength in the stuff that's outside of the core. So some of the manufacturers' wafers, for example, we do see that overall being softer. The first half was probably lower than we thought it would be in January. So you still have some come back in the second half, but it won't compensate for some of the softness we're seeing now.

Mahesh Sanganeria - RBC Capital Markets: One more question is, I mean, how much of your – the difference between you and your competitors is timing of ordering? I see that your guidance is pretty similar to lithos, where the guidance for the full year is down, whereas I think the (DAP) and Etch, those segments seems to be stronger. Is there some kind of a timing issue that litho and process control, order has happened earlier and there is probably some capacity out there and there's more of capacity orders right now which is making some of your competitor looks better?

Rick Wallace - President and CEO: Well there's certainly – there are players that are more attuned to capacity bias and then in the regard of – I would say that it is probably more similar to litho, our profile looks a little bit like it, but perhaps for slightly different reasons. From our standpoint, it is true that if you look on balanced, there's more investment at the very front end of a node than there is in the later parts of the node until they get on to the next node and that's what we're suggesting, as we're seeing more investment continuing and probably phase shifts it a bit. That's not true of all our products and some of our products are sensitive to capacity and those we do not see a lot of capacity being added. For example, I'll go back to the wafer manufacturers, but on balance that's true. The other thing that's happened is we're in a relatively soft period for reticle inspection which historically would've been stronger through a period of technology development and that has been softer due to this continuation in double patterning and quad patterning, not stressing the mask shops as much. So, that's the other counterbalance to it.

Mahesh Sanganeria - RBC Capital Markets: One final question on ASML suggesting that they have integrated metrology on CD measurement and overlay, and I'm just wondering, to what extent that is an additive market or how much of that cannibalizes your overlay market? I think CD measurement is probably not that significant, because it's only for FICD, but it's definitely on overlay, you have a very strong market share. I'm wondering if you're seeing any kind of impact in that part of the business?

Rick Wallace - President and CEO: Yeah, I think, as far as integrated go, customers are interested, and have been for many years in the concept of integrated metrology, but still not very clear on exactly how to use it and that comes from the fact that you're then at basically one unit per track, step repair, which is a higher concentration and it's not clear that, that's either economical or feasible from a production worthiness perspective, because if it goes down, you can bring down the line, but there is certainly interest in increasing the capability around registration control as people push multiple patterning. So we do think that the market is growing significantly and there's going to be plenty of room for alternative approaches to dealing with that. As far as the CD control, we actually are very happy and have made tremendous progress in terms of market share there, where we did not have a stronger position and have recently won (kind of record buys) and a number of key customers for providing optical CD control. So we are really pleased with that part of our business.

Operator: Jagadish Iyer, Piper Jaffray.

Jagadish Iyer - Piper Jaffray: Just wanted to – had a question. There is a view out there Rick, that 28 nanometer could have more longevity as customers seem to be at the cusp of deciding on 20 nanometer or sub-16 nanometer by skipping a node. So as they try to debug some of the processes, do you think is this – this flux is causing you to be more biased towards the negative side? Hopefully if they get more clarity on it that probably we could see much more uptick from the foundries?

Rick Wallace - President and CEO: That is a very good observation. Two thoughts on that; one is, I think in many ways you are saying the same thing is that we do see some question about the strength of 20 nanometer based on interest we are seeing in sub-20 nanometer which would, by extension, extend the life of 28 nanometer. The other thing is that, even though 28 nanometer has been – there are people that are successful with 28 nanometer, there is still a broader market – broader participation by other foundries in 28 nanometer that creates other opportunities. So we do see some strength in that build out and I suspect that there is still some process changes even on 28 nanometer that will create some opportunity for us as well. But yes, that is the question is, how big the participation and how quick people go to 20 nanometer or if they skip it or not. Should that change? I think it does improve our prospects for the calendar year.

Operator: Patrick Ho, Stifel Nicolaus.

Patrick Ho - Stifel Nicolaus: Rick, maybe if you could give a little bit of color in terms of the 3D NAND opportunity, whether you see that transition as being, I guess an inflection point or a step up in terms of the memory adoption of more process control, given some of the challenges in that type of manufacturing?

Rick Wallace - President and CEO: Yes, there's a couple of opportunities that 3D presents, and some are less obvious than others. One is obviously, as you can imagine, trying to find defects requires some new capabilities for people as they deal with 3D and finding them is just one part of it, then validating that they actually found them. So, there's been a lot of work going on to try to support customers as they do that, as they try to make that manufacturing process production worthy. The other thing is there's plenty of opportunity there for some of this optical CD measurement that I talked about and we're doing well in that regard. The third one is because many of these structures of are multilayer within a process tool, there's actually a pretty good opportunity for bare wafer inspection to make sure that the cleanliness of those tools is at higher level than historically. So we are seeing increased opportunity for bare wafer inspection to support 3D, which is an additive bonus and perhaps counter-intuitive to the opportunities of 3D.

Patrick Ho - Stifel Nicolaus: Maybe just a real quick follow-up; what kind of percentage in terms of dollar opportunity from what you're doing today in planar versus what 3D could be I guess on a percentage basis of the increase in the TAM?

Rick Wallace - President and CEO: Well I think if you think about process control intensity being – I don't want to get into specific numbers, but let's say memory process control intensity is 50% of what foundry is, this probably takes it to 70%, 75% of what foundry is.

Operator: Ben Pang, Caris & Company.

Ben Pang - B. Riley & Co.: Yeah, it's B. Riley & Co. now. First, you commented on the capital intensity, that memory adoption is not as high as logic and foundry, but isn't the capital spending still much greater than 50% for foundry and logic this year?

Rick Wallace - President and CEO: Yes, overall that's right. I think that the memory investment for the year is certainly not – you go back in time and it was actually driving a lot of the CapEx, but we are in a momentary point in time where there's probably on a relative basis even for us, we're seeing – we're looking at June and thinking 30%, 33%, a third of our business is going to come from memory and you have to go back several years till the market split used to be a third, a third, a third and now, I think we're in this temporary phase where memory is a third of what we're going to see in terms of opportunity, which means it's probably more than that of the overall market and we think that reverts as we get to the second half of the year, which is why we think we'll see more strength in the second half.

Ben Pang - B. Riley & Co.: Then, usually, I think we're always worried about utilization rates for other types of tools. Is there any kind of situation where, there was too much buying of your equipment, early like 2012?

Rick Wallace - President and CEO: Not really, I think that the question often becomes, can it get redeployed on additional nodes, and so part of what drives our product road map is a slight difference, is you could redeploy inspection and metrology capacity towards advanced nodes with some level of success. So part of our challenge is always to create more capability in the next generation to make a compelling case for customers to upgrade or go to new products. Otherwise you would see that, you would see the transition of some of that, especially as yields got very high on the older nodes. So I would say that we are constantly – and from the other products we just introduced, for example, the NanoPoint is to extend the capability, provide a motivation for our customers to go to the next generation technology. We are seeing that bear out but usually there's an adoption cycle of that.

Ben Pang - B. Riley & Co.: Just to clarify that answer as my last question. If your tools were utilized for the manufacturing node, you had see more redeployment to the next generation, is that what I am hearing?

Rick Wallace - President and CEO: It depends how big a transition the technology change is. For example, 28 nanometer to 20 nanometer, is too big a change. So if they were at 28 nanometer they are not going to do a great job at 20 nanometer, except in the case where they – it is probably more like litho. The very critical layers on 28 nanometer probably correspond better to the non-critical layers on 20 nanometer. So there will be some – but that cycle has been going on for a while. But even in that case, if you can provide compelling reasons to upgrade you can often get customers to make the transition.

Operator: There are no further questions at this time. I turn the call back over to Mr. Lockwood.

Ed Lockwood - Senior Director, IR: Thank you, Jay. I'd like to thank everyone on behalf of the management team today for joining us. An audio replay of today's call will be available on our website later this afternoon. Once again, we appreciate your interest in KLA-Tencor.

Operator: This concludes today's conference call. You may now disconnect.