Applied Materials, Inc.
Q2 2008 Earnings Call Transcript
Published:
- Operator:
- Good afternoon and thank you for standing by. Welcome to the Applied Materials’ fiscal 2008 second quarter earnings conference call. During the presentation all participants will be in a listen-only mode. Afterwards you will be invited to participate in the question and answer session. As a reminder, this conference is being recorded today, May 13th, 2008. I would now like to turn the conference over to Linda Heller, Vice President of Investor Relations, Applied Materials. Please go ahead.
- Linda Heller:
- Thank you, Kara (sp). Good afternoon and welcome to Applied Materials’ fiscal 2008 second quarter earnings call. I’m happy to be participating in my first quarterly call here at Applied. For those of you whom I’ve not yet met, I’m looking forward to speaking with you soon. Before we begin let me remind you that we will be hosting our traditional analyst briefing at this year’s SEMICON West show on Tuesday morning, July 15th. This year’s event will be focused specifically on the Silicon Systems Group. More details on this will be coming to you soon. Joining me on the call today are Mike Splinter, President and CEO; George Davis, Chief Financial Officer; and Joe Sweeney, Senior Vice President, General Counsel, and Corporate Secretary. Today we will discuss our results for the period ending April 27th, 2008. The financial results were released this afternoon at 1
- Michael R. Splinter:
- Thank you, Linda. I’d like to take a moment to welcome Linda Heller as Vice President of Investor Relations. Linda joined Applied the day before our annual meeting in March and she has been getting acquainted with many of you since that time. She’s already a great addition to our team. As we report on the second quarter, Applied Materials is growing in our display and solar businesses and managing effectively through the current wafer fab equipment downturn. The overall business environment is clearly marked by a shifting global economy with uncertain macroeconomic conditions. Based on recent conversations with customers, we expect to see a further slowdown in semiconductor capital expenditures. We now anticipate wafer fab equipment spending to be down 25% to 35% in calendar 2008, down considerably from our earlier view that called for a second half recovery lead by Foundry and Flash. Our current view is more negative than what you might derive solely from spending cuts announced during this past quarter. Within the key markets for semiconductors in calendar 2008 we see DRAM investment down 50%, NAND Flash down more than 15%, and finally in logic both slowing by more than 20%. So the real questions on everyone’s mind are
- George S. Davis:
- Thank you, Mike. Good afternoon, everyone. As Mike noted, we met our Q2 targets while managing the challenge of multiple businesses that are facing very different market conditions. Steep ramps in solar and display are in sharp contrast with the challenging conditions for silicon equipment. Our services business continued to show solid performance during the period. Given the leverage of our silicon segment to overall performance, we have taken both short-term and long-term cost reduction actions. We are taking additional measures in the third quarter, including shut-down time and those businesses affected by lower demand, discretionary spending reductions, and executive pay cuts. Now we’ll summarize our second quarter performance. Q2 orders totalled $2.4 billion, a 3% reduction from Q1, and we’re at the low end of our target. The lower orders were primarily due to a decrease in display orders from the record levels achieved in Q1. Backlog for Q2 increased to $4.6 billion. Backlog adjustments for the quarter were positive at $210 million comprised of additions of $367 million in beginning backlog from the Baccini acquisition and $80 million in currency adjustments offset by $238 million of de-bookings primarily for silicon equipment. Our backlog is at the highest level it has been in many years as the impact of the ramp in display and the growth of our solar bookings have more than offset the drop in silicon orders. As a result, we currently have backlog that is relatively evenly distributed across the segments. Revenue for the quarter increased 3% to $2.1 billion and was within our target range, reflecting higher display and silicon sales partially offset by lower EEF sales, which I will discuss shortly. Gross margin for Q2 increased modestly to 45% from 44.8% in Q1 reflecting slightly higher revenue levels. Second quarter operating expenses were $529 million and reflect savings from the cost-reduction plan we announced in January partially offset by increased investment for our ramp in solar and display. Operating income increased to $438 million or 20% in revenue compared to 18% reported for the first quarter. The increase reflected higher revenue, the absence of restructuring costs, and the operating expense improvements I just mentioned. Net income was $303 million or $0.22 per share meeting the high end of our target range. Let`s now look at second quarter results by segment. In silicon orders were down slightly, as expected. Our order composition was DRAM 40%, foundries 22%, Flash memory 13%, logic and other 25%. Orders for 70 nanometre and below technology represented 94% of silicon orders. Q2 silicon net sales were up 2% compared to the prior quarter as increased demand from foundry customers offset weakness in DRAM and logic spending. Operating income was $448 million or 35% of net sales. Our performance clearly shows the benefits of the many actions taken to improve the operational and financial performance. The silicon management team has done an excellent job over the last three quarters of capturing the benefits both operationally and commercially from the formation of a single silicon organization. These actions include
- Linda Heller:
- Kara, please begin with the first question.
- Operator:
- (Operator Instructions). Your first question comes from Gary Hsueh with Oppenheimer and Company.
- Gary Hsueh:
- Yeah, hi. Thanks for taking my question. A lot of controversy here over cost per watt and the models that you enable with your customers. I keep talking relative terms about cost per watt for the industry and benefits of installation costs for the 0.5G sort of format. Could you give us some idea on single junction and tandem junction technologies to aim at and what’s your assessment of cost per watt to your customers in terms of their manufacturing model. And number two, what are some of the big levers in terms of reducing cost per watt for your customers over the next two or three years?
- Michael R. Splinter:
- Sure, Gary. Thanks. Okay. So, I think what we’ll see over, first of all, what I think we’ll see over a period of time is a pretty strong trend to tandem junction. Even those customers that currently have single junction will see upgrades over a period of time to tandem. We’re already, in fact, seeing that, so the big focus is how fast will tandem junction costs come down. We have a target to improve efficiency over the next few years to 10% or more. We have a target to get to the cost per watt produced of (inaudible) and a standard sun fab line we think the big lines, gigawatt scale lines we’ll see another significant reduction because of the capital efficiency there. It is not quite quantified that you can expect it to be kind of in the 15% to 25% range of cost improvements. One of the, so as you know, we’re just starting up factories, so these numbers are all projections. One of the good things that we believe we’ll see across our factory network is very fast line as multiple factories, many engineers around the world, start to run these factories in production. So we’re already encouraged by what we’re seeing and the companies that are starting up their factories now and driving fast start up and improved operations. That’s kind of where we are and for right now I think the big thing for us is to get these factories into production and really start learning at a very fast rate.
- Gary Hsueh:
- Okay, Mike. What about the levers, I mean, beyond efficiencies. (Inaudible) assume uptime and availability enabled by your kind of service division is another big lever in reducing cost per watt. Can you give me a sense of what percentage or relative reduction we can see with the increasing availability and up time as you (inaudible) learning curve?
- Michael R. Splinter:
- Sure. I’m not sure I can give you all the kind of data that you want probably. We’d have to go through the spreadsheet. There are all kinds of things. Gas usage. Up time. Panel yield. Obviously efficiency productivity of our systems. Basically the speed of deposition, we’re working very hard to improve the speed of deposition. The microcrystalline layer is quite thick, so improving that speed is critically important to the cost. Electricity use of the machines. One of the things that we’ve done to work with customers, and it’s a hallmark of how our service agreement is structured, is that if the cost per watt goes down we win, we essentially get paid more in the service agreement if the cost per watt goes down for our customers. So this really aligns our motivations with the motivations of the customers. They win, we win, and hopefully the market wins.
- Gary Hsueh:
- Okay. Thanks a lot.
- Operator:
- Your next question comes from Stephen Chin with UBS.
- Stephen Chin:
- Thank you. Mike, this is about the guidance. You’ve admitted that you believe (inaudible) will be down I think you said 40% (inaudible) it appears that silicon is approaching from the levels seen back in 2005 and maybe even 2002. Mike, when do you think the company will see a recovery stemming from equipment orders? Do you expect orders in October to still see some sort of recovery in silicon.
- Michael R. Splinter:
- We do. I would say that we’re seeing levels that are kind of like 2003 levels. But anyway, yes, this is, these are, this quarter is especially soft. We think there will be improvement in the next quarter and into the first quarter of our first fiscal quarter of 2009, but again I think we have to see a return to profitability by memory companies for them to have real confidence to invest and also have the wherewithal to acquire the kind of money that major fab requires.
- Stephen Chin:
- Okay. If I can just follow up on a question on the solar. Are any of these solar equipment orders being recognized in the July quarter from the large gigawatt customer that was announced in early March? If now, when can we expect orders to be signed off for that very large project?
- Michael R. Splinter:
- Yeah, we’re not going to guide by specific customer. The orders that we booked for this quarter were for the contracts that we announced last year.
- Stephen Chin:
- Okay. Thank you.
- Operator:
- Your next question comes from Weston Twigg with Pacific Crest.
- Weston Twigg:
- Hi. Yeah, I just had a couple of questions here. One, jumping over to the semiconductor equipment side radical inspection. I’m wondering how many tools do you ship so far and how many of those have gone to fabs and how many to mask shops?
- Michael R. Splinter:
- Almost all have gone to mask shops at this point. We’d just be starting to ship tools to fabs. We have four customers at the current time.
- Weston Twigg:
- Okay. Great. And also just wondering, how big do you think that market is and how much of that market do you think AMAT can get by the end of 2009?
- Michael R. Splinter:
- Well, we think it’s over $300 million to $400 million. I’m not going to make an estimate of how fast this product will ramp. I think we really have to get through this initial phase. But we like our machine for both in fab as well as radical inspection and mask shops. So I think the focus of our efforts here right now are going to be on really advanced mask where people are especially defect sensitive and have to figure out what’s going to print on the wafer before they either ship it to fabs or ship it to a scanner.
- Weston Twigg:
- Okay. Great. And I just had a question jumping back over to the solar side. I just wanted a clarification. Did you say your target is a dollar wide in standard thin film lines and that you might get a 15% to 25% improvement over that at a larger scale?
- Michael R. Splinter:
- That’s what I said, yes.
- Weston Twigg:
- Okay. Great. Thanks.
- Operator:
- Your next question comes from Jay Deahna with J. P. Morgan.
- Jay Deahna:
- Thanks very much. Good afternoon. A couple of questions here. The first one I believe would be for George. George, when do you expect to shift your revenue recognition policy for sun fab tools to shipment based in line with the rest of the company from acceptance based now? And the second question I believe for Mike. Can you give us a little more detail about the progress of your first set of customers and some of the challenges and optimism in terms of getting working single-junction panels for mid-year and when you would expect the first working tandem-junction panels. And then last, but not least, when you’re calling the bottom in 3Q is that an order and a shipment/revenue bottom for semi equipment? Thank you.
- George S. Davis:
- Okay. Why don’t I take the first and the third. Hi, Jay. On the shipments based question for our solar fabs I think it’s early days on that. It’s a little different than our standard because we’re basically selling a full line as opposed to a single piece of equipment. Today we’re signing off based on customer acceptance. After we get through the first few fabs then we’ll take a look at what makes the most sense. But it’s different than our existing business so we’ll be looking at everything from sign off on shipment to percentage of completion, things along those lines. And then –
- Jay Deahna:
- Just a quick follow up on that one before you answer the other two.
- George S. Davis:
- Sure.
- Jay Deahna:
- If you sell, if you ship roughly two 60-watt tandem-junction lines per month in calendar 2009 I estimate that’s roughly $2.5 billion in revenue. Now, if that’s recognized on shipment versus acceptance that could have a huge difference in the expectations for revenue and earnings for solar in calendar 2009. So to put it a little bit differently, do you think by the time we get into calendar 2009 it will be a little bit more in line with the normal company revenue recognition policy?
- George S. Davis:
- I really go back to what I said before, Jay. I think it’s really too early to make that call. But we’re certainly focused on that and our real attention now is on getting these initial lines up and running and performing to our customer commitments.
- Jay Deahna:
- Okay. Then the other two, please.
- George S. Davis:
- You want me to jump into the bottom? I’ll take your third question which is do we see Q3 as a bottom in revenue and orders. It’s clearly a bottom in revenue. Orders are down. We’re seeing orders down fairly substantially as well for silicon. Whether, you know, they both look like a bottom, but revenue clearly.
- Michael R. Splinter:
- Hey, Jay. It’s Mike. On the progress on single junction, as I mentioned, we’re seeing two factories, two customers already depositing silicon. That’s a great sign as it’s the most critical element in making the cells. We just have a great set of people distributed around the world at every one of our customers’ factories. These are experienced people with experience in installing semiconductor equipment or display equipment. So we haven’t had, you know, trained these guys, these people from the beginning, but they have factory experience, they know how factories are supposed to run. So that gives me a lot of confidence we’re going to be able to get the equipment up, get it running, test out the cells and really see output over the next few months. And then on the tandem shipping, obviously going to be later in the year. We expect to see output before the end of the fiscal year.
- Jay Deahna:
- Before the end of the fiscal year?
- Michael R. Splinter:
- M-hm.
- Jay Deahna:
- Okay. Thank you.
- Operator:
- Your next question comes from Satya Kumar with Credit Suisse.
- Satya Kumar:
- My question, George, I don’t know if you’re trying to quantify the silicon orders in the July quarter. Should I think of (inaudible) approaching at about one in the quarter?
- George S. Davis:
- Yeah, I think it’s a little volatile to be that specific, but it’s coming down in line with the revenue drop off.
- Satya Kumar:
- What’s sort of driving that decline? When I look at your other US equipment peers they’re sort of having a big (inaudible) decline of 40%. For (inaudible) materials it’s a lot higher, down 60%. What is driving that underperformance in silicon for you relative to other (inaudible) companies?
- Michael R. Splinter:
- I think you’re going to have, I’m not going to talk about other companies, but I have to talk about what we’ve seen in the last several weeks. I think the big shift is change in our view about what’s happening with Flash. We had expected Flash memory to have a pretty strong second half. In fact, that’s not going to happen. It’s going to be down 15% on the year. We see 50,000 wafers being pushed out. I think when others consider that, I’m not sure whether you saw Tokyo Electron’s announcement earlier today, but their view is pretty much in line with where ours is. So this is not just a, the big shift is Flash, but pretty much everybody is down. There’s only one company investing in foundries and they’re investing very incrementally at a pretty low level. DRAM we all know the story. And logic has been cautious. There’s not a good story in the total. We see 10 factories in total that have pushed out major, either pushed out or lowered their capacity goals for their factories.
- Satya Kumar:
- Okay. That sounds good, Mike. If I could follow up on solar a little bit. One for Mike and one for George. When do you expect your customers to first ship GEN 8.5 panels from the get go and when do you expect that will happen with tandem. And to George, there’s been some deterioration in the balance sheet metrics. The inventory levels are increasing to sort of the highest levels in five years and so are payables. How should we model that as we go forward as you ramp solar. And, also, if you could just remind us what your break even now is in solar and how the profitability will develop as you start recognizing solar revenues?
- Michael R. Splinter:
- So to answer the first part of the question, we expect production panels in single junction coming off the line by mid-year, so we expect them to be selling in the second half of the year. In tandem junction we expect late in the year for panels to be coming off their lines so they’ll start selling production panels at the end of the year.
- Satya Kumar:
- In select full panels or are these cut panels from the GEN 8.5 cells?
- Michael R. Splinter:
- Well, the cell is whatever customers demand. As you may know, our line allows for three sizes of panels
- George S. Davis:
- Let me address, I’ll start with the balance sheet. Actually, I think we have a very good story on the balance sheet and in the way that we’re running our solar contracts. Virtually all of the solar contracts operate on the same basic principle of deposits and LCs to line up with the commitments that the company’s making. So the fact is that we are ramping very heavily and we do have to build revenue. I think what you’re seeing in the accounts payable and other liabilities line is really the growth of our deposits which are carried there on the balance sheet. So I think that’s a good story for us. We haven’t had to draw down our cash balances to fund this ramp. We’ve probably had above expectation cash flow from operations this quarter because of the working capital discipline in our other businesses. So I think all in all we’re very comfortable with where that’s going and the approach that we’ve taken. In terms of the break even, I’ve said that we expected EDS to be break even in 2009 despite all of the build out going on this year. As revenue picks up in the second half of this year we think they closed the gap on that very quickly. So they’re performing as we expected despite very, very strong growth in spending to meet customer demand.
- Satya Kumar:
- Thank you.
- Operator:
- Your next question comes from the line of Tim Arcuri with Citigroup.
- Timothy Arcuri:
- Thanks. A couple things. First of all, if I take your silicon revenues down about 40% in the July quarter that’s down roughly 44% year over year. That’s like 2X what the average of kind of your other large peers are. So yet, if I look at your margins your margins are actually better than they’ve really ever been at this revenue level. I’m wondering, is there some element of you kind of selectively walking away from some business that just isn’t as profitable or is this kind of a customer mix issue? And particularly, how do the margins look coming out of this in the silicon business. And then I had a follow up question.
- George S. Davis:
- Yeah. Okay. Do you want me to go?
- Michael R. Splinter:
- I’ll start, you finish.
- George S. Davis:
- Okay.
- Michael R. Splinter:
- Okay. Hey, Tim, I think if you look at this lots of things are at play, of course. When are you that we exited some businesses and, as I commented, in certain areas we’ve been challenged by competitors. But those are very small percentages. We’re talking about major change in demand here. And major change in orders quarter over quarter. So I think this is what’s happening in the industry and others will update over a period of time.
- George S. Davis:
- Yeah. I think also we should remember too that we report revenue on shipment and others on sign off. So we tend to be going down earlier on the down cycle. So that may be part of the factor in your math. I will say that the decision to exit certain businesses and the portfolio realignment work that the semiconductor equipment team has done over the last year is having a real impact on the profitability and on the margins and, as we talked for a long time, the impact business was chronically unprofitable for us. So you’re seeing the impacts of that, the departure from the ECP business, as well as having a positive impact. But really it’s also about cycle time reductions that we’ve gotten in the factory. Its continuous push for material cost savings. So there’s a lot of things going on at cost of sales that are quite positive. And then of course the formation of the single silicon group, we’re also seeing some opex benefit on top of that.
- Timothy Arcuri:
- Okay, George, I guess just on that front. What sort of incremental margins should we expect given some of the cost savings? What sort of incremental margins should we expect in the silicon business coming out of this? And then I had a question on solar relative to the timing of that cost per watt road map. If you look at one of the major peers out there, they’re going to be at $0.90 incremental cost per watt this summer. So if you’re saying that gigawatt scale fab is roughly, say, $0.80 if I take the kind of mid-range of your guidance that you had said before, what sort of timing do you think that number will be achieved by given that peers are going to be at $0.90 incrementally by this summer? Thanks.
- George S. Davis:
- Let me talk about the margin coming out. I think this quarter gives you a good example of the leverage that we’re seeing. As we’ve pointed out, in Q2 over a comparable period, as we roll through some of the improvements that we’ve seen, we’re eight points of operating margin to the good. Five points of that, from a waiting standpoint five points of that was in the gross margin area and three points in opex. So I think we can, you know, we’ll continue to see leverage both in gross margin and operating expense and coming out of this. I think again we announced the fact that we’re moving some of our manufacturing and merge and transit activity to a hub within Singapore. So I think there’s things that we’re going to continue to do that should add to the benefits that we’re already seeing.
- Michael R. Splinter:
- So Tim, on the second question on the cost road map, the answer is as soon as we have a gigawatt factory up and running, one of our customers has a gigawatt factory up and running in large scale volume, which is going to take some years, it’s probably going to take a couple years to get it at very high volume. I really think specific, very precise cost numbers are hard to make at this time when we’re just first starting up initial factories. I think we’re going to learn an awful lot and as we do we can update with real numbers. Our numbers are theoretical certainly at this point. it isn’t that we haven’t analyzed them in detail. We have, our customers have. Our customers have confidence in them and have confidence in improving over what we’ve projected. But we gotta get into real production and move up the real learning curve and that’s what I think everybody in our company is so excited about. Now is the time to really get after that and do it for real.
- George S. Davis:
- And Tim, I think you see with a lot of competitive estimates that particularly on the smaller form factors that it’s always about cost per watt, but you never get cost per watt installed and that’s a big factor.
- Timothy Arcuri:
- (inaudible) pricing.
- Michael R. Splinter:
- Pricing is certainly different than cost.
- George S. Davis:
- Yeah, exactly.
- Timothy Arcuri:
- Of course. Thanks.
- Operator:
- Your next question comes from Jesse Pichel with Piper Jaffray.
- Jesse Pichel:
- Hi. Good afternoon, Mr. Splinter, Mr. Davis, and team. Thanks for taking my call. Can you explain why the sales in your energy and environmental section was down quarter on quarter?
- Michael R. Splinter:
- Yeah. It was really pretty minor. It was down $37 million. It was really our sales out of our PWS group.
- Jesse Pichel:
- And PWS is what exactly?
- Michael R. Splinter:
- That’s the wafer sawing business.
- Jesse Pichel:
- And you know, I’m hearing the solar customers complaining of long lead times for the HCTS equipment, which I guess is PWS. So is there, was there any decline in output there at HCTS to explain that decline in sales?
- Michael R. Splinter:
- No. I think what you’re seeing is, quite frankly, just kind of a timing of sales and we expect the second half quite frankly in sales to be up significantly in that area. I think all of the, everybody in the space is dealing with very significant ramp in customer demand and so lead times are certainly impacted somewhat, but that’s really not the issue here and we feel quite good about the outlook for the second half of the year.
- Jesse Pichel:
- That’s great. What are lead times today? On the call, in the prepared remarks you mentioned that higher capacities are in progress. What are lead times now and what do you think they will be in about six month’s time?
- Michael R. Splinter:
- Well, I mean, we’ve got a number of different solar products all of which have different lead times. On the crystal and silicon side it’s –
- Jesse Pichel:
- (Inaudible) in particular.
- Michael R. Splinter:
- I think six to nine months on the outside and four to six months on certain products. So just depends on which products. And then obviously on the bigger tools for the sun fabs we have a little longer lead times.
- Jesse Pichel:
- And where would those six to nine months lead time on the first products go in another six months? Would you reduce that to three months or six months?
- Michael R. Splinter:
- Yeah. I (inaudible) forecasting we certainly see it a road map to bring it down and I think that’s one of the advantages that both HCT and Baccini saw and joining with Applied is our ability to help them manage the ramp, bring their cycle plants down, all the things that we’ve done in numerous businesses.
- Jesse Pichel:
- That’s fair. And one more question if I could. Sharp recently announced a triple junction product using (inaudible). Do you see triple as a future upgrade in your road map similar to the way that your single junction customers are now upgrading to tandem?
- Michael R. Splinter:
- Actually, I believe Sharp’s triple junction, Sharp has had a triple junction for a long time. They’ve used their own CVD equipment. They created a joint venture with Tokyo Electron to execute this. People are going to explore lots of things to improve the performance and efficiency, but really it depends whether adding that complexity results in reduced cost per watt. So there’s lots of things you can do to improve efficiency, but if they don’t reduce cost per watt they won’t get implemented in the production.
- Jesse Pichel:
- That’s good. Thank you very much.
- Operator:
- Your next question comes from Steve O’Rourke with Deutsche Bank.
- Steven O’Rourke:
- Good afternoon. A couple of questions. First, I want to make sure that I just understand the energy and environmental solutions operating loss on the (inaudible) increase quarter over quarter pretty substantially. How should we expect that to trend over the next couple quarters and what’s fundamentally driving that?
- Michael R. Splinter:
- Yeah, I think most of it is growth in operating expenses. We had a little lighter revenue offsetting that. I think they’re going to see revenue pick up and absorb a lot of that expense. So again, we’re trending for break even pretty rapidly.
- Steven O’Rourke:
- Are the costs rising substantially with the start ups that you have in progress now?
- Michael R. Splinter:
- Oh, yeah. We’re supporting basically eight start ups all over the world and then building out just the normal capability to run a business.
- Steven O’Rourke:
- Fair enough. As far as the Baccini business goes, are you able, how much can you increase shipments this year over last year just on a percentage basis. And considering the market position you have do you have any pricing strikes there that you could execute?
- Michael R. Splinter:
- Yeah, you know, I think in Baccini it’s, we’re seeing substantial increases over last year, as you would expect. We haven’t, we’re not going to guide this specific, but certainly we’ve seen very, very strong revenue increases and we’re going to be booking, we’ll take our first revenue in Baccini in Q3 and you’ll get a sense from what we report of the impact there.
- Steven O’Rourke:
- Fair enough. One last question. How do you expect SST orders to trend over the next couple of quarters?
- Michael R. Splinter:
- Yeah, I mean, I think clearly we have been pleased all year with the strength of the flat panel display business, so we have record orders in Q1 followed by the second best quarter ever in Q2. We see it coming off throughout the year as we see it, then we’ll start to see revenues ramping as they meet the order pattern. But again, it’s been a substantially stronger demand pattern than we thought we would see coming into the year.
- Steven O’Rourke:
- Thank you.
- Linda Heller:
- Kara, we’ll take one last question and then we’ll make our final remarks.
- Operator:
- Yes, Ma'am. And your final question comes from (inaudible) with Lehman Brothers.
- Lehman Brothers:
- Hi. This is (inaudible) calling for (inaudible). I have a question. When you mentioned that you’re taking additional cost-cutting measures (inaudible) outlook (inaudible) reductions that you talked about your analyst day and, if so, how should we think about your opex levels throughout the rest of the calendar year?
- Michael R. Splinter:
- Yeah, I think opex levels we’ve been able to manage the expansion of opex in our growing businesses and opex has been coming down as we’ve gotten the benefits of consolidating our single silicon group. Really rationalization of spending across the company. So we’ve taken a lot of action already and I would say that the stuff that we’re doing now in Q3 really is taking down temporary employees shutdowns and things along those lines. Given the fact that it looks to be a bottom and we would expect revenue in the quarters to begin coming up in Q4.
- Lehman Brothers:
- And then in terms of solar, you mentioned that the second half of the calendar year should be up. Is there (inaudible) do you see one of the quarters actually being a function in revenue recognition or should this kind of trend really early? And then how are you going to (inaudible)?
- Michael R. Splinter:
- Yeah, no, we, I think it’s still too early to give a guidance on the pattern. Again, we expect the bulk of the revenue for the orders that we talked about and the contracts that we talked about to be in 2009 and the exact pattern of that will really depend on how well the sign offs go and our first fabs and we’re right in the middle of that. So it’s too early to call that.
- Lehman Brothers:
- That’s fine. Thanks a lot.
- Linda Heller:
- Okay. We’d like to thank you for joining us in our discussion on Applied Materials’ financial results. We’d like to remind you that a replay of this call and its supporting slide package will be available on our web by starting at 5
- Operator:
- This concludes today’s conference call. You may now disconnect.
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