Applied Materials, Inc.
Q4 2007 Earnings Call Transcript

Published: 15 Nov 2007

[Operator:]

Good afternoon and thank you for standing by. Welcome to theApplied Materials Fourth Quarter Fiscal Year 2007 Earnings Call. During thepresentation all participants will be in a listen-only mode. Afterwards, you'llbe invited to participate in the question-and-answer session. As a reminder,this conference is being recorded today, November 14, 2007. I would now like to turn the conference over to Mr. RandyBane, Vice President of Investor Relations, Applied Materials. Please go ahead,sir.

[Randy Bane:]

Thank you, Marvin. Good afternoon and welcome to AppliedMaterials fiscal 2007 fourth quarter conference call. Joining me on the calltoday are Mike Splinter, President and CEO, George Davis, Chief FinancialOfficer, and Joe Sweeney, Senior Vice President, General Counsel, and CorporateSecretary. Today, we will discuss our results for the period ending October 28, 2007. Financial resultswere released this afternoon at 1

[George Davis:]

Thank you, Randy and good afternoon everyone. Fiscal 2007was a strong year for Applied Materials, both financially and operationally. Wegrew revenue to record levels, achieved a 24% increase in earnings per share,and generated record levels of operating cash flow that allowed the company toreturn substantial cash to stockholders, while at the same time investing inR&D on pace with the highest levels in our history. Now I will comment on

[Mike Splinter:]

Thanks, George, and good afternoon, everyone. Our strategyfor 2007 was clear

[George Davis:]

Thank you, Mike. Our targets for the first quarter of fiscal2008 reflect a first half softening in the semiconductor equipment markets fororders and revenue, compounded by a bottoming of display revenue in line with thetrough order levels experienced in the first three quarters of 2007. At the same time, the display team must prepare its supplychain and manufacturing resources to meet the requirements of upturns in bothflat-panel and solar. In light of this outlook, we are maintaining strictcontrols on costs across the company to manage the near term risk and arelooking to accelerate productivity improvements that are designed to capturepermanent cost reductions. Our targets for Q1 are; we expect orders to be down in therange of 5% to 15%, the impact of the large order I discussed before has thesingle biggest impact on our guidance relative to others in the industry. Ourtarget does not include any orders for our SunFab thin film production lines. We expect revenue to be down in the range of 13% to 18%. Thedrop in display revenue expected in Q1 '08 has a negative impact ofapproximately three points on our estimate. We expect EPS to be down in line with revenue, and in therange of $0.16 to $0.20. Thank you. Randy, let's now open the call for questions.

[Randy Bane:]

That completes our prepared remarks. We will now begin ourquestion-and-answer session. Operator, let's begin with the first question,please?

[Operator:]

Our first question comes from the line of Satya Kumar withCredit Suisse.

[Satya Kumar:]

Yes, hi, can you hear me?

[George Davis:]

Yes, say Satya.

[Satya Kumar:]

Sorry about that. Just a quick question on your fiscal firsthalf comments on semiconductor orders

[Mike Splinter:]

I think it's primarily one major order. As we’ve looked atthe ups and downs of this thing, we looked at it in many different ways, reallynarrowed it down to one very big memory order in October.

[Satya Kumar:]

Okay.

[Mike Splinter:]

That’s really a timing issue, Satya.

[Satya Kumar:]

Okay. And a quick follow-up to that on margins

[George Davis:]

No. We had some higher M&A impacts that would bereflected year-over-year, but it was primarily due to, we had some one-timeeffects that had greater than a one point impact on gross margin. So, if youlook at our operating margin, it was at least a point and a half above what wehad as a GAAP margin.

[Satya Kumar:]

Okay, thank you.

[Operator:]

Our next question comes from the line of Gary Hsueh, withCIBC World Markets.

[Gary Hsueh:]

Hi, guys. Thanks for taking my question. If I kind of lookat your bookings guidance and continued softening in semis off of a $1.3billion mark, $1.3 billion was sort of the low point in terms of semi bookingsby my calculations in '05, and if we're really looking for CapEx down 5% to15%, I would have thought we could see some stabilization here off of yourOctober number. Now, should we interpret this as some market share loss or isthere some rotation happening here that you guys are a little bit less exposedto? I mean

[Mike Splinter:]

Well, you asked a little bit of a complex question and Idon't necessarily want to go back and analyze '05, but if we look at what'shappening in the market today, I think what you will find is that it was a bigorder of timing. If we look forward and look into our Q2, we've gone over thisproject-by–project, what's happening product-by-product, what's happening,customer-by-customer, our bottoms up look is for increase in orders in Q2. But, and I can't be too specific about that at this point,because there's a long road ahead and a lot of both economic and financial datathat will happen at the year-end, as well as how the whole selling season goesduring the holiday period, but there's no real share loss in these numbers. Andreally there, when we look at the order picture, usually we think that therewill be multiple big orders during a quarter. It looks to us like everybody ispretty cautious during this yearend period.

[Gary Hsueh:]

Yes, okay. So it's just really a timing issue and lumpinessin the business? I mean your October quarter was pretty lumpy in terms of thatone customer booking at the tail end, so I guess that's really it. Just onsomething a little bit more positive here, I understand that basically, you'regoing through an installation of the SunFab on the thin film side here in Asia.Can you give us any kind of detail or any kind of granularity on how that'sproceeding and if you've got any more visibility on the lead time between aninstall and revenue recognition in the back off of '08?

[Mike Splinter:]

I will let, George comment on revenue recognition. I wasjust out at that operation. It's in India.Our CVD system is on the floor. Our PVD system is there. The automation systemsare all there. Our team is set to go. The customer is finishing up thebuilding. They have a ton of people just working to complete it, so as far asany published schedule, we're on track there. We have everybody scheduled downto the hour on these kinds of projects and that goes for pretty much everyone. I'mreally quite excited about how fast I think we're going to learn as we buildmore and more of these SunFabs around the world

[George Davis:]

So, on the revenue recognition and really on bookings aswell, might as well cover both at this point, our position really hasn'tchanged. We expect to begin booking these contracts some time in the first halfof our fiscal year. We've said that we believe that first revenue would come atthe tail end of our fiscal year, but the bulk of the revenue that we see fromcontracts today would be in early '09.

[Gary Hsueh:]

Great! Thank you, George.

[George Davis:]

You welcome.

[Operator:]

Our next question comes from the line of Timothy Arcuri withCitigroup.

[Timothy Arcuri:]

Hi, guys. Just kind of a big picture question

[Mike Splinter:]

Hi, Tim. At some time you'll have to explain to me in moredetail your thoughts on this, I'm quite interested in them, but really, the waywe're thinking about this is if we can get many, many customers buildingSunFabs, we're going to be able to have thousands of engineers working ondriving the cost down. That's what's really going to make the market accelerateand expand and if we can be successful in establishing our 5.7 square meters asa worldwide solar farm standard, there's a very, very powerful business concept,so that's pretty much the path we are moving down. As you know, we've reallymoved a step beyond our normal equipment only horizontal business segment, butnow selling really the technology and starting up the entire fab for customers,guaranteeing output basically, and participating together with the customers, andenhancing the performance of those factories.

[Timothy Arcuri:]

Okay, yes, I guess to me it just, if your tools really arethat value added, it just seems like it would be better over the long term foryou to actually make the panels yourself. I guess just as a quick follow-up,George, whatever your bookings for or your contracts were for solar in fiscal'07, you said they were more than $700 million. Can we assume that all of thatnumber, at least that number, will become orders during fiscal '08?

[George Davis:]

We are not going to give out a specific guidance on that,but unless there is something that comes up on them that we don't see today, Iwould expect to be able to book them this year.

[Timothy Arcuri:]

Okay, thanks a lot.

[Operator:]

Our next went comes from the line of Stephen Chin with UBS.

[Stephen Chin:]

Thank you. Mike, how should we think about your commentaryabout the flat-panel equipment orders improving? Should we expect flat panelorders to be a gradual improvement for Q3 2008 or is it possible that we cansee a big step function increase in one quarter given that AMAT is stillgaining share in CVD and is expanding to PVD? How do you before see this flatpanel recovery occurring?

[Mike Splinter:]

Well, what we see so far, we already saw a pretty good jumpquarter-over-quarter, and if you look year-over-year at our numbers they are, Ithink we said 80% quarter-over-quarter; year-over-year they're up way over 100%. So, that's the definition of a jump. From Q2 on out, I think it's hard tosay. It depends a little bit how fast Gen 10 factories come on, if one of theother major companies commit to a Gen 10, obviously we could see another majorjump in orders. In the shorter term, it's mostly filling in existing factoriesas fast as they can fill them in with equipment.

[Stephen Chin:]

Okay. And if I could just change the topic to solar, can youguys give us an update regarding the synergies across the flat panel equipmentand the thin film solar equipment? Can we assume that AMAT successful flatpanel Gen 8.5 process results? Or

[Mike Splinter:]

Well, the equipments are basically the same, Stephen, andthat's one of the things that gives us so much confidence that we're going tobe able to expand this factory base and grow the capacity very quickly is theCVD system is pretty much the same CVD system we use in the flat-panel area. We'reshipping already and the deposition system is the similar as we use in theglass business. So, we're quite confident about our equipment capability andour thin film capability in those two areas. Other products that we're buyingfrom third party suppliers are less sophisticated and are add-on process steps,so the critical ones we control so we're pretty confident about that.

[Stephen Chin:]

Okay. Thank you very much.

[Operator:]

Our next question comes from the line of Jay Deanah withJPMorgan.

[Jay Deahna:]

Good afternoon. Can you hear me okay?

[Mike Splinter:]

Yes.

[Jay Deahna:]

Okay, Good afternoon, Mike. A couple of questions on solar

[Mike Splinter:]

Sure. So, on the silicon, crystalline silicon bookings areup to $98 million, really two factors. One is HCT, and the other is traction onATON, and as the crystalline silicon lines have gotten bigger, the productivityof ATON has really come into play. You have to have a fab 50 megawatts or abovefor ATON to really be effectively utilized and we're starting to see that now. Italso helps with efficiency and color uniformity, so it has multiple benefitsfor customers. What we're trying to do in the crystalline silicon area rightnow is to really get focused in those areas that really are critical to movingthe technology forward. Thinning wafers it was really the reason why we wentafter HCT, because we felt that their technology was critical to both handling andmoving to thinner wafers. This is important, because silicon is still so muchof a cost per watt. And we think if we keep going on a road map, we cut thenumber of [grams] for silicon in to half and then if we keep moving on thatroad map over the next few years, in half again, and then with our ATON tool asI just described, it really is another major factor in the performance of thecrystalline silicon. Now

[Jay Deahna:]

And just one quick follow-up

[Mike Splinter:]

Yes, and I think Mark Pinto at our January 17th analystmeeting will kind of go overall of the elements of how we are thinking aboutwhat technology we have to develop and create to keep the efficiency rolling onthin film silicon. Silicon is a material people know, they can handle it andknow how to deposit it and we just think that the flexibility of that and thenumber of engineers we're going to have working on it are going to all help usdrive the efficiency up and the productivity up as well to reach the best costper watt produced in the industry.

[Jay Deahna:]

Thanks a lot, Mike.

[Mike Splinter:]

Thanks, Jay.

[Operator:]

Our next question comes from the line of Harlan Sur withMorgan Stanley.

[Harlan Sur:]

Hi, good afternoon. Mike, within your view of growingSilicon Systems business faster than the market in '08, I'm just wondering

[Mike Splinter:]

Sure. I pretty much noted it, but we're going to continue tofocus on our etch and PDC area for share growth and we expect to be competitivein all of our other areas. We fiercely compete in those areas over a longperiod of time; we expect to do well there. In PDC, as I said, we've gained additional traction inUVision; we think that's going well. We have a mask inspections system outthere that perhaps will get a little revenue in 2008. In etch if we look at, Ihighlighted some of the really critical leading edge kind of applications wewon, but if we look at the broader number, we participated in 60 run-offs, won41 of them, that are quite a bit above our historic average. So, we're prettyencouraged in those areas, and EPI has just been great as more and more of theDRAM guys have to use EPI. They use a lot more wafers than the logic guys, so EPIis a big play there.

[Harlan Sur:]

Okay. Great, thank you. And then given your CapEx, the widerange of the CapEx outlook for next year, maybe you could just articulate,which segment is going to be this biggest swing factor in determining what endof the range we come in. Is it going to be logic and foundries or is going tocontinue to be memory in your view?

[Mike Splinter:]

Harlan, the way I'm looking at this right now is

[Harlan Sur:]

Okay. Last question for George

[George Davis:]

Harlan, well we're looking at the low 30s, so 30, 31.

[Harlan Sur:]

Okay. Great! Thank you very much.

[George Davis:]

You're welcome.

[Operator:]

Our next question comes from the line of CJ Muse with LehmanBrothers.

[CJ Muse:]

Yes, good afternoon. Thank you for taking my question. Iguess a couple questions here. First off, just directionally

[Mike Splinter:]

Well, I mean, I think, we've given some indication clearlysilicon is down. We're not going to obviously guide by segment, but display isclearly showing positive momentum. Adjacent we'll have to see how that playsout. Obviously they have HCT fully embedded in there now. And then so thatbrings you to fab solutions and we expect to see usually Q1 is kind of a peakorder quarter for them, but for the outlook, we have a more moderate orderscenario for them.

[CJ Muse:]

Typically, you'd show growth in that 1Q off of 4Q and youhad a pretty nice quarter in 4Q. Did you see sort of a pull-in from 1Q?

[Mike Splinter:]

No, the way I would look at it, we always pull in, so Idon't know what that means other than nothing out of the ordinary in my view. Ithink it's really more of a function of the outlook that we have for the earlypart of '08 and how that trickles over from the silicon equipment side into theservices side.

[CJ Muse:]

Got you. And then I guess on the display and solar front youmoved a number of employees from AKT over to solar and now we're staring atprobably at least a two year up cycle for display, so I guess my question hereis

[Mike Splinter:]

Well, I'll take the first part and George can handle thesecond part of the question. What we're doing here is basically the displaydivision is supplying a couple pieces of equipment to the solar division. Sothey're staying very focused on developing their supply chain, but we got greatsuppliers in this space. We know how to ramp this. We've been thinking about itfor some time and being prepared here. I don't have any worries about beingable to supply the capacity. Almost whatever, we think it could be in solarplus display. And part of the strength of this is that we not only move someemployees from AKT, we moved a lot of employees from around the company to beable to help solar become a real company and grow fast. That's one of thebenefits and strengths of Applied Materials.

[George Davis:]

And in terms of the OpEx, we do see the OpEx continuing toexpand. This is obviously the critical execution phase, so we'll continue tobuild our capability globally to support that. But what you're seeing is inboth the underlying web and glass businesses that have been in that segment forthe last year and then the addition of our precision wafering capabilitythrough HCT acquisition, you're going to see more revenue along with again asMike talked about the increasing traction on the ATON tool in crystallinesilicon you'll see more revenue helping to fund some of that activity wellwithin its own segment.

[CJ Muse:]

Got you, and last question for me

[George Davis:]

The way I would describe it is that it certainly explainsthe differences that you might see comparing quarter-to-quarter differencesbetween us and the industry.

[CJ Muse:]

Got you. Thank you.

[Operator:]

Our next question comes from the line of Patrick Ho withStifel Nicolaus.

[Patrick Ho:]

Thanks a lot. A couple of questions

[George Davis:]

Well, I think you've already seen that this year. We've donea lot of things to take a hard look at our portfolio across the company, but,again, each business has their own business model that they're going to operateto. We've talked about the Silicon Systems Group coming together and part ofthat is quite frankly, because we saw efficiencies that we could gain while atthe same time improving their competitiveness. So, the only problem I have,your question sort of structures the position of are we going to in some waydamage or under invest in our other businesses, while we rollout the solarbusiness, and we have to compete fiercely in all of our segments and we'llinvest fully in those. But we're going to look to make sure that we're asproductive and efficient as we can, because we do know that the business modelis going to be tested a little bit during this build out and we want to makesure that we manage that carefully.

[Patrick Ho:]

Yes, I don't think, I wanted to say that you were going tobe under pressure as a whole company. I am just wondering, you have made a lotof improvements. Can there be continued improvements that I guess help offsetany of the initial pressures you'll see in the solar ramp? Because it soundslike you guys have plans in place to do that.

[George Davis:]

No, I think we do and we've talked about some of the biggerones before, but we're really under-penetrated in terms of our global supplychain and particularly in lower cost regions. That will have a big impact overtime on a company and that's quite frankly one of the things that Tom and histeam are very focused on in the silicon segment. We're investing this year and it will continue into nextyear into improving our systems infrastructure, which will also make us moreefficient on all of our businesses, but also allow us to bring in newbusinesses a lot more effectively. So, we're looking at a lot of things alongthose lines. We've got kind of a continuous improvement road map.

[Patrick Ho:]

Great! Mike, this question is maybe more for you

[Mike Splinter:]

Sure. Absolutely! Depending on how things go over theholiday period through Chinese New Year, it will especially dictate what or howaggressive the flash and foundry guys are going to be. Computer sales have beenokay this year, so that's kind of a positive. And frankly, if you watch thenews of the last couple of days, Wal-Mart and Macy's both have positive retailnumbers, which I think, kind of, surprised everybody. Maybe it's a trend and ifit is, I think, we could see some positives going into the first part of theyear. I just think, we got to stay calm and watch everything and then insideour company we have to do all of those things to execute cost control, longterm and short term.

[Patrick Ho:]

Great! And then final question for George, just twofinancial questions

[George Davis:]

Total dollars for stock option expensing I believe was about33, I think it's about 33 but we can verify that for you. And then on the asset,the combination of asset impairment and facility closure was about a $24million impact.

[Patrick Ho:]

And

[George Davis:]

Yes.

[Patrick Ho:]

Great! Thanks a lot, guys.

[George Davis:]

Yes.

[Operator:]

Our next question comes from the line of Brett Hodess withMerrill Lynch.

[Brett Hodess:]

Good afternoon. Mike, you mentioned that you thought yourSilicon Systems performance in the coming year would be similar relative to themarket versus last year, so if the market is down 5 to 15 this year, you wereup 10 versus six or so as you said. Would that mean that your silicon systemsbusiness might be between say, flat and down 10? Or

[Mike Splinter:]

Yes, I'm really not prepared to quite give you a range,because I don't know exactly where the wafer fab equipment’s spending is goingto end up, but I think if we take that variable out, we should be plus three orfour to the market.

[Brett Hodess:]

Okay. And then a quick follow-on

[Mike Splinter:]

Well, companies like ours and our competitors are deliveringa lot of productivity to the customer base, and almost any of our machines, thenumber of wafers that go through it today is substantially more than what wentthrough five years ago. So, that's a big part of it and then there's Moore'sLaw which is another big part of it. And then there's the third factor ofwhat's really driving the leading edge of the technology and how vast areproducts moving on to the end generation of technology and we're seeing that goslower than in the past. So, that ramp gets spread out a little longer, givesthem more time to get more productivity improvement in that ramp. And I thinkthat's why we're largely seeing their CapEx be able to stay pretty stableversus their overall business continues to grow between 5% and 10%.

[Brett Hodess:]

Okay, thank you.

[Operator:]

Our next question comes from the line of Jesse Pichel withPiper Jaffrey.

[Jesse Pichel:]

Good afternoon. I'm sorry if I missed this, but

[George Davis:]

Yes, I answered that earlier, but it was first for revenuewe believe the earliest will be at the end of our fiscal year and the both ofthe revenue recognition would be in the first half of FY '09.

[Jesse Pichel:]

'09.

[George Davis:]

As it relates to the contracts that we've announced.

[Jesse Pichel:]

HCT had about a 15-month lead-time on equipment prior toyour acquisition. Have you sought to reduce that lead-time and what is ittoday?

[George Davis:]

Sure. I don't have a specific lead-time number for you today,but it is continuing to improve. We're working very closely with the managementteam there. This is an area obviously where we can help with our manufacturingexpertise. So, we expect to reduce that significantly throughout the year.

[Jesse Pichel:]

And

[George Davis:]

No, It’s an investment from our venture fund. That's it.

[Jesse Pichel:]

Okay, and my last question is

[Mike Splinter:]

Yes. I don't know how much political might we have, butwe've certainly been weighing in on this on the Energy Bill for some time asyou know, we all expected a good Energy Bill to be passed some time in lateJune or early July. It hasn't happened. I have confidence though that ourlegislators are going to pass an Energy Bill that's meaningful and in anenvironment with $100 of oil per barrel, it's hard to imagine that they canpass an Energy Bill without clean energy and renewable energy as a major partof it. I believe people do support the incentive tax credit, butthere's other issues with the Bill on how to pay for those and they have towork through those issues, but I think in the end, they have to find a way todo the right thing for the country. Today, the U.S.isn't much of a market for solar. Most of the solar installations are in Europeexpanding in Chinaand India. TheU.S. few roof tops, but roof tops never going to be, residential roof top isnever going to be a market that is cost effective.

[Jesse Pichel:]

Thank you very much.

[Operator:]

Our next question comes from the line of Mark FitzGeraldwith Banc of America Securities.

[Mark FitzGerald:]

Thank you. Mike, the company has done a great jobdiversifying the product base here. The LED market looks like it should be abig opportunity given your focus on nanotechnology. Any comments there on opportunitiesyou see?

[Mike Splinter:]

Well, we form the Energy And Environmental Solutions businessto really start to take a look at not only creating energy, but saving it andstoring it, so if we could come up with a solution that would help lighting that,that would certainly fit into that group, but other than a desire, we don'thave a product to announce yet, Mark. But it is an important area for us in thefuture.

[Mark FitzGerald:]

All right, and then just, I guess for George

[Mike Splinter:]

Yes, we're looking at all areas of spending and making surethat obviously we take care of the critical projects. But yes, we're going tolook, nothing is completely sacred here.

[Mark FitzGerald:]

Okay, and then just final question

[George Davis:]

Yes, what I said was in our targets for orders, we did notinclude any orders for the SunFab lines. But the right answer is until we havea clear picture that for sure we will see some in the first quarter; we justdidn't feel we could include it.

[Mark FitzGerald:]

Okay. Thank you.

[George Davis:]

Yes.

[Mike Splinter:]

Thanks Mark.

[Operator:]

Our next question comes from the line of Steve O'Rourke withDeutsche Bank.

[Steve O’Rourke:]

Thank you. Mike, you mentioned that your crystalline siliconstrategy in Solar PV is to focus on areas that move the technology forward.What in your view are those areas? You mentioned thinner wafers but what aresome of the others?

[Mike Splinter:]

Well, there are a couple of others. One, which I alsomentioned and that's controlling the passivation layer of backside contact, andone of the key things that when you go into a solar fab often times color gets beamedin 20 different beams, so getting that color uniformity is incredibly importantfor the performance of the line, so those are several of them. How exact, there's a big tradeoff between complexity andefficiency, and this is something that we're fortunate enough to have quite afew people from the industry with great expertise that are really looking atthat area of how do you create the simplest process with the highestefficiency. Most of the turnkey lines today are in the 13% to 15% kind ofefficiency range. You got to do something really special to get up to 20% indesign of the way you make the diodes. So, but that always costs you a lot ofmoney to do that. And so you wouldn't do it unless you're space constrained, sowe have people looking at all those kinds of things that are going to improvethe technology.

[Steve O’Rourke:]

Fair enough and on the silicon business side, you mentionedthat with the “bottoms up” analysis, it indicates that orders should increasein fiscal 2Q, just preliminarily looking at things? Of that “bottoms up”analysis

[Mike Splinter:]

Well, memory is still a big part more than 50% of that. So it'snot like we're going to expect overall memory to drop off gigantically, becausewe think DRAM is going to be down, flash is going to be up. So, it ends up onthat “bottoms up” more than 50%.

[Steve O’Rourke:]

Were there any cancellations in the quarter?

[Mike Splinter:]

George?

[George Davis:]

Minor.

[Steve O’Rourke:]

Thank you.

[Randy Bane:]

Operator, we'll take one last question and then make ourclosing remarks.

[Operator:]

Our last question comes from the line of Steven Pelayo withHSBC.

[Stephen Pelayo:]

Great. Just a couple quick ones, George, housekeeping oneshere

[George Davis:]

Yes, I think that's certainly our objective, and number oneis we're much more asset efficient than we were back then. And as you know we'vebeen reducing our asset footprint for some time even as our revenue has grown,the cycle times and our manufacturing operations are far shorter. So, therequirements, they are less, so we'll continue to  -- our working capital management is a realfocus. And so, you've seen inventories come down, so all these things areadding up to better cash flow performance and I think that's the requirementthat we put on the organization. We're going to continue to return cash flow tothe shareholders and at the same time we're going to continue to fully investin the business and if you don't manage cash flow you're just not going to getthere.

[Stephen Pelayo:]

And I'm sorry, the outlook for CapEx and depreciation in'08?

[George Davis:]

I would say that we don't see any substantial increase inCapEx required. Most of the CapEx this year has really been around theinvestment in business transformation and some minor lab and other facilitiesfor the solar business, but I don't see any major change from the run ratetoday.

[Stephen Pelayo:]

And then the last quick question is just on

[George Davis:]

Sure, we've said that we're comfortable with the cashbalance lower than today's level. Quite frankly, option exercises the lastcouple of quarters has added to the cash portfolio at a fairly substantiallevel, so we'll take that down, that will come down and we don't intend to evenkeep it at this level. So, something around the $3 billion mark is kind ofwhere we said we would like to operate on and we haven't changed our view onthat.

[Stephen Pelayo:]

Okay. And I should just apply all of that change in cash andwhatever cash you generate over '08 into buybacks and dividends right?

[George Davis:]

That's right.

[Stephen Pelayo:]

Thank you.

[Randy Bane:]

Okay. We would like to thank you for joining us in ourdiscussion on Applied Materials financial results and we would like to remindyou that a replay of this call and the supporting slide package will beavailable on our website starting at 5 p.m. today, and will remain posted untilNovember 30. Thank you for your interest in Applied Materials. I hope to seeyou in New York on January 17th.This concludes our call.

[Operator:]

This concludes today's conference call. You may nowdisconnect.