Analyst Conference Summary

conference date: May 12, 2009 @ 1:30 PM Pacific Time
for quarter ending: April 26, 2009 (2nd quarter fiscal 2009)

Forward-looking statements

Overview: Another rough quarter of heavy losses as capital spending in the semiconductor industry remains at a standstill. Solar was the largest revenue segment this quarter.

Basic data (GAAP) :

Revenues were $1.02 billion, down 23% sequentially from $1.33 billion and down 53% from $2.15 billion year-earlier.

Net loss was $255 million, worse sequentially than $133 million, and reversing the $303 million in profits made year-earlier.

EPS (earnings per share) were negative $0.19, down sequentially from negative $0.10, and reversing positive $0.22 year-earlier.

Guidance:

Spending is now concentrated in just a few customers and is hard to predict.

Silicon segment revenues in fiscal Q3 flat to up 40%. Services 5% up. Display drop 50%. Solar 30% revenue decline.

Overall revenue flat to down 15% sequentially. EPS negative $0.06 to $0.14. Expect orders to be up sequentially.

Conference Highlights:

Knew demand would be down, focusing on cutting costs. Economic outlook is weak, and visibility is poor. GAAP numbers included a number of charges, including for inventory write downs, bad debt provisions, restructuring and asset impairments, and acquisition related charges.

Non-GAAP numbers: net loss $136 million or negative $0.10 per share.

Cash flow was above break-even. $3.1 billion cash and equivalents were flat sequentially.

New orders were $649 million in the quarter. By geography North America represented 20%, Europe 19%, Japan 16%, Korea 13%, Southeast Asia and China 13%, Taiwan 19%.

Backlog was $3.16 billion at the end of the quarter.

Only China is showing some resumption of demand.

Silicon segment had $260 million in revenue and $259 million in new orders. Believes is coming off bottom and may see increased demand in Q3. New 33nm introductions will help.

Global Services had $319 million in revenue and $236 million in new orders. There is low demand for refurbished equipment.

Display had $84 million in sales and $13 million in new orders. Expects revenue to bottom in Q3. Utilization rates are now improving.

Energy (Solar) had $357 in revenue and $141 in new orders. Hurt by capping of subsidies in Spain. Module prices are dropping and installations are falling. Given the environment, we did well. Thin film saw fourth and fifth customer to sign off on a SunFab plant and now accounts for about half the order backlog. Revenue was higher than expected due to early sign-off. SunFab is not profitable, but should become profitable as more systems are sold.

1600 full time employees laid off, with another 700 cuts to go.

Cost of goods sold was $865 million. Leaving gross margin of $156 million. Operating expenses were: R&D $236 million, general and administrative $101 million, marketing and selling $85 million, restructuring and impairments $27 million. Equity method investment losses were $96 million. Interest income was $7 million. Income tax benefit was $127 million.

Q&A:

Silicon segment customers? This is a very dynamic environment. A shift in the end market could cause cancellations. We are starting from a low base.

Memory segment, what would cause new capacity acquisition? What would push capacity would be adoption of DDR3, which needs to be made with leading-edge technology. A lot of the "latent" capacity is on older technologies. Memory is going to be demand driven, or not.

Solar tandem junction business? Every single junction customer would be considering upgrading to tandem junction now. Timing, however, is uncertain.

Inventory writedowns? 60% of inventory writedowns was EDS (environment-solar). We don't have a break even revenue amount, but crystalline silicon is already above break even and we hope thin-film will move there in the second half of the year.

Expects at least 3 more solar factory sign-offs before the end of the fiscal year. We have bonus performance opportunities available on our existing factories. The pipeline is not as robust as we would like due to lack of financing and the slow economy. We also need to work downstream to increase the market size for the end products. We have no plans to finance our customers.

Q4 guidance? We believe the trend will be positive.

We are happy utilization is up and customers are more confident, but so far buying is for new technology, not for increased capacity. You would have to see some capacity buying to really call a positive trend.

We believe LCD TVs will continue to take market share, so when the economy comes back we should see some order pick up, probably in the second half o 2009.

Are there any performance penalties for SunFab lines possible? There are minimum performance requirements. Sign-offs mean we are meeting those requirements. We expect to exceed the requirements and get performance bonuses.

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