Analyst Conference Call Summary

conference date: February 16, 2012 @ 1:30 PM Pacific Time
for quarter ending: January 30, 2012 (first quarter, Q1 fiscal 2012)

Forward-looking statements

Overview: Better than guidance, but revenues declined y/y.

Basic data (GAAP) :

Revenues were $2.19 billion, up 0.5% sequentially from $2.18 billion, but down 18.5% from $2.69 billion in the year-earlier quarter.

Net income was $117 million, down 74% sequentially from $456 million and down 77% from $506 million year-earlier.

EPS (earnings per share) were $0.09, down 74% sequentially from $0.34 and down 76% from $0.38 year-earlier.

Guidance:

Q2 SSG sales up 15 to 25%. AGS up 5 to 10%. Display flat to down 25%. EES sales down over 40%. Up overall 5 to 15%. $0.20 to $0.28 non-GAAP EPS.

Conference Highlights:

Global demand for mobile devices is driving strong investment by semiconductor customers, foundries in particular. "As a result, we see solid order momentum and an improved outlook overall for our second quarter."

Varian acquisition contributed starting in early November.

Macroeconomy is looking relatively good despite Europe.

Non-GAAP numbers: operating income $344 million. Net income $240 million, down 50% from $484 million year-earlier. EPS $0.18.

Semiconductor segment (Silicon Systems Group) driven by mobility trend. $1.34 billion in revenue, $1.42 billion in new orders. Application processors for smartphones and tablets are requiring larger die sizes. Expects 40% sequential growth in Q2. Windows 8 could spur PC demand in second half of 2012. But DRAM is still in oversupply. Wafer fab equipment spending should be flat to down 15% in 2012 after a strong 2011. New order composition: 57% foundry, 14% logic and other, 19% flash memory, 10% DRAM.

Display segment is still scraping the bottom of a down cycle. $104 million sales, but orders just $40 million. End customer inventories were taken down in December 2011, but no improvement in capital equipment demand is expected until late in 2012.

Solar end market demand was above expectations in 2011.$207 million in sales but just $33 million in new orders. Believes end demand will continue to expand in 2012. However, there is plenty of manufacturing capacity. Working to reduce costs in this segment.

Services (AGS) segment had $534 million in sales and $517 million in new orders.

Backlog was down 10% to $2.2 billion. Overall new orders were $2.01 billion, up 26% sequentially, led by silicon order growth of 53%.

$2.95 billion cash balance was down $4.2 billion due to Varian acquisition. Operating cash flow was $181 million. $104 million in dividends paid. $200 million used for share repurchases.$37 million capital expense. $112 million depreciation and amortization.

Q&A:

Order momentum sustainable? First half visibility indicates momentum sustainable, with question in 2nd half of how much foundry might soften.

EES (solar) break even level? Was $800 million, actions should take that down to $700 million.

Pricing in industry with just a few players dominating orders? We are seeing the industry concentrating, it does not appear to be changin our pricing predictions.

Smartphones are changing dynamics. Die size increase and rapidity of change is causing foundries to prepare capacity in advance of demand.

Operating expense after Q2? We are already seeing savings in non-semi areas, but are increasing spend for semiconductors. $550 to $565 run rate is a reasonable assumption.

200 mm services bookings? Bookings and revenues have been light. We do expect a pick up, some customers need to add capacity in second half. We would be happy to improve margins on flat revenues.

Confidence memory spending will rebound in second half? NAND, believe one additional customer will expand in second half of year. Our expectations for DRAM are very modest, we don't expect capacity investments, just moving to new nodes.

EUV story? It will probably come in at one layer in 2014. Insertion will be slow because of the costs.

Varian integration is going well, bringing their team is already having good effects. "We think the solar product is going to be very good over a period of time. We are incredibly excited about having acquired Varian."

Market share progress in silicon in 2011? We saw a shift to lithography spending, which shrinks our share. Did gain share in our major areas in 2011, EPC, metal deposition, inspection, but lost in etch. We think we are looking at wins in 2012.

We think we have some enabling technology for vertical NAND, but that is a few years away from production. We are discussing it with customers today.

Competitive environment going forward? We have prepared with our own acquisitions and we know how to compete.

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