Good afternoon. My name is Abigail, and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA-Tencor Third Quarter Financial Results 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. (Operator Instructions). I would now like to turn the call over to Mr. Ed Lockwood with KLA-Tencor

Thank you, Abigail. Good afternoon everyone. Welcome to KLA-Tencor's third quarter fiscal year 2009 financial results 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 today to discuss third quarter results for the period ended March 31, 2008. 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. Rick will lead off today's call with updates on the current market environment and the company's performance in the March quarter and provide guidance for the June quarter. Afterwards, Mark Dentinger will review the preliminary financial results for the quarter, and then we'll open the call for questions. A simulcast of this call will be accessible on-demand following its completion on the Investor section of our website. On the website, you'll also find a calendar of future investor events, presentations and investor 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, 2008 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 year 2008 Form 10-K as well as our subsequent Form 10-Q and 8-K filings. Although we make no obligation to update those forward-looking statements, you could be assured that any updates we do provide will be broadly disseminated and available over the web. With that, I'll turn the call over to Rick. Richard P. (Rick) Wallace: Thanks, Ed. Thank you all for joining us for our call today. I'll lead off with a brief overview of highlights for the quarter, and provide commentary on what we're seeing in the marketplace today and guidance for the fourth quarter. And Mark will follow with further details on the financial results, and finally will conclude with the questions. First, my perspective on some highlights for the quarter. KLA-Tencor met our bookings in revenue guidance in the third quarter, despite continued weakness in the global economy and very low levels of demand in the semiconductor equipment market. Our results show we're adapting well in this tough environment and successfully managing our business in a climate where visibility continues to be poor. And demand beyond the near-term remains very difficult to predict. Revenue in the third quarter came in above the mid-point of guidance, at $310 million. The non-GAAP net loss per share, including stock-based compensation, but excluding some one-time items with a loss of $0.34 in Q3. This net loss figure includes about $0.18 per share related to a charge for state taxes that we took in the quarter. Excluding the tax charge, loss per share would have been better than guidance in Q3. As operating expenses were lower in the quarter than our original outlook. As previously announced in March, we took action to adjust our cost structure, to lower business levels we're expecting over the near and intermediate term, and to position the company to meet our breakeven target. But notwithstanding our emphasis on managing costs, we're continuing to focus on our customers, and sustaining a high level of investment in R&D, maintaining a prolific pace as new product introduction which will better position KLA-Tencor to extend our lead in our core market, and to benefit from future growth. Turning to the March quarter demand picture. New orders in Q3 were above the mid-point of the range of guidance in the quarter at $274 million, an increase of approximately 13% over the December quarter. The new order activity that we saw in the March quarter was driven by leading edge customers investing in their advance design nodes to support an improving demand environment for advanced devices. While we are encouraged by the technology orders that we receive, it's important to point out that they were limited to a small number of customers. Based upon what we saw on March and what we anticipate for the rest of the calendar year, 2009 capital investments appear to be primarily focused on technology development, with significant capacity investments not anticipated until 2010. Given the focus on advanced technology, we continued to model overall CapEx to be down in calendar year 2009, somewhere in the range of down 45 to down 50% of 2008. KLA-Tencor is well-positioned in the technology-focused demand environment industry, when capacity investment resumes. Now let's turn to some items in Q3 and development for the quarter. As I -- $4 million, an increase of approximately 13% over the December levels. Investment in Q3, will primarily focused on foundry and logic advanced design rules. Logic was relatively strong in Q3 with 46% of the order coming from this market. We expect to see continued investment in logic in the near-term. Foundry investments in Q3 were approximately 40% of our orders. Our foundry customers invested probably across our products for their next generation wafer need, reticle and metrology product in order support advance design rule around. We expect foundries to continue to invest in the near-term as well. Normally remained flat of the very low December levels, as the industry continues to process a gradual rationalization of excess capacity and the sort out issues coming from ongoing consolidation and constraint on investment capital. In general, we see private memory investment of largely a timing issue. We expect memory investment in advanced technology development to resume in due course in the second half of calendar 2009. However in the near-term, we expect the technology investment to be limited to market leaders. Overall, while the business environment is certainly challenging and likely to remain so. We are seeing leading customers making technology investments to support the next generation product development efforts. We're encourage by this activity and believe this trend is likely to continue over the course of the next few quarters. Now, I'd like to take a minute to highlight some of the benefit we're seeing from executing on our customers focus objectives in today's market environment. In the climate where many competitor are survival mode, investment and innovation remains a top priority to KT. It brings us closer to the customer. It extends our competitive advantage and it strengthens our leadership position as a trusted technology partner in this very challenging business environment. Our continuing commitment to making high levels of investment is a key element of our approach to the market in this downturn, and it's critical towards the sustained success in the future. In fact, as the current downturn drives on, we find we're engaging even more closely than ever with our customers, and enjoying a generally more collaborative environment in the marketplace as our customers are placing a heightened emphasis on their suppliers' ability to deliver future roadmaps in these tough times. Now I also believe, we measure our success in customer focus by our market share. And while it's natural for customers to evaluate alternatives to ensure that their investment is well set, we will try to maintain our market leadership position in the market that we serve. We collaborated closely with our customers. We continued to invest in innovating our products. And we've executed well in our product introduction process. The buying decisions made by our customers have validated our approach. We once again find ourselves building upon our market strength in our core market, while at the same time making share gains in market, where we have historically have lower share likely being review. In addition to the strength of our current product offerings, we believe we're significantly out investing our competitors, and we'll be in a position to bring new products to the market more quickly over the next few quarters. At close customer collaborations and conjunction with our upcoming new products will serve us well as the market recovers. Before I turn the call over to Mark, I'd like to provide our guidance for the fourth quarter. Given the uncertainty in the market, forecasting continues to be challenging in this environment. As mentioned earlier, calendar year 2009 appears to be focus on technology investments, but only a subset of our customers are able to invest in the near-term. For specifics on guidance, new orders in June are expected to be flat compared with March, plus or minus 20%. Revenues are expected to be between $270 million and $310 million with the non-GAAP loss per share in the range of a loss of $0.08 per share to a loss of $0.24. I'll now turn the call over to Mark for his comments. Mark. Mark P. Dentinger: Thanks Rick. As most of you know, we present our income statement in two formats, one under Generally Accepted Accounting Principles, or GAAP, the other in a non-GAAP format, which excludes amortization and write-downs of goodwill and intangible assets associated with acquisitions, expenses associated with our stock options investigation and related litigation, and any other costs and expenses, which we do not expect to be recurring such as restructuring charges. Our balance sheet and cash flow statements are presented in GAAP format only. Most of my prepared remarks on operations will reference to non-GAAP income statements. For our reference to GAAP numbers, I'll make the distinction. A full reconciliation of our GAAP to non-GAAP income statement is attached to our press release and available at out our corporate website at kla-tencor.com Revenue for Q3 was $310 million, at the high end of the guidance, we provided in January of 280 to $320 million, and other -- and the non-GAAP loss per share was $0.34 at the low end of our guidance range of 20 to $0.35 loss per share. The larger than anticipated loss was affected by $29 million tax charge following a change in California, this quarter. Without this charge our non-GAAP taxes for Q3 would have been a $10 million benefit reducing our non-GAAP loss per share to $0.17. Our Q3 GAAP loss per share, including a four mentioned tax charge was $0.49. The summary of the differences between the Q3 GAAP and non-GAAP numbers are acquisition-related charges at $17 million or $0.06 after taxes. Stock option restatement related charges is $2 million or $0.01 per share after taxes and restructuring and severance charges of $19 million or $0.07 per share after taxes. While Q3 was similar to Q2 in several respects, there were signs that business is stabilizing, As Rick indicated, although the environment is extremely challenging and visibility remains low, technology buys for advance reduction from key customers drove orders to the top end of our guidance range. In spite these difficult circumstances our market leading position remained strong, as we continue addressing our customers complex yield challenges at advanced node. New orders for Q3 were 274 million, an increase of 13% over Q2 and it's a high-end of our guided range are flat, plus or minus 20% from last quarter's new booking of 243 million. Approximately $28 million of customer initiated shipment delays pushed out of the 12 month window, resulting in net new orders of $246 million. We expect most of the pushed out orders to reenter our backlog in the next six to nine months. We ended the quarter with $543 million in total systems backlog after adjusting for customer initiated delays and foreign exchange impact. The backlog at March 31, 2009 included $127 million of revenue backlog, for products that have been shipped in invoice but have not yet been recognized its revenue and $416 million in product orders that have not yet shipped. We expect a vast majority of the unshipped backlog, to ship over the remainder of the calendar year. The approximate regional distribution of newer systems orders when the quarter-to-quarter change regional distribution was as follows. U.S. was 43%, of new system orders in Q3, down from 64% in the December quarter. Europe was 2% down from 7% in Q2 of '09. Japan was 11% down from 22% last quarter, Korea was 9%, versus no new systems orders last quarter. Taiwan was 31% versus 3% last quarter, and the rest of Asia was 4% same as we reported in Q2. The approximate Q3 distribution of new system and services orders by market as well as the quarter change in market distribution was as follows: Wafer inspection was 32%, up from 22% last quarter. Reticle inspection was 17%, up from 8% last quarter, metrology was 10% down from 15% in prior quarters, and, storage, solar high brightness LED and other non-semi was approximately 2%, down from 7% last quarter. Services was 39% of new orders in Q3, down from 48% last quarter. Where technology purchase is generating most of the activity this 45-nanometer and below development and pilot activity was roughly 95% of the semiconductor systems orders received in the quarter. This level is up from 70% at December quarter. While some key business indicators improved during March. We are cautious about the intensity and duration of the improvement. As a result, we are continuing with plans to reduce our operating expenses and we are assuming new orders in due course in the range of flat plus or minus 20% from Q3. Shipments in Q3 was $277 million, down 15% from the $327 million in the December quarter. Looking at our income statement, systems revenue for the quarter was $207 million or 67% of total revenue versus $273 million or 59% of revenue in Q2. Our services revenue in Q3 was a $102 million or 33% of total revenue. Services revenue declined $21 million or 17% from the prior quarter as lower utilization rates by several customer to suspend service contracts and idle tools in response to the downturn. Our current expectations for total revenue in Q4 is a range of 270 to $310 million. Non-GAAP gross margins was 38%, down eight percentage points from the December quarter, primarily due to lower revenue levels and additional reserves for excess inventories. These factors were partially offset by a stronger systems mix and lower labor cost following our Q2 restructuring. In Q4, we expect to improve our gross margin percentage assuming build plan stabilize and therefore additional reserve requirements the niche. The gross margin improvement resulting from more stabled build plan should more than offset the affect to slightly lower revenue levels. Operating expenses were $152 million down $47 million from the December quarter. R&D was $77 million in Q3, down $12 million from December. And selling. general and administrative expenses or SG&A were $74 million, a $35 million decrease from the last year. The quarter-over-quarter operating expense changes were largely due to lower average head count in all areas of the company, including both; R&D and SG&A, following our staff reductions in November. These actions reduced our employee expenses by about $17 million from the prior quarter. Lower project material spend, as a number of key development programs move into ... Alpha and Beta test basis. And in Q2, we recorded a $24 million increase in our allowance for doubtful accounts to reflect collection concerns about certain customers who are experiencing financial difficulty. In Q3, no new bad debt charges were required to the SG&A expense comparison was favorably impacted. And in Q4, assuming there are no significant additions required to our bad debt reserves, we anticipate that operating expenses will decrease by approximately 3 to $5 million in Q3 as we've realized the partial effect from our March cost reduction measures. Other income and expense or OIE was a net $5 million expense for Q3, were approximately $6 million lower than we expected due to a non-recurring gain on disposal of an investment in foreign exchange gains. These favorable factors were partially offset by lower yields on our cash and marketable securities portfolio. OIE with the $12 million expense in the fiscal Q2, in part due to a $4 million charge against our venture investments. In Q4, we expect net OIE to return to the 10 to $11 million expense range. In Q3, our non-GAAP income tax expense was $19 million charge, versus a 29% benefit or an $8 million credit last quarter. As I mentioned earlier, the Q3 tax expense resulted largely from a $29 million charge based on our anticipated election to change our California income tax a portion that methodology in fiscal 2012. This anticipated change in the portion that required us to reduce our deferred tax assets this quarter, but the change will not have much impact on our long-term tax rate. As we have discussed in prior calls, lower negative pre-tax profits, mix of business and changes in governmental factors, make predicting short-term tax rate difficult. But we do expect our long-term rate to be about 30%, and we are modeling a 30% benefit for our June quarter. Our non-GAAP loss of $58 million or $0.34 per share in Q3. These numbers includes stock-based compensation expenses of $23 million and the weighted share to compute the loss per share were 170 million. At the revenue range, I previously mentioned, we would expect a Q4 non-GAAP loss of 8 to $0.24 per share, assuming a tax benefit of 30% and further assuming that there are no unanticipated charges required for customer collection issues or excess inventory. On a GAAP basis, we also recorded a $17 million pre-tax charge in Q3 associated with the March reduction enforce, which will lower our head count by about 10% over the remainder of calendar 2009. Turning to the balance sheet, cash and investments including long-term marketable securities ended the quarter at 1.3 billion, an increase of $35 million quarter-to-quarter. Cash generated from operations was $76 million in Q3 versus $36 million used in operations during Q2. We also used $25 million in Q3 to pay our dividend. The net $112 million quarter-over-quarter improvement in operating cash included the benefit of an income tax refund of about $40 million. Significant declines in receivables in growth inventory, and in fact that our $26 million semiannual interest payments on our long-term debt occurred in our second and fourth quarter. Net account receivables ended the quarter at $241 million down $91 million from December 31, 2008. DSOs were 71 days at March 31 versus 76 days at the end of December. As I noted, there were no additional charges for bad debt expense during Q3. Net inventory decreased by $61 million from last quarter and ended the quarter at $412 million. Portion of the decrease in the balance resulted from $32 million from new charges for except material. Net capital expenditures were $3 million in Q3 versus $7 million in Q2. The weighted-average shares in Q3 were 170 million versus a 169 million in Q2. For the June quarter, we are expecting another loss, our weighted-average shares are expected to be about 171 million and no stock repurchases are anticipated this quarter. Total head count ended the quarter at 5,402 a net decrease of 492 from December 31. The decrease in Q3 largely occurred following the reduction hence forth we took in late November to the large portion of the impacted in place came off this April in late January. We expect our head count will decline during Q4 as a result of our March reduction. In our October and January calls, we now plan to reduce our quarterly operating expenses to the 140 to $145 million range, prior December quarter and doing so would allow us to achieve breakeven operating margin on revenue of 300 to $325 million. We took significant steps during Q3 towards these spending targets and we currently anticipate that we will not require additional significant actions in order to reach these operating expense levels. In summary, our guidance for Q4 is, new orders are expected to be flat plus or minus 20% versus Q3. Total revenue between 270 and 310 million, assuming a tax benefit of 30% of the pre-tax loss. This concludes our prepared remarks on the quarter. I will now turn the call back over the Ed to begin Q&A.

Okay. Thanks Mark. We're now ready to take your questions and we've once again request each participant to limit one question and a brief follow-up to allow us to get as many callers as possible in the time allotted today. With that Abigail, we're ready for our first question.

(Operator Instructions). Your first question comes from the line Brett Hodess with Bank of America/Merrill Lynch. Your line is open.

Hi, good afternoon. And thanks for taking my question. Two questions, Rick it looks like your wafer inspection and reticle inspection orders actually grew quite strongly, sequentially versus the other businesses. And obviously technology driven but can you tell us if that sequential growth was new product driven? Or was it tied to a specific technology node, and was there share gain in those areas?

Sure, Brett. I guess it's really related to the investment we saw fundamentally in advance design which is as we said most of what's going on right now. But we believe that our share positions very strong. I think that in this environment there is a bit of flight-to-quality by our customers where there, they got to make sure their investment dollars are optimized and our new products are showing very well. Plus remember, we've continue to invest in our product development through the cycle. So these are advanced products that are coming out. So we're seeing them being leveraged for the advance design rule work and at the same time, we're very strong from market share perspective.

And then a follow on to that was when you look at the product mix these are usually your best margin products. So are you seeing the margins being maintained on a -- you have under absorption issues but are the margins being maintained on a product specific basis and you particularly pointed out like e-beam review which you're gaining share and does that have the kind of margins as the other inspection and products out?

Right as you know, we don't breakout by product roughly, but its clear in the market areas where we're stronger, we benefit from relative volume and so I would say that once we reach a normalized level we're in the same margin range that we've been in the past but we have some NAND absorption going on right now. So, we're pleased with our margins, at the same time we have a customer base, a very mindful of value. So, our pricing strategy; well, we've not really reduced prices in this environment but we've maintained margins equivalent to what we've had in the past. The newer products like review where we have made some good share gains still have smaller volumes. So the margins there are going to be less, and we've got longer-terms plans as we ramp our shares there to improve margins on those products.

Thank you.

Thanks, Brett.

Your next question comes from the line of Timothy Arcuri with Citi. Your line is open.

Yes, hi. This is Junaid Ahmed calling-in for Tim. Thanks for taking the questions. My first question Rick, with the respect to your sales available market, could you kind of quantify how that's growing over the past several years with your entry into market and all the acquisitions that you've done, kind of maybe on a percentage basis?

Yeah, sure, it's hard to quantify that in this current market, given the overall level of demand that's going on. But when we outlined the acquisitions. I'd say probably three to four quarters ago, we talked about in the range of 600 to maybe $900 million available plan (ph) that's opened up to us in a more normalized environment. I would still say that true. Much of that's dormant right now. And we're not seeing a lot of business in those segments based on overall macroeconomic situation.

And my second question, regarding margins. If I look to way your revenues dropped in the last cycle, it was kind of around the same 300 million range. And at that level the margins were almost 7 to 800 basis points higher than it is this quarter. Even accounting for this like higher service revenue that you have now, could we -- is that -- are we -- should we like be modeling like some permanent degradation over there?

No, we've done an analysis and I think it's really important to make sure that you're looking at comparable points and comparable data. So, we go back to March '03, and that looks like a similar level of revenue. And I'd say that the way we model is there is about 200 basis points difference, once we get the cost out that we've modeled by the end of the year. So if you took our revenue now and our cost structure, we'd have by the end of the year, there is a couple 100 basis points between the two. So pretty close, and then there is additional cost reduction structure that we think will get out. So, we think it's within 100 basis points apples-to-apples comparison, because, for example; you have share-based comp now, you didn't have at then. And so, there are some other factors when you look to net income with OIE. where we're making servicing debt now. And we are getting income then. So, apples-to-apples on profit from operations, we think it's probably 100 basis points. And again it allow us to access significantly market overall. So, we think that's a reasonable position to be in.

So, if revenue goes like into 400 million range, what type of gross margins would you be kind of thinking?

Well, from where we are today, our system margins are still pretty good. We get hit with the NAND in the current environment. So part of what's happening is we have an absorption problem. But, we think the incremental gross margin on the way back up will be similar what it's been in the past, which is to 60 to 70% range. To be normalize that we had a 65%. So we see margins actually pretty consistent with what we've seen in the past.

Okay.

I mean, on an operating basis, it's good. Obviously, service at a lower level as a larger percent of the whole dilutes the gross margin, but doesn't necessarily dilute the operating margins.

All right. Okay, thank you.

You bet. Thank you.

Your next question comes from the line of CJ Muse with Barclays Capital. Your line is open.

Yeah, thank you. Thank you for taking my question. I guess Rick, first question on the order guidance, that off the net or gross number and in terms of 110 million delta I guess off of the growth. Can you comment on what's driving the volatility there?

It's often growth. So, why such a large range, is that the question?

Yeah, I mean, is there one or two specific projects that moved in or out that's driving there?

Well, when we look back CJ, we look back to our visibility back in the beginning of January. And what actually happened during the course, I'd say we -- it was pretty clear there is low visibility. So we anticipated that visibility continues to be low and the volatility continues to be high, which is the reason for that range. Our view is, if there are technology investments made then we will continue to do well and in fact we'll gain a pretty good percent of the overall CapEx. But volatility on bookings I think in this environment is wise is to have a big range. That what we said was basically flat from the gross level.

Okay. And then I guess you talked about in your prepared remarks about a recovery in the second half for tax spending on the memory side. Is that primarily DRAM NAND both, any color there would be helpful?

Sure. They're both as you know they're both pretty suppressed right now. So we're seeing the technology advance really on both sides, but it's clear that DRAM has been even more dormant, and right now I think that if there is going to be multiple players they're going to have to invest in technology to get ahead. So I think we'll see some of the both. But again we're talking second half and that's the way is out. But what's clear and I was in Asia last couple weeks as you talked to customers they clearly want to make the technology investments but it's a challenge, its been a challenge to get funding. We've seen some recent signs lately that we think some of that's going to come around, but they still have over capacity situation in memory.

And I could just sneak in one last question. Can you provide an update yes on success of XR mass inspection tool. What kind of feedback you're getting from customers?

Yeah, sure. What you saw was reticle was 17% last quarter, so was we've have not introduced new product which is coming so it's all on existing products. So I would say we did very well from a share basis and that s obviously the existing product line. So we're real pleased with that performance and frankly didn't necessarily anticipate in this quarter but we saw some technology bias coming in. So we think from a share standpoint we're right where we want to be with reticle and we've got new products coming out.

But I guess can you update on the new products?

Well, not until we release and we've announced the XR as you said. So, that one I'd say is doing well and then my point is in the pipeline there is more coming.

Okay. Thank you.

Thank you.

Your next question comes from the line of Satya Kumar with Credit Suisse. Your line is open.

Yeah, hi this is Riz (ph) for Satya. One quick question what was your deferred revenue in the quarter?

Yeah, we don't breakout -- we have two lines, we have deferred revenue from services contracts that we actually do breakout and display and that number at the end of the quarter were $61 million. And then we also have deferred systems profit which nets down the deferred revenue system sales against the deferred cost on system sales, which turned out to be about $74 million worth of deferred profit at March 31.

Okay. And then for your services, how are you looking at with the utilization rates improving, how are you seeing service levels for the rest of the year like over -- for calendar year '09 as compared to '08?

Yeah I think what's interesting is we've seen I think the rate of decline has stopped in terms of utilization, and as you know some utilization numbers are up. So the leading indicators are things that we track, we've seen such stabilization and we suspect that some of the tools that have gone off contract will come back on contract. So we're modeling as we look out over the year gradual increase in service, but I'd say slow and steady increase of the current level. So we suspect to be probably bottomed on service revenue in the March quarter.

And one last thing, how are you seeing your non semi business, I think you introduce a solar inspection during the quarter and where do you see that?

With a lot of growth opportunity in the non-semi, as that as semi has been, the solar stuff, has really slowed down quite a bit, I think the solar industry grappled up with some funding challenges and credit challenges, from a market share position we are very well-positioned, but we do see relatively small lot of activity, lot of interest but not a lot of buying yet. So, we anticipate part of what we'll see when that activity resumes, is good growth out of those segment.

Okay. Thank you.

Thank you.

Your next question comes from the line of Jim Covello with Goldman Sachs. Your line is open.

Great, good afternoon guys. Thanks so much for taking the question. One main question for me, I'm just trying to compare a little bit or get away to think about your orders and order guidance versus some of the others in the industry. And I know this is always is difficult exercise. On one hand you guys came in much higher on sequential basis in March. On the other hand, June your fiscal year-end, it is mostly technology buying that's going on. And, you have very good exposure that one of the biggest customers that's ordering right now from a technology perspective. Do you had some of the other companies guide up pretty meaningfully from an order perspective for the June quarter. So how do you think we can reconcile all that a little bit?

Yeah, Jim. Good question. I think it's hard to speak for what the other guys are doing. We look at it and think if there is investment, we'll continue to reap the benefit of that because of as you said, we're well-positioned. And I think our market share is very strong and we've got new products and the offering that our customers need. From that standpoint, I'd say we're well-positioned. I suppose if we had been down quite a ways, then we'd have to be talking about it going up. So, we're look at environment where we think it's relatively flat for the calendar year. And so if there is upside, you're right, June is the end of our quarter. But I've been careful on this cycle not to try to map back to historical patterns because it's just such a different world we're in.

And then the only other question some of the other companies, and again, I know your dynamics can be quite a bit different at times from there. Some of the other companies are talking about some technology buying from the memory companies also. Whereas you're talking about that kind of may be in the second half. Again, is there some possibility that comes in June, or do you think there is some dynamic relative to how these companies are adding some capacity that would potentially cuts your orders from some of the memory guys to come in the quarter later?

Yeah, I characterize it this way. If it happens, it's upside for us. If it happens I think some of those may might need it to make their plan.

Great. All right, thanks so much. Appreciate it.

Your next question comes from the line of Raj Seth with Cohen & Company. Your line is open.

Hi, thank you. Hey Rick, historically, you've described your opportunity in good times and dollar per fab kind of metric. In this kind of environment, is there -- are there any metrics that you use to think about what you're opportunity is, and our fab that's moving from one technology, and I'll say 65 to 45, how much we used to the toolset exist. How much of an opportunity is there, fab that's moving from one node to another but not adding a lot net capacity?

Right. Yeah, that's a great question. It's a little bit harder to model in this environment as you know. And we have done some of those models, when you look at what is, for example; a 10,000 wafer start conversion look like in terms of the number of tools. But, since there has not been a pattern established of that, it's kind of hard to come off with a model that we can really back up, because we don't have any history on it. I would say that the pattern that we've just seen. In the last couple of quarters where I think our bookings have held up significantly better than peers is in the other parts of the equipment, suggest that our pieces of the investment, process control inspection metrology, 45 and below is going to be a larger percent of the overall time. And so I think as companies are focused on technology. Obviously, yields is critical to them and getting it to work. So, what we're looking at now is how do we, from an absolute dollar standpoint capture, a larger percent of the spend that's going on. And that's really where our focuses is, is trying to help our customers understand of the industry and our capability that we offer them that minimize the need for additional capital in other areas.

In this environment the people take sampling rates up or down?

Well, certainly with new technologies, they've taken them up, because I think what they're recognizing is that they're struggling with some of the yields. And we're seeing that across the board both memory and DRAM and for NAND but also we certainly saw in logic, and that was part of what drove our order activity in the March quarter.

And one last quick one if I could, the mix shift that Brett was talking about at the beginning of the call towards reticle, et cetera. Would you expect that to continue is in this technology by environment the mix going to shift in any particular way between your sort of three measures dimension or not.

I would attribute that probably we're more heavily weighted towards inspection, both; in reticle and wafer. And probably towards some of the tools that are more oriented toward the characterization and development activity, unless towards the tools that are more orient toward capacity. I say that's probably through the metrology is very critical. Bit, some of that does play more in a ramp environment.

Great. Thank you.

Thank you, Seth.

Your next question comes from the line of Weston Twig with Pacific Crest. Your line is open.

Hi, guys, Just a question on an upcoming technology shifts that the NAND companies are expected to use double patterning technology, which should drive increased with their metrology needs. And I'm just wondering if there is any difference in the metrology requirements if they use a space or double patterning process versus like a ramps (ph). And to follow-up, the NAND customers starting to talk to you now about ordering tools for the 32-nanometer ramps?

Sure. On both counts is first one the metrology needs on double patterning vary probably more from the optical CD standpoint and they do from an overlay perspective. In both cases overlay requirements are very tight. The optical CD have some different characteristics whether it's in floater (ph) or edge. So, I'd say there is opportunity incremental opportunity there. In terms of, are they talking to us absolutely what I think will be interesting to see is when they actually start to release capital. But, right now they've been very conservative in there spends for various reasons. We are seeing increased discussion but we just haven't seeing the orders out.

Okay. And then just one more question, kind of coming back to where you said if you get a lot of 300 millimeter second hand equipment on the market. I'm wondering is the large portioning of that if its KLA inspection metrology equipment. Is that reusable or is it upgradeable or is it do customers really need to come in and buy a new version of tool KLA.

Right. So this part of our strategy, I'm focusing heavily our new product introduction was to, try to avoid that issue and so our newer tool have better cost on their share more capability. And so our view is that in most of our markets will be protected from some of that second hand tool. We have had a used tool business. We continued to do that, I would say that is the business that gets impacted by this trend which I think it's a real trend but that constituted maybe a couple percent of our business in the past. So we don't think it's a major impact. But for sure I think for capacity buys, for process equipment that's a risk. I think less so for process control.

Okay. Thanks.

Our next question comes from the line of Gary Hsueh with Oppenheimer & Company. Your line is open.

I was wondering if you could talk about gross margin, particularly relative to our original expectations, because when I look at my model you guys definitely overachieved in terms of ratcheting down operating expenses. I was expecting something like a $117 million. But you guys turn in something much lower but on a 170 million, I was expecting gross margin of around 39-40%. You guys came in with 38%. Am I reading too much in this or gross margin -- even relative to your own expectations?

Yeah, no I think, the gross margins really paid the price for the speed in which the ramp has come down and I think, there what that means is the NAND. So, when we look at actual system margin and we strip out the inefficiencies in the operation right where we've historically been. I think what happens in this environment that your caught with more material than you needed because the rate of the decline and so, that part have what we are working through now. That will abate over time and see; you see margins go up just as a result of that comes off and we don't get hit with those charges, Mark any color to that?

No. That's, that's essentially, Gary. The reality is that when we ended the quarter we were hoping for stable bill plans we had to take them down early in the quarter, and as a result taking them down, we are doing to absorb an additional $32 million worth of excess inventory charges. That was higher than we were hoping to have to absorb and that explains all of the difference between, where we were modeling, which was probably close to what you're, you're articulating and where we've landed. But no, the incremental margins the tools going up the door remained steady and highly lucrative but in this type of the ramp down, your excess capacity in the NAND has do take their toll.

Okay.

And Rick is right, we will get obviously get a windfall on our way backup.

Okay. That makes a lot of sense. Just a follow-up question, just on the reticle inspection kind of rebound and those orders, is that primarily TeraScan, TeraFab and if it's one or the other I mean, what is that indicate in terms of a near term trend here on the inspection side in reticles?

More oriented to our fab which frankly it was a bit of surprise to us. A good surprise but a surprise, and I think what it indicates is as customers are ramping their advanced design rules in the fab they are worried about the haze and crystal and growth, And so this was to deal with those challenges. We haven't really seen their shops turn back on and I think as you know Gary we've got new products coming out to deal with that. I think the other hand is there has been from a share standpoint, there've been alternatives in the market. And I think that customers really had a chance to shake out and evaluate the alternatives, and evaluate our tools and I think there this general flight-to-quality going on and that that's part of the story too.

Okay. Thank you very much.

Your next question comes from the line of Mahesh Sanganeria with RBC Capital Markets. Your line is open.

Thank you. Can you talk a little bit about a OpEx progression, are we getting all the benefits in June quarter or how does it progress through the year?

Yeah, we won't get all of the benefits in the June quarter, Mahesh, because the reduction action that we just took in March under the warned act, it will probably take -- little bit more than half the quarter before, all of the reduction comes off of our payroll. So we get a partial benefit in the June quarter, which we signaled with a 3 to $5 million OpEx improvement in that quarter. I mean, you'll get sort of a full quarter benefit as we turn to the second half of the year. So, that's an essence how to think about it. And as we talked about trying to get to our OpEx levels of 140 to 145 by the December quarter. Certainly, based upon the progress this quarter the 140 looks more, probable at this moment.

And 140 is the more likely number?

I think it's more likely. That's right

Okay. The second quick question on, if you can give us some indication on how will your segment distribution a quarter income of logic foundry memory look at June. Is it tilting towards one segment more than other in June, or is in the main essential as the same?

It looks pretty similar. And I would say that we could see a little more memory activity although not a lot. And I think when we look across logic and foundry, we're currently modeling -- foundry maybe down a little bit. And you see a little bit of logic come of. And again that's both because we see a little bit more memory. But again, not a lot of memory we're talking about; and non-semi space is about the same.

In the logics side, is there any activity other than microprocessors?

Well, I mean, yeah. I mean, there are other players in that space. But, the way we've been them microprocessor is clearly a reasonable part of that. But yeah, there is some other activity as well. There is some other logic investments going on both in U.S. and other regions as well. But again, not huge levels, but yes.

Okay. Thank you very much.

Thanks.

Your next question comes from the line of Patrick Ho with Stifel Nicolaus. Your line is open.

Thank you. Can you guys hear me?

Yeah.

Quick question in terms of your orders outlook and the variability. I know, you guys are coming off of pretty low levels. And you guys actually did pretty well in terms of the March quarter. But that's plus or minus 20%, is that varies related to one customer or one or two customers. or is it a bunch of customers that can swing in either way. And I guess what customers segment is that primarily memory, foundry or logic that varies?

Yeah, Patrick, it's a good question. I think internally, we debate whether the guides bookings at all given the variability in this environment. As you know many of the other equipment companies has stopped guiding bookings. So, our view on that is, we think there is a number of things in the hacker (ph) we have the same probabilities to them, but we realize that some of those things can fall out. So, the issue is really variability, and the general lack of visibility in the environment.

Okay. So, is there is any one specific customer that's going to swing it either way?

No, because as I said, last quarter we didn't predict the orders that we got. We couldn't see them at the beginning of the quarter. And I don't take that changes in this environment.

Okay. And one follow-up question on the cost side of things. Now that u guys have taken your cost reductions efforts, and you at least have gone through them. Can you just kind of put them on a percentage wise, how much of it was, what I would guess permanent structural cost, and the rest temporary cost. Was there something like 30% with permanent cost reduction and 70% temporary cost reductions? Can you break it down now in terms of how much of each segment was?

Yeah, I wouldn't -- I would hesitate to characterize, clearly there is some above. And clearly, as business levels increased, things the temporary actions that we're taking like (inaudible) off the quarter and reduce bonuses and reduced variable compensation in general (Technical Difficulty) back to the normal. But there are also several actions that we took. We announced in closing, including closing some facilities and shipping capacity within the company that would be permanent in nature. So I hesitate to characterize how much of the actions are permanent versus temporary. It some of both, but you really -- it's a question at what level of output you're looking at. At this level obviously right now there is a greater percentage that are temporary as they recover. But the balance will be permanent.

Great. Thank you very much.

This concludes the question-and-answer portion of today's call. I will now turn the call back to Mr. Lockwood for any additional or closing remarks.

Thank you, operator. On behalf of Rick and Mark and the rest of the KLA-Tencor team, I'd like to say thanks to everyone for joining us on the call today. We look forward to speaking with you in our follow-up discussions throughout the quarter.