Randy Bane - VP of IR Mike Splinter - President and CEO George Davis - CFO Joe Sweeney - SVP, GeneralCounsel and Corporate Secretary

Stephen Chin - UBS Harlan Sur - Morgan Stanley Timothy Arcuri - Citi Jennie - J.P. Morgan Patrick Ho - Stifel Nicolaus Gary Hsueh - Oppenheimer & Co. Satya Kumar - Credit Suisse Mehdi Hosseini - FBR Jim Covello - Goldman Sachs Bin Pang - Harris Company CJ Muse - Lehman Brothers Steve O'Rourke - Deutsche Bank Mahesh Sanganeria - RBC CapitalMarkets Jesse Pichel - Piper Jaffray Edwin Mok - Needham and Company

Welcome to the Applied Materialsfiscal 2008 first quarter Earnings Call. (Operator Instructions). I would now like to turn theconference over to Mr. Randy Bane, Vice President of Investor Relations,Applied Materials. Please go ahead, sir.

Thank you, Marvin. Good afternoonand welcome to Applied Materials fiscal 2008 first quarter earnings call.Joining me on the call today are Mike Splinter, President and CEO; GeorgeDavis, Chief Financial Officer; and Joe Sweeney, Senior Vice President, GeneralCounsel, and Corporate Secretary. Today we will discuss our resultsfor the period ending January 27, 2008. The financial results were releasedthis afternoon at 1:05 p.m. Pacific Time. A copy of the news release isavailable on Business Wire and on our website, www.appliedmaterials.com. Before we begin, let me remindyou that a slide presentation supporting today's discussion is available on theInvestor Relations page of our site. Today's earnings call containsforward-looking statements, including those related to Applied's performance,display and solar ramps, restructuring costs and savings, cash generation anddeployment, growth opportunities, products, strategic position and financialtargets, customer's capital spending and the outlook for the semiconductor,display and solar industries. All forward-looking statementsare subject to known and unknown risks and uncertainties that could causeactual results to differ materially from those expressed or implied by suchstatements. Information concerning these risk factors is contained in today'searnings press release and in the company's filings with the SEC.Forward-looking statements are based on information as of February 12, 2008 andthe company assumes no obligation to update such statements. Today's call also containsnon-GAAP financial measures. Reconciliations of the non-GAAP to GAAP measuresare contained in our earnings press release issued today and in our earningscall slides, both of which are available on the investor page of our website. George Davis will lead the callwith a discussion of our financial performance for our first quarter. Mike willthen follow with comments about company progress to-date and our outlook on theindustry environment. George will close our commentary with our targets for thesecond fiscal quarter of 2008. After these remarks, we will open the call forquestions. With that, I would like to turnthe call over to George. George?

Thank you, Randy. Good afternoon,everyone, and thank you for joining us. Q1 was a dynamic quarter for thecompany. We met or exceeded our targets in all respects while experiencing verydifferent end market conditions in our business segments. We took steps toaddress our operating performance and cost structure in our semiconductorequipment and related services businesses, while at the same time investing tomeet the growing ramp in our solar and display units. We also increased our sharerepurchase activity to return value to stockholders, reflecting our optimism inthe long-term potential of Applied. Order momentum was particularly strong inQ1, a turnaround in display resulted in new orders rising by 13% over Q4significantly exceeding our target of down 5% to 15%. High consumer demand isdriving capacity additions across all major LCD customers. Our order book alsoreflected the first orders related to our SunFab thin film solar lines. Theseorders increased our order performance by approximately 7 points. As expected, we experienced lowerdemand for semiconductor equipment driven primarily by DRAM customers. Backlogfor Q1 increased about $400 million to $4.1 billion. Backlog adjustments wereminimal and totaled $32 million. We completed the acquisition of Baccini after the close of Q1, so those results and anyadjustments related to the acquisition are not yet reflected in our numbers. Revenue for Q1 decreased 12% to$2.1 billion, slightly better than our target of down 13% to 18%. This decreasefrom Q4 reflected lower net sales to DRAM and LCD manufacturers, partiallyoffset by higher sales in our Energy and Environmental Solutions segment. Gross margin for Q1 decreasedmodestly versus last quarter to 44.8% from 45.5%, primarily due to the effectof lower revenues, partially offset by lower material costs and our costreduction efforts. Q1 operating expenses were $562million and included restructuring charges of $38 million for severance costsrelated to Applied's cost reduction plan announced on January 15th and the $11million for implant facility retirements. Our estimate for severance cost hasincreased since the announcement, primarily due to costs associated withexpected international reductions. Operating income decreased to$373 million or 18% of revenues. Non-GAAP operating income was $493 million or24% of revenue. Net income was $262 million or $0.19 per share at the high endof our target range of $0.16 to $.20 per share. Excluding the impact of thecost reduction plan related charges, EPS would have improved by $0.02 andexceeded our guidance for the quarter. Non-GAAP net income of $345million or $0.25 per share reflected a 26% decrease from Q4. Non-GAAPadjustments are detailed in the press release. Now I would like to discuss oursegment results. As noted in our press release and in our recent AnalystMeeting in New York,we have renamed two of our segments. Adjacent Technologies has been renamedEnergy and Environmental Solutions, or EES, reflecting that organization'sclear focus on energy. Fab Solutions has been changed toApplied Global Services, or AGS, to reflect our decision to manage allservice-related activities in that unit. This will result in service revenuefor display and solar being included in AGS going forward. We will provide segment levelreconciliation on our website to facilitate your segment analysis. There was nomaterial solar service in fiscal year '07, so the adjustments will only affectthe display segment. For Q1 '08, display service revenue was $24 millioncompared to $35 million in Q1 '07. Let's now look at the Q1 resultsin the segments. Silicon orders of $1.1 billion were down 20% over Q4, asdemand for equipment from DRAM customers declined further while foundry andlarger customer demand remained low. Our order composition was DRAM, 34%; FlashMemory, 26%; Foundries, 14%; Logic and other, 26%. Orders for 70-nanometer and belowtechnology represented 85% of silicon orders. Q1 silicon net sales were down18% compared to Q4 in-line with expectations, again primarily due to decreasedinvestment by DRAM and Logic customers. In the face of falling revenue,operating income performance in Silicon Systems was strong at $445 million or36% of sales. Ongoing effective cost controls, as well as disciplined portfoliomanagement and material cost reductions, all contributed to improvingperformance. In Applied Global Services, Q1orders were down 6% from Q4, primarily due to lower orders for spares in-linewith industry conditions and declining fab utilization. Net sales decreased 2%from Q4, due to seasonally lower sales for spares, partially offset byincreased factory software sales. Operating income decreased 7%,compared to Q4, in-line with a decrease in revenue and mix. These numbersinclude display service for the first time. Display orders for Q1 for equipmentwere up 363% from Q4 and up 1,500% year-over-year, as LCD customers began toinvest again in response to rising LCD panel demand. Display sales of a $133million were down from Q4 as expected, reflecting the low order activity seenin fiscal 2007. Operating income decreased to $34million or 26% of net sales due to lower revenue levels and product mix,partially offset by lower cost. Again, these numbers reflect onlyequipment-related revenue and orders. Q1 orders in Energy and EnvironmentalSolutions totaled $260 million, up 165% from Q4, and they include recognitionof our first applied SunFab thin film line orders and the first full quarter oforders for our precision wafering system products. Net sales of $122 million, was up98% from Q4 and they were driven by increased solar-related revenue includingthe contribution of the PWS revenue and higher sales of our ATON tool. The Q1 operating loss for Energy andEnvironmental Solutions of $48 million resulted from increased operating costassociated with a build-out of our global thin film and crystal and siliconsolar team, M&A charges related to the HCT acquisition and costs related tothe expansion of solar marketing efforts. Next, I would like to discuss ourbalance sheet and cash flow. We continue to have strong cash flow performance,generating $390 million in cash from operations, which represent 19% ofrevenue. We are investing in working capital to support the solar and displayramps while managing SSG inventories in-line with industry conditions. We maintain our long-termobjective for cash from operations at greater than 20% of revenue, but weexpect that fiscal year '08 levels will be impacted somewhat during these ramps.Working capital changes in the quarter reflected this pattern with reductionsin inventory related to semiconductor equipment, offset by the increase ofworking capital to support the solar growth. We ended the quarter with cashbalances and marketable securities of $3.36 billion. In Q1, Applied returned $683million or 175% of operating cash flow to its stockholders. Of this amount,$600 million was for the repurchase of 34 million shares at an average price of$17.84 and $83 million was for cash dividends. We remain committed to generatingstrong cash flows and funding our investing needs while returning excess cashto our stockholders. We expect to spend between $300 million and $500 millionon share repurchases in Q2 '08. This is in addition to the $334 million inspending related to the close of the Baccini acquisition made at the beginningof the quarter. Now I will turn the call over toMike Splinter for his perspective on the quarter and his view of the keyindustry and market changes affecting our business. Mike?

Thank you, George. Q1 performancewas at or above our targets and the strong bookings in display and solar gavefurther evidence of the solid foundation of our growth plans. During thequarter, Applied Materials faced a weak global market for semiconductorequipment and at the same time, experienced a significant upswing in demand forour display products. 2008 is a pivotal year forApplied Materials to focus on execution and growth. We have restructured ourindustry leading silicon equipment business to improve operational performanceand competitiveness across our product portfolio. We have expanded the role ofApplied Global Services to be the service provider for all of our businesses totake advantage of our global footprint and we are investing to meet theextraordinary customer demand for our display and solar products. In a tough year for our core siliconbusiness, we have great optimism about our long-term prospects. In 2008, weexpect to extend our leadership in silicon equipment, establish Applied as thekey enabler to the solar industry and significantly expand our served marketand display. We intend to do this while maintaining a disciplined operatingmodel that generates strong profits and cash flow. Let me touch on some of thedetails about the cost reduction actions we took in Q1. In semiconductorequipment-related services, we announced a global cost reduction plan designedto generate about $150 million in annualized savings. We believe these savingsare achievable from the efficiencies of moving to a single silicon businessunit and the related product portfolio rationalization. This was a difficult,but necessary step that affected approximately 1,000 people in theseorganizations. This action is part of a roadmapdeveloped by our Silicon Systems Group to improve its operating model by 4points over the next three years, while funding the R&D, as necessary, tofurther improve our product competitiveness. During this down period, oursemiconductor team is working hard with customers to gain acceptance of our newproducts. New technology solutions including single wafer oxidation steps and E.HARPfor next-generation shallow trench isolation are gaining momentum. Metal and gate tech continue toadvance ahead of the competition, and we are collaborating with key memory customerson advancing the state-of-the-art for self-aligned double patterning, which nowappears to be the only technology that enables flash memory to move below 30 nanometers. Applied Global Services hasbroadened its scope to provide services for display and solar customers. Weexpect to offer an expanded suite of technically differentiated services inthese areas by leveraging the products and technical resources of AGS. This is how we can provide oursolar customers with comprehensive service including process support, partsservice, abatement, and manufacturing systems. During the quarter, we signedour first solar service contract for a SunFab line. In addition, we are expanding ourservice offerings in our core business from 200-millimeter productivity upgradesto chamber performance services and integrated software. Display has certainlyprovided the biggest positive in the first quarter. Strong end customer demandfor large format flat panel TVs has led to the need for significant capacityadditions. 2008 looks to be a record yearfor new orders and display, and could be a record year for revenue, even thoughwe expect revenue in the first half to be soft in-line with the low order levelfrom last year. We have significantly increasedour served available market in display with the launch of the new AKT-PiVot forarray PVD. Our leadership team in display is managing the double challenge ofmeeting an unprecedented ramp in LCD-related demand while supporting the PECVDcomponent of our rapidly growing SunFab line. Display has developed a highlyoutsourced model for manufacturing over the past several years and the supplychain supporting this model is ramping in-line with demand. And ramping fast isexactly what we're doing in solar. Scale is an important factor in lowering thecost per watt of our solar over time. At our New York Analyst Meeting,we talked about how we see the industry moving to take advantage of the scalethat our SunFab and film production lines provide using our industry leading 5.7square meter glass. Our thin film solar approach isgaining traction and enthusiastic customer acceptance. We were pleased to berecognized as the Green Energy Innovator of the Year by the prestigious Platt'sGlobal Energy Awards for our pioneering work on the Applied SunFab Thin FilmLine. In addition to our work in thinfilm solar, we are investing to build our capabilities for crystalline siliconas well. With the close of our acquisition of Baccini, Applied Materials is nowoffering products in the high value-added areas of the crystalline siliconsolar process. Areas where we offer differentiated products to lowermanufacturing costs while providing systems that create and process in ourwafers, all with the end goal of lowering the cost per watt which will increasethe end market. Looking forward, demand for solaris robust and growing and we are in discussions with many new customers. We arealso happy to report that our existing solar customers are talking about repeatorders. Overall, our solar business is accelerating and at the same time,Applied Materials technology is accelerating the adoption of solar around theworld. Unfortunately, the economicenvironment in the U.S.and the world is not as bright as the outlook for solar. We see the uncertain U.S. economicenvironment and the potential for slowing global growth to be our near-termchallenge. This is all set for AppliedMaterials by the positive momentum toward investment in clean energy, as aneconomic and political priority. Silicon Systems is facing a softinvestment environment. We said in our last call the wafer fab equipmentspending is forecast to be down 5% to 15% in 2008 and it's still looking thatway. In memory, DRAM is expected to be down greater than 30% and NAND flash isup but not enough to completely offset the difference. Foundry spending is expectedto be modestly down and investment for Logic should be roughly flat. The environment for display thisyear is much improved with expectations that industry investment will be upabove 40% in 2008, driven by an LCD TV market that is projected to grow atannual rates greater than 28% from 2007 to 2011. The build-out of Gen-8.5 acrossthe industry is coming fast as every manufacturer is speeding to add capacity.Looking forward with Sharp leading the way on Gen-10, we can expect the nextwave of flat panel TV factories. Overall, Applied Materials ismoving prudently in some areas and investing broadly in others to optimize ourperformance through these exciting and challenging economic times. Our costreduction plan for the silicon sector is well timed for the market conditionswe face and our strengthened solar and display is outpacing our expectations. Our employees are driving oursuccess and are putting their energy behind the projects and initiativesfeeling our progress. As a company, Applied is focused on execution in 2008 todeliver on the first leg of the growth commitments we made. And now I'll turn the call backover to George to provide our targets for the next quarter. George?

Thank you, Mike. Our targets forQ2 are that we expect orders to be in the range of down 5% to up 5%. This iscoming off very strong order performance in Q1 and reflects expected strengthin solar and display. We expect revenue to be in therange of flat to up 5%. We expect EPS to be in the range of $0.18 to $0.22 pershare, in-line with mix effects and higher spend in solar and display. Thank you, Randy. Let's open thecall for questions please.

That completes our preparedremarks. We will now begin our question-and-answer session. Operator, pleasebegin with the first question.

Our first question comes from theline of Stephen Chin with UBS. Stephen Chin - UBS: Great. Thank you. Congratulationson the display order execution there. My question is how sustainable do youthink this momentum is. For example, can Applied exit the year with tradebookings tracking at over $2.5 billion annual run rate, do you think that's possible?

Steve, I think what we are seeingis a substantial push by our customers to pull display orders into the firsthalf of the year. And I think our order outlook, while we are not being able tomaintain the record level of orders that we achieved in the first quarter, allevidence is we'll have another strong quarter for display in the secondquarter. But is that run rate sustainablethroughout the year? No. We still think overall, that orders for the year forthe overall company will be up, as we discussed at the New York meeting. Stephen Chin - UBS: Can I ask the second question?Can you share any color on Moser Baer's announcement yesterday that they hadsecured additional solar equipment? Can you give us any color of how AppliedMaterials began the primary equipment prior to the Moser Baer?

Well, Steven, first of all, asyou know, Moser Baer was our first solar thin film customer and we have been indiscussions with them for sometime. So as we said in New York, we are in discussions with somemajor customers on gigawatt scale fab lines, but we don't have a specific thingto announce today. Stephen Chin - UBS: Okay, thanks, and congratulationsagain.

Thank you.

Our next question comes from theline of Harlan Sur with Morgan Stanley. Harlan Sur - Morgan Stanley: Hi, good afternoon. Niceexecution on the quarter. I think it's fair to assume at this point that theteam is probably in negotiations with all of your initial customers for theirnext round of expansion on the solar side. So, I guess the question is, whatkind of ramp rates are we talking about here? Are we going to see second phaseexpansion maybe doubling the initial capacity, and then a big step up to, let'ssay, a few 100 megawatts of capacity or even gigawatts of capacity?

It really depends on the customerHarlan. We said in New York, we are discussing with up to four people on prettylarge scale gigawatt kind of scale factories that almost everyone of ourcustomers today just thinking about a follow-on factory, some significantmagnitude bigger than their first one. Harlan Sur - Morgan Stanley: Okay. And then my secondquestion, as you mentioned in the last call, Mike, that your pipeline supporteda growth outlook for at least your silicon business to grow in the secondquarter order-wise directionally. Is that still the case here in April?

Yes. So we think that siliconorders in revenue will be up modestly in Q2, but I certainly wouldn't call it amomentum at this point. Harlan Sur - Morgan Stanley: Okay. Thank you very much.

Our next question comes from theline Timothy Arcuri with Citi. Timothy Arcuri - Citi: Hi, couple of things. First ofall, Mike, if I look at the thin film bookings, it looks like maybe by the endof April, you will have booked maybe 400 to 500 million of that, of whateverthe contract value that you currently have is. So, can you give us an idea,based upon contracts you have signed today, how many orders do you have beyondwhat you have included, which you will have booked in January and April?

I am going to let George answerthe first part of your first question. Tim, I will catch up with you on thesecond part.

We booked a 160 this quarter. Weare not going to forecast the specifics for next quarter, but we do anticipatebooking some additional orders off of last year's contracts. So, we expect tobook the majority of all those during this year as we've said already. There isno change in that outlook. Whether we get 50% of it in the first half or not,we are not going to guide that right now. Timothy Arcuri - Citi: Okay. My second question is,George, can you give us some idea then on the backlog? You haven't had thismuch backlog in terms of months since 2003, late '03, and you posted fourstraight double-digit sequential revenue growth quarters after that. So can yougive us some idea of the age of the backlog? How much of that is shippablewithin six months, for example?

I think what you are seeing ismore of a balance issue than any change in the dynamics of our backlog. I mean,you have more of longer lived orders both in display and in services making upthat mix. So that's a little bit of the phenomenon you are seeing. Most of theorder, the behavior for the orders in terms of when they are going to berecognized for instance on the semiconductor equipment side is basically withinsort of the normal pattern quarter-and-a-half out that we normally see.

Operator?

Our next question comes from theline of Jay Deahna with J.P. Morgan. Jennie - J.P. Morgan: Hi, it's [Jennie] here in for JayDeahna. Can you give us a status update on the initial SunFab installed; areyou still targeting working panels by mid year?

Yes, [Jennie], we are expectingproduction output by the middle of the year and things are moving along quitewell, for real detail though, I think you have to ask Moser Baer the specificquestion, it is their factory. Jennie - J.P. Morgan: Are you still expecting overallcompany orders to be flat to 10%, revenues to be flat and modestly down infiscal '08, as you had said at your Analyst Day?

Yes, that's right. We are notchanging that projection at this point.

That's correct. Jennie - J.P. Morgan: Okay, thank you.

Our next question comes from theline of Patrick Ho with Stifel Nicolaus. Patrick Ho - Stifel Nicolaus: Thanks a lot and nice work on thequarter. I know some of your cost reduction efforts have come from the exit ofsome of your select semi-cap businesses like Ion Implant, ECP. What othermeasures exactly you are taking to further reduce cost in that segment?

The headcount reductions wetalked about, that was the January 15th announcement; talking about theheadcount reductions both in the Silicon Systems Group, the Services Group thatsupports the semiconductor equipment side. And then, all the staff groups thatare within that were impacted as well. So, the headcount impacts which willprimarily be felt as we roll-out through the year were a big part of that costsavings. And that's really what's driving the bulk of the cost savings. Patrick Ho - Stifel Nicolaus: Okay. So it's nothing like supplychain management and things like that, that's the driver, it's mainly theheadcount reductions?

Well, over the long run, we'vetalked about the global supply chain strategy that Tom and his team are puttingin place and I think that'll continue to drive. We've obviously had a focus onmaterial cost reductions year-in and year-out. But we believe we need to reallysignificantly expand our global supply chain to get to the next level andthat's what Tom and his team are working on. So we expect that over time tohave a big impact. But I was really talking more about what we're seeing in Q1. Patrick Ho - Stifel Nicolaus: Okay, great. And just oneclarification on the numbers, the items associated with acquisition, was thatin cost of goods?

The bulk of it was in cost ofgoods. Patrick Ho - Stifel Nicolaus: Great. Thanks a lot.

Yeah.

Our next question comes from theline of Gary Hsueh with Oppenheimer & Co. Gary Hsueh - Oppenheimer & Co.: Hey, great. Thanks for taking myquestion. Something I just don't understand about guidance, you're highlightingkind of flattish guidance as solar and kind of display driven sort of quarter.But you're also suggesting that silicon systems businesses will be booking flatto slightly higher. So what's going to drive sort of the minus 5% Q-over-Q kindof scenario in your guidance for orders?

The big thing that is on thecautious side is that this is off the peak on displays. Display was anincredible quarter for orders in Q1 as George has alluded to, up 1500%year-over-year. So we are going to be a bit off that peak in Q2. Gary Hsueh - Oppenheimer & Co.: Okay. Perfect, Mike, and thatleads into my next question. If I just look historically, even after youpurchased Applied films, the peak and the last peak in flat panel display,CapEx spending for your order number was roughly $355 million in the Octoberquarter of '06 and now you are booking $555 million. Is that a fair comparisonor is ATON really sort of driving the difference here between peak to peak?

No. The apples-to-applescomparison is really you have to pull -- you had serviced in your $355 million,so it was $310 million for equipment.

So, it gave a bit little biggerdifference.

Yeah. So it's really anextraordinary quarter for display. Gary Hsueh - Oppenheimer & Co.: Okay. So it's fair to say thatdisplay business is heavily front-half loaded and pretty much loaded in theJanuary quarter.

Yeah, I wouldn't discount that. Ithink they are going to have a strong second quarter and probably will exceedthe previous record as well, but it's going to be hard to top this quarter. Gary Hsueh - Oppenheimer & Co.: Okay. Got you. One last kind ofquestion, George you had mentioned that you got 7 percentage points of bookingsgrowth from SunFab that would imply a $175 million in bookings?

The exact number was $160million. Gary Hsueh - Oppenheimer & Co.: $160 million, okay. So justwondering why the other part, the crystalline silicon side is just kind ofrunning flattish. Why we haven't seen growth this January quarter like aseasonally slow period for crystalline silicon? Or is there some otherexplanation why we are not seeing bigger growth there outside of SunFab?

Now remember also within the EESGroup, we also have glass and web, so you've got a number of moving parts. Youcan't, and again I am not going to breakout every detail of the order book, butyou had kind of a run rate level of PWS orders in that. And so I think wedidn't see anything that would suggest that you are having a drop off. Gary Hsueh - Oppenheimer & Co.: Okay, great. Thank you.

Okay.

Our next question comes from theline of Satya Kumar with Credit Suisse. Satya Kumar - Credit Suisse: Yeah. Hi. A quick question onyour SunFab. It seems like you have pulled in the order recognition by at leasta quarter. Can you talk about what specific milestones you might have achievedparticularly with demonstrating performance on tandem solar cells that you nowhave SunFab orders being recognized?

Satya, what we had said, is thatour order recognition policy was, when we believed that we were both within 12months of sign-off with the customer, and we had assurance that the supplychain was available to serve that order and all prior orders, then we would goahead and book. And so these orders set that criteria. Satya Kumar - Credit Suisse: So, is it fair to assume thatover the last three months you have increased your confidence of demonstratingyour specs on the tandem cells at your customers sites or your?

I think our confidence across theboard on solar continues to grow, and that’s sort of reflective of what we'realso seeing from the customer side as well. Satya Kumar - Credit Suisse: Okay, that's helpful. And when Ilook at your Silicon Group, I'm trying to reconcile what I'm seeing with youguys with the other companies, the peak, the trough orders are down 45% for youguys in silicon over the last three quarters. Most of your peers are downbetween 10% and 20%. And if I also look at your comments that CapEx will bedown 5% to 15% this year, and your comments of taking share; you lead the bookabout $1.4 billion a quarter in silicon on average each quarter to get to justdown 10%. What's the disconnect? Are youlooking at a pretty steep hockey stick recovering silicon bookings in the backhalf of the year?

Yeah. We said that we saw thatsecond half would have to be significantly stronger than the first half inorder for the scenario to play out that not only we were seeing but most peoplewere forecasting for the industry. And we've already gone over some of thetiming issues, one customer made a big difference in timing issues in thepervious quarter and again, I don't have your data right in front me. But ourview really hasn't changed about what has to happen in '08. Satya Kumar - Credit Suisse: And real quick, you are guidingto basically down EPS and up revenues, what are the moving parts as to why thatshould be the case in May?

Yeah. What we've done is actuallywe moved the order guidance up $0.02 and really from where we were last quarteron flat, up 5%. And I think it was a given, we know we're going to continue toincrease our investment in solar. We know that there are some revenue mixissues that may play out. So, I think it’s just representative of the volatileenvironment that we're in and the continuing investment that we've got and wethink it's the right range, but we have moved it up $0.02. Satya Kumar - Credit Suisse: Good order guys. Thanks.

Our next question comes from theline of Mehdi Hosseini with FBR. Mehdi Hosseini - FBR: Thanks for taking my question. Iwant to better understand the thin film bookings. Can you please help meunderstand of the initial capacities that are out there for qualification; whatis the current output? What is the kind of megawatt of production capacity thatis out there, so that you could actually attract additional customers? And the number two question hasto do with the specific line-up that you have. Are you planning to acquire, orto have all the different pieces of equipment manufactured in-house because Iunderstand that some of the pieces are actually outsourced and what is yourstrategy forward in that area?

I am not quite sure of your firstquestion. But overall in the industry, there was a little more than a gigawattof capacity installed in 2007 and we said 6 to 8 by 2010. So there is widerange of capacity to be added over the next few years. As far as our philosophy on whatproducts we are going to do internally and what we are going to source fromother suppliers in the SunFab thin film line, we are going to do the high valueadded steps internally. That's pretty much always been philosophy as how we dowell and how we make a good profit in this business. So, things like, CVD, PVD, areright in our skill capability. Some of the automation is. But things like anautoclave, we are not going to ever make an autoclave, I don't think. So that'sa lower value at piece of equipment. It's an important piece of equipment in aprocess, but I don't think could create a differentiation there. Mehdi Hosseini - FBR: Just as a clarification on thirdpart of my question. I was trying to figure out what is the kind of capacityyou have as a demo out there. Is there a first line that is up and running thatyou can use to sell to potentially new customers?

We have a demo line inEisenhower. With that, we can show our technology to our customers, and theycan see how the technology performs. Mehdi Hosseini - FBR: As it stands right now, you don'thave a customer that is actually shipping panels?

Yeah. Out of the SunFab line,that's correct, we said we will see production panels by mid-year. Mehdi Hosseini - FBR: Okay. And then going back to thesecond part of my first question. What about, in terms of improving the yieldquality, is there any metrology part of the line that is critical that youwould want to do in-house and then how about TCO, some of the processors doneto help improve the efficiency rates?

Well, Mehdi, you have toremember, this is about moving square meters of glass and it has very fastthroughput times; the process just has to run. You might want to know whethersheets of glass are chipped, but other than that I expect our processors to runat high yield and under a good control. We don't think that you need any realmetrology, any kind of off-line metrology, if that's what you are thinking of.But something like TCO, yes, we would be considered, that's a step we wouldconsider. It has impact on yield. It's a high value-added, highly technical step. Mehdi Hosseini - FBR: So that's an area that you couldactually would go out and acquire technology or develop internally?

We have the technology to be ableto do that. Mehdi Hosseini - FBR: All right. Thank you.

Our next question comes from theline of Jim Covello with Goldman Sachs. Jim Covello - Goldman Sachs: Good afternoon, guys. Thanks somuch for taking the question. George, first just the quick one. I understoodyour commentary earlier about why the EPS is little bit lower on flat revenues.But what I am trying to understand is, is that above the line or below line? Inother words, is that all gross margin pressure or some of that going to come inthe OpEx side as well?

I think it comes from both sides,Jim, and we had a lot of activities around shutting down factories and doingthings in Q1, that won't be doing at the same level in Q2. We've got increasinginvestment in solar. So a lot of the OpEx will come out of those areas, themanufacturing obviously and the cost of sales but increased investment. Also it's our biggest quarter forinvestment in our business transformation process where we're getting to thepoint where we're going to turn on the first part of that. And so, this is kindof the homestretch on that piece. Jim Covello - Goldman Sachs: So taking your revenue guidance,I could get to your EPS guidance by modeling a 300 basis point decline in grossmargin. But that's obviously not all the debt is going to come out of the grossmargin. Do you think it's half or you think it's less than half?

I think that's too significant. Ithink you are really looking at the combination of things, obviously, it alsohappens to be a quarter where our stock option expense tends to be a little bithigher than the first quarter. So there are multiple items. I think mix and thevolatility of the outlook just lead us to say, we're comfortable moving ourguidance up $0.02. We're still guiding within that range or above where weachieved, even after you take out the cost of restructuring that we incurred inQ1. So we think it's prudent, given the environment. Jim Covello - Goldman Sachs: Okay. If I could just ask onefollow-up. Obviously, very good things going on long-term in the solar businessand in the near-term in the display business relative to silicon business. Thelast time we had this much excess capacity in the silicon segment, with so muchof the business come from DRAM, it really took a couple of years to clean itout, not a couple of quarters. And I'm wondering why you think that would bedifferent this time?

Well, Jim, you can pretty muchsee the cutback in demand or in the capacity additions by the DRAM makers. Ithink you know those as well as I do. The thing that encourages me about demandis prices continue to stay very low and I think that we'll see devices;laptops, desktop, cell phones, all load up on DRAM bits which are veryinexpensive. So in almost every applicationthat you can think of for DRAM, I think you're going to see bit growth wellabove the estimates today. So, we're still thinking quarters and I don't thinkwe have a magic ball to see. We're still thinking that by the third quarter,the supply and demand balance is out pretty much. Jim Covello - Goldman Sachs: Terrific. Thank you very much.

You bet.

Our next question is a follow-upquestion from Tim Arcuri with Citi. Tim Arcuri - Citi: Hi. George, now that you have allthese moving parts, can you give us some view as to what the kind of afinancial model might look like as revenue ramps in July and back half of theyear? For example; if you take kind of the current mix, what would gross marginlook like say $2.5 billion and $3 billion revenue?

Yeah. Tim, I understand whereyou're going. Let me maybe characterize in a little different way. We expect tosee the operating model for the Silicon Systems Group to continue to improveover time. They are taking a lot of steps that I think will have both near-termand longer-term impact. So, their operating model over time will just continueto improve. On display, which is what I thinkyou are seeing is, we'll see most of the ramp in revenue at the end of theyear. So again, it will be how much of it comes in at the end of the year andso how much of that sort of manufacturing processes is absorbed and we see thebenefit of that leverage. Energy and Environmental Systems,as we said, while we'll expect to see both Baccini and PWSrevenue in there, we'll still be in the build-out phase for the thin filmbusiness and also we'll be incurring the M&A cost associated with both ofthose acquisitions at that same time. So I thinkyou're still really going to wait until fiscal year '09 to see the start of thepotential for Energy and Environmental. Display, it really depends on therevenue piece, but it should look very good at the end of the year and it lookspretty good quite frankly right now, and then silicon systems very, very strongperformance relative to their historical model. Tim Arcuri - Citi: Okay. So George I guess, as youlook out into '09, you should be back in '09, you should be back on the samesort of margin model that you were back say in mid-'07?

Yeah, I don't see any reason whywe wouldn't be. Tim Arcuri - Citi: Okay, thanks.

Our next question comes from theline of Bin Pang with Harris & Company. Bin Pang - Harris Company: Thanks for taking my question.Just a clarification on the pattern that you expect for Silicon Systems, you commentedthat you expect to see or the industry I guess expect to see hockey stickscenario in the second half. Is that going to be led by DRAM?

We think that it will first beled by foundry and then by memory and we do expect both flash and DRAM to comeback a bit in the second half of the year. Bin Pang - Harris Company: So the memory capacity that youexpect would be added in your fourth quarter, or are you talking about yourfiscal fourth quarter?

Talking really about calendaryear on capacity on capacity ads. Bin Pang - Harris Company: Okay. And one follow-up on theflat panel business. Is it possible to separate exactly how much of the orderstrength in the quarter that just passed was due to the hire or serve developmentmarket?

The bulk of what are seeing inthis quarter was our historical presence, PECVD tools tend to get orderedearlier in the cycle and so there is imbalance towards that. Bin Pang - Harris Company: And I guess the follow-up, flatpanel orders will be for your newer products?

Yes, for array, for our colorfilter testing and the PiVot array PVD. Bin Pang - Harris Company: Thank you very much.

Our next question comes from theline of CJ Muse with Lehman Brothers. CJ Muse - Lehman Brothers: Yes, thank you for taking myquestion, hoping to sneak into probably display side, given that you're goingto see strong bookings in January and April in that lead times, nine plusmonths. Does that suggest that your FPD road should be higher in fiscal '09than fiscal '08?

Right now, it looks like if youjust model it out, that we would sort of peak in revenue in the first quarterof '09, so in the first part of ’09. But we think we're going to see some ofthis benefit in '08, it's part of why we think there is disconnect right nowbetween The Street estimates where we're coming out this year and where we seewhich is, I think The Street has this down 10% and we are somewhere betweenflat and down 5% based on display having the biggest impact. CJ Muse - Lehman Brothers: Got you. And then a follow-up, onthe margin side, when do you expect to breakeven on the energy environmentaldivision and what kind of initial operating margins are you expecting, as yourevenue the initial SunFab business?

So, certainly, we expect tobreakeven in '09 for sure. And then in terms of the margins coming out of thegate, I think I am not going to forecast that. We will have to see. Becausewe'll have a lot of mix of businesses in there and quite frankly, the marginson the initial deals will vary depending on how much of the learning curve istaking place at which contract. CJ Muse – Lehman Brothers: Thank you.

Our next question comes from theline of Steve O'Rourke with Deutsche Bank. Steve O'Rourke - Deutsche Bank: Thank you. I think in yourprepared remarks, you mentioned service contracts booked with SunFab lines. Howdo the service contracts work with these new lines and how are they connectedto a standard warranty for example?

Well, the service contracts comeafter the warranty period. Of course, during the warranty period, we take careof service, spares are purchased and then the service contract essentially isto take care of all aspects for maintenance on the line. And depending on thecontract, it might be multiple years of service. Steve O'Rourke - Deutsche Bank: So you booked service contractsfor the lines that you've initially installed these couple of lines.

Actually, I said we had onlybooked in the prepared. I said we booked one. Steve O'Rourke - Deutsche Bank: Okay. Fair enough.

You got that first one. We got tobook one before you book a buzz. Steve O'Rourke - Deutsche Bank: Fair enough. And you talked aboutfollow on factories for SunFab. Will they all be tandem junction do you thinkand can you give us an update on when you think the first tandem junction lineis projected for startup? And when you might think a reasonable timeframe isfor product out?

So yes, I would think they areall going to be tandem junction from here on out. We may even see some upgradeson some of the single junction lines later on, but basically, around the end ofthe fiscal year, we will see some output from the first hand of junction line. Steve O'Rourke - Deutsche Bank: So by October of this year, youwill see some output.

We think so. Yeah. Steve O'Rourke - Deutsche Bank: Fair enough. Thank you.

We said that we would ship, or wewill have shipped the first hand of junction line by the end of March. Steve O'Rourke - Deutsche Bank: Okay. Thank you very much.

Our next question comes from theline of Jay Deahna with J.P. Morgan. Jennie - J.P. Morgan: Hi. It's [Jennie] here in again.Just a clarification. Have you signed one of the gigawatt contracts?

We have no announcement on thesign of gigawatt contract at the moment. Jennie - J.P. Morgan: Do you expect when it will besigned in the next three to six months?

Well, you can never tell aboutcontract negotiations, but we are in serious discussions on the topic. Sohopefully, we can come to an agreement with at least one of the customers thatwe are having discussions with at this time. Jennie - J.P. Morgan: And when you're negotiating thesecontracts, how do you get comfortable with their financial wherewithal; if theycould fund such a large contract?

We look at all the normal thingswe look at for any customer, which is do they have financing, can they securetheir commitments with the appropriate instruments. So it's a balance of itemsthat gives us comfort. Jennie - J.P. Morgan: Do they have to have it securedby the time they sign the contract?

It varies depending on thecustomer. Jennie - J.P. Morgan: Okay.

And that's true, whether it's agigawatt scale or it's a smaller scale. Jennie - J.P. Morgan: Okay. Thank you.

Our next question comes from theline of Mahesh Sanganeria with RBC Capital Markets. Mahesh Sanganeria - RBC Capital Markets: Yes. Thank you very much. Onemore question on the revenue recognition for SunFab. This revenue recognitionis going to be for the whole line at a time or you will do it by equipment byequipment?

Our current plan is for the lineto be upon customer sign off. Mahesh Sanganeria - RBC Capital Markets: Okay. So it's going to be like abig size whenever it happen, it won't be like per tools $20 million to $30million order.

Right, for the initial ones,that's correct. Mahesh Sanganeria - RBC Capital Markets: Okay. And the second question onthe EPS guidance, are you assuming any non-recurring charges in that guidance?

No. Mahesh Sanganeria - RBC Capital Markets: Okay.

Again, we have the normal ongoingadjustments of stock-option expensing and M&A. But it doesn't include anyanticipated restructuring cost. Mahesh Sanganeria - RBC Capital Markets: So M&A means amortization ofintangibles?

Correct. And all again, we have areconciliation of all that in the schedules with the release. Mahesh Sanganeria - RBC Capital Markets: All right. Thank you.

You're welcome.

Our next question comes from theline of Jesse Pichel with Piper Jaffray.

Yes, good evening. Of the fourgigawatt factories, should we assume that's both crystalline and thin film?

No, you should assume that theseare thin film factories. In the crystalline silicon area, we're more sellingmachine by machine in our more traditional way, or our more traditionalbusiness model. I guess I would call it in that regard an example was ourATONs. We had our breakthrough in Japan selling our first ATONsystem, as these crystalline factories scale up I think they'll use more of ourlarge scale systems though.

You use the word utility scaleoften, did that mean you are in discussions with European utilities and is thata far fetched question? Is the SunFab so easy that a utility could run it andit wouldn't be outside of their core competency, assuming it came with someperformance guarantees from AMAT?

Well, I don't think we candisclose real customers, but utilities are different than power providers andwe have to look at how the industry is set up, but I think what you wouldcertainly say that we're in talks with companies who are interested in beingpower providers.

All right, and many of ourcustomers have looked to put electricity into the grid out of their fabs.

I am under the impression thatOerlikon offers guarantees with respect to throughput and efficiency. DoesApplied offer that at current?

The Applied contract is setup onwatts out. So in the end, I think our customers want to produce watts andthat's what's so critically important. One that we often talk about is scale soyou mentioned utility scale, but the size of our panels allow the installationand wiring and bracketing to be done much more efficiently. And this is one ofthe areas why we chose to move to the larger size panel.

My question is, one of theadvantages of the big public thin film company we know now for solar is thatannually it gets throughput improvements of about 6% plus per year. Do youanticipate that the AMAT lines would also have similar annual improvements? Anddo you think there is a way for your service business to potentially capturesome of the value of a 6% plus annual throughput improvement on a watts basis?

Well, Jesse, one of the thingswhy we are so confident about our solar business is our history of 40 years ofdriving cost down. This has been hallmark of Applied Materials engineering, andI see that continuing. It's a thing we learned in silicon, we showed in displayfor the last 15 years. We have driven down the cost, helped our customers drivedown the cost of displays by 20 times to improve productivity. Now, we areusing the same capability in solar, and so I'm very confident we're going to beable drive our roadmap and be very aggressive on moving the cost down.

And can you capture some of thatimprovement through --

We'll see how the servicecontracts are structured. It will depend on the specific customer, but we likeperformance-based contracts. We have performance-based contracts today in thesilicon area. That means we can apply our technology. It's a win for us, it's awin for our customers and that's the way we like to schedule our contracts.

Great. Thank you so much.

You bet.

Operator, we have time for onemore last quick question and then we'll make our closing remarks.

Our final question comes from theline Edwin Mok with Needham and Company. Edwin Mok - Needhamand Company: Thanks for squeezing me in. Justa quick question on the $116 million for SunFab, you guys have said before youare going to have seven lined up in running by sometime this year, are weexpecting due to recognizing level of revenue for those otherwise?

Our outlook really hasn'tchanged. We've said that we expect to book during this year; that we anticipatesome revenue at the end of this year but the bulk of the revenue for thecontracts that we are signed in '07 will be in early '09. Edwin Mok - Needhamand Company: Maybe a different way to askthis, sorry, just in terms of booking, you guys said you booked $106 million,but just one time?

Right. Edwin Mok - Needhamand Company: So you have six more lines inthis year, I mean, you don't book six times?

Those orders represent more thanone order. Edwin Mok - Needhamand Company: I see. Okay. Thanks for that,guys.

Okay. Thanks, Edwin and I thinkjust a clarification what we've said, we will ship seven lines by end our Q3.And just a final note, I'd just say, if you look at the orders we reportedtoday and the targets we set, it really reinforces our confidence in thestrength of our strategic direction. Applied is focused on execution in 2008.We're going to keep that focus and even in a difficult economic environment we'regetting the results and building terrific momentum. Thank you all for attendingtoday and look forward to talking with you in three months.

We would like to thank you forjoining us on our discussion today of our financial results and we would liketo remind you that a replay of this call and the supporting slide package willbe available on our website starting at 5 pm today and will remain posted untilFebruary 27th. Thank you for your interest in Applied Materials. This concludesour call.

This concludes today's conferencecall. You may now disconnect.