: James Covello, Goldman Sachs Timothy Arcuri, Citigroup Suresh Balaraman, ThinkEquity Partners Gary Hsueh, CIBC World Markets CJ Muse, Lehman Brothers John Pitzer, Credit Suisse First Boston Brett Hodess, Merrill Lynch Jay Deahna, J.P Morgan Steve O'Rourke, Deutsche Bank Mark Bachman, Pacific Crest Securities Mark Fitzgerald, Banc of America Stephen Chin, UBS Tim Schulze Melander, Morgan Stanley

Good afternoon ladies and gentlemen and welcome to the Lam Research December Quarter 2005 Financial Results Conference Call. At this time all participants are in a listen-only mode. Following today’s presentation instructions will be given for the Question & Answer session. If anyone need assistance at anytime during the conference, please press the ‘*’ followed by the ‘0’. And as a reminder this conference is being recorded today January 18, 2006. And as a reminder this call is scheduled to run for one hour. I would now like to turn the conference over to Kathleen Bela, Director of Investor Relations. Please go ahead. Kathleen Bela, Director, Investor Relations: Thank you Rob. Good afternoon and thank you for joining us to discuss the financial results for the quarter ending December 25, 2005, and the business outlook for the March quarter. Our press release today cross the wire, business wire at approximately 1:50 pm California Time. We are webcasting a slide presentation in conjunction with today’s commentary. The presentation can be accessed through our website at www.lamrc.com. Here today are Stephen Newberry, President and Chief Executive Officer, and Martin Anstice, Chief Financial Officer. Except for historical information, the information Lam is about to provide and the questions Lam answered during this call may contain certain forward-looking statements including but not limited to statements that relate to the Company’s future revenue and operating expenses, management's plans and objectives for future operations and product development, management’s plans for continuing the Company’s stock repurchase program, global economic conditions including consumer sentiment and customer standing and the demand acceptance and competitiveness of the Company’s products. These statements are subject to various risks, uncertainties and changes in conditions, significance, value and effects that could cause results to differ materially and in ways not readily foreseeable, and which are detailed in the company’s SEC report. We encourage you to read those reports in the entirety. Lam would also like to disclaim any obligations to correct or update any of the information we are about to provide. This call is scheduled to last one hour. We ask that you to please limit your questions to one per firm. I will now turn the call over to Martin for a review of our financial results. Martin Anstice, Chief Financial Officer: Thank you Kathleen. This afternoon we will discuss our December 2005 quarter financial results. Highlights today include significant growth in new orders of 24% sequentially, increased R&D investment to support targeted revenue growth, strong operating income at 21.5% of revenues made possible by our responsive business model, leverage, strengthening earnings and a corporate finance strategy that combined have resulted in an expectation of a lower fiscal 2006 tax rate of 21.5%, and sustained operating asset managements in an environmental ramp driving cash from operations of over $100 million. New orders entered into backlog for the quarter were up 24% at 403 million. Adjustments into backlog were a net positive 11 million reflecting our revised estimates for demand under spare part contracts. The customer environment is clearly more buyers to pull-ins on a compressed schedules at this time. In view of that we are pleased that our operational capability and the response from our suppliers continuous to allow us to respond quickly and efficiently to these inflection points in the cycle. 300 millimeter applications represented approximately 79% of total systems new orders, the proportion of order that less than or equal to the 90 nanometer technology node with 85%, against on a guidance of up 5% to 10%, the 24% growth in new orders reported today, we geographically concentrated in Korea, and Japan. For the quarter our systems new orders market segmentation comprised memory at 80% ID and logic 15% and foundry other at 5% of the total. The split of memory new orders was approximately 55% flash and 45% DRAM. Revenue of $358 million up 12% sequentially slightly exceeded the high points of our guidance range. On increasing customer demand, shipments in the quarter accelerated beyond our initial expectance up almost 40% sequentially to 392 million. The ending unshipped backlog moved higher to 404 million. For more complete details on the geographic breakdown of orders and revenues please see today’s press release on our website for a reconciliation of new orders, shipments, revenues, deferred revenues and backlog. Worthy of note this quarter was responsiveness and leverage of the business model, particularly the gross margin line. It is very satisfying to see that having trended off $354 million in revenues and 49.7% gross margin in June ’05 to $321 million revenue and 48.6% in September ’05. We have immediately returned to a 49.5% gross margin on the $358 million revenue reported today. We have continued to target higher R&D investments focused on supporting the Etch growth and new product growth opportunities previously discussed. Steve will characterize for you in a little more detail later, our expectation of this trend continuing in the coming quarter. For December we guided total company equity compensation tasks of $8 million to $9 million. This increase reflected our then current intentions to grant equity to certain executive officers in the company. We have not made that grant and consequently total company equity compensation costs were $6 million. The company is in the process of modifying the executive compensation plan and stock ownership guidelines for certain executives, required disclosure of those changes will be made in our future 10Q and 10K reporting. Turning to some specifics of our corporate finance strategy, I had previously articulated a fiscal 2006 full-year tax rate expectation of 27% plus or minus one percentage point as outlined in our past 10K disclosure. In fiscal 2002 we implemented certain conservative and responsible strategies to limit our tax liability on the sale of our products worldwide. In this quarter resolution was reached on a number of rulings related to our foreign tax holiday that is a reminder is effective for a period of 10 years ending 2013. In addition our business and earnings environment is clearly trending positive which combined with our international jurisdiction mix have the effect of improving our expectations of the fiscal 2006 tax rate to 21.5%. Although this rate has the potential to change as our business volumes, customer mix and future tax negotiations conclude, we target over the next 3 years an effective tax rate each year of less than or equal to 25%. A final note on taxes. In understanding our reported financials today, please note that all other things being equal at the guided tax rate of 27% our December ’05 quarter EPS would have been $0.44 compared with our guidance range of $0.34 to $0.39. Cash from operations was $111 million this quarter, completing the second sequential calendar year of sustained strong economic performance. Free cash flow for the calendar 2005 year was $375 million compared to GAAP net income of $253 million. In the quarter we received $62 million from the exercise of employee equity plans and we used $62 million to repurchase 1.85 million shares at an average price of $33.50. The total cash balance including restricted cash was $977 million at the end of December. Deferred revenue and deferred profit balances both increased to $161 million and $98 million respectively. These balances exclude approximately $46 million of anticipated future revenue value for shipments made to Japanese customers where title has not yet transferred. These shipments are currently recorded as cost in inventory. In the quarter capital expenditures were $5 million, depreciation and amortization was $5 million. At the end of the period, net fixed assets were $42 million. As we invest in our growth employment levels increased meaningfully for the first quarter in almost 2 years by approximately 50 to close in the mid 2200 level. Now we’ll move to Steve’s comments. Stephen G. Newberry, President, Chief Executive Officer: Thank you, Martin, and thank you all for joining us today. I am going to cover the following topics on today’s call. I am going to comment on the December quarter and the market share gains that are behind the growth in new orders. I’ll provide our industry outlook for 2006 including our spending forecast by market segment. Then I’ll present a financial model for our calendar year 2006 based on the scenario using an assumption for capital expenditures, wafer fab equipment spending, the Etch shipped market and our market share gains achieved in 2005 which will manifest themselves in 2006. Then I’ll conclude with guidance for the March quarter. I am very pleased with the Company’s performance throughout 2005 and in particularly with the results of the December quarter which demonstrated our ability to deliver the profitability and cash generation that Martin outlined in his remarks. I am particularly pleased with our growth in new orders in December, this is a result of our new application wins throughout 2005 that I have spoken of, which have resulted in an acceleration of bookings as those wins turned into volume orders. We had 9 new application wins in the first three quarters of 2005 and we were targeting 5 to 7 additional new application wins in December. We were successful in winning 6 of those targeted new applications and taken together these 15 new wins last 4 application losses in the year have resulted in an increase to our booked market share for 2005 to 40%. As we go forward, we expect 10 to 12 net new application wins in the first half of 2006 leading to overall booked market share growth up 43% to 44% in 2006. Turning to our outlook, for 2006, we expect demand for electronic products to remain strong, supporting our outlook for semiconductor revenue growth in 2006 of 12% with unit growth slightly higher. We’re expecting similar end market growth drivers to carry over from 2005 into 2006 such as cell phones, PCs, MP3 players and digital TVs as well as game consoles. Lead times in the semiconductor device industry remain short from a historical perspective as end market customers keep a tight lease on inventory. Early indications are at the inventory at the end of 2005 is at healthy levels for the industry. Exceeding 2005, the trend for factory utilization is up with capacity additions and wafer output RAMs schedule throughout 2006. Our outlook for 2006 capital spending is for growth of approximately 7% to 10% bias toward the higher end in light of the recent announcements by Intel, Powerchip and ProMOS and with the spending emphasis being on equipment to support production growth. We are currently forecasting wafer fab equipment to grow around 15% to 17% and for the Etch market to grow faster than the wafer fab equipment market coming in at around 22% to 24% higher in 2005. Now for our industry outlook by market segment, let’s start with the foundry market, we believe over capacity issues that impacted foundry spending for equipment in 2005 have now been corrected. We see an aggressive move to 90 nanometer technology from fabulous companies like Qualcomm, Nvidia and ATI from IDMs (ph) migrating to a fabulous strategy and from the emerging game console products cycle which is beginning to put a significant load on advanced capacity in the foundry. The new key foundry customers are expected to be aggressive in the qualification of 65 nanometer processes with at least half a dozen of these fabulous companies committed to generating revenues from 65 nanometer devices by the end of 2006. Foundries will lead to invest for this demand and we are expecting spending on equipment to increase by more than 50% to 60% in 2006 compared to the under invested level, we saw in 2005. The $5 billion wafer fab equipment forecast were foundry spending should be in balance with the end-market demand and although this level is still notably below the $8 billion spent in 2004, it is moving closer to the average run rate of spending we would normally expect from the foundries. For Lam, foundry orders will grow strongly in the March quarter to approximately 21% of orders. We expect to see continued growth in the memory sector. The outlook for NAND Flash is excellent with forecast calling for this market to see a 150% to 200% big growth compared to about 55% big growth for DRAM. An increased focus on the NAND flash market should stabilize the supply-demand cycle in DRAM for the near term. We are expecting wafer fab shipments into the memory sector overall to increase approximately 15% in 2006 with investment in NAND Flash to grow roughly 80% to 100% while investment in other memory categories is flash. As well as Lam is positioned in the, excuse me, as Lam is well positioned in the largest NAND Flash producers our memory business remains healthy. We have also gained significant market share in the expanding memory fabs in Taiwan to go along with our greater than 50% market share in NAND Flash. Our orders strengthened memory is expected to be solid again in the March quarter at around 50% of our total new orders. As for the remaining logic in IDM market we see strong growth in bookings driven by 300 millimeter expansion plans for us especially coming out of Europe and Japan. Overall, we expect wafer fab equipment shipments into this segment to increase about 10% and for the March quarter we are expecting our orders from logic and IDMs to more than triple from our December rate and account for approximately 30% of the mix. Now I would like to plaid some perspective on our potential performance in 2006 through a financial model built around a scenario of 10% CapEx growth, which results in 17% wafer fab equipment and 23% ex-market growth. Factoring and our four points of market share gain to 41% under this scenario our revenue would grow about 30% to about 1.8 billion at that revenue level we would expect that at least one quarter at or above 30% operating profit achieved by leveraging our business model in global infrastructure. Consistent with our progress in the past 2 years, we would also expect in this scenario strong cash from operations of around 500 million closely aligned with our profit before tax. This model includes equity expenses, assumptions and a continued robust investment in new development in the Etch Strip and Clean. I will now provide guidance for the March quarter. Guidance on marginal earnings includes the impact of equity based compensation. We expect new orders to increase approximately 25% to 30% over December levels. Shipments will increase approximately 30%. We expect revenues in the range of 410 million to 430 million with gross margins increasing to around 50.5%. Operating expenses will increase to approximately 110 million which combined results in approximately 24.5% operating profit and a 40% incremental operating margin flow through at the midpoint of the revenue guidance. Earnings per share are expected to range between $0.57 and $0.63 on a share count of 142 million. I would like to close my comments by thanking and congratulating our employees’ outstanding quarter and year. Their dedication to our customer success and the company success is truly commendable. With that I would turn the call over to Kathleen for the Q&A Kathleen Bela, Investor Relations: Thank you operator you can begin polling for the questions.

Thank you. Ladies and gentlemen at this time we will begin the question and answer session. If you have a question, please press the “*” followed by “1” on your telephone keypad. If you like to decline from the process you may press the “*” followed by the “2”. You will hear a three tone prompt acknowledging your selection and your questions will be polled in the order they are received. If you are using speaker equipment you will need to lift the handset before pressing the numbers. Also please limit your questions to one question and a follow up. For additional questions please re-queue using the “* 1” feature. Our first question comes from Jim Covello with Goldman Sachs please go ahead. Q - James Covello: Good afternoon thanks so much congratulations on terrific results and guidance this is about the most bullish I’ve ever heard a semi equipment company on one of the calls, couple of quick questions for the NAND investments for 2006, I hear you say the -- you thought would be up 100% year-over-year in CapEx. A - Martin Anstice: In wafer fab equipment spending we expect that the amount invested in 2006 for NAND Flash will be 80% to 100% more than they spent in 2005. Q - James Covello: So one, so a follow up there, when there is only a couple of producers of NAND Flash globally, one of them already gave us some guidance on the CapEx. Now, you know, they gave CapEx, and they gave some commentary around wafer fab equipment, so wasn’t exactly, you know, there is some interpretation to be made. But, you know, we are kind of indicating flatter up a little bit, they were pretty big spender. So, you know, I would imply everybody else is up a couple of hundred percent in terms of wafer fab equipment to get the whole market out about 100%, is that am I missing something? A - Martin Anstice: Well, I think that one, you know, specific adds that relates to Samsung’s comment, that while their total capital expenditures was going to decline slightly or at least forecasted to the percentage of their spending in terms of wafer fab equipment was going to be higher and clearly they are going to be targeting more of that spending in NAND Flash in ’06 than they did in ’05. I think if you look at the NAND Flash players that existed in ’05, the numbers are increasing in ’06. You have the IM Flash Technology joint venture with Intel and Micron. You have Hynix making significant additional investments. Powerchip just announced that they are intending to double their CapEx with an additional billion dollars targeted at a flash fab, and I would expect 70% of that billion dollars to go into wafer fab equipment. ST is accelerating it’s investment in the NAND Flash segment. So you have both the existing players continuing to make strong and increased investments in 2006 and you have the number of players that are coming to the market in 2006 spending much, much more than they did in 2005.

Thank you. And our next question comes from Timothy Arcuri, with Citigroup. Please go ahead. Q - Timothy Arcuri: Hi, actually I had two things, I guess the first thing Martin is, you know, if I look at the guidance and I compare to what the results were 9 months ago, you know, the revenue roughly the same, you know, if I look at December results versus March quarter results. The revenues are almost the same but the margins are a little bit lower and R&D is up about 17%. Can you help explain is the entire increment in R&D on these new products? A - Martin Anstice: It’s not quite as simple as that obviously in the comparison you are making Tim, because before the September ’05 quarter obviously there is no equity base compensation in the P&L. So the first part of the story comparing to March or December where arguably you could ask the same question, is that in today’s P&L there is a $6 million of equity compensation that wasn’t there in the prior period. To your point we have made some very specific discretionary decisions to increase our investment in R&D, and I think I’ve sized those as round about the $5 million level per quarter, that’s what we targeted and it took us a little longer to kind of get to that level, you remember in September we didn’t spend quite as much as we guided, but we essentially got December dead-on at the, at the $100 million level. In terms of margins, I think there is a very different story. Obviously in December ‘04 and March ’05, the shape where we were on the curve, was quite different, right we’re on a curve that was coming down in terms of investment which means we have the opportunity to leverage coming down. We clearly today are at an investment point. So, at revenues of the 350 level, we have shipped 390. So depending away you are on the curve, the cost structure of the company is always kind of dealing with that point of inflection. So, that’s kind of part of the margin story, the other part of the margin story, that I think Steve spoke to you in the last call, is that clearly in December ‘04 and to a lesser extent March ’05, we had some really phenomenal customer mix configuration choice dynamics it really helped us in margins terms. And about 3 months ago, we said very specifically that as we were increasing, and rapidly expanding the base of shipments of leading edge products, we were under some amount of pressure initially, but expect to kind of turn that around through the year. And the headline of this earnings call obviously as we did better than we originally targeted by about a percentage point. Q - Timothy Arcuri: No, sure, sure, I guess I’m just wondering, you know, it just seems like the incremental margins are kind of coming -- coming down here, you know, we are at the heart of the cycle, and it seems like that, you know, margin leverage is not what it could be, you know, you weren’t investing in these new products. So, I guess, I’m just trying to figure out what’s going to take the model to the next level? A - Martin Anstice: No, I mean, I’m not sure I would conclude what you are concluding Tim. I think you know relative to were if we go back to November of 2004 when we first put some models out there for profitability for the company, we put out two models one of the year model, and I think we were on a dead-on in terms of the revenue, and better in terms of profitability. We also said if we have a $350 million revenue quarter margins would be around 48%. So we are, you know, very, very pleased with the margin performance in terms of operating income the same is true. So, Tim we’re just starting into the acceleration in this cycle. And we will be growing on a gross margin and more importantly as I commented in the financial model, if we get the kind of spending that we expect, we will be going from an 18.5% operating income percent in the September quarter to 30% operating profit sometime in the 2006 timeframe if that scenario plays out. I think that’s pretty good leverage and I think that that’s speaks to the fact that there are significant earnings to be coming forth in the future.

Thank you. Our next question comes from Suresh Balaraman with ThinkEquity Partners please go ahead. Q - Suresh Balaraman: Thanks. Steve in general you guys have rarely given guidance beyond one quarter, and now you are making bullish projections for a whole year, and even though the Japanese budgets for next fiscal, for fiscal’07 will not be known for another 2 or 3 months, what has changed that gives you this much confidence and visibility? A - Stephen Newberry: Well, I think you need to be very careful at your assumptions. I gave guidance for the March quarter. What I did was give you a picture of what 2006 could be like under a set of assumptions. Yes, wafer fab equipment is up 17% on a CapEx increase of 10% then those numbers that I laid out is, what you would expect to see. So I have presented you a model of how we would expect to financially perform against an assumption not a forecast, but an assumption of what would happen should wafer fab equipment spending be 10%. So, I think that’s a significant difference, and I think that you have to draw your own conclusions about what you think the CapEx spending, and the wafer fab equipment spending environment will be, but as you make those assumptions, and you do your calculations I want to give you a feel for how we think we would do in a 10% CapEx increase spending environment. Q - Suresh Balaraman: Okay and any thoughts on how Japan would be -- those in terms of that assumption that you have? A - Stephen Newberry: How do you, I’m sorry, how do Japan will do what? Q - Suresh Balaraman: In terms of CapEx spending for ’06 versus ’05? A - Stephen Newberry: We typically, the Japanese as they go through their cycle which really comes about in the March, April timeframe there has not been any particularly new information that’s coming out of Japan, which is not unusual. The assumption is that if we look at the health of the end demand markets, and the positions of the major Japanese semiconductors that have been spending for equipment and adding capacity, the expectation is that they will be spending in a similar amount to what they spend last year. And like I said, our official forecast for CapEx is somewhere in that 7% to 10% increase spending and that assumes a Japan that’s relatively flat year-over-year. Q - Suresh Balaraman: Great thanks.

And our next question comes from Gary Hsueh with CIBC World Markets. Please go ahead. Q - Gary Hsueh: Hi, just want to clarify, under those assumptions, Steve that you kind of outlined 10% CapEx growth, 17% wafer fab, with market share gains you believe that Lam could grow in calendar ‘06 by 30%, or was that 27%? A - Stephen Newberry: Yes, the assumption that I laid out is, if CapEx grows 10%, then I would expect that with our market share gains that I believe will occur has a function of the applications wins that we achieved in 2005, that we will grow by about 30%, and that, in that 30% growth that would take us to about 1.8 billion from the 1382 that we revenued in 2005. Q - Gary Hsueh: Okay, but if I look at your bookings guidance for March its just kind of around 500, or 510, I think this suggest basically kind of a peak bookings quarter already, and if I kind of drive bookings sequentially down in June, September, December I can kind come up with 30% growth for bookings in ‘06 over ‘05. So, does it suggest that bookings will be down in June? A - Stephen Newberry: No, I think in fact from what we can see right now, I would expect that June in fact would be up from March. And so, I think that if you, you have to remember there will be a book-to-bill ratio, and typically in a strong upturn environment back in run 1.05 to 1, can run 1.1 to 1 and so, remember also that if you have a bookings environment at a certain level, a shipment environment at slightly less than your bookings, or maybe somewhat equal depending upon how fast we can turn it, Lam is in SAB 101 revenue upon acceptance company, and there is a delay that will occur to some degree that will have our revenues slightly lag from our shipment output levels.

Thank you. Our next question comes from CJ Muse with Lehman Brothers. Please go ahead. Q - C. J. Muse: Yeah, good afternoon, two questions, first. In terms of the 6 of the 7 wins that you outlined for December, and the 10 to 12 that you are targeting for the early part of ’06, could you give an outline of what percentage came from Japan? A - Stephen Newberry: Well I think, what I would rather do if I could is, try to give a little flavor for the application wins and total for the 2005 year as a whole. And those wins came on a worldwide basis. There were a number of wins in Japan. There were wins in the US, there wins in the Taiwan, China and Korea. When we look at the first half of ’06, you have the same pattern. There will be wins expected in Japan, Taiwan, China, Korea, Europe and United States. So, these are broad-based, they go across the memory, foundry and logic idea, and they really represent that if we are successful to the extent that we believe we will, that our book market share in 2006 will approximately 43%, or 44%. And so, as a function of that high of a market share, you would expect that it’s a very broad-based penetration across a number of market segments. Q - C. J. Muse: Gotcha. And second question, I guess given the market share gains in ’05 and presumably some of those contracts coming up off 1Q, can you talk a little bit about how you see your spares in the service business growing in ’06? A - Stephen Newberry: But we think that wafer starts are going to be strong. And that with unit growth up 13%, 14% we are going to have wafer start growth about 10%, 12%. So, we think our spares in our service business will grow as a function of that environment. We also expect that some activities that we are doing to work with customers on increasing our support level in the fab to increase their optimum utilization of our equipment, maximize the availability, lower the cost for wafer, along with we are, and have been successful over the past 6 months in winning back market share in our spares consumables area, where some of the low-cost country, local supplier had taken some share away in the year before that, we had been successful and wining some of that back. So, I would expect that we would see our spares in service business grow 20%, 25% next year.

Thank you. And our next question comes from John Pitzer with Credit Suisse First Boston. Please go ahead. Q - John Pitzer: Yeah, good afternoon guys. Steve nice results, couple of questions here, first, your assumption that Etch grows faster than WSC this year, is that just based upon the fact that Etch always grows faster in upturn, or is there something else, and then I have a follow-up. A - Stephen Newberry: That’s a good question. We’ve done a study going back really 20 years of the past cycles. And what you see is a very consistent trend, in a downturn Etch will have less money spent on it, in an upturn you will have more money spent on it. So, when we saw that we said well, what’s really the reason behind that? And much you have is that Etch is a critical yield enabling tool, and it’s a very difficult, it’s a tool that has to deal with some very difficult application steps. Customers want to make sure in an upturn environment that they do not run out of capacity to get through their Etches. It’s somewhat of a similar pattern but to a lesser degree than you see in total photolithography. I mean if you don’t have your photolithography tools in your fab, and what you can ramp into, you are going to run yourself to a grinding halt. And so, Etchers in an upturn are purchase that slightly higher rates, in our case we believe that they go from being 12% of wafer fab equipment to about 12.6% of wafer fab equipment. And we expect that will be exactly the trend that we see as we go into this capacity ramp. Q - John Pitzer: And then Steve as a follow-up question, you talked a little bit about June visibilities and you said that the thing which you see today June is probably up. Can you at least qualitatively tell us why you think that, and I think that, I asked the question but I think that’s just board poorly for the second half bookings momentum for the calendar year? Thanks. A - Stephen Newberry: Well, everybody wants to know if they could what September and December we’re going to do. And the reality is in this business, we are normally operating where as we can see what’s going to happen in the quarter we’re in. We’re happy. I think what happens in some of these upturn environments is that you do tend to get, more visibility out to a little longer, as a function of the fact that lead-times begin to move out some, customers get nervous about making sure that the supply chain is going to be support them, and so you certainly have a lot more conversations that, or talking about what customers would like to do in terms of equipment deliveries over a longer period of time. So that’s why I can talk about the direction of June, I am not going to talk about the specifics of June because there is still a fair amount of time to go in terms of how June will exactly shape up, but clearly if what occurs in fact and that’s what we see today if that’s what occurs then June will have higher bookings than the March quarter. Q - John Pitzer: What is that mean for the second half? A - Martin Anstice: I don’t know. I mean one of the things that we look at clearly because we try to understand those kind of things as you do is, what’s the demand environment that is likely to be present in 2007. What’s happening to the -- the amount of total capacity that’s going into the industry, how is that stacking up against the demand environment and what’s happening to the, the ratios of wafer fab equipment investment as a, as a percent of semiconductor revenue and because most people believe that 2006 is going to be a 12% type semiconductor revenue environment. We had very modest wafer fab equipment investment in 2005. We are going to have a stronger wafer fab equipment environment at 17%, by historical means that’s not some super strong level of investment we’ve clearly seen periods where wafer fab equipment investments gone up 40% or 50% year-over-year. And so when you look at the investment that might occur around a 10% CapEx, and 17% wafer fab equipment, it does not take the financial metrics and the efficiencies and productivities that are needed in the industry, they don’t take them out of luck. So, I think that we are in a situation where clearly we were accelerating off of where we were in the June and September timeframe, but I don’t see that this acceleration is getting, getting out of hand and I think that if -- if things continue to be healthy on a global consumption situation then we should expect that the second half of 2006 will be fine.

And our next question comes from Brett Hodess with Merrill Lynch. Please go ahead. Q - Brett Hodess: Steve, two questions. First on the, you talked a bit before about the breadth of the new application wins across the different customers, are there particular product areas you are doing better in your dielectric versus metal or poly, and there is other specific applications in dielectric for instance that are, that are, you are seeing the best leverage in. A - Stephen Newberry: Well, clearly we have been targeting how to increase our application wins in the dielectric market as it represents 60% to 65% of the total expanding in Etch. We’ve been pleased with the progress that we’ve made in winning a number of dielectric applications. And we clearly saw a market share growth in dielectric. But, we still invest a significant amount of money and people’s time and effort into the conductor market which for us is both the silicon and the metal market. And we had a number of important application wins in both of those areas. But, it would be fair to say that the majority of those application wins in 2005 were dielectric, and I think we will see a similar pattern in 2006 as the dielectric market share represents a greater opportunity for us than the very high market share that we already enjoy in poly silicon and metal. Q - Brett Hodess: And the quick follow-on Steve was, can you give us some kind of qualitative feel for when we might see the some of the new strip and clean products you mentioned earlier? A - Stephen Newberry: We are, I would expect that in our March analyst meeting, we didn’t say that. A - Martin Anstice: Not formally though. A - Stephen Newberry: Okay, all right so I guess this will constitute some kind of communication that we are planning to have in an analyst conference in March in Shanghai, China. And we have to get that official I think here shortly. But at that time, I want to talk more specifically will have our product group management team, and our technologist there. We are going to talk about our business opportunities both in Etch but also into the Strip and Clean market. Talk more specifically about the applications that we are targeting. We will talk about the size of the market opportunities. And we will look at, and how we see our business model shaping as a function of these new product activities. And we will layout a roadmap so to speak of what we would like to do over the next 12 to 18 months with these products. So maybe this is the classic teaser good reason to tune into our March meeting. I think of there will be some great information for you there.

Our next question comes from Jay Deahna with J.P Morgan. Please go ahead. Q - Jay Deahna: Thank you and good afternoon I have got two topics I would like to discuss. The first one is memory. I believe you stated in the past that your share in flash for total Etch is over 50%. I am wondering what it is for DRAM and I think you mentioned in your prepared remarks, something about gaining share with Taiwanese memory suppliers. And the follow-on to that is our understanding is that Micron, Samsung and Hynix are spending a lot of money on flash this year, high percentage of their CapEx. But as we roll into the back half of this year and then into next year there is going to be digital DRAM, which is going to be a DRAM PEG. So, I am just wondering, are you going to see, you know, exceptionally strong order for flash in the first half transitioning into over DRAM centric scenario in the second half and then I got another topic to follow up on. A - Martin Anstice: Okay, yeah I talked about our market share in the NAND Flash segments greater than 50%. Our market share in DRAM is less than that, it’s in the mid to low 40s and we are expecting that if we continue to make good progress, and some of the memory DRAM manufacturers that we can see that number move up in 2006. But there are some decision points that have not yet been made, so we are in that low 40s percent for DRAM. As it relates to what the kind of breakout might be as you look at spending for the quarter. Certainly in the December quarter there was some significant NAND Flash ordering. I think that we are going to see some continued investment in the March quarter, and I think we will actually see in the June quarter, a good strong investment for memory and that will be both the mixture of Flash and DRAM. In terms of the second half, again you have this kind of visibility problem in terms of what’s really going on, but historically the December quarter is a major ordering quarter for the memory manufacturers, its done that for the last two or three years and so I think that we’ll see a sustained level of investment for memory, mixtures of Flash and DRAM throughout the year, but its too early in the year to really know for sure what will the memory investment be in the second half. Q - Jay Deahna: Are your customers talking to you about long range planning for the potential impact of big growth acceleration in DRAM next year? A - Martin Anstice: Most of our customers are very focused on what’s happening in the near term. And as you know, the activity in the NAND Flash area has presented some tremendous opportunities and you have certainly a lot of companies ploughing into that space. And you know one the interesting things is that when you look at the customer base, and how the NAND Flash market lays out, for a semiconductor company they’ve got maybe a 100 different outlets in terms of how they can sell their NAND Flash devices. When you look at the DRAM market, it’s selling into maybe 5 major players who have enormous control of the pricing environment and the balancing of supply and demand. The NAND Flash market is a market that the applications are just emerging. I think many people who looked downwards coming out of the consumer electronic show clearly got a hint of some new flash applications that are being designed in that if they occurred in a reasonable timeframe like instant on ARM PCs. The amount of NAND Flash that would be absorbed would make what’s currently being produced throughout. So, I think we are entering in era, and what our customers do talk to us about is they are very bullish about the multiyear expectation of significant ongoing demand in NAND Flash in particular but memory in general.

Thank you. Your next question comes from Steve O'Rourke with Deutsche Bank. Please go ahead. Q - Stephen O'Rourke: Thank you. It’s just a follow-up on a line of questioning here tonight. When you think about short lead times, the flexibility in business models particularly yours, do you think the equipment industry is kind of showing a measure of seasonality that nearest maybe anticipates the semi industry? A - Martin Anstice: No, I think certainly the equipment industry as a whole and the supply base that serves it have enabled over the last few years to really shortened up the cycle times, and have really increased the ability to respond half of the given base by ramps of 30% to 50% in 3 months to 5 months timeframes. What this has done is certainly created a much closer linkage to what the semiconductor companies are trying to do, and their response to their customers, who are clearly shortened up their lead times to them. So that the whole entire supply chain by being shorter and faster, I think actually creates the opportunity for us to stay in better balance relative to supply and demand. When we have lead times that go out 6 months and 9 months and we have the huge backlogs. And we’ve got customers having to make investments in filling out wafer fab shows, and spending that money all well at advance of really knowing how well that their customer demand will holdup. As we’ve shorten the whole process, I think its one of the reasons that we saw the cycle in ’03 and ’04, be one that ramped up, got itself in sink with the demand environment and then, slowed down, but relatively modest slow down, stayed in balance relative to supply and demand. And I think that if we can keep lead-time short that we are going to have an opportunity that we will end up with these massive over shoots of excess capacity which then results in huge problems in spending a year, or year and half, or two years to absorb that excess capacity. Q - Stephen O'Rourke: Okay. And you gave us a fairly strong picture of 2006 and made it very clear that they were assumptions and not a forecast. Can you handicap the confidence level that you have in your assumptions? A - Martin Anstice: Well… Q - Stephen O'Rourke: Or I would ask it different way? A - Martin Anstice: I mean, let me put it this way. I don’t know whether or not CapEx will go up 10%, because there is just too many variables that could lead to that being higher or lower. But, what I do have a high level of confidence in, is if CapEx goes up 10%, and if wafer fab equipment goes up to 17%, and we get the kind of increased investment in Etch and so that the Etch market grows 23%. So, if you just say if that’s what happens, what’s my confidence level that things will play out in terms of that financial model that I laid out? I have a high degree of confidence, that it’s, that’s the level of spending we get in 2006. Those are the kind of results you are going to see from Lam Research.

Thank you. Our next question comes from Mark Bachman with Pacific Crest Securities. Please go ahead. Q - Mark Bachman: Hi Steve, you mentioned 4 application losses in 2005. Can you discuss the difficulties that you face during these negotiations, and maybe some of the primary reasons why, why you lost that business? A - Steve Newberry: Well, I think like in, in any competitive situation, we, what I define a loss it’s where the production to a record and when I define a win, it’s the competitor was and we kept it away from them. Etch is a very difficult business. Each of the customers have a very unique structures, and designs, and different film stacks. And in a couple of cases, that as they we change technology nodes, we had difficulty in getting our current configuration of hardware and in process recipes to meet the needs that the customer had as they change their phone structure at the next technology node. Most customers keep other suppliers with chambers that are in various stages of evaluation. And so, where we lost, it was a place where our competitors were able to deliver the customer solution. The customers felt that the solution work better for them. And the problem for us was we just didn’t get them to solution faster enough. Now, in two of those four cases, we’ve been able to demonstrate that in fact even though it took us a little bit longer, we now have a superior solution, and we may very well win back that market share position. But, I think it’s only appropriate that if I am going to talk to you about the wins we have, I think we have to acknowledge that. We don’t win every single thing that’s going on out there, but at the end of the day, if we are winning a lot more than we are losing, then it says that’s a competitiveness of the tool. And the differentiated capability of both the tool and our people’s capability is still strengthening relative to the competition. Q - Mark Bachman: Okay. I guess that will leave me then to my follow-up, you also discussed 10 to 12 new applications here; you expect to win in the first half of ’06. Can you give us some more color on those, maybe the types of applications, and the end-markets that they serve? A - Stephen Newberry: I will give you only a very brief kind of broad-based overview for a couple reasons. One is, I don’t want be altering (ph) my competition to the fact that there maybe greater risk, than they have realized. And so, those specific applications in customers, I am not going to talk about. Second is, in March, we will be providing more color on specific aspects of the market, where, when we look at our technology, when we look at our product offerings, we want to help people understand better, why had we’ve been winning, why are we still winning. When we look at next generation tool sets at the 65-nanometer and 45-nanometer node, as we are shipping those Flex 45 dielectric tools, the Kiyo 45 conductor tools, we want to help give people a better flavor for, why those tools with there technologies are going to be very successful not only defending our position, but also continuing to increase our market share capability and so we will talk about that more in March.

Thank you. Our next question comes from Mark Fitzgerald with Banc of America. Please go ahead. Q - Mark Fitzgerald: Yeah, two questions here. On, given that NAND 50% of the mix, and it’s a big seasonal market for demand, you know with these iPod’s and camera selling largely at Christmas timings, Chinese New Years, if you are a chip manufacturer, why won’t you order very aggressively install in the first half, and then cut it off in the second half? A - Martin Anstice: Well, I think you probably have to ask them to give, because I think they could give you a better answer in terms of, you know, how they plan their investments, their use of their capital dollars, and when they want to put capacity and at what timeframes. I think the reality is maybe somewhat different than what you are characterizing, because its not that capacity additions only going in the first half, but certainly if we look at some of the seasonality aspects, if you get your equipment shipped in the first quarter, you get it up and qualified in the second quarter, then you are in a outstanding position that as the demand market unfolds for that next year, you can wafer start an output right into that demand environment. So, certainly a portion of that make sense relative to the Christmas seasonality. But the reality in NAND Flash is, it is a market that today is characterized, greater demand than what can be supplied in any given period in time, and that’s because the overall market continues to grow and it’s the far more dominant factor than the seasonality aspects of what’s going on in some other markets that are growing at slower rates, and therefore more mature and they are more subject to seasonality demands. Q - Mark Fitzgerald: Right. Then the second question is, you said your internal model is for 7% to 10% growth. I mean is that a bottoms up and do you have by identified capital spending per each individual company at this point. A - Martin Anstice: Our track, corporate marketing team in fact does that very thing. They’ve got every major and most, not so major semiconductor companies. We track every announcement, we track what they said they were going to spend, what they have spent. And so, that forecast of 7% to 10% is our estimate of what we think CapEx spending will be. And so, clearly we begin to position the company in terms of resources that we need in various places. Its why as Martin mentioned we added 50 people to our headcount, which for us is a very significant addition. We would anticipate that if things continue to expand over the year as we expect that we will add some additional headcount particularly in our field based engineering and technology capability. So yes, we look at this stuff very carefully, very specifically and break things down into wafer fab equipments spending by foundry, by memory segment et cetera so quite a detail analysis.

Thank you. Your next question comes from Stephen Chin with UBS. Please go ahead. Q - Stephen Chin: Great, thanks. Steve that strength that you expect to see from the foundry segment in the March quarter is the majority of that strength coming from one customer or multiple foundry customers contributing equally the strength? A - Stephen Newberry: There are multiple foundry companies in Taiwan, in China in which obviously are the biggest markets for foundry but multiple companies and multiple regions. Q - Stephen Chin: Okay, and just on the memory orders it looks like they will be down a little bit in the March quarter. Can you share with us an idea of how you think the flash versus DRAMs split likely plays itself out? A - Stephen Newberry: Well, in the March quarter, there is less NAND Flash spending or ordering and the ratio is actually pretty strongly DRAM, probably 75% of the orders are likely to be coming from DRAM in the March quarter and that could change obviously, but we had a big strong investment in NAND it will be stronger in DRAM in the March quarter and then I would expect that will see NAND Flash investment increase in the following quarters of ’06.

Thank you. Our next question comes from Tim Schulze Melander with Morgan Stanley. Please go ahead. Q - Timothy Schulze Melander: Sir, can you hear me, hear me? A - Kathleen Bela: Go ahead, Tim. Q - Timothy Schulze Melander: Let me try, can you hear me? A - Kathleen Bela: Much better. Q - Timothy Schulze Melander: Okay, great. Congratulations on the quarter, and also just on the open dialog definitely much appreciated. Two quick questions, the first is on the ASPs if you put us, could you just make a broad comment in terms of what the pricing trends are, that are up and down and against that should you maybe share with us how frequently you renegotiate pricing with your key supplies is it quarterly, semi-annually, annually and then I’ve got a follow-up. A - Stephen Newberry: Okay, first I before answer that I want to thank all of the folks who have had kind words and congratulations to -- to us it’s hard to sometimes to express that because if there is stocking going on, you can’t hear us say that, but I want to make sure that we all do appreciate the comments. As it relates to ASPs, the environment at this point in cycle is stable. I think that we typically are in a situation today that Etch is such a critically difficult activity that if you are getting a differentiated result from the wafer you are able to price for that value. So the reason for us it’s stable is that we continue to maintain a very competitive capability across our various Etch products. I would assume and what will happen for us is that we will continue to have some margin expansion as a function of it efficiencies and the factory we’ll also gain some benefits from our suppliers. While we have contracts with some of our suppliers that as the volume goes up and their cost down, they pass on additional savings to us on an annual basis with our suppliers, we have a global agreements with them, those contracts are setup with levels of business that are expected, and discounts from prior years that have enabled us to continue to stay very competitive on the cost side of the equation. And so I am very pleased with the suppliers they have -- they have been ramping their output, they have been maintaining their quality, their on time delivery is phenomenal, and maybe different than some people think, maybe it’s happening to others. But our suppliers do not rise prices to us in the upturn and part of that is contractual and the other is they want a long-term relationship with us because they see the benefits of that. Q - Timothy Schulze Melander: Great and then my follow-up is just, you had a number of questions, everybody of kind dealing with the sustainability of the up cycle, you mentioned two numbers which were CapEx plus 10%, WFE plus 17, can you maybe just share with us, what are the key assumptions that you see underpinning that sort of 1.7x close of WFE when compared to the for the CapEx numbers. Thanks. A - Stephen Newberry: I think, I already say 1.7x growth. Q - Timothy Schulze Melander: Yes, if you go 17% WFE compared to 10% CapEx it’s almost the WFE is almost growing twice as fast as the CapEx from the year-over-year? A - Stephen Newberry: Right, that’s fundamentally a function of on average. In down cycles in particular the investment percentage of CapEx that goes into wafer fab equipment drops into the 50, 51, 52% range. As biggest companies in downturns build ourselves, get their properties and plants kind of setup. In an upturn environment that percentage moves 55% of CapEx going to wafer fab equipment. Sometimes it can go as high as 56% or 57%. So the assumption of 17% wafer fab equipment growth is based on the assumption of 55% of that CapEx will go to wafer fab equipment and that’s how you get that increase in growth, and then if you take it to the next step Etch goes from being 12% of wafer fab equipment to 12.6% and that’s how you get Etch growth at 23%. So you can see the leverage that occurs in its quite significant half of a 10% CapEx.

Okay, thank you we would like to thank everyone for joining us on today’s call and we look forward to speaking with you again in the next quarter.

Ladies and Gentlemen this concludes the Lam Research December Quarter 2005 Finance Results Conference. Thank you again for your participation on today’s conference and you may now disconnect.