Steve Newberry - President and CEO Martin Anstice - CFO Carol Raeburn - Director of IR

Gary Hsueh - CIBC World Markets Satya Kumar - Credit Suisse Timothy Arcuri - Citigroup Harlan Sur - Morgan Stanley Jay Deahna - JP Morgan C.J. Muse - Lehman Brothers Steve O’Rourke - Deutsche Bank Jim Covello - Goldman Sachs Robert Maire - Needham& Co. Mark FitzGerald - Banc of America Tim Summers - Stanford Group Ben Pang - Caris

Good afternoon, ladies and gentlemen and thank you forstanding by. Welcome to Lam’s September quarter financial results conferencecall. (Operator Instructions) I would now like to turn the call over to CarolRaeburn, investor relations.

Thank you, operator. Good afternoon, and welcome to LamResearch Corporation’s September 2007 quarterly conference call. Here today areSteve Newberry, President and CEO; and Martin Anstice, CFO. Today we will discuss limited financial results for the quarterended September 23, 2007and our business outlook for the December 2007 quarter. A press releasedetailing our financial results for the September 2007 quarter was distributedby Business Wire at approximately 1:05 pmand is available on our website at www.LamResearch.com. Today's call contains forward-looking statements, includingthose related to revenue and shipment forecasts, customer demand and industryconditions, as well as statements that express the company's expectations,beliefs, plans and forecasts. There are important factors that could cause ouractual results to differ materially from those discussed in theseforward-looking statements. Additional information concerning factors thatcould cause results to differ can be found on our annual report on Form 10-Kfor the year ended June 25, 2006. This call is scheduled to last until 3 p.m. and we ask that you please limit questions to oneper firm. With that, I will turn the call over to Martin for a reviewof the September quarter.

Thank you, Carol. This afternoon we will discuss ourSeptember 2007 quarter financial results. As we discussed last quarter, ourboard of directors initiated a voluntary independent review of the accountingand reporting related to past company grants of employees stock options. Thisreview is ongoing, although moving ahead expeditiously and with new attentionto detail. Accordingly, the determination of any impact to ourfinancial statements – cash or non-cash – is currently unknown; however, companymanagement has taken steps to assess the potential for impact to the discreteSeptember 2007 quarter financials. Based on current known facts and beliefs, the potential formaterial changes to the financial results presented today is limited, althoughtheoretically possible. Our best judgment is to share more information than wereported in June, again, with due caution that the potential for changes existsas a function of concluding the stock options review. Highlights of today’s reported earnings include shipments of$621 million, within the range of anticipated, down 11% sequentially. Revenueof $685 million at the high end of our guidance range, with a reported grossmargin of slightly more than 50%. Strong ongoing operating income performanceof 29.4% of revenues, and net cash and short-term investments of more than $1billion. Shipments at $621 million were down from the all-timecompany high in June of $694 million. This reflects the anticipated reductionof shipments to foundry customers. To some extent, it is a function ofunanticipated strength in the June quarter, as previously discussed. Inaddition, the first sequential quarterly reduction of shipments to DRAMcustomers in a year, and those customers make adjustments to their investmentplans consistent with the current DRAM pricing environments. 300 millimeter applications represented approximately 90% oftotal system shipments, and applications that are less than or equal to the 90nanometer technology node represent 97%. Memory segment customers in the quarter represented a verystrong 85% of total system shipments, with the NAND components accounting forapproximately 39% of total memory. Logic and other was 8% and foundry was 7% ofthe total systems shipments. Revenue of $685 million was at the high end of our guidancerange with gross margins for the quarter sustained above the 50% level. Inaddition, with our December quarter guidance that Steve will speak to in amoment, this is consistent with our full-year expectations of year-over-yearrevenue growth 2007 over 2006 of between 15% and 20%. Combined with anexpectation of 2% year-over-year etch shipment growth in 2007, we believe thatthis is one of the most illustrative data points to support our market shareexpansion message. For more complete details on the geographic breakdown ofshipments and revenues, please see today's press release and our web site for areconciliation of shipments, revenues, and deferred revenues. Operating expenses for the company were $146 million in theSeptember quarter. This includes approximately $3 million of non-ongoingexpenses associated with the voluntary stock option review. As anticipated, theexpansion of operating expenses has slowed, although we continue to invest inR&D activities, as well as infrastructure, to support our new productpenetration and qualification plans, consistent with the window of opportunitypresented by our targeted customers. Our total net cash balance, including restricted cash, wasslightly more than $1 billion at the end of September. Inventory performancewas 5.7 turns. Accounts receivable collections performance was exceptional withDSO at 45 days. Deferred revenue and deferred profit balances were $226 millionand $149 million respectively; both down in the range of 25% to 30%sequentially. In addition, there is approximately $62 million of anticipatedfuture revenue value from previously-made shipments to Japanese customers. In the quarter, there was no stock repurchase activity bythe company, although we realized the full benefit of June quarter repurchasesin September. Total basic shares outstanding are approximately 124 million atthe end of the period. Our own capital expenditures were $11 million;depreciation and amortization was $12 million; we received $14 million from theexercise of employee plans. Headcounts grew from 2,900 at the end of June toapproximately 2,970 at the end of September, with the majority of the increasein R&D and field operations. Now for Steve's comments.

Thank you, Martin and good afternoon, everyone. Lam onceagain produced very strong operating and financial results in the Septemberquarter. As you've heard from Martin, we are pleased to be able to share moreof these results with you today than was the case last quarter. The resultssupport our view that Lam continues to perform consistent with the guidancewe've provided. In particular, I am pleased with Lam's ability to deliverrevenue to the high end of our guided range, even in an environment whereshipments were down roughly 11%. Our financial performance remains strong, as evidenced bythe increase in our cash balance to approximately $1.3 billion. Today I want to focus my discussion on a couple of topics.First, I will provide some color on our view of the market and customerspending trends as we move toward calendar 2008. Second, I want to discuss howLam is progressing from a market share perspective and I'll update you on somesuccesses that give us confidence in our ability to not only consolidate andmaintain our recent market share gains, but continue to gain share bypenetrating new applications, particularly at the leading edge technologynodes. Starting with our market outlook, we continue to expect ICunit growth in the 10% to 12% range for calendar 2007 versus 2006, driven bythe strong performance -- unit growth wise -- for memory. We continue toforecast memory unit growth of approximately 27% in calendar 2007, with DRAMunits growing 52%, NAND Flash units growing 47%, and other memory flat yearover year. Logic, microprocessor, and other ICs are still expected tobe up in the neighborhood of 8% to 10% year over year on a unit basis. We alsoremain comfortable with our outlook for total wafer fab equipment spending, whichwe anticipate will be up 5% to 7% in 2007 to the $30 billion range. While the overall environment is consistent with our prioroutlooks, we are now seeing a higher mix of memory spending, which should be upapproximately 25% for 2007, an increase from our prior view of 16% to 19%.Spending in foundry and logic is now expected to be down an aggregate 15% to17% for the year, compared to our prior view of down 5% to 7%. Microprocessoris expected to be slightly better, down approximately 4% now versus down 7% inour prior forecast. These changes in the specific spending categories reflect amarket environment where customers are adjusting their spending plans inaccordance with their near-term views of market opportunities and needs. Looking at the memory market specifically, I talked both inthis forum and at our analyst day event about how the relative capitalintensity in the memory segment is not likely to be sustainable at 50% ofrevenue, as is still forecasted for calendar year 2007. The current DRAMenvironment is characterized by persistent ASP declines which have continuedthrough the September quarter. DRAM price per bit is now forecasted to declineapproximately 48% on average year over year, versus the historical norm of 30%. PC OEMs have taken the opportunity presented by declining pricesto build higher bit content into their machines in support of convergence tothe Vista operating system. While corporate conversionsto Vista are expected to begin accelerating in the first half of next year, inan overall strong underlying IC unit demand environment, we believe that abeneficial supply/demand correction is likely to play out over the next two orthree quarters in the memory space. Meanwhile, the NAND market continues to unfold favorably.Fueled by the accelerating demand for a wide variety of digital consumerelectronics products, we believe that NAND Flash unit demand in the Septemberquarter was up more than 15% from the June quarter. Drivers of this activityincluded increased bit content and high-end MP3 players, as illustrated by therecently refreshed iPod line; and demand for flash cards in support of digitalphotography and products. We are now forecasting that NAND Flash bit growthwill increase by more than 190% and units will increase approximately 800million in 2007 compared with 2006. In the foundries, utilization rose to over 90% in the fourthquarter, up from over 80%. The demand has largely been at 90 nanometer andabove, with the ramp at 65 nanometer coming more slowly than anticipated due toa narrowing of the number of logic device applications that realize a cost andperformance benefit from moving from the 65 nanometer technology node. We doexpect that 65 nanometer volume will ramp throughout the next year, driving theneed for capacity expansion at that node and for additional capacity to supportthe initial ramp for 45 nanometer. Given this market environment, spending for DRAM capacityadditions is slowing and expected to decline 24% in the second half of 2007 versusthe first half of 2007. NAND spending for capacity additions is increasing byapproximately 44% in the second half of 2007 versus the first half, withoverall spending for memory down approximately 7% second half versus firsthalf. Foundry and logic wafer fab equipment spending in the secondhalf is forecasted to be down approximately 28% versus the first half andmicroprocessor spending is now expected to be flat, second half versus firsthalf. As we began to gain visibility into 2008, we can give aninitial glimpse of potential customer spending. Obviously, the duration of theexpected supply/demand correction in DRAM plays a key role in determining theoutlook for memory spending. Based on our current view of the marketplace, we believethat the first half of 2008 wafer fab equipment spending will begin to trend uprelative to spending in the second half of 2007; and spending for the full year2008 is likely to be flattish with calendar 2007. Memory spending couldpotentially be down about 10% to 15% year on year, though foundry, logic, and otherspending in aggregate could increase at a rate that would largely offset the declinein memory spending. Factors that will play key roles in the ultimate level of spendingfor equipment include the demand environment for memory in the coming months,which will in large measure be determined by continued growth in computerproducts driven by Vista conversions and ongoing demand for high memory contentpersonal digital devices, as well as the overall demand for the broad range ofother semiconductor intensive consumer digital electronics such as highdefinition TVs and game consoles. Lam's financial performance in this spending environment isexpected to remain strong, and will be supported by our ability to enhance ourleading market share position in etch at each successive technology node. Lamis on track to hit its prior stated target of approximately 49% market share inshipments of etch products at the end of calendar 2007, a 3 percentage point increasefrom 2006. Ourshare increases are a function of 8 to 9 points of growth in dielectric memory,leading to a greater than 41% share of the overall dielectric market, up 4.5points or so from 2006; and conductor share remaining at greater than 60% exiting2007. Additional validation of our market share gains is supportedby our expectation that Lam memory shipments in calendar year 2007 will growgreater than 32%, compared with the expected 24% to 26% growth in wafer fabequipment memory spending. We expect to continue to increase our share at the 5X and 4Xtechnology nodes as a function of 12 additional application wins, includingeight in the dielectric market, and four in the conductor market, offset byfive losses for the calendar year 2007. We are expecting over time that the netwins will drive additional share and provide us with slightly greater than 50%share in future years, depending upon the ultimate customer spending mix in anygiven year. Let's now turn to guidance for the December quarter. Revenueis expected to be in the range of $580 million to $600 million, which isconsistent with our prior view that revenue for calendar 2007 would be up 15%to 20% over 2006. We are forecasting gross margins of approximately 49% to 50%,and operating margin of approximately 25% plus or minus 1%. Shipments in the December quarter are expected to be down inthe range of 5% to 10%, benefiting from some memory pull-ins from early 2008planned shipments, offsetting some of the delayed spending that was expected infoundry, as I previously discussed. Again, this view is consistent with theprior calendar 2007 outlook of shipments increasing 5% to 10% in calendar year2007 versus 2006. Before wrapping up, I want to quickly address the board'sreview of Lam's stock option accounting practices. As Martin indicated, theindependent committee is working through the process as quickly and diligentlyas possible. The next event resulting from the review is our NASDAQ hearingwhich is scheduled for tomorrow, October 11. We'll continue to keep you updatedas events develop. In closing, Lam delivered another very strong quarter forthe September period and our business continues to perform very well. Ourlong-term outlook for the wafer fab equipment market remains strong. We arepleased with our continued market share gains and we continue to make goodprogress on executing our adjacent market strategy with the introduction of newproducts that are meeting critical customer challenges. I would like to thank all of our employees across the Lamorganizations worldwide for their continued outstanding contributions to ourperformance. We'll now open it up for questions.

Our first question comes from Gary Hsueh - CIBC World Markets. Gary Hsueh - CIBC World Markets: Good quarter here. Looking at your shipment guidance, thatwould bring your shipment level to roughly around 600, and yet you're guidingrevenues below your shipment level. Normally that doesn't really happen becauseyou do have north of $200 million in deferred revenue. Can you tell me what'sgoing on, particularly in the December quarter? Why shipments would actually behigher than revenue levels? Steve Newberry: We said shipmentsdown 5% to 10%. So you kind of end up in a very similar range of shipments torevenue, pretty close to a 1:1. I think that what you would end up with is asituation where depending upon the customer mix of where your shipments are ina given quarter, in some quarters you can get high turns to acceptance becauseof who the customers are that you're shipping in the middle weeks of thequarter. With this particular quarter, we have a number of shipmentsin the middle of our quarter where they're going to customers either wherewe're doing some new application work or they are customers that historicallyhave a little longer accepted cycle time. So the ability to ship those, getthem started up and get them accepted and take the revenue is a little bit moreof a challenge this quarter. Gary Hsueh - CIBC World Markets: Steve, you're referring to Japanin particular in the December quarter? Is that the region, Japan? Steve Newberry: Japantends to be a little longer on their cycle times. Gary Hsueh - CIBC World Markets: That makes sense. What are you guys seeing in terms ofpricing pressure out there? I know that with DRAM pricing being in the pits,there's intensified pressure on pricing from your side. Yet if you look at yourDecember revenue guidance, you're still holding with a pretty significantrevenue drop, your gross margin of 49% to 50%. Obviously you're not seeing it.What are you doing to beat that back? Steve Newberry: Well, I think whilewe've talked about pricing pressures and as we've mentioned before, the realityis the pricing environment is always very tough, very competitive, so it'sreally no different in spite of the fact that the customer's environment isdifficult. Our ability to keep our margins up is really a function ofthe business model that we've put in place and we've talked about for a longtime, is that as our revenues fall off, we're able to get our variable costfactors in the factory out in a very consistent fashion with the decline inrevenue. And then because we work very closely with our remote factoryproviders, we really aren't carrying a significant amount of fixed costs thatas the revenue drops, it creates period cost inefficiencies. So our businessmodel really allows us to tolerate significant declines in revenue, withminimal or modest declines in gross margin.

Our next questioncomes from Satya Kumar - Credit Suisse. Satya Kumar - Credit Suisse: I have a question on your Q4 shipments. If I annualize yourQ4 shipments, calendar '08 by my math would be down about 8.4%. Given yourbelief that CapEx looks flattish and you could gain share and you have newproducts, my math says your December shipments are running at least $50 millionbelow what you think is normalized shipment levels for calendar '08. In addition, you're saying CapEx is flattish next year. Sothat would seem like you're seeing clearly at least a double-digit recovery inorders in December and shipments growing into March. Is that a correctassessment? Can you help me think about why that would be happening, given yourearlier caution on memory? Steve Newberry: Well, I may haveconfused you, and you have successfully confused me, because I've made nocomments about anything related to the shipment environment for calendar year'08. The only comments we made was that our shipment guidance for December of'07 is down 5% to 10%. If you take all of our previous shipments, that it'sconsistent with our statement that shipments would end the year in calendaryear '07 up 5% to 10%. So maybe there was some confusion in terms of thatreference relative to calendar year '07. Satya Kumar - Credit Suisse: No. My question was, you said in '08 you look at a flattishCapEx environment. Is that right? Steve Newberry: Right. I talked abouta flattish CapEx environment in '08. Satya Kumar - Credit Suisse: If I take your Q4shipment guidance and annualize that relative to your calendar '07 shipments,'08 shipments would be down about 5% to 10%? Steve Newberry: Why would youannualize the December shipment guidance? I said that the shipments were goingto start trending up in the first half of '08. Satya Kumar - Credit Suisse: I just wanted to make sure that was a correct assessment. Steve Newberry: Yes. What I said about the shipments trending up in thefirst half of '08 versus the second half of '07. That was a correct statement. Satya Kumar - Credit Suisse: I just wanted to make sure it was for Lam and not for theindustry itself. Steve Newberry: Well I'm talking about what Lam is going to do. But now thatyou've asked it, I believe that spending for equipment will see a similartrend. That the spending that customers will do in the first half will behigher levels of spending for equipment than in the second half of '07. Satya Kumar - Credit Suisse: How much minimum cash do you need to run the business? Martin Anstice: It's a good question, and it's one that for the last threeyears I’ve successfully avoided answering, for a bunch of very obvious reasons.Obviously from an operational point of view, we have a level of performance inthe company and a business model that allows us to generate substantially morecash than we are currently investing in R&D and such from an organic growthpoint of view. So the technical answer to the question is, not very much.Obviously, there are liquidity needs for every legal entity around the world,but that's a very administrative answer to the question. What I tend to do and I think the cash balance is and thedecisions we made, particularly in the March and June quarters this year giveyou the best frame of reference for answering that question. We have not takenthe cash balance of the company down below $0.5 billion. That isn't a directanswer to your question, but it's a reasonable data point relative to gettingsome framework for modeling going forward.

Our next questioncomes from Timothy Arcuri - Citigroup. Timothy Arcuri - Citigroup: Steve, if I look at your guidance, it looks like OpEx has toactually grow on down revenue. It seems like you're at a similar revenue toSeptember '06. The OpEx was about $20 million higher than it was then. It seemslike maybe you've moved some of the variability in the model. The COGS lookspretty variable, but it looks like OpEx now is going up and is more fixed. I'm wondering, is there some kind of a structural changethere, and is that just going to last for a couple of quarters, or is my mathwrong? Steve Newberry: I think your math isreasonably correct. We have a lot of variability in our OpEx. We're choosingnot to apply it at this point in time. Significantly, we have been increasingour investments systematically, quarter over quarter, not only in etch, butobviously in our new product activities associated with the fact that all ofour new products that we've talked about are in penetration mode, which meansthat they're fundamentally shipping evaluation units, which obviously carryadditional cost expense to support those evaluations, along with a number ofproducts that were in unreleased modes where the material expense activity inR&D were higher than what we would expect to see at some point in time inthe future. So as we go forward, as we monitor what the customer demandenvironment is, we have significant variability available to us in the OpExarea to drive that down, but we're just currently choosing not to. But you're correct, that's why even though our margins arestaying up, the operating income is dropping a little bit. One of the otherreasons why we're keeping that operation expense spending up is I believe thatthe way that a company optimizes its ability to deliver superior operationaland financial performances are the investments that you make during slowdownperiods in the cycle. As you know, we're very focused on the achievement of our $4billion revenue objective in 2010. We believe that we're going to see somestronger spending environments in 2009 versus the environment that we expectfor spending in 2008. We are going to make the investments in infrastructure,human resources as well as systems and other capital investments in 2008, sothat we are going to be well-positioned for accelerated revenue growth as thoseopportunities are expected to present themselves more in the future. Timothy Arcuri - Citigroup: Since the OpEx really is really the key to the new productsthen, Steve, I think you said before that you had shipped enough product torevenue $80 million this year for the new products. Is that still the case? Whatare the metrics you're using to basically evaluate the new products, whetheryou continue to invest or whether you stop investing? Steve Newberry: Our target earlier inthe year was to revenue $80 million. At the analyst event at SEMICON West, wesaid that we would not be revenuing $80 million, but that we were going to beshipping into the marketplace the equivalent of $80 million in shipment value.But because the vast majority of those tools are going into evaluations and theevaluation periods that we're experiencing with customers relative to penetratingfor 4X-type technology nodes, that we're not going to be revenuing that much incalendar year '07; and that we would expect our revenue ramp to occur more inthe middle of '08 as those eval systems convert to revenue. As we win thoseevaluation judgments, that we would be shipping systems that would be forproduction purposes and they would revenue as soon as they went through astart-up qualification. That's the scenario that we're in, and the way that weevaluate the success that we're having is not really a function of how quicklywe revenue. We evaluate it two ways. (1) how many opportunities are we beinggiven by customers who say, I want one of your tools to be brought in for anextensive and comprehensive evaluation activity? And then (2) once that occurs,we measure our success by how many of those evaluations we convert. So to date we're essentially on track to the penetrationrates that we wanted to achieve and we have not had any unsuccessfulevaluations where the return of the equipment has occurred.

Your next question comes from Harlan Sur - Morgan Stanley. Harlan Sur - Morgan Stanley: Good afternoon and nice job on the quarterly execution.Steve, as you look at first half '08 WSE spend and your shipments being higherthan first half of this year, I'm just wondering what are the segments that aregoing to be the drivers? I'm assuming it's going to be primarily NAND and somefoundries, but your view would be helpful here. Steve Newberry: Harlan, you're talking about what we think the drivers willbe for first half spending in 2008? Harlan Sur - Morgan Stanley: Yes, exactly. Steve Newberry: Thank you for your earlier comment. I think clearly NAND isgoing to be a major driver as it relates to memory and I expect that DRAMspending will have a multiple quarter decline environment. How much thatdecline is and how long that decline is, I think, we're going to see it playout as a function of what the demand environment is; particularly this quarter,so that when we look at excess capacity in DRAM at the end of the year, that'sgoing to say a lot for how fast the rate of additional shipments for DRAM occurin the first half. I do think that both logic microprocessor and foundry aregoing to be higher in the first half of '08 than what has shipped in and isplanned to be shipped in for the second half. I think all of the segments willbe up with the exception of DRAM.

Your next questioncomes from Jay Deahna – JP Morgan. Jay Deahna - JP Morgan: Based on the completely reported financials through theMarch quarter, it looks like the bookings peaked in the December quarter around$779 million. Looking at your shipment trends, I think it would be fairly safeto assume that orders declined for the most part in the March, June andSeptember quarters. Now, with the expectation for shipments to be up in thefirst half of '08, one would think that orders would have to be up in thefourth quarter. Does that logic make sense, generically speaking? If so, do youview that as some sort of a cyclical turn? That's the first question. The second question is, was your cash flow in the Septemberquarter somewhere in the neighborhood of $300 million? Steve Newberry: I'll have Martin answer the cash flow question. Jay, you arealways very inventive in how you are always trying to get me to comment onorders. As all of you know, I don't comment on orders, but certainly if ourshipments have been guided down 5% to 10%, and that the shipments are going totrend upward in the first half, I think it would be fair to say that there is acyclical turn that is in fact occurring, and I think our shipment'sperspectives would support that. Martin, maybe you can comment on the cash flow? Martin Anstice: The cash, I'll giveyou a couple of precise numbers that we did report in June and again today. Wehad a gross cash balance in June of 1031 net 780 and you'll remember we haveabout $250 million of debt outstanding in June, and that balance is still thedebt of the company at the end of the September. The gross cash balance at the end of September is 1271, withthe $250 million debt, that's net of 1020. There really only are three elementsto the change of cash in the quarter. One is the CapEx of $11 million, one ofthem is the cash coming into the company from equity, which was $14 million asI stated, and the balance is more or less a statement of cash from thebusiness.

Our next questioncomes from C.J. Muse with Lehman Brothers. Please go ahead. C.J. Muse - Lehman Brothers: Steve, I would love to dig a little deeper on your outlookfor flat WFE in 2008. If I'm assume the memory is down about 10%, and memoryrunning about a 65% clip, that would suggest you view logic/foundry combinedgrowing at least 20% in 2008. All our checks suggest it would be down. So I'mcurious what gives you the confidence to not only see strength there, but 20% typestrength? Steve Newberry: It's a good question and I always try to put in somequalifiers, but nobody ever hears them. Things like, at this point in time, ifcustomers do what they say, it's likely, or the potential, et cetera. So that'swhy I've kind of characterized 2008 as flattish. Flattish, you could read plusor minus 5%, because I think, here we are it's October and we're all trying tofigure out what's the world going to look like when it's all over in 2008? The reality is, I think we have a pretty good feel for whatthe first half will look like and when I say pretty good, I mean the realityis, we're at that point in the cycle where as we talked about earlier, I thinkwe're at an inflection point. But you've got a lot of customers who are verymuch taking advantage of the fact that the cycle times in the supply chain arevery short and so you see a lot of changes in terms of people saying pull me intwo or three weeks, push me out two to four weeks. So it's a really fluid anddynamic environment relative to what's happening between any one quarter. So Ikind of like to talk in terms of trends. Second half of '07 versus first halfof '08. So while I'm reasonably confident that we are at aninflection point, that we're going to see shipments rise in the first half of'08, what they're going to do in the second half of '08, I think it's all goingto be a function of what is the demand environment that customers haveexperienced in that first half? But more importantly, what is the expectationfor the seasonality of the demand environment for the second half of '08? If that is a positive environment, then I think that we'llsee the CapEx come in flat. If the demands are falling off, then I think wecould see CapEx fall. If for some reason the demand environment isexceptionally strong, then you could see that 5% increase. I'm just trying to give people a perspective that this isthe ballpark of where we think wafer fab equipment spending will be, but we'rejust going to have to see it play out.

Your next question comes from Steve O'Rourke - DeutscheBank. Steve O’Rourke - Deutsche Bank: Can you comment about backlog at the end of your fiscal yearin June? Steve Newberry: Martin, do you haveany comments about that you would like to make? Martin Anstice: We're going to stay with the commentary of the last quarter.That is an audited financial statement data point and I realize that it is aslightly different data point than a revenue item, but we're going to preservethe authenticity of that process. So I'm afraid to say you're going to have towait on that until the K is filed.

Your next question comes from Jim Covello - Goldman Sachs. Jim Covello - Goldman Sachs: Steve, can I just follow up on issue about the '08 outlook?There are a number of companies now that have come out and provided hardguidance, all of which is down real significantly for 2008; and the othercompanies that have that haven't provided hard guidance have certainly madeimplications about declines -- whether they're significant or not can be argued-- but declines for 2008. There really isn't anybody out there who's suggestingincreases for 2008. So if you take the hard guidance, the actual formal guidancefrom the five or six DRAM companies who are down 30 to 50 and the processorcompanies which have suggested down a little bit and the foundries which have suggesteddown a little bit, I still don't see where you get the flat for the full year. Icould be missing something and certainly the companies could be changing theirminds versus what they previously indicated. But they have indicated prettyhard numbers so far. Steve Newberry: I think that in terms of official guidance, I'm not sure Iwould have the same opinion in terms of five or six DRAM companies givingofficial guidance. Certainly Micron, because they're fiscal year '07 ended,talked about what they expected to spend in fiscal year '08. I realize that forMicron, they indicated that their spending would be down, which we've beenexpecting for a long, long time. That's not a surprise or a change, becauseMicron's investment in 2007 was very significant as they got the IMFT activitygoing. So Micron, although I don't think they specifically broke itout, but it's kind of been calculated that maybe their DRAM investment will bedown 50%. I think that we all ought to recognize that Micron's been very publicin stating that their emphasis on a going-forward basis is to increase thepercentage of their business in the NAND Flash arena and to have less emphasison DRAM. So I would expect that their amount of investment into DRAM would infact decline and in fact would decline more than what other companies wouldtypically do. I don't think it's necessarily appropriate to take theanticipated 50% decline in DRAM spending by Micron and apply that across theboard to all of the other DRAM companies. My conversations that I've had with a number of memorysuppliers, some of whom are both DRAM and NAND/Flash, is far more supportive ofan environment where they intend to maintain their spending in memory in 2008. Ithink that all of these things that people say are subject to change, noquestion. I don't want to speak for any specific company, but I cantell you that my discussions with most of these guys is that the expected rateof decline in DRAM is not anything close to 50%; it's probably closer to 30%down for DRAM, but that NAND Flash is going to be up very significantly so thatthe expected environment for total memory is down, as I said, 10% to 15%. Now, comments relative to logic and foundry, I mean, we'llsee how that plays out. But I do believe that we've seen a delay in the move toend use customers adopting 65 nanometer devices and I believe that we're goingto see that environment change and that's going to cause the foundries to haveto go and make somewhat of a long-anticipated expansion in their wafer stockcapability at 65 nanometer. I believe the foundries will spend probably somewhere arounda 25% increase in spending in 2008 versus 2007. I think that microprocessor islikely to be up, given the strength of what we expect to be happening in the PCand server arena. Logic, which has been really investing at a very slow pace, Iexpect that it could easily be up 20%. So whether that actually plays out,that's at least our view at this point in time.

Our next question comes from Robert Maire - Needham. Robert Maire - Needham & Co.: We are at a relatively low point in the yen/dollar exchangerate. Historically in past cycles we've seen better performance versus theJapanese companies. Could you give us your view as to if you've seen any helpfrom the current weak dollar, especially given [inaudible] as your competitor?I realize that a lot of decisions are purely technology-based, but there areothers out there that are certainly price-based. Though it may be denominatedin dollars, it does somewhat limit their ability the discount. Given the precipitous drop we've seen in memory pricing,does that accelerate the decision point for memory manufacturers to upgradetheir 200-millimeter fabs? Maybe you could give us your opinion as to where weare currently in the 200-millimeter. Is everybody below marginal or cash costs,or what does that do? Steve Newberry: I will address the memory segment, but before I do that,I'll have Martin talk to you about what our thoughts are about the yen/dollarexchange rate and how we deal with that. Martin Anstice: Directly to your question, Robert, it's a really toughquestion to answer because the fact is we are gaining share against them andarticulating how much of that share gain is a function of any advantage that wehave on currency versus a performance-based advantage is perhaps a thanklesstask. Inevitably, there is some commercial benefit for us relativeto managing the risk and opportunity and getting predictability in ourfinancial statements. We have still a fairly significant amount of yen-basedpricing on systems. Obviously, a lot of our installed base revenue streams areyen-based and we have, I would say, a very successful hedge program associatedwith entering an order and locking in a known statement of profitabilitythrough collection of cash. So we've got, I think, a very balanced statement of currencyin the company generally, in the case of yen, we have a hedge program. I don'tquite know how directly to answer your question. I of course hope that thehypothesis in your question is a legitimate one and hope that the trend incurrency in that regard continues to give us favor. It's a little academic forus to isolate the gain on market share and try to articulate what it means froma currency point of view. Steve Newberry: Relative to your question about the pricing environment andthe cost to produce memory devices on 200 millimeter, we think thatwe are at a point where on DRAM you're really below the cash cost to produce on200 millimeter.In 2007, we think probably $2 billion of wafer fab equipment was invested inconverting 200 millimetercapacity to 300 millimeter.A lot of it was Micron as they moved aggressively to 300 millimeter and convertedsome of that production to CMOS sensors and other types of devices. We alsobelieve that in Taiwan,it's all 300 millimeteron memory. In 2008, we expect it's going to be a very strong year tomove probably about 130,000 300 millimeter equivalent wafer starts of 200 millimeter production out.That means the need to spend about $4.5 billion of wafer fab equipment just toreplace that idled 200 millimetermemory output. So clearly, Hynix, which has a very large 200 millimeter install base isgoing to move aggressively to a stronger 300 millimeter position.Toshiba will take a lot of their remaining 200 millimeter, and that's oneof the reasons we see the very strong investment in the Y4 ramp in Yokkaichi.Samsung will continue to reduce their 200 millimeter DRAM. So Iexpect a strong conversation year in 2008.

Your next question comes from Mark FitzGerald - Banc ofAmerica. Mark FitzGerald - Banc of America: Given the guidance for shipments being up in the first half,would you expect seasonality here, given the consumer electronics drivenaspects of the chip industry at this point? A repeat of the 2007 quarterlyperformance where the second half of '08 is down significantly because all of thespending is concentrated in the first half? Steve Newberry: No, the industry is not yet really that squared away interms of those kind of consistent spending patterns. Because I think that we'veseen situations where second half of years have been stronger than first halfof years. I do think that what you really have in terms of a first half of '08being likely up from the second half of '07 is largely a function of the factthat DRAM spending has begun its decline. The foundries have been reallymodestly investing and we're down half over half. When I say that the spending is up, I don't think that thespending is up dramatically; I think it's just trending up and it's movingupwards. If you're going end to the year flat, if you look at the trend of abig first half '07 and a weaker second half '07, if you have a slightly upfirst half '08, you can have a slightly up second half of '08 and you would theyear flattish as a function of that. So I think what will happen is if the demand environment isweak, then the second half of '08 will tend to be weak. But if the demandenvironment is as expected or strong, then in the middle of the year, you'llsee the investment for capital expansion go up.

Your next question comes from Tim Summers - Stanford Group. Tim Summers - Stanford Group: Just staying on the DRAM topic; Steve, as you look at DRAMspending in '08, do you anticipate it being front half loaded and some tail-offin the second half? Or in fact would you expect it to be reversed, strongersecond half versus first half? Steve Newberry: Well, that's a good question. I mean clearly what we'reseeing is that the spending for additional equipment for DRAM is in a downwardtrend and it's one that I think has been anticipated. I think it's good, and Ithink the first half for DRAM will be less spending than the second half of '07was. My expectation is that we'll see that at least flatten out,and it's likely that DRAM spending in the second half of '08 will be stronger.But again, spending a lot of time in October of 2007 trying to speculate onwhat the second half of '08 is, I'm not sure how useful an exercise that is. Operator, we have time for maybe one more question and thenwe'll close the call.

Your final question comes from Ben Pang - Caris. Ben Pang - Caris: Under the capital spending scenario that you proposed in2008 where logic and other are up and net memory is down, can Lam Researchstill gain share? How much of that would be due to the new products? Steve Newberry: There's two aspects of that. One, if we talk about gainingshare in the wafer fab equipment market, clearly every dollar that we ship intoa non-etch market is a gain in market share for us. I don't think that'snecessarily going to be significant, and we'll talk more about what we expectour new products to do in 2008, inthe January conference call. But as it relates to etch, we expect as a function of themarket share application wins that I talked about in my prepared comments, thatwe have the ability to pick up a couple more market share points. At certain points in 2008 it's going to be a function ofmix, because in any given year depending upon who's spending, that can affectthings. But if the logic/foundry arena goes up, our market share in logic andfoundry is very similar, if not the same, as our market share in memory. So asfoundry/logic becomes a greater percentage, it will not be a drag on our marketshare and it may in fact, depending upon how well we do with some otherapplication win opportunities, could very well be additive to it. But at aminimum, we'll be able to hold share because it's a very balanced share betweenmemory and logic foundry. Carol Raeburn: We'd like to thank you all for joining us today. There willbe a replay of this call available on our website from 5:00 p.m. and that will remain posted for 90 days. Thisconcludes our call.