Good afternoon. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA-Tencor Third Quarter Fiscal Year 2013 Conference Call. [Operator Instructions] Thank you. I'd now like to hand the call over to Mr. Ed Lockwood, Senior Director of Investor Relations. Please go ahead, sir.

Thank you, Jay. Good afternoon, everyone, and welcome to our conference call. Joining me on our call today are Rick Wallace, our President and Chief Executive Officer; and Mark Dentinger, our Chief Financial Officer. We're here to discuss third quarter results for the period ended March 31, 2013. We released these results this afternoon at 1:15 p.m. Pacific Time. If you haven't seen the release, you can find it on our website at www.klatencor.com or call (408) 875-3600 to request a copy. A simulcast of this call will be accessible on demand following its completion on the Investor Relations section of our website. There, you'll also find a calendar of future investor events, presentations and conferences, as well as links to KLA-Tencor's SEC filings, including our annual report on Form 10-K for the year ended June 30, 2012, and our subsequently filed 10-Q reports. In those filings, you'll find descriptions of risk factors that could impact our future results. As you know, our future results are subject to risks. Any forward-looking statements, including those we make on this call today, are subject to those risks, and KLA-Tencor cannot guarantee those forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking results. More information regarding factors that could cause those differences is contained in the filings we make with the SEC from time to time, including our fiscal 2012 Form 10-K and our current reports on Form 8-K. We assume no obligation and do not intend to update those forward-looking statements. However, any updates we do provide will be broadly disseminated and available over the web. With that, I'll turn the call over to Rick.

Thanks, Ed. Thank you all for joining us on our call today. The March quarter results for KLA-Tencor were in line with the company's expectations. New bookings in the March quarter were $738 million, down about 3% compared with December. Orders were concentrated among our foundry and logic customers, with particular strength from logic customers in the period. Third quarter revenue was $729 million, and non-GAAP EPS was $1.01 per share, applying an effective tax rate of 14%, resulting from a onetime R&D tax credit taken in the quarter. Non-GAAP earnings would have been $0.89 at our modeled tax rate of 24%. So a good start for KLA-Tencor in calendar year 2013 following a year of very strong relative performance for the company in calendar 2012. In fact, according to Gartner's recently published industry report, KLA-Tencor sustained its strong relative market position in calendar 2012, in an environment in which overall process control market revenues were flat in 2012 and the industry CapEx was down approximately 10%. These results highlight a continuation of the trend we've seen in this cycle of increasing adoption of process control, as the mobility markets fuel growth in foundry and logic demand and the increasing cost and complexity associated with managing yields makes process control critical to our customer success at the leading edge. Turning now to our view of the current business environment. Consumer demand for mobile technology continues to be the primary force behind semiconductor industry demand, with strong smartphone and tablet unit growth, competition and increasing device cost and complexity driving our markets today. For KLA-Tencor, the Q3 bookings profile was highlighted by strength in logic demand, with these customers accounting for 25% of bookings in March. We expect logic orders to comprise 32% of our orders next quarter and to be…

Good afternoon, everyone. As most of you know, we present our income statement in 2 formats, one under U.S. GAAP and the other in a non-GAAP format, which excludes amortization and write-downs of intangible assets associated with acquisitions, restructuring-related charges and credits and any cost or credits which are outside of our core operations, including unusual tax items. There was a $0.03 after-tax difference between this quarter's GAAP and non-GAAP EPS. Our balance sheet and cash flow statements are presented in GAAP format only. Most of my prepared remarks on operations will refer to non-GAAP information. A reconciliation of our GAAP to non-GAAP income statement is attached to our press release and available at our website. Q3 new orders were $738 million, down slightly from $760 million in Q2. Q3 net orders were $736 million. The regional distribution of new systems orders and the quarter-to-quarter change in distribution were as follows: the U.S. was 17% of new systems orders in Q3, down from 33% in December quarter; Europe was also 17% of new systems orders, up 1% -- up from 1% in Q2; Japan was 9%, up from 7% last quarter; Korea was 10%, down from 13% last quarter; Taiwan was 35%, down slightly from 39% last quarter; and the rest of Asia was 12%, up from 7% in Q2. The distribution of new orders by product group and the quarter-to-quarter change in distribution were as follows: wafer inspection was 51% compared with 48% last quarter; reticle inspection was 6%, down from 10% last quarter; metrology was 20%, up slightly from 19% in Q2; our non-semi businesses were 3%, even with last quarter; and service was 20% of new orders in Q3, the same as Q2. Finally, for semiconductor systems, the distribution of new orders by segment and the quarter-to-quarter…

Okay, thank you, Mark. At this point, we'd like to open the call up to Q&A. [Operator Instructions] So Jay, we're ready for the first question.

Our first question comes from Satya Kumar with Crédit Suisse. Satya Kumar - Crédit Suisse AG, Research Division: I guess I was wondering, there is a slight bit of disconnect between what you guys are guiding for the year and what we saw from one of your peers yesterday, and also, what you're looking into June. Is this a segment concentration-type situation that's going on? Or are there any market share changes that's happening that's affecting your outlook?

Yes, Satya, it's Rick. I don't see any particular segment different. I think there is just a matter of perspective on the year. When we look out and talk to customers, we do see some improvement in the second half, but still we see, as we said, a little bit trending down based on all the factors we cited. I think that if you go case-by-case, I think you got -- memory is technology, but not a lot of investment for capacity. I think foundry continues to be relatively strong, and we'll see logic probably continuing, although probably cooling off a little bit in the second half. And that's how we roll up to the annual. As far as share, our share continues to be very strong. I think that we see, from overall perspective, some opportunity actually to gain share this calendar year. We've got some really strong product positions and making pretty good investments in close collaboration with our customers. So we don't see share overall for KLA-Tencor to be a -- and obviously, you have to work for it, but we're not modeling any share loss through this year. And as we talked about last year, we actually did quite well in share, 2012.

[Operator Instructions] Our next question comes from Timothy Arcuri with Cowen and Company.

I just wanted to dive into that a little more because there's just such a difference between what you're saying and what others are seeing. Rick, do you think that there's been any change in your view that process diagnostic is still 15% of wafer fab? Is there -- can you maybe discuss what could push that up from here and what might be pushing that down, if only in the short term?

Sure, Tim. I think that the -- I guess, overall, we model memory to be improving in terms of adoption of process control, but not at the level of what we see for foundry and logic. So the degree there is a mix change in the near term that would mean that process control, overall, would probably not see as much appreciation as somebody that was more exposed to memory. However, for the -- overall, for the year, we think that foundry continues to invest, although the build-out of 20 nanometers is -- largely people are making those investments, but we think that will possibly be light participation, with more customers gearing up for the transition to below 20, whether it's 16 or 14, depending on who. So yes, there is a bit of a mix in the near-term scenario, but long term, overall capital intensity for foundry is, I think -- probably we're modeling it pretty consistent with others. And I think that process control for foundry continues to be very strong.

Next, you have a question from Krish Sankar with Bank of America Merrill Lynch.

Rick, just to follow up on that. Your foundry booking for June quarter looks like it could be the lowest over the last 3 years. And is it just purely a timing issue? Or do you see your foundry customers actually stalling the spending because of the planar/FinFET transition? Or maybe you've not decided which way to go?

No, I think right now, what we're seeing is, in the June quarter, that we do see some -- a bit of pause in some of the foundry business. There is another factor, which maybe we talked about in the prepared remarks and I can address a little bit. We did guide shipments to be quite a bit up in this quarter, up to in the $740 million, $800 million. And part of what that is, is there are a number of tools in that, that are early in the development and that will -- it will take us a little while to revenue -- recognize those. And those probably will not fall into the June quarter. And in some cases, what we're looking at for those tools is those are more oriented towards future development process technology nodes. So there may be investment leading into the FinFET development in the foundry space that maybe offsets that a little bit, but we don't expect to see that necessarily be as large in the June quarter as what we've seen in the last couple of quarters. Then we see resumption of that spending in the later part of the calendar year.

Next, we have a question from Edwin Mok with Needham & Company. Edwin Mok - Needham & Company, LLC, Research Division: So just to follow up with that. For those developments today that you're saying those are targeting 20-nanometer, are they 14-nanometer and are they specifically for foundry? And I guess on your outlook for the year, are you not factoring in much 20-nanometer investment in the second half of this year?

No, not a lot of investment on the second half for 20, still some, but I would say a little broader participation. So maybe some of the players that haven't been as active in 20 already will participate, but we're modeling relatively modest on a compared basis. And toward the end of the year, more investment associated with maybe the later phases of 20 and some of the sub-20 work.

[Operator Instructions] Our next question comes from Stephen Chin with UBS.

Just a question on your view on the order trends for the second half of the year. It sounds like you said you're still planning for orders in the second half to increase from foundry and also to be up from memory, but logic might be down a bit. So I just want to clarify, despite your more cautious view on CapEx this year, are you still planning for, I guess, total second half orders to be flat or slightly up versus the first half?

We see second half being better, but I'd say when we modeled earlier in the year and we were -- the bias was a little bit more toward down 5%, our bias for the year is still down, but a little bit toward the down 10%, which I think is consistent with actually most of our peers but one. And what we see in that is that you see a second half comeback, as we said, a little bit more investment happening, primarily on a broad-based foundry investment on the second half. So memory, but not a lot of capacity in memory, more capacity-related, and logic perhaps cooling in the second half. The other thing that affects us a little bit about, too, is we're looking some of the ancillary markets like the wafer manufacturers, which we have not seen a lot of investment out of them. And historically, if you look at past cycles, we would have seen more investment out of our wafer guys. We just don't see that happening and that's usually an early indicator overall capacity buys. So we don't see it happening and that kind of aligns with our thinking of overall trends for the year.

Next, we have Vishal Shah with Deutsche Bank.

Rick, I just wanted to get a sense from you. You made comments around second-half growth in the foundry bookings, but just wanted to understand the magnitude of upside or growth that you are expecting. If you look at the first-half bookings run rate, I mean, your bookings would have to almost double in order for overall bookings to be down slightly compared to last year. So I'm just wondering what kind of magnitude of bookings growth you are expecting in the second half.

Yes, well, obviously, we don't guide beyond the quarter. But I can tell you, as we model the overall year and you can do the math, as you said, on how you look at it, as you model the overall year, we think the capital intensity investment for the industry is, on a relative basis, pretty flattish. The overall CapEx, down anywhere from flat to down 10%, and we're saying it's more the down 10%. But we do see mix coming back a little bit and a little bit strength in the foundries and -- breadth in the foundries and strength in memory. And so that's kind of how we get that memory more on technology than on overall capacity buys at this point. And logic, flattish but maybe a little bit more first-half loaded than the second half. And obviously, if you want to walk through the models, our guys can do that with you.

[Operator Instructions] Our next question comes from Mehdi Hosseini with SIG.

Rick, your September quarter has historically been a down quarter given how your fiscal year ends in June. Given the kind of picture that you painted us -- painted for us, and I appreciate all the details and sincerity, how should we think about seasonality and historical trend playing into the September quarter?

Again, that's -- I appreciate the desire to get that. We don't have a good view of September right now. We're still working on finalizing what June looks like and that's why there's such a large range on there. I'd also offer that at SEMICON West, we'll have a much better picture and be able to talk in more detail. But you're right, we do view -- September, historically, has been seasonally softer for K-T, and counterbalanced by what's often a very strong end to the calendar year. So we don't know exactly where we're going to get it in the calendar year quarter-by-quarter, but we're modeling. If we see this overall CapEx down 10%, then it kind of fits with our thesis that process control at least hold our overall intensity and probably outperform, but it'll come later in the calendar year.

Next, we have a question from Mahesh Sanganeria with RBC Capital Markets.

Rick, so in terms of your incremental minus 5 to -- flat to minus 5 to flat to minus 10, is there one specific segment which has -- you've become more incrementally more cautious on?

What we really haven't seen is any strength in the non -- in the stuff that's outside of the core, so some of the manufacturers of wafers, for example. We do see that, overall, being softer. And the first half is probably lower than we thought it would be in January, and so that -- you still have some comeback in the second half, but it won't compensate for some of the softness we're seeing now.

And one more question is, I mean, how much of your -- the difference between you and your competitors, is timing of ordering. I see that your guidance is pretty similar to lithos, where the guidance for the full year is down, whereas I think the depth and edge, those segments seems to be stronger. Is there some kind of a timing issue that litho and process control order has happened earlier and there is probably some capacity out there, and there's more of capacity orders right now that's making some of your competitor looks better?

Well, there's certainly -- there are players that are more attuned to capacity buys and the regard -- I would say that it is probably more similar to litho. Our profile looks a little bit like it, but perhaps for slightly different reasons. From our standpoint, it is true that if you look on balance, there is more investment at the very front end of a node than there is on the later parts of the node until they get on to the next node. And that's what we're suggesting is we're seeing more investment continuing and probably phase shifts it a bit. That's not true of all our products, and some of our products are sensitive to capacity and those we do not see a lot of capacity being added, for example, I go back to the wafer manufacturers, but on balance, that's true. The other thing that's happened is we're in a relatively soft period for reticle inspection, which historically would have been stronger through a period of technology development. And that has been softer due to this continuation in double patterning and quad patterning, not stressing the map [ph] shops as much. So that's the other counterbalance to it.

And one final question on ASML suggesting that they have integrated metrology on CD measurement and overlay. And I'm just wondering to what extent that is an additive market or how much of that cannibalizes your overlay market. I think CD measurement is probably not that significant because it's only for FICD. But it's definitely on overlay, you have a very strong market share. I'm wondering if you are seeing any kind of impact in that part of the business.

Yes, I think as far as integrated go, customers are interested, and have been for many years, in the concept of integrated metrology, but still not very clear on exactly how to use it. And that comes from the fact that you're then at basically one unit per track step or pair, which is a higher concentration. And it's not clear that that's either economical or feasible from a production worthiness perspective because if it goes down, you can bring down the line. But there is certainly interest in increasing the capability around registration control as people push multiple patterning. So we do think that the market is growing significantly and there is going to be plenty of room for alternative approaches to dealing with that. As far as the CD control, we're actually very happy and have made tremendous progress in terms of market share there, where we did not have a strong position and have recently won planar record buys at a number of key customers for providing optical CD control. So we're really pleased with that part of our business.

The next question comes from Jagadish Iyer with Piper Jaffray.

Just wanted to -- had a question. There's a view out there, Rick, that 28-nanometer could have more longevity, as customers seem to be at the cusp of deciding on 20-nanometer or sub-16-nanometer by skipping a node. So as they try to debug some of the processes, do you think this flux is causing you to be more biased toward the negative side? And hopefully, if they get more clarity on it, that probably we could see much more uptick from the foundries?

Yes, I'd say there's -- Jagadish, very good observation. Two thoughts on that. One is, I think in many ways we're saying the same thing, is that we do see some question about the strength of 20-nanometer based on interest we're seeing in sub-20, which would, by extension, extend the life of 28. The other thing is that even though 28 has been -- there are people that are successful at 28, there's still a broader market, broader participation by other foundries in 28 that creates other opportunities. So we do see some strength in that build-out. And I suspect that there's still some process changes, even on 28, that will create some opportunity for us as well. But yes, that is the question, is how big the participation and how quick people go to 20 or if they skip it or not. Should that change, I think it does improve our prospects for the calendar year.

[Operator Instructions] Next, we have a question from Patrick Ho with Stifel, Nicolaus. Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division: Rick, maybe if you could give a little bit of color in terms of the 3D NAND opportunity and whether you see that transition as being, I guess, an inflection point or a step-up in terms of the memory adoption of more process control, given some of the challenges in that type of manufacturing?

Yes, there's a couple of opportunities that 3D presents and some are less obvious than others. One is, obviously, as you can imagine, trying to find defects requires some new capabilities for people as they deal with 3D. And finding them is just one part of it, then validating that they actually found them. There's been a lot of work going on to try to support customers as they do that, as they try to make that manufacturing process production-worthy. The other thing is there's plenty of opportunity there for some of this optical CD measurement that I talked about, and we're doing well in that regard. The third one is because many of these structures are multilayered within a process tool, there's actually a pretty good opportunity for bare wafer inspection, to make sure that the cleanliness of those tools is at a higher level than historically. So we are seeing increased opportunity for bare wafer inspection to support 3D, which is an additive bonus to -- perhaps counterintuitive to the opportunities of 3D. Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division: Maybe just a real quick follow-up. What kind of percentage in terms of dollar opportunity from what you're doing today in planar versus what 3D could be like, I guess, on a percentage basis of an increase in the TAM?

Well, I think if you think about process control intensity being -- I don't want to get into specific numbers, but let's say memory process control intensity is 50% of what foundry is, this probably takes it to 70%, 75% of what foundry is.

[Operator Instructions] Our next question comes from Ben Pang with Caris & Company.

It's B. Riley & Co. now. First, you commented on the capital intensity that memory adoption is not as high as logic and foundry, but isn't the capital spending still much greater than 50% for foundry and logic this year?

Yes. No, overall, that's right. I think that the memory investment for the year is certainly not -- you go back in time and it was actually driving a lot of the CapEx. But we are in a momentary point in time where there's probably, on a relative basis, even for us, we're seeing -- we're looking at June, thinking 33% or 1/3 of our business is going to come from memory. And you have to go back several years to the market split used to be 1/3, 1/3, 1/3. And I now I think we're in this temporary phase where memory is 1/3 of what we're going to be in terms of opportunity, which means it's probably more than that of the overall market, and we think that reverts as we get to the second half of the year, which is why we think we'll see more strength in the second half.

And then usually, I think we're always worried about utilization rates for other types of tool. Is there any kind of situation where there was too much buying of your equipment early, like 2012?

Not really. I mean, I think the question often becomes, can it get redeployed on additional nodes? And so part of what drives our product roadmap is the -- is a slight difference, is you could redeploy inspection and metrology capacity towards advanced nodes with some level of success. So part of our challenge is always to create more capability in the next generation to make a compelling case for customers to upgrade or go to new products. Otherwise, you would see that. You would see the transition of some of that, especially as yields got very high on the older nodes. So I'd say that we are constantly -- and one of the products we just introduced, for example, in NanoPoint, is to extend the capability, provide a motivation for our customers to go to the next-generation technology. And we're seeing that bear out, but usually there's an adoption cycle of that.

So just to clarify that answer, as my last question. If your tools weren't utilized for the manufacturing node, you'd see more redeployment to the next generation. Is that what I'm hearing?

It depends how big a transition the technology change is. And for example, 28 to 20 is too big a change. So if they were at 28, they're not going to do a great job at 20, except in the case where they -- it's probably more like litho. The very critical layers on 28 probably correspond better to the non-critical layers on 20, so there will be some. But that cycle has been going on for a while. But even in that case, if you can provide compelling reasons to upgrade, you can often get customers to make the transition.

There are no further questions at this time. I'll turn the call back over to Mr. Lockwood.

Okay. Thank you, Jay. I'd like to thank everyone on behalf of the management team today for joining us. An audio replay of today's call will be available on our website later this afternoon, and once again, we appreciate your interest in KLA-Tencor.

This concludes today's conference call. You may now disconnect.