Good day, and welcome to the Lam Research Corporation June 2016 Conference Call. At this time, I would like to turn the conference over to Satya Kumar, Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to the Lam Research quarterly conference call. With me today are Martin Anstice, President and Chief Executive Officer, and Doug Bettinger, Executive Vice President and Chief Financial Officer. During today's call, we'll share our outlook on the business environment, review our financial results for the June 2016 quarter, our outlook for the September 2016 quarter and provide an update on our planned business combination with KLA-Tencor. The press release detailing our financial results was distributed a little after 1 PM Pacific Time this afternoon. It can also be found on the Investor Relations section of the company's website, along with the presentation slides that accompany today's call. Today's presentation and Q&A will include statements about our expectations and beliefs regarding certain future events. All statements made that are not historical facts are forward-looking statements based on current information and are subject to risks and uncertainties that may cause actual results to differ materially. These forward-looking statements include the timing for the closure of the proposed business combination with KLA-Tencor, the beliefs to be realized from that transaction, the anticipated structure of future combined operations, and our guidance on revenues, shipments, costs, margins, share count and earnings. Other forward-looking topics that we expect to cover are included in the slide deck accompanying our remarks. We encourage you to review the risk factor disclosures in our public filings with the SEC, including our 10-Ks and 10-Qs. The company undertakes no obligation to update forward-looking statements. Today's discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. A detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings press release. This call is scheduled to last until 3 PM Pacific Time. And as always, we ask that you limit your questions to one per firm with a very brief follow-up, so that we can accommodate as many questions as possible. As a reminder, the replay of this call will be available later this afternoon on our website. And with that, let me turn the call over to Martin.

Thank you, Satya, and thank you all for joining us today for our quarterly earnings conference call. The headline is that we delivered strong results that continue to reinforce our increasingly strong presence in the industry, as the enabling technology inflections continue to intensify around etch and deposition processes. In addition, the quality of our earnings rises as a higher proportion of our market share occurs in critical applications, which are characterized by extreme technical complexity and multi-year cycles of learning for the company. Lastly, our expectations for performance in the second half of calendar 2016 are stronger than previously articulated. We believe that with sustained focus on execution in partnership with our customers, multi-year outperformance opportunity is set to continue. Lam's shipments, revenue and non-GAAP gross margins were above the mid-points, and non-GAAP earnings above the high end of our guided ranges for the recent quarter. I would like to take a moment to acknowledge the support of our customers and the contributions of all Lam employees, without whom our performance would not be possible. I would also like to recognize the support we have received from our suppliers who have helped us to ramp our capacity, increase responsiveness to customers, increase localization and support our rapid product development cycles. Thank you all. At the core of Lam's outperformance is our culture and values, our close partnership with our customers and our ability to deliver innovative products, service, and capabilities at scale, which directly address key semiconductor manufacturing technology and market inflections such as 3D NAND, multi-patterning, FinFET and advanced packaging. Our predominant focus is always on increasing the probability of success for our customers, contributing to their stated business objectives. In that context, the importance of these technology inflections and their enabling of new industry growth vectors has…

Okay. Great. Thank you, Martin. Good afternoon, everyone, and thank you for joining us on the call today during what I know is a busy earnings time. The June quarter results represented a solid conclusion to the 2016 fiscal year. In the quarter, we performed above the midpoint of guidance for all metrics with operating margin and earnings per share above the high end of the range. For the fiscal year, shipments, revenues, operating income dollars, and earnings per share were all at record high levels. We delivered double digit revenue growth fiscal year over fiscal year and operating income dollars and earnings per share that grew at twice the rate of revenue growth. Moving now to the specifics for the June quarter. Shipments were $1.587 billion, up approximately 10% compared to the March quarter and just slightly below the record high level that we saw in the June 2015 quarter. The combined memory segment made up 66% of system shipments, and that was down from 70% in the prior quarter. Non-volatile memory shipments contributed 51% of the system shipments, and this was up from 43% in the March quarter. The non-volatile shipment dollars represent record levels for Lam Research. As we progress through first half of the year, 3D NAND investments have accelerated with multiple customers moving forward in their 3D NAND ramp plans. We are continuing to see the expansion of our SAM. And this combined with our success in winning critical applications in the 3D NAND process flows of our customers is driving the financial performance we're delivering. 3D NAND will represent over 95% of NAND shipments for 2016. As we expected, DRAM shipments decreased to 15% from 27% in the prior quarter. Investment is pacing at a rational reduced level in response to market conditions. DRAM…

Certainly. And we'll go ahead and take our first question from Tim Arcuri with Cowen. Please go ahead. Your line is open. Timothy Arcuri - Cowen & Co. LLC: Thank you very much. I had two questions. I guess, first, Doug, I'm not sure if I heard the guidance right, but it sounds like the second half shipment guidance is sort of up mid to high singles. So that would imply that the fourth quarter shipments are down a smidge, they're down maybe $150 million. And I guess – and my question on that is, we've all heard about some recent big 3D NAND projects that may have sort of pulled into this year, so is that more – sounds like that's more of a Q3 phenomenon than a Q4 phenomenon? Thanks.

Tim, we've given you a firm number on calendar Q3, and then calendar Q4, it's more directional, that's why it's mid to high single digits, because I don't want to specifically pinned down to exactly what is December, and that's why we've put a range around it. But when we describe it, it represents our expectation for everything that's going on not just in 3D NAND, but foundry/logic as well.

Just to add to that, Tim, I would say the message that we would very deliberately emphasize is the outperformance opportunity long-term for the company in the inflection space and whether it's multi-patterning with logic or 3D NAND scaling. The ebbs and flows in any one quarter, or ebbs and flows from one customer to another, I mean, they – I guess, they're interesting at some level. But I think one of the headlines from the industry in the last two months, three months is a very strong strategic commitment to some inflections that fall directly into the wheelhouse of this company because of the intensity of etch and deposition-related process. So, yeah, there's always an ebb and flow, but the headline – I hope you help us with, which is long-term commitment for customers to inflections that are extremely relevant for the future of this company.

Yeah. Good point. Timothy Arcuri - Cowen & Co. LLC: Totally, Martin. Okay, great. And then a follow-up question is on China. So of course, overnight, two of the bigger projects in China, the Tsinghua plant and XMC, they merged to form a new venture. Obviously, they still need IP, but it seems like maybe there is a little more confidence that this project could sort of get off the ground. I know, Doug, you guys have been a little more, I think, not cautious, but a little more realistic, I'd say on China that it's sort of like an even-sum game. So sort of in light of that recent development, can you talk a little bit about China and whether you're seeing any increased signs that maybe you could see some business from these indigenous projects on the memory side next year? Thanks.

Yeah. I'll let Martin handle this one.

Yeah. I mean, I think – I don't really think there's a kind of deliberate kind of tone differentiation for Lam relative to a China agenda. We all see exactly the same thing, more or less at exactly the same time, and what we said, I think, fairly consistently is that, the conviction to an IC 2020 and 2025 agenda appears very solid and robust. There are very strategic actions sometimes involving global companies, sometimes the domestic community. We are tracking at least 20 different fab level kind of ambition statements. And there is a full spectrum of kind of probability associated with each one of those. There clearly is, over a multiple year timeframe, more than 1 million wafer starts per month out there as a kind of reference point for installed based capacity in China. Relative to it being incremental, for me that's all about performance and cost of devices. And if the performance and cost of devices out of China can be a catalyst and a trigger for incremental demand, it's kind of positive for a global kind of industry including Lam. So time will tell. But clearly the commitment appears to be there. And as Doug said in his prepared comments, China is not an insignificant part of the revenue for the industry and the company.

Yeah, Tim, just to remind you, whatever happens in China, we are going to be involved substantially. Our share position, our presence there is very strong. So whatever is going on, be it a global multinational or an indigenous Chinese customer, we're extremely well-positioned. Timothy Arcuri - Cowen & Co. LLC: Of course. Okay. Thank you so much.

Yeah. Thanks, Tim.

Thank you. And we'll go ahead and take our next question from Joe Moore with Morgan Stanley. Please go ahead. Your line is open. Joe L. Moore - Morgan Stanley & Co. LLC: Great. Thank you. I wonder if you guys have done any analysis in terms of the current level of DRAM shipments. If you know kind of where we're tracking for DRAM supply next year kind of given the rate of investment we've seen, if you have any thoughts on that?

Yeah. I mean, I think we've done analytics, but we're not going to kind of get ahead of our customers relative to quantitative disclosure. We feel really good about kind of the ASP dynamic in the last several months and the inventory situation generally, I think those are kind of positive trends, the discipline appears to be in the system. We end the year, we believe, with a smaller installed base than we began the year. There's plenty of opportunity left to improve the performance and lower the cost of DRAM chips from conversions. I've said in my prepared comments, no more than 50% converted to the 20-nanometer technology node by end of year. So we are biased to a positive spending year in DRAM next year. But we're going to hold off on dollars until little later in the year. Joe L. Moore - Morgan Stanley & Co. LLC: Okay. That's helpful. Thank you. And then I guess just – when you talk about that, that's more based on your extrapolating what the DRAM environment will look like next year, or are you sort of hearing forecast from your customers that spending would pick up next year in DRAM?

I guess, the humorous response would be, we don't just make it up. So it's an educated judgment from the analytics of the company and a lot of dialog with our customers. I mean, we try to give you the best perspective we have, and I just did. Joe L. Moore - Morgan Stanley & Co. LLC: Very helpful. Thank you very much. Appreciate it.

Thanks, Joe.

Thank you. And our next question comes from C.J. Muse with Evercore. Please go ahead. Your line is open.

Yeah. Good afternoon. Thank you for taking my question. I guess first question; when you think about an environment with shipments down in Q4, curious how we should think about deferred revenues cascading in given that they're at record levels today and you suggested they would grow further in September. So curious how we should think about that coming through? And then what would the impact be to gross margins?

So I described an expectation that next quarter deferred revenues will grow again. They grew this quarter. You normally see that when shipments are above revenue, which obviously we've had the last couple of quarters now. I also described an expectation in the scripted remarks that I expect by the end of the year to deplete some of the deferred revenue, and obviously that will happen then in the June quarter if it's growing in September. So that's the way to think about it. Gross margin, C.J., I'm really only going to guide at one quarter at a time. There isn't anything magic about the deferred revenue and gross margin. It's more of what the product mix is, the customer concentration, all of that.

Okay. Very helpful. And then I guess as a quick follow-up, hoping to, I guess, dig a little bit into the KT transaction, can you update us on what needs to get done on a regulatory basis? And then whether you can extend the bridge financing beyond October 20? I think I saw that as an important date in the filing. Thank you.

I'll let Doug deal with the financing part of that question. What needs to get done is, we need to get consent from agencies that we haven't got consent from. We're working hard to that. We've obviously communicated to you today a delay relative to our original September reference. We might be lucky and still be pleasantly surprised, but we don't expect to receive consent globally inside of the September quarter. We're targeting before mid October. And obviously the disclosure of the company will stay consistent with our learnings. We feel the deal is clearly a compelling value proposition to our customers and our company. We feel better about it today as the value proposition than ever. I think even as recently at SEMICON West, we had a couple of customer meetings with clear statements of interest in the joint development activity and the innovation that would be possible when Lam and KT come together. We're targeting closure as fast as practically possible and obviously looking forward to being part of one company.

And then, C.J., you're right. The term loans have an expiration that would be in the 20th of October and were we still to be going back and forth and we extend the deal timing, then I'd have to go extend those as well. Wouldn't be all that hard to do it.

Okay. Excellent. Thank you.

Thank you. And our next question comes from Harlan Sur with JPMorgan. Please go ahead. Your line is open.

Good afternoon and congratulations on the solid quarterly execution. Last quarter, the team was somewhat optimistic on second half shipments being up over first half but a little bit tempered just given the DRAM fundamental environment. Obviously, this call, you seem extremely confident. You even quantified the growth in second half shipments. What segments or programs are driving the better second half view relative to outlook 90 days ago? Is it truly broad-based across memory, foundry and logic or is it skewed towards one segment or the other?

I would say, relatively speaking to the commentary of the company three months ago, it's memory and foundry both and it's exactly where you'd expect it to be of 3D NAND and demand related with broad industry commitment to that technology and it's 10-nanometer and 7-nanometer focused with as best I can tell very good tape-outs and customer engagement commentary from the customers that are making those investments. So it's definitely not just a single segment or limited customer commentary.

Thanks for the insights there, Martin. And given the stabilization in DRAM pricing, as you mentioned, there is a focus on profitability. As you mentioned, 50% of the capacity may be transitioned to 20-nanometers exiting this year. But there also seems like there is a sense of acceleration on some of the leaders in the space to make the move to 18-nanometer and 16-nanometer nodes. So I'm wondering if you're seeing this reflected in your second half shipment outlook and your thoughts on shipped 1X capacity as we exit this year for DRAM.

Yeah. I mean I think the essence of fundamental value in these conversions is kind of well understood and I don't think debated. I think appropriately, our customers are disciplined around supply and demand in their respective industry. They're conscious not just of adding capacity, but making money on the chips they build. And so we are very confident that as the cycle of demand emerges, and there's a decent amount of commentary on content expansion in some of our devices, as well as some positive signs in terms of unit demand on the low and mid end. This will kind of naturally play itself out. So, I don't really think it's a big second-half commentary for us, which is why we've articulated an expectation of calendar 2017 biased to the positive and that certainly when we would expect the supply and demand kind of conversation to be more or less behind us.

And Harlan...

Thanks for the insights.

Yeah, there is a little bit of 1X conversion occurring. But that really is going to be more about what's happening next year.

Thanks for the insights.

You're welcome. Thank you.

Thank you. And we'll go ahead and take our next question from Romit Shah with Nomura. Please go ahead. Your line is open.

Yes, thank you. I just wanted to ask about the deal because there's been uncertainty as to whether or not it's going to go through. And I think part of this stems from what happened last year. You know AMAT, TEL – yeah, that was a deal that was consistently delayed until it ultimately got killed. And with KLA this is – from what I understand the second time that you guys have delayed the timing of the closure. So, I guess the question is why should we be more confident that this transaction actually goes through?

I guess I don't really get chance to comment about your confidence. I will tell you that we believe this transaction is fundamentally different than the conversation and the transaction that you just referred to. There is no overlap whatsoever. We strongly believe in the merits of this transaction. We believe it's pro-competitive. We believe that Lam and KT together can innovate and deliver value to our customers beyond what we can do as independent companies. We are, as you know, from prior disclosure, codifying kind of the behavior that will be relevant to the company with the consent decree conversation, and I think we're on records in prior earnings calls on that point. One part of that obviously is describing our commitment to the entire semiconductor ecosystem relative to availability, supply and support kind of KT products. And that's just kind of part of this process. And we're stepping through and working diligently and collaboratively with agencies. We respect their work products. And as you likely anticipate, the crystal ball of Lam Research doesn't extend beyond the precision that we're kind of currently articulating. So we're doing the best we can to give you our best knowledge and we'll continue to make that commitment.

And Martin, is customer feedback really important and do you feel like there is a difference here with what you guys are trying to do with KLA versus previous deals?

Maybe I don't want to get trapped in a comparison here. I will tell you what I've tried to communicate from the beginning here. Obviously, we're doing this for the benefit of our customers. We believe we can innovate more and contribute more value to our customers and support their technology and economic roadmaps with this transaction. We believe if we do that, there will be more opportunity for our company and hence all stakeholders benefit. So we believe passionately in that value proposition, and we spent a decent amount of time working the conversation indirectly and sometimes directly with our customers to make sure the strategic choices were lined up with their expectations. There's always an ebb and a flow and I'm sure every – one customer has a slightly different characterization of this. But I feel, as least as best as I can tell from my personal interactions with customers, there's much more support than not and much more interest in exploring innovation potentials.

Okay. Thank you.

Thank you. And our next question comes from Toshiya Hari with Goldman Sachs. Please go ahead. Your line is open. Toshiya Hari - Goldman Sachs & Co.: Thank you for taking my question and congrats on a great quarter. My first question was on 3D NAND. I appreciate 2017 is still a couple of quarters out but was curious how you guys were thinking about 3D NAND spend into next year. Are there enough projects out there? And is the mix broad-based, enough for you to predict another healthy year?

Well, I think if the – yeah – I'm going to stay away from quantitative again if I may, but qualitatively, we think this is probably one of the most healthy spaces in the semiconductor industry because there are some very compelling value propositions and growth opportunities for semiconductors with solid state drive technology particularly. So again – in any one quarter, there's an ebb and a flow precisely how it plays out, but broad industry commitment to this technology and very compelling growth opportunities as we characterized in our prepared comments today . Toshiya Hari - Goldman Sachs & Co.: Okay. Thank you. And my follow-up is on EUV. It seems like your customers are warming up to the idea of EUV insertion at the 7 nanometer node. Have you also sensed a slight change in tone as it relates to their approach to EUV? And it would also be helpful if you could help us understand how your opportunity in etch and dep would differ between a world with no EUV and perhaps some EUV? Thank you.

A gentleman by the name of Peter Wennink is much more qualified to answer your question than I am. So, as we've said a number of times, we are invested in extending immersion and enabling EUV to the best of our abilities, so as an etch and deposition and clean company. And we believe that the inflection opportunities, multi-patterning opportunities in DRAM and logic for us extend into an EUV implementation. So when that happens, which we hope it does in the best interests of the semiconductor industry and our customers, we are there to support, and we believe the multi-patterning growth opportunity continues in that context. So no major tone comment from me at the customer interface because obviously we dialog much more about our business than ASML's. Toshiya Hari - Goldman Sachs & Co.: Great. Thank you very much.

You are welcome.

Thanks.

Thank you. And we'll go ahead and take our next question from Farhan Ahmad with Credit Suisse. Please go ahead. Your line is open. Farhan Ahmad - Credit Suisse Securities (USA) LLC (Broker): Thanks for taking the question. You, obviously, guided NAND to be little bit stronger this year. I just wanted to probe the linearity of NAND. Do you still see the NAND shipment has been primarily first half weighted?

It's a little stronger in the first half than the second half, Farhan. It continues, though, to be quite strong as we look into the second half. Farhan Ahmad - Credit Suisse Securities (USA) LLC (Broker): Got it. And then, Doug, can you talk about how much of the cash is onshore versus offshore?

Well, it has materially changed. All of the $2.4 billion that we raised, obviously, is domestically available. Taking that out, the remaining balance sheet cash, it's still about 20% or 25%. As it pertains to funding the transaction, we have all the domestic cash that we need to complete the KLA-Tencor transaction. Farhan Ahmad - Credit Suisse Securities (USA) LLC (Broker): Thank you. That's all I have.

Yeah. Thanks, Farhan.

Thank you. And we'll go ahead next to Stephen Chin with UBS. Please go ahead. Your line is open.

Okay. Thanks. Hi, Martin and Doug. Nice results.

Thank you.

Thanks, Stephen.

Just a question on the customer concentration, it looks like Lam shipments to Southeast Asia were up a lot in the quarter. Was this region mostly one customer? And is Lam likely to see a different top three customer list every quarter? And it's basically just up to you to manage this quarterly customer lumpiness?

Yeah. There is primarily one big customer investing in Southeast Asia. That I'm sure you know who it is, Stephen. And, yeah, you're going to see variability quarter-to-quarter as these very large fab projects get undertaken. They will come in and then they will need to ramp and then another one will come in and they will need to ramp. And so you're going to get variability due to that. That's just the nature of this business.

Yeah. I mean to the manage reference, I don't think we get chance to manage it. We are biased to give our customers what they need...

That's right.

...when they need it to the best of our abilities. And as Doug says many times, that that creates an up and a down, week-to-week, months-to-months, and quarter-to-quarter in every element of our financial statement, and it's tough for you we realize. Hopefully, you realize it's tough for us as well.

And Stephen just one last comment on this. I mean, I always refer back to the public financial model that we put out there is the best way to kind of think about things over time. When we put that together, we did our best to, kind of, model some level of variability. It doesn't mean it's going to be exactly those numbers, but that's the right kind of medium to longer term way to think about it.

Thanks for sharing that color. My follow-up question is on shipments to logic customers. We saw Lam recently win a Preferred Quality Supplier award from Intel last year. Congratulations on that. But we still haven't seen a big inflection in Lam shipments to logic customers. Just curious, if you still see logic as a customer segment that you're confident you're taking market share from and maybe future upside? Thanks.

Absolutely, yes.

Yeah. Definitively.

Thank you. And we'll go ahead and take our next question from Krish Sankar with Bank of America. Please go ahead. Your line is open.

Hi. Thanks for taking my question. I told them one, Doug – I know you don't want to comment on December, but I'm just curious if December revenues are flat versus September, would the gross margins be up in December?

Again, I'm only guiding gross margin one quarter at a time. Usually – everything else equal, if you have a higher level of revenue, margins will tend to be better. But you got all the mix that I've always described. So you can't necessarily just run to that conclusion.

Got it. All right. And then a follow-up for Martin. When you look at the 3D NAND as you go into like 64 layers, 96 layers and beyond, does the etching composition shift more towards dielectric etch versus conductor, or do you think conductor actually remains a major portion of the overall etch market in 3D NAND?

I don't think I have a segment message for you, more or less because I think the productivity solution set that will play out in high-volume manufacturing for the types of vertical scaling that you just described, have perhaps still a lot of work from the entire supply chain and also from the customer. So I would say watch this space, and if we see anything of value to communicate, we will. Again to reemphasize what I said in my prepared comments, the 2D to 3D transition for us was very strong with a 7 percentage point to 10 percentage point share gain for the company. Another, kind of, couple of data points that I would give you on 3D NAND for the company from a market share perspective. In general, the development tool of record decisions that translate into production tool of record decisions actually got stronger for us. And the other reference, I would give you is that obviously our presence in critical applications, which is really a commentary on quality of earnings is very, very strong. So we're right at the center of enabling, and that puts pressure on us but we feel really pleased about the position of the company.

Got it. Thank you.

Thanks, Krish.

Thank you. And our next question comes from Patrick Ho with Stifel, Nicolaus. Please go ahead. Your line is open. Patrick Ho - Stifel, Nicolaus & Co., Inc.: Thank you very much. Martin, first in terms of the growing adoption for applications for both atomic layer deposition and etch, what's the market opportunity as a whole that you see for those type of products?

That's something that, if I may, I'd like to defer to our analyst meeting planned for November because, to your point, atomic level processing – generally for us, atomic level etch and atomic level deposition is a very central part to the opportunity for growth in the company, and competitive differentiation and also quality of earnings. So I would prefer delay, if I may, until our November meeting on that point. Patrick Ho - Stifel, Nicolaus & Co., Inc.: Fair enough. And then maybe, for Doug, now that you're approaching record shipments, and obviously you've done a really good job up to this point with the high level shipments and probably a lot of pulls and pushes. Can you just discuss or give a little bit of color and some of the tactics, either whether it's the supply chain, manufacturing or how you're managing these record levels, especially as they keep growing?

I mean as I talked about, we have added resources in the manufacturing organization. You've seen our inventory balances tick up a little bit in anticipation of very strong shipments. And I think specifically the reason Martin in his scripted remarks thanked our suppliers, is they've supported our ramps very, very well. We've been talking to them well in advance of them needing to grow their volumes so that they are going to be ready for this. And I think we've executed extraordinarily well and will continue to. You manage the churn as it happens. And we've got a great global operations group that is really good at what we do. Patrick Ho - Stifel, Nicolaus & Co., Inc.: Great. Thank you.

Thanks, Patrick.

Thank you. And our next question comes from Sidney Ho with Deutsche Bank. Please go ahead. Your line is open.

Thanks. And thanks for taking my question. So in terms of foundry spending, it looks like the 28 nanometer and 40 nanometer and maybe 200 millimeter as well seems to have a longer life cycle because of low and mid range films phones. How do you think that changes your WFE forecast this year or next year? Or maybe it's just related to your service business, any way you can quantify it?

I don't know if I'll give you as much as you want. I'll give you as much as you want. 28-nanometer looks to be a very long node. And we're seeing even some 40-nanometer investments occurring. I think it has somewhat to do with low and mid end phones for sure. It's got equal amount to do with kind of where IoT stuff is going and that is how we monetize some of the installed base business as well. We're looking at that very differently in terms of that opportunity. And you're right. Some of the stuff is even 200 millimeter equipment. So we're very focused on it. I don't know if that was what you're looking for. But 28-nanometer is going to be around for a while.

Okay. My follow-up question is curious about your thoughts on another deal in the space between litho company and a process control company. I guess from a KLA perspective, does that change in any way your thoughts on the combined company SAM expansion opportunity?

No, I don't think it changes our objectives or our strategy. I think in many respects it probably validates the legitimacy of the vision to bring process and process control capability together at some level to innovate for the success of our customers. So it's another data point. There are others with other peer companies and other competitors. Sometimes it's an acquisitive action like the one you just refer to. Sometimes it's organic. There are plenty of examples now in our the industry where people are employing similar strategies. If your question maybe more relates to the competitive dynamic between e-beam and optical, our sense is that industry consensus is very complementary technologies. We're not obviously in a position to speak to KLA's business. But from the seat that we have with limited knowledge of the details, the latest generation optical inspection capabilities that KLA has brought to the market appear very robust and getting pretty solid traction. So, no real change in how we think about it, perhaps further validation of the vision. And to kind of restate what I said before, we're targeting to close this thing and we're working diligently with agencies to get that done. We never have any guarantees, but we're working hard to do that a little later than the September timeframe, targeting right now, mid-October.

Okay. Thank you very much.

Thanks, Sidney.

Thank you. And our next question comes from Weston Twigg with Pacific Crest. Please go ahead. Your line is open.

Hi. Yeah, thanks. Actually I had a similar question on the ASML-Hermes deal, but from a different angle, I was looking at it as an opportunity for Lam potentially given that you have a pretty tight relationship with ASML already and they are talking about doing pre-and post etch measurements and creating a holistic litho loop that extends into the process arena. So, I was just wondering, if you could maybe tell us how closely you're collaborating with ASML on this type of application, and if you think there's an opportunity to maybe gain market share, if you can drive customers to use more Lam tools in a holistic litho loop.

I think it's kind of premature for me to start talking about collaboration when we haven't actually closed our deal yet. But, obviously, to your point, the relationship between the companies is good and strong. We work diligently both to support the long-term success of our customers and I see that trend continuing. So, we all have some version of the same vision I think to deliver more predictable process to our customers, to open up process windows, to deliver their roadmaps with higher quality, lower cost IC devices, and whether we call that holistic litho or holistic etch or holistic dep or holistic process, we've all got our own nomenclature, but I think the strategy and the model of collaboration for our company is set to continue, I hope, for many years.

Got it. And then as a follow-up just looking at the model, guidance implies that OpEx would increase meaningfully next quarter. Just wondering if most of that falls into R&D and if you could give us an idea of what level of R&D increase you're looking at throughout the rest of the next fiscal year?

Yeah, a decent amount of it, Wes, is R&D, and again the right way to think about how we're going to spend money is pinned on that financial model. Obviously as we grow, we need to invest more to continue to grow and that's part of how we think about it. In the back half of the year given a little bit stronger P&L, there's also a general increase in that variable compensation piece that varies with the P&L.

That's helpful.

Just extending that answer a little bit further. I don't think we've ever invested more in the future of this company than we are today. I mean, I feel really good about the distribution of operating expenses to R&D and SG&A, I think we kind of set a tone. And whether we're the best in the industry or one of the best, I'm sure you guys can figure out but the 63% reference is something we worked hard for. If you look at the last several years since 2013, we have increased our investments in R&D by more than 30%. And in that same timeframe, the increase in investments in SG&A is about 10%. So, investing in the future of the company to prepare us for the inflections that we're describing, today's inflection is getting bigger and the next generation inflections central to long term success for the company.

Operator, we'll take one more question.

Okay. Perfect. Our last question comes from Amit Daryanani with RBC Capital Markets. Please go ahead. Your line is open.

Yep. Thanks. Glad I stuck in over there. I guess, first off on the KT transaction, could you just talk about what are the concerns that you're hearing from regulators, because the deal seems fairly complementary and no real overlap. I'm curious what's the feedback you're getting. And is there anyone other than the DOJ that's giving you negative feedback or concerns on the deal?

Yeah. We're not really in a position to talk about the conversations we're having with regulators. I mean, the essence of this deal, as I said a couple of times, is no product overlap. We believe a compelling and pro-competitive value proposition for the benefit of our customers. We have made broad commitments to the ecosystem relative to supply and availability in support of process control equipments. And the protocols around intellectual property protection are well established in this industry and the company. So, I mean those are the qualitative statements I can make around your question. But the specifics of our dialog with agencies unfortunately we're not at liberty to dialog about.

Understood. And if I just follow up, if get your comments on the back half shipments right, I mean, you're implying December could be down modestly. Is that essentially just a pause that you're seeing maybe on the 3D NAND side, or is something else driving that shipment down in December, and I get it could be lumpy but I'm curious what's the driver this time around in December.

Yeah. I wouldn't describe it as a pause. I mean there is just a – every customer has their own cycle of investment. And they can't continue to jam tons of capacity into their fabs like forever so they add and then they pause a little bit, but there's no generic kind of industry cycle type pause commentary that we can make. And frankly I don't think we'll ever be able to make. I think the industry is very different today as a result of consolidation.

Yeah. It's just timing of projects. I mean it's nothing more than that.

Perfect. Thank you.

Thank you.

Operator?

And that does conclude our question-and-answer session. I will now hand the program back over to Satya Kumar for any additional or closing remarks.

Yes. Thank you everyone for joining our conference call. Our Analyst Day is scheduled for November 16. Do make a note of that. We've issued a press release on that. Thanks once again.

And that does conclude today's program. We'd like to thank you for your participation. Have a wonderful day, and you may disconnect at any time