Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Nicolas Gaudois - UBS.
Nicolas Gaudois - UBS
First question is on NAND Flash. I mean, you sound a little bit more positive on I guess some of your discussions you have with these two key customers of that; and if we’re looking at such addition rates in NAND Flash beginning pretty much close to saturation as of now, Intel committing on drive acceptance yesterday also improving.
I guess one can construct for the beyond shrink investment of major requirements for capacity as well going back next year? So, if you could give us your view on that as a turning point, it would be great. I will have one follow-up for Peter on margins. Thank you.
Eric Meurice
We had to prioritize the segments which have more gross potential. At this moment we would still position DRAM first. At this moment there is much more activity in the DRAM sector, but closely commend in a sense that there has been significant overcapacity built up in 2008 or so, and you can see that the market demand has been catching up on this overcapacity and therefore main customers are at this moment starting to plan for the restart of their business.
I would guess at this moment, most of the shipments that we will do in the next six months will be going to DRAM and Logic and that the Flash business will start late into the year and into 2010. Added to this, you are starting to see a conversion discussion of NAND from 30 nanometer which is the current new technology to 20 nanometer, which again will start in 2010.
Nicolas Gaudois - UBS
On the cost side, your gross margin guidance for Q3 was probably a third side versus expectations. If you could try five reasons for that and how should we think about gross margins going into the back end of the year towards your breakeven target, in particular for valuable cost accounts? Thank you.
Peter Wennink
With respect to the third quarter, two reasons why the gross margin is a touch life and it has to do with the fact that; one, we are still shipping tools out of all the inventory we purchased in 2008, where we are going to replenish that in Q3 for shipment in Q4. So cost reduction for modules have possibly only entered income statements towards the end of the year, that’s one; and number two is, the cost reduction initiatives that we have started are going to see effect in Q3, but increasingly in Q4.
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