UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 29, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

LAM RESEARCH CORPORATION

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		94-2634797 (I.R.S. Employer Identification No.)
4650 Cushing Parkway Fremont, California (Address of principal executive offices)		94538 (Zip code)

Registrant’s telephone number, including area code: (510) 572-0200
Securities registered pursuant to Section 12(b) of the Act:

Title of class		Name of exchange on which registered
Common Stock, Par Value $0.001 Per Share		NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     The aggregate market value of the Registrant’s Common Stock, $0.001 par value, held by non-affiliates of the Registrant, as of December 23, 2007, the last business day of the most recently completed second fiscal quarter with respect to the fiscal year covered by this Form 10-K, was $4,510,079,158. Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock has been excluded from this computation in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination of such status for other purposes.

As of August 15, 2008, the Registrant had 125,429,388 outstanding shares of Common Stock.

Parts of the Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held November 6, 2008 are incorporated by reference into Part III of this Form 10-K. (However, the Reports of the Audit Committee and Compensation Committee are expressly not incorporated by reference herein.)

 

 

LAM RESEARCH CORPORATION
2008 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

		Page
Part I.			3
Item 1. Business			3
Item 1A. Risk Factors			13
Item 1B. Unresolved Staff Comments			21
Item 2. Properties			21
Item 3. Legal Proceedings			21
Item 4. Submission of Matters to a Vote of Security Holders			21
Part II.			23
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			23
Item 6. Selected Financial Data			24
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 7A. Quantitative and Qualitative Disclosures about Market Risk			40
Item 8. Financial Statements and Supplementary Data			42
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			42
Item 9A. Controls and Procedures			43
Item 9B. Other Information			43
Part III.			44
Item 10. Directors, Executive Officers and Corporate Governance			44
Item 11. Executive Compensation			44
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			44
Item 13. Certain Relationships and Related Transactions, and Director Independence			44
Item 14. Principal Accounting Fees and Services			44
Part IV.			45
Item 15. Exhibits, Financial Statement Schedules			45
Signatures			79
Exhibit Index			81
EXHIBIT 10.143
EXHIBIT 10.144
EXHIBIT 10.145
EXHIBIT 10.146
EXHIBIT 21
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     With the exception of historical facts, the statements contained in this discussion are forward-looking statements, which are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Certain, but not all, of the forward-looking statements in this report are specifically identified. The identification of certain statements as “forward-looking” is not intended to mean that other statements not specifically identified are not forward-looking. Forward-looking statements include, but are not limited to, statements that relate to our future revenue, shipments, cost and margins, product development, demand, acceptance and market share, competitiveness, market opportunities, levels of research and development (R&D), outsourced activities and operating expenses, anticipated manufacturing, customer and technical requirements, the ongoing viability of the solutions that we offer and our customer’s success, tax expenses, our management’s plans and objectives for our current and future operations and business focus, the levels of customer spending or R&D activities, general economic conditions, the sufficiency of financial resources to support future operations, and capital expenditures. Such statements are based on current expectations and are subject to risks, uncertainties, and changes in condition, significance, value and effect, including without limitation those discussed below under the heading “Risk Factors” within Item 1A and elsewhere in this report and other documents we file from time to time with the Securities and Exchange Commission (SEC), such as our quarterly reports on Form 10-Q and our current reports on Form 8-K. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on information currently and reasonably known to us. We undertake no obligation to release the results of any revisions to these forward-looking statements, which may be made to reflect events or circumstances that occur after the date hereof or to reflect the occurrence or effect of anticipated or unanticipated events. All references to fiscal years apply to our fiscal years, which ended June 29, 2008, June 24, 2007, and June 25, 2006.

Item 1. Business

     Lam Research Corporation (“Lam Research,” “Lam,” “we,” or the “Company”) is a leading supplier of wafer fabrication equipment and services to the worldwide semiconductor industry. Our wafer fabrication equipment, services, and extensive technical expertise have contributed to advancing semiconductor manufacturing and producing some of the world’s most advanced semiconductor devices for more than 25 years. We are recognized as the market share leader in plasma etch and, leveraging our etch expertise, we are addressing some of today’s most advanced semiconductor processing challenges with an expanded product portfolio beyond etch.

     We design, manufacture, market, and service semiconductor processing equipment used in the fabrication of integrated circuits. Semiconductor wafers are subjected to a complex series of process and preparation steps that result in the simultaneous creation of many individual integrated circuits. We leverage our expertise in these areas to develop integrated processing solutions which typically benefit our customers through reduced cost, lower defect rates, enhanced yields, or faster processing time. Many of the technical advances that we introduce in our newest products are also available as upgrades to our installed base of equipment, a benefit that can provide customers with a cost-effective strategy for extending the performance and capabilities of their existing wafer fabrication lines.

     Our innovative etch technologies enable customers to build some of the world’s highest-performing integrated circuits. Our etch systems shape the microscopic conductive and dielectric layers into circuits that define a chip’s final use and function. We also offer a broad portfolio of single-wafer clean technologies which allow our customers to implement customized yield-enhancing solutions. With each new technology node, additional requirements and challenges drive the need for advanced manufacturing solutions. We strive to consistently deliver these advanced capabilities with cost-effective production performance as we understand the close relationship between customer trust and the timely delivery of new solutions that leads to shared success with our customers.

     Incorporated in 1980, Lam Research is headquartered in Fremont, California, and maintains a network of facilities throughout the United States, Japan, Europe, and Asia in order to meet the needs of its global customer base.

     In March 2008, we completed our acquisition of SEZ Holding AG (“SEZ”), a leading supplier of single-wafer wet clean technology and products, founded in 1986, with primary operations based in Austria. SEZ’s proprietary Spin-Processor™ technology (single-wafer spin clean technology) forms part of our broad equipment portfolio for wafer cleaning solutions. The single-wafer clean market is central to our adjacent market growth strategy. As approximately 50% of the wafer cleaning steps in a fab immediately follow an etch process, acquiring a major wafer clean company is a natural and logical step to growing our business. The combination of the two companies allows us to offer a full spectrum of single-wafer cleaning and surface preparation solutions, with products incorporating proprietary single-wafer spin, linear, plasma-based bevel clean, and strip technologies.

     Additional information about Lam Research is available on our web site at http://www.lamresearch.com. Our Annual Report on Form 10-K, Quarterly Reports on Forms 10-Q, Current Reports on Form 8-K, and any amendments to those reports are available on our website as soon as reasonably practicable after we filed them with or furnish them to the Securities and Exchange Commission (“SEC”), and are also available online at the SEC web site at http://www.sec.gov.

     Etch processes, which are repeated numerous times during the wafer fabrication cycle, are required to manufacture every type of semiconductor device produced today. Our etch products selectively remove portions of various films from the wafer in the creation of semiconductor devices by utilizing various plasma-based technologies to create critical device features at current and future technology nodes. Plasma consists of charged and neutral species that react with exposed portions of the wafer surface to remove dielectric or conductive materials and produce the finely delineated features and patterns of an integrated circuit.

Dielectric Etch

     For dielectric etch, new materials integration often requires etching multi-layer film stacks. In addition to the challenges introduced by new materials and scaling, device manufacturers’ desire to reduce overall cost per wafer has placed an increased emphasis on the ability to etch multiple films in the same chamber (in situ).

DFC Technology

     Production-proven in high-volume manufacturing for more than 13 years, our patented Dual Frequency Confined™ technology has been extended to incorporate multi-frequency power with a physically confined plasma. The application of power at different frequencies provides enhanced process flexibility and allows different materials to be etched in the same chamber. Physical confinement of the plasma to an area directly above the wafer minimizes chemical interaction with the chamber walls, eliminating potential polymer build-up that could lead to defects on the wafer. Confinement also enables our proprietary in situ Waferless Autoclean™ technology to clean chamber components after each wafer has been etched. Used together, multi-frequency and WAC™ technologies provide a consistent process environment for every wafer, preventing process drift and ensuring repeatable process results wafer-to-wafer and chamber-to-chamber.

     Our 2300 Exelan Flex dielectric etch products represent a continuous evolution of the productivity and performance benefits of DFC technology. The Exelan Flex family allows a single chamber design to meet the requirements of a wide range of applications through multiple technology generations. Advances in system design, such as multiple frequencies, meet the more demanding uniformity and profile requirements for applications at the 45 nm node and beyond.

Conductor Etch

     As the semiconductor industry continues to shrink critical feature sizes and improve device performance, a variety of new etch challenges have emerged. For conductor etch, these challenges include processing smaller features, new materials, and new transistor structures on the wafer. Due to decreasing feature sizes, the etch process can now require atomic-level control across a 300 mm wafer. The incorporation of new metal gates and high-k dielectric materials in the device stack requires advanced multi-film etching capability. Furthermore, the adoption of double patterning techniques to address lithography challenges at the 45 nm node and beyond is driving the etch process to define the feature on the wafer as well as to transfer the pattern into the film. All of these challenges require today’s conductor etch systems to provide advanced capabilities, while still providing high productivity.

TCP Technology

     Introduced in 1992, our Transformer Coupled Plasma™ technology continues to provide leading-edge capability for advanced conductor etch applications at the 45 nm node and beyond. By efficiently coupling radio frequency power into plasma at low pressures, the TCP technology provides capability to etch nanoscale features into silicon and metal films. The advanced TCP source design ensures a uniform, high-density plasma across the wafer, without requiring magnetic enhancements that could cause device damage. With a wide process window over a range of power, chemistry, and pressure combinations, TCP technology provides the flexibility required to perform multiple etch steps in the same chamber.

2300^® Versys^® Kiyo^®, 2300^® Versys ^® Kiyo45™, 2300^® Versys^® Kiyo3x, 2300^® Versys ^® Metal45™ Etch System Conductor Etch Systems

     Now in its third generation, the 2300 Versys product family combines iterative advances in technology to provide critical dimension (“CD”) uniformity and productivity for a wide range of conductor and metal etch applications. Our etch products perform production-proven in situ etch of complex features. In addition, proprietary pre-coat and post-etch chamber clean techniques provide the same environment for superior repeatability, as well as high uptime and yield wafer after wafer.

MEMS and Deep Silicon Etch

     Micro-electromechanical systems (“MEMS”) devices are increasingly being used in consumer applications, such as ink jet printer heads and inertial sensors. This is driving a number of MEMS applications to transition into high-volume manufacturing, which requires the high levels of cost-effective production typically seen in commodity semiconductor memory devices. To achieve high yield in mass production, the MEMS etch process requires wafer-to-wafer repeatability.

TCP^® 9400DSiE™ Deep Silicon Etch System

     The TCP 9400DSiE system is based on our production-proven TCP 9400 silicon etch series. The system’s patented high-density TCP plasma source provides a configuration to meet the challenges of silicon deep reactive ion etch (“Si DRIE”), offering broad process capability and flexibility for a wide range of MEMS, advanced packaging, and power semiconductor applications. Incorporation of our proprietary in situ chamber cleaning technology provides etch rate stability.

Three-Dimensional Integrated Circuits (“3-D IC”) Etch

     The semiconductor industry is developing advanced, 3-D IC using through-silicon vias (“TSV”) to provide interconnect capability for die-to-die and wafer-to-wafer stacking. In addition to a reduced form factor, 3-D ICs can enhance device performance through increased speed and decreased power consumption. Manufacturers are currently considering a wide variety of 3-D integration schemes that present an equally broad range of TSV etch requirements. Plasma etch technology, which has been used extensively for deep silicon etching in memory devices and MEMS production, is well suited for TSV creation.

2300^® Syndion™ Through-Silicon Via Etch System

     The 2300 Syndion etch system is based on our patented TCP technology and the production-proven 2300 Versys Kiyo conductor etch system. The Syndion system can etch multiple film stacks in the same chamber, including silicon, dielectric, and conducting materials, thereby addressing multiple TSV etch requirements.

Pattern Enhancement

     Lithography challenges at the 45 nm node and beyond provide opportunities for non-lithographic solutions to continue device scaling. Innovative patterning methods are needed to produce the ever smaller feature sizes and tighter pitches (the center-to-center distance between features of an integrated circuit) demanded of today’s advanced chip designs. We believe that patterning solutions offer opportunities to address the challenges of current and next-generation lithography systems and that the adoption of in-situ shrinks and double-patterning techniques may allow manufacturers to postpone investments in new lithography equipment.

2300^® Motif™ Pattern Enhancement System

     The 2300 Motif post-lithography pattern enhancement system enables cost-effective production of next-generation feature sizes using current lithography. Using a proprietary plasma-assisted process, the system reduces the original printed CD of a feature by as much as 50 nm for holes and 100 nm for trenches and delivers well-controlled final CDs as small as 10 nm.

     The manufacture of semiconductor devices involves a series of processes such as etch and deposition, which leave particles and residues on the surface of the wafer. The wafer must generally be cleaned after these steps to remove residues that could adversely impact the processes that immediately follow them and degrade device performance. Common wafer cleaning steps include post-etch and post-strip cleans and pre-diffusion and pre-deposition.

     Specific challenges at 45 nm and beyond include thorough particle removal, protecting structures with fragile new materials and smaller feature sizes, achieving effective residue removal and drying, while minimizing substrate material loss. In addition, management of potential defect sources at the wafer’s edge will become increasingly challenging as new materials are introduced in the process flow.

Single-Wafer Wet Clean

     As device geometries shrink and new materials are introduced, the number of wafer cleaning steps is increasing. In addition, each step has different selectivity and defectivity requirements that add to manufacturing complexity. The need to clean fragile structures without causing damage is a reason why chipmakers are turning to single-wafer wet clean processing technology for next-generation devices.

     Over the past decade, a transition from batch to single-wafer has occurred for BEOL wet clean applications and a similar migration for front-end-of-line (“FEOL”) wet clean applications appears to be occurring as the need for higher particle removal efficiency without device structure damage becomes more critical. Single-wafer wet processing is particularly advantageous for those applications where improved defect performance (removing particles without damaging the wafer pattern) or enhanced selectivity and CD control can improve yield.

     With the acquisition of SEZ in March 2008, we have expanded our portfolio to include single-wafer spin systems, in addition to gaining more than 20 years of experience in clean technology and a substantial installed customer base. This single-wafer Spin-Processor technology for cleaning and removing films has assisted the industry transition from batch to single-wafer wet processing. By offering advanced dilute chemistry and solvent solutions in our systems, our single-wafer spin clean systems address certain defectivity and material integrity requirements.

Single-Wafer Linear Clean Product: C3™ Technology

     To meet the challenges of smaller critical dimensions, increasing aspect ratios, and new materials integration, our Confined Chemical Cleaning™ (“C3”) technology is targeted at applications requiring high-selectivity residue removal without damaging sensitive device structures. The C3 technology combines linear wafer motion with chemically-driven single-wafer cleaning to remove residues with chemical exposure times as short as a few seconds. The cleaning exposure time is optimized for efficient removal of the target materials, while limiting the impact on critical materials. This technology addresses applications that require high-selectivity cleaning, such as high-k metal gate post-etch clean.

Plasma-Based Bevel Clean

     Semiconductor manufacturers are paying increasing attention to the wafer’s edge as a source of yield-limiting defects. New materials like porous low-k and organic films often do not adhere as well as traditional silicon or polymer-based films and have the potential to be significant defect sources. By including cleaning steps that target the bevel region, the number of good die at the wafer’s edge can be increased to maximize yield.

2300^® Coronus™ Plasma-Based Bevel Clean System

     The 2300 Coronus plasma-based bevel clean system incorporates plasma technology to remove yield-limiting defect sources. The system combines the ability of plasma to selectively remove a wide variety of materials with a proprietary confinement technology that protects the die area. Incorporating our Dynamic Alignment technology on the production-proven 2300 platform, the Coronus system provides highly accurate wafer placement for reproducible results and superior encroachment control and is designed to remove a wide range of material types, in multiple applications throughout the manufacturing process flow.

     The Lam Research logo, Lam Research, and all product and service names used herein are either registered trademarks or trademarks of Lam Research Corporation in the United States and/or other countries. All other marks mentioned herein are the property of their respective holders.

Research and Development

     The market for semiconductor capital equipment is characterized by rapid technological change and product innovation. Our ability to obtain and maintain our competitive advantage depends in part on our continued and timely development of new products and enhancements to existing products. Accordingly, we devote a significant portion of our personnel and financial resources to R&D programs and seek to maintain close and responsive relationships with our customers and suppliers.

     Our R&D expenses during fiscal years 2008, 2007, and 2006 were $323.8 million, $285.3 million, and $229.4 million, respectively. The majority of spending is targeted at etch and plasma-based technology applications with an increasing proportion focused on adjacent markets including single-wafer spin wet clean, pre- and post-etch step opportunities, consistent with our multi-product growth strategy. We believe current challenges for customers in the pre- and post-etch applications present opportunities for us. We plan to leverage our extensive production experience in etch and strip into new products and new capabilities for our customers at the 65, 45, and 32 nm nodes, including post ion implantation strip, clean, and patterning.

     We expect to continue to make substantial investments in R&D to meet our customers’ product needs, support our growth strategy, and enhance our competitive position.

Marketing, Sales, and Service

     Our marketing, sales, and service efforts are focused on building long-term relationships with our customers and targeting product and service solutions designed to meet our customers’ needs. These efforts are supported by a team of product marketing and sales professionals as well as equipment and process engineers who work closely with individual customers to develop solutions for their wafer processing needs. We maintain ongoing service relationships with our customers and have an extensive network of field service engineers in place throughout the United States, Europe, Taiwan, Korea, Japan, and Asia Pacific. We believe that comprehensive support programs and close working relationships with customers are essential to maintaining high customer satisfaction and our competitiveness in the marketplace.

     We offer standard warranties for our systems that generally run for a period of 12 months from system acceptance. The warranty provides that systems shall be free from defects in material and workmanship and conform to our published specifications. The warranty is limited to repair of the defect or replacement with new or like-new equivalent goods and is valid when the buyer provides prompt notification within the warranty period of the claimed defect or non-conformity and also makes the items available for inspection and repair. We also offer extended warranty packages to our customers to purchase as desired.

International Sales

     A significant portion of our sales and operations occur outside the United States and, therefore, may be subject to certain risks, including but not limited to tariffs and other barriers, difficulties in staffing and managing non-U.S. operations, adverse tax consequences, exchange rate fluctuations, changes in currency controls, compliance with U.S. and international laws and regulations, including U.S. export restrictions, and economic and political conditions. Any of these factors may have a material adverse effect on our business, financial position, and results of operations and cash flows. Revenue by region was as follows:

		Year Ended
		June 29,				June 24,				June 25,
		2008				2007				2006
		(in thousands)
Revenue:
United States		$	417,807			$	408,631			$	238,009
Europe			235,191				237,716				208,369
Asia Pacific			308,984				451,487				193,181
Taiwan			502,683				573,875				277,731
Korea			554,924				531,310				366,939
Japan			455,322				363,557				357,942
Total revenue		$	2,474,911			$	2,566,576			$	1,642,171

     Please see Note 18, “Segment, Geographic Information and Major Customers”, to Consolidated Financial Statements for a description of the geographic locations of long-lived assets.

Customers

     Our customers include many of the world’s leading semiconductor manufacturers. Customers continue to establish joint ventures, alliances and licensing arrangements which have the potential to positively or negatively impact our competitive position and market opportunity. In fiscal year 2008, revenues from Samsung Electronics Company, Ltd. and Toshiba Corporation accounted for approximately 19% and 13%, respectively, of total revenues. In fiscal year 2007, revenues from Hynix Semiconductor and Samsung Electronics Company, Ltd., each accounted for approximately 14% of total revenues. In fiscal year 2006, revenues from Samsung Electronics Company, Ltd., accounted for approximately 15% of total revenues and revenues from Toshiba Corporation accounted for approximately 12% of total revenues.

     A material reduction in orders from our customers in the semiconductor industry could adversely affect our results of operations and projected financial condition. Our business depends upon the expenditures of semiconductor manufacturers. Semiconductor manufacturers’ businesses, in turn, depend on many factors, including their economic capability, the current and anticipated market demand for integrated circuits and the availability of equipment capacity to support that demand.

Backlog

     Our unshipped orders backlog includes orders for systems, spares, and services where written customer requests have been accepted and the delivery of products or provision of services is anticipated within the next 12 months. Our policy is to revise our backlog for order cancellations and to make adjustments to reflect, among other things, spares volume estimates and customer delivery date changes. In general, we schedule production of our systems based upon purchase orders in backlog and our customers’ delivery requirements. Included in our systems backlog are orders for which written requests have been accepted, prices and product specifications have been agreed upon, and shipment of systems is expected within one year. The spares and services backlog includes customer orders for products that have not yet shipped and for services that have not yet been provided. Where specific spare parts and customer service purchase contracts do not contain discrete delivery dates, we use volume estimates at the contract price and over the contract period, not exceeding 12 months, in calculating backlog amounts.

     As of June 29, 2008 and June 24, 2007, our backlog was approximately $410 million and $643 million, respectively. Generally, orders for our products and services are subject to cancellation by our customers with limited penalties. Because some orders are received for shipments

in the same quarter and due to possible customer changes in delivery dates and cancellations of orders, our backlog at any particular date is not necessarily indicative of business volumes nor actual revenue levels for succeeding periods.

Manufacturing

     Our manufacturing operations consist mainly of assembling and testing components, sub-assemblies, and modules that are then integrated into finished systems prior to shipment to or at the location of our customers. Most of the assembly and testing of our products is conducted in cleanroom environments.

     We have agreements with third parties to outsource certain aspects of our manufacturing, production warehousing, and logistics functions. We believe that these outsourcing contracts provide us more flexibility to scale our operations up or down in a more timely and cost effective manner, enabling us to respond to the cyclical nature of our business. We believe that we have selected reputable providers and have secured their performance on terms documented in written contracts. However, it is possible that one or more of these providers could fail to perform as we expect, and such failure could have an adverse impact on our business and have a negative effect on our operating results and financial condition. Overall, we believe we have effective mechanisms to manage risks associated with our outsourcing relationships. Refer to Note 14 of our Consolidated Financial Statements, included in Item 8 herein, for further information concerning our outsourcing commitments.

     Certain components and sub-assemblies included in our products are only obtained from a single supplier. We believe that, in many cases, alternative sources could be obtained and qualified to supply these products. Nevertheless, a prolonged inability to obtain these components could have an adverse effect on our operating results and could unfavorably impact our customer relationships.

Environmental Matters

     We are subject to a variety of governmental regulations related to the management of hazardous materials. We are currently not aware of any pending notices of violation, fines, lawsuits, or investigations arising from environmental matters that would have any material effect on our business. We believe that we are in general compliance with these regulations and that we have obtained (or will obtain or are otherwise addressing) all necessary environmental permits to conduct our business. Nevertheless, the failure to comply with present or future regulations could result in fines being imposed on us, suspension of production, and cessation of our operations or reduction in our customers’ acceptance of our products. These regulations could require us to alter our current operations, to acquire significant equipment, or to incur substantial other expenses to comply with environmental regulations. Our failure to control the use, sale, transport or disposal of hazardous substances could subject us to future liabilities.

Employees

     As of August 15, 2008, we had approximately 3,800 regular employees.

     Each of our employees is required to comply with our policies relating to maintaining the confidentiality of our proprietary information and with our statement of standards of business conduct. In the semiconductor and semiconductor equipment industries, competition for highly skilled employees is intense. Our future success depends, to a significant extent, upon our continued ability to attract and retain qualified employees particularly in the R&D and customer support functions.

Competition

     The semiconductor capital equipment industry is characterized by rapid change and is highly competitive throughout the world. To compete effectively, we invest significant financial resources to continue to strengthen and enhance our product and services portfolio and to maintain customer service and support locations globally. Semiconductor manufacturers evaluate capital equipment suppliers in many areas, including, but not limited to, process performance, productivity, customer support, defect control, and overall cost of ownership, which can be affected by many factors such as equipment design, reliability, software advancements, etc. Our ability to succeed in the marketplace will depend upon our ability to maintain existing products and introduce product enhancements and new products on a timely basis. In addition, semiconductor manufacturers must make a substantial investment to qualify and integrate new capital equipment into semiconductor production lines. As a result, once a semiconductor manufacturer has selected a particular supplier’s equipment and qualified it for production, the manufacturer generally maintains that selection for that specific production application and technology node provided that there is demonstrated performance to specification by the installed base. Accordingly, we may experience difficulty in selling to a given customer if that customer has qualified a competitor’s equipment. We must also continue to meet the expectations of our installed base of customers through the delivery of high-quality and cost-efficient spare parts in the presence of third-party spares provider competition. We face significant competition with all of our products and services. Certain of our existing and potential competitors have substantially greater financial resources and larger engineering, manufacturing, marketing, and customer service and support organizations than we do. In addition, we face competition from a number of emerging companies in the industry. We expect our competitors to continue to improve the design and performance of their current products and processes and to introduce new products and processes with enhanced price/performance characteristics. If our competitors make acquisitions or enter into strategic relationships with leading semiconductor manufacturers, or other entities, covering products similar to those

we sell, our ability to sell our products to those customers could be adversely affected. There can be no assurance that we will continue to compete successfully in the future. Our primary competitors in the etch market are Tokyo Electron, Ltd. and Applied Materials, Inc. Our primary competitor in the single-wafer wet clean market is Dainippon Screen Manufacturing Co. Ltd. (“DNS”).

Patents and Licenses

     Our policy is to seek patents on inventions relating to new or enhanced products and processes developed as part of our ongoing research, engineering, manufacturing, and support activities. We currently hold a number of United States and foreign patents covering various aspects of our products and processes. We believe that the duration of our patents generally exceeds the useful life of the technologies and processes disclosed and claimed therein. Our patents, which cover material aspects of our past and present core products, have current durations ranging from approximately one to twenty years. We believe that, although the patents we own and may obtain in the future will be of value, they will not alone determine our success, which depends principally upon our engineering, marketing, support, and delivery skills. However, in the absence of patent protection, we may be vulnerable to competitors who attempt to imitate our products, manufacturing techniques, and processes. In addition, other companies and inventors may receive patents that contain claims applicable or similar to our products and processes. The sale of products covered by patents of others could require licenses that may not be available on terms acceptable to us, or at all. For further discussion of legal matters, see Item 3, “Legal Proceedings,” of this Annual Report on Form 10-K as of and for the year ended June 29, 2008 (the “2008 Form 10-K).

Recent Acquisitions

     During fiscal year 2008, we acquired approximately 99% of the outstanding shares of SEZ Holding AG (“SEZ”), a major supplier of single-wafer wet clean technology and products to the global semiconductor manufacturing industry. The acquisition was an all-cash transaction. We expect to take additional steps as necessary to acquire the SEZ shares that remain outstanding. The acquisition of these shares was conducted pursuant to the terms of a Transaction Agreement entered into on December 10, 2007 by and between the Company and SEZ. SEZ’s Spin-Process single-wafer technology forms part of a broad equipment solution portfolio for wafer cleaning and decontamination, a key process adjacent to etch.

Other Cautionary Statements

     See the discussion of risks in the section of this 2008 Form 10-K entitled Item 1A, “Risk Factors” and elsewhere in this report.

EXECUTIVE OFFICERS OF THE COMPANY

     As of August 27, 2008, the executive officers of Lam Research were as follows:

Name		Age		Title
James W. Bagley		69		Executive Chairman
Stephen G. Newberry		54		President and Chief Executive Officer
Martin B. Anstice		41		Senior Vice President, Chief Financial Officer and Chief Accounting Officer
Ernest E. Maddock		50		Senior Vice President, Global Operations
Abdi Hariri		46		Group Vice President, Customer Support Business Group
Richard A. Gottscho		56		Group Vice President and General Manager, Etch Businesses
Thomas J. Bondur		40		Vice President, Global Field Operations

     James W. Bagley became Chief Executive Officer and a Director of the Company with the merger of Lam Research and OnTrak Systems, Inc., in 1997. Effective September 1, 1998, he was appointed Chairman of the Board. On June 27, 2005, Mr. Bagley transitioned from Chairman of the Board and Chief Executive Officer to Executive Chairman of the Board of Lam Research. Mr. Bagley currently is a director of Teradyne, Inc. and Micron Technology, Inc. From June 1996 to August 1997, Mr. Bagley served as Chairman of the Board and Chief Executive Officer of OnTrak Systems, Inc. He was formerly Chief Operating Officer and Vice Chairman of the Board of Applied Materials, Inc., where he also served in other senior executive positions during his 15-year tenure. Mr. Bagley held various management positions at Texas Instruments, Inc., before he joined Applied Materials, Inc.

     Stephen G. Newberry joined the Company in August 1997 as Executive Vice President and Chief Operating Officer. He was appointed President and Chief Operating Officer of Lam Research in July 1998 and President and Chief Executive Officer in June 2005. Mr. Newberry currently serves as a director of Lam Research Corporation and of SEMI, the industry’s trade association. Prior to joining Lam Research, Mr. Newberry served as Group Vice President of Global Operations and Planning at Applied Materials, Inc. During his 17 years at Applied Materials, he held various positions in manufacturing, product development, sales and marketing, and customer service. Mr. Newberry is a graduate of the U.S. Naval Academy (BS Ocean Engineering) and the Harvard Graduate School of Business (Program for Management Development) and served five years in naval aviation prior to joining Applied Materials.

     Martin B. Anstice joined Lam Research in April 2001 as Senior Director, Operations Controller, was promoted to the position of Managing Director and Corporate Controller in May 2002, and was promoted to Group Vice President, Chief Financial Officer, and Chief Accounting Officer in June 2004 and named Senior Vice President, Chief Financial Officer and Chief Accounting Officer in March 2007. Mr. Anstice began his career at Raychem Corporation where, during his 13-year tenure, he held numerous finance roles of increasing responsibility in Europe and North America. Subsequent to Tyco International’s acquisition of Raychem in 1999, he assumed responsibilities supporting mergers and acquisition activities of Tyco Electronics. Mr. Anstice is an associate member of the Chartered Institute of Management Accountants in the United Kingdom.

     Ernest E. Maddock, Senior Vice President of Global Operations since March 2007 and previously Group Vice President of Global Operations since October 2003, currently oversees Global Operations which consists of: Information Technology, Global Supply Chain, Production Operations, Corporate Quality, Global Security, Global Real Estate and Facilities. Additionally, Mr. Maddock heads Bullen Semiconductor, a division of Lam Research. Mr. Maddock joined the Company in November 1997. Mr. Maddock’s previously held positions with the Company include Vice President of the Customer Support Business Group. Prior to his employment with Lam Research, he was Managing Director, Global Logistics and Repair Services Operations, and Chief Financial Officer, Software Products Division, of NCR Corporation. He has also held a variety of executive roles in finance and operations in several industries ranging from commercial real estate to telecommunications.

     Abdi Hariri was named Group Vice President of the Customer Support Business Group in March 2007. Prior to his current position, Mr. Hariri had been Vice President and General Manager of the Customer Support Business Group since August 2004. Mr. Hariri previously served as the General Manager of Lam Research Co. Ltd. (Japan) for approximately 18 months and has served in a number of different assignments with the Field Sales and Product Groups. His experience prior to his appointment in Japan included over 13 years at the Company with various responsibilities, including global business development and engineering. Prior to his employment at Lam Research, Mr. Hariri served as a Process Engineer at Siliconix, Inc. He holds a Masters Degree in Chemical Engineering from Stanford University.

     Richard A. Gottscho, Group Vice President and General Manager, Etch Products since March 2007, joined the Company in January 1996 and has served at various Director and Vice President levels in support of etch products, CVD products, and corporate research. Prior to joining Lam Research, Dr. Gottscho was a member of Bell Laboratories for 15 years where he started his career working in plasma processing. During his tenure at Bell, he headed research departments in electronics materials, electronics packaging, and flat panel displays. Dr. Gottscho is the author of numerous papers, patents, and lectures in plasma processing and process control. He is a recipient of the American Vacuum Society’s Peter Mark Memorial Award and is a fellow of the American Physical and American Vacuum Societies, has served on numerous editorial boards of refereed technical publications, program committees for major conferences in plasma science and engineering, and was vice-chair of a National Research Council study on plasma science in the 1980s. Dr. Gottscho earned Ph.D. and B.S. degrees in physical chemistry from the Massachusetts Institute of Technology and the Pennsylvania State University, respectively.

     Thomas J. Bondur, Vice President, Global Field Operations since March 2007, joined Lam Research in August 2001 and has served in various roles in business development and field operations in Europe and the United States. Prior to joining Lam Research, Mr. Bondur spent eight years in the semiconductor industry with Applied Materials in various roles in Santa Clara and France including Sales, Business Management and Process Engineering. Mr. Bondur holds a degree in Business from the State University of New York.

     Item 1A. Risk Factors

     In addition to the other information in this 2008 Form 10-K, the following risk factors should be carefully considered in evaluating the Company and its business because such factors may significantly impact our business, operating results, and financial condition. As a result of these risk factors, as well as other risks discussed in our other SEC filings, our actual results could differ materially from those projected in any forward-looking statements. No priority or significance is intended, nor should be attached, to the order in which the risk factors appear.

Our Quarterly Revenues and Operating Results Are Unpredictable

     Our revenues and operating results may fluctuate significantly from quarter to quarter due to a number of factors, not all of which are in our control. We manage our expense levels based in part on our expectations of future revenues. If revenue levels in a particular quarter do not meet our expectations, our operating results may be adversely affected. Because our operating expenses are based in part on anticipated future revenues, and a certain amount of those expenses are relatively fixed, a change in the timing of recognition of revenue and/or the level of gross profit from a single transaction can unfavorably affect operating results in a particular quarter. Factors that may cause our financial results to fluctuate unpredictably include, but are not limited to:

•		economic conditions in the electronics and semiconductor industries generally and the equipment industry specifically;
•		the extent that customers use our products and services in their business;
•		timing of customer acceptances of equipment;
•		the size and timing of orders from customers;
•		customer cancellations or delays in our shipments, installations, and/or acceptances;
•		changes in average selling prices, customer mix, and product mix;
•		our ability in a timely manner to develop, introduce and market new, enhanced, and competitive products;
•		our competitors’ introduction of new products;
•		legal or technical challenges to our products and technology;
•		changes in import/export regulations;
•		transportation, communication, demand, information technology or supply disruptions based on factors outside our control such as acts of God, wars, terrorist activities, and natural disasters;
•		legislative, tax, accounting, or regulatory changes or changes in their interpretation;
•		procurement shortages;
•		manufacturing difficulties;
•		the failure of our suppliers or outsource providers to perform their obligations in a manner consistent with our expectations;
•		changes in our estimated effective tax rate;
•		new or modified accounting regulations and practices; and
•		exchange rate fluctuations.

     Further, because a significant amount of our R&D and administrative operations and capacity is located at our Fremont, California campus, natural, physical, logistical or other events or disruptions affecting these facilities (including labor disruptions, earthquakes, and power failures) could adversely impact our financial performance.

We Derive Our Revenues Primarily from a Relatively Small Number of High-Priced Systems

     System sales constitute a significant portion of our total revenue. Our systems can range in price up to approximately $6 million per unit, and our revenues in any given quarter are dependent upon the acceptance of a rather limited number of such systems. As a result, the inability to declare revenue on even a few systems can cause a significant adverse impact on our revenues for that quarter.

Variations in the Amount of Time it Takes for Our Customers to Accept Our Systems May Cause Fluctuation in Our Operating Results

     We generally recognize revenue for new system sales on the date of customer acceptance or the date the contractual customer acceptance provisions lapse. As a result, the fiscal period in which we are able to recognize new systems revenues is typically subject to the length of time that our customers require to evaluate the performance of our equipment after shipment and installation, which could cause our quarterly operating results to fluctuate.

The Semiconductor Equipment Industry is Volatile and Reduced Product Demand Has a Negative Impact on Shipments

     Our business depends on the capital equipment expenditures of semiconductor manufacturers, which in turn depend on the current and anticipated market demand for integrated circuits and products using integrated circuits. The semiconductor industry is cyclical in nature and historically experiences periodic downturns. Business conditions historically have changed rapidly and unpredictably.

     Fluctuating levels of investment by semiconductor manufacturers could continue to materially affect our aggregate shipments, revenues and operating results. Where appropriate, we will attempt to respond to these fluctuations with cost management programs aimed at aligning our expenditures with anticipated revenue streams, which sometimes result in restructuring charges. Even during periods of reduced revenues, we must continue to invest in research and development and maintain extensive ongoing worldwide customer service and support capabilities to remain competitive, which may temporarily harm our financial results.

We Depend on New Products and Processes for Our Success. Consequently, We are Subject to Risks Associated with Rapid Technological Change

     Rapid technological changes in semiconductor manufacturing processes subject us to increased pressure to develop technological advances enabling such processes. We believe that our future success depends in part upon our ability to develop and offer new products with improved capabilities and to continue to enhance our existing products. If new products have reliability or quality problems, our performance may be impacted by reduced orders, higher manufacturing costs, delays in acceptance of and payment for new products, and additional service and warranty expenses. We may be unable to develop and manufacture new products successfully or new products that we introduce may fail in the marketplace. Our failure to complete commercialization of these new products in a timely manner could result in unanticipated costs and inventory obsolescence, which would adversely affect our financial results.

     In order to develop new products and processes, we expect to continue to make significant investments in R&D and to pursue joint development relationships with customers, suppliers or other members of the industry. We must manage product transitions and joint development relationships successfully, as introduction of new products could adversely affect our sales of existing products. Moreover, future technologies, processes or product developments may render our current product offerings obsolete, leaving us with non-competitive products, or obsolete inventory, or both.

We are Subject to Risks Relating to Product Concentration and Lack of Product Revenue Diversification

     We derive a substantial percentage of our revenues from a limited number of products, and we expect these products to continue to account for a large percentage of our revenues in the near term. Continued market acceptance of these products is, therefore, critical to our future success. Our business, operating results, financial condition, and cash flows could therefore be adversely affected by:

•		a decline in demand for even a limited number of our products;
•		a failure to achieve continued market acceptance of our key products;
•		export restrictions or other regulatory or legislative actions which limit our ability to sell those products to key customer or market segments;
•		an improved version of products being offered by a competitor in the market in which we participate;
•		increased pressure from competitors that offer broader product lines;
•		technological change that we are unable to address with our products; or
•		a failure to release new or enhanced versions of our products on a timely basis.

     In addition, the fact that we offer a more limited product line creates the risk that our customers may view us as less important to their business than our competitors that offer additional products as well. This may impact our ability to maintain or expand our business with certain customers. Such product concentration may also subject us to additional risks associated with technology changes. Since we are primarily a provider of etch equipment, our business is affected by our customers’ use of etching steps in their processes. Should technologies change so that the manufacture of semiconductor chips requires fewer etching steps, this might have a larger impact on our business than it would on the business of our less concentrated competitors.

We Have a Limited Number of Key Customers

     Sales to a limited number of large customers constitute a significant portion of our overall revenue, new orders and profitability. As a result, the actions of even one customer may subject us to revenue swings that are difficult to predict. Similarly, significant portions of our credit risk may, at any given time, be concentrated among a limited number of customers, so that the failure of even one of these key customers to pay its obligations to us could significantly impact our financial results.

Strategic Alliances May Have Negative Effects on Our Business

     Increasingly, semiconductor companies are entering into strategic alliances with one another to expedite the development of processes and other manufacturing technologies. Often, one of the outcomes of such an alliance is the definition of a particular tool set for a certain function or a series of process steps that use a specific set of manufacturing equipment. While this could work to our advantage if Lam Research’s equipment becomes the basis for the function or process, it could work to our disadvantage if a competitor’s tools or equipment become the standard equipment for such function or process. In the latter case, even if Lam Research’s equipment was previously used by a customer, that equipment may be displaced in current and future applications by the tools standardized by the alliance.

     Similarly, our customers may team with, or follow the lead of, educational or research institutions that establish processes for accomplishing various tasks or manufacturing steps. If those institutions utilize a competitor’s equipment when they establish those processes, it is likely that customers will tend to use the same equipment in setting up their own manufacturing lines. These actions could adversely impact our market share and subsequent business.

We are Dependent Upon a Limited Number of Key Suppliers

     We obtain certain components and sub-assemblies included in our products from a single supplier or a limited group of suppliers. We have established long-term contracts with many of these suppliers. These long-term contracts can take a variety of forms. We may renew these contracts periodically. In some cases, these suppliers sold us products during at least the last four years, and we expect that we will continue to renew these contracts in the future or that we will otherwise replace them with competent alternative suppliers. However, several of our suppliers are relatively new providers to us so that our experience with them and their performance is limited. Where practical, our intent is to establish alternative sources to mitigate the risk that the failure of any single supplier will adversely affect our business. Nevertheless, a prolonged inability to obtain certain components could impair our ability to ship products, lower our revenues and thus adversely affect our operating results and result in damage to our customer relationships.

Our Outsource Providers May Fail to Perform as We Expect

     Outsource providers have played and will play key roles in our manufacturing operations and in many of our transactional and administrative functions, such as information technology, facilities management, and certain elements of our finance organization. Although we aim at selecting reputable providers and secure their performance on terms documented in written contracts, it is possible that one or more of these providers could fail to perform as we expect and such failure could have an adverse impact on our business.

     In addition, the expansive role of outsource providers has required and will continue to require us to implement changes to our existing operations and to adopt new procedures to deal with and manage the performance of these outsource providers. Any delay or failure in the implementation of our operational changes and new procedures could adversely affect our customer relationships and/or have a negative effect on our operating results.

Once a Semiconductor Manufacturer Commits to Purchase a Competitor’s Semiconductor Manufacturing Equipment, the Manufacturer Typically Continues to Purchase that Competitor’s Equipment, Making it More Difficult for Us to Sell Our Equipment to that Customer

     Semiconductor manufacturers must make a substantial investment to qualify and integrate wafer processing equipment into a semiconductor production line. We believe that once a semiconductor manufacturer selects a particular supplier’s processing equipment, the manufacturer generally relies upon that equipment for that specific production line application. Accordingly, we expect it to be more difficult to sell to a given customer if that customer initially selects a competitor’s equipment.

We are Subject to Risks Associated with Our Competitors’ Strategic Relationships and Their Introduction of New Products and We May Lack the Financial Resources or Technological Capabilities of Certain of Our Competitors Needed to Capture Increased Market Share

     We expect to face significant competition from multiple current and future competitors. We believe that other companies are developing systems and products that are competitive to ours and are planning to introduce new products, which may affect our ability to sell our existing products. We face a greater risk if our competitors enter into strategic relationships with leading semiconductor manufacturers covering products similar to those we sell or may develop, as this could adversely affect our ability to sell products to those manufacturers.

     We believe that to remain competitive we will require significant financial resources to offer a broad range of products, to maintain customer service and support centers worldwide, and to invest in product and process R&D. Certain of our competitors have substantially greater financial resources and more extensive engineering, manufacturing, marketing, and customer service and support resources than we do and therefore have the potential to increasingly dominate the semiconductor equipment industry. These competitors may deeply discount or give away products similar to those that we sell, challenging or even exceeding our ability to make similar accommodations and threatening our ability to sell those products. For these reasons, we may fail to continue to compete successfully worldwide.

     In addition, our competitors may provide innovative technology that may have performance advantages over systems we currently, or expect to, offer. They may be able to develop products comparable or superior to those we offer or may adapt more quickly to new technologies or evolving customer requirements. In particular, while we currently are developing additional product enhancements that we believe will address future customer requirements, we may fail in a timely manner to complete the development or introduction of these additional product enhancements successfully, or these product enhancements may not achieve market acceptance or be competitive. Accordingly, we may be unable to continue to compete in our markets, competition may intensify, or future competition may have a material adverse effect on our revenues, operating results, financial condition, and/or cash flows.

Our Future Success Depends on International Sales and the Management of Global Operations

     Non-U.S. sales accounted for approximately 83% in fiscal year 2008, 84% in fiscal year 2007 and 86% in fiscal year 2006 of our total revenue. We expect that international sales will continue to account for a significant portion of our total revenue in future years.

     We are subject to various challenges related to the management of global operations, and international sales are subject to risks including, but not limited to:

•		trade balance issues;
•		economic and political conditions;
•		changes in currency controls;
•		differences in the enforcement of intellectual property and contract rights in varying jurisdictions;
•		our ability to develop relationships with local suppliers;
•		compliance with U.S. and international laws and regulations, including U.S. export restrictions;
•		fluctuations in interest and currency exchange rates;
•		the need for technical support resources in different locations; and
•		our ability to secure and retain qualified people for the operation of our business.

     Certain international sales depend on our ability to obtain export licenses from the U.S. Government. Our failure or inability to obtain such licenses would substantially limit our markets and severely restrict our revenues. Many of the challenges noted above are applicable in China, which is a fast developing market for the semiconductor equipment industry and therefore an area of potential significant growth for our business. As the business volume between China and the rest of the world grows, there is inherent risk, based on the complex relationships between China, Taiwan, Japan, and the United States. Political and diplomatic influences might lead to trade disruptions which would adversely affect our business with China and/or Taiwan and perhaps the entire Asia region. A significant trade disruption in these areas could have a material, adverse impact on our future revenue and profits.

     We are potentially exposed to adverse as well as beneficial movements in foreign currency exchange rates. The majority of our sales and expenses are denominated in U.S. dollars except for certain of our revenues that are denominated in Japanese yen, certain of our revenues and expenses denominated in the Euro, certain of our spares and service contracts which are denominated in various currencies, and expenses related to our non-U.S. sales and support offices which are denominated in these countries’ local currency.

     We currently enter into foreign currency forward contracts to minimize the short-term impact of the exchange rate fluctuations on Japanese yen-denominated assets and forecasted Japanese yen-denominated revenue and also on U.S. dollar-denominated assets where the Euro is the functional currency. We currently believe these are our primary exposures to currency rate fluctuation. We expect to continue to enter into hedging transactions, for the purposes outlined, in the foreseeable future. However, these hedging transactions may not achieve their desired effect because differences between the actual timing of customer acceptances and our forecasts of those acceptances may leave us either over- or under-hedged on any given transaction. Moreover, by hedging our yen-denominated assets and U.S. dollar-denominated assets with currency forward contracts, we may miss favorable currency trends that would have been advantageous to us but for the hedges. Additionally, we currently do not enter into such forward contracts for currencies other than the yen, and we therefore are subject to both favorable and unfavorable exchange rate fluctuations to the extent that we transact business (including intercompany transactions) in other currencies.

Our Financial Results May be Adversely Impacted by Higher Than Expected Tax Rates or Exposure to Additional Income Tax Liabilities

     As a global company, our effective tax rate is highly dependent upon the geographic composition of worldwide earnings and tax regulations governing each region. We are subject to income taxes in both the United States and various foreign jurisdictions, and significant judgment is required to determine worldwide tax liabilities. Our effective tax rate could be adversely affected by changes in the split of earnings between countries with differing statutory tax rates, in the valuation of deferred tax assets, in tax laws or by material audit assessments, which could affect our profitability. In particular, the carrying value of deferred tax assets, which are predominantly in the United States, is dependent on our ability to generate future taxable income in the United States. In addition, the amount of income taxes we pay is subject to ongoing audits in various jurisdictions, and a material assessment by a governing tax authority could affect our profitability.

A Failure to Comply with Environmental Regulations May Adversely Affect Our Operating Results

     We are subject to a variety of governmental regulations related to the discharge or disposal of toxic, volatile or otherwise hazardous chemicals. We believe that we are in general compliance with these regulations and that we have obtained (or will obtain or are otherwise addressing) all necessary environmental permits to conduct our business. These permits generally relate to the disposal of hazardous wastes. Nevertheless, the failure to comply with present or future regulations could result in fines being imposed on us, suspension of production, cessation of our operations or reduction in our customers’ acceptance of our products. These regulations could require us to alter our current operations, to acquire significant equipment or to incur substantial other expenses to comply with environmental regulations. Our failure to control the use, sale, transport or disposal of hazardous substances could subject us to future liabilities.

If We are Unable to Adjust the Scale of Our Business in Response to Rapid Changes in Demand in the Semiconductor Equipment Industry, Our Operating Results and Our Ability to Compete Successfully May be Impaired

     The business cycle in the semiconductor equipment industry has historically been characterized by frequent periods of rapid change in demand that challenge our management to adjust spending and resources allocated to operating activities. During periods of rapid growth or decline in demand for our products and services, we face significant challenges in maintaining adequate financial and business controls, management processes, information systems and procedures and in training, managing, and appropriately sizing our supply chain, our work force, and other components of our business on a timely basis. Our success will depend, to a significant extent, on the ability of our executive officers and other members of our senior management to identify and respond to these challenges effectively. If we do not adequately meet these challenges, our gross margins and earnings may be impaired during periods of demand decline, and we may lack the infrastructure and resources to scale up our business to meet customer expectations and compete successfully during periods of demand growth.

If We Choose to Acquire or Dispose of Product Lines and Technologies, We May Encounter Unforeseen Costs and Difficulties That Could Impair Our Financial Performance

     An important element of our management strategy is to review acquisition prospects that would complement our existing products, augment our market coverage and distribution ability, or enhance our technological capabilities. As a result, we may make acquisitions of complementary companies, products or technologies, such as our March 2008 acquisition of SEZ, or we may reduce or dispose of certain product lines or technologies, that no longer fit our long-term strategies. Managing an acquired business, disposing of product technologies or reducing personnel entails numerous operational and financial risks, including difficulties in assimilating acquired operations and new personnel or separating existing business or product groups, diversion of management’s attention away from other business concerns, amortization of acquired intangible assets and potential loss of key employees or customers of acquired or disposed operations among others. We anticipate that our recent acquisition of SEZ will give rise to risks like these, as we integrate its operations with ours. There can be no assurance that we will be able to achieve and manage successfully any such integration of potential acquisitions, disposition of product lines or technologies, or reduction in personnel or that our management, personnel, or systems will be adequate to support continued operations. Any such inabilities or inadequacies could have a material adverse effect on our business, operating results, financial condition, and cash flows.

     In addition, any acquisitions could result in changes such as potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, the amortization of related intangible assets, and goodwill impairment charges, any of which could materially adversely affect our business, financial condition, and results of operations and/or the price of our Common Stock.

The Market for Our Common Stock is Volatile, Which May Affect Our Ability to Raise Capital or Make Acquisitions

     The market price for our Common Stock is volatile and has fluctuated significantly over the past years. The trading price of our Common Stock could continue to be highly volatile and fluctuate widely in response to factors, including but not limited to the following:

•		general market, semiconductor, or semiconductor equipment industry conditions;
•		global economic fluctuations;
•		variations in our quarterly operating results;
•		variations in our revenues, earnings or other business and financial metrics from those experienced by other companies in our industry or forecasts by securities analysts;
•		announcements of restructurings, technological innovations, reductions in force, departure of key employees, consolidations of operations, or introduction of new products;
•		government regulations;
•		developments in, or claims relating to, patent or other proprietary rights;
•		success or failure of our new and existing products;
•		liquidity of Lam Research;
•		disruptions with key customers or suppliers; or
•		political, economic, or environmental events occurring globally or in any of our key sales regions.

     In addition, the stock market experiences significant price and volume fluctuations. Historically, we have witnessed significant volatility in the price of our Common Stock due in part to the actual or anticipated movement in interest rates and the price of and markets for semiconductors. These broad market and industry factors have and may again adversely affect the price of our Common Stock, regardless of our actual operating performance. In the past, following volatile periods in the price of stock, many companies became the object of securities class action litigation. If we are sued in a securities class action, we could incur substantial costs, and it could divert management’s attention and resources and have an unfavorable impact on the price for our Common Stock.

We Rely Upon Certain Critical Information Systems for the Operation of Our Business

     We maintain and rely upon certain critical Information Systems for the effective operation of our business. These Information Systems include telecommunications, the internet, our corporate intranet, various computer hardware and software applications, network communications, and e-mail. These Information Systems may be owned by us or by our outsource providers or even third parties such as vendors and contractors and may be maintained by us or by such providers and third parties. These Information Systems are subject to attacks, failures, and access denials from a number of potential sources including viruses, destructive or inadequate code, power failures, and physical damage to computers, hard drives, communication lines, and networking equipment. To the extent that these Information Systems are under our control, we have implemented security procedures, such as virus protection software and emergency recovery processes, to address the outlined risks. However, security procedures for Information Systems cannot be guaranteed to be failsafe and our inability to use or access these Information Systems at critical points in time could unfavorably impact the timely and efficient operation of our business.

Intellectual Property and Other Claims Against Us Can be Costly and Could Result in the Loss of Significant Rights Which are Necessary to Our Continued Business and Profitability

     Third parties may assert infringement, unfair competition or other claims against us. From time to time, other parties send us notices alleging that our products infringe their patent or other intellectual property rights. In addition, our Bylaws and indemnity obligations provide that we will indemnify officers and directors against losses that they may incur in legal proceedings resulting from their service to Lam Research. In such cases, it is our policy either to defend the claims or to negotiate licenses or other settlements on commercially reasonable terms. However, we may be unable in the future to negotiate necessary licenses or reach agreement on other settlements on commercially reasonable terms, or at all, and any litigation resulting from these claims by other parties may materially adversely affect our business and financial results. Moreover, although we seek to obtain insurance to protect us from claims and cover losses to our property, there is no guarantee that such insurance will fully indemnify us for any losses that we may incur.

We May Fail to Protect Our Proprietary Technology Rights, Which Could Affect Our Business

     Our success depends in part on our proprietary technology. While we attempt to protect our proprietary technology through patents, copyrights and trade secret protection, we believe that our success also depends on increasing our technological expertise, continuing our development of new systems, increasing market penetration and growth of our installed base, and providing comprehensive support and service to our customers. However, we may be unable to protect our technology in all instances, or our competitors may develop similar or more competitive technology independently. We currently hold a number of United States and foreign patents and pending patent applications. However, other parties may challenge or attempt to invalidate or circumvent any patents the United States or foreign governments issue to us or these governments may fail to issue patents for pending applications. In addition, the rights granted or anticipated under any of these patents or pending patent applications may be narrower than we expect or, in fact, provide no competitive advantages.

We are Subject to the Internal Control Evaluation and Attestation Requirements of Section 404 of the Sarbanes-Oxley Act of 2002

     Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in our annual report our assessment of the effectiveness of our internal control over financial reporting and our audited financial statements as of the end of each fiscal year. Furthermore, our independent registered public accounting firm (the “Independent Registered Public Accounting Firm”) is required to report on whether it believes we maintained, in all material respects, effective internal control over financial reporting as of the end of each fiscal year. We have successfully completed our assessment and obtained our Independent Registered Public Accounting Firm’s attestation as to the effectiveness of our internal control over financial reporting as of June 29, 2008. In future years, if we fail to timely complete this assessment, or if our Independent Registered Public Accounting Firm cannot timely attest to our assessment, we could be subject to regulatory sanctions and a loss of public confidence in our internal control. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to timely meet our regulatory reporting obligations.

Our Independent Registered Public Accounting Firm Must Confirm Its Independence in Order for Us to Meet Our Regulatory Reporting Obligations on a Timely Basis

     Our Independent Registered Public Accounting Firm communicates with us at least annually regarding any relationships between the Independent Registered Public Accounting Firm and Lam Research that, in the Independent Registered Public Accounting Firm’s professional judgment, might have a bearing on the Independent Registered Public Accounting Firm’s independence with respect to us. If, for whatever reason, our Independent Registered Public Accounting Firm finds that it cannot confirm that it is independent of Lam Research based on existing securities laws and registered public accounting firm independence standards, we could experience delays or other failures to meet our regulatory reporting obligations.

The Results of Our Independent Committee Review of Our Historical Stock Option Practices and Resulting Restatements May Continue to Have Adverse Effects on Our Financial Results.

     The review by a special committee of our Board of Directors consisting of two independent Board members (the “Independent Committee”) of our historical stock option practices and the resulting restatement of our historical financial statements have required us to expend significant management time and incur significant accounting, legal, and other expenses during fiscal year 2008. The resulting restatements have had a material adverse effect on our results of operations. We have restated our historical results of operations to record additional non-cash, stock-based compensation expense of $95.2 million in the aggregate for the periods from fiscal 1997 to fiscal 2006 (excluding the impact of related payroll and income taxes). We amortized less than $0.1 million of compensation expense under Statement of Financial Accounting Standards No. 123R (“SFAS No. 123R”) in periods subsequent to fiscal year 2006 to properly account for previously issued stock options with deemed incorrect measurement dates. Furthermore, to address potential adverse tax consequences certain of our employees have incurred or may incur as a result of the issuance and/or exercise of misdated stock options, we have taken and will continue to take remedial actions to make such employees including our Chief Executive Officer and other affected executive officers, whole for any or all such additional tax liabilities which were approximately $50 million as of June 29, 2008. Such actions have caused and in the future may cause us to incur additional cash or noncash compensation expense. See the “Explanatory Note” immediately preceding Part I, Item 1 and Note 3, “Restatements of Consolidated Financial Statements,” to Notes to Consolidated Financial Statements of our Annual Report on Form 10-K as of and for the year ended June 24, 2007 (“2007 Form 10-K”) for further discussion.

We May Be Subject to the Risks of Lawsuits in Connection With Our Historical Stock Option Practices, the Resulting Restatements, and the Remedial Measures We Have Taken.

     We, and our current and former directors and officers, may become the subject of shareholder derivative and/or class action lawsuits and other legal proceedings relating to our historical stock option practices and resulting restatements in the future. We may also be subject to other kinds of lawsuits. Should any of these events occur, they could require us to expend significant management time and incur significant accounting, legal and other expenses. This could divert attention and resources from the operation of our business and adversely affect our financial condition and results of operations. In addition, the ultimate outcome of these potential actions could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price for our securities. Litigation may be time-consuming, expensive and disruptive to normal business operations, and the outcome of litigation is difficult to predict. The defense of these potential lawsuits could result in significant expenditures.

     Subject to certain limitations, we are obliged to indemnify our current and former directors, officers and employees in connection with any government inquiry or litigation related to our historical stock option practices that may arise. We currently hold insurance policies for the benefit of our directors and officers, although there can be no assurance that the insurance would cover all of the expenses that would be associated with any proceedings.

Judgment and Estimates Utilized by Us in Determining Stock Option Grant Dates and Related Adjustments May Be Subject to Change due to Subsequent SEC Guidance or Other Disclosure Requirements.

     In determining the restatement adjustments in connection with the stock option review, management used all reasonably available relevant information to form conclusions it believes are appropriate as to the most likely option granting actions that occurred, the dates when such actions occurred, and the determination of grant dates for financial accounting purposes based on when the requirements of the accounting standards were met. We considered various alternatives throughout the course of the review and restatement, and we believe the approaches used were the most appropriate, and that the choices of measurement dates used in our review of stock option grant accounting and restatement of our financial statements were reasonable and appropriate in our circumstances. However, the SEC may issue additional guidance on disclosure requirements related to the financial impact of past stock option grant measurement date errors that may require us to amend this filing or other filings with the SEC to provide additional disclosures pursuant to such additional guidance. Any such circumstance could also lead to future delays in filing our subsequent SEC reports. Furthermore, if we are subject to adverse findings in any of these matters, we could be required to pay damages or penalties or have other remedies imposed upon us which could harm our business, financial condition, and results of operations.

We Recently Regained Compliance with SEC Reporting Requirements. If We are Unable to Remain in Compliance, There May Be a Material Adverse Effect on our Business and Our Stockholders.

     As a consequence of the Independent Committee review of our historical stock option practices and resulting restatements of our financial statements, for several quarters, we were not able to file our periodic reports with the SEC on a timely basis and faced the possibility of delisting of our stock from the NASDAQ Global Select Market. We have filed all of our tardy filings, which remediated the Company’s non-compliance with Marketplace Rule 4310(c) (14), and believe we are we are in compliance with all applicable reporting requirements. However, if the SEC disagrees with the manner in which the financial impact of past stock option grants has been accounted for and reported, or not reported, there could be delays in filing future SEC reports. See the “Explanatory Note” immediately preceding Part I, Item 1 and Note 3, “Restatements of Consolidated Financial Statements,” to Consolidated Financial Statements of our 2007 Form 10-K for further discussion.

     As a result of the delayed filings of our Quarterly Reports on Form 10-Q for the quarters ended September 23, 2007 and December 23, 2007, as well as of the 2007 Form 10-K, we are ineligible to register our securities on Form S-3 for sale by us or resale by others until one year from March 31, 2008, the date the last delinquent filing was made. We may use Form S-1 to raise capital or complete acquisitions, but doing so could increase transaction costs and adversely impact our ability to raise capital or complete acquisitions of other companies in a timely manner.

Item 1B. Unresolved Staff Comments

     None.

Item 2. Properties

     Our executive offices and principal operating and R&D facilities are located in Fremont, California, and are held under operating leases expiring from fiscal years 2010 to 2014. These leases generally include options to renew or purchase the facilities. In addition, we lease properties for our service, technical support and sales personnel throughout the United States, Europe, Taiwan, Korea, Japan, and Asia Pacific and own manufacturing facilities located in Eaton, Ohio and Villach, Austria. Our fiscal year 2008 rental expense for the space occupied during that period aggregated approximately $11 million. Our facilities lease obligations are subject to periodic increases, and we believe that our existing facilities are well-maintained and in good operating condition.

Item 3. Legal Proceedings

     From time to time, we have received notices from third parties alleging infringement of such parties’ patent or other intellectual property rights by our products. In such cases it is our policy to defend the claims, or if considered appropriate, negotiate licenses on commercially reasonable terms. However, no assurance can be given that we will be able to negotiate necessary licenses on commercially reasonable terms, or at all, or that any litigation resulting from such claims would not have a material adverse effect on our consolidated financial position, liquidity, operating results, or our consolidated financial statements taken as a whole.

Item 4. Submission of Matters to a Vote of Security Holders

     The 2007 Annual Meeting of Stockholders of Lam Research Corporation was held at the principal office of the Company at 4650 Cushing Parkway, Fremont, California 94538 on June 10, 2008.

     The results of voting on the following items were as set forth below:

Proposal No. 1 – Election of Directors to Board of Directors

NOMINEE			IN FAVOR				% IN FAVOR				WITHHELD
James W. Bagley			111,444,886				98.5	%			1,760,511
David G. Arscott			106,854,31				94.4	%			6,351,036
Robert M. Berdahl			104,255,653				92.1	%			8,949,744
Richard J. Elkus, Jr.			103,855,753				91.8	%			9,349,644
Jack R. Harris			103,852,111				91.8	%			9,353,286
Grant M. Inman			106,852,882				94.4	%			6,352,515
Catherine Lego			112,385,402				99.3	%			819,995
Stephen G. Newberry			66,732,043				58.9	%			46,473,354
Seiichi Watanabe			112,388,811				99.3	%			816,586
Patricia Wolpert			109,385,311				96.6	%			3,820,086

Proposal No. 2 – Ratification of Appointment of Ernst and Young LLP as Independent Registered Public Accounting Firm (Auditor) of the Company for the Current (2008) Fiscal Year

			IN FAVOR				AGAINST				ABSTAIN
Beneficial Vote:			111,767,874				1,306,133				71,227
Registered Vote:			49,812				9,901				450
Total Shares Voted:			111,817,686				1,316,034				71,677
% of Voted Shares:			98.8	%			1.2	%			.1	%
% of Outstanding Shares:			89.5	%%			1.1	%			.1	%

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     The information required by this Item with respect to the market price of the Company’s Common Stock, number of holders thereof, and payment of dividends is incorporated by reference from Item 6, “Selected Financial Data” below.

     As of the beginning of fiscal year 2008, there were no shares remaining available for repurchase under prior Board authorized repurchase programs. During fiscal year 2008, there were 287,855 shares which the Company withheld through net share settlements upon the vesting of restricted stock unit awards under the Company’s equity compensation plans to cover tax withholding obligations.

     The following graph compares the cumulative 5-year total return attained by shareholders on Lam Research Corporation’s Common Stock relative to the cumulative total returns of the NASDAQ Composite index and the RDG Semiconductor Composite index. The graph tracks the performance of a $100 investment in our Common Stock and in each of the indices (with the reinvestment of all dividends) from June 30, 2003 to June 30, 2008.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Lam Research Corporation, The NASDAQ Composite Index
And The RDG Semiconductor Composite Index

		6/03				6/04				6/05				6/06				6/07				6/08
Lam Research Corporation			100.00				146.77				158.54				255.86				281.49				197.97
NASDAQ Composite			100.00				128.49				129.74				140.22				169.32				149.51
RDG Semiconductor Composite			100.00				131.98				120.95				119.89				141.39				120.02

     The stock price performance included in this graph is not necessarily indicative of future stock price performance.

Item 6. Selected Financial Data (derived from audited financial statements)

		Year Ended
		June 29,				June 24,				June 25,				June 26,				June 27,
		2008 (1)				2007				2006				2005				2004
		(in thousands, except per share data)
OPERATIONS:
Total revenue		$	2,474,911			$	2,566,576			$	1,642,171			$	1,502,453			$	935,946
Gross margin			1,173,406				1,305,054				827,012				763,464				430,103
Restructuring charges and asset impairments, net (2)			6,366				—				—				14,201				8,327
409A expense (3)			43,784				—				—				—				—
In-process research and development			2,074				—				—				—				—
Operating income (4)			509,431				778,660				404,768				388,142				96,793
Net income (loss)			439,349				685,816				335,210				297,252				77,486
Net income (loss) per share:
Basic		$	3.52			$	4.94			$	2.42			$	2.16			$	0.59
Diluted (5)		$	3.47			$	4.85			$	2.33			$	2.09			$	0.54
BALANCE SHEET:
Working capital		$	1,280,028			$	743,563			$	1,138,720			$	837,370			$	499,366
Total assets			2,806,755				2,101,605				2,327,382				1,472,349				1,222,118
Long-term obligations, less current portion			385,132				252,487				350,969				2,786				9,554

Unaudited Selected Quarterly Financial Data

Stock and Dividend Information:

		Three Months Ended (1)
		June 29,				March 30,				December 23,				September 23,
		2008 (2)				2008 (2)				2007				2007
		(in thousands, except per share data)
QUARTERLY FISCAL YEAR 2008:
Total revenue		$	566,160			$	613,810			$	610,320			$	684,621
Gross margin			234,650				287,208				307,661				343,887
Operating income			63,928				86,283				161,334				197,886
Net income			72,178				103,524				115,059				148,588
Net income per share
Basic		$	0.58			$	0.83			$	0.92			$	1.20
Diluted		$	0.57			$	0.82			$	0.91			$	1.18
Price range per share		$	35.98-$44.73			$	36.15-$46.19			$	42.67-$57.66			$	49.48-$60.82
Number of shares used in per share calculations:
Basic			125,046				124,768				124,685				124,057
Diluted			126,657				126,549				126,653				126,358

		Three Months Ended (1)
		June 24,				March 25,				December 24,				September 24,
		2007				2007				2006				2006
		(in thousands, except per share data)
QUARTERLY FISCAL YEAR 2007:
Total revenue		$	678,519			$	650,270			$	633,400			$	604,387
Gross margin			342,729				326,245				322,916				313,164
Operating income			200,349				188,973				194,505				194,833
Net income			170,231				164,741				167,326				183,518
Net income per share
Basic		$	1.31			$	1.17			$	1.18			$	1.29
Diluted		$	1.28			$	1.15			$	1.15			$	1.27
Price range per share		$	46.58-$56.04			$	43.10-$54.68			$	42.06-$57.05			$	36.66-$47.46
Number of shares used in per share calculations:
Basic			130,169				140,423				142,306				141,928
Diluted			132,868				143,052				145,346				144,850

     Our Common Stock is traded on the Nasdaq Global Select Market under the symbol LRCX. The price range per share is the highest and lowest bid prices, as reported by The NASDAQ Stock Market, Inc., on any and all trading days during the respective quarter. As of August 15, 2008 we had 378 stockholders of record. In fiscal years 2008 and 2007 we did not declare or pay cash dividends to our stockholders. We currently have no plans to declare or pay cash dividends.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion of our financial condition and results of operations contains forward-looking statements, which are subject to risks, uncertainties and changes in condition, significance, value and effect. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including but not limited to those discussed in “Risk Factors” and elsewhere in this 2008 Form 10-K and other documents we file from time to time with the Securities and Exchange Commission. (See “Cautionary Statement Regarding Forward-Looking Statements” in Part I of this 2008 Form 10-K ).

     The semiconductor industry is cyclical in nature and has historically experienced periodic downturns and upturns. Today’s leading indicators of changes in customer investment patterns may not be any more reliable than in prior years. Demand for our equipment can vary significantly from period to period as a result of various factors, including, but not limited to, economic conditions (generally and in the semiconductor industry), supply, demand, and prices for semiconductors, customer capacity requirements, and our ability to develop, acquire, and market competitive products. For these and other reasons, our results of operations for fiscal years 2008, 2007, and 2006 may not necessarily be indicative of future operating results.

     Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) provides a description of our results of operations and should be read in conjunction with our Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements included in this 2008 Form 10-K. MD&A consists of the following sections:

     Executive Summary provides a summary of the key highlights of our results of operations

     Results of Operations provides an analysis of operating results

     Critical Accounting Policies and Estimates discusses accounting policies that reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements

     Liquidity and Capital Resources provides an analysis of cash flows, contractual obligations and financial position

Executive Summary

     We design, manufacture, market, and service semiconductor processing equipment used in the fabrication of integrated circuits and are recognized as a major provider of such equipment to the worldwide semiconductor industry. Semiconductor wafers are subjected to a complex series of process and preparation steps that result in the simultaneous creation of many individual integrated circuits. We leverage our expertise in these areas to develop integrated and standalone processing solutions which typically benefit our customers through reduced cost, lower defect rates, enhanced yields, or faster processing time as well as by facilitating their ability to meet more stringent performance and design standards.

     The following summarizes certain key quarterly and annual financial information for the periods indicated below (in thousands, except per share data and percentages):

		Three Months Ended																Year Ended				Year Ended
		June 29,				March 30,				December 23,				September 23,				June 29,				June 24,
		2008				2008				2007				2007				2008				2007
Revenue		$	566,160			$	613,810			$	610,320			$	684,621			$	2,474,911			$	2,566,576
Gross margin			234,650				287,208				307,661				343,887				1,173,406				1,305,054
Gross margin as a percent of total revenue			41.4	%			46.8	%			50.4	%			50.2	%			47.4	%			50.8	%
Net income			72,178				103,524				115,059				148,588				439,349				685,816
Diluted net earnings per share		$	0.57			$	0.82			$	0.91			$	1.18			$	3.47			$	4.85

     Our business model, which utilizes the capabilities of outsource providers, enables us to focus on new and existing product and process development, sales and marketing, and customer support. Although there are near-term challenges from declining customer investment levels, we continue to target to expand our leadership position in etch, leverage our etch expertise into adjacent markets and meet our objective of delivering best-in-class financial performance over the long term.

     Fiscal year 2008 shipments were approximately $2.4 billion. Fiscal year 2008 revenues decreased 4% compared to fiscal year 2007 revenues reflecting a reduction in customer demand in the latter portion of the year.

     Gross margin as a percent of revenues was 47.4% for fiscal year 2008 and decreased sequentially compared to fiscal year 2007 gross margin of 50.8%. This reduction was primarily due to customer concentration and product mix challenges and decreased factory utilization as a result of reduced shipment volumes on declining customer investment levels.

     Fiscal year 2008 operating expenses include the assumption of Section 409A employee liabilities of $43.8 million and $19.3 million of costs related to our voluntary internal stock option review. Included in operating expenses is $29.5 million from the operations of SEZ since the date of acquisition. We also continue to invest significantly in research and development focused on leading-edge plasma etch, single-wafer clean, and other new products and technologies. Although there are near term pressures on our business from declining customer investment levels, we are targeting the longer term benefit of our product development activities. These factors, along with decreased revenues and gross margins noted above, contributed to the fiscal 2008 operating margin decrease to 20.6% compared with 30.3% in fiscal year 2007.

     Our cash performance remained strong during fiscal year 2008 as our cash and cash equivalents, short-term investments and restricted cash and investments balances increased sequentially during fiscal year 2008 by $174.1 million after the cash acquisition of SEZ for $482.6 million, net of cash acquired. Cash flows from operating activities were $590.3 million during fiscal year 2008.

Results of Operations

Shipments and Backlog

		Three Months Ended																Year Ended
		June 29,				March 30,				December 23,				September 23,				June 29,
		2008				2008				2007				2007				2008
Shipments (in millions)		$	495			$	658			$	593			$	621			$	2,367
North America			13	%			15	%			17	%			18	%			16	%
Europe			9	%			7	%			13	%			7	%			9	%
Asia Pacific			15	%			14	%			13	%			12	%			13	%
Taiwan			15	%			19	%			19	%			26	%			20	%
Korea			22	%			28	%			19	%			20	%			22	%
Japan			26	%			17	%			19	%			17	%			20	%

     Unshipped orders in backlog as of June 29, 2008 were approximately $410 million and decreased from approximately $643 million as of June 24, 2007 consistent with reduced spending commitments of our customers in the semiconductor industry. The basis for recording new orders is defined in our backlog policy. Our unshipped orders backlog includes orders for systems, spares, and services where written customer requests have been accepted and the delivery of products or provision of services is anticipated within the next 12 months. Our policy is to revise our backlog for order cancellations and to make adjustments to reflect, among other things, spares volume estimates and customer delivery date changes. Please refer to “Backlog” in Part I Item 1, “Business” of this 2008 Form 10-K for additional information on our backlog policy.

Revenue

		Year Ended
		June 29,				June 24,				June 25,
		2008				2007				2006
Revenue (in thousands)		$	2,474,911			$	2,566,576			$	1,642,171
North America			17	%			16	%			14	%
Europe			10	%			9	%			13	%
Asia Pacific			13	%			18	%			12	%
Taiwan			20	%			22	%			17	%
Korea			22	%			21	%			22	%
Japan			18	%			14	%			22	%

     The slight decrease in revenues during fiscal year 2008 from fiscal year 2007 reflects our customers’ response to balancing supply and demand in the semiconductor industry. The increase in revenues during fiscal year 2007 compared to fiscal year 2006 reflected an improved market environment which was evidenced by expanded levels of capital investments by semiconductor manufacturers and our market share expansion. Our revenue levels are correlated to the amount of shipments and our installation and acceptance timelines. The overall Asia region continued to account for a significant portion of our revenues as a substantial amount of the worldwide capacity additions for semiconductor manufacturing continues to occur in that region. Our deferred revenue balance decreased to $193.6 million as of June 29, 2008 compared to $295.5 million as of June 24, 2007, consistent with the decline in customer spending levels during fiscal year 2008. The anticipated future revenue value of orders shipped from backlog to Japanese customers that are not recorded as deferred revenue was approximately $52 million as of June 29, 2008; these shipments are classified as inventory at cost until title transfers.

Gross Margin

		Year Ended
		June 29,				June 24,				June 25,
		2008				2007				2006
		(in thousands, except percentages)
Gross Margin		$	1,173,406			$	1,305,054			$	827,012
Percent of total revenue			47.4	%			50.8	%			50.4	%

     Gross margin as a percent of revenue during fiscal year 2008 was 47.4%. The decrease in gross margin as a percent of revenue for fiscal year 2008 compared with fiscal year 2007 was primarily due to decreased factory utilization as a result of reduced shipment volumes, as well as customer concentration and product mix challenges, $12.6 million of one-time restructuring and asset impairment expenses related to the streamlining of our combined clean product group, post SEZ acquisition, and $6.4 million of expense associated with the assumption of the employee tax liabilities as a result of the determinations from our voluntary independent stock option review.

     The increase in gross margin as a percent of revenue during fiscal year 2007 compared with fiscal year 2006 was primarily driven by improved utilization of factory and field resources on higher business volumes partially offset by product and customer mix and implementation of a targeted consumable spare parts price-reduction strategy focused on preserving and building market share and strengthening customer trust in our efforts to support their cost-reduction roadmaps.

Research and Development

		Year Ended
		June 29,				June 24,				June 25,
		2008				2007				2006
		(in thousands, except percentages)
Research & Development (R&D)		$	323,759			$	285,348			$	229,378
Percent of total revenue			13.1	%			11.1	%			14.0	%

     Although there are near term pressures on our business from declining customer investment levels, given the targeted longer term benefit of our product development activities, we continue to invest significantly in research and development focused on leading-edge plasma etch, single-wafer clean, and new products and technologies. The fiscal year 2008 R&D expenses included approximately $14 million from the operations of SEZ. Including SEZ since March 11, 2008, the growth in absolute spending levels during fiscal year 2008 compared to fiscal year 2007 reflect our commitment towards our near-term and longer-term product growth objectives and included increases of approximately $22 million in salary and benefits costs for planned increases in headcount and employee base compensation supporting that same strategy, $9 million in engineering material supplies and outside services targeting etch, and new product growth objectives, and a $3 million decrease in incentive-based compensation driven by reduced profit levels. Approximately 74% and 33% of fiscal years 2008 and 2007 systems revenues, respectively, were derived from products introduced over the previous two years and is reflective of our continued investments in new products and technologies.

     The growth in absolute spending levels during fiscal year 2007 compared to fiscal year 2006 included expected increases of approximately $22 million in engineering material supplies and outside services targeting etch, new and product growth objectives, $18 million in salary and benefits costs for planned increases in headcount and employee base compensation supporting that same strategy, $6 million in incentive-based compensation driven by higher profit levels and $6 million in equity-based compensation.

Selling, General and Administrative

		Year Ended
		June 29,				June 24,				June 25,
		2008				2007				2006
		(in thousands, except percentages)
Selling, General & Administrative (SG&A)		$	287,992			$	241,046			$	192,866
Percent of total revenue			11.6	%			9.4	%			11.7	%

     Fiscal year 2008 SG&A expenses included approximately $15 million of SEZ SG&A expenses. The increase in SG&A expenses during fiscal year 2008 compared with the prior year was driven by increases of approximately $24 million in salary and benefit costs for planned increases in headcount, including SEZ since March 11, 2008, and employee base compensation, $19 million in legal and accounting cost incurred as a result of the voluntary stock option review, and $3 million in equity-based compensation partially offset by a decrease of $5 million in incentive-based compensation triggered by lower profit levels.

     The increase in SG&A expenses during fiscal year 2007 compared with the prior year was driven by increases of $20 million in incentive-based compensation triggered by higher profits and stock price, approximately $15 million in salary and benefit costs for planned increases in headcount and employee base compensation, and $5 million in equity-based compensation.

409A Expense

     As a result of the determinations from the voluntary independent stock option review, we considered the application of Section 409A of the Internal Revenue Code and similar provisions of state law to certain stock option grants where, under APB No. 25, intrinsic value existed at the time of grant. In the event such stock option grants are not considered as issued at fair market value at the original grant date under the IRC, these options are subject to Section 409A and similar provisions of state law. Due to this, taxes and penalties are levied not on the intrinsic value increase, but on the entire stock option gain for exercised options. On March 30, 2008, our Board of Directors authorized us to assume the tax liability of certain employees, including our Chief Executive Officer and certain executive officers, with options subject to Section 409A and similar provisions of state law. The 409A liability totaled $50.2 million; $43.8 million was recorded in operating expenses and $6.4 million in cost of goods sold in our consolidated statements of operations for fiscal year 2008. The determinations from the voluntary independent stock option review are more fully described in Note 3, “Restatement of Consolidated Financial Statements” to Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of our 2007 Form 10-K.

In Process Research and Development

     We incurred a charge of $2.1 million related to the required expensing of in process research and development following our acquisition of SEZ which is reported in operating expenses during fiscal year 2008. There remains no additional in process research and development on our balance sheet.

Restructuring and Asset Impairments

     During the June 2008 quarter we incurred expenses for restructuring and asset impairment charges related to the integration of SEZ and overall streamlining of our combined clean product group (“June 2008 Plan”). These charges included severance and related benefits costs, excess facilities-related costs and certain asset impairments associated with our initial product line integration road maps.

     Prior to the end of the June 2008 quarter, we initiated the announced restructuring activities and management, with the proper level of authority, approved specific actions under the June 2008 Plan. Severance packages to affected employees were communicated in enough detail such that the employees could determine their type and amount of benefit. The termination of the affected employees occurred as soon as practical after the restructuring plans were announced. The amount of remaining future lease payments for facilities we ceased to use and included in the restructuring charges is based on management’s estimates using known prevailing real estate market conditions at that time based, in part, on the opinions of independent real estate experts. Leasehold improvements relating to the vacated buildings were written off, as these items will have no future economic benefit to us and have been abandoned.

     We distinguish regular operating cost management activities from restructuring activities. Accounting for restructuring activities requires an evaluation of formally committed and approved plans. Restructuring activities have comparatively greater strategic significance and materiality and may involve exit activities, whereas regular cost containment activities are more tactical in nature and are rarely characterized by formal and integrated action plans or exiting a particular product, facility, or service.

     We recorded net restructuring charges and asset impairments during fiscal year 2008 of approximately $19.0 million, consisting of severance and benefits for involuntarily terminated employees of $5.5 million, charges for the present value of remaining lease payments on vacated facilities of $0.9 million, and the write-off of related fixed assets of $1.9 million. We also recorded asset impairments related to initial product line integration road maps of $10.7 million. Of the total $19.0 million in charges, $12.6 million was recorded in cost of goods sold and $6.4 million was recorded in operating expenses in our fiscal year 2008 consolidated statement of operations.

     As a result of the fiscal year 2008 restructuring activities, we expect annual savings, relative to the cost structure immediately preceding the activities, in total expenses of approximately $25 million. These estimated savings from the June 2008 Plan’s discrete actions are primarily related to lower employee payroll, facilities, and depreciation expenses. Actual savings may vary from these forecasts, depending upon future events and circumstances.

     Below is a table summarizing activity relating to the June 2008 Plan:

		Severance
		and								Abandoned
		Benefits				Facilities				Fixed Assets				Inventory				Total
										(in thousands)
June 2008 provision		$	5,513			$	899			$	1,893			$	10,671			$	18,976
Cash payments			(927	)			—				—				—				(927	)
Non-cash charges			—				—				(1,893	)			(10,671	)			(12,564	)
Balance at June 29, 2008		$	4,586			$	899			$	—			$	—			$	5,485

     The severance and benefits-related costs are anticipated to be utilized by the end of fiscal year 2009. The facilities balance consists primarily of lease payments on vacated buildings and is expected to be utilized by the end of fiscal year 2009.

Other Income (Expense), Net

     Other income (expense), net, consisted of the following:

		Year Ended
		June 29,				June 24,				June 25,
		2008				2007				2006
		(in thousands)
Interest income		$	51,194			$	71,666			$	38,189
Interest expense			(12,674	)			(17,817	)			(677	)
Foreign exchange gains (losses)			31,070				(1,512	)			(1,458	)
Debt issue cost amortization			—				—				(368	)
Gain on sale of other investments			—				3,000				—
Charitable contributions			(908	)			(1,500	)			(1,000	)
Favorable legal judgment			—				15,834				—
Other, net			(1,137	)			(608	)			336
		$	67,545			$	69,063			$	35,022

     The decrease in interest income during fiscal year 2008 compared with the prior year is primarily due to decreases in our average balances of cash and cash equivalents, short-term investments, and restricted cash and investments throughout fiscal year 2008 and to a lesser extent, decreases in interest rate yields. The decrease in average balances was due to share repurchase activity of $1.1 billion during fiscal year 2007, of which $768.0 million was repurchased during the fourth quarter of fiscal year 2007, and the acquisition of SEZ in fiscal year 2008 in the amount of $482.6 million, net of cash acquired. The sequential increase in interest income during fiscal year 2007 compared to fiscal year 2006 was due to the combined effect of increased cash and cash equivalents, short-term securities, and restricted cash and investments balances as well as increases in interest rate yields.

     The decrease in interest expense during fiscal year 2008 as compared with the prior year was due to a $100 million repayment on our long-term debt during the December and March quarters of fiscal year 2007 and a decline in interest rates. The balance of our long-term debt and capital lease obligations as of June 29, 2008 was $306.3 million. The current portion of long-term debt and capital leases was $30.2 million as of June 29, 2008. Consolidated debt and capital lease obligations increased during fiscal year 2008 as a result of the SEZ acquisition. Debt and capital lease balances related to the SEZ acquisition were $56.3 million in total with $5.2 million representing the current portion as of June 29, 2008. The debt obligations consist of various bank loans and government grants supporting operating needs and capital leases reflect building lease obligations. The increase in interest expense during fiscal year 2007 as compared with fiscal year 2006 was due to the $350 million of long-term debt entered into by our wholly-owned subsidiary on June 16, 2006 to facilitate the repatriation of foreign earnings under the American Jobs Creation Act of 2004 (AJCA). The balance of our long-term debt was $250 million as of June 24, 2007.

     Included in foreign exchange gains during fiscal year 2008 are gains associated with the acquisition of SEZ of $42.7 million relating primarily to the settlement of a hedge of the Swiss franc. These acquisition-related net foreign exchange gains were partially offset by other foreign exchange losses of approximately $11.2 million during fiscal year 2008 which were primarily due to our foreign currency denominated liabilities with non-U.S. dollar functional subsidiaries where the U.S. dollar weakened against certain currencies, primarily the Euro and Taiwan dollar resulting in the foreign exchange loss. A description of our exposure to foreign currency exchange rates can be found in the Risk Factors section of this 2008 Form 10-K under the heading “Our Future Success Depends on International Sales and Management of Global Operations.”

     In June 2007 we recognized a gain of $3.0 million related to the sale of a private equity investment.

     The favorable legal judgment of $15.8 million during fiscal year 2007 was obtained in a lawsuit filed by us alleging breach of purchase order contracts by one of our customers. The Supreme Court of California denied review of lower and appellate court judgments in favor of Lam Research during the quarter ended September 24, 2006.

Income Tax Expense

     Our annual income tax expense was $137.6 million, $161.9 million, and $104.6 million in fiscal years 2008, 2007, and 2006, respectively. Our effective tax rate for fiscal years 2008, 2007, and 2006 was 23.9%, 19.1%, and 23.8%, respectively. The increase in the effective tax rate in fiscal year 2008 is primarily due to the application of certain foreign tax rulings, a decrease in the proportion of income in low tax jurisdictions, as well as the expiration of the federal research tax credit which expired on December 31, 2007. The increase was partially offset by certain discrete events resulting in a net tax benefit of $11.6 million. These discrete events included favorable adjustments for previously estimated tax liabilities upon the filing of our U.S. and certain foreign income tax returns, and the reversal of tax reserves with respect to certain transfer pricing items now settled.

     The fiscal year 2007 effective tax rate was 19.1%, compared to the fiscal year 2006 effective tax rate of 23.8%, and reflects the increase in income in jurisdictions with a lower tax rate as well as certain discrete events resulting in a net tax benefit of $21.5 million. These discrete events included favorable adjustments for previously estimated tax liabilities upon the filing of our U.S. and certain foreign income tax returns, the reversal of tax reserves with respect to certain transfer pricing items now settled and an increased benefit related to the extension of the federal research credit as it pertains to our fiscal year 2006. These favorable adjustments were partially offset by an increase in tax expense related to the application of foreign tax rulings.

Deferred Income Taxes

     Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Our gross deferred tax assets, primarily comprised of reserves and accruals that are not currently deductible and tax credit carryforwards, were $173.0 million and $123.3 million at the end of fiscal years 2008 and 2007, respectively. These gross deferred tax assets were offset by deferred tax liabilities of $53.1 million and $34.2 million at the end of fiscal years 2008 and 2007, respectively, and a valuation allowance of $3.4 million at the end of fiscal year 2008. There was no such valuation allowance at the end of fiscal year 2007.

     Deferred tax assets increased in fiscal year 2008 primarily due to the accrual related to the Section 409A employee liability and the deferred tax assets from the acquisition of SEZ. The increase in deferred tax liability in fiscal year 2008 was primarily due to the acquisition of SEZ.

     We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. Realization of our net deferred tax assets is dependent on future taxable income. We believe it is more likely than not that such assets will be realized; however, ultimate realization could be negatively impacted by market conditions and other variables not known or anticipated at this time. In the event that we determine that we would not be able to realize all or part of our net deferred tax assets, an adjustment would be charged to earnings in the period such determination is made. Likewise, if we later determine that it is more likely than not that the deferred tax assets would be realized, then the previously provided valuation allowance would be reversed. Our current valuation allowance of $3.4 million relates to deferred tax assets acquired in the SEZ acquisition. Any subsequently recognized tax benefits associated with valuation allowances recorded in the SEZ acquisition will be recorded as an adjustment to goodwill. We evaluate the realizability of the deferred tax assets quarterly and will continue to assess the need for additional valuation allowances, if any.

FIN 48

     In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation Number 48, “Accounting for Income Tax Uncertainties” (“FIN 48”). FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognizing, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We adopted FIN 48 as of June 25, 2007. As a result of the adoption of FIN 48, we decreased the recorded liability for unrecognized tax benefits by approximately $26.2 million as well as reclassed approximately $64.4 million from current to non-current income taxes payable. The cumulative effect of adopting FIN 48 was a $17.6 million increase to our opening retained earnings in the first quarter of fiscal year 2008.

     We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.

Critical Accounting Policies and Estimates

     The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain judgments, estimates and assumptions that could affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We based our estimates and assumptions on historical experience and on various other assumptions believed to be applicable and evaluate them on an ongoing basis to ensure they remain reasonable under current conditions. Actual results could differ significantly from those estimates.

     The significant accounting policies used in the preparation of our financial statements are described in Note 2 of our Consolidated Financial Statements. Some of these significant accounting policies are considered to be critical accounting policies. A critical accounting policy is defined as one that has both a material impact on our financial condition and results of operations and requires us to make difficult, complex and/or subjective judgments, often as a result of the need to make estimates about matters that are inherently uncertain.

     We believe that the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements.

     Revenue Recognition: We recognize all revenue when persuasive evidence of an arrangement exists, delivery has occurred and title has passed or services have been rendered, the selling price is fixed or determinable, collection of the receivable is reasonably assured, and we have completed our system installation obligations, received customer acceptance or are otherwise released from our installation or customer acceptance obligations. In the event that terms of the sale provide for a lapsing customer acceptance period, we recognize revenue upon the expiration of the lapsing acceptance period or customer acceptance, whichever occurs first. In circumstances where the practices of a customer do not provide for a written acceptance or the terms of sale do not include a lapsing acceptance provision, we recognize revenue where it can be reliably demonstrated that the delivered system meets all of the agreed-to customer specifications. In situations with multiple deliverables, revenue is recognized upon the delivery of the separate elements to the customer and when we receive customer acceptance or are otherwise released from our customer acceptance obligations. Revenue from multiple-element arrangements is allocated among the separate elements based on their relative fair values, provided the elements have value on a stand-alone basis, there is objective and reliable evidence of fair value, the arrangement does not include a general right of return relative to the delivered item and delivery or performance of the undelivered item(s) is considered probable and substantially in our control. The maximum revenue recognized on a delivered element is limited to the amount that is not contingent

upon the delivery of additional items. Revenue related to sales of spare parts and system upgrade kits is generally recognized upon shipment. Revenue related to services is generally recognized upon completion of the services requested by a customer order. Revenue for extended maintenance service contracts with a fixed payment amount is recognized on a straight-line basis over the term of the contract.

      Inventory Valuation : Inventories are stated at the lower of cost or market using standard costs which generally approximate actual costs on a first-in, first-out basis. We maintain a perpetual inventory system and continuously record the quantity on-hand and standard cost for each product, including purchased components, subassemblies, and finished goods. We maintain the integrity of perpetual inventory records through periodic physical counts of quantities on hand. Finished goods are reported as inventories until the point of title transfer to the customer. Generally, title transfer is documented in the terms of sale. When the terms of sale do not specify, we assume title transfers when we complete physical transfer of the products to the freight carrier unless other customer practices prevail. Transfer of title for shipments to Japanese customers generally occurs at time of customer acceptance.

     Standard costs are reassessed as needed but annually at a minimum, and reflect achievable acquisition costs, generally the most recent vendor contract prices for purchased parts, currently obtainable assembly and test labor utilization levels, methods of manufacturing, and overhead for internally manufactured products. Manufacturing labor and overhead costs are attributed to individual product standard costs at a level planned to absorb spending at average utilization volumes. All intercompany profits related to the sales and purchases of inventory between our legal entities are eliminated from our consolidated financial statements.

     Management evaluates the need to record adjustments for impairment of inventory at least quarterly. Our policy is to assess the valuation of all inventories including manufacturing raw materials, work-in-process, finished goods, and spare parts in each reporting period. Obsolete inventory or inventory in excess of management’s estimated usage requirements over the next 12 to 36 months is written down to its estimated market value if less than cost. Inherent in the estimates of market value are management’s forecasts related to our future manufacturing schedules, customer demand, technological and/or market obsolescence, general semiconductor market conditions, possible alternative uses, and ultimate realization of excess inventory. If future customer demand or market conditions are less favorable than our projections, additional inventory write-downs may be required and would be reflected in cost of sales in the period the revision is made.

     Warranty : Typically, the sale of semiconductor capital equipment includes providing parts and service warranty to customers as part of the overall price of the system. We offer standard warranties for our systems that run generally for a period of 12 months from system acceptance. When appropriate, we record a provision for estimated warranty expenses to cost of sales for each system upon revenue recognition. The amount recorded is based on an analysis of historical activity which uses factors such as type of system, customer, geographic region, and any known factors such as tool reliability trends. All actual parts and labor costs incurred in subsequent periods are charged to those established reserves on a system-by-system basis.

     Actual warranty expenses are incurred on a system-by-system basis, and may differ from our original estimates. While we periodically monitor the performance and cost of warranty activities, if actual costs incurred are different than our estimates, we may recognize adjustments to provisions in the period in which those differences arise or are identified. We do not maintain general or unspecified reserves; all warranty reserves are related to specific systems.

     In addition to the provision of standard warranties, we offer customer-paid extended warranty services. Revenues for extended maintenance and warranty services with a fixed payment amount are recognized on a straight-line basis over the term of the contract. Related costs are recorded either as incurred or when related liabilities are determined to be probable and estimable.

      Equity-based Compensation — Employee Stock Purchase Plan and Employee Stock Plans : We account for our employee stock purchase plan (“ESPP”) and stock plans under the provisions of Statement of Financial Accounting Standards No. 123R (“SFAS No. 123R”). SFAS No. 123R requires the recognition of the fair value of equity-based compensation in net income. The fair value of our restricted stock units was calculated based upon the fair market value of Company stock at the date of grant. The fair value of our stock options and ESPP awards was estimated using a Black-Scholes option valuation model. This model requires the input of highly subjective assumptions and elections in adopting and implementing SFAS No. 123R, including expected stock price volatility and the estimated life of each award. The fair value of equity- based awards is amortized over the vesting period of the award and we have elected to use the straight-line method for awards granted after the adoption of SFAS No. 123R and continue to use a graded vesting method for awards granted prior to the adoption of SFAS No. 123R.

     We make quarterly assessments of the adequacy of our tax credit pool related to equity-based compensation to determine if there are any deficiencies that require recognition in our consolidated statements of operations. As a result of the adoption of SFAS No. 123R, we will only recognize a benefit from stock-based compensation in paid-in-capital if an incremental tax benefit is realized after all other tax attributes currently available to us have been utilized. In addition, we have elected to account for the indirect benefits of stock-based compensation on the research tax credit through the income statement (continuing operations) rather than through paid-in-capital. We have also elected to net deferred tax assets and the associated valuation allowance related to net operating loss and tax credit carryforwards for the accumulated stock award tax benefits determined under Accounting Principles Board No. 25 for income tax footnote disclosure purposes. We will track these stock award attributes separately and will only recognize these attributes through paid-in-capital in accordance with Footnote 82 of SFAS No. 123R.

     Income Taxes: Deferred income taxes reflect the net effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. Realization of our net deferred tax assets is dependent on future taxable income. We believe it is more likely than not that such assets will be realized; however, ultimate realization could be negatively impacted by market conditions and other variables not known or anticipated at this time. In the event that we determine that we would not be able to realize all or part of our net deferred tax assets, an adjustment would be charged to earnings in the period such determination is made. Likewise, if we later determine that it is more likely than not that the deferred tax assets would be realized, then the previously provided valuation allowance would be reversed.     

     We calculate our current and deferred tax provision based on estimates and assumptions that can differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are recorded when identified.

     We provide for income taxes on the basis of annual estimated effective income tax rates. Our estimated effective income tax rate reflects our underlying profitability, the level of R&D spending, the regions where profits are recorded and the respective tax rates imposed. We carefully monitor these factors and adjust the effective income tax rate, if necessary. If actual results differ from estimates, we could be required to record an additional valuation allowance on deferred tax assets or adjust our effective income tax rate, which could have a material impact on our business, results of operations, and financial condition.

     The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws. Our estimate for the potential outcome of any uncertain tax issue is highly judgmental. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations and financial condition.

     In July 2006, the FASB issued FASB Interpretation 48, “Accounting for Income Tax Uncertainties” (“FIN 48”). FIN 48 defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority. The recently issued literature also provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties. FIN 48 also includes guidance concerning accounting for income tax uncertainties in interim periods and increases the level of disclosures associated with any recorded income tax uncertainties.     We adopted FIN 48 in the first quarter of 2008. See Note 15: “Income Taxes” in the Notes to Consolidated Financial Statements of this 2008 Form 10-K for further discussion.

     We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties relating to these uncertain tax positions. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period.    

     We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. We believe that we will ultimately recover a substantial majority of the deferred tax assets recorded on our consolidated balance sheets. However, should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determined that the recovery was not probable.

     In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. As a result of the implementation of FIN 48, we recognize liabilities for uncertain tax positions based on the two-step process prescribed within the interpretation. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period.      

     Goodwill and Intangible Assets: We account for goodwill and other intangible assets in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, (“SFAS No. 142”). SFAS No. 142 requires that goodwill and identifiable intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.

     We review goodwill at least annually for impairment. Should certain events or indicators of impairment occur between annual impairment tests, we perform the impairment test of goodwill at that date. In testing for a potential impairment of goodwill, we: (1) allocate goodwill to our various reporting units to which the acquired goodwill relates; (2) estimate the fair value of our

reporting units; and (3) determine the carrying value (book value) of those reporting units, as some of the assets and liabilities related to those reporting units are not held by those reporting units but by corporate headquarters. Furthermore, if the estimated fair value of a reporting unit is less than the carrying value, we must estimate the fair value of all identifiable assets and liabilities of that reporting unit, in a manner similar to a purchase price allocation for an acquired business. This can require independent valuations of certain internally generated and unrecognized intangible assets such as in-process research and development and developed technology. Only after this process is completed can the amount of goodwill impairment, if any, be determined.

     The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points during the analysis. In estimating the fair value of a reporting unit for the purposes of our annual or periodic analyses, we make estimates and judgments about the future cash flows of that reporting unit. Although our cash flow forecasts are based on assumptions that are consistent with our plans and estimates we are using to manage the underlying businesses, there is significant exercise of judgment involved in determining the cash flows attributable to a reporting unit over its estimated remaining useful life. In addition, we make certain judgments about allocating shared assets to the estimated balance sheets of our reporting units. We also consider our and our competitor’s market capitalization on the date we perform the analysis. Changes in judgment on these assumptions and estimates could result in a goodwill impairment charge.

     The value assigned to intangible assets is based on estimates and judgments regarding expectations such as the success and life cycle of products and technology acquired. If actual product acceptance differs significantly from the estimates, we may be required to record an impairment charge to write down the asset to its realizable value.

Recent Accounting Pronouncements

     In July 2006, the FASB issued FASB Interpretation Number 48, “Accounting for Income Tax Uncertainties” (“FIN 48”). FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognizing, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We adopted FIN 48 as of June 25, 2007. As a result of the adoption of FIN 48, the Company decreased the recorded liability for unrecognized tax benefits by approximately $26.2 million, and reclassed approximately $64.4 million from current to non-current income taxes payable. The cumulative effect of adopting FIN 48 resulted in an increase to the Company’s opening retained earnings in the first quarter of fiscal year 2008 of approximately $17.6 million.

     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements,” (“SFAS No. 157”), which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS No. 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. In February 2008, the FASB issued FASB Staff Position No. 157-2 delaying the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value on a recurring basis. We will adopt the delayed portions of SFAS No. 157 during fiscal year 2010, while all other portions of the standard will be adopted during fiscal year 2009, as required. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. Earlier adoption is permitted, provided the company has not yet issued financial statements, including interim periods, for that fiscal year. Our financial assets and liabilities impacted by SFAS No. 157 relate primarily to derivatives, short-term investments and restricted investments balances. We do not believe there will be any material impact on our financial position, results of operations and liquidity as a result of adopting the provisions of SFAS No. 157.

     In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (“SFAS No. 159”). This statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157. We do not believe there will be any material impact on our financial position, results of operations and liquidity as a result of adopting the provisions of SFAS No. 159.

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS No. 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS No. 141R is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008. We expect to adopt SFAS No. 141R in the beginning of fiscal year 2010 and are currently evaluating the potential impact, if any, of the adoption of SFAS No. 141R on our consolidated results of operations and financial condition.

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting

standards for the treatment of noncontrolling interests in a subsidiary. Noncontrolling interests in a subsidiary will be reported as a component of equity in the consolidated financial statements and any retained noncontrolling equity investment upon deconsolidation of a subsidiary is initially measured at fair value. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The adoption of SFAS 160 will result in the reclassification of minority interests to stockholders’ equity. We are currently assessing any further impacts of SFAS 160 on our results of operations and financial condition.

     In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities — An Amendment of FASB Statement 133” (“SFAS 161”). SFAS 161 requires expanded and enhanced disclosure for derivative instruments, including those used in hedging activities. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. We are currently assessing the impact of the adoption of SFAS 161 on our consolidated financial statement disclosures.

     In April 2008, the FASB issued FASB Staff Position Statement of Financial Accounting Standards 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP SFAS 142-3”). FSP SFAS 142-3 provides guidance with respect to estimating the useful lives of recognized intangible assets acquired on or after the effective date and requires additional disclosure related to the renewal or extension of the terms of recognized intangible assets. FSP SFAS 142-3 is effective for fiscal years and interim periods beginning after December 15, 2008. We are currently assessing the impact of the adoption of FSP SFAS 142-3 on our results of operations and financial condition.

Liquidity and Capital Resources

     During fiscal year 2008 we grew our gross cash and cash equivalents, short-term investments, and restricted cash and investments balance to $1.2 billion compared with $1.0 billion at June 24, 2007. During fiscal year 2008, we generated $590.3 million in cash from operating activities. In addition, we acquired SEZ for $482.6 million, net of cash acquired, in an all cash transaction.

Cash Flows from Operating Activities

     Net cash provided by operating activities of $590.3 million during fiscal year 2008 consisted of (in millions):

Net income		$	439.3
Non-cash charges:
Depreciation and amortization			54.7
Equity-based compensation			42.5
Net gain on settlement of call option			(33.8	)
Restructuring charges, net			19.0
Net tax benefit on equity-based compensation plans			24.6
Deferred income taxes			(26.7	)
Changes in operating asset accounts			74.0
Other			(3.3	)
		$	590.3

     Significant changes in operating asset and liability accounts , net of amounts acquired from SEZ, included the following sources of cash: a decrease in accounts receivable of $99.9 million on lower business volumes, an increase in accrued expenses and other liabilities of $80.6 million that was primarily due to an increase in accrued compensation, including an accrual for the assumption of 409A liabilities of $50.2 million, and a decrease in inventories of $19.7 million on lower business volumes. These sources of cash were partially offset by decreases in deferred profit and accounts payable of $64.0 million and $40.1 million, respectively, on lower business volumes, and an increase in prepaid expenses and other assets of $22.0 million primarily due to an increase in income taxes receivable.

Cash Flows from Investing Activities

     Net cash used for investing activities during fiscal year 2008 was $495.8 million which was primarily due to our acquisition of SEZ for $482.6 million, net of cash acquired. In addition, our capital expenditures were $76.8 million and we purchased Swiss franc call options related to the acquisition of SEZ totaling $13.5 million. These expenditures were partially offset by net sales/maturities of investments of $18.8 million, proceeds from the settlement of the call options related to the SEZ acquisition of $47.3 million and the reclassification of restricted cash of $15.5 million.

Cash Flows from Financing Activities

     Net cash provided by financing activities during fiscal year 2008 was $65.8 million which was primarily due to $58.9 million of excess tax benefit on equity-based compensation plans representing the benefits of tax deductions in excess of the compensation cost recognized, $21.3 million from the issuance of our Common Stock related to employee equity-based plans, partially offset by $14.6 million in share repurchases related to shares withheld through net share settlements upon the vesting of restricted stock unit awards under our equity compensation plans.

     Given the cyclical nature of the semiconductor equipment industry, we believe that maintaining sufficient liquidity reserves is important to support sustaining levels of investment in R&D and capital infrastructure. Based upon our current business outlook, our levels of cash, cash equivalents, and short-term investments at June 29, 2008 are expected to be sufficient to support our presently anticipated levels of operations, investments, debt service requirements, and capital expenditures through at least the next 12 months.

     In the longer term, liquidity will depend to a great extent on our future revenues and our ability to appropriately manage our costs based on demand for our products. Should additional funding be required, we may need to raise the required funds through borrowings or public or private sales of debt or equity securities. We believe that, in the event of such requirements, we will be able to access the capital markets on terms and in amounts adequate to meet our objectives. However, given the possibility of changes in market conditions or other occurrences, there can be no certainty that such funding will be available in needed quantities or on terms favorable to us.

Off-Balance Sheet Arrangements and Contractual Obligations

     We have certain obligations to make future payments under various contracts, some of which are recorded on our balance sheet and some of which are not. Obligations are recorded on our balance sheet in accordance with U.S. generally accepted accounting principles and include our long-term debt which is outlined in the following table and discussed below. Our off-balance sheet arrangements include contractual relationships and are presented as operating leases and purchase obligations in the table below. Our contractual cash obligations and commitments relating to these agreements, and our guarantees are included in the following table. The amounts in the table below exclude $109.5 million of liabilities under FIN 48 as we are unable to reasonably estimate the ultimate amount or time of settlement. See Note 15, “Income Taxes” of Notes to Consolidated Financial Statements for further discussion.

														Long-term
		Operating				Capital				Purchase				Debt and
		Leases				Leases				Obligations				Interest Expense				Total
		(in thousands)
Payments due by period:
Less than 1 year		$	12,594			$	1,864			$	142,651			$	38,828			$	195,937
1-3 years			18,533				5,936				49,311				248,337				322,117
3-5 years			12,661				4,516				31,727				13,195				62,099
Over 5 years			150,243				16,697				41,054				—				207,994
Total		$	194,031			$	29,013			$	264,743			$	300,360			$	788,147

Operating Leases

     We lease most of our administrative, R&D and manufacturing facilities, regional sales/service offices and certain equipment under non-cancelable operating leases, which expire at various dates through 2016. Certain of our facility leases for buildings located at our Fremont, California headquarters and certain other facility leases provide us with an option to extend the leases for additional periods or to purchase the facilities. Certain of our facility leases provide for periodic rent increases based on the general rate of inflation.

     Included in the Operating Leases Over 5 years section of the table above is $141.8 million in guaranteed residual values for lease agreements relating to certain properties at our Fremont, California campus and properties in Livermore, California.

     On December 18, 2007, we entered into a series of two operating leases (the “Livermore Leases”) regarding certain improved properties in Livermore, California. On December 21, 2007, we entered into a series of four amended and restated operating leases (the “New Fremont Leases,” and collectively with the Livermore Leases, the “Operating Leases”) with regard to certain improved properties at our headquarters in Fremont, California. Each of the Operating Leases is an off-balance sheet arrangement. The Operating Leases (and associated documents for each Operating Lease) were entered into by us and BNP Paribas Leasing Corporation (“BNPPLC”).

     Each Livermore Lease facility has an approximately seven-year term (inclusive of an initial construction period during which BNPPLC’s and our obligations will be governed by the Construction Agreement entered into with regard to such Livermore Lease facility) ending on the first business day in January, 2015. Each New Fremont Lease has an approximately seven-year term ending on the first business day in January, 2015.

     Under each Operating Lease, we may, at our discretion and with 30 days’ notice, elect to purchase the property that is the subject of the Operating Lease for an amount approximating the sum required to prepay the amount of BNPPLC’s investment in the property and any accrued but unpaid rent. Any such amount may also include an additional make-whole amount for early redemption of the outstanding investment, which will vary depending on prevailing interest rates at the time of prepayment.

     We will be required, pursuant to the terms of the Operating Leases and associated documents, to maintain collateral in an aggregate of approximately $165.0 million (upon completion of the Livermore construction) in separate interest-bearing accounts and/or eligible short-term investments as security for our obligations under the Operating Leases. As of June 29, 2008, we had $129.2 million recorded as restricted cash and short-term investments in our consolidated balance sheet as collateral required under the lease agreements related to the amounts currently outstanding on the facility.

     Upon expiration of the term of an Operating Lease, the property subject to that Operating Lease may be remarketed. We have guaranteed to BNPPLC that each property will have a certain minimum residual value, as set forth in the applicable Operating Lease. The aggregate guarantee made by us under the Operating Leases is no more than approximately $141.8 million (although, under certain default circumstances, the guarantee with regard to an Operating Lease may be 100% of BNPPLC’s investment in the applicable property; in the aggregate, the amounts payable under such guarantees will be no more than $165.0 million plus related indemnification or other obligations).

     The lessor under the lease agreements is a substantive independent leasing company that does not have the characteristics of a variable interest entity (VIE) as defined by FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” and is therefore not consolidated by us.

     The remaining operating lease balances primarily relate to non-cancelable facility-related operating leases.

Capital Leases

     Capital leases reflect building lease obligations assumed from our acquisition of SEZ. The amounts in the table above include the interest portion of payment obligations.

Purchase Obligations

     Purchase obligations consist of significant contractual obligations either on an annual basis or over multi-year periods related to our outsourcing activities or other material commitments, including vendor-consigned inventories. We continue to enter into new agreements and maintain existing agreements to outsource certain activities, including elements of our manufacturing, warehousing, logistics, facilities maintenance, certain information technology functions, and certain transactional general and administrative functions. The contractual cash obligations and commitments table presented above contains our minimum obligations at June 29, 2008 under these arrangements and others. Actual expenditures will vary based on the volume of transactions and length of contractual service provided. In addition to these obligations, certain of these agreements include early termination provisions and/or cancellation penalties which could increase or decrease amounts actually paid.

     Consignment inventories, which are owned by vendors but located in our storage locations and warehouses, are not reported as our inventory until title is transferred to us or our purchase obligation is determined. At June 29, 2008, vendor-owned inventories held at our locations and not reported as our inventory were $26.5 million.

Long-Term Debt

     On June 16, 2006, our wholly-owned subsidiary, Lam Research International SARL (“LRI”), as borrower, entered into a $350 million Credit Agreement (the “LRI Credit Agreement”). In connection with the LRI Credit Agreement, we entered into a Guarantee Agreement (the “Guarantee Agreement”) guaranteeing the obligations of LRI under the LRI Credit Agreement. The outstanding balance on the loan was repaid in full during the quarter ended March 30, 2008.

     Concurrent with the repayment of the LRI Credit Agreement noted above, on March 3, 2008, we, as borrower, entered into a Credit Agreement, dated as of March 3, 2008 (the “Credit Agreement”) with ABN AMRO BANK N.V (the “Agent”), as administrative agent for the lenders party to the Credit Agreement, and such lenders. Our wholly-owned domestic subsidiary entered into a guarantee for the obligations of the Company under the Credit Agreement. In connection with the Credit Agreement, the Company and its wholly-owned domestic subsidiary entered into certain collateral documents (collectively, the “Collateral Documents”) including certain Security Agreements, a Pledge Agreement and other Collateral Documents to secure our obligations under the Credit Agreement. The Collateral Documents encumber certain current and future accounts receivables, inventory, equipment and related assets.

     Under the Credit Agreement, we borrowed $250 million in principal amount for general corporate purposes. The loan under the Credit Agreement is a non-revolving term loan with the following repayment terms: (a) $12.5 million of the principal amount due on each of (i) September 30, 2008, (ii) March 31, 2009 and (iii) September 30, 2009 and (b) the payment of the remaining principal amount on March 6, 2010. The outstanding principal amount bears interest at LIBOR plus 0.75% per annum or, alternatively, at the Agent’s “prime rate.” We may prepay the loan under the Credit Agreement in whole or in part at any time without penalty. The Credit Agreement contains customary representations, warranties, affirmative covenants and events of default, as well as various negative covenants (including maximum leverage ratio, minimum liquidity and minimum EBITDA).

     As a condition to funding under the Credit Agreement, the outstanding balance ($250 million) under the LRI Credit Agreement was repaid in full. LRI is our wholly-owned subsidiary. In addition, the Guarantee Agreement was also terminated. Our obligations under the Guarantee Agreement were fully collateralized by cash and cash equivalents.

     Consolidated debt obligations increased slightly as a result of the SEZ acquisition by $34.8 million of which $4.6 million represents the current portion of long-term debt and $30.2 million is classified as long-term debt on the consolidated balance sheet. The debt obligations consist of various bank loans and government grants supporting operating needs.

     Our total long-term debt of $284.8 million as of June 29, 2008 includes the $250.0 million discussed above and $34.8 million from SEZ. The current portion of long-term debt was $29.6 million as of June 29, 2008.

Guarantees

     We account for our guarantees in accordance with FASB Interpretation No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires a company that is a guarantor to make specific disclosures about its obligations under certain guarantees that it has issued. FIN 45 also requires a company (the guarantor) to recognize, at the inception of a guarantee, a liability for the obligations it has undertaken in issuing the guarantee.

     We have issued certain indemnifications to our lessors for taxes and general liability under some of our agreements. We have entered into certain insurance contracts which may limit our exposure to such indemnifications. As of June 29, 2008, we have not recorded any liability on our consolidated financial statements in connection with these indemnifications, as we do not believe, based on information available, that it is probable that any amounts will be paid under these guarantees.

     Generally, the Company indemnifies, under pre-determined conditions and limitations, its customers for infringement of third-party intellectual property rights by the Company’s products or services. The Company seeks to limit its liability for such indemnity to an amount not to exceed the sales price of the products or services subject to its indemnification obligations. The Company does not believe, based on information available, that it is probable that any material amounts will be paid under these guarantees.

     The Company offers standard warranties on its systems that run generally for a period of 12 months from system acceptance. The liability amount is based on actual historical warranty spending activity by type of system, customer, and geographic region, modified for any known differences such as the impact of system reliability improvements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Investments

     We maintain an investment portfolio of various holdings, types, and maturities. As of June 29, 2008, these securities are classified as available-for-sale and consequently are recorded in the Consolidated Balance Sheets at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income, net of tax.

Fixed Income Securities

     Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and variable rate long-term debt. At any time, a sharp rise in interest rates could have a material adverse impact on the fair value of our fixed income investment portfolio. Conversely, declines in interest rates could have a material adverse impact on interest income for our investment portfolio. We target to maintain a conservative investment policy, which focuses on the safety and preservation of our invested funds by limiting default risk, market risk, and reinvestment risk. The following table presents the hypothetical fair values of fixed income securities as a result of selected potential market decreases and increases in interest rates. Market changes reflect immediate hypothetical parallel shifts in the yield curve of plus or minus 50 basis points (“BPS”), 100 BPS, and 150 BPS. The hypothetical fair values as of June 29,2008 are as follows:

		Valuation of Securities Given an Interest Rate												Fair Value as of				Valuation of Securities Given an Interest
		Decrease of X Basis Points												June 29, 2008				Rate Increase of X Basis Points
		(150 BPS)				(100 BPS)				(50 BPS)				0.00%				50 BPS				100 BPS				150 BPS
		(in thousands)
Municipal Notes and Bonds		$	150,712			$	149,525			$	148,341			$	147,157			$	145,974			$	144,790			$	143,605
U.S. Treasury and Agencies			40,064				39,841				39,617				39,393				39,169				38,945				38,721
Government-Sponsored Enterprises			21,744				21,539				21,333				21,127				20,921				20,715				20,509
Bank and Corporate Notes			263,750				262,929				262,108				261,288				260,467				259,646				258,825
Total		$	476,270			$	473,834			$	471,399			$	468,965			$	466,531			$	464,096			$	461,660

     We mitigate default risk by investing in high credit quality securities and by positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. The portfolio includes only marketable securities with active secondary or resale markets to achieve portfolio liquidity and maintain a prudent amount of diversification.

Publicly Traded Equity Securities and Equity Mutual Funds

     The values of our equity investments in publicly traded equity securities and equity mutual funds are subject to equity price risk. The following table presents the hypothetical fair values of our publicly traded equity security and equity mutual funds as a result of selected potential decreases and increases in the price of each equity security in the portfolio. Potential fluctuations in the price of each equity security in the portfolio of plus or minus 10%, 15%, 25% were selected based on potential near-term changes in those security prices. The hypothetical fair values as of June 29, 2008 are as follows:

		Valuation of Securities Given an X% Decrease in Stock												Fair Value as of				Valuation of Securities Given an X%
		Price												June 29, 2008				Increase in Stock Price
		(25%)				(15%)				(10%)				0.00%				10%				15%				25%
		(in thousands)
Equity Mutual Funds		$	2,481			$	2,812			$	2,977			$	3,306			$	3,637			$	3,802			$	4,133
Publicly Traded Equity Securities		$	2,542			$	2,881			$	3,050			$	3,389			$	3,728			$	3,897			$	4,236

Foreign Currency Derivatives

     We conduct business on a global basis in several major international currencies. As such, we are potentially exposed to adverse as well as beneficial movements in foreign currency exchange rates. The majority of our sales and expenses are denominated in U.S. dollars except for certain of our revenues that are denominated in Japanese yen, certain revenues and expenses denominated in the Euro, certain of our spares and service contracts which are denominated in various currencies, and expenses related to our non-U.S. sales and support offices which are denominated in these countries’ local currency. We currently enter into foreign currency forward contracts to minimize the short-term impact of the exchange rate fluctuations on Japanese yen-denominated net assets and forecasted Japanese yen-denominated revenue and also on U.S. dollar-denominated assets where the Euro is the functional currency. We currently believe these are our primary exposures to currency rate fluctuation. To protect against the reduction in value of forecasted Japanese yen-denominated revenues, we enter into foreign currency forward exchange rate contracts that generally expire within 12 months, and no later than 24 months. These foreign currency forward exchange rate contracts are designated as cash flow hedges and are carried on our balance sheet at fair value with the effective portion of the contracts’ gains or losses included in accumulated other comprehensive income (loss) and subsequently recognized in earnings in the same period the hedged revenue is recognized. We also enter into foreign currency forward contracts to hedge the gains and losses generated by the remeasurement of Japanese yen-denominated net receivable balances against the U.S. dollar and U.S. dollar-denominated net receivable balances against the Euro. The change in fair value of these balance sheet hedge contracts is recorded into earnings as a component of other income and expense and offsets the change in fair value of the foreign currency denominated intercompany and trade receivables, recorded in other income and expense, assuming the hedge contract fully covers the intercompany and trade receivable balances.

     The notional amount and unrealized loss of our outstanding foreign currency forward contracts that are designated as balance sheet hedges as of June 29, 2008 is shown in the table below. This table also shows the change in fair value of these balance sheet hedges assuming a hypothetical foreign currency exchange rate movement of +/- 10 percent and +/- 15 percent. These changes in fair values would be offset in other income and expense by corresponding change in fair values of the foreign currency denominated intercompany and trade receivables assuming the hedge contract fully covers the intercompany and trade receivable balances.

						Unrealized
						Gain/(Loss) as of				FX Contract Change in Fair Value Given an X% Increase (+)
		Notional Amount				June 29, 2008				/ Decrease (-) in Each FX Rate
										+/-				10%				+/-				15%
		(in millions)
Balance sheet hedge forward contracts sold		$	80.1			$	(0.8	)			+/-			$	7.4				+/-			$	11.2
The notional amount and unrealized gain of our outstanding forward contracts that are designated as cash flow hedges as of June 29, 2008 is shown in the table below. This table also shows the change in fair value of these cash flow hedges assuming a hypothetical foreign currency exchange rate movement of +/- 10 percent and +/- 15 percent.
						Unrealized				FX Contract Change in Fair Value Given an X% Increase (+)
		Notional Amount				Gain/(Loss) as of				/ Decrease (-) in Each FX Rate
										+/-				10%				+/-				15%
		(in millions)
Cash flow hedge forward contracts sold		$	107.7			$	5.9				+/-			$	10.8				+/-			$	16.2

Long-Term Debt

     Our long-term debt consists of $250 million in a non-revolving term loan with the following repayment terms: (a) $12.5 million of the principal amount due on each of (i) September 30, 2008, (ii) March 31, 2009 and (iii) September 30, 2009 and (b) the payment of the remaining principal amount on March 6, 2010. The outstanding principal amount bears interest at LIBOR plus 0.75% per annum or, alternatively, at the Agent’s “prime rate.” We may prepay the loan under the Credit Agreement in whole or in part at any time without penalty. At any time a sharp increase in interest rates could have a material adverse effect on interest expense and a material favorable effect on interest expense with a sharp decline in interest rates.

     A hypothetical change in interest rates on our variable rate long-term debt of 50 basis points would result in a change in interest expense of approximately $1.3 million per fiscal year.

     In addition, our long-term debt includes $3.8 million of variable rate debt based on local LIBOR rates plus a spread of 0.50% and is subject to adverse as well as beneficial changes in interest expense due to fluctuation in interest rates.

Item 8. Financial Statements and Supplementary Data

     The Consolidated Financial Statements required by this Item are set forth on the pages indicated in Item 15(a). The unaudited quarterly results of our operations for our two most recent fiscal years are incorporated herein by reference under Item 6, “Selected Financial Data”.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

     None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

     As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 29, 2008, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e). Based upon that evaluation, our Chief Executive Officer along with our Chief Financial Officer, concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

     We intend to review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis and to correct any material deficiencies that we may discover. Our goal is to ensure that our senior management has timely access to material information that could affect our business.

Changes in Internal Control over Financial Reporting

     SEZ Acquisition. As a result of our acquisition of SEZ during the quarter ended March 30, 2008, our internal control over financial reporting now includes the controls of SEZ.

     Except as disclosed above, there has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

     Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Management has used the framework set forth in the report entitled “Internal Control—Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of the Company’s internal control over financial reporting. Based on that evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of June 29, 2008 at providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

     Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the operations acquired from SEZ, which was acquired on March 11, 2008. As allowed pursuant to guidance from the Securities and Exchange Commission, the evaluation of internal control over financial reporting of SEZ may be excluded. As of and for the year ended June 29, 2008 total assets and revenue of SEZ represented 27% (including goodwill and intangible assets) and 2% (from the March 11, 2008 acquisition date) of consolidated total assets and revenue, respectively.

     Ernst & Young LLP, an independent registered public accounting firm, has audited the Company’s internal control over financial reporting, as stated in their report, which is included in Part IV, Item 15 of this 2008 Form 10-K.

Effectiveness of Controls

     While we believe the present design of our disclosure controls and procedures and internal control over financial reporting is effective at the reasonable assurance level, future events affecting our business may cause us to modify our disclosure controls and procedures or internal control over financial reporting. The effectiveness of controls cannot be absolute because the cost to design and implement a control to identify errors or mitigate the risk of errors occurring should not outweigh the potential loss caused by the errors that would likely be detected by the control. Moreover, we believe that a control system cannot be guaranteed to be 100% effective all of the time. Accordingly, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.

Item 9B. Other Information

     None.

PART III

     We have omitted from the Report certain information required by Part III because we, as the Registrant, will file a definitive proxy statement with the Securities and Exchange Commission (SEC) within 120 days after the end of our fiscal year, pursuant to Regulation 14A, as promulgated by the SEC, for our Annual Meeting of Stockholders to be held November 6, 2008 (the “Proxy Statement”), and certain information included therein is incorporated by reference. (However, the Reports of the Audit Committee and Compensation Committee in the Registrant’s Proxy Statement are expressly not incorporated by reference herein.) For information regarding our executive officers, see Part I of this Form 10-K under the caption “Executive Officers of the Company”, which information is incorporated herein by this reference.

Item 10. Directors, Executive Officers, and Corporate Governance

     The information concerning our directors required by this Item is incorporated by reference to our Proxy Statement under the heading “Proposal No. 1 — Election of Directors.”

     The information concerning our audit committee and audit committee financial experts required by this Item is incorporated by reference to our Proxy Statement under the heading “Corporate Governance.”

     The information concerning compliance by officers, directors and 10% shareholders of us with Section 16 of the Exchange Act required by this Item is incorporated by reference to our Proxy Statement under the heading “Section 16(a) Beneficial Ownership Reporting Compliance.”

     Lam has adopted a Code of Ethics that applies to all employees, officers, and directors of the Company. Our Code of Ethics is publicly available on the investor relations page of our website at www.lamresearch.com. To the extent required by law, any amendments to, or waivers from, any provision of the Code of Ethics will promptly be disclosed to the public. To the extent permitted by such legal requirements, we intend to make such public disclosure by posting the relevant material on our website in accordance with SEC rules.

Item 11. Executive Compensation

     The information required by this Item is incorporated by reference to our Proxy Statement under the heading “Executive Compensation and Other Information.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     The information required by this Item is incorporated by reference to our Proxy Statement under the headings “Proposal No. 1 — Election of Directors”, “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance Under Equity Compensation Plans.”

Item 13. Certain Relationships and Related Transactions, and Director Independence

     The information required by this Item is incorporated by reference to our Proxy Statement under the heading “Certain Relationships and Related Transactions.”

Item 14. Principal Accounting Fees and Services

     The information required by this Item is incorporated by reference to our Proxy Statement under the heading “Relationship with Independent Registered Public Accounting Firm.”

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) 1. Index to Financial Statements

		Page
Consolidated Balance Sheets — June 29, 2008 and June 24, 2007			46
Consolidated Statements of Operations — Years Ended June 29, 2008, June 24, 2007, and June 25, 2006			47
Consolidated Statements of Cash Flows — Years Ended June 29, 2008, June 24, 2007, and June 25, 2006			48
Consolidated Statements of Stockholders’ Equity — Years Ended June 29, 2008, June 24, 2007, and June 25, 2006			49
Notes to Consolidated Financial Statements			50
Report of Independent Registered Public Accounting Firm			77
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting			78
Schedule II — Valuation and Qualifying Accounts			80

     Schedules, other than those listed above, have been omitted since they are not applicable/not required, or the information is included elsewhere herein.

3. See (c) of this Item 15, which is incorporated herein by reference.

(c) The list of Exhibits follows page 81 of this 2008 Form 10-K and is incorporated herein by this reference.

LAM RESEARCH CORPORATION

		June 29,				June 24,
		2008				2007
ASSETS
Cash and cash equivalents		$	732,537			$	573,967
Short-term investments			326,199				96,724
Accounts receivable, less allowance for doubtful accounts of $4,102 as of June 29, 2008 and $3,851 as of June 24, 2007			412,356				410,013
Inventories			282,218				235,431
Deferred income taxes			96,748				61,727
Prepaid expenses and other current assets			67,649				38,499
Total current assets			1,917,707				1,416,361
Property and equipment, net			235,735				113,725
Restricted cash and investments			146,072				360,038
Deferred income taxes			19,793				27,414
Goodwill			281,298				59,741
Intangible assets, net			121,889				70,909
Other assets			84,261				53,417
Total assets		$	2,806,755			$	2,101,605
LIABILITIES AND STOCKHOLDERS’ EQUITY
Trade accounts payable		$	89,158			$	117,617
Accrued expenses and other current liabilities			390,062				364,296
Deferred profit			128,250				190,885
Current portion of long-term debt and capital leases			30,209				—
Total current liabilities			637,679				672,798
Long-term debt and capital leases			276,121				250,000
Income taxes payable			85,611				—
Other long-term liabilities			23,400				2,487
Total liabilities			1,022,811				925,285
Minority interests			5,347				—
Commitments and contingencies
Stockholders’ equity:
Preferred stock, at par value of $0.001 per share; authorized - 5,000 shares, none outstanding			—				—
Common stock, at par value of $0.001 per share; authorized - 400,000 shares; issued and outstanding - 125,187 shares at June 29, 2008 and 123,535 shares at June 24, 2007			125				124
Additional paid-in capital			1,332,159				1,194,215
Treasury stock, at cost, 34,220 shares at June 29, 2008 and 34,168 shares at June 24, 2007			(1,490,701	)			(1,483,169	)
Accumulated other comprehensive income (loss)			10,620				(4,302	)
Retained earnings			1,926,394				1,469,452
Total stockholders’ equity			1,778,597				1,176,320
Total liabilities and stockholders’ equity		$	2,806,755			$	2,101,605

See Notes to Consolidated Financial Statements

LAM RESEARCH CORPORATION

		YEAR ENDED
		June 29,				June 24,				June 25,
		2008				2007				2006
Total revenue		$	2,474,911			$	2,566,576			$	1,642,171
Cost of goods sold			1,282,494				1,261,522				815,159
Cost of goods sold — restructuring and asset impairments			12,610				—				—
Cost of goods sold - 409A expense			6,401				—				—
Total costs of goods sold			1,301,505				1,261,522				815,159
Gross margin			1,173,406				1,305,054				827,012
Research and development			323,759				285,348				229,378
Selling, general and administrative			287,992				241,046				192,866
409A expense			43,784				—				—
Restructuring and asset impairments			6,366				—				—
In-process research and development			2,074				—				—
Total operating expenses			663,975				526,394				422,244
Operating income			509,431				778,660				404,768
Other income (expense), net:
Interest income			51,194				71,666				38,189
Interest expense			(12,674	)			(17,817	)			(677	)
Foreign exchange gains (losses)			31,070				(1,512	)			(1,458	)
Favorable legal judgment			—				15,834				—
Other, net			(2,045	)			892				(1,032	)
Income before income taxes			576,976				847,723				439,790
Income tax expense			137,627				161,907				104,580
Net income		$	439,349			$	685,816			$	335,210
Net income per share:
Basic net income per share		$	3.52			$	4.94			$	2.42
Diluted net income per share		$	3.47			$	4.85			$	2.33
Number of shares used in per share calculations:
Basic			124,647				138,714				138,581
Diluted			126,504				141,524				143,759

See Notes to Consolidated Financial Statements

LAM RESEARCH CORPORATION

		YEAR ENDED
		June 29,				June 24,				June 25,
		2008				2007				2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	439,349			$	685,816			$	335,210
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			54,704				38,097				22,000
Deferred income taxes			(26,661	)			17,055				37,222
Restructuring charges, net			18,976				—				—
Equity-based compensation expense			42,516				35,554				23,993
Income tax benefit on equity-based compensation plans			83,472				62,437				17,338
Excess tax benefit on equity-based compensation plans			(58,904	)			(44,990	)			(11,110	)
Net gain on settlement of call option			(33,839	)			—				—
Other, net			(3,319	)			625				2,357
Changes in operating asset accounts:
Accounts receivable, net of allowance			99,887				(513	)			(178,542	)
Inventories			19,684				(56,336	)			(59,038	)
Prepaid expenses and other assets			(21,972	)			(19,180	)			(9,270	)
Trade accounts payable			(40,125	)			9,055				48,341
Deferred profit			(64,007	)			51,112				50,675
Accrued expenses and other liabilities			80,558				44,827				88,206
Net cash provided by operating activities			590,319				823,559				367,382
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures and intangible assets			(76,803	)			(59,968	)			(42,080	)
Acquisitions of businesses, net of cash acquired			(482,574	)			(181,108	)			—
Sales of other investments			—				3,000				—
Purchases of available-for-sale securities			(310,873	)			(1,058,081	)			(129,464	)
Sales and maturities of available-for-sale securities			329,695				1,103,311				312,252
Purchase of call option			(13,506	)			—				—
Proceeds from settlement of call option			47,345				—				—
Purchase of other investments			(4,560	)			—				—
Transfer of restricted cash and investments			15,471				110,000				(385,000	)
Net cash used for investing activities			(495,805	)			(82,846	)			(244,292	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and capital lease obligations			(251,714	)			(100,171	)			(112	)
Net proceeds from issuance of long-term debt			251,915				—				349,632
Excess tax benefit on equity-based compensation plans			58,904				44,990				11,110
Treasury stock purchases			(14,552	)			(1,083,745	)			(251,211	)
Reissuances of treasury stock			8,563				18,123				15,171
Proceeds from issuance of common stock			12,694				42,468				179,400
Net cash provided by / (used for) financing activities			65,810				(1,078,335	)			303,990
Effect of exchange rate changes on cash			(1,754	)			774				1,485
Net increase (decrease) in cash and cash equivalents			158,570				(336,848	)			428,565
Cash and cash equivalents at beginning of year			573,967				910,815				482,250
Cash and cash equivalents at end of year		$	732,537			$	573,967			$	910,815
Schedule of noncash transactions
Acquisition of leased equipment		$	—			$	—			$	1,088
Supplemental disclosures:
Cash payments for interest		$	10,900			$	17,700			$	531
Cash payments for income taxes		$	74,243			$	53,508			$	11,873