• GB Davis

LAM Research $LRCX Qtr End Sep'20 Earnings Call Nuggets

$LRCX is a 40-year old company whose revenues are 75% derived from China, Korea and Taiwan where such economies and especially semiconductors are experiencing very healthy growth (compared to say the business environment in the United States, Europe or many emerging markets).  Only 7% of the Company’s business is derived from the United States.

After the market closed on October 21, the Company reported non-GAAP earnings for the quarter of $5.67 / share, a 19% sequential increase and above Street expectations and forecasts.  Revenues increased to $3.18 billion, a sequential increase of 14% and also above Street consensus.  The Company also saw an increase in operating margins.  After review of the earnings report and the Company’s conference: UBS, Stifel, RBC, Morgan Stanley, Mizhuo, Keybanc and Goldman all increased their earnings estimates and Price Targets for the security.  UBS from $400 to $450; Stifel from $352 to $418; RBC from $400 to $420; Morgan Stanley from $415 to $420; Mizhuo from $400 to $410; Keybanc from $410 to $424 and Goldman, Sachs from $376 to $424.  The security, despite such support on the Street has traded down on Thursday and Friday from circa $366 to just under $354 per share.

I have never seen a company this old and established with this type of growth – it is truly remarkable.  I believe that the Street would have taken up out year estimates and price targets even higher – but they have a policy of not giving forward guidance for the next year, until the prior year is complete – so you get a material bump in the numbers after next quarter, guided by the Company and followed by the Street analysts.

Company Financials can be found here à https://www.marketwatch.com/investing/stock/lrcx/financials

The Earnings Transcript, very bullish, Company comments, in part,  can be found here à https://www.fool.com/earnings/call-transcripts/2020/10/21/lam-research-corp-lrcx-q3-2020-earnings-call-trans/

CEO Archer in response to Deutsche Banc Analyst Sidney Ho about next quarter, “we really haven't seen or felt anything that feels out of the ordinary, relative to the growth plans for these customers. Going forward, I think again in many ways you see us guiding to yet another record for the company.”

Notable, CFO Berringer in response to Barclays Capital Analyst Blayne Curtis in regard to future quarters (other than next quarter), “our normal practice at this point in the year is not to give specific numeric here's what next year looks like. We'll do that a quarter from now,” We (me) expect the Company and the Street to materially take up their numbers with the growth that they just evidenced – and are permanently benefactor of a post-COVID world.

From a market perspective, we see positive momentum in the underlying drivers of semiconductor growth and believe this translates into a healthy outlook for Lam's business. Work and learn from home trends continue to drive demand in key electronic categories, including PCs, storage and networking. Third-party data suggests that growth in PC, notebook and workstation shipments in the calendar third quarter surpassed a 10-year high to reach record levels (Archer, CEO)

Moreover, some memory manufacturers have noted shipping record levels of consumer solid state drive bids in their most recent quarter. We believe that many of the changes brought about by this year shift to remote working and learning environments will be structural. The net result will be a pull forward of key long-term secular growth themes for the semiconductor industry, including accelerated build-out of cloud datacenters and expansion of high-speed communication networks. (Archer, CEO)

Lam Equipment Intelligence is also enabling new types of remote support that have proven vital to business resilience during the COVID-19 pandemic. Big data analytics approaches to enhance troubleshooting and simplified process optimization are seeing growing adoption. In 2020, our data enhanced service activities are on track to grow 3 times over the prior year. Virtual reality technologies are allowing us to continue training engineers across the globe to further develop their skills on our latest systems without the need for international travel. (Archer, CEO)

Similarly, the latest innovations in augmented reality headset devices are allowing us to connect the engineers at customer sites to real-time experts support in our factory often as much as halfway around the world. Our Customer Support Business Group is projecting 6 times growth in remote support engagements this year (Archer, CEO)

Revenue from our productivity focused offerings, including advanced services is expected to grow approximately 25% in this calendar year.  (Archer, CEO)

We delivered record performance in multiple areas, including total revenue, which came in at $3.18 billion. And as Tim mentioned, as part of that revenue, we achieved over $1 billion of revenue in our Customer Support Business Group. These results are clear evidence of our ability to grow the company and meet the needs of our customers, while further improving our business resiliency. Our September revenues increased 14% from the June quarter, driven by customers, technology investments to meet long-term growth opportunities. These opportunities range across multiple vectors, such as data centers, 5G networks, smartphones, gaming consoles, and personal computers. In the September quarter, we also had a record level of earnings per share coming in at $5.67, the results of our solid revenue in gross margin performance. (Bettinger, CFO EVP)

The regional revenue concentration, as we discussed last quarter, we see solid levels of investment in the China region, which came in at 37% of total revenues in the September quarter. The majority of that revenue again came from domestic Chinese customers in the quarter. We have a broad base of customers in the China region, and despite the trade regulations that have impacted us with certain customers, we see continued strength in this region for our business from both domestic and multinational customers. (Bettinger, CFO EVP)

We achieved another record quarter of revenue for our Customer Support Business Group at just over $1 billion, as I previously mentioned. This was an 11% increase from the June quarter level in over 28% higher versus the same quarter in 2019. (Bettinger, CFO EVP)

In addition to the strength of our advanced service offerings, we're optimizing the capabilities of our installed base through technology and productivity upgrades. We also continue to see strong demand in the refurbished tool business, driven by growth in various applications within the specialty technology markets. You should think about things like IoT, RF and power devices. We're on track to deliver the growth objective of over 40% cumulative revenue growth between 2019 and 2023 that we outlined at our Investor Day earlier this year. (Bettinger, CFO EVP)

Company Profile

Lam Research Corporation designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits in the United States, China, Europe, Japan, Korea, Taiwan, and the southeast Asia. The company offers ALTUS systems to deposit conformal films for tungsten metallization applications; SABRE electrochemical deposition products for copper damascene manufacturing; SOLA ultraviolet thermal processing products for film treatments; and VECTOR plasma-enhanced CVD ALD products. It also provides SPEED gapfill high-density plasma chemical vapor deposition (HDP-CVD) products; and Striker single-wafer atomic layer deposition (ALD) products that provide multiple dielectric film solutions. In addition, the company offers Flex for dielectric etch applications; Kiyo for conductor etch applications; Syndion for through-silicon via etch applications; and Versys metal products for metal etch processes. Further, it provides Coronus bevel clean products to enhance die yield; Da Vinci, DV-Prime, EOS, and SP to address a range of wafer cleaning applications; and Metryx mass metrology systems for high precision in-line mass measurement in semiconductor wafer manufacturing. Lam Research Corporation was founded in 1980 and is headquartered in Fremont, California.


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