LAM RESEARCH CORPORATION 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 as forward-looking, by use of phrases and words such as "believe," "estimated," "anticipate," "expect," "probable," "intend," "plan," "aim," "may," "should," "could," "would," "will," "continue," and other future-oriented terms. The identification of certain statements as "forward-looking" does not mean that other statements not specifically identified are not forward-looking. Forward-looking statements include but are not limited to statements that relate to: trends and opportunities in the global economic environment; trends and opportunities in the semiconductor industry, including in the end markets and applications for semiconductors, and in device complexity; growth or decline in the industry and the market for, and spending on, wafer fabrication equipment; the anticipated levels of, and rates of change in, margins, market share, served addressable market, capital expenditures, research and development expenditures, international sales, revenue (actual and/or deferred), operating expenses and earnings generally; management's plans and objectives for our current and future operations and business focus; volatility in our quarterly results; the makeup of our customer base; customer and end user requirements and our ability to satisfy those requirements; customer spending and demand for our products and services, and the reliability of indicators of change in customer spending and demand; the effect of variability in our customers' business plans or demand for our products and services; our competition, and our ability to defend our market share and to gain new market share; the success of joint development and collaboration relationships with customers, suppliers, or others; outsourced activities; our supply chain and the role of suppliers in our business, including the impacts of supply chain constraints and material costs; our leadership and competency, and our ability to facilitate innovation; our research and development programs; our ability to create sustainable differentiation; technology inflections in the industry and our ability to identify those inflections and to invest in research and development programs to meet them; our ability to deliver multi-product solutions; the resources invested to comply with evolving standards and the impact of such efforts; changes in state, federal and international tax laws, our estimated annual tax rate and the factors that affect our tax rates; legal and regulatory compliance; the estimates we make, and the accruals we record, in order to implement our critical accounting policies (including but not limited to the adequacy of prior tax payments, future tax benefits or liabilities, and the adequacy of our accruals relating to them); hedging transactions; debt or financing arrangements; our investment portfolio; our access to capital markets; uses of, payments of, and impact of interest rate fluctuations on, our debt; our intention to pay quarterly dividends and the amounts thereof, if any; our ability and intention to repurchase our shares; credit risks; controls and procedures; recognition or amortization of expenses; our ability to manage and grow our cash position; our strategic relevance with our customers; our ability to scale our operations to respond to changes in our business; the value of our patents; the materiality of potential losses arising from legal proceedings; the probability of making payments under our guarantees; the impact of the COVID-19 pandemic; and the sufficiency of our financial resources or liquidity to support future business activities (including but not limited to operations, investments, debt service requirements, dividends, 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 Part II Item 1A and elsewhere in this report and other documents we file from time to time with theSecurities and Exchange Commission ("SEC"), such as our annual report on Form 10-K for the year endedJune 26, 2022 (our "2022 Form 10-K"), our quarterly report on Form 10-Q for the fiscal quarter endedSeptember 25, 2022 , 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 in this report 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 do not undertake any 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 of this report or to reflect the occurrence or effect of anticipated or unanticipated events.
Documents To Review In Connection With Management's Discussion and Analysis Of Financial Condition and Results Of Operations
For a full understanding of our financial position and results of operations for the three and six months endedDecember 25, 2022 , and the related Management's Discussion and Analysis of Financial Condition and Results of Operations below, you should also read the Condensed Consolidated Financial Statements and notes presented in this Form 10-Q and the financial statements and notes in our 2022 Form 10-K.Lam Research Corporation 2023 Q2 10-Q 21
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EXECUTIVE SUMMARY
Lam Research Corporation is a global supplier of innovative wafer fabrication equipment and services to the semiconductor industry. We have built a strong global presence with core competencies in areas like nanoscale applications enablement, chemistry, plasma and fluidics, advanced systems engineering and a broad range of operational disciplines. Our products and services are designed to help our customers build smaller and better performing devices that are used in a variety of electronic products, including mobile phones, personal computers, servers, wearables, automotive vehicles, and data storage devices. Our customer base includes leading semiconductor memory, foundry, and integrated device manufacturers that make products such as non-volatile memory, dynamic random-access memory, and logic devices. Their continued success is part of our commitment to driving semiconductor breakthroughs that define the next generation. Our core technical competency is integrating hardware, process, materials, software, and process control, enabling results on the wafer. Semiconductor manufacturing, our customers' business, involves the complete fabrication of multiple dies or integrated circuits on a wafer. This involves the repetition of a set of core processes and can require hundreds of individual steps. Fabricating these devices requires highly sophisticated process technologies to integrate an increasing array of new materials with precise control at the atomic scale. Along with meeting technical requirements, wafer processing equipment must deliver high productivity and be cost-effective. Demand from cloud computing, 5G, the Internet of Things, and other markets is driving the need for increasingly powerful and cost-efficient semiconductors. At the same time, there are growing technical challenges with traditional two-dimensional scaling. These trends are driving significant inflections in semiconductor manufacturing, such as the increasing importance of vertical scaling strategies like three-dimensional architecture as well as multiple patterning to enable shrinks. We believe we are in a strong position with our leadership and expertise in deposition, etch, and clean to facilitate some of the most significant innovations in semiconductor device manufacturing. OurCustomer Support Business Group provides products and services to maximize installed equipment performance, predictability, and operational efficiency. Several factors create opportunity for sustainable differentiation for us: (i) our focus on research and development, with several on-going programs relating to sustaining engineering, product and process development, and concept and feasibility; (ii) our ability to effectively leverage cycles of learning from our broad installed base; (iii) our collaborative focus with semi-ecosystem partners; (iv) our ability to identify and invest in the breadth of our product portfolio to meet technology inflections; and (v) our focus on delivering our multi-product solutions with a goal to enhance the value of Lam's solutions to our customers. Calendar year 2022 was a solid investment year in wafer fabrication equipment spending driven by robust secular demand for semiconductors and increasing complexity in manufacturing NAND, DRAM, and foundry logic devices. However, the demand environment, particularly in memory, has weakened, and as a result, we expect a reduction in wafer fabrication equipment spending in calendar year 2023. Additionally,the United States government imposed new controls which significantly impact trade withChina for the shipment of wafer fabrication equipment and related parts and services. We expect these regulatory conditions, and the slowing economic environment, to negatively impact our financial results in calendar year 2023. As a result of the expected reduced business levels, we announced a plan for theMarch 2023 quarter to reduce headcount by 1,300 employees, and we expect to incur charges of approximately$80.0 million in connection with the plan. Over the course of calendar year 2023, we are projecting expenditures in the range of$150.0 million to$250.0 million associated with various business process improvements and initiatives, inclusive of theMarch 2023 quarter restructuring activity. Over the longer term, we believe that secular demand for semiconductors combined with technology inflections in our industry, including 3D device scaling, multiple patterning, process flow, and advanced packaging chip integration, will drive sustainable growth and lead to an increase in the served addressable market for our products and services in the deposition, etch, and clean businesses. In the quarter-endedDecember 25, 2022 , customer demand was strong and with improvement in supply chain constraints we were able to fulfill shipments of many critical parts required for revenue recognition. Although we have seen improvements in both our operations and those of our suppliers, we may continue to experience supply shortages as well as inflationary cost pressures in at least the near term. Risks and uncertainties related to the COVID-19 pandemic, supply chain challenges, and inflationary pressures may continue to negatively impact our revenue and gross margin.Lam Research Corporation 2023 Q2
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The following table summarizes certain key financial information for the periods
indicated below:
Three Months Ended
December 25, September 25,
2022 2022
(in thousands, except per share data and
percentages)
Revenue $ 5,277,569 $ 5,074,121
Gross margin $ 2,376,349 $ 2,336,835
Gross margin as a percent of total revenue 45.0 % 46.1 %
Total operating expenses $ 696,187 $ 638,995
Net income $ 1,468,507 $ 1,425,879
Diluted net income per share $ 10.77 In theDecember 2022 quarter, revenue increased 4.0% compared to theSeptember 2022 quarter, driven by an increase in systems revenue as a result of the improving supply chain environment. We were able to fulfill shipments of critical parts which drove down our deferred revenue balance to$1,984 million at the end of theDecember 2022 quarter compared to$2,755 million as of the end of theSeptember 2022 quarter. We aim to balance the requirements of our customers with the availability of resources, as well as performance to our operational and financial objectives. As a result, from time to time, we exercise discretion and judgment as to the timing and prioritization of manufacturing and deliveries of products, which has impacted, including in the current fiscal year, and may in the future impact, the timing of revenue recognition with respect to such products. The decrease in gross margin as a percentage of revenue in theDecember 2022 quarter compared to theSeptember 2022 quarter was primarily a result of unfavorable customer and product mix. The increase in operating expenses in theDecember 2022 quarter compared to theSeptember 2022 quarter was primarily driven by an increase in deferred compensation plan-related costs, outside service spending and supplies expense. Our cash and cash equivalents, investments, and restricted cash and investments balances increased to$4.8 billion at the end of theDecember 2022 quarter compared to$4.6 billion at the end of theSeptember 2022 quarter. This increase was primarily the result of$1,140.2 million of cash generated from operating activities, partially offset by$456.3 million of share repurchases, including net share settlement of employee stock-based compensation,$236.0 million of dividends paid to stockholders; and$163.4 million of capital expenditures. Employee headcount as ofDecember 25, 2022 was approximately 19,200. RESULTS OF OPERATIONS Revenue Three Months Ended Six Months Ended December 25, September 25, December 25, December 26, 2022 2022 2022 2021 Revenue (in millions)$ 5,278 $ 5,074 $ 10,352 $ 8,531 China 24 % 30 % 27 % 31 % Korea 20 % 17 % 19 % 23 % Taiwan 19 % 22 % 20 % 17 % Japan 11 % 9 % 10 % 11 % Southeast Asia 10 % 11 % 10 % 9 % United States 10 % 6 % 8 % 6 % Europe 6 % 5 % 6 % 3 % Revenue for theDecember 2022 quarter increased 4.0% from theSeptember 2022 quarter primarily due to improving supply chain conditions which allowed us to fulfill shipments of critical parts. Lam Research Corporation 2023 Q2
10-Q 23
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The following table presents our revenue disaggregated between system and customer support-related revenue:
Three Months Ended Six Months Ended
December 25, September 25, December 25, December 26,
2022 2022 2022 2021
(In thousands)
System revenue $ 3,547,518 $ 3,181,987 $ 6,729,505 $ 5,665,056
Customer support-related revenue and other 1,730,051 1,892,134 3,622,185 2,866,013
$ 5,277,569 $ 5,074,121 $ 10,351,690 $ 8,531,069 Please refer to Note 3, "Revenue," to the Condensed Consolidated Financial Statements of this Form 10-Q for additional information regarding the composition of the two categories into which revenue has been disaggregated.
The following table presents the percentages of leading- and non-leading-edge equipment and upgrade revenue to each of the primary markets we serve:
Three Months Ended Six Months Ended
December 25, September 25, December 25, December 26,
2022 2022 2022 2021
Memory 50 % 52 % 50 % 61 %
Foundry 31 % 34 % 33 % 28 %
Logic/integrated device manufacturing 19 % 14 % 17 % 11 %
The decrease in the memory market for the six months ended
Gross Margin
Three Months Ended Six Months Ended
December 25, September 25, December 25, December 26,
2022 2022 2022 2021
(in thousands, except percentages)
Gross margin $ 2,376,349 $ 2,336,835 $ 4,713,184 $ 3,954,670
Percent of revenue 45.0 % 46.1 % 45.5 % 46.4 %
Gross margin as a percentage of revenue was lower in the
The decrease in gross margin as a percentage of revenue in the six months endedDecember 25, 2022 compared to the same period in the prior year was primarily driven by higher levels of manufacturing-related spending as a result of increased inflationary pressures, partially offset by favorable customer and product mix. Research and Development Three Months Ended Six Months Ended December 25, September 25, December 25, December 26, 2022 2022 2022 2021 (in thousands, except percentages) Research & development ("R&D")$ 462,385 $ 433,375 $ 895,760 $ 785,971 Percent of revenue 8.8 % 8.5 % 8.7 % 9.2 % We continued to make significant R&D investments in theDecember 2022 quarter focused on leading-edge deposition, etch, clean and other semiconductor manufacturing processes. The increase in R&D expense in theDecember 2022 quarter compared to theSeptember 2022 quarter was primarily driven by an increase of$14 million in spending for supplies and$11 million in deferred compensation plan-related costs. The increase in R&D expense in the six months endedDecember 25, 2022 compared to the same period in the prior year was primarily driven by increases in employee-related expenses mainly as a result of increased headcount as well as for$32 million in spending for supplies. Lam Research Corporation 2023 Q2
10-Q 24
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Selling, General, and Administrative
Three Months Ended Six Months Ended
December 25, September 25, December 25, December 26,
2022 2022 2022 2021
(in thousands, except percentages)
Selling, general, and administrative ("SG&A") $ 233,802 $ 205,620 $ 439,422 $ 458,327
Percent of revenue 4.4 % 4.1 % 4.2 % 5.4 %
SG&A expense during the
SG&A expense during the six months endedDecember 25, 2022 decreased compared to the same period in the prior year, primarily driven by a decrease of$23 million in amortization for intangible assets, as the intangible assets associated with ourNovellus Systems, Inc. transactions have fully amortized.
Other Income (Expense), Net
Other income (expense), net consisted of the following:
Three Months Ended Six Months Ended
December 25, September 25, December 25, December 26,
2022 2022 2022 2021
(in thousands)
Interest income $ 26,125 $ 15,056 $ 41,181 $ 7,050
Interest expense (46,661) (46,052) (92,713) (91,821)
Gains (losses) on deferred compensation
plan-related assets, net 10,871 (12,726) (1,855) 7,381
Foreign exchange (losses) gains, net (10,114) 6,821 (3,293) 714
Other, net (8,455) (6,194) (14,649) 65,818
$ (28,234) $ (43,095) $ (71,329) $ (10,858) Interest income increased for the three months ended
Interest expense is consistent across all periods presented.
The gains and losses on deferred compensation plan-related assets were driven by fluctuations in the fair market value of the underlying funds for all periods presented.
Foreign exchange fluctuations were primarily due to currency movements against portions of our unhedged balance sheet exposures for all periods presented.
The losses in other, net for the three and six months endedDecember 25, 2022 , were driven by fluctuations in fair value of equity investments. For the six months endedDecember 26, 2021 , other, net includes an unrealized gain totaling$46.6 million associated with an equity investment that completed a business combination and public offering during that period.
Income Tax Expense
Our provision for income taxes and effective tax rate for the periods indicated
were as follows:
Three Months Ended Six Months Ended
December 25, September 25, December 25, December 26,
2022 2022 2022 2021
(in thousands, except percentages)
Income tax expense $ 183,421 $ 228,866 $ 412,287 $ 324,940
Effective tax rate 11.1 % 13.8 % 12.5 % 12.0 %
Lam Research Corporation 2023 Q2 10-Q 25
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The decrease in the effective tax rate for theDecember 2022 quarter compared to theSeptember 2022 quarter was primarily due to the change in level and proportion of income in higher and lower tax jurisdictions in this quarter, recognition of previously unrecognized tax benefits from lapses of statutes of limitation, and a net tax benefit associated with legal entity restructuring.
The increase in the effective tax rate for the six months ended
International revenues account for a significant portion of our total revenues, such that a material portion of our pre-tax income is earned and taxed outsidethe United States . International pre-tax income is taxable inthe United States at a lower effective tax rate than the federal statutory tax rate. Please refer to Note 7, "Income Taxes," to our Consolidated Financial Statements in Part II, Item 8 of our 2022 Form 10-K for additional information. We re-evaluate 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. Any 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
Refer to our "Critical Accounting Policies and Estimates" included in Part II, Item 7 of our 2022 Form 10-K for a discussion of our critical accounting policies and estimates.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our Condensed Consolidated Financial Statements, see Note 2 - Recent Accounting Pronouncements, of our Condensed Consolidated Financial Statements, included in Part 1 of this Form 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
Total gross cash, cash equivalents, investments, and restricted cash and investments balances were$4.8 billion atDecember 25, 2022 compared to$3.9 billion as ofJune 26, 2022 . This increase was primarily driven by$2,329.8 million of cash generated from operating activities, partially offset by$566.1 million of share repurchases, including net share settlement on employee stock-based compensation;$441.6 million in dividends paid; and$303.4 million of capital expenditures.
Net cash provided by operating activities of
Net income$ 2,894,386 Non-cash charges: Depreciation and amortization 161,165 Equity-based compensation expense 144,194 Deferred income taxes (140,296)
Changes in operating asset and liability accounts (739,652) Other
9,978
$ 2,329,775
Significant changes in operating asset and liability accounts, net of foreign
exchange impact, included the following uses of cash: increases in inventory of
$894.5 million , along with a decrease in trade accounts payable of $116.3
million , accrued expenses and other liabilities of $92.3 million , and deferred
profit of $19.9 million . The uses of cash are offset by the following sources of
cash: decreases in accounts receivable of $249.1 million , and prepaid expense
and other assets of $134.2 million .
Cash Flow from Investing Activities
Net cash used for investing activities during the six months endedDecember 25, 2022 , was$395.1 million , primarily consisting of$303.4 million in capital expenditures and$120.0 million of net cash disbursed for business acquisitions, partially offset by proceeds from maturities of available-for-sale securities of$32.4 million .
Cash Flow from Financing Activities
Net cash used for financing activities during the six months endedDecember 25, 2022 , was$973.2 million , primarily consisting of$566.1 million in treasury stock repurchases, including net share settlement on employee stock-based compensation, and$441.6 million in dividends paid, partially offset by$52.7 million combined proceeds from issuance of common stock.Lam Research Corporation 2023 Q2
10-Q 26
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Liquidity
Given that the semiconductor industry is highly competitive and has historically experienced rapid changes in demand, we believe that maintaining sufficient liquidity reserves is important to support sustaining levels of investment in R&D and capital infrastructure. Anticipated cash flows from operations based on our current business outlook, combined with our current levels of cash, cash equivalents, and short-term investments as ofDecember 25, 2022 , are expected to be sufficient to support our anticipated levels of operations, investments, debt service requirements, capital expenditures, capital redistributions, and dividends through at least the next twelve months. However, uncertainty in the global economy and the semiconductor industry, as well as disruptions in credit markets, have in the past, and could in the future, impact customer demand for our products, as well as our ability to manage normal commercial relationships with our customers, suppliers, and creditors. 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 and services. While we have substantial cash balances, we may require additional funding and need or choose to raise the required funds through borrowings or public or private sales of debt or equity securities. We believe that, if necessary, we will be able to access the capital markets on terms and in amounts adequate to meet our objectives. However, domestic and global macroeconomic and political conditions, or the ongoing COVID-19 pandemic, could cause disruptions to the capital markets and otherwise make any financing more challenging, and there can be no assurance that we will be able to obtain such financing on commercially reasonable terms or at all.
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