Lam Research reported strong Q4 FY2022 results as revenue grew by 12% YoY and 14% QoQ to $4.64 billion. The company beat Wall Street analysts' estimates by $422 million (10% beat). It reported adjusted EPS of $8.83 and beat estimates by $1.50 (20% beat).
The Systems revenue which includes sales of new leading-edge equipment in deposition, etch, and clean markets grew by 8.8% YoY to $3.0 billion. Customer support business group revenue grew by 18% YoY to $1.6 billion.
The company is seeing increased demand in new advanced packaging architectures. Tim Archer, CEO of the company, said in the earnings call, “Our Kiyo plasma etch products with Hydro have a proven record of delivering the productivity and uniformity requirements needed for cost effective front-end device scaling. Leveraging this expertise in high-volume manufacturing, we have now achieved multiple new etch tool of record positions for advanced packaging at a leading foundry logic customer. As customers further develop these architectures in support of greater system performance, we see a growing opportunity for Lam’s etch and deposition solutions.”
The company’s gross margin was 45.3% compared to 44.7% in the Q3 FY2022 and 46.2% in the same period last year. The adjusted gross margin was 45.2% compared to 44.7% in the Q3 FY2022 and 46.5% in the same period the previous year. The gross margin was close to the higher end of the management’s guidance of 43.5% to 45.5%, as strong sales helped to overcome the rise in costs.
The gross margins could be under pressure in the near term due to inflation and increased expenses due to supply chain issues. The management expects it to improve in the long-term. The company is also moving closer to its customers in Asia by building facilities there, which is another point mentioned in the earnings call that could be a hedge for rising freight and logistics expenses.
The operating margin improved to 31.9% compared to 29.4% in Q3 FY2022 and 31.7% in the same period last year. The adjusted operating margin was 31.5%, which was up 210 bps helped by strong sales and was above the management’s guidance of 28.5% to 30.5%. The company’s adjusted net income rose 5.2% YoY to $1.2 billion. The adjusted EPS was $8.83 compared to $8.09 for the same period last year.
The company had cash and investments of $3.9 billion compared to $4.6 billion in the March quarter. The company repurchased shares of $868 million and paid dividends of $208 million in the recent quarter. The operating cash flow were $443.9 million in the recent quarter. It was down from the March quarter of $757.7 million as the company increased the level of inventory in the recent quarter. The company has a debt of $5.0 billion.
The company’s deferred revenue balance was $2.2 billion at the end of the quarter, up from $2.07 billion at the end of Q3 FY2022. The deferred revenue grew by $129 million in the recent quarter compared to $610 million in the previous quarter. It was higher in the last quarter due to part shortages which negatively impacted the recognized revenue in the last quarter.
WFE and guidance
The management has lowered the wafer fab equipment spending outlook for the calendar year 2022 to be in the range of low to mid-$90 billion range on the back of supply chain issues. This is lower than the management’s earlier forecasts of $100 billion. In the earnings call, Tim Archer CEO of the company said, “As suggested by our guidance today, we expect to see incremental improvement in supply chain conditions in the September quarter, but our view is that industry-wide output will continue to be constrained through the rest of this year. Consequently, we are lowering our outlook for calendar year 2022 wafer fab equipment spending to be in the low to mid-$90 billion range.”
In the last earnings call, Tim Archer said, “While continued supply-related delays could potentially limit how much wafer fabrication equipment investment can be executed in 2022, our current WFE view is still in the $100 billion range. We see unconstrained demand exceeding $100 billion in 2022 and any unmet demand should flow into next year.”
The management expects revenue of $4.9 billion at the mid-point of the guidance in the next quarter, representing a 14% YoY growth. It was above the Wall Street analysts’ estimate of $4.6 billion. The adjusted gross margin is expected to be in the range of 44% to 46% after taking into consideration the inflationary pressures due to supply chain issues, adjusted operating margin in the range of 30.5% to 32.5%, and adjusted EPS of $9.50 at the mid-point.
Recent analysts notes:
Wells Fargo analyst Joe Quatrochi raised the firm's price target to $475 from $460 and kept an Equal Weight rating on the shares. While Lam Research's better-than-expected Q4 results/Q1 guide reflect improving supply chain dynamics and execution, the analyst expects investors to focus on expanded China export restrictions and WFE commentary.
DA Davidson analyst Thomas Diffley lowered the firm's price target to $550 from $575 and kept a Neutral rating on the shares. The company posted a beat-and-raise Q4 results amid robust demand and improved operational execution, but the management also lowered its outlook for WFE spending to be in the low to mid $90B range – lower than initial expectations of $100B – due to ongoing supply constraints, the analyst tells investors in a research note. The risk-reward on Lam Research shares looks balanced, Diffley adds.
Conclusion
The company’s results were good as it beat both the top line and bottom-line Wall Street analysts' estimates by a wide margin. The guidance for the next quarter was also strong. The company’s management of rising costs and the slowdown in the WFE are two areas to watch in the coming quarters.