Lam Research Corporation's September 2026 Earnings conference call - LAM RESEARCH CORP

Financial Performance:

• September 2026 quarter revenue reached $8.22 billion, a 54% increase year-over-year and 22% sequentially.
• Gross margin hit a record 52.4%, and operating margin expanded to 40.2%, the first time exceeding 40% for the company.
• Diluted EPS reached a record $2.20, with a non-GAAP tax rate of 16.5%.
• Free cash flow was a record $3.24 billion; deferred revenue increased by $227 million to $2.66 billion.
• Cash and short-term investments totaled $7.5 billion; inventory rose to $4.6 billion with inventory turns improving to 3.4x (highest in 7 years).
• Share repurchases totaled approximately $1 billion, with an additional $750 million used to pay down maturing debt; $3 billion remains authorized.
• Capital expenditures were $258 million to support lab infrastructure and global manufacturing expansion.

Guidance and Future Outlook:

• December 2026 quarter guidance: Revenue of $8.6 billion (±$400M), gross margin 52.5% (±1%), operating margin 40.5% (±1%), and EPS $2.33 (±$0.15).
• Full-year 2026 systems revenue expected to grow >40% year-over-year; December guidance reflects near-term supply chain constraints.
• Calendar 2027 WFE outlook raised to >$200 billion (up from >$150 billion midpoint for 2026), led by DRAM, followed by Foundry Logic and NAND.
• Long-term gross margin target remains in the mid-50s range; cumulative Ether-related revenue expected to reach $2.5B by 2030.
• CSBG revenue growth expected to exceed 30% in 2026 and 15% in 2027; visibility into customer spending extends through 2028.
• WFE growth drivers include cleanroom space constraints and supply chain tightness limiting full demand fulfillment, which are expected to ease by March 2027.

Business Segments and Product Lines:

• Systems revenue: Memory (46% of mix, record $ level, +120% YoY); Foundry (46% of mix, record revenue driven by leading-edge nodes); Logic/Other (8%).
• NAND revenue +40% sequentially due to spending on 256-layer+ devices and initial 384-layer adoption; SLC-class NAND emerging for AI low-latency workloads.
• DRAM revenue record, focused on HBM and DDR5 upgrades; advanced patterning tools (ACARA, Ether) driving yield and productivity.
• Advanced packaging is a major growth driver; Syndian and Stryker products winning TSV applications; Callisto platform gaining traction in panel-level packaging (20+ customers).
• Panel-level packaging momentum strong for fan-out, glass core substrates, and interposer architectures; expected to surpass wafer-level share.
• CSBG recorded $2.5B revenue (+40% YoY), driven by spares, upgrades, and new performance-based contracts leveraging Dextro cobots and equipment intelligence.

Market and Competitive Landscape:

• Global Semiconductor Equipment (WFE) projected to reach $150B in 2026 and >$200B in 2027; LAM expects third consecutive year of outperformance.
• AI demand driving 250-fold increase in weekly token usage, necessitating expanded compute, memory, and storage infrastructure.
• LAM holds the largest installed base in NAND and comprehensive portfolio in deposition/etch; gaining share in backside power and advanced packaging.
• Foundry Logic and DRAM segments account for ~80% of systems revenue growth year-to-date; advanced patterning and backside power tools gaining momentum.
• Regional mix: China contributed 35% in September (down in December guidance), Taiwan 18%, Korea 20%; multinationals remain strong.

Risks and Challenges:

• Supply chain constraints for specific components and cleanroom space availability limiting chip makers' ability to meet end demand.
• Near-term revenue suppression in December quarter due to supply chain bottlenecks; expected to recover in March 2027.
• Tax rate normalization to ~16.5% due to higher US taxes on foreign earnings and geographic income mix shifts.
• Fluctuations in other income/expense due to foreign exchange and venture portfolio performance.
• Potential delays in 10 new Tier 1 fabs coming online in 2027 impacting WFE realization if cleanroom or supply constraints persist.

Management Commentary and Tone:

• Tone is highly confident, citing "record revenue and profitability" for the fifth consecutive quarter and broad strength across the product portfolio.
• Management emphasized "unprecedented semiconductor demand" driven by AI and device complexity, expecting a multi-year investment cycle.
• Executives expressed strong confidence in navigating supply chain issues, citing lessons learned from past shortages and active supplier collaboration.
• Strategic focus remains on increasing deposition and etch intensity across all device types, with significant investment in R&D for products like ACARA, Ether, and panel packaging.

Analyst Questions and Answers:

• Supply Constraints: Management confirmed payables increased due to supply tightness but expects timing delays to shift to the March quarter; no specific cost quantification provided.
• DRAM Roadmaps: Addressed concerns regarding 3D DRAM vs. 4F2; confirmed that any transition to 3D architectures accelerates etch/deposition intensity, benefiting LAM.
• NAND Upgrades: 384-layer device shipping underway; SLC-class NAND expected to drive wafer capacity growth (1% mix shift = ~2% capacity increase).
• China Mix: September quarter China revenue at 35% was "as expected"; December quarter expected to be meaningfully lower due to domestic customer normalization.
• Panel Packaging: Expected to eventually exceed wafer-level packaging share; processes are similar but adapted for larger panel sizes (300x300 to 600x600mm).
• Gross Margin: Short-term guidance stable; long-term path to mid-50s driven by new product mix (Ether, ACARA), manufacturing efficiency, and pricing.
• Backside Power: Recent "record wins" secured across all four products (Vector, Sabre, Flex, HALO) at a leading customer.

Other Key Points:

• Headcount increased by 1,900 to 24,300, primarily in factory, field, and R&D teams to support manufacturing expansion.
• Dextro cobots and equipment intelligence securing performance-based service contracts with memory manufacturers.
• Backside power implementation at 2nm nodes driving complexity and need for additional deposition/plating/etch steps.
• HBM high-volume manufacturing utilizing Ether dry resist solutions, with low NA EUV ramping in progress.
• Accelerated Share Repurchase (ASR) structure executed in December; medium-term goal remains 85% of free cash flow return to shareholders.