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

Explicit Guidance:

• December 2026 Quarter Revenue: $8.6 billion ± $400 million (constrained by near-term supply chain issues).
• December 2026 Quarter Gross Margin: 52.5% ± 1 percentage point.
• December 2026 Quarter Operating Margin: 40.5% ± 1 percentage point.
• December 2026 Quarter EPS: $2.33 ± $0.15 (based on ~1.253 billion shares).
• Calendar Year 2026 Systems Revenue: Growth >40% year-on-year.
• Calendar Year 2026 WFE: Mid-$150 billion range.
• Calendar Year 2027 WFE Outlook: >$200 billion (preliminary), driven by DRAM, followed by leading-edge foundry logic and NAND.
• 2027 CSBG Revenue: Growth >15% year-over-year.
• Long-term Gross Margin Target: Mid-50s.
• Long-term Capital Return: 85% of free cash flow.
• Ether-related Revenue: Cumulative $2.5 billion by end of decade (up $1 billion from prior expectations).
• Non-GAAP Tax Rate: ~16.5% expected for December 2026 and likely beyond (vs. 11% in June).

Business-Segment Outlook:

• NAND: Shift toward specialized tiers (QLC, TLC, SLC-class) driven by AI workloads; SLC-class adoption could require ~2% more installed wafer capacity per percentage point of mix shift; 384-layer class devices seeing initial spending; upgrade cycle (128 to 200+ layers) expected to conclude in 2027 before rolling to next cycles.
• DRAM: Spending focused on DDR5, LPDDR5, and HBM; backside power implementation at 2nm and below driving deposition/etch intensity; high adoption of ACARA for high aspect ratio etching.
• Foundry Logic: Growth driven by advanced patterning (ACARA, Ether dry resist) and backside power; "Gate-All-Around" and surface treatment (Argos) seeing strong uptake; expected to outperform WFE in 2027.
• Advanced Packaging: Major growth driver with "inflection" in panel-level packaging (fan-out, glass core substrates, interposers); Sydyan and Stryker products winning TSV liner positions; Callisto platform shipping to 20+ customers; panel-level share expected to surpass wafer-level packaging share.
• Customer Support Business Group (CSBG): Calendar 2026 revenue growth >30% (twice the long-term target); driven by spares, upgrades, and performance-based service contracts (Dextro cobots/Equipment Intelligence); expected >15% growth in 2027.
• Geographic Mix: China expected to represent a "significantly lower percentage" of December 2026 revenue compared to September 2026 due to reduced domestic customer spend; multinationals in China remain strong.

Market and Competitive Outlook:

• WFE Growth Drivers: 30% industry growth anticipated in 2027 led by DRAM, then foundry logic and NAND; LAM expects third consecutive year of WFE outperformance.
• Supply Chain: Cleanroom space availability and component supply constraints continuing to limit full demand fulfillment in 2027; LAM working with suppliers to accelerate capacity expansion.
• AI Demand: AI driving unprecedented semiconductor demand and device complexity; average weekly token usage up 250-fold in 18 months; autonomous agentic workflows increasing compute, memory, and storage needs.
• Share Gains: Expected from products addressing expanding Served Available Market (SAM) due to 3D scaling and deposition/etch intensity increases.
• Pricing/Cost: Balancing cost and pricing postures; pricing actions expected to contribute to margin expansion toward mid-50s target.

Macro / Industry Outlook:

• 2027 WFE Environment: Preliminary outlook >$200 billion, though constrained by cleanroom capacity and supply chain bottlenecks.
• Cleanroom Constraints: Expected to be the primary limiting factor for industry growth in 2027, alongside emerging supply chain tightness.
• Industry Visibility: Management cites visibility extending through 2028 based on customer demand.
• Tax Rate: Higher U.S. tax rate on foreign earnings and geographic income mix shifts expected to keep tax rate ~16.5% for the remainder of the period.
• Inventory/Turns: Inventory builds to meet future demand; inventory turns strengthened to 3.4x (highest in nearly 7 years).

Strategic Initiatives:

• Product Launches/Ramps:
  • Ether Dry Resist: Ramping in HBM high-volume manufacturing; expected to add ~$1 billion cumulative revenue vs. prior estimates by decade end.
  • Backside Power: Gaining share; secured pool of record wins for Vector, Sabre, Flex, and HALO tools at a leading customer for 2nm and below nodes.
  • Panel-Level Packaging: Callisto platform shipping to >20 customers; expanding footprint in fan-out and glass core substrates.
  • Equipment Intelligence: Performance-based service contracts secured with memory manufacturers via Dextro cobots.
• Capacity Expansion: Expanding lab infrastructure and manufacturing facilities globally; collaborating with suppliers to accelerate component capacity.
• Investment Strategy: Increasing R&D investment in ACARA, HALO, panel form factors, and Dextro; 2027 R&D spending expected to support product innovation.
• Capital Returns: Executing accelerated share repurchase (ASR) structure in December 2026; $3 billion remaining under board authorization; target to return 85% of free cash flow long-term.
• Debt Reduction: $750 million used to pay down maturing debt in 2026.

Risks and Headwinds to Outlook:

• Supply Chain Constraints: Near-term constraints (payables up ~$1.3B) reduced December guidance; potential for $300–$400 million revenue deferral to March 2027 if supply tightness persists.
• Cleanroom Availability: Limiting ability to meet demand; could constrain WFE realization in 2027.
• Component Shortages: Specific supply chain tightness for certain components limiting full equipment deployment.
• Currency/Financial Volatility: Foreign exchange fluctuations and interest income variability expected to continue affecting Other Income/Expense.
• Technology Transition Timelines: Dependency on customer ramp schedules for 3D DRAM and new storage tiers (SLC) which are still emerging.
• China Mix Volatility: Significant sequential reduction in China revenue contribution expected for December quarter.

Management Tone on the Future:

• Confidence Level: High confidence in third consecutive year of outperformance and sustained growth into 2027 and beyond.
• Trend: "Multi-year investment cycle" described as being in early stages; management expresses excitement about "unprecedented semiconductor demand."
• Strategic Positioning: Reaffirmed leadership in advanced packaging, foundry logic, and NAND; confidence in ability to navigate supply chain constraints better than peers.
• Hedges/Modesty: Acknowledges "near-term constraints" but expects resolution; cautions that precise 2027 WFE numbers will be refined closer to Q1 earnings due to cleanroom/supply chain visibility.

Miscellaneous:

• Backlog: Deferred revenue balance reached $2.66 billion (up $227 million from June).
• Headcount: Ended September 2026 with ~24,300 employees (up ~1,900 QoQ), driven by factory, field, and R&D teams.
• Free Cash Flow: Record $3.24 billion in September 2026; ~41% returned to shareholders in the quarter.
• Share Count: Diluted share count ~1.253 billion for December 2026 guidance.
• Customer Engagement: Strong engagement with leading customers for new technologies (ACARA, Ether, Backside Power, Panel-level).