The equipment maker’s sales jumped 54 percent from a year earlier on demand tied to artificial intelligence, but executives said shortages of parts and clean-room space would hold back shipments through the end of the year.
Lam Research, the Fremont company whose machines etch and deposit the microscopic layers inside computer chips, reported the biggest quarter in its history this week. Investors sold the stock anyway.
The company said on Wednesday that revenue for the quarter that ended Sept. 27 reached $8.22 billion, up 22 percent from the June quarter and about 54 percent from $5.32 billion a year earlier. Net income was $2.75 billion, or $2.19 a share, and the company forecast December-quarter revenue of $8.6 billion, plus or minus $400 million.
On Thursday, Lam’s shares fell nearly 12 percent, to $230.15 from $260.81, and they were little changed on Friday. The decline came after executives told analysts that the outlook would have been stronger if the company could get enough parts and factory space to build everything its customers wanted.
Record numbers, by most measures
By most measures the quarter was a strong one. Gross margin was 52.3 percent and operating margin was 40 percent under standard accounting. Excluding certain items, Lam earned $2.20 a share, slightly ahead of the $2.18 that analysts had expected, according to Yahoo Finance. Revenue from servicing and upgrading machines already in chip plants, which tends to be steadier than new equipment sales, reached a record of roughly $2.49 billion.
“With AI driving higher semiconductor demand and greater device complexity, our focus on operational execution helped Lam deliver record revenue, profit, and earnings per share in the September quarter,” Tim Archer, Lam’s chief executive, said in the earnings release. “Our strategic investments in technology inflections and manufacturing capacity are paying off, strengthening our ability to outgrow the wafer fabrication equipment market as the industry expands.”
The company generated $3.5 billion in cash from operations during the quarter. It returned about $1.35 billion of that to shareholders, $1.02 billion through share buybacks and $325 million in dividends, while spending $258 million on capital projects. It ended the quarter with $7.45 billion in cash and equivalents.
What held the forecast back
The disappointment was in the December outlook. Doug Bettinger, the chief financial officer, told analysts on the company’s earnings call that the guidance “would have been a bit higher if not for some near-term supply chain constraints that we are actively managing.” He said some shipments that customers wanted in December would move into the March quarter. When an analyst suggested the shortfall was $300 million to $400 million, Mr. Bettinger declined to confirm a figure.
Mr. Archer pointed to “clean room space availability and supply chain constraints for certain components.” He sought to play down the problem. “For those of us who were around during the COVID shortages, this is nothing like that,” he said, adding, “I think we’ll be caught up very shortly.”
The numbers leave some questions open. Lam did not say which components were short, how long the delays would last or whether any orders were at risk of being lost rather than merely postponed. Inventory stood at $4.55 billion at the end of September, a reminder that the company is carrying a large stock of parts and partly finished machines even as it says it cannot ship fast enough.
Investors appeared to read the warning as a sign that the industry is running near capacity. The Philadelphia Semiconductor Index fell more than 6 percent on Thursday, and shares of Applied Materials and ASML, two of Lam’s largest competitors, fell about 7 percent and 6 percent, according to Yahoo Finance. Some analysts stayed positive: Evercore ISI lowered its price target to $315 from $355 while keeping an Outperform rating, and Goldman Sachs reiterated a Buy rating with a $380 target. The stock remains well below its 52-week high of $438.50.
China’s shrinking share
Geography is the other variable. China accounted for 35 percent of Lam’s revenue in the September quarter, up from 26 percent in June but down from about 43 percent a year earlier. Mr. Bettinger said he expected China revenue to be “meaningfully down” in December, “driven by the domestic customers in China,” while sales to multinational chipmakers’ plants in the country held up reasonably well. Korea accounted for 20 percent of revenue, Taiwan 18 percent and Japan 9 percent; the United States was 8 percent.
The shift matters because U.S. export rules limit what American toolmakers can sell to Chinese chipmakers, and those customers had accounted for a large share of Lam’s sales in recent years. The company now depends more heavily on memory makers in Korea and contract manufacturers in Taiwan that are building capacity for A.I. chips.
What it means for the East Bay
For the Bay Area, the more immediate figure may be head count. Lam said it added about 1,900 employees during the quarter as it expanded manufacturing.
Asked about hiring in the region, a spokesperson replied by email: “Currently, there are nearly 250 positions listed in Fremont and Livermore, with Lam recently announcing the opening of a new warehouse in the latter.” The spokesperson referred other questions to the transcript of the company’s earnings call.
Those openings are a small part of a global work force, and the supply constraints executives described lie mostly with suppliers and factory space rather than with Lam’s own staffing. Executives did not say whether the constraints would slow hiring.
Lam’s investor relations office, the Semiconductor Industry Association, the trade group SEMI and Chuck Eesley, a Stanford professor who studies technology entrepreneurship, did not respond to requests for comment.
The company is expected to report its next results in January, when investors will learn whether the shipments pushed out of December arrived in the March quarter as promised.
Wendell Yamashiro covers business, technology, labor, trade and the Bay Area economy for Trade and Commerce. More from Wendell Yamashiro
