Lam Research (LRCX) Beats On Q1 Earnings, Lags Revenue

Lam Research Corporation (NASDAQ:LRCX) reported first quarter fiscal 2017 non-GAAP earnings of $1.81 per share, surpassing the Zacks Consensus Estimate of $1.77. Earnings were up 0.8% sequentially but down 0.3% year over year.

Shares gained 2.27% in the after-hour trade following better-than-expected results.

Revenues

Revenues of $1.63 billion increased 5.6% sequentially and 2.0% year over year. However, revenues were slightly below the Zacks Consensus Estimate of $1.64 billion.

Revenues by Geography

Region-wise, Taiwan contributed 26%, Korea accounted for 21%, Japan brought in 15%, China contributed 14% and Southeast Asia generated 12%. The U.S. and Europe accounted for 7% and 3% of revenues, respectively.

Shipments

Total system shipments were $1.71 billion during the reported quarter, up 7.4% from $1.59 billion reported last quarter.

Margins

Non-GAAP gross profit was $737.4 million or 45.2% of revenues, reflecting a decrease of 140 basis points (bps) sequentially and 132 bps year over year.

Total operating expenses were $371.6 million, 2.8% higher sequentially. Operating margin was 22.4%, reflecting a decrease of 79 bps from the prior quarter and 136 bps from the year-ago quarter.

Net Income

GAAP net income was $263.8 million ($1.47 per share) compared with $258.9 million ($1.46 per share) last quarter and $288.7 million ($1.66 per share) in the year-ago quarter.

Non-GAAP net income was $322.1 million (19.7% of sales) compared with $314.8 million (20.4%) last quarter and $313.0 million (19.6%) in the year-ago quarter.

Balance Sheet

Exiting fiscal first-quarter 2017, cash and cash equivalents, short-term investments, and restricted cash and investment balances were $7.2 billion compared with $7.0 billion at the end of fiscal fourth-quarter 2016.

Capital expenditures amounted to $42.0 million. The company paid $48.1 million in cash dividends to stockholders during the Sep 2016 quarter.

Guidance

Lam Research provided guidance for the second quarter of fiscal 2016.

On a non-GAAP basis, the company expects revenues of approximately $1.84 billion (+/- $75 million). Shipments are projected to be roughly $1.85 billion (+/- $75 million). Gross margin is predicted to be around 46.0% (+/-1%), while operating margin is likely to be about 25.0% (+/-1%).

Earnings per share are projected at $2.18 (+/- 10 cents) on a share count of nearly 179 million. The Zacks Consensus Estimate is pegged at $1.80 per share, which makes guidance weaker than expected.

Our Take

Lam Research delivered decent fiscal first-quarter 2017 results with earnings outperforming our estimates while revenues slightly missing it.

Calander year 2016 has been pretty good for the company as it continues to see strong success in the areas of device architecture, process flow and advanced packaging technology inflections.

The company has been improving on WFE market share significantly since 2013 and expects to continue making gains.

Lam Research continues to see increased adoption rates of 3D NAND technology, FinFETs and multi-patterning. The company has initiated cost reduction and density scaling for 3D NAND and new memory technologies.

The company is likely to remain the market leader in dielectric etches as VECTOR Strata and ALTUS deposition and its Flex and Kiyo etch products are extremely successful thus far. It anticipates strong demand for leading-edge silicon in the enterprise market to continue, driven by the long-term move to the cloud, storage and networking applications.

Moreover, Lam Research is making good progress with its customer support business and anti-trust agency reviews.

During the quarter, Lam Research terminated its proposed acquisition of California-based KLA-Tencor (NASDAQ:KLAC) , following antitrust objections from the Justice Department. The Justice Department’s antitrust division cited serious concerns over the deal as the combined company might restrict competition. Nonetheless, the fact that the company will not have to shell out a merger termination fee is a positive.

However, concerns persist in the form of volatility and lower growth expectations globally, with a slow-but-steady improvement in some developed markets balancing the weakness in certain emerging economies.

Currently, Lam Research carries a Zacks Rank #3 (Hold). Stocks worth considering in the industry include Intel Corp. (NASDAQ:INTC) and Applied Materials, Inc. (NASDAQ:AMAT) .

Intel delivered a positive earnings surprise of 11.86%, on average, in the trailing four quarters. It carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Materials carries a Zacks Rank #2 (Buy) and witnessed a 1.07% gain in its last day’s stock price. On average, the company delivered a positive earnings surprise 5.05% in the trailing four quarters.

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