Lam Research (LRCX) Tops Q3 Earnings, Revenue Estimates

Lam Research Corporation (NASDAQ:LRCX) reported third-quarter fiscal 2017 non-GAAP earnings of $2.80 per share, which surpassed the Zacks Consensus Estimate of $2.54. Earnings were up 16% sequentially and 130.9% year over year.

The stock jumped 4.45% in the after-hours trading, driven by better-than-expected fiscal third-quarter revenues and earnings figures.

Also, coming to share price performance, the stock outperformed the Zacks Semiconductor Equipment Wafer Fabrication industry in the last one year. It returned 58.6% compared with the industry’s increase of 49.6%.

Revenues

Revenues of $2.15 billion increased 14.4% sequentially and 63.9% year over year. Also, revenues were above the Zacks Consensus Estimate of $2.125 billion.

Revenues by Geography

Region wise, Korea contributed 34%, Taiwan accounted for 28% and Japan and China each contributed 11% of fiscal third-quarter revenues. The U.S., Europe and Southeast Asia generated 9%, 4% and 3%, respectively.

Shipments

Total system shipments were $2.41 billion during the reported quarter, up 25.5% from $1.92 billion reported last quarter.

Margins

Non-GAAP gross profit was $992.7 million or 46.1% of revenues, reflecting a decrease of 36 basis points (bps) sequentially but an increase of 99 bps year over year.

Total adjusted operating expenses were $414.2 million, 7.8% higher sequentially. Operating margin was 26.9%, reflecting an increase of 83 bps from the prior quarter and 842 bps from the year-ago quarter.

Net Income

GAAP net income was $574.7 million ($3.10 per share) compared with $332.8 million ($1.81 per share) last quarter and $143.5 million ($0.82 per share) in the year-ago quarter.

Non-GAAP net income was $507.8 million compared with $405.2 million in the last quarter and $405.2 million in the year-ago quarter.

Balance Sheet

Exiting fiscal third-quarter 2017, cash and cash equivalents, short-term investments, and restricted cash and investment balances were $5.9 billion compared with $5.8 billion at the end of fiscal second-quarter 2017.

Cash flow from operating activities was $422.7 million against $404.1 million in the previous quarter. Capital expenditures amounted to $44.1 million. The company paid $73.3 million in cash dividends to stockholders during the Mar 2017 quarter.

Guidance

Lam Research provided guidance for the fiscal fourth quarter.

On a non-GAAP basis, the company expects revenues of approximately $2.3 billion (+/- $100 million). Shipments are projected to be roughly $2.5 billion (+/- $100 million). Gross margin is predicted at around 46.0% (+/-1%), while operating margin is likely to be about 27% (+/-1%).

Earnings per share are projected at $3 (+/- 12 cents) on a share count of nearly 180 million. The Zacks Consensus Estimate is pegged at $2.63 per share, which makes guidance better than expected. GAAP earnings per share are projected at $2.73 (+/- 12 cents).

Our Take

Lam Research delivered strong fiscal third-quarter results with both earnings and revenues outperforming our estimates.

Calendar year 2016 was pretty good for the company and 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 the 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 have been extremely successful. 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.

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 has a Zacks Rank #2 (Buy). Some other stocks worth considering in the industry are Applied Materials (NASDAQ:AMAT) , KLA-Tencor (NASDAQ:KLAC) and Fortive Corporation (NYSE:FTV) each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Applied Materials delivered a positive earnings surprise of 3.92%, on average, in the trailing four quarters.

KLA-Tencor delivered a positive earnings surprise of 14%, on average, in the last four quarters.

Fortive Corporation delivered a positive earnings surprise of 6.11%, on average, in the trailing four quarters.

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