Lam Research (LRCX) Tops Q4 Earnings, Revenue Estimates

Lam Research Corporation (NASDAQ:LRCX) reported fourth quarter fiscal 2016 non-GAAP earnings of $1.80 per share, surpassing the Zacks Consensus Estimate by 16 cents. Earnings were up 52.6% sequentially and 20.1% year over year.

Shares gained slightly (1%) in the after-hour trade following the better-than-expected results for the first quarter of 2016.

Revenues

Revenues of $1.55 billion increased 17.7% sequentially and 4.4% year over year. Revenues missed the Zacks Consensus Estimate by approximately 1.18%.

Revenues by Geography

Region-wise, China contributed 22%, Southeast Asia 21%, Taiwan and Korea brought in 15% each while Japan added 14% to fourth quarter revenues. The U.S. and Europe accounted for 10% and 3% of the revenues, respectively.

Shipments

Total system shipments were $1.59 billion during the quarter, up 9.6% from $1.45 billion reported last quarter.

Geographically, Southeast Asia and Taiwan accounted for 20% of the shipments, China 17%, Korea 15%, Japan 14%, the U.S. 10%, and Europe 4%.

Margins

Non-GAAP gross profit was $720.2 million, or 46.6% of revenues, an increase of 148 basis points (bps) sequentially and 109 bps year over year.

Total operating expenses were $361.5 million, up 3.2% sequentially. Operating margin was 23.2%, an increase of 476 bps from the prior quarter and 164 bps from last year.

Net Income

Non-GAAP net income was $314.8 million (20.4% of sales) compared with $202.8 million (15.4%) last quarter and $260.0 million (17.6%) in the year-ago quarter.

Balance Sheet

Exiting fiscal fourth quarter 2016, cash and cash equivalents, short-term investments, and restricted cash and investment balances were $7 billion, compared with $4.8 billion at the end of third quarter.

Capital expenditures amounted to $51.7 million. The company paid $47.3 million of cash dividends to stockholders during the June 2016 quarter.

Guidance

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

On a non-GAAP basis, the company expects revenues of approximately $1.61 billion (+/- $75 million). Shipments are projected to be roughly $1.7 billion (+/- $75 million). Gross margin is predicted to be around 44.2% (+/-1%), while operating margin is likely to be about 20.2% (+/-1%).

Earnings per share are projected to be $1.48 (+/- 10 cents) on a share count of nearly 178 million. The Zacks Consensus Estimate is pegged at $1.69 per share, so guidance was weaker than expected.

Our Take

Lam Research delivered strong fiscal fourth quarter 2016 results with both earnings and revenues outperforming our estimates.

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.

In the quarter just ended, Lam’s shipments, revenues and non-GAAP gross margins were above the mid-points and non-GAAP EPS were above the high-end of the guidance range.

Lam Research has high hopes from KLA-Tencor Corp. (NASDAQ:KLAC) the merger with which close shortly. Management expects that the combined company will contribute significantly toward sustainable growth, generating cash and creating value.

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

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.

It is likely to continue as the market leader in dielectric etches as VECTOR Strata and ALTUS deposition and Flex and Kiyo etch products have been extremely successful products thus far. The company 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.

The company is also 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 slow but steady improvement in some developed markets balancing the weakness in certain emerging economies. The Brexit impact cannot be ignored either.

Lam Research currently has a Zacks Rank #3 (Hold).

Investors may also consider stocks like Mistras Group, Inc. (NYSE:MG) , VOXX International Corp. (NASDAQ:VOXX) and Texas Instruments Inc. (NASDAQ:TXN) , each carrying a Zacks Rank #2 (Buy).