Lam Research at Bank of America Conference: Strategic Growth in Focus

On Tuesday, 03 June 2025, Lam Research (NASDAQ:LRCX) presented at the Bank of America Global Technology Conference 2025. The discussion, led by CFO Doug Bettinger, highlighted a promising outlook for the semiconductor equipment market, while also acknowledging challenges such as tariffs and China’s evolving role. Bettinger shared insights on market opportunities and Lam Research’s strategic positioning, emphasizing both growth prospects and financial discipline.

Key Takeaways

• Lam Research anticipates capturing significant growth in wafer fab equipment, particularly in etch and deposition.
• The company’s gross margins have shown improvement, reaching 49% in March, with a projection of 49.5% for June.
• The focus remains on returning at least 85% of free cash flow to shareholders through dividends and buybacks.
• China’s contribution to the WFE market is expected to decline by 25% this year, impacting revenue.
• NAND upgrades are seen as a substantial growth opportunity, with a $40 billion potential over several years.

Financial Results

• Gross margin improved from 46% in September to 49% in March, with an expected increase to 49.5% in June.
• Revenue reached $5 billion in September, with a strong emphasis on maintaining financial health.
• Shareholder returns are prioritized, with a commitment to distribute at least 85% of free cash flow.

Operational Updates

• NAND: Two-thirds of NAND customers operate below 200 layers, creating a $40 billion opportunity for upgrades. Growth in this segment is anticipated to be substantial.
• CSBG: The Customer Support Business Group is expected to remain stable, with growth driven by upgrades despite a softer Reliant product line performance due to reduced China spending.
• China: China’s WFE market is projected to decline by 25% this year, with 31% of last quarter’s revenue originating from China.
• DRAM: The DRAM WFE market is expected to remain flat year on year.

Future Outlook

• The wafer fab equipment market is projected to grow to approximately $100 billion, up from the mid-$90 billion range last year, indicating mid-single-digit growth.
• Lam Research aims to capture at least half of the market growth in etch and deposition, with spending in these areas increasing from the low to high 30% range.

Q&A Highlights

• China: Analysts questioned the impact of recent restrictions on China entities, with expectations of future consolidation or improvement in China’s capabilities.
• Competition: Lam Research is reportedly gaining market share in deposition, though facing challenges in the ad segment. The CSBG’s largest component remains spare parts.

In conclusion, Lam Research’s presentation at the Bank of America Global Technology Conference 2025 provided a comprehensive view of its strategic initiatives and market positioning. For further details, readers are encouraged to refer to the full transcript below.

Full transcript - Bank of America Global Technology Conference 2025:

Unidentified speaker, Analyst, BFA Semiconductor: From BFA Semiconductor team and really delighted and honored to have the team from Lyme Research join us this morning and Doug Bettinger, the CFO of Lyme Research. And we will start with a quick safe harbor statement from Doug, and then we’ll get into the q and a. But please feel free to raise your hand during the session if you would like to bring something up. But with that, back over to you.

Doug Bettinger, CFO, Lyme Research: Hey. Listen. I encourage you to take a look at our our safe harbor language. It’s on the website. Side.

You can see it here in in the room. I am not gonna read everything on that slide, but it’s it’s important that you understand to the extent I make forward looking statements. I don’t plan to tell you anything that the company hasn’t said before, so you’re not gonna get anything new in here today. But anyway, just keep this in mind as we go through.

Unidentified speaker, Analyst, BFA Semiconductor: Alright. Let’s try and make this exciting.

Doug Bettinger, CFO, Lyme Research: Let’s try and make it exciting.

Unidentified speaker, Analyst, BFA Semiconductor: Yes. Thank you, Doug. So maybe let’s start with the State of the Union as as you see it. Right? A lot of macro and micro crosscurrents.

And what I would really like, Doug, if you could speak to the Analyst Day that you held recently. And one thing that really impressed me from the Analyst Day was this prospect towards higher gross margins. Right? And we always, right, pay pay a lot of attention when companies talk about the higher the upside in in gross margin. So maybe give us how you see the demand environment right now and then maybe some

Doug Bettinger, CFO, Lyme Research: Wow. Everything yeah. Could actually talk for the entire thirty minutes. I’ll I’ll touch a few of them, and then you can redirect me, and and we can we can dive in. I guess, first, let’s start with this year.

When we look at overall spending this year, we think wafer fab equipment is roughly a hundred billion dollars, up from mid nineties last year. So think about, I don’t know, mid single digit growth this year. If I unpack that a little bit for you, leading edge foundry is quite strong. DRAM is quite strong, driven by DDR five and high HPM, high bandwidth memory. I don’t think that’s a surprise to anybody.

Both of those things are driven heavily by what’s going on with AI compute, parallel compute, these great big accelerators and whatnot. I’m sure you wanna ask about that. Logic, so so. Right? If I separate Foundry from Logic, more more strength on the Foundry side.

And then NAND, I think everybody likes to hear from us with NAND because they know we we are critically enabling to to the NAND industry. NAND is going through an upgrade here. And I think actually for the next several years, that’s largely what you’re gonna see. So when you unpack that, we’re coming off two years of very modest amount of spending in NAND. By no means am I suggesting to you it’s back trending towards peak investment levels, nowhere close to that.

But the simple fact that this set of the cost of our customers is upgrading what’s there, and there’s reasons for that, technology reasons related to QLC and enterprise SSDs and so forth, and I’m sure you’ll ask me more about that, We see that happening this year. So that also is contributing to the growth. That’s an outstanding situation for us because when we go when you go through upgrades, we are the equipment that gets upgraded. So that’s what we see going on this year, Vivek. You asked a little bit about the Investor Day.

There’s a wonderful longer term story here. Right. And again, you can unpack this with more more specific questions. But when we look at over the next several years, maybe trending to the the end of the decade, what you have going on at a very high level is the evolution of three d device architectures. Things are going three d.

NAND did this ten years ago. You’re now very much seeing it in Foundry and Logic with the gate all around structure and advanced packaging, co ops. These are three d structures. When things go three d, you need to create these interconnects. You need to deposit materials to create the architecture.

This is all about etch and deposition. And so when you think about frankly, WFE is gonna be a nice place to live. Right? We live in a good neighborhood. Within that, our view of etch and depth share of that spending moves from the low 30% range to the high 30% range.

So our our markets are getting bigger because of the evolution of architectures. So we’re in a good place. Compounding that for us specifically, you know, we’re coming off several years of really big growth in r and d, which has positioned us to have probably the most competitive product portfolio in the history of the company. I think, Ram, our CEO said that on the last earnings call, if I remember. Right?

And so when we look at this growing market in terms of etch and dev, we believe we are gonna take at least half of that growth because of the strength of the product portfolio. This is driven by things like the Aqara product that we announced, the Halo product that we announced. We’re positioned extremely well. And so when you look at the growth prospects, I think it’s actually quite compelling. Anyway, I’m rambling on now.

So you can you can redirect me on all of that stuff. There was a lot to unpack. I didn’t talk about margins, but there’s a wonderful margin story here also. Maybe I’ll ramble on for another couple of minutes. You know, there’s some I always do a ton of homework when I get ready for earnings.

And what I did this most recent time is I went back and looked the last time the company touched 5,000,000,000 in revenue. It was the September. And we just guided for the first time back to a $5,000,000,000 quarter in June. Here’s an interesting comparisons. In that quarter, same revenue level, gross margin was 46%, September twenty two.

The March we just printed, gross margin was 49% and we just guided June to 49 and a half. Now part of this comes from the fact that we have a very strong product portfolio, so that’s good. More importantly though, and those of you that follow the company for a while will remember, we we suggested to you, hey, we’re gonna adopt this close to customer strategy. We started talking about that in early twenty three. As the company has grown the top line, we’ve begun to gravitate that incremental volume to that close to the customer location, which a lot of the customers in this industry are Asia based.

And so you’re absolutely seeing the benefit of that in gross margin today and in operating margin because of the proactive activity we undertook back in 2023. So I’m very proud of what the company has been able to do. This is very much we told you we were gonna do this, and we did it. And we are doing it. So anyway

Unidentified speaker, Analyst, BFA Semiconductor: Got it. No. Absolutely. And while we are on my my favorite topic of gross margins, which is, you know, 49 and a half, and I think you mentioned that that actually includes the effect of, you know, some of the the tariff issues that that were but since that, you know, that tariff discussion seems to have cooled off off somewhat, so is is 50%

Doug Bettinger, CFO, Lyme Research: Cooled off and then the two thirty two steel and aluminum

Unidentified speaker, Analyst, BFA Semiconductor: Right.

Doug Bettinger, CFO, Lyme Research: Came listen. It’s we just need to get the rules finalized so we know how to manage in this environment. That’s what that’s what I’m hoping for. Let’s just sort through it, and then we’ll figure out how to run the company in the most efficient way we possibly can. But absolutely, you’re right.

That 49 and a half percent to the best of our ability to predict the impact of tariffs contemplates that.

Unidentified speaker, Analyst, BFA Semiconductor: Got it. And then while we are on that topic, we’ll come to the longer term fundamentals. Last Friday, there was some news about the US Department of Commerce, you know, perhaps widening the the scope of restrictions, you know, for certain China entities that have, you know, over 50% ownership by sanctioned firms. Is that something that has come across your desk, Doug, in in terms of how it impacts your business with with China?

Doug Bettinger, CFO, Lyme Research: Or To the best of my knowledge, it’s it doesn’t have any incremental impact.

Unidentified speaker, Analyst, BFA Semiconductor: Okay. Makes sense. And then on the China issue, so, yes, you know, China WFE is lower this year, right, based on everything we have heard down 25% versus Our

Doug Bettinger, CFO, Lyme Research: our description is as a percent of total revenue or a percent of total WP, whatever you wanna look at, it’s kind of the same thing. China will be down this year from last year.

Unidentified speaker, Analyst, BFA Semiconductor: Right. From, like, whatever, 40% ish to 30%.

Doug Bettinger, CFO, Lyme Research: That’s right. And and last quarter, our revenue of 31% was China based.

Unidentified speaker, Analyst, BFA Semiconductor: Got it. You think it is now kind of predictable for as as much as any China business can be predictable that is is it fairly predictable for the next several quarters? Or are there still upside downside risk? You know, assuming whatever the tariff situation is or restriction situation stays as is?

Doug Bettinger, CFO, Lyme Research: Yeah. I mean, listen. To the best of our ability to understand everything customers are doing, it isn’t any different in China versus anywhere else in the world. Right? The the way we manage the customer relationship, we’ve got account teams in each region that are responsible for every customer that we sell equipment to.

Right? And they’ll describe, here’s my plans. Here’s what we intend to do. Now people can change their plans always. That does happen.

But, you know, somebody at Lam every day, every week, I don’t know with what frequency, pretty frequently is talking to every one of our customers and understanding at least how they represent to us. Here’s what they plan to do. Right. No different in China versus Korea or Taiwan or Japan or The United States or anywhere else.

Unidentified speaker, Analyst, BFA Semiconductor: Got it. And then looking longer term, Doug, you mentioned NAND upgrades as a very strong, right, growth driver for Lam over the next several years. I think there was a 40,000,000,000 addressable opportunity.

Doug Bettinger, CFO, Lyme Research: What said at the Investor Day was when we look at where we believe the upgrade path in NAND to evolve, we believe spending will be roughly $40,000,000,000, and we’ve described it over the next several years to go through this upgrade cycle.

Unidentified speaker, Analyst, BFA Semiconductor: Right. So far, we have only seen, I think, one really large customer go through those upgrades. When do you think that kind of broadens out when you see a lot more customers, you know, going after NAND?

Doug Bettinger, CFO, Lyme Research: I think this year it’s gonna it’s gonna be quite broad. It’s not gonna be one specific customer. In fact, it isn’t right now.

Unidentified speaker, Analyst, BFA Semiconductor: Right.

Doug Bettinger, CFO, Lyme Research: It it it’s broad industry adoption. May maybe let me describe what’s going on in NAN because everybody’s interested to hear our our point of view on this. When you look at the installed base in the NAN customer base, two thirds of the bit capacity is at a layer count that is below 200 layers. Why does that matter? Why are we talking about layer count?

It’s not layer count per se, but the equipment capability at that sub 200 layer count isn’t able to actually manufacture a QLC device. When you look at where the market is going right now, enterprise SSDs are one of the growth drivers in NAND because of AI compute and all all of the stuff going on there. If you’re one of my customers intending to compete in the SSD space, you almost have to start upgrading to a layer count above 200 so you can manufacture QLC so you can be relevant in the enterprise SSD space. That’s what’s going on. It’s not bits bits for bits sake.

It’s, well, this is where the market is going in one very important growth segment of the end customer base. And so that’s very much what we see going on, upgrades to begin to enable QLC and at layer counts above 200, that’s where we see things happening. And it’s very much all upgrading the installed base. The wonderful part, for us anyway, about upgrades of the installed base, when that spending occurs, our SAM is two thirds of the spending. Two thirds.

So it’s a big opportunity. Why is that? It’s because we are the constraint tools for the most part in an ANFab. It’s that stack. It’s that deep high aspect ratio etched on through.

It’s the tungsten metallization that ultimately will begin to evolve to molybdenum. Let’s just call it molybdenum, Moly. Right? So you’re gonna begin to see new equipment sales that enable Moly. That’s what’s happening underneath the covers of that $40,000,000,000 over the next several years, Patrick.

That’s what we see going on.

Unidentified speaker, Analyst, BFA Semiconductor: Got it. Is is there a simple way to quantify, Doug, how much of the progress have you made towards that 40,000,000,000 or might make this Early days. Only just beginning. Like the first quarter or so? Or

Doug Bettinger, CFO, Lyme Research: First inning of a nine inning game. Call it that. Just starting.

Unidentified speaker, Analyst, BFA Semiconductor: Got it. And But what I would

Doug Bettinger, CFO, Lyme Research: point out if if you guys pay attention to our revenue, you you saw strength in NAND last quarter. And we’ve suggested to you in that June guide that the highest percentage growth is gonna come from NAND again. Highest percentage growth. Maybe not dollar growth. Dollar growth is probably gonna be foundry, but it’s happening.

Unidentified speaker, Analyst, BFA Semiconductor: Right. Does this historically turn out to be lumpy, Doug? Like, you know, like any kind of infrastructure project. Like, is it like they will do these upgrades for one or two quarters and they might pause, you know, just because there’s only a handful of customers Yeah. Right.

Who have the ability to

Doug Bettinger, CFO, Lyme Research: do That’s correct. Nothing in this industry grows every quarter, every single quarter, or stays flat every quarter. Yeah. There’s there will be some some variability for sure. Just like at every every part of the business.

Unidentified speaker, Analyst, BFA Semiconductor: Right. But it’s fairly predictable as as at least for the next handful

Doug Bettinger, CFO, Lyme Research: of quarters as far as you can see it. As far as I can see it. Right.

Unidentified speaker, Analyst, BFA Semiconductor: Got it. Okay. And how does this benefit accrue to your customer service and Yep. Business group? Yeah.

Doug Bettinger, CFO, Lyme Research: So let me go through CSPG if you’ll allow me. If Please. Not quite the question asked, but let me unpack that and then come back to your question. One of the wonderful parts of the business model at Lam is what we call the customer support business group. There’s four components of that, spare parts, service, upgrades, and then what we call the Reliant product line.

Great part of the business model for the simple reason that our equipment, it it runs forever. It it almost never goes away. And so when you think about this and we give these numbers at the end of every calendar year, chamber count grows every year. So the opportunity to sell gets bigger every year, spares, service, and upgrades. Anyway, great part of the business model.

On average, after we sell the tool, we generate more revenue after we sell it than when we sell the tool itself. That surprises people sometimes when I tell them that, and it’s because our tools run for decades. You know, I’m rambling on. Let me now come back to your question. The upgrade part of CSBG is what we see benefiting in a pretty significant way this year because of what I described going on in NAND.

Offsetting that this year, though, the Reliant product line is somewhat softer because it was quite strong in China spending last year. It’s part of why we describe, hey. We think China’s down a little bit this year. Anyway, CSBG in total, we’ve described as likely flattish this year, but real strength in the upgrade piece of it, Vivek. Got it.

Unidentified speaker, Analyst, BFA Semiconductor: Makes sense. On the CSBG side, you know, long term, do you think as as you’re gonna come out of this China, is that a double digit growth business? And, you know, one one of your competitors has kind of described their services business in terms of subscription, you know, type contracts. Is is your CSBG business constructed that way? Is is it a part of it that that is,

Doug Bettinger, CFO, Lyme Research: you know,

Unidentified speaker, Analyst, BFA Semiconductor: very regarding it?

Doug Bettinger, CFO, Lyme Research: Absolutely. There’s a part of it that way. But more importantly, the predictability of, like, spares consumption, whether it’s under a contract or not, quite high. Right. If the fabs run and you’re consuming spare parts, right, stuff wears out.

I compare it to your automobile. Right? You gotta change your brakes every once in a while. You gotta put new tires on the car because stuff wears out. Same is true with our equipment.

Excuse me. Anyway, I forget where I was going with that. But but that’s the nature of what’s happening.

Unidentified speaker, Analyst, BFA Semiconductor: So how much of CSBG do you think is that kind of subscription or or recurring?

Doug Bettinger, CFO, Lyme Research: We haven’t put numbers on it. But the biggest individual component in CSBG is spares. And like I said, whether it’s under a contract or not, it is completely recurring.

Unidentified speaker, Analyst, BFA Semiconductor: Got it. One other question that that comes up on NAND is when can the NAND market get back to prior peaks if, you know, one, you know, really large customer in China is restricted from from the market?

Doug Bettinger, CFO, Lyme Research: Yeah. I don’t know the answer to that question, Vivek. Right? Us describing this 40,000,000,000 over the next several years doesn’t assume it gets back to that that ’22 peak investment level. Right.

But there was a ton of investment that here in NAND. In the horizon I can see right now, we probably aren’t gonna get back to that investment level. However, for us to get back to nearly peak NAND revenue, we don’t need to get back to that level because of that two thirds of the SAM when upgrades happen coming to us. I think that’s important to understand.

Unidentified speaker, Analyst, BFA Semiconductor: Got it. Okay. And then on the leading edge side, you know, with the last number of peers, what we saw was, you know, consumer market had very frequent upgrade cycles. Right? And that’s why you saw the leading edge foundry always invest in in leading edge capacity.

Doug Bettinger, CFO, Lyme Research: When you say consumer, you’re talking about mobile?

Unidentified speaker, Analyst, BFA Semiconductor: Yeah. Smartphones, right, PCs. Those those are really driving a lot of the really bleeding edge. But now what we are seeing is a slowdown in those, you know, consumer markets. And if I look at the nodes that the AI companies are adopting, they’re actually n minus one or n minus two.

So what does that say to you about, you know, leading edge demand and and that as a growth driver?

Doug Bettinger, CFO, Lyme Research: I see. Lead leading edge demand is still quite strong. Right? When I listen to one of my big customers talk about how compelling two nanometer looks, the first gate all around node, they seem quite optimistic about power performance, all all of that stuff taken together. Yeah.

So it’s still driving a a good amount of investment.

Unidentified speaker, Analyst, BFA Semiconductor: Got it. And how is your Listen, the

Doug Bettinger, CFO, Lyme Research: other thing I would say is, you know, phones aren’t growing like they used to for sure, but they’re growing a little bit. Right. And that’s important. But more important is there’s still a content story in mobile, which is when you look at the average DRAM content, it’s going up every year. When you look at the average NAND content, it’s going up every year.

Right. The high end skew might not always be going up, but it’s still mixing to a higher level of content. So that still is an important thing to be thinking about, especially in DRAM and NAND.

Unidentified speaker, Analyst, BFA Semiconductor: Right. And you mentioned, you know, in the foundry logic, logic has obviously come down for for all the well known reasons. But that customer has often described that, you know, they have a lot of tools. I think they use the term bubble wrap, that they have a lot of tools lying around. Do you think that that’s a risk factor for for the industry over the next several quarters, or is that pretty much contemplated in in how you think about it?

Doug Bettinger, CFO, Lyme Research: It’s pretty much contemplated. Okay.

Unidentified speaker, Analyst, BFA Semiconductor: That that was easy. DRAM, how do you see that business growing this year, and what are the key drivers for Lam?

Doug Bettinger, CFO, Lyme Research: It’s all about high bandwidth memory. It’s all about first, what’s what’s going on? If you look at DRAM WFE year on year, last year to this year, it’s flattish, but the composition of it’s different. Right? You had a a customer in China spending a good amount last year, likely spending not much this year.

The rest of the industry growing spending. What’s going on there is, at least architecturally, a couple things to think about. DDR four going to DDR five. Some of these new server CPUs need DDR five. So there’s a process upgrade just in and of itself.

Layered on top of that AI compute pulling a lot of high bandwidth memory. That’s an important part of what we see going on. We do important steps in that through silicon via the TSV process. But for the most part, we we own all of it. I I call it the drill and fill with kind of a tongue in cheek way to describe it.

We do the silicon etching to create space for the interconnect, and then we do the electroplating to put the copper interconnect down. Very strong part of what’s going on with our business right now in HBM. So I love what’s happening there. You’ve got a process node migration. You’ve got the move to more and more HPM.

All all three of the global customers aspiring to compete for that and and spending consistent with that outlook.

Unidentified speaker, Analyst, BFA Semiconductor: Right. Does your content change as the industry goes towards HPM four?

Doug Bettinger, CFO, Lyme Research: If you think through, absolutely. Right? Because you go from an eight die stack to 12 potentially just not potentially, to 16 is what’s being contemplated as more capacity.

Unidentified speaker, Analyst, BFA Semiconductor: Got it. Is it linear content growth for you? Or or is there

Doug Bettinger, CFO, Lyme Research: Not necessarily. No. There’s a yield calculation that you have to contemplate when you go through this. The die gets bigger, right, for HBM. It it’s a little more complicated than just ratioing things up.

It’s it’s not quite that easy to sort through. And each customer’s in a different spot of a learning curve as well.

Unidentified speaker, Analyst, BFA Semiconductor: Okay. Doug, I had just one or two questions on the competition side. Sure. So first is, you know, we get all this third party data from Gartner and and whatnot. So I think last year, they had a land gaining share in deposition, but in the ad side, it came down, you know, somewhat.

How would, you know, and and, you know, so your Japanese competitor gained some share and I think there were parts of the market where, you know, you couldn’t address. How how do you look at your market share positioning in in your core areas right now?

Doug Bettinger, CFO, Lyme Research: Actually, it’s it’s very strong. In etch and deposition, I don’t pay a lot of attention to Gartner, Vivek, if if I’m honest. But I would guess likely what what is showing up in whatever math they’re putting together, two things. One, there’s a mix component to it. Right?

Our strongest end market is NAND. Last year, NAND was spending almost nothing. We sold a lot of edge tools into NAND. Right. It’s not that somebody took a position from us.

That did not happen. But our strongest end market wasn’t spending much last year. So that’s one thing. Two, we’re restricted from a bunch of customers in China, and the rules in Japan are different. The Japanese are not restricted from that.

So I’m sure that’s part of it as well. I’m speculating. I haven’t even looked at the Gartner data, but I’m guessing that’s that’s what’s showing up.

Unidentified speaker, Analyst, BFA Semiconductor: Okay. How do you think, Doug, over the next several years competition from domestic China Vendors? You know, because, you know, what we have seen and I know this is apples and oranges, but what we saw, for example, in AI or, you know, more on the software side, just given the constraints, there was a lot of innovation that that happens there. Sure. How should we think about, you know, that aspect when it comes to the equipment industry?

Where is their state right now, and where do you see it going, and how are you positioned?

Doug Bettinger, CFO, Lyme Research: Listen. I think largely what you’re seeing is they’re growing a lot. And they’re growing a lot because there’s a whole segment of business we can no longer compete for. Right? There’s end use and end user restrictions in China, and we’re not there.

We can’t be there. Right? We’re restricted. So if you think through the customers that are in those categories, what are they doing? Well, they’re buying the equipment they can buy, and a lot of that is China.

Unidentified speaker, Analyst, BFA Semiconductor: Right. But how would you assess where domestic China is versus, you know, where, you know, the western peers are from a competitive perspective?

Doug Bettinger, CFO, Lyme Research: Well, technologically, we’re we’re way ahead. I mean, dude, here’s the thing to understand. We’re this year, we’re spending roughly $2,000,000,000 in r and d. We’ve been around for forty five years. I’ve got the best etch engineers in the world trying to do things that’s never been done in the world before.

We don’t know how to do it. Right? Customer needs a different result showing up on the wafer that they’re challenging us to figure it out. It’s hard, and I can’t overemphasize how hard it actually is to do what we’re trying to do. I’m not dismissive in any way about the emerging competition coming from China, but the way you deal with things is you just keep running fast.

You just keep innovating from a productivity and a technology standpoint. Almost always in my experience in this industry, if you do that and do it well, you win. That’s what we’re doing.

Unidentified speaker, Analyst, BFA Semiconductor: Got it. The reason I I’m kind of focused on that question, Doug, is that often when we, you know, look about look at WFE intensity over long periods of time, You know, we kind of assume that it’s gonna stay at this mid teen space. But when you have such a large customer in China, right, where WFE intensity has been so much higher than average if they set of customers. Large set of cut. Exactly.

Right. So as as a block, their their WFE intensity has been so much higher

Doug Bettinger, CFO, Lyme Research: It is.

Unidentified speaker, Analyst, BFA Semiconductor: Yeah. Than average. So as they continue to come down, can there be enough strength in everything outside of China to kind of keep that WFE intensity going?

Doug Bettinger, CFO, Lyme Research: I think so. I mean, when you look at the evolution of these three d architectures that I’ve been describing, it costs more. The complexity is growing. And absolutely, if if you unpack the set of customers in China, a lot of smaller customers knew trying to understand how to do stuff for the first time. And so they’re early in the learning cycle.

And so they’re they’re they’re spending and then learning how to do stuff. So that’s an inefficient spend, generally speaking, if you categorize it that way. Maybe a couple of interesting data points. Well, let let let me do one. When we look at foundry as an example, you’ve got this evolution from five nanometer to two to 18 a to 14 a and beyond and the evolution of a couple of gate all around nodes to eventually something called a c fat.

Complexity in that situation is growing. For the magnitude of doubling per wafer in our addressable market, if you look at five node and we did a bunch of interesting stuff at the Investor Day. I encourage everybody to go take a look at it because we worked really hard on that stuff, and I think there’s really insightful analytics that were put together. But in this case, from the five nanometer node to that CFED node, etch and depth intensity per wafer doubles. That drives a growth in WFE, obviously.

And you have similar things as the NAND layer count grows and as DRAM goes from six f to four f squared to eventually a three d architecture. You you have similar type things. That’s what’s gonna drive WFE.

Unidentified speaker, Analyst, BFA Semiconductor: Right. So litho intensity goes down in that time frame?

Doug Bettinger, CFO, Lyme Research: Litho intensity goes down, generally speaking, with three d architectures. You saw it in NAND. You know, I think you you may continue to see it here. Look listen. UV high NA UV is gonna be critically enabling to the industry.

It is. I’m not suggesting anything different than that. But when you look at these three d architectures, you don’t need litho to create gate all around necessarily. You need etch and deposition. Advanced packaging, I would tell you the same thing.

You you need the drill and fill. You need TSV. So anyway, I can’t necessarily speak to exactly what’s going on in their market. I can speak really well to what’s going on in etch and depth, and I know that is growing for sure.

Unidentified speaker, Analyst, BFA Semiconductor: Got it. How would you in the minute or so we have left, how would you encourage investors to look at China contribution to this market over a long period of time? So right now it’s 30% of the industry. Is is there a level where it it where there is kind of a natural resting place, or or it’s hard to, you know, because every year, we’ll come to q four. There are always restrictions that that peep that people hear about.

So what is this industry kind of prepared for in terms of China contributions over a longer period? You know?

Doug Bettinger, CFO, Lyme Research: I I think five years from now, we’re not gonna be having this conversation about China. Right? These new set of customers my phone’s ringing through. Are gonna get better. Maybe some consolidation will happen.

It’ll it’ll just fall into the background of this global industry. No one ever asked me about what’s going on in Korea? Well, I got two really big customers in Korea. What’s going on in Taiwan? Well, you know, you got a really big foundry customer

Why why are we fixated on China? Because they’re new. In several years from now, they will no longer be new and they’ll either get good at doing what they’re doing or maybe they consolidate together. I’m I’m not exactly sure. But I think five years from now, we’re probably not having this conversation.

Unidentified speaker, Analyst, BFA Semiconductor: Yeah. Okay. And then finally, Doug, you know, what what has been very impressive is Lam’s ability to generate a lot of free cash flow even when, you know, your kind of prior core market came down significantly. So, like, mid twenties freak I mean, it’s better than most of the analog companies we we cover at at much lower multiples.

Doug Bettinger, CFO, Lyme Research: This is a great business. We generate a ton of free cash flow. Right. And and, curiously, I mean, people are sometimes surprised by this. When business turned down in ’23, we’re generating record cash flow.

Why? Because working capital comes down, AR comes down, inventory generally comes down, and that generates cash. But you’re right. The the metric that you just described is kinda how we see the business.

Unidentified speaker, Analyst, BFA Semiconductor: Right. So buybacks is still the bigger kind of variable area, or do you see a place where Yep. You know, dividend and dividend yields can go up? So, you know, semi caps are actually seen as, you know, good dividend yielders also.

Doug Bettinger, CFO, Lyme Research: Yeah. Listen. The the the way I think about free cash flow, we’re gonna return at least 85% free cash flow. Over my tenure at the company, it’s been over a %. We’re gonna grow the dividend on an annual basis.

We benchmark it with the entirety of the industry to make sure we’re competitive, and then we pop that off with the buyback. I think that’s likely what we can do.

Unidentified speaker, Analyst, BFA Semiconductor: Stick with that. Great. Thank you so much. Really appreciate it. Thanks for all best.

You.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.