LAM RESEARCH CORP quarterly report, Q2 FY2024

Lam Research Corporation — Fiscal 2024 Second-Quarter 10-Q

Reporting period: The 13-week quarter ended December 24, 2023; six-month results are for the period ended the same date. Lam supplies wafer fabrication equipment and services, including deposition, etch, clean, and customer support. It reports one business segment.

Financial performance

Metric	Quarter ended Dec. 24, 2023	Year-earlier quarter	Six months ended Dec. 24, 2023	Year-earlier six months
Revenue	$3.758 billion	$5.278 billion	$7.240 billion	$10.352 billion
Gross margin	$1.757 billion; 46.8%	$2.376 billion; 45.0%	$3.412 billion; 47.1%	$4.713 billion; 45.5%
Operating income	$1.057 billion	$1.680 billion	$2.080 billion	$3.378 billion
Net income	$954.3 million	$1.469 billion	$1.842 billion	$2.894 billion
Diluted EPS	$7.22	$10.77	$13.88	$21.16

Quarterly revenue fell about 29% year over year, while net income fell about 35%. Sequentially, revenue increased 8% from the September 2023 quarter; diluted EPS rose from $6.66 to $7.22.
Quarterly gross margin was down from 47.5% sequentially, primarily due to restructuring and deferred-compensation costs and unfavorable product mix, partly offset by favorable customer mix.
For the six-month period, operating cash flow was $2.405 billion, investing cash outflow was $176.6 million, and financing cash outflow was $2.186 billion. Capital expenditures and intangible-asset spending totaled $192.3 million.
Cash and cash equivalents were $5.623 billion and investments were $14.7 million at quarter-end; restricted cash was $2.2 million. Total debt and finance lease obligations were approximately $4.984 billion, including $3.8 million current. The company repaid $254.1 million of debt and finance lease obligations during the six months.
Current assets were $13.055 billion and current liabilities were $4.272 billion. Inventory was $4.430 billion, down from $4.816 billion at June 25, 2023. Deferred profit was $1.793 billion, up from $1.695 billion.

Changes, drivers, and capital allocation

Management attributed the sequential revenue increase mainly to stronger DRAM investment. Memory represented 48% of quarterly market revenue, foundry 38%, and logic/integrated device manufacturing 14%.
China accounted for 40% of quarterly revenue and 44% of six-month revenue; China revenue was $1.493 billion for the quarter. Taiwan’s share of quarterly revenue declined to 13% from 19% a year earlier, while China’s rose to 40% from 24%.
Six-month revenue declined about 30% year over year, primarily reflecting reduced customer spending, particularly in NAND memory. Customer support-related revenue was $1.459 billion for the quarter; systems revenue was $2.299 billion.
Six-month R&D expense was $892.3 million, approximately flat year over year; SG&A was $435.9 million, also approximately flat. R&D and SG&A increased sequentially in the December quarter.
Six-month share repurchases were $1.489 billion, including employee share settlements, and dividends paid were $494.7 million. The quarterly dividend declared was $2.00 per share. Approximately $2.067 billion remained under the board’s repurchase authorization at quarter-end.

Outlook, risks, and unusual items

Management said calendar-year 2023 demand weakened as wafer-fabrication-equipment spending declined, primarily due to memory-market weakness. U.S. export restrictions affecting China also weighed on demand. No specific revenue or earnings guidance for the next quarter is provided in the supplied filing text.
The company expects approximately $300 million of fiscal 2024 spending on business-process improvements and initiatives, inclusive of restructuring activity. Its restructuring plan had terminated approximately 1,650 employees, incurred cumulative costs of $146.9 million, and was expected to be substantially complete by the June 2024 quarter.
Management expects cash, investments, and operating cash flows to support operations, investment, debt service, capital expenditures, dividends, and share repurchases for at least the next 12 months. It cautioned that industry, global economic, political, and credit-market conditions could affect demand and liquidity.
Key risks include cyclical semiconductor-equipment demand, customer and product concentration, export controls and other China-related restrictions, competition and technology transitions, supply-chain constraints, and execution of restructuring and transformation efforts. International markets accounted for approximately 93% of six-month revenue.
The company reported no legal proceedings it believed to be material and no material litigation accrual. Guarantees and standby letters of credit had a maximum potential payment of $196.9 million; management did not consider material payment probable. The IRS was examining fiscal 2019 and 2020 returns, with no significant proposed adjustments to date.
Other notable items: the company purchased certain California properties under finance leases, adding $250.5 million to property and equipment and eliminating $298.4 million of lease residual-value guarantees. Other income included $25.5 million of quarterly gains on deferred-compensation-plan assets. The six-month effective tax rate was 12.8%.

Investor verification checklist

Check subsequent-quarter results and management commentary against the recovery implied by stronger DRAM spending and the absence of explicit forward guidance here.
Track China sales, export-license developments, and the geographic and market mix of revenue, especially memory and NAND demand.
Assess whether gross margins recover as restructuring costs, product mix, and deferred-compensation effects change.
Monitor inventory, deferred profit, customer deposits, and the timing of revenue recognition and customer acceptance.
Verify restructuring completion, total costs versus the stated business-improvement spending outlook, and any workforce or operational effects.
Review cash generation alongside debt service, dividends, and repurchases, and confirm that capital returns remain consistent with liquidity and business conditions.