Lam Research Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended June 26, 2022 (52 weeks), compared with fiscal 2021 ended June 27, 2021. Although the request metadata says “2021 Q4,” this filing is an annual report for fiscal 2022, not a quarterly filing. Lam supplies wafer-fabrication equipment and related services, principally in deposition, etch, clean, and customer support.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $17.227 billion | $14.626 billion | +17.8% |
| Gross margin | $7.872 billion; 45.7% | $6.805 billion; 46.5% | +15.7% in dollars; down 0.8 percentage points |
| Operating expenses | $2.490 billion | $2.323 billion | +7.2% |
| Operating income | $5.382 billion | $4.482 billion | +20.1% |
| Net income | $4.605 billion | $3.908 billion | +17.8% |
| Diluted earnings per share | $32.75 | $26.90 | +21.7% |
| Operating cash flow | $3.100 billion | $3.588 billion | Down $488 million |
Revenue growth reflected strong equipment demand and higher customer-support revenue. Systems revenue was $11.322 billion, versus $9.765 billion; customer-support-related revenue was $5.905 billion, versus $4.861 billion. Memory represented 60% of leading- and non-leading-edge equipment and upgrade revenue, foundry 26%, and logic/IDM 14%.
Gross margin declined as a percentage of revenue due mainly to inflationary material, freight, logistics, and labor costs and unfavorable customer and product mix, partly offset by lower variable compensation. Operating expenses increased primarily with employee-related costs and other operating expenses. The effective tax rate was 11.3%, compared with 10.6%.
Cash, liquidity, and capital structure
Cash, cash equivalents, investments, and restricted cash and investments totaled approximately $3.9 billion at year-end, compared with $6.0 billion a year earlier. Operating cash flow was $3.1 billion; working-capital uses included increases of $1.3 billion in receivables and $1.4 billion in inventory. Capital expenditures were $546 million. Financing outflows included $3.9 billion of share repurchases and $815 million of dividends paid.
Long-term debt was $5.0 billion principal amount, all fixed-rate senior notes; the company had no borrowings under its $1.5 billion revolving credit facility or $1.5 billion commercial-paper program. Management said current cash, short-term investments, and expected operating cash flows should cover anticipated operations, investment, debt service, capital expenditures, capital returns, and dividends for at least the next 12 months.
Deferred revenue was $2.2 billion, up from $1.1 billion, largely reflecting tools pending full delivery and future service obligations. The board authorized an additional $5.0 billion of share repurchases in May 2022; the authorization may be suspended or discontinued.
Material changes and outlook
- Revenue grew 17.8%, slower than FY2021’s 45.6% growth. Net income grew 17.8%, compared with 73.6% growth in FY2021.
- Gross margin fell from 46.5% to 45.7%. Cash from operations declined, while inventory rose to $3.966 billion from $2.689 billion.
- Management reported solid customer demand but said expanding supply-chain constraints limited its ability to fulfill demand. It expected supply shortages and inflationary cost pressures to persist at least in the near term and could not rule out further pressure on revenue and gross margin.
- Management cited longer-term demand drivers including semiconductor complexity, 3D scaling, multiple patterning, and advanced packaging. The filing provides no specific numerical revenue, earnings, or margin guidance.
Risks, contingencies, and unusual items
- China represented approximately 31% of FY2022 revenue; export-license requirements and further U.S.–China regulatory changes could restrict sales. International sales overall were approximately 92% of revenue.
- Four customers represented approximately 21%, 12%, 12%, and 11% of revenue, respectively. Customer concentration, semiconductor-industry cyclicality, and customer investment changes can materially affect results.
- Supply shortages, logistics disruption, inflation, COVID-19 impacts, and reliance on single or limited-source suppliers could delay shipments, constrain revenue recognition, and pressure margins.
- A 15-year Malaysian tax incentive took effect in FY2022. Lam estimated it reduced worldwide taxes by approximately $575 million and increased diluted EPS by about $4.09 for the year; benefits depend on meeting conditions.
- Gross uncertain tax positions were $617 million. The IRS had proposed approximately $50 million of additional tax liability related to the FY2018 federal return; the company reported that resolution and timing were uncertain.
- The company reported no material legal proceedings and no material goodwill or long-lived-asset impairments in the periods presented. The auditor issued unqualified opinions on the financial statements and internal control; inventory valuation was identified as a critical audit matter.
Important facts for investors to verify
- Whether supply constraints eased and inventory converted into shipments and cash, given the $1.4 billion inventory-related operating cash use and substantial year-over-year inventory increase.
- Whether cost inflation, product/customer mix, and fulfillment delays continued to affect gross margin and revenue recognition.
- How export controls and China exposure affected customer demand, licenses, and revenue after the reporting date.
- Whether the Malaysian tax incentive’s conditions remain satisfied and how tax-law changes, including the Inflation Reduction Act, affect cash taxes and the effective tax rate.
- Future cash requirements and capital returns relative to $5.0 billion of debt, the share-repurchase program, dividends, and the company’s stated liquidity outlook.