LAM Research Corporation — Fiscal Q2 2021 Form 10-Q
Reporting period: Quarter ended December 27, 2020 (13 weeks); six-month results cover the period from June 28 to December 27, 2020. Amounts below are in U.S. dollars.
Business context and performance
Lam Research supplies wafer fabrication equipment and services, principally in deposition, etch and clean. It serves memory, foundry and logic/integrated device manufacturers. Management described customer demand as strong, with higher semiconductor equipment spending driven by demand in markets including high-performance computing, PCs and 5G.
| Metric | Quarter ended Dec. 27, 2020 | Year-over-year change |
|---|---|---|
| Revenue | $3.456 billion | Up 34% |
| Gross margin | $1.604 billion; 46.4% of revenue | Up from 45.7% |
| Operating income | $1.010 billion; 29.2% of revenue | Up from $687 million |
| Net income | $869 million | Up from $515 million |
| Diluted EPS | $5.96 | Up from $3.43 |
For the six months, revenue was $6.633 billion, gross margin was $3.110 billion (46.9%), operating income was $1.971 billion and net income was $1.693 billion. Diluted EPS was $11.55. Compared with the prior-year six months, revenue rose 40%, net income rose 73%, and diluted EPS rose from $6.52.
Quarterly revenue increased 9% sequentially, which management attributed primarily to increased investment by memory customers. Memory represented 68% of leading- and non-leading-edge equipment and upgrade revenue for the quarter, versus 52% a year earlier. System revenue was $2.307 billion; customer support-related revenue and other was $1.149 billion. China accounted for 35% of quarterly revenue and 36% of six-month revenue.
Cash flow, liquidity and capital
- Six-month operating cash flow was $987 million, up from $772 million. Working-capital changes used $970 million, including increases in receivables of $801 million and inventories of $498 million.
- Six-month investing cash flow used $732 million, including $155 million of capital expenditures and net purchases of available-for-sale securities. Financing activities used $1.497 billion, including $1.172 billion of treasury-stock purchases and $355 million of dividends paid.
- Cash, cash equivalents, investments and restricted cash and investments totaled $6.3 billion at quarter-end, compared with $7.0 billion at June 28, 2020. Cash and cash equivalents alone were $3.687 billion.
- Debt carrying value was $5.781 billion; principal outstanding was approximately $5.827 billion. The $800 million 2021 senior notes mature in June 2021. No borrowings were outstanding under the $1.25 billion revolving credit facility or commercial paper program; the company reported compliance with credit-facility covenants.
- Lam repurchased $1.2 billion of stock during the six months and declared dividends of $2.60 per share. In November, the board authorized an additional $5.0 billion of repurchases; $5.587 billion remained available at December 27.
Outlook, risks and unusual items
The filing provides no specific revenue or earnings guidance. Management expected current operating cash flows and cash and short-term investments to fund anticipated operations, investment, debt service, capital expenditures, repurchases and dividends for at least the next 12 months. It also cited longer-term opportunity from semiconductor demand and technology shifts including 3D scaling, multiple patterning and advanced packaging.
COVID-19 continued to affect operations and supply chains. Management reported improved production output but higher freight and logistics costs, and warned that pandemic-related uncertainty could continue to pressure revenue and gross margin. Other key risks include semiconductor industry cyclicality, customer concentration, supplier constraints, and export licensing and trade restrictions affecting China. International sales represented approximately 96% of six-month revenue.
Other items to note: the effective tax rate was 11.3% for the quarter, compared with 23.5% a year earlier, primarily reflecting lower-tax-jurisdiction income and the prior-year tax benefit reversal following a court ruling. The IRS was examining the fiscal 2018 federal return; no significant adjustments had been proposed. Lam disclosed a $298.4 million maximum residual-value guarantee on certain California facility leases. It reported no material pending legal proceeding and no material litigation accrual.
Important facts for investors to verify
- Whether the strong memory-led demand and revenue growth continued, and how customer and product mix affected gross margin.
- Whether working-capital investment, especially receivables and inventory, converted into cash as shipments and collections progressed.
- How the June 2021 notes were refinanced or repaid, and the cash impact of convertible-note conversions.
- Whether COVID-related logistics costs and operating disruptions, China export controls, or supply constraints materially affected subsequent results.
- Whether the substantial repurchases and dividends remained consistent with liquidity needs, debt service and business investment.