Lam Research Corporation — Q2 FY2022 Form 10-Q
Reporting period: Fiscal quarter ended December 26, 2021 (13 weeks), and six months ended that date. Comparisons are with the quarter and six-month period ended December 27, 2020, except where sequential comparisons are specified. Lam supplies wafer fabrication equipment and services, including deposition, etch, clean, and customer support.
Financial performance
| Metric | Q2 FY2022 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $4.227 billion | $3.456 billion | +22% |
| Gross margin | $1.978 billion; 46.8% | $1.604 billion; 46.4% | Margin +0.4 percentage points |
| Operating income | $1.338 billion | $1.010 billion | +33% |
| Net income | $1.195 billion | $869 million | +37% |
| Diluted EPS | $8.44 | $5.96 | +42% |
Sequentially, revenue fell 2% from $4.304 billion in Q1 FY2022, while gross margin rose to 46.8% from 45.9%. Management attributed the revenue decline primarily to supplier delays of critical parts, partly offset by higher customer support-related revenue. Sequential margin improvement reflected customer and product mix, lower manufacturing-related spending, and better factory absorption and field utilization, partly offset by higher variable compensation.
For the six months, revenue was $8.531 billion, up 29%; gross margin was $3.955 billion (46.4%, versus 46.9%); operating income was $2.710 billion, up 38%; net income was $2.375 billion, up 40%; and diluted EPS was $16.71, versus $11.55.
Revenue mix, cash flow, and financial position
- Q2 system revenue was $2.740 billion, versus $2.924 billion sequentially; customer support-related revenue and other was $1.486 billion, versus $1.380 billion. Memory represented 58% of Q2 revenue, foundry 31%, and logic/integrated device manufacturing 11%.
- China generated 26% of Q2 revenue, Korea 25%, Taiwan 18%, Japan 12%, Southeast Asia 9%, the United States 6%, and Europe 4%. International sales were approximately 94% of revenue in the six-month period.
- Six-month operating cash flow was $1.898 billion, versus $987 million a year earlier. Capital expenditures and intangible-asset spending were $275 million; operating cash flow less this spending was approximately $1.623 billion, a derived measure.
- Working capital changes used $657 million of cash, including increases in inventory of $440 million and accounts receivable of $378 million, partly offset by higher deferred profit and accounts payable.
- At quarter-end, cash and cash equivalents were $5.087 billion, investments $243 million, and restricted cash and investments $251 million. Total liabilities included $4.962 billion of long-term debt at carrying value; no borrowings were outstanding under the revolving facility or commercial paper program. The balance-sheet cash, investments, and restricted balances exceeded debt by approximately $619 million, a derived comparison that includes restricted balances.
- Six-month financing uses included $1.652 billion of treasury-stock purchases and $397 million of dividends paid. The company declared dividends of $3.00 per share for the six months. Inventory was $3.074 billion, up from $2.689 billion at fiscal year-end.
Management outlook, risks, and unusual items
- Management reported strong customer demand but expected supply-chain constraints to continue in the near term. It described longer-term secular semiconductor demand and technology changes—including 3D scaling, multiple patterning, and advanced packaging—as potential drivers of growth and a larger served market. The filing provides no specific revenue or earnings guidance.
- Management said current cash, investments, and anticipated operating cash flows were expected to support operations, investment, debt service, capital expenditures, dividends, and share repurchases for at least the next 12 months.
- Key risks include semiconductor-industry cyclicality, supplier and logistics constraints, COVID-19 effects, dependence on a limited number of large customers, and international exposure. Export licensing and U.S.–China trade restrictions could materially affect sales; China accounted for approximately 31% of six-month revenue.
- Q2 other income included a $46.6 million unrealized gain on an equity investee that became publicly traded. The six-month effective tax rate was 12.0%; management cited earnings in lower-tax jurisdictions and Malaysia tax incentives, which are conditional. The IRS was examining the fiscal 2018 U.S. return; no significant adjustments had been proposed. Potential changes in uncertain tax positions over 12 months could range up to $11.8 million.
- The company reported no material loss as probable from known legal proceedings and no material liability recorded for the described guarantees. A lease arrangement carries an aggregate maximum residual-value guarantee of $298.4 million; the filing does not state that payment is probable.
Important facts for investors to verify
- Whether supplier delays ease and whether deferred or delayed equipment shipments convert to recognized revenue.
- Whether inventory growth, customer receivables, and working-capital cash use remain manageable.
- Whether geographic and customer concentration, particularly China exposure and export-license developments, change materially.
- Whether gross-margin improvement is sustainable amid supply constraints, compensation costs, and changing product and customer mix.
- Whether share repurchases, dividends, and capital spending remain consistent with liquidity needs and board decisions; the August 2021 $650 million accelerated repurchase was finally settled in January 2022.