Lam Research Corporation — Form 10-Q Summary
Period note: The request metadata says “2019 Q3,” but the filing covers the fiscal quarter ended March 29, 2020 (fiscal Q3 2020), and compares it with the quarter ended March 31, 2019. The March 2020 quarter had 13 weeks versus 14 weeks in the prior-year quarter.
Business context and reporting period
Lam Research supplies wafer fabrication equipment and services to semiconductor manufacturers, with products focused on deposition, etch, and clean. It serves memory, foundry, and logic/integrated device manufacturing markets. The filing reports unaudited results for the three and nine months ended March 29, 2020.
Financial performance and liquidity
| Metric | Three months ended Mar. 29, 2020 | Three months ended Mar. 31, 2019 | Nine months ended Mar. 29, 2020 | Nine months ended Mar. 31, 2019 |
|---|---|---|---|---|
| Revenue | $2.504 billion | $2.439 billion | $7.253 billion | $7.292 billion |
| Gross margin | $1.167 billion; 46.6% | $1.074 billion; 44.0% | $3.328 billion; 45.9% | $3.278 billion; 44.9% |
| Operating income | $694 million | $566 million | $1.918 billion | $1.848 billion |
| Net income | $575 million | $547 million | $1.555 billion | $1.650 billion |
| Diluted EPS | $3.88 | $3.47 | $10.39 | $10.20 |
For the three-month comparison, revenue rose about 3%, net income about 5%, and diluted EPS about 12%. For the nine-month comparison, revenue was approximately flat while net income declined about 6%. The different quarter lengths affect the year-over-year quarterly comparison. Reported gross margin improved year over year, supported by customer and product mix and lower acquired-intangible amortization, partly offset by COVID-19-related factory and field-utilization effects.
Operating cash flow was $1.313 billion for the nine months, down from $2.296 billion. The decrease included a $666 million cash use from changes in operating assets and liabilities, notably higher receivables and inventory. Capital expenditures and intangible-asset spending were $153 million. Financing used $1.187 billion, including $1.329 billion of treasury-stock purchases and $489 million of dividends, partly offset by a $1.25 billion revolving-credit-facility draw.
At March 29, 2020, cash and cash equivalents were $3.962 billion, investments $1.432 billion, and restricted cash and investments $254 million. Total debt at carrying value was $5.072 billion, including the $1.25 billion revolver borrowing. The company reported $5.6 billion of total cash, cash equivalents, investments, and restricted cash and investments. Current assets were $9.409 billion and current liabilities $2.106 billion.
Material changes and management commentary
- Compared with the December 2019 quarter, revenue declined 3% to $2.504 billion. Management attributed this primarily to COVID-19-related production interruptions despite strong customer demand.
- Deferred revenue reached $726 million, up from $411 million at December 29, 2019; management said production disruptions contributed to the increase and delayed revenue recognition.
- Revenue mix shifted: China represented 32% of quarterly revenue versus 17% in the prior-year quarter, while Japan represented 10% versus 17%. Memory accounted for 56% of quarterly market revenue, down from 61% a year earlier; foundry rose to 31% from 27%.
- The company repaid $500 million of 2020 Notes at maturity and drew the full $1.25 billion available under its revolving credit facility. It said the commercial paper program was consequently unavailable as a liquidity source at quarter-end.
- The company repurchased $1.329 billion of stock during the nine-month period and declared dividends of $3.45 per share over that period. The board-authorized repurchase program had $1.811 billion remaining at March 29, 2020.
Outlook, risks, contingencies, and unusual items
Management said COVID-19 disrupted production, supply chains, logistics, staffing, and field utilization, affecting shipment timing, revenue recognition, and gross margin. It reported improvement in its own operations and those of suppliers but warned that pandemic-related risks remained. Management expected near-term revenue to depend substantially on manufacturing and supply-chain capacity. It also cited longer-term semiconductor demand and technology transitions—including 3D scaling, multiple patterning, and advanced packaging—as potential drivers of its served market.
Management stated that cash, short-term investments, and expected operating cash flows should be sufficient for anticipated operations, investment, debt service, capital expenditures, dividends, and other needs for at least 12 months. It cautioned that pandemic-driven economic and capital-market disruption could affect customer demand, commercial relationships, and access to financing. The full revolver borrowing carries a variable rate; the initial rate was 2.025%, and the company noted uncertainty around replacing LIBOR when it is discontinued.
Other notable items include a $74.5 million reversal of tax assets in the December 2019 quarter following a tax-court development; the March 2020 quarter’s effective tax rate was 8.7%, and the nine-month rate was 14.9%. Quarterly other expense included a $33.8 million loss on deferred-compensation-plan-related assets. The company reported no material pending legal proceedings and no material litigation accrual. It also disclosed a residual-value guarantee related to certain California operating leases, generally up to $220.4 million, with a stated maximum of $250 million under certain default circumstances.
Important facts for investors to verify
- Confirm the period: this is a fiscal Q3 2020 filing, not a 2019 Q3 filing; note the 13-week versus 14-week quarterly comparison.
- Track whether COVID-19 production and supply-chain constraints, deferred revenue, and lower factory utilization affect subsequent shipments, revenue conversion, and margins.
- Review operating cash flow and working-capital movements, particularly receivables and inventory, alongside the company’s share repurchases and dividend commitments.
- Monitor the $1.25 billion variable-rate revolver borrowing, total debt, upcoming maturities, and the LIBOR transition.
- Assess tax-rate variability, the unresolved tax examination, and the disclosed lease guarantees and other contingencies.