Morningstar | Lam Research Records Solid 3Q Despite Weak Appetite by Memory Customers; Raising FVE to $190
Lam Research reported fiscal third-quarter results slightly ahead of its guidance, while CEO Tim Archer reiterated his view that wafer fab equipment spending in 2019 will be in the low $40 billion range. We note this is consistent with our view on 2019 WFE, as considerable memory weakness is partially offset by logic and foundry spending at the leading-edge. Despite the near-term challenges, Lam has done well in controlling expenses, as well as opportunistically repurchasing shares when we believed they were undervalued. We are raising our fair value estimate to $190 per share for narrow-moat Lam, and we maintain our expectation for Lam to resume growth in 2020 thanks to its best-in-class etch and deposition offerings.Third-quarter revenue was down 3% sequentially to $2.44 billion. Specifically, memory sales fell 25% from the prior quarter, as major customers such as Samsung and Micron have been decelerating output and building inventories to navigate the tepid demand environment. We note Micron remains confident in a second-half 2019 rebound, which would bode well for Lam and its peers, particularly entering 2020. That said, we’re optimistic in the long-term prospects for Lam regardless if the recovery is delayed, as AI, 5G, and other nascent trends should support overall semiconductor demand longer term. Meanwhile, logic and foundry sales rose 80% sequentially, thanks to investments by the likes of TSMC and Intel, and accounted for 39% of revenue versus 21% last quarter. We were pleased to see the mix-shift in Lam’s sales exposure during the quarter, supported by adoption of Lam’s tools in multiple patterning applications in nonmemory instances. Gross margins were 44%, down 134 basis points sequentially because of lower volume. Management expects fiscal fourth-quarter sales to be at a midpoint of $2.35 billion, implying a 3.7% sequential decline.
For more information on our thoughts on the WFE space in 2019 and beyond, please see our Technology Select Presentation: “Buy the Chip Equip Dip.â€
Lam Research is a supplier of wafer fabrication equipment and services to the semiconductor industry. The company designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits. The company's customer base includes semiconductor memory, foundry, and integrated device manufacturers that make products such as non-volatile memory, dynamic random-access memory, and logic devices. The company's services include customer service, spares, improvement, and refurbishment of its deposition, etch, and clean products. The company sells its products and services to companies in the United States, China, Europe, Japan, Korea, Southeast Asia, and Taiwan.
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