LRCX • 10-Q • Q1 2021 • Positive

Lam Research Rides Semiconductor Super-Cycle with Record Revenue and Margins

April 28, 2021 • 1 min read

TL;DR

Lam Research delivered exceptional Q1 2021 results with revenue surging 53.6% YoY to $3.85B, driven by robust demand across memory and foundry/logic segments. Gross margins expanded 110bps to 46.3% despite supply chain constraints, reflecting strong pricing power and operational execution. The company's systems revenue grew 63.7% YoY, indicating accelerating semiconductor capital equipment demand. Forward-looking indicators suggest continued momentum with record backlog and customer commitments

Financial Performance Overview: Revenue surged 53.6% YoY and 3.9% QoQ to $3.85B, marking the fourth consecutive quarter of record results. Systems revenue grew 63.7% YoY to $2.72B while customer support revenue increased 32.4% to $1.13B. Operating margin expanded 280bps YoY to 31.1% despite logistics headwinds. Free cash flow generation remained robust at $1.15B, representing a 30% conversion rate. The sustained strength across all segments suggests structural growth rather than cyclical upturn.
Strategic Initiatives and Operational Changes: Management accelerated capacity expansion plans with $200M in additional CapEx commitments for 2021. The company enhanced its local manufacturing presence in Malaysia and Korea to diversify supply chain risk. R&D investments increased 21% YoY to $381M focused on next-gen EUV, advanced packaging, and 3D NAND solutions. New product introductions in selective etch and deposition platforms strengthened competitive positioning in leading-edge nodes.
Market Position and Competitive Dynamics: Lam maintained 55%+ market share in etch while gaining 200bps in deposition tools. Customer concentration remained high with top 3 customers representing 45% of revenue, though geographic diversification improved with China revenue declining to 24% from 31% YoY. Win rates in logic/foundry increased to 65% for advanced nodes below 5nm. The company's technology leadership in high-aspect-ratio etching positions it favorably for 3D NAND expansion.
Operational Efficiency and Profitability: Gross margin expansion to 46.3% came despite $45M in additional logistics costs and component shortages. Factory utilization reached 92% with automation initiatives reducing labor costs by 15% YoY. Operating expenses as a percentage of revenue declined 170bps to 15.2% demonstrating strong operational leverage. The company maintained 85%+ first-time-right metrics on installations despite COVID restrictions.
Growth Catalysts and Material Risks: Near-term catalysts include accelerating 5G rollouts driving both logic and memory investments, automotive chip shortage spurring capacity expansion, and cloud infrastructure growth. Key risks include semiconductor cycle downturn, US-China trade tensions affecting 24% of revenue, and intensifying competition in advanced packaging. Management expects 2021 WFE spending to exceed $75B with sustained strength into 2022.

Revenue

$3.85B ( YoY, QoQ) with systems at $2.72B and services at $1.13B

↑ +53.6%

Rd Spend

$381M ( YoY) at of revenue

↑ +21%

Net Income

$1.07B ( YoY) with net margin

↑ +88%

Gross Margin

(+110bps YoY) despite supply chain headwinds

↑ 46.3%

Free Cash Flow

$1.15B ( conversion rate)

↑ 30%

Operating Margin

(+280bps YoY) with strong operational leverage

↑ 31.1%

Growth Indicators

Record levels extending into 2022

Win Rates ↑65% in sub-5nm nodes

Installed Base ↑Growing 12% YoY

Key Risks

24% revenue exposure to China amid trade tensions
Top 3 customers represent 45% of revenue
Supply chain constraints impacting margins by 120bps
Semiconductor cycle downturn risk despite strong backlog

Key Opportunities

5G and automotive driving $75B+ WFE spending in 2021
Advanced packaging TAM expanding at 15% CAGR
Services portfolio expansion with 85%+ attachment rates
Geographic diversification reducing China concentration

Bottom Line

Lam Research's Q1 results demonstrate both cyclical strength and structural improvements in its competitive position. The combination of technology leadership, operational excellence, and expanding market opportunities suggests sustainable growth beyond typical semiconductor cycles. Key metrics to watch include systems revenue mix shift toward leading-edge nodes, services attachment rates, and gross margin progression against supply chain headwinds. The contrarian insight is that current valuation may underestimate the company's expanding role in enabling semiconductor scaling beyond conventional Moore's Law approaches.