LRCX • 10-Q • Q4 2021 • Positive

Lam Research Surges on Memory Chip Rebound and Record Customer Concentration

February 02, 2021 • 1 min read

TL;DR

Lam Research delivered exceptional Q4 performance with revenue up 34% YoY to $3.46B, driven by memory segment recovery and increased customer concentration in leading-edge nodes. Gross margins expanded 110bps to 46.4% on improved product mix and operational efficiencies. The company's strategic focus on atomic-scale processing technology is paying off as customers accelerate 5nm and 3nm investments. Rising semiconductor capital intensity and increased logic/foundry spending suggest sustained mom

Financial Performance Overview: Revenue grew 34% YoY to $3.46B while operating margin expanded 280bps to 30.6%. System sales jumped 38% YoY on memory recovery and logic/foundry strength. Customer support business revenue increased 22% YoY to $1.05B reflecting installed base growth. Geographic mix shifted with China representing 36% of revenue vs 24% year ago. Operating cash flow of $1.08B demonstrates strong cash generation despite increased inventory investments.
Strategic Initiatives and Operational Changes: Management is accelerating R&D investments in atomic-scale processing capabilities, with R&D spend up 15% YoY to $355M. New Sense.ai platform launch expands process control capabilities for sub-5nm nodes. Strategic pivot toward high-mix, high-complexity chamber solutions driving ASP increases. Vertical integration of key supply chain components aims to improve gross margins by 100-150bps over 18 months.
Market Position and Competitive Dynamics: Market share in critical etch increased 300bps to 59% on advanced node wins. Top 3 customers now represent 45% of revenue vs 36% last year, indicating increased concentration risk. Memory segment recovered to 41% of systems revenue from 35% last quarter. Competitive position strengthening in atomic layer deposition against AMAT and ASML with 7 new product launches planned for 2021.
Operational Efficiency and Profitability: Gross margin expanded 110bps YoY to 46.4% on improved product mix and manufacturing efficiencies. Operating expenses grew slower than revenue at 12% YoY, driving operating leverage. Factory utilization reached 89% vs 76% last year. Inventory turns improved to 3.2x from 2.8x on supply chain optimization. Management expects further margin expansion as new products ramp and mix shifts to higher-value solutions.
Growth Catalysts and Material Risks: Near-term catalysts include 3nm/5nm ramps at leading foundries, DDR5 memory transitions, and China domestic capacity expansion. Key risks include customer concentration, US-China trade tensions, and potential memory cycle downturn. Management sees sustainable 15-20% growth through 2022 on rising semiconductor capital intensity. Supply chain constraints and geopolitical risks remain key watch items.

Revenue

$3.46B ( YoY, QoQ) with systems at $2.41B and services at $1.05B

↑ +34%

Rd Spend

$355M ( YoY) at of revenue

↑ +15%

Net Income

$869M ( YoY) at net margin

↑ +59%

Gross Margin

(+110bps YoY) on mix and efficiencies

↑ 46.4%

Free Cash Flow

$892M ( YoY) at conversion

↑ +45%

Operating Margin

(+280bps YoY) with strong leverage

↑ 30.6%

Growth Indicators

$1.17B ( YoY)

↑ +28%

Factory Utilization ↑89% vs 76% year ago

Customer Concentration ↑Top 3 customers at 45% vs 36% year ago

Key Risks

Customer concentration at 45% for top 3 customers creates revenue vulnerability
China exposure at 36% of revenue faces trade tension risks
Memory cycle downturn could impact 41% of systems revenue
Supply chain constraints may limit near-term growth

Key Opportunities

3nm/5nm node transitions driving increased process complexity and tool demand
DDR5 memory transition creating multi-year upgrade cycle
China domestic semiconductor expansion continuing despite trade tensions
Services transformation expanding recurring revenue streams

Bottom Line

Lam Research delivered exceptional results demonstrating both cyclical and structural growth drivers. The combination of memory recovery, advanced node transitions, and rising semiconductor capital intensity creates multi-year tailwinds. However, increased customer concentration and geopolitical risks warrant monitoring. Management's strategic focus on atomic-scale processing and operational efficiency positions the company well for sustainable growth, though execution in new product areas remains critical. The contrarian take is that rising customer concentration may be more feature than bug - reflecting the company's growing strategic importance to leading-edge manufacturing.