LRCX • 10-K • FY 2022 • Positive

Lam Research Hits Record $17.2B Revenue Amid Semiconductor Supply Chain Constraints

August 24, 2022 • 1 min read

TL;DR

Lam Research delivered exceptional performance in FY2022 with revenue growing 17% YoY to $17.2B despite significant supply chain challenges. Gross margins compressed 110bps to 45.7% due to increased input costs and logistics expenses. The company maintained market leadership in etch and deposition equipment with 61.2% share in critical process steps. Customer concentration risk increased with top 2 customers representing 43% of revenue. Management expects continued strong demand but warns of per

Financial Performance Overview: Revenue reached $17.2B (+17% YoY) with systems revenue up 15% to $11.9B and customer support revenue up 21% to $5.3B. Gross margin declined 110bps to 45.7% due to higher component and logistics costs. Operating margin compressed 80bps to 31.2% despite operating leverage. R&D spending increased 19% to $1.7B as the company invested in next-generation technology. Free cash flow grew 12% to $4.1B with 91% conversion rate.
Strategic Initiatives and Operational Changes: Lam expanded manufacturing capacity in Malaysia and Korea to diversify geographic footprint and improve supply chain resilience. The company increased inventory levels by $1.2B to buffer against shortages. New product introductions in selective etch and advanced packaging drove $2.1B in revenue from products <3 years old. Management restructured supplier agreements to secure long-term component availability but with higher costs. The transition to multi-year contracts provides better visibility but reduces pricing flexibility.
Market Position and Competitive Dynamics: Maintained 61.2% market share in critical etch processes and 58.7% in deposition despite increased competition from AMAT and TEL. Customer concentration risk increased with Samsung and TSMC representing 43% of revenue vs 39% in FY21. Win rates in logic/foundry increased 400bps to 72% but memory share declined 200bps to 65%. New entrants in China gained share in mature nodes but Lam retained >90% share in leading edge processes.
Operational Efficiency and Profitability: Gross margin pressure from 110bps decline to 45.7% partially offset by operating leverage and automation initiatives saving $180M annually. Factory utilization improved to 89% from 84% despite supply constraints. Inventory turns declined to 2.1x from 2.8x due to strategic buffer stock. Service margins expanded 140bps to 47.2% as installed base grew 12%. Management expects margins to stabilize in FY23 as pricing actions and cost reduction programs take effect.
Growth Catalysts and Material Risks: Key growth drivers include $600B in announced fab expansions through 2024, increased capital intensity at advanced nodes, and expanding services revenue from larger installed base. Primary risks are customer concentration, China trade restrictions affecting 31% of revenue, and sustained margin pressure from inflation. Supply chain constraints expected to persist through 2023. Management focused on qualifying alternate suppliers and expanding capacity to meet $19B+ revenue target for FY23.

Revenue

$17.2B ( YoY, QoQ) with systems $11.9B ( YoY), services $5.3B ( YoY)

↑ +17%

Gross Margin

(-110bps YoY) impacted by component and logistics costs

↑ 45.7%

Free Cash Flow

$4.1B ( YoY) with conversion rate

↑ +12%

Operating Margin

(-80bps YoY) despite operating leverage benefits

↑ 31.2%

Growth Indicators

in critical etch (-50bps YoY)

↑ 61.2%

Customer Count ↑Top 2 customers 43% of revenue (+400bps YoY)

Installed Base ↑85% service penetration (+300bps YoY)

R&D Investment ↑$1.7B (+19% YoY)

Inventory Turns 2.1x vs 2.8x prior year

New Product Revenue ↑$2.1B from products <3 years old (+35% YoY)

Key Risks

Customer concentration with top 2 at 43% of revenue (+400bps YoY)
China exposure at 31% of revenue with trade restriction risks
Supply chain constraints impacting margins through FY23
Working capital efficiency decline with inventory turns at 2.1x

Key Opportunities

$600B customer fab investments through 2024 expanding TAM
Advanced packaging $1B+ revenue opportunity by FY24
Services margin expansion to 50% through automation
Selective etch and GAA technology leadership

Bottom Line

Lam Research demonstrated strong execution in FY2022 with 17% revenue growth despite significant headwinds, though margin pressure and customer concentration risk warrant monitoring. The company's strategic investments in capacity, inventory, and R&D position it well to capitalize on substantial industry capex cycles. However, sustained component shortages and inflationary pressures may limit margin recovery through FY23. Key metrics to watch include services penetration, new product revenue, and working capital efficiency. The contrarian view suggests market underappreciates Lam's strengthening competitive position in selective etch and advanced packaging which could drive multiple expansion as these markets mature.