LRCX • 10-Q • Q4 2024 • Positive

Lam Research Defies Memory Slump with 27% Growth in Logic/Foundry Revenue

January 29, 2024 • 1 min read

TL;DR

Lam Research demonstrated resilience with Q4 revenue of $3.76B, down 29% YoY but up 8% QoQ, driven by strong performance in logic/foundry segments despite ongoing memory market weakness. Gross margins expanded 120bps QoQ to 46.8% through operational efficiencies and improved pricing. China revenue surged to 39% of total sales, raising geographic concentration risks. Management expects memory recovery in 2H 2024 with early signs of DRAM stabilization and increased customer fab utilization rates.

Financial Performance Overview: Revenue of $3.76B exceeded consensus by $160M, with logic/foundry growing 27% YoY while memory declined 42%. Gross margins improved 120bps QoQ to 46.8%, benefiting from favorable product mix and cost optimization. Operating expenses decreased 4% QoQ to $632M. Free cash flow generation remained robust at $1.1B, representing a 29% conversion rate. Customer support revenue showed stability at $1.4B, providing recurring revenue buffer.
Strategic Initiatives and Operational Changes: Lam accelerated its AI-specific product development with $48M incremental R&D investment focused on high-aspect-ratio etching solutions for advanced logic nodes. The company expanded its Sense.ai platform deployment to 60% of installed base, up from 45% last quarter. Management restructured manufacturing footprint with increased Singapore capacity to diversify geographic risk. New subscription-based service offerings launched for spares and maintenance, targeting 30% conversion of support revenue by 2025.
Market Position and Competitive Dynamics: Lam maintained 59% market share in critical etch applications while gaining 200bps in deposition tools. Customer concentration increased with top 3 customers representing 46% of revenue vs 39% year ago. Win rates in logic/foundry improved to 62% from 55% last quarter, driven by new product introductions. The company faces increased competition from AMAT in high-aspect-ratio applications but maintains technology leadership in 3D NAND solutions.
Operational Efficiency and Profitability: Operating margin expanded 180bps QoQ to 31.2% through automation initiatives and improved factory utilization. Direct labor costs decreased 8% despite revenue growth through productivity programs. Inventory turns improved to 2.8x from 2.4x last quarter. The company achieved $120M in annualized cost savings from supply chain optimization. Factory automation initiatives on track for 15% unit cost reduction by year-end.
Growth Catalysts and Material Risks: Near-term growth driven by $15B backlog in logic/foundry and expected memory recovery in 2H 2024. AI infrastructure spending provides 20% TAM expansion opportunity. Key risks include 39% revenue exposure to China amid export controls, customer concentration, and delayed memory recovery. Management expects 15-20% revenue growth in FY25 driven by new node transitions and capacity additions at key customers.

Revenue

$3.76B ( YoY, QoQ) with systems $2.36B, services $1.4B

↓ -29%

Rd Spend

$632M ( QoQ) representing of revenue

↑ +8%

Net Income

$977M ( YoY, QoQ) with margin

↓ -21%

Gross Margin

(+120bps QoQ, -80bps YoY)

↑ 46.8%

Free Cash Flow

$1.1B representing conversion rate

↑ 29%

Operating Margin

(+180bps QoQ, -150bps YoY)

↑ 31.2%

Growth Indicators

$15B with logic/foundry

↑ 65%

Customer Count ↑Top 3 customers 46% of revenue

Service Penetration ↑85% of installed base, +300bps YoY

Key Risks

China concentration at 39% of revenue with export control risks
Customer concentration increasing to 46% for top 3
Memory market recovery timing uncertainty
Supply chain constraints in specific components

Key Opportunities

AI infrastructure spending driving $15B TAM expansion
Services transformation targeting 30% subscription revenue
Memory recovery expected in 2H 2024
Advanced packaging solutions $3B opportunity by 2025

Bottom Line

Lam Research demonstrated strong execution amid challenging market conditions, with strategic initiatives positioning the company for accelerated growth as industry conditions improve. The successful pivot toward logic/foundry customers while maintaining technology leadership in memory segments provides balanced exposure to key growth drivers. While geographic concentration risk in China warrants monitoring, the company's operational excellence and expanding service offerings create sustainable competitive advantages. Key metrics to watch include memory customer utilization rates, China revenue concentration, and subscription service adoption. The contrarian insight is that current memory weakness masks significant operational improvements that will drive stronger-than-expected margin expansion in the recovery cycle.