Apple and Lam Research

Two mind blowing reports from two fantastic businesses. People say Apple is dead; I am saying they are just getting started! First $100b quarter in revenue! Below, I will break down the earnings transcripts of both Apple and Lam Research in a condensed report for your informational purposes.

Lam Research:

Absolutely crushed the numbers, and I feel they are only getting started on this strong secular trend of semiconductors. I have been following them since 2018 when Martin Anstice was CEO. 2Q numbers came in at $6.03 per share which beat consensus estimate of $5.72 by 5.42%. This represents a 50.37% YoY increase in earnings from $4.01 last year same time. Revenue came in at a whopping $3.46 billion which beat consensus estimates of $3.34 billion by 3.59%; that is a 33.9% increase over the $2.58b from same quarter last year.

Guidance is the key part normally. Lam Research is guiding for Q3 adjusted EPS at $6.15-$6.95 vs $5.72 estimate, and sales to be $3.7b +/- $200m. So, I would assume or estimate that they may come in around $7+. Let us review some key points I find valuable in the earnings call. You can read it yourself here:

China domestic spending for the year was in the $10b+ range as stated by Tim Archer. This represents both a risk and a blessing. Risk, because China / US Trade relations have been rocky the past few years, and a blessing because they seem to be far behind on tech they still need to rely on the amazing United States of America businesses. LRCX sees strong momentum across each part of their business- WFE growth to be in the high 60s to mid $70b range. This report highlights strong spending in DRAM and increased investment in Foundry/Logic (as indicated by customer commentary). Spending biases are in the 1H so far.

"We expect strong demand from a diverse set of end use markets to positively impact semiconductor and semiconductor equipment growth in 2021 and beyond."

An example of this is the massive global gaming market. I want to highlight the sub-segment of the gaming market. The consoles and the number of units shipped annually are smaller than the number of smartphones sold. Why does this matter? Well, Lam says a GPU (Graphics Processing Unit) for consoles is roughly 4x the size of a smartphone app processor. This is driving incremental WFE. Memory and storage is also driving DRAM bits and employ SSD-based storage vs HDD in previous gen consoles. Semis. Are. In. Everything. I believe this is a less cyclical industry than it once used to be and I have been saying this for years. One area I liked to highlight in previous years was their growing Customer Support Business Group. The installed base has reached 66,000 chambers and the CSBG revenue growth exceeded chamber growth by a factor of 2x+ for the 2020 year. Record revenues. Strength is driven by investments in all device segments. Customers ramped in order to meet the demands of the current secular trends we all highlight (Data Centers, Smartphones, PCs, gaming consoles, IoT and automotive). Revenue is driven by both wafer equipment, but continuous growth of installed base. LRCX is adding value here by delivering spare parts, upgrades, refurbished tools and more advanced service offerings --> this is pretty impressive, sort of sounds like Apple and their installed base? To an extent.... not Apples to Apples obviously. But management focus on growing that services segment is note worthy.



I have so much to stay here, but I will keep it as simplified as I can. WOW! This quarter blew me away. $111.4b in revenue vs $103.28 billion consensus, 21.33% YoY increase. Earnings came in at $1.68 vs consensus of $1.41, 34.4% increase YoY. Incredible numbers from a multi trillion dollar company. Yes, I said TRILLION.

Let us dig into the earnings transcript and pick out some interesting information. Apple saw double digit growth across every single product category. Record revenue in each geographic segment as well. Apple has a massive installed base of active devices with growth accelerating sitting at 1.65 BILLION devices. iPhone grew 17% YoY (oh, but the iPhone is dead!!), strong demand for the iPhone 12 --> active installed base is over 1b. Wearables, Home and Accessories grew 30% YoY- holiday demand for the latest Apple watch. Deep integration of hardware, software, and services are defining Apple and their approach. Services hit a record $15.7b. App Store Small Business Program reduces the cost on the sale of digital goods and services to 15% for small businesses earning less than $1m per year.

  1. Product revenue $95.7b, up 21% YoY

  2. Services revenue $15.8b, up 24% YoY (Gross Margins at 68.4%)

  3. Net income $28.8b, up 29% YoY

  4. Diluted EPS was $1.68, up 35% YoY

  5. OCF was $38.8b, improvement of $8.2b or 27%

These are mind blowing numbers from a $2.34 trillion dollar company. There has always been this floating bear thesis that Apple is overvalued relative to their growth, but I think what bears fail to realize is the impact and depth of the ecosystem Apple has. Get your head out of the spreadsheet models and focus on the 35k foot view. Apple has built a giant wall around their ecosystem mixing hardware and software into subscription bundles. This deserves a market premium in my opinion. Customer satisfaction of 98% for the iPhone 12 family. Paid subscriptions exceed Apple's target of 600m by the end of calendar 2020. Apple has more than 620m paid subscriptions across the services which is up 140m from just a year ago. 90% of stores in the United States accept Apple Pay, an easy touchless experiences.

"Last quarter, Mitsubishi UFJ Bank, one of the largest banks in the world, announced that it will be replacing 75% of its fixed phones with iPhones. By doing so, it expects to realize significant cost savings while providing a secure mobile platform to employees." -Luca on Q1 2021 Earnings Call

This is impressive. Apple is eating into enterprise.. I'm holding my call options.

I believe Apple will continue to fire on all cylinders. The Q&A section of this call is imperative to read as well. I highly suggest reading it here:

Apple is a one of a kind company, innovative (despite popular opinion), and I cannot wait for them to enter the VR world.. I am actually really tempted to buy an Oculus. Screw it, I just bought one.

Fiducia B

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