Lam Research

Updated: Jan 12, 2021

I am super excited to own Lam Research once again, after regrettably selling it in 2019. This is a company that I believe is in a less-cyclical industry now, as 5G, AI, Big Data, becomes normalized.


What is Lam Research?


In essence, Lam Research is a semiconductor equipment manufacturer. This company specializes in the fabrication of integrated circuits. The company has been around since 1980, I have been following the company since Martin Anstice was the CEO, he resigned because of the Me Too movement. Tim Archer, who was previously at Novellus (which LRCX bought), is at the helm now. I trust his management, and knowledge of the industry to execute on shareholders behalf. I want to review the most recent earnings call from the company, I have read tons of calls from this company before.


Latest Earnings Call (1Q2021)


To start, the company came in above guidance and estimates. The company has been executing on all fronts since I started covering them in 2018. I am not going to cover the China risks as much, because I have seen this game over and over with the company, the administration, and China. Leading edge in Foundry/Logic remains robust, equipment spending expectations continue to drive revenue for the foreseeable future. The goal of Lam is to provide a robust pipeline of technology to address complex edge devices. This is a continued secular trend that I have been seeing for over 2 years now. Lam notes how they are investing in two areas, the Equipment Intelligent Solutions and the Tech Leadership in high aspect ratio processing.


Doug Bettinger, the CFO. Revenue came in at $3.18b, and part of that revenue, was $1b from customer support business group. This shows that the company is proving their ability to grow the company as well as meet the advanced technological needs of their customers. Revenues were up 14% YoY, driving this YoY increase are secular trends such as 5G networks, smartphones, PC's, and gaming consoles, most importantly... Data Centers!


Revenue Breakdown

(Source: September Quarterly Presentation)


The company is also under a strong share repurchase program, as shown below in the 10-Q

(Source: October 27th, 2020 10-Q)


I fully expect more buybacks heading into 2021.


Down below below is a chart of the revenue over the past 5 years, you can see recently there was a dip. This was largely cause my a YoY decline in the semi market. (Source: FinBox)

This 2018-2019 semiconductor demand worked itself out, in 2018 Tim Archer said that near-term market trends reflected adjustments after a period of tremendous growth in semi demand.. I think this is about to take off again and we are just getting started int 2021+


Tim Archer on every call I have read always talked about how LRCX is positioned to win..they are executing very well. I think this name deserves a spot in a portfolio. One last financial note I would like to make, is the generous dividend. (I hope you guys see how I have positioned my portfolio lately...)


Lam Research is becoming a staple to the semiconductor industry. Is this the next "Home Depot" like company? LRCX has gained love from the Street and is a top pick at Mizuho. So is Anaplan at Needham.... wow.. more Fiducia picks making its way to the big guys!


Risks associated with investing in Lam Research, the one big one is China. Geographically China makes up a large % of their revenue as stated in their last report. With the Biden Administration, I would suspect we see less trade tensions than we did with President Trump. The blacklisting does not worry me - yet.


Down below, we can go over current estimates on Revenue and Earnings for Lam Research.


LRCX has been consistently beat their guidance and estimates for years.

(Source: Seeking Alpha)


Below, you can see where revenue has missed, but given the time period and oversupply, it makes sense.

(Source: Seeking Alpha)



I know there are a lot of visuals in this report, but for me, visualizing the financials helps a lot.


The two charts below, you can see where they took the Gross Margin & EBITDA hit during the trade war, where tariffs hurt as well as Chinese restrictions. I like the "comeback" play, and do not think it is baked into current price. I think fair value for Lam is somewhere between $115-120b, but we can sit here and debate valuation and fair value. I always reflect on older investors I know tell me how they had Amazon back in the 90s, Netflix early days, Apple early days, I am starting to lose faith in Discounted Cash Flow models, to each their own, but I truly believe those can only get you so far. The reason I still utilize them to an extent is more to understand and follow the financials much more closely.

I do believe they bounce back rather quick from this trough, as we saw last quarter, revenue grew 46.7% from same quarter last year. Impressive if you ask me, the demand for their technology is there.

 

Happy Investing,

Fiducia B


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