Lam Research Weathers Industry Headwinds for Another Quarterly Beat

Lam Research (LRCX -0.28%) announced its latest quarterly results on Wednesday after the market closed. The semiconductor-processing equipment specialist detailed smaller-than-expected revenue and earnings declines, largely as it focused on operational execution amid continued weakness in the broader semiconductor industry.

With shares up more than 6% in Thursday's afternoon trading as of this writing, let's take a closer look at what Lam accomplished over the past few months, as well as what investors should be watching in the quarters ahead.

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Lam Research results: The raw numbers

Data source: Lam Research. *For the quarter ended March 31, 2019.

What happened with Lam Research this quarter?

• Adjusted for items like restructuring expenses and acquisition costs, Lam's (non-GAAP) net income was $584 million, or $3.70 per share.
• These results compared favorably to Lam's guidance provided three months ago, which called for adjusted earnings of $3.21 per share on revenue of $2.4 billion.
• Adjusted gross margin was 45.1%, down sequentially from 46.3% in the December 2018 quarter.
• Deferred revenue (excluding $80 million in estimated shipments to Japan given its unique revenue-recognition requirements) declined 10.5% sequentially from last quarter to $441 million, and deferred profit fell 12.5% to $378 million.
• By geography, revenue in Korea comprised 25% of total sales, Taiwan was 23%, Japan and China were each 17%, the U.S. was 9%, Southeast Asia was 5%, and Europe was 4%.
• Cash, cash equivalents, and short-term investments climbed from $3.9 billion last quarter to $6.4 billion at the end of March. This change was driven by the issuance of $2.5 billion of senior notes during the quarter.
• Long-term debt was roughly $3.8 billion at the end of the quarter.

What management had to say

"Lam's March quarter results demonstrate strong execution in a challenging near-term industry environment," stated Lam Research CEO Timothy Archer. "By continuing to focus on customer needs and investing to extend differentiation in our product and services portfolio, Lam is well positioned to emerge stronger as market conditions improve."

During the subsequent conference call, Archer added:

Industry conditions are directionally unchanged from our January call. We continue to expect customer [wafer fabrication equipment] spending for calendar year 2019 to be in the low $40 billion -- though since our last call, we now see a marginal downtick in memory spending offset by slightly better expectations in Foundry and Logic. Also consistent with our prior commentary, we expect memory supply growth as we exit 2019 to be below the long-term demand trend line for both, NAND and DRAM.

Lam CFO Doug Bettinger also noted the company's bottom-line beat largely stemmed from a lower tax rate realized during the quarter, helped by favorable tax implications related to annual employee stock grant vesting.

Looking forward

Still, investors are more than happy to take that beat coupled with Lam's strong forward guidance. For the June 2019 quarter, Lam expects revenue in the range of $2.20 billion to $2.50 billion, with adjusted gross margin from 44.5% to 46.5% and adjusted net income per share of $3.20 to $3.60. Here again -- and though we don't usually pay close attention to Wall Street's demands -- the midpoints of both ranges stand above consensus estimates for current-quarter earnings of $3.33 per share on revenue of $2.34 billion.

In the end, Lam is appropriately focused on handling the factors of its business within its control and should ultimately emerge stronger for it when the industry takes a turn for the better. And the stock is rightly climbing in response.