Lam Research (NASDAQ:LRCX) is a semiconductor equipment company that makes tools to etch the films that are used to build chips. Business has been booming this year, as memory-chip customers and others expand capacity. Analysts expect earnings for fiscal 2007, ending in June, to total $2.37 per share, climbing a further 34% to $3.17 next year. Why, then, are insiders selling so many shares?

According to Yahoo! Finance, insiders at Lam sold more than 2.5 million shares during the last six months, leaving total insider holdings at a comparatively measly 286,890 shares. In April and May of this year, CEO Stephen Newberry sold 1.2 million shares. That leaves him with a grand total of zero shares, although he likely still owns some stock options. Chairman James Bagley sold 132,000 shares during March and April, although he still owns 181,000. Senior Vice President Nicolas Bright has sold 410,000 shares since April, leaving him with a little more than 1,000.

Perhaps insiders are selling because they expect the strength in the memory segment to weaken. During the quarter ending in March, memory customers were responsible for 53% of new orders, and during the last quarterly conference call, management indicated that number should climb to more than 60% in the current quarter.

NAND flash manufacturers -- who make memory for digital cameras, MP3 players, and the like -- were responsible for about a quarter of the memory total. DRAM producers (RAM memory for computers) made up most of the rest. DRAM capacity is being added because of the hoped-for demand surge associated with the 2007 release of Microsoft's (NASDAQ:MSFT) Vista operating system, and the demand spike expected from the upcoming Sony (NYSE:SNE) PlayStation 3.

Meanwhile, NAND flash production capacity has grown so much that the number of bits produced will triple this year compared to 2005. After such strong growth, however, it wouldn't be too surprising to see the rate of investment slow down.

Lam's trailing-12-month P/E ratio is 23. While the P/E doesn't look particularly high given the forecast for greater than 30% earnings growth in the coming year, the combination of insider selling and a potential slowdown from the memory segment makes me wonder whether Lam will be able to meet analysts' expectations.

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Fool contributor Dan Bloom doesn't own shares in any company mentioned. Feel free to write with feedback. Microsoft is a Motley Fool Inside Value pick. The Fool has a disclosure policy.