"The sun'll come out tomorrow ...." -- Broadway musical Annie.
Add Lam Research
Results for the September quarter don't hold up especially well on an annual comparison. Sales were down 23% on lower shipments, and earnings, in turn, were down about 45%. While new orders perked up slightly from the prior quarter, they were down about 24% from the year-ago level.
It's not all bad news, though. Despite being in a cyclical rough patch, the company still generated positive free cash -- even more than in the year-ago period, despite the lower earnings. In my view, to continue generating cash flow (and buying back stock, as well) when times are relatively tough is a sign of two things: Management has figured out how to manage through good and bad times. And when things do turn around, the company should have considerable cash-flow leverage.
I do believe that an industry turnaround is a "when," not an "if," event. After all, none of us is especially willing to live without our gadgets, and those gadgets demand increasingly sophisticated chips. While chip makers and contract manufacturers can delay new equipment purchases, they'll eventually have to give in and buy new gear to stay competitive.
Since Lam gets close to half of its business from memory chip companies (and another big chunk from contract manufacturers), I suppose it's fair to suggest that Lam's fortunes are tied to those of the consumer electronics space, including portable gadgets, cell phones, and computers. That may be true, but it might also be irrelevant. For better or for worse, I would expect Lam to trade somewhat in tandem with peers like KLA-Tencor
Lam is also a bit of an oddball when it comes to valuation. Despite solidly competitive financial metrics (due in part to outsourcing to companies like Solectron
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).