Lam Research Corporation

Good day, and welcome to the September 2019 Quarter Financial Call for LAM Research. At this time, I'd like to turn the conference over to Ms. Tina Correa, Corporate Vice President of Investor Relations. Please go ahead, ma'am.

Thank you, Operator. Thank you, and good afternoon, everyone. Welcome to the LAM Research Quarterly Earnings Conference Call. With me today are Tim Archer, President and Chief Executive Officer, and Doug Bettinger, Executive Vice President and Chief Financial Officer. During today's call, we will share our overview on the business environment and review our financial results for the September 2019 quarter and our outlook for the December 2019 quarter. The press release detailing our financial results was distributed a little after 1 o'clock p.m. Pacific time this afternoon. The release can also be found on the investor relations section of the company's website, along with the presentation slides that accompany today's call. Today's presentation and Q&A includes forward-looking statements that are subject to risks and uncertainties reflected in the risk factors disclosures of our SEC public filings. Please see accompanying slides in the presentation for additional information. Today's discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. A detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings press release. This call is scheduled to last until 3 o'clock p.m. Pacific time. A replay of this call will be available later this afternoon on our website. With that, let me hand the call over to Tim.

Thanks, Tina, and welcome, everyone. In the September quarter, LAM delivered solid results. Our continued execution of commitments combined with our guidance for the December quarter, increases our conviction that LAM is in a strong position to outperform as wafer fabrication equipment spending inflects higher. Doug will cover the financial results in more detail shortly, but I am especially pleased with the demonstrated earnings power of the company. At the midpoint of our December guide, calendar year 2019 diluted earnings per share will be the second highest in our history, despite the current industry cycle. I would like to take this opportunity to thank our customers and partners for their continued support of LAM and our employees throughout the world for their contributions to these results. From an industry perspective, we have revised upward our view on 2019 WFE to the mid $40 billion range versus our prior estimate of down mid to high teens percentage year on year. which implied a low $40 billion level of spending. We are beginning to see improvement in the memory market, led first by NAND. NAND's demand dynamics are improving, and oversupply conditions should continue to abate as we move through the December quarter. We expect to exit 2019 with a bit supply growth rate for NAND of approximately 30%, which is well below our view on long-term demand. And as a result, NAND inventories are expected to decline to normalized levels in the first half of calendar 2020. While the timing of a memory equipment spending recovery is always hard to predict, we are encouraged that customers continue to manage supply growth even as we're starting to see favorable end market demand indicators. This is a sign of a healthy industry and a good setup for increased NAND spending in 2020. On the DRAM front, inventories have remained elevated, and we do not expect them to reach normalized levels until the second half of 2020. However, we see positive demand catalysts ahead in both the server and smartphone markets. A server CPU upgrade cycle is expected to begin next year with increased adoption of new generation platforms from leading manufacturers. For smartphones, major vendors are planning to launch additional 5G models, which is expected to drive content growth for the overall smartphone market in 2020. Turning to Foundry and Logic, spending in this segment has been strong throughout 2019, and based on recent customer commentary, looks to remain so heading into next year. Diverse end market applications are driving higher levels of Foundry and Logic spending. Moreover, challenges in scaling functional blocks such as SRAM and Logic devices are leading to increases in die sizes and these in turn are accelerating changes in device architectures and chip manufacturing technologies. LAM's growing position with key Foundry and Logic customers has positioned us to incrementally benefit from these secular trends. Competitively, we are executing at a high level. Based on the midpoint of our December guidance, LAM's 2019 Foundry and Logic revenues are set to significantly outgrow announced customer CapEx plans. The share gains we are now seeing in the Foundry and Logic segment are the result of close customer collaboration and strong product execution over many years and multiple technology transitions. They are evidence of the benefit of sustained investment in R&D throughout industry cycles. Looking at the market as a whole, including Memory, Foundry, and Logic, We are on track in 2019 to deliver our best ever penetration and defense performance, as measured by net forward-looking three-year revenue opportunity for application decisions made in this calendar year. A key contributor to our strong penetration and defense performance has been continued focus on technologies that enable 3D device architectures, which are becoming increasingly important to performance, and cost scaling across all market segments. We invested early in 2D to 3D inflections, and as these transitions are occurring, we are seeing expansion in both our SAM and market share. Etch and deposition processes are critical enablers for 3D scaling, and we are investing aggressively to deliver the technology and productivity innovation required to satisfy customer roadmaps. As evidenced by our penetration and defense wins this year, we believe we are extending LAM's leadership in this space. In 3D NAND, we have successfully defended 100% of our memory hole dielectric etch positions and continue to be the supplier for this application at all 3D NAND manufacturers. We are also winning 3D NAND applications where productivity is the primary point of differentiation. Notably, LAM has been the first to deliver production-proven edge yield solutions for etch. In this quarter, we used our Corvus tunable edge hardware on our flex dielectric etch system to improve profile tilt uniformity and win an important productivity-sensitive slit etch application. On the conductor etch front, we won a 3D NAND application for a new vertical architecture that reduces die size and is a technical solution for lowering bit cost. In deposition, we recorded an important 3D NAND win for the vector DT, which deposits backside films to control stress as layer counts increase. Another significant deposition win was for our striker ALD tool, used to deposit high-quality liners and gap fill as aspect ratios get higher. We also continued to extend our 3D expertise and position outside of the 3D NAND space. including in rapidly growing markets such as advanced packaging and heterogeneous integration. Over the last three years, the installed base for our Sabre 3D electroplating system has grown by more than 70%, and we are the leading electroplating supplier for TSV for DRAM, CMOS image sensor, and logic devices. Our Sabre 3D electroplating solutions embed best-in-class technology, backed by years of high-volume production experience. With each successive win across our served markets, the installed base of LAM equipment continues to grow, resulting in an expanding long-term revenue opportunity for our customer support business. To create value for customers over the entire lifecycle of tool ownership, we are actively developing upgrades and advanced services targeted at extending technical capability and increasing productivity from existing installed base assets. These offerings help our customers reduce their total costs, and as a result, we continue to see growing demand. Revenues from our customer support business grew in the September quarter on a sequential basis, and our Reliant business achieved record quarterly revenue for the third quarter in a row. We expect 2019 overall will be another growth year for our customer support business. Looking at our year to date performance, we have made tremendous progress against our objectives of expanding our spam, increasing our market share and building our installed based business. Importantly, 2019 has been a year where lamb has strengthened its position in the foundry and logic segment. Also, With early indications of improving NAND demand and positive catalysts on the horizon for DRAM, we are increasingly optimistic that calendar year 2020 is setting up to be a year of outperformance for LAM as spending mix moves back in our favor. Thanks again for joining today, and now here's Doug.