Lam Research Corporation

Good day and welcome to the Lam Research Corporation's December quarter 2019 financial results conference call. At this time, I would like to turn the conference over to Ms. Tina Correa, Corporate VP of Investor Relations.

Ma'am, please begin. 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 December 2019 quarter and our outlook for the March 2020 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 disclosed in 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, I will hand the call over to Tim.

Thanks, Tina, and welcome, everyone. In the December quarter, LAM delivered revenues and diluted earnings per share above the midpoint of guidance. marking another quarter of solid execution and closing out a year of strong performance in calendar 2019. Consistent with our comments throughout this year, we enter 2020 with increasing momentum and an improved spending mix environment, which we believe will lead to outperformance by LAM. I have now completed my first year as CEO of LAM Research, and I am incredibly proud of what our people have achieved. Underpinning our strong financial results this past year, has been a company-wide focus on execution and an emphasis on our culture where all employees can perform their best. I want to thank LAMS employees across our global organization for their efforts and, of course, our partners and customers for their valued support. I also want to take a moment to address the coronavirus situation. Our concern, first and foremost, is with the health and well-being of our employees, customers, and partners, and with this in mind, we have implemented precautionary measures within our global business operations. Additionally, we are donating to Chinese relief efforts to support the people and communities impacted by the coronavirus outbreak. Now turning to our business results. In calendar 2019, we generated solid operating cash flows, and at the same time, we invested a company record in research and development dollars to fuel technology innovation and product differentiation. Our EPS performance, the second best in the company's 40-year history, was especially noteworthy given that memory spending declined significantly year over year in 2019. The impact of lower memory spending was partially mitigated by record revenue from our customer support business group, highlighting the importance of our recurring spares and service opportunity to the overall quality of earnings of the company. In 2019, we also saw outstanding execution in our product organizations. We grew our revenue share of WFE spend in memory and foundry logic. And we laid the foundation for additional gains as we recorded our best ever performance in net penetration and defense application wins as measured by revenue potential over the next three years. We are winning by focusing on high volume manufacturing solutions for emerging technology inflection challenges, including those associated with new scaling architectures, new memory technologies, and new materials. We are capitalizing on the learning from our installed base of tools that today enable some of the industry's most critical etch and deposition applications. For example, for the three most critical applications in 3D NAND, our Strata, Altus, and Flex tools each process well over 1 million wafers per month in high volume manufacturing, allowing us to partner early and in a unique way with our customers on next generation needs. In 2019, this led to the addition of new products to our portfolio, such as the VectorDT, which is designed to address wafer stress problems encountered during the high volume production of 3D NAND stacks of 96 layers and above. we enhanced the capabilities of our KORONIS product family to improve device yield at the wafer edge by depositing encapsulating layers for bevel protection. These products expand our served share of WFE spend, but just as importantly, they exemplify our commitment to our customers' success. In 2019, we improved to the number one or number two position at all of our largest customers that provide a competitive ranking of their suppliers based on detailed quality, support, and performance scorecards. In part, this improvement is due to our investment in productivity-enhancing upgrades for our installed base. For instance, Corvus wafer edge solutions have become key differentiators for our conductor and dielectric etch systems in high-volume manufacturing and have been instrumental in helping our customers reduce cost of ownership. We announced in 2019 a Corvus-enabled self-maintaining edge tool that ran for one year in high-volume manufacturing without human intervention. Multiple customers are now upgrading their installed base tools to include this high-value added capability. In 2019, we highlighted heterogeneous integration and advanced packaging as new areas of opportunity to leverage our product portfolio and 3D learning to drive growth. In the December quarter, we built on our growing momentum in this space with additional wins for our Sabre 3D electroplating system and multiple advanced packaging customers. With these latest wins, we estimate that we have gained more than 15 points of market share in the last two years, and we have firmly established ourselves as the technology leader in the increasingly important through silicon via market. Another area of growth for the company has been in atomic layer deposition, or ALDs. Our ALD solutions are gaining significant traction in the market by delivering best-in-class film properties along with high productivity and low defects. Due to the inherent advantages of higher film quality and conformality, our striker ALD oxide systems are replacing older process alternatives such as spin-on dielectric and SACVD for critical applications, pulling more WFE spending into our served market. Similarly, RC scaling requirements are driving increased demand for our single wafer striker carbide and Altus ALD metallization systems. When used for low K carbide liner spacer applications, our striker system has been able to achieve 30% better RC properties versus competing batch tools. For metallization, we closed out 2019 on a high note with significant wins in Logic Foundry, for our ALTA systems as customers look to replace the conventional barrier-fill sequence with an integrated ALD approach to lower device resistance in a cost-effective way. Across all products, we exited 2019 with approximately 61,000 chambers in our installed base. Our installed base revenues grew year over year and reached record levels in 2019, with significant contribution from our Reliant business which also reached record levels. Productivity upgrades and solutions grew more than 30% year over year, as we have worked to help customers enhance the performance of their existing assets. Furthermore, we signed several new multi-year customer support contracts. These multi-year contracts enable LAM to significantly reduce customers' running costs while generating a recurring revenue stream for LAM. Now turning to WFE. We estimate 2019 WFE ended in the $46 to $47 billion range, slightly higher than our prior mid $40 billion estimate. The increase was driven predominantly by higher foundry logic spending. For calendar 2020, assuming no material impact from coronavirus on our full year outlook, our view calls for WFE spend in the mid to high $50 billion range, supported by sustained strong spending in Foundry and Logic, and significantly for LAM, improved spending and memory led first by NAND. Overall, we expect spending and memory in Foundry Logic segments to be up year on year in 2020. To wrap up, LAM delivered strong financial performance in calendar 2019, and as our March quarter guidance suggests, we are in a great position to drive higher in 2020 with the improvement in memory spending. LAM's product pipeline is very strong with more innovation on the way, and we look forward to sharing more with you at our upcoming Investor Day on March 3rd. Thanks, and now here's Doug. Great.