Lam Research Corporation

Good day and welcome to the LAM Research's March Quarter Earnings Conference Call. At this time I would like to turn the conference over to Tina Correa, Corporate Vice President of Investor Relations. Please go ahead.

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 March 2020 quarter and our outlook for the June 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 made available later this afternoon on our website. With that, I will hand the call over to Tim.

Great. Thank you, Tina, and welcome, everyone. I hope you and your families are doing well in these very challenging times. Against the evolving backdrop of the COVID-19 pandemic, LAM delivered solid financial results in the March quarter. I want to start by discussing how we are managing through the current environment. The impact from the globally spreading virus began to materialize in our manufacturing and supply chain operations in the latter part of the March quarter, as shelter-in-place orders went into effect across many regions. We've responded effectively to these disruptions, and while near-term predictability remains more difficult than usual, I am pleased to say that our essential manufacturing facilities and labs are operating, allowing us to focus on critical customer deliverables. I am very grateful to our LAM employees and partners around the world who with tremendous commitment and dedication have risen to meet extraordinary challenges. Our focus at this time is concentrated in three key areas. First, our top priority remains the health and safety of our employees, our partners, and their families. From the start, we have actively sought the best available guidance to formulate our response plans, and we are complying with all public health directives in the locations in which we operate. All employees that can execute their roles remotely are doing so, and through our expansion of our IT infrastructure capabilities, we have maintained a productive remote work cadence. To protect our employees that are working onsite at LAM locations, we have implemented rigorous safety practices, including onsite temperature monitoring, mandatory use of personal protective equipment, and strict social distancing protocols. We are executing our business continuity plans throughout our manufacturing and supply chain network. Our capabilities are still limited compared to normal operation, but as the pandemic has impacted different parts of the world at different times and to different degrees, we and our supply chain partners are successfully leveraging our global footprint to support our customers' most critical priorities. Past investments we have made to complement U.S. production capability with operations in Korea and Taiwan have proven valuable as both of those countries have reported earlier stabilization of local COVID-19 conditions. Similarly, we have worked closely with our suppliers on their challenges in specific regions, and we are beginning to see signs of improving material availability. Third, we are focused on increasing the capability and expertise of our regional field teams to meet our customers' ongoing installed base needs, including installation of newly shipped systems. We anticipate that cross-region travel will be discouraged for at least the near future, and therefore we are working closely with customers to significantly enhance remote support capabilities using advanced data collection and information sharing technologies. Overall, I am extremely pleased with how our teams have executed to mitigate the impact of this global pandemic on our employees, our customers, and our business. I also recognize that we are very fortunate in this difficult time to be able to give back to our employees and the communities that have helped us build our strong company. In early April, we announced the creation of a $25 million relief fund to provide direct and immediate assistance to employees and others around us most impacted by the COVID-19 pandemic. I'm happy to say that in only three weeks, more than half of our committed relief funds have already been deployed to help people affected by this crisis. I'll now transition to our results in the broader industry environment. In the March quarter, we delivered revenue of $2.5 billion and earnings per share of $3.98. Both results were below our original guidance, which we withdrew late in the quarter as we saw production and supply constraints emerge due to shelter-in-place orders. Customer demand in the quarter was unchanged from our original view. We believe that our revenue in the near term will be determined primarily by the capacity of our global manufacturing and supply chain network, as social distancing restrictions are expected to continue for the next several months in locations in which we and our suppliers operate. While we are currently seeing improvements in both our own operations and those of our suppliers, risks and uncertainties related to the COVID-19 crisis remain. Consequently, we will not be providing our usual financial guidance for the June quarter. Doug and I will, however, provide our best assessment of the environment in our comments and Q&A. From our perspective, Customer demand for equipment continues to remain very strong in the first half of 2020. We believe that WFE spending is largely being driven by customers investing in strategic initiatives, including both foundry and memory technology transitions that will be critical to both capability and competitiveness when global markets eventually emerge from the effects of the pandemic. The equipment industry is currently supply constrained. We exited the March quarter with record backlog and would expect to fulfill this unmet demand over the coming months. Looking beyond the near-term impact, we remain strong believers in the underlying fundamentals and resiliency of the semiconductor industry. Semiconductors have become so embedded into nearly every industry that we expect broad portfolio semiconductor equipment companies such as LAM to see offsetting areas of strength and weakness to help support results. This was our experience through the trough of the recent industry cycle, where we saw increased foundry and logic spending offset memory weakness. Despite a 40% decline in memory spending in calendar year 2019, our revenues held up well compared to prior cycles. As we assess the potential future impact of COVID-19 on our business, recent customer commentary points to cloud and enterprise strength as an offset, at least in part, to the weakness that may be seen in more consumer-oriented end markets like smartphones and auto. The need for equipment and capacity to support work-from-home initiatives is causing cloud service providers to increase CapEx, creating the potential for a surge in server demand. Third-party estimates suggest that cloud capacity would need to increase tenfold to service the peak workloads seen as shelter-in-place rules went into effect. Although these heightened workloads are likely a short-term phenomenon, this event will underscore the need for companies to invest more in infrastructure and business continuity capabilities as the data economy and our dependence on technology continues to expand over time. The PC and server markets account for nearly half of DRAM and NAND bit demand on average. And when you also consider that memory customers underinvested in capacity additions in 2019, causing the industry to exit the year with supply growth well below long-term demand, we believe there is good reason to be confident in the healthy fundamentals of the memory market, near-term uncertainty notwithstanding. Longer term, our focus is on executing the strategy we outlined at our Investor Day event in March. Our growing installed base business serves as a strong and stable foundation for company performance. And as we committed, we have started disclosing our customer support business group, or CSBG, revenue this quarter. Doug will cover this in more detail, but I wanted to highlight that in the March quarter, our installed base revenues grew faster than installed base unit growth. consistent with our objective to increase revenue capture per tool with additional value-added service offerings. Within CSBG, we also continue to see strong activity in our Reliant business, which grew for the seventh consecutive quarter and reached yet another record level. At this point, we see our CSBG business poised for another growth year in calendar 2020. From a share gain perspective, we are executing well on both penetrations and defenses so far this year. In Edge, we've seen wins across all segments, DRAM, NAND, and Foundry and Logic. At our Investor Day event, we launched our innovative new Sensei Edge platform targeted at both widening our lead in critical applications and strengthening our competitiveness in the semi-critical space. COVID-19 related manufacturing and supply chain disruptions have set our schedule back by a month or two from our original plan, the customer pull for SenseSci has strengthened since launch. SenseSci was designed to deliver advanced equipment intelligence, data analysis, and self-maintenance capabilities to minimize required on-site human intervention with the system. Customers have a heightened awareness of the value these advanced capabilities can deliver, and we expect they will look to accelerate their adoption of smart fab technologies. Sensai is well positioned to deliver both the technology and data collection capabilities our customers need to be successful. In deposition, we're focused on served available market expansion opportunities that we believe can be accessed by accelerating conversions from older process technologies to our highly productive enhanced atomic layer deposition or ALD solution set. We continued to execute on these opportunities in the March quarter with additional ALD metallization wins for advanced logic nodes and new dielectric gap fill penetrations in 3D NAND. In both cases, we displaced older process technologies from our competitors with a more extendable LAM solution. Overall, we are confident in the strength of LAM's position in the market and our opportunities for growth when the current crisis subsides. So to wrap up, the company is executing well during a very difficult time. Our global teams are working tirelessly to mitigate operational impacts from COVID-19. And while near-term visibility is low, we believe that long-term secular demand for semiconductors will continue to drive sustainable WFE growth across cycles. Thank you all again for joining and for your support. I'll now turn it over to Doug.