Lam Research Corporation

Good day and welcome to LAM Research's June Quarter Earnings Conference Call. At this time, I would like to turn the conference over to Tina Correa. 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 June 2020 quarter and our outlook for the September 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.

Thank you, Tina, and welcome, everyone. The global pandemic, volatility in the macroeconomy, ongoing U.S.-China tensions, We are operating this year amid tremendous uncertainty and unprecedented challenges impacting people all over the world. We see technology playing a critical role, keeping people connected, enabling businesses to remain productive, and accelerating solutions to the myriad of problems the world is confronting. I am very pleased with how LAM's employees have demonstrated care for each other and our communities and have responded with great effort support our customers' success. As a result of their outstanding execution, today we are reporting strong performance for the June period and guiding to another quarter of solid growth. Specific to the COVID-19 pandemic, our teams have demonstrated agility and resolve in establishing safe and effective protocols to perform essential work in our facilities while also enabling the majority of our employees to remain productive while they continue working remotely. We have ramped and stabilized our supply and production capability after an initial period of disruption to support revenues greater than $3 billion per quarter. As you have seen from our guidance, we will be nearing record output levels for the company in the September quarter, highlighting the effectiveness of our business continuity plans, our global manufacturing network, and our trusted supply chain partners. We will continue to capture learnings to further improve business resilience and better serve our customers in the future. But overall, I am proud of what our employees and partners have accomplished during this challenging period. Before discussing our results for the quarter, I wanted to comment briefly on our review of the new rules regarding sales of semiconductor equipment into China. China remains an important part of the global semiconductor ecosystem, and LAM has a solid track record of business in this market. We are closely monitoring and complying with all regulatory directives, and based on our assessment, we currently see no material financial or business impact from the new rules. Turning now to the June quarter. Revenue in EPS came in above our expectations. Operating margins improved sequentially, and we generated over $800 million in cash from operations. As the September quarter guidance indicates, we see continued positive momentum as we move into the second half of the year. The results also represent sustained progress towards our long-term objectives. As mentioned earlier, our guidance indicates we are nearing prior record levels of revenue, but we believe that our opportunity for growth remains robust. Key points supporting our view include, one, Memory investments must continue to grow to meet secular demand drivers. LAM's memory mix year-to-date, at slightly below 60% of system revenues, is well below historic highs. We expect our strong memory position to drive outperformance in share of WFE spend as NAND and DRAM investment levels increase. Two, our actions to improve our foundry logic SAM and SHARE are yielding results. with our revenue growth in this segment outpacing FoundryLogic WFE growth cycle to cycle. And three, our customer support business group at 34% of total revenues year to date is an increasingly greater contributor to our top line than in the past. Looking at the broader WFE environment, our outlook remains strong. While COVID-19 has created volatility for the semiconductor industry, In a larger sense, it has underscored the rapidly growing reliance of individuals and businesses on semiconductors and the products and technologies they enable. For example, we are seeing accelerated growth in Internet video traffic as video becomes embedded in a broad range of business and consumer activities. This is manifesting currently in work from home, e-learning, telehealth, online gaming, and, of course, video streaming. Nearly two-thirds of global consumers cite video as their preferred medium for obtaining information. The demand that this places on data transport, analysis, and storage will continue to rise. Mobile networks are migrating to 5G, video quality is doubling from 4K to 8K, and cloud and enterprise data centers are expanding to support the enhanced data traffic. A 2X resolution improvement in mobile video drives roughly a 70% increase in NAND storage content. And newer server architectures are expected to have over 30% more memory channels versus prior generations. Despite the recent downtick in smartphone units, our own assessment of NAND content in smartphones in calendar year 2020 has trended higher versus our prior baseline due to a greater mixed shift towards 5G devices. We are also seeing increased NAND demand related to new product cycles in the game console segment, with some of the new platforms adding up to a terabyte of SSD-based storage. Launches of the new game consoles are expected to add low to mid single digit percent growth to overall NAND bit demand in 2020. These demand drivers, in combination with increasing semiconductor manufacturing complexity, create a compelling setup for sustained strength in WFE spending. In 2020, we estimate WFE to be in the mid to high 50 billions, driven by growth in both memory and foundry logic investment. Although we have seen underlying demand drivers fluctuate due to the challenges presented by the COVID-19 pandemic, our current WFE forecast in total is very close to what we expected at the beginning of the year. From a mix perspective, we see memory share of WFE growing in 2020 off a low 2019 level. This trend should continue into 2021, particularly in DRAM, where we believe inventory levels will be lower as we get to the end of 2020. In both NAND and DRAM, we see bit supply growth lower than long-term demand this year and NAND recovery progressing ahead of DRAM. By geography, Domestic China customers continue to be a strong source of WFE demand, with expected calendar year 2020 WFE spend in the $10 billion range. Year-on-year growth in China investment is predominantly driven by NAND and foundry segments. Looking more broadly at longer-term global WFE spend, we are increasingly confident that the accelerating digitization of the economy along with the rising complexity of semiconductor manufacturing at each technology migration, is establishing a higher base of WFE spending at the $60 billion level. With this outlook, we are focused on delivering on our objectives to drive greater than 50% growth in revenue and more than a doubling of EPS by 2023-2024 compared to our 2019 results. Key to achieving these goals is to execute on the SAM expansion, market share growth, and installed base revenue opportunities we laid out at our investor day in March. On the system side, we continue to see positive momentum across our businesses. The June quarter marked a record for net penetration and defense wins in our etch business. As measured by three-year forward revenue, which is a metric we began tracking internally few years ago. We achieved key wins in high aspect ratio mask open and contact edge applications in both DRAM and NAND, and leveraging unique hardware capabilities for RF control and edge yield enhancement that we introduced last year, we have further extended our technical leadership in high aspect ratio processes across both conductor and dielectric edge. We also combined these technologies with our hydropatterning system, which is enabled by LAM's equipment intelligence and uses FAB data inputs to improve customer yield. With this system, we were able to secure new positions in quad and EUV patterning for DRAM. In the June quarter, we also made good progress in our effort to disrupt older equipment segments with more innovative extendable LAM solutions. With our enhanced ALD family of products, we achieved two new wins for 3D NAND gap fill applications and a multi-layer application win in Foundry logic. Superior film quality, integration, and architecturally enabled productivity were instrumental to our success. In DRAM and Foundry, we are also seeing accelerated adoption of our ALD solutions for critical spacer applications, which have traditionally been done using furnaces. Overall, we believe our enhanced ALD solutions are helping to enable the performance and cost roadmaps our customers need. At the same time, we continue to help customers extract more value from their installed base of LAM equipment. In the June quarter, our customer support revenues grew approximately 8% from the March period, and our revenue growth has exceeded installed base unit growth year to date. Our Reliance Systems business posted its eighth straight quarter of record revenues, driven primarily by shipments to analog, mixed signal, CIS, and microcontroller segments. The challenges of the COVID-19 pandemic have also accelerated the deployment of important new technologies for remote equipment support. By enabling real-time, in-fab access to LAM service experts located worldwide, we have reduced installation and troubleshooting time without the need for extensive travel. In addition, increasing adoption of our machine learning-based analytics, leveraging big data at customer sites, is enabling faster detection and resolution of issues. These advances are the result of investments that, as we shared at our investor day, are targeted at delivering services innovation that creates value for our customers and also increases our revenue opportunity per chamber. So to wrap up, LAM delivered a very strong June quarter, and we see continued strength ahead. We are seeing positive momentum in our efforts to grow our installed base revenue, expand our served markets, and increase our market share. And as a result, we believe we are increasingly well positioned to benefit from the long-term secular growth drivers in the semiconductor industry. Thank you all for joining and for your support, and I'll now turn it over to Doug.