Lam Research Corporation

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

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 of and Doug Bettinger, Executive Vice President and Chief Financial Officer. During today's call, we will share our overview on the business environment and we'll review our financial results for the September 2020 quarter and our outlook for the December 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.

Thank you, Tina, and welcome everyone. LAM delivered very strong September quarter results. Revenues and gross margin came in above the midpoint of the guided range. Operating margin and diluted earnings per share exceeded the high end of the range. Our performance reflects solid execution across the company. The operating environment remains challenging due to the COVID-19 pandemic, but the tremendous dedication of LAM's employees and our partners worldwide is enabling us to perform at a high level. Notably, the September quarter marked record revenue and diluted earnings per share for the company and was also the first quarter in which we have exceeded $1 billion in revenue from our customer support business group. At the midpoint of our December quarter guidance, we will be growing EPS more than 35% year over year in 2020. Investments we are making in manufacturing and supply chain resilience are enabling us to meet customers' critical needs in a period of strong demand and are preparing us for the continued growth we see ahead. Before I talk about market and product trends, I want to touch upon China-related trade regulations. As has been widely reported, U.S. regulations have impacted our ability to ship wafer fab equipment and parts to a large foundry customer in China. We are working with regulators on this issue and have applied for licenses to ship equipment and parts that are subject to restrictions. As a result of the current situation, our December quarter guidance reflects an impact to sales to this customer. From a market perspective, we see positive momentum in the underlying drivers of semiconductor growth and believe this translates into a healthy outlook for Lamb's business. Work and learn-from-home trends continue to drive demand in key electronics categories, including PCs, storage, and networking. Third-party data suggests that growth in PC, notebook, and workstation shipments in the calendar third quarter surpassed a 10-year high to reach record levels. Moreover, some memory manufacturers have noted shipping record levels of consumer solid-state drive bits in their most recent quarter. We believe that many of the changes brought about by this year's shift to remote working and learning environments will be structural. The net result will be a pull forward of key long-term secular growth themes for the semiconductor industry, including accelerated build-out of cloud data centers and expansion of high-speed communication networks. Against this backdrop, we see WFE spending growing across NAND, DRAM, and Foundry logic, supported by demand fundamentals that should drive continued WFE strength into 2021. Overall, our expectation for WFE in calendar year 2020 remains unchanged from our prior outlook of the mid to high $50 billion range with an improved memory mix compared to 2019. Leading edge spending in Foundry logic remains robust with rising capital intensity and the secular growth drivers discussed earlier effectively resetting equipment spending expectations to a higher level in this segment for the foreseeable future. We were also experiencing strong pull for trailing edge Foundry logic nodes due to a pickup in the automotive, IoT, and image sensor markets. This helped us deliver in the most recent period another quarter of record sales for our Reliant business. In MAN, we see spending increasingly focused on 9X layer and beyond devices, where higher capital intensity for etch and deposition, combined with LAM's strong market share positions, create even greater opportunity for the company than at prior nodes. Year on year, total NAND installed wafer capacity is expected to remain flat, with NAND bit supply growth still tracking below long-term demand as we exit calendar year 2020. In DRAM, customers continue to invest cautiously, and supply growth remains below long-term demand. As a result, we see a positive setup for next year and believe DRAM spending will increase as we progress into 2021. We expect to provide our full 2021 WFE outlook in our January earnings call. Turning now to our business updates. We recorded solid progress in the September quarter towards our long-term growth objectives. A fundamental part of our strategy is to deliver broad innovation in equipment, process, and support capabilities to help our customers accelerate the transition of next-generation 3D devices into high-volume manufacturing. We are developing a pipeline of differentiated products and services to address what we believe is one of the most pressing challenges for our customers, the need to drive on ever more complex leading-edge devices, the node-to-node cost-per-bit and cost-per-transistor reductions that have been the key to our industry's success. With this goal, we are investing significant focus this year in two areas. One, accelerating our vision for equipment intelligence solutions. And two, extending our technology leadership in critical high aspect ratio processing. First, land equipment intelligence is a suite of capabilities, including data-driven modeling, state-of-the-art sensing, adaptive feedback algorithms, augmented reality remote support, and self-maintenance hardware aimed at shortening process development time and delivering predictable manufacturing ramps at lower cost with fewer resources. Our groundbreaking Sensai Edge platform introduced earlier in 2020 is a great example of a tool designed to leverage our holistic approach to our equipment intelligence offerings. On Sensai, these capabilities are used to enhance RF and temperature control improve edge yield, automate routine maintenance activities, and reduce chamber matching times across large fleets of tools. In the September quarter, we continued to gain traction for this new product with initial shipments to two additional memory customers. We have aligned roadmap insertion plans with the top memory manufacturers and expect to ship multiple repeat systems in the next few months. While new platforms like Sensei are designed for equipment intelligence from initial concept, we have also demonstrated this year that customers can realize significant value by deploying select elements of our equipment intelligence solution set as options or upgrades for their current generation systems. For example, our Corvus R automated self-maintenance feature, available on our Keo Conductor Edge system, has been proven to shorten maintenance cycles and improve process repeatability on critical and semi-critical applications. As a result, the installed base of KeoEdge systems equipped with Corvus R technology is on pace to expand by more than four times in calendar year 2020. LAN equipment intelligence is also enabling new types of remote support that have proven vital to business resilience during the COVID-19 pandemic. Big data analytics approaches to enhance troubleshooting and simplify process optimization are seeing growing adoption. In 2020, our data enhanced service activities are on track to grow 3x over the prior year. Virtual reality technologies are allowing us to continue training engineers across the globe to further develop their skills on our latest systems without the need for international travel. Similarly, The latest innovations in augmented reality headset devices are allowing us to connect to engineers at customer sites to real-time expert support in our factory, often as much as halfway around the world. Our customer support business group is projecting 6x growth in remote support engagements this year. We believe building an ecosystem of smart tools and intelligent services will help drive sustainable cost reductions across the semiconductor manufacturing process and generate growth for our install-based business. Revenue from our productivity-focused offerings, including advanced services, is expected to grow approximately 25% in this calendar year. In the area of process technology, the continued vertical scaling of 3D device and packaging architectures across all market segments creates a compelling long-term growth story to CLAM. Over the past decade, we have built a winning track record in etch and deposition at the 3D inflections, most notably in the transition to 3D NAND. In the September quarter, we further extended our lead in 3D NAND with favorable high aspect ratio conductor etch decisions for devices beyond 200 layers and new application wins in dielectric ALD gap fill and carbon hard mask depositioning. Our high aspect ratio processing expertise also applies to emerging 3D packaging architectures. In Foundry logic, it has been estimated that 3D heterogeneous integration solutions can enable cost reductions of approximately 20% for leading edge nodes. In addition, 3D chip stacking is delivering performance advantages for advanced image sensors and high bandwidth memory. We expect etch and deposition intensity and advanced packaging and our corresponding revenue opportunity to continue to increase as more integration schemes leverage 3D scaling. In the most recent quarter, we received multiple follow-on orders for our Sabre 3D electroplating and Cindy and Edge tools for this market. And since 2015, our installed base for both tools has doubled. Looking forward, I am more confident than ever that LAM's capabilities and strategic investments are well aligned with the fundamental needs of our customers and our industry. The complexity and cost-scaling challenges for future technology nodes require comprehensive innovation in products and services that drive efficiencies from the very beginning of the design process all the way through to the support and maintenance activities in a high-volume manufacturing fab. This focus is fast becoming the thread that ties together our strategic growth objectives, and we are pleased that we are beginning to see the results of our efforts reflected in our strong financial performance. Thank you again for joining today's call, and now here's Doug.