Lam Research Corporation

Please stand by. Today, welcome to the Lamb Research's December Quarter Financial Conference Call. At this time, I'd 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 Lamb 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 we'll review our financial results for the December 2020 quarter and our outlook for the March 2021 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. And with that, I'll hand the call over to Tim.

Thanks, Tina, and good afternoon, everyone. 2020 was a remarkable year for Lamb Research. Our global teams rose to meet the unprecedented challenges of the COVID-19 pandemic and delivered the best year in our history. Total revenue of $11.9 billion and earnings per share of $20.45 were both record highs for the company, driven by served available market, market share, and customer support business growth. Through the year, we also launched new products and announced breakthrough technology solutions that we believe lay the foundation for our continued success. Before going into details, I want to express my sincere thanks to our teams for their incredible execution in an extraordinarily difficult environment, and to our customers and suppliers for their partnership and support as we all adapted to the unforeseen events of 2020. We enter the new year with hope that the world will soon emerge from the COVID-19 health crisis and move towards a global recovery. From our view, WFE spending in 2020 ended in the high $50 billion range. This is about what we estimated at our investor day in March, just before the extent of COVID-19's impact was known. We saw spending growth across all segments of the market, led by a recovery in NAND, continued expansion in Foundry Logic, and a slight pickup in DRAM. China domestic spending for the year was in the $10 billion plus range. As we look to 2021, we see strong momentum across all parts of our business. Our early view is for substantial WFE growth to the high 60s to $70 billion range, supported by the ongoing migration to higher layer counts in NAND, a strong spending environment in DRAM, and increased investment in foundry logic, as indicated by recent customer commentary. Currently, we are seeing spending bias somewhat towards the first half of 2021. While today's absolute levels of WFE are significantly higher than a few years ago, we believe the rapid digitization of the global economy, combined with rising capital intensity due to greater process complexity, supports robust multi-year WFE spending. In fact, if there's a common theme that underpins our outlook for the next several years, it is that sustainable growth throughout the semiconductor value chain will be driven by the proliferation of artificial intelligence, high-performance computing, IoT, 5G, and the incredible societal advances in user experiences these technologies enable. We expect strong demand from a diverse set of end-use markets to positively impact semiconductor and semiconductor equipment growth in 2021 and beyond. Take, for example, the $200 billion global online gaming market. Nearly 3 billion people worldwide actively play video games across a variety of platforms, generating over the last five years more than a 50% tager in data growth. as users embrace realistic experiences enabled by more powerful processors, faster memory, and higher graphics resolution. If you just look at a sub-segment of the broader gaming market, namely gaming consoles, the number of these units shipped annually is much smaller than the number of smartphones sold. However, when you consider that a GPU for a gaming console is approximately four times the size of a smartphone application processor, This is an important driver of incremental WFE. From a memory and storage perspective, newer consoles utilize approximately twice the DRAM bits and employ SSD-based storage versus HDD in prior generations. Add rising capital intensity trends on top of this semiconductor content growth, and the impact on WFE increases further. We estimate that a 5% upside in the game console market has the potential to drive about $500 million of incremental WFE. And this is just one end-use market example. If we similarly look at the impact of a 5G phone market, we see that 5% incremental demand in 5G units has the potential to drive close to a billion dollars in incremental WFE. It is demand drivers such as these that have strengthened our conviction around the sustainability of WFE spending over a multi-year period. It is against this positive backdrop that LAM remains focused on executing to our long-term objectives for SAM expansion, market share gains, and install-based business growth we described at our Investor Day last March. In NAND, we continue to extend our strong leadership position. We estimate that our tools have now cumulatively processed approximately 37 million more wafers than our nearest competition through the three most critical 3D NAND applications. Since we first provided this metric at our investor day less than one year ago, we have widened the wafers process experience gap by more than 40%. The accelerated learning that comes from our installed base of 3D NAND systems puts LAM in the best position to deliver the solutions needed to meet our customers next-generation manufacturing challenges. It also allows us to gain early insight into new opportunities being created by technology inflections. For example, in 2020, we announced our new Stryker FE atomic layer deposition system, which employs a unique ice fill capability for high aspect ratio dielectric gap fill. This tool addresses a new technology need for 3D NAND devices scaling to 128 layers or more. and production ramp of Striker FE is underway at multiple customers. 2020 also saw the launch of Sensei, our next generation edge platform. And today we announced our new Vantex high aspect ratio dielectric edge module on Sensei. Vantex features advanced RF technology and new uniformity enhancements to enable next generation device roadmaps. Vantex and Sensei together collect more data per wafer than ever before, enabling advanced equipment intelligence and to deliver new levels of productivity and process control. The timing of our VANTEX launch intercepts DRAM and NAND roadmaps facing increasingly complex node-to-node scaling challenges. As a result, VANTEX is already in qualification with both DRAM and NAND customers, and repeat orders have been received to ramp this system into high volume production in 2021. For CountryLogic, we continue to target new technology inflections to expand our opportunity and position. Our TOGX conductor etch system has been engineered with an advanced RF pulsing capability to meet the unique requirements of extremely narrow high aspect ratio features. It also provides extendability to future devices featuring nanowire or nanosheet architectures. Leading edge Foundry Logic customers are increasingly adopting Keogx for their most critical front end of line applications at 5 nanometer and beyond, where the need for atomic level precision edge becomes more acute. Moreover, as devices scale, parasitic RC degrades transistor performance. As a result, we are seeing increasing customer pull for LAM's etch and deposition solutions designed to reduce RC effects, including atomic layer etch for self-aligned contacts, new functional films, and optimized metal solutions which reduce via and line resistance by simplifying middle-of-line and back-end-of-line process flows. In DRAM, we are seeing incremental share and SAM growth also coming from growing complexity of node transitions. We assess that we have greater than 50% etch market share in DRAM, and due to the importance of high-quality hard masks and mask-open etches with EUV, we expect additional patterning share gains in etch and deposition as EUV passes increase at future nodes. Adoption of EUV in foundry logic and DRAM is also creating a significant SAM expansion opportunity for LAM's dry photoresist solutions. Using this new technology, we believe we can accelerate our growth in both Foundry Logic and DRAM by disrupting the existing wet photoresist equipment market. Our solution is gaining significant traction with leading customers as they look to improve the cost metrics of EUV patterning. Changes of this magnitude do take time to realize, but with tools now being installed and wafers being run for top DRAM and Foundry Logic customers, We are pleased with our progress readying this innovative technology for production. And finally, 2020 was another outstanding year for our customer support business group. Our installed base has now reached nearly 66,000 chambers, and CSBG revenue growth exceeded chamber growth by a factor of more than 2x for the 2020 calendar year. We generated record revenues for all subsegments within CSBG, Growth in our Reliant business was driven by automotive, 5G, and consumer electronics, and we expect these areas to continue to outpace overall market growth in coming years. Meanwhile, we delivered on the expectations we set on our last earnings call for calendar year growth of 25% in productivity-focused services and 6X growth in remote support engagements. We are excited about the trajectory and broad strength of this business and especially its proven ability to deliver world-class support of complex technologies in high-volume manufacturing. To wrap up, Lamb marked its 40th anniversary in 2020 with record financial performance, a strong slate of innovative new products and services, and solid execution on our strategy to expand leadership across markets. As our March quarter guidance suggests, We are optimistic about the opportunities that lie ahead for LAM and believe we are in an excellent position to win. Thanks again, and now here's Doug.