Lam Research Corporation

Good day and welcome to the LAM Research September 2022 Quarter Earnings Conference Call. At this time, I would like to turn the conference over to Ms. Tina Correa. Please go ahead, ma'am.

Thank you, Operator, 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 we'll review our financial results for the September 2022 quarter and our outlook for the December 2022 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 include 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 the accompanying slides in the presentation. This call is scheduled to last until 3 o'clock PM 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.

Thank you, Tina, and thank you to everyone joining the call today. Our September quarter results reflect continued strong execution by LAMP, with revenues topping $5 billion for the first time in the company's history. Gross margins came in at the higher end of guidance and operating margin and earnings per share both exceeded the guidance range. As you can see from our press release today, we also expect solid performance in the December quarter, despite the challenging environment. Recently, the United States government announced new export regulations for U.S. semiconductor technology sold in China, including wafer fabrication equipment and related parts and services. We have taken the necessary steps to ensure full compliance with the rules and have ceased shipments and support as required. Our financial guidance issued today for the December quarter includes the impact of these changes. For calendar year 2023, we estimate the total revenue impact from these restrictions to be in the range of $2 to $2.5 billion. Turning to the broader demand picture, We see wafer fabrication equipment spending in calendar year 2022 in the low $90 billion range. This outlook includes the impact of new China-related restrictions and lower demand, partially offset by improving supply chain conditions. As some of our customers have indicated recently, there has been a rapid deterioration in demand fundamentals, particularly within the memory segments. Customers are adjusting investment plans into next year to bring channel inventories down to more normalized levels. As a result, we see memory bit shipments tracking below end demand for the next few quarters. In our normal cadence, we would provide our first view of 2023 WFE on our January earnings call. However, given the current environment, today we are providing our preliminary estimate for calendar year 2023. Inclusive of the China restrictions, We expect next year's WFE to be down more than 20%, with memory investments accounting for a large portion of that decline. We will provide more detailed color on our outlook in our next earnings call, but for now, we believe that customer actions to reduce memory bit supply growth will create a favorable setup for memory mix to increase as a percent of overall WFE beyond 2023. As these cyclical adjustments play out, the structural factors supporting a long-term WFE growth remain unchanged. These include expanding semiconductor content in end devices, rising device complexity, and larger die sizes. These factors create tremendous opportunity for LAM as they require greater etch and deposition intensity to enable higher performance and more scalable device architectures, including the transition to 3D structures. To ensure we are best positioned to win long-term, we are focused on three key strategies. First, continue to demonstrate our commitment to customer success by ensuring that the rapidly growing installed base of LAM tools at our customers is operating at maximum efficiency. Second, be a trusted R&D partner for our customers by sustaining our investment in the technology development that is most critical to their long-term device scaling roadmaps. And third, accelerate innovation and deepen our customer and supply chain partnerships by fully leveraging LAM's recently expanded global R&D and manufacturing infrastructure. Our installed base is now approaching 80,000 chambers in the field. This is over 30% higher than in the 2019 memory-related pullback in WFE. LAM's growing installed base continues to drive strong performance in our CSBG business, which hit another record in the September quarter with approximately $1.9 billion in revenue. While we won't hit new records every quarter, our installed base has become ever more important to our business model, particularly in WFE spending downturns. During such times, customers can continue to advance their technology while optimizing capital efficiency through upgrades to their existing tools. We are also engaging with customers to find other efficiencies, including yield enhancement. An example of the opportunity this creates can be seen in our KORONIS product line. LAM's KORONIS bevel-edge process is employed by customers to help prevent process-related defects, which can impair cost-per-bit scaling. As a result, we have seen a steady increase in the number of bevel-edge passes used at each successive NAND technology node. Another opportunity to help drive efficiency can be found in the enormous volume of equipment and process data being generated from our large and growing install base. Together with customers, we are using key learnings to deliver services and upgrades that positively impact our customers' operations. For example, we recently deployed equipment intelligence services to support new equipment installation at a large memory manufacturer. Using these capabilities, we were able to shorten the time to release tools to production by more than 20%. While the near-term demand dynamics warrant an increased focus on operational efficiencies, the strong pull for technology advancement from our customers and the growth opportunity it creates for LAM continues. We made solid progress in the September quarter with key technology wins across multiple customers. For example, our ability to deposit critical films to lower device capacitance and improve lithography overlay performance led to wins for these layers at a leading DRAM customer. For both applications, we leveraged learning from our 3DMAN leadership position as well as ecosystem partnerships to bring innovative and cost-effective solutions to our DRAM customers. In Foundry Logic, we secured multiple new ALD application wins at a key customer by delivering surface modifications and film characteristics required for building and integrating gate all-around structures. Whether it is our focus on operational efficiency or our collaboration on advanced technology, we believe our long-term success will be rooted in an R&D and manufacturing infrastructure close to our customers, close to our ecosystem partners, and with access to world-class talent. Consequently, over the past two years, we have made strategic investments to expand our global footprint, including the addition of a manufacturing facility in Malaysia, an R&D lab in Korea, and just last month, the opening of LAM's India Center for Engineering in Bengaluru. This center is a valuable addition to our global lab network, specializing in the design and testing of hardware and software used across our product lines. So overall, I am pleased with how we are continuing to strengthen our foundation in technology, manufacturing, and service. This foundation puts us in a very good position to both navigate the current cyclical dynamics and emerge stronger as we look to capture the exciting opportunities we see over time in the semiconductor industry. Thank you again for joining today, and I'll now turn the call over to Doug.