Lam Research Corporation

And welcome to the Lam Research March 2023 Quarter Financial Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Tina Correa. Please go ahead.

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'll share our overview on the business environment and we'll review our financial results for the March 2023 quarter and our outlook for the June 2023 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 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.

Thank you, Tina, and welcome, everyone. LAM's March quarter results reflect strong execution, with revenues, operating margins, and EPS all exceeding the midpoint of our guidance. Foundry-related system revenues achieved record levels, demonstrating our solid progress in both leading edge and specialty technology segments. We continue to prioritize investments in long-term technology roadmaps, customer support, and operational transformation, while prudently managing near-term spending and profitability. As our June quarter guidance indicates, the near-term demand environment remains challenging. We expect 2023 WFE spending to be in the low to mid $70 billion range, with additional weakness primarily from memory customers partially offset by domestic China-related demand. On the China front, we see incremental strength in mature node logic and memory segments. Recently, the U.S. government notified us of a clarification to the rules issued last October governing exports to China. This notification allows us to ship certain products that we had originally excluded from our expectations. We expect to ship these tools in the second half of 2023. Overall, memory customers continue to lower fab utilizations, slow technology conversions, and reduce investments in capacity additions. to limit bit output and drive inventory down to normalized levels. We expect memory spending for the year to decline approximately 50% from 2022, led by NAND. Memory spending in 2023 is at a historic low as a percentage of total WFE. We believe this level of investment is unsustainable to support long-term growth in bit demand, especially considering the data-intensive applications such as AI, are still in the early stages of adoption and can have approximately three times the DRAM and eight times the storage content of a regular server. In addition, advances in memory architecture, such as DDR5, are driving process technology evolution and larger die sizes. As these trends accelerate, LAM's established leadership in memory positions us to outperform. as we benefit not only from investments in new tools for capacity, but also from the technology upgrades to our large installed base of tools. Our installed base for memory has increased close to 40% compared to the last down cycle. It is a valuable platform for growth when memory customers begin to ramp utilization back to normal levels and convert existing lines to next generation nodes. While LAM clearly stands to benefit when memory conditions improve, this is but one aspect of our growth opportunity. Rising manufacturing complexity tied to key technology inflections is positive for both overall capital intensity and, more importantly, LAM's areas of product strength. For example, EUV patterning and gate-all-around devices are two important inflections where LAM has made significant investments in new products for processing at the atomic scale. We are gaining traction with these new products, yet they are in the early stages of the ramp with the majority of growth still in front of us. If we look at patterning, it is already a multibillion-dollar opportunity for LAM. We have a leading share position in this segment, and we are broadening our footprint as EUV adoption scales. LAMP's edge solutions have been developed to enhance productivity of EUV by creating well-defined, smooth patterns with minimal EUV photon exposure. Our pulse plasma capabilities help reduce line width roughness, which is a particularly challenging problem as EUV resists become thinner at future nodes. LAMP's edge portfolio is on track to win close to 75% share of these EUV patterning applications. Also, as the pattern is etched into the film stack, the hardness and stress in the films has a strong influence on pattern fidelity. Precise control of film properties is a hallmark of our deposited hard mask films. We are already the process tool of record for critical applications in the Foundry Logic segment for EUV patterning, with continued growth expected as EUV adoption expands. Addressing EUV scalability challenges is also the central goal behind our dry resist technologies. Last year, we saw the first adoption of our dry development and underlayer pluses for EUV applications by a major memory customer. Our progress extended to include a second large memory player in the March quarter. Today, I'm pleased to provide another update. A key FoundryLogic customer, is set to adopt our dry resist deposition, dry development, and underlayer solution for their EUV applications. And we will start recognizing revenues for these products in calendar 2023. Looking ahead, the challenges of EUV patterning will continue to grow at every technology node, and in particular when high NA EUV adoption dictates the need for even thinner EUV resists. With our differentiated pattern etch, hard mask, and dry resist solutions, we see our product portfolio becoming increasingly vital to the industry's scaling roadmap. Moving the gate all around, this inflection introduces what we consider to be the first true 3D logic device from a processing perspective. It requires new etch and deposition capability to address the geometric complexity of forming the all-around characteristics of the transistor. Processing for gate all-around, just as the name implies, must take place on top of, underneath, and inside the device, where reactants need to reach spaces that are perpendicular to the usual reaction direction. The 3D nature of gate all-around architecture is well suited to atomic layer deposition and atomic layer etching solutions. making a key inflection that plays to our strengths. For LAM, the transition to the gate all-around node is close to a billion-dollar incremental opportunity per 100,000 wafer start per month capacity. Our expectation is for our share in this market to be at least as good as our overall goals for the company. To address the manufacturing challenges of gate all-around devices, LAM has launched several new products, including our SELUS, Prevost, and Argos suite of Selective Edge tools, with more to come in the future. These tools can etch and treat all surfaces of the device with ALE-like precision. Our Selective Edge tools have achieved process of record positions at multiple customers for GATE all-around applications, and we saw continued momentum in the March quarter with additional shipments to key customers. Atomic level control is also increasingly critical in depositing films in the complex geometries very close to the transistor. Our differentiated approach uses a radical-based plasma ALD reactor to deliver high-performance films with high-volume manufacturing-ready productivity. Multiple customers have now adopted LAMs ALD, low-case baser, and nitride films, and we see this demand growing in future nodes. In summary, We are working through a lower WFE year in 2023 by managing near-term expenses, strengthening our operational capabilities, and prioritizing R&D investments tied to critical manufacturing inflections. Our focus remains on ensuring that when WFE growth resumes, the criticality of our products to our customers' plans and the value of our installed base, which has grown nearly 40% since the last downturn, put us in a strong position to outperform. Thank you. And now I'll turn it over to Doug.