Lam Research Corporation

Good day, everyone, and welcome to the LAM Research Corporation's June 2023 quarterly financial conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Tina Correa. Ma'am, please go ahead.

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 we'll review our financial results for the June 2023 quarter and our outlook for the September 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 to everyone joining the call today. LAM posted strong results for the June quarter, with gross margin, operating margin, and earnings per share well above the guided ranges. CSBG had 47% of revenues in the quarter, continues to stand out as a key area of strength and stability for LAM and an otherwise weak wafer fabrication equipment spending environment. Operationally, we achieved significant improvement in on-time delivery and critical backorder performance in the quarter and now see these metrics back at normalized pre-pandemic levels. Our focus on the resiliency of our global manufacturing and supply chain network is delivering greater predictability in the short term but more importantly, positions us to scale more efficiently when WFE growth inevitably resumes. Looking near term, we see WFE spending in 2023 tracking to the mid $70 billion range, with the upside coming from domestic China related spending, as well as strong growth in high bandwidth memory or HBM related demand. By device segments, We expect overall memory WFE to be down in the mid 40% range compared to last year, and non-memory segments to be down approximately 10%. We continue to see second half 2023 WFE tracking higher than first half. While 2023 is a down year for WFE, the long-term growth dynamics for the semiconductor industry are strong. Emerging growth drivers such as generative AI are only in their initial stages of adoption, and will be fundamental to driving increased investment in both memory and Foundry logic fabs over the next several years. Advanced AI servers have significantly higher leading edge logic, memory, and storage content versus traditional servers. And every incremental 1% penetration of AI servers and data centers is expected to drive $1 to $1.5 billion of additional WFE investment. This creates tremendous opportunity for LAM as greater etch and deposition intensity is needed to enable higher performance and more scalable device architectures. To ensure we are best positioned to win long term, we have been making significant investments to broaden our product portfolio for processing at the atomic scale. LAM is the established leader in 3D NAND, and we are well positioned to benefit from the move underway to 3D in other device segments. Gate all around, 3D DRAM, and advanced packaging are important 3D inflections that are expected to drive strong SAM and share growth for LAM. Advanced packaging is becoming vital to the performance, power, and cost roadmaps of high performance applications, including generative AI. Customers are increasingly adopting a wide variety of packaging schemes to enable logic and memory integration. Some of these schemes enable up to 50% improved memory density, 10 times improvement in bandwidth, and 60% gain in power efficiency. LAM has a track record of excellence in the advanced packaging segment with a strong set of manufacturing proven products. Overall, we have greater than 50% market share in deposition and edge solutions required for advanced 3D stacking of high bandwidth memory. More specifically, our Sabre 3D copper electroplating tool and Syndian etch system hold 100% market share across all leading memory customers for through silicon via formation as a result of our long-established expertise in etching and filling high aspect ratio geometry structures. Overall, we expect our packaging SAM to double in the next five years. We also see our market position strengthening as we bring technology and productivity innovation to address emerging opportunities. For example, in the June quarter, we had a critical win for a new inter-die gap fill application at a key FoundryLogic customer for their chiplet architecture. As this latest win ramps into production, we will have secured a leading share position for this application across the top three FoundryLogic customers. We won this application for a couple of reasons. First, we delivered higher productivity relative to the competition by leveraging our unique triple quad platform architecture and multi-station sequential deposition chamber design. This enables film deposition of greater than 20 microns in a single pass, allowing the customer to run more wafers between chamber clean steps. Second, we delivered superior on-wafer performance, including better film stress management improve defectivity, and enhance wafer-to-wafer uniformity versus the competition. As we expand our position in newer, high-growth markets like 3D packaging and specialty technologies, we have looked to leverage existing R&D and tools within the LAMP portfolio to broaden our product offerings most efficiently. In the recent example, our long-established KEO Edge platform has proven to be highly suited to applications which are critical to enabling new, died away for hybrid bonding schemes. By delivering better edge profile than the competition, we secured a key win in the June quarter at a leading FoundryLogic customer. We are currently the tool of record for a suite of edges and resist drip steps at this customer and expect to start recognizing revenue for the new application in 2023. As this customer continues to shrink packaging dimensions with future hybrid bonding iterations, we have the opportunity to double our revenue with them over the next several years. In another instance, LAM has been working with customers within the specialty segment to port key 300 millimeter edge solutions, including atomic layer edge, to 200 millimeter to overcome challenges in the manufacturing of gallium nitride devices. Adoption of GaN technology is accelerating across multiple applications, ranging from high-efficiency charging devices for consumer electronics and automotive to 5G RF infrastructure. However, the fabrication of such devices is complex and requires ultra-low damage etch processes with atomic scale precision. With our suite of solutions, we can deliver a GaN etch process that improves surface roughness and other material properties to impact device performance. These solutions were developed as a result of LAM's deep understanding of the required technology, as well as key partnerships with customers and research institutions. Longer term, we look to outperform in the trillion dollar semiconductor industry forecasted for the end of the decade. At LAM, we are executing a strategy to create competitive differentiation by focusing on what we see as three key vectors of rising complexity. First is the technical complexity associated with enabling the transition to 3D device and packaging architectures across all market segments. Second is the support and workforce complexity arising from the expanding geographic footprint as regionalization efforts build momentum. And third is the sustainability complexity as we responsibly manage the carbon impact of the semiconductor industry as the output grows to a trillion dollars. This quarter, we detailed one component of our strategy in a press release for our Semiverse Solutions portfolio of advanced simulation and modeling products. These products are designed to help engineers get to process solutions faster, develop new products at lower cost, and collaborate across the global ecosystem with greater effectiveness. We believe that by combining the physical advantages of LAM's diverse global R&D and manufacturing footprint with the virtual development and digital twin capabilities of our semi-verse solutions, we will be in an excellent position to innovate and outperform as our industry grows into the future. With that, I will turn it over to Doug. Thank you.