Lam Research Corporation

Good afternoon and welcome to the LAM Research Corporation December 2023 Quarterly Earnings Conference Call. All participants will be in 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 then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Ram Ganesh, Head of Investor Relations. 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 CEO, and Doug Bettinger, Executive VP 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 2023 quarter and our outlook for the March 2024 quarter. The press release detailing our financial results was distributed a little after 1 p.m. Pacific time. The release can also be found on the IR 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 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, Ram, and welcome, everyone.

LAM delivered strong performance in the December quarter. Revenues, gross margin, operating margin, and EPS all above the midpoint of our guided ranges. Our results for December close out a calendar year 2023 in which LAM executed well amid a decline in overall wafer fabrication equipment spending. Compared to the prior cycle trough in calendar 2019, we achieved a near doubling of EPS. There are a few reasons why LAM has evolved stronger cycle to cycle. We have improved our positioning in the Foundry logic and specialty technology segments through sustained investments in innovation and new products. As a result, we have grown our total non-memory revenue share, and we continue to gain momentum at key technology inflections. Second, we have delivered tremendous growth in our customer support business group. LAM ended calendar 2023 with approximately 90,000 chambers in the field, an installed base almost 50% larger than in the previous cycle. CSBG revenue has grown by more than 80% in 2019 levels. And finally, we have further improved our ability to manage costs and drive operational efficiency through cycles, delivering operating margins in 2023 that were nearly two and a half points higher than the prior trough. Turning to WFE, we estimate that 2023 spending ended in the low $80 billion range. This is up slightly from our prior view, driven by continued strength in domestic China spending, predominantly in equipment segments where we do not participate. Overall, memory WFE was down nearly 40% year on year, led by cuts in NAND spending of more than 75%. Non-memory WFE decreased in the mid-single digits range, with mature node growth in China partially offsetting declines in leading edge node spending in the rest of the world. As we enter 2024, the business environment remains muted. However, we expect a modest recovery in memory spending to drive a stronger exit to the year. Our early view of WFE spending for calendar 2024 is in the mid to high $80 billion range. Growth in DRAM will be driven by capacity additions for high bandwidth memory, as well as node conversions. NAND spending increases will largely come from technology upgrades. We see FoundryLogic spend growing in 2024 with higher leading-edge investment offset in part by declines in mature node investment outside of China. Overall, we believe domestic China spending will be stable in 2024. Longer term, the setup for WFE investment is robust. With semiconductor revenues widely expected to reach a trillion dollars around the end of the decade and device manufacturing complexity continuing to rise, we believe WFE spending will need to roughly double from today's levels. LAM's served markets of etch and deposition should outpace growth in WFE overall. For this reason, we have been executing a series of strategic actions to best position the company for the growth opportunity ahead. Importantly, we have remained committed to these initiatives despite the challenging spending environment over the past several quarters. First is our commitment to R&D, including planned spending increases in calendar year 2024 to extend our differentiation in products and services targeted at next generation semiconductor device inflections. This next era in semiconductors will be defined by the broad move towards 3D architectures in advanced packaging to solve scaling challenges. We believe this will in turn drive an increase in etching deposition intensity over the long term. Our focus is on multiple billion dollar SAM expansion opportunities across memory and Foundry logic. We have profiled our advances in gate all around, backside power delivery, advanced packaging, and dry EUV patterning over the past several quarters, and our solutions are continuing to gain traction with customers. In the December quarter, we secured additional advanced packaging wins for high bandwidth memory, which is critical for enabling advanced AI servers. Our Sabre 3D tool's best-in-class plating uniformity, along with our ability to demonstrate an overall cost of ownership advantage, made LAM the clear choice over a large competitor. In 2024, we expect our HBM-related DRAM and packaging shipments to more than triple year-on-year and outpace WFE growth in this segment by a significant margin. The specialty technology markets are also yielding a diverse set of new opportunities for LAM. For instance, we have recently delivered pulse laser deposition technology to customers targeting high-volume manufacturing of MEMS and next-generation high-frequency devices. We accelerated our entry into this market by integrating technology we obtained via small acquisition onto a production proven LAM platform. Compared to competing deposition methods, LAM's solution enables more highly doped scandium aluminum nitride films, which deliver the piezoelectric performance and cost our customers require. The second area of focus for LAM has been our investment in facilities close to our customers. By establishing process development capabilities near our customers' R&D fabs, we are maximizing collaboration and accelerating time to solutions. We have also made progress ramping supply chain and manufacturing operations within our customer ecosystems. These in-region capabilities enhance our responsiveness and resilience for customers and create significant economic value for LAM as we leverage the benefits of global flexibility. Our new manufacturing facility in Malaysia is poised to fully scale in the coming WFE upturn, providing us the capability to nearly triple the percentage revenue contribution from our lower cost manufacturing locations versus a few years ago. And finally, LAM is concentrated on reengineering our business processes and systems to drive operational excellence at greater scale. Investments in digital capabilities like virtual twinning advanced simulation, and AI are helping us to accelerate problem solving, and we are building equipment intelligence capabilities and in-fab service automation into our most advanced product roadmaps. As we complete our re-engineering efforts, we are also intent on achieving organizational agility. In this regard, we are announcing a small workforce reduction, predominantly at the executive level, to align our resources with our execution priorities and drive efficiency and speed of decision making. In calendar 2023, LAM delivered solid results while investing to build strong capabilities for the future. Looking forward, I am confident that our strategic global infrastructure and differentiated technology portfolio provide LAM with the tools we need to capitalize on the robust semiconductor growth expected in the years ahead. Thank you, and now here's Doug.