Lam Research Corporation

Good day, and welcome to the LAM Research Corporation September Quarter 2025 Earnings 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, 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 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 Deb Bittinger, 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 2025 quarter, from your outlook for the December 2025 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 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 a financial resource 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. Thanks, Ram, and good afternoon to everyone on the call.

LAM delivered a solid September quarter, highlighted by record revenues of $5.3 billion, gross margin of 50.6%, and record operating margin of 35%. We also achieved record combined spares and services revenue, and growth in total CSBG revenue outpaced the increase in install-based units. Inclusive of our guidance for the December quarter, we expect to close calendar 2025 with three consecutive quarters of greater than $5 billion in revenue. Our performance reflects strong company-wide execution and the critical role that our products and services portfolio plays in enabling the industry's technology roadmap and in addressing the rapid increase in semiconductor manufacturing complexity. Our December quarter guidance does contemplate roughly a $200 million revenue impact from the recently announced 50% affiliate rule, restricting shipments to certain domestic China customers. Currently, we expect this rule to impact our calendar year 2026 revenues by approximately $600 million. This impact, together with the strong growth anticipated in worldwide fabrication equipment or WFP spending, leads us to expect the China region to represent less than 30% of our overall revenues in calendar year 2026. Turning to WFE, spending in calendar year 2025 is shaping up to be slightly better than our prior view of $105 billion, predominantly due to better than expected high bandwidth memory or HBM related investments. As we look ahead, we see a robust setup for equipment spending in calendar year 2026. AI related demand should support sustained strength in leading-edge Foundry logic and DRAM, as well as continued manned upgrade spending. The strong leading-edge growth we see across all three device segments is forecasted to be partially offset by a decline in domestic China-related investments. We plan to provide our detailed 2026 WFE spending outlook and sub-segment color on our January call for our usual practice. AI and its impact on the semiconductor industry continues to be a major topic of interest, and the data center CapEx investments already announced are expected to drive significant expansion of manufacturing capacity over a multi-year period. In recent months, we have seen an acceleration of activity. AI data centers require the most advanced CPU and accelerator capabilities, low latency, high bandwidth memory, and high speed ESSD storage. all integrated through 2.5D and 3D advanced packaging. We estimate these needs translate to roughly $8 billion of WFP spending for every $100 billion in incremental data center investment. Most importantly, deposition and etch, the area of LAM's core product differentiation, play an increasingly critical role in enabling the higher performance, more scalable semiconductor devices required for AI. We see the surge in AI data center demand creating billions of dollars of served available market expansion and share gain opportunity for LAM in the coming years. I will share a few areas of strength we are seeing. In NAND, customers are continuing to upgrade existing FABs to meet the need for higher layer count, higher performance devices. We have estimated that these conversions will require $40 billion of WFE spending over the next several years. And as we have previously said, LAM should capture a high percentage of this conversion spend due to our large install-based position. Our upgrades business is projected to remain strong into 2026, as NAND bit demand looks to be trending higher than prior expectations. Device makers have already announced enterprise-grade SSDs with 256 terabytes of storage capacity to satisfy growing data center demand for high-capacity storage. Availability of clean room space will likely act as a limiter to the pace of NAND supply growth, but we believe that capacity additions to meet rising BIT demand may be needed sooner than previously thought. LAND is in a great position for both upgrade activity in the near term and new capacity builds in the future. We have the industry's largest installed base of NAND systems, and our comprehensive NAND product portfolio features several industry-first advances. Notably, LAM recently earned the 2025 SEMI Award for our pioneering LAM Cryo 3.0 dielectric edge technology, a process that has quickly become the industry standard for advanced NAND devices. We're also seeing solid demand for our atomic layer deposition, or ALD products, including a recent key win at a major NAND manufacturer for a critical high aspect ratio dielectric deposition application. LAM's differentiated conformal fill capability using a higher temperature process was fundamental in securing this win. On the metal side, LAM's Halo MOLLE ALD tool has been selected as the tool of record for three consecutive nodes at a leading customer, including for devices with more than 500 layers. This further reinforces our leadership in the 3D NAND word line application, a step that is fundamental to building the higher performance devices required for ESSDs. The performance demands of AI devices are also spurring investment in foundry logic and DRAM manufacturing inflections. Over the last several years, we have focused on expanding our product portfolio to target these opportunities and believe we will benefit as the technology transitions unfold. For example, LAM's Ether Dry Resist EUV patterning solution has demonstrated the ability to resolve features of less than 15 nanometers at the highest density and pattern fidelity. Ether also enables a more than 10% reduction in EUV exposure dose, boosting scanner productivity and reducing the cost of patterning per wafer. LAMP's Ether technology is already ramping in the HBM high-volume production line of a major memory manufacturer, and we see more opportunities ahead as we look further out on the road map. For instance, we believe high NA EUV in combination with ether for single patterning of sub 10 nanometer features will be critical to addressing the complexity and cost challenges associated with the transition from gate all around transistors to CFET in Foundry logic, as well as the anticipated migration from 6F squared to 4F squared in DRAM. In September, we announced a key partnership with JSR Corporation an innovative semiconductor materials company, to collaborate on the integration of our ether technology with novel EUV patterning materials and metal oxide resists. In addition, LAM and JSR are partnering to explore new precursor materials for advanced ALD applications, which we believe can further enhance our capabilities and differentiation for future technology inflections. In the case of low K ALD films, LAM's high productivity single wafer solution are enabling our customers to move past traditional furnace-based approaches. As logic transistor sizes scale down to achieve greater compute power, higher capacitive coupling in the gate module degrades overall performance. Similarly, as DRAM devices shrink, there is a detrimental increase in capacitance between the bit line and capacitor contact. To resolve these issues, deposited low-K films must be very thin, 5 nanometers or less. and conformal in high aspect ratio structures. Furnace-based films at these thicknesses are often fragile and unable to withstand the harsh chemistries used in subsequent process steps. LAM's Low-K ALD solution employs a unique single wafer remote plasma reactor and a novel precursor to deposit thin, defect-free films with the desired silicon-carbon bonding structure. As a result, LAM's ALB films have demonstrated superior durability on the remainder of the chip-making process. And we recently secured critical wins at Foundry Logic and DRAM customers for low-K applications using this process. Beyond traditional device inflections, LAM is also benefiting from healthy growth in advanced packaging. Our Sabre 3D plating and Cindi and Edge systems are industry leaders and should continue to see strong demand in 2026 as AI-related spending grows. Looking further ahead, we are investing in new, advanced packaging opportunities. Today's packaging production lines primarily use 300-millimeter diameter wafers. But as AI and high-performance computing demand larger chips to integrate more accelerators, memory, and interconnects, panel-level packaging is emerging as a scalable solution. By processing multiple units on larger format panels, It significantly improves manufacturing efficiency and supports the integration of increasingly complex and larger semiconductor devices. LAM's Sabre 3D, Callisto, and Phoenix tools are being engineered to meet future panel packaging needs. We are collaborating across the ecosystem to drive industry-wide standardization and co-development, both of which are essential for scaling high-volume manufacturing and next-generation integration solutions. We expect to end this year with tools shipped to or installed at 20 customers worldwide. Our growing installed base of panel packaging tools is rapidly building experience and maturity that should prove valuable as this technology becomes mainstream in the future. So to wrap up, LAM is poised to close out a record calendar year 2025, and our setup is strong heading into 2026, where we expect solid WFE growth. The technology requirements of AI play extremely well to LAM's product strengths, and we are excited by the breadth of opportunities we see ahead for the company. Now, here's Doug.