Lam Research Corporation (NASDAQ:LRCX) Misses Q2 Analysts' Revenue Estimates, Stock Drops

Jabin Bastian /
2022/01/26 4:36 pm EST

Semiconductor equipment maker Lam Research (NASDAQ:LCRX) fell short of analyst expectations in Q2 FY2022 quarter, with revenue up 51.3% year on year to $4.22 billion. Guidance for the next quarter also missed analyst expectations with revenues guided to $4.25 billion at the midpoint, or 5.63% below analyst estimates. Lam Research Corporation made a GAAP profit of $1.19 billion, improving on its profit of $696.6 million, in the same quarter last year.

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Lam Research Corporation (LRCX) Q2 FY2022 Highlights:

  • Revenue: $4.22 billion vs analyst estimates of $4.41 billion (4.26% miss)
  • EPS (non-GAAP): $8.53 vs analyst estimates of $8.51 (small beat)
  • Revenue guidance for Q3 2022 is $4.25 billion at the midpoint, below analyst estimates of $4.5 billion
  • Free cash flow of $1.3 billion, up from $321 million in previous quarter
  • Inventory Days Outstanding: 124, up from 112 previous quarter
  • Gross Margin (GAAP): 46.7%, up from 45.8% same quarter last year

“Lam delivered record calendar year 2021 financial performance within a robust wafer fabrication spending environment” said Tim Archer, Lam Research’s President and Chief Executive Officer.

Founded in 1980 by David Lam, who pioneered semiconductor etching technology, Lam Research (NASDAQ:LCRX) is a one of the leading providers of the wafer fabrication equipment used to make semiconductors.

Sales Growth

Lam Research Corporation's revenue growth over the last three years has been strong, averaging 27.8% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $2.79 billion to $4.22 billion. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Lam Research Corporation Total Revenue

Despite missing analyst estimates this quarter, Lam Research Corporation's 51.3% revenue growth was still objectively impressive. This marks 8 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.

However, Lam Research Corporation believes the growth is set to even accelerate, and is guiding for revenue to grow 52.2% YoY next quarter, and Wall St analysts are estimating growth 23.1% over the next twelve months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

Lam Research Corporation Inventory Days Outstanding

This quarter, Lam Research Corporation’s inventory days came in at 124, 16 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from Lam Research Corporation's Q2 Results

Sporting a market capitalization of $82.8 billion, more than $5.32 billion in cash and with positive free cash flow over the last twelve months, we're confident that Lam Research Corporation has the resources it needs to pursue a high growth business strategy.

We were impressed by the exceptional revenue growth Lam Research Corporation delivered this quarter. And we were also glad to see the improvement in gross margin. On the other hand, it was unfortunate to see that it missed analysts' revenue expectations. Overall, this quarter's results were not the best we've seen from Lam Research Corporation. The company is down 5.12% on the results and currently trades at $566.75 per share.

Lam Research Corporation may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.