Lam Research (NASDAQ:LRCX) Misses Q3 Sales Targets

Jabin Bastian /
2022/04/20 4:17 pm EDT
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Semiconductor equipment maker Lam Research (NASDAQ:LCRX) fell short of analyst expectations in Q3 FY2022 quarter, with revenue up 5.52% year on year to $4.06 billion. Guidance for the next quarter also missed analyst expectations with revenues guided to $4.2 billion at the midpoint, or 5.66% below analyst estimates. Lam Research made a GAAP profit of $1.02 billion, down on its profit of $1.07 billion, in the same quarter last year.

Is now the time to buy Lam Research? Access our full analysis of the earnings results here, it's free.

Lam Research (LRCX) Q3 FY2022 Highlights:

  • Revenue: $4.06 billion vs analyst estimates of $4.24 billion (4.33% miss)
  • EPS (non-GAAP): $7.40 vs analyst expectations of $7.51 (1.4% miss)
  • Revenue guidance for Q4 2022 is $4.2 billion at the midpoint, below analyst estimates of $4.45 billion
  • Free cash flow of $612.3 million, down 52.9% from previous quarter
  • Inventory Days Outstanding: 141, up from 124 previous quarter
  • Gross Margin (GAAP): 44.7%, down from 46.2% same quarter last year

“In an extraordinarily difficult supply environment, Lam reported March quarter results within guided ranges,” 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.

The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers and data storage. The growth of data and technologies like artificial intelligence, 5G networks and smart cars are also creating a next wave of growth for the industry. To keep up with ever changing customer needs requires new tools that can design, fabricate and test at ever smaller sizes and more complex architectures, and that is driving the demand for semiconductor capital manufacturing equipment.

Sales Growth

Lam Research's revenue growth over the last three years has been solid, averaging 19.8% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $3.84 billion to $4.06 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 Total Revenue

Tough quarter for Lam Research, with weak revenue growth of just 5.52%, which missed analyst estimates by -4.34%.This was the third straight quarter of decelerating growth for Lam Research, potentially indicating a coming cycle downturn.

While revenue growth has decelerated the past three quarters, Lam Research thinks growth will remain positive next quarter guiding to estimated 1.32% year on year growth and Wall Street analyst consensus also sees growth over the next twelve months of 15.1%.

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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 Inventory Days Outstanding

This quarter, Lam Research’s inventory days came in at 141, 30 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's Q3 Results

Sporting a market capitalization of $66.8 billion, more than $4.35 billion in cash and with positive free cash flow over the last twelve months, we're confident that Lam Research has the resources it needs to pursue a high growth business strategy.

We struggled to find many strong positives in these results. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and it also missed analysts' revenue expectations this quarter. Overall, this quarter's results could have been better. The company is down 3.68% on the results and currently trades at $465 per share.

Lam Research 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.