Lam Research (NASDAQ:LRCX) Q2: Beats On Revenue, Inventory Levels Improve

Adam Hejl /
2024/01/24 4:09 pm EST

Semiconductor equipment maker Lam Research (NASDAQ:LCRX) beat analysts' expectations in Q2 FY2024, with revenue down 28.8% year on year to $3.76 billion. The company expects next quarter's revenue to be around $3.7 billion, in line with analysts' estimates. It made a non-GAAP profit of $7.52 per share, down from its profit of $10.71 per share in the same quarter last year.

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Lam Research (LRCX) Q2 FY2024 Highlights:

  • Market Capitalization: $109.4 billion
  • Revenue: $3.76 billion vs analyst estimates of $3.71 billion (1.4% beat)
  • EPS (non-GAAP): $7.52 vs analyst estimates of $7.12 (5.7% beat)
  • Revenue Guidance for Q3 2024 is $3.7 billion at the midpoint, roughly in line with what analysts were expecting
  • Free Cash Flow of $1.34 billion, up 53.1% from the previous quarter
  • Inventory Days Outstanding: 201, down from 237 in the previous quarter
  • Gross Margin (GAAP): 46.8%, up from 45% in the same quarter last year

"With our investments in extending product differentiation and building a flexible and efficient global infrastructure, we are in a strong position to benefit as innovations such as AI power robust semiconductor industry growth in the years to come," 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 one of the leading providers of the wafer fabrication equipment used to make semiconductors.

Semiconductor Manufacturing

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

Sales Growth

Lam Research's revenue growth over the last three years has been unremarkable, averaging 10.4% annually. This quarter, its revenue declined from $5.28 billion in the same quarter last year to $3.76 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

Even though Lam Research surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 28.8% year on year. This could mean that the current downcycle is deepening.

Lam Research looks like it's on the cusp of a rebound, as it's guiding to 4.6% year-on-year revenue growth for the next quarter. Analysts seem to agree as consesus estimates call for 10.3% growth over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity 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 DIO came in at 201, which is 60 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.

Key Takeaways from Lam Research's Q2 Results

We were impressed by Lam Research's strong improvement in inventory levels and EPS beat. We were also excited its free cash flow blew past Wall Street's estimates. The company noted that elevated demand for AI-driven solutions has been a revenue tailwind. Overall, we think this was a strong quarter that should satisfy shareholders. The stock is flat after reporting and currently trades at $844 per share.

So should you invest in Lam Research right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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