Lam Research (NASDAQ:LRCX) Delivers Q3 In Line With Estimates, No Surprises In Guidance For Next Quarter

Adam Hejl /
2021/10/20 4:39 pm EDT
Add to Watchlist

Semiconductor equipment maker Lam Research (NASDAQ:LCRX) reported Q3 FY2021 results in line with Wall St's expectations, with revenue up 71.9% year on year to $4.3 billion. Guidance also came in in-line with next quarter revenues guided to $4.4 billion. Lam Research made a GAAP profit of $1.17 billion, improving on its profit of $574.7 million, 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 FY2021 Highlights:

  • Revenue: $4.3 billion vs analyst estimates of $4.32 billion
  • EPS (non-GAAP): $8.36 vs analyst estimates of $8.13 (small beat)
  • Revenue guidance for Q4 2021 is $4.4 billion at the midpoint (in-line with estimates)
  • Free cash flow of $321 million, up 27.1% from previous quarter
  • Inventory Days Outstanding: 112, down from 115 previous quarter
  • Gross Margin (GAAP): 45.9%, down from 46.6% same quarter last year

“Driven by strong demand and solid execution, Lam delivered its sixth consecutive quarter of record revenue and earnings per share,” 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

As you can see below, Lam Research's revenue growth has been impressive over the last year, growing from quarterly revenue of $2.5 billion, to $4.3 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

This was a fantastic quarter for Lam Research with 71.9% revenue growth, beating analyst estimates by 15.6%. This marks 6 straight quarters of revenue growth, implying we are mid-cycle for Lam Research, as a typical upcycle tends to last 8-10 quarters.

Lam Research believes the growth is set to continue, and is guiding for revenue to grow 44.2% next quarter, and Wall St analysts are estimating growth 21% over the next twelve months.

There are others doing even better than Lam Research. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as the cyclical nature of semiconductor supply and demand impacts profitability. In a tight supply environment, inventories tend to be low, allowing chipmakers to exert pricing power, which helps increase gross margins. The inverse also applies, as rising inventory levels tend to foreshadow weakening pricing power and declining gross margins.

Lam Research Inventory Days Outstanding

This quarter, Lam Research’s inventory days came in at 112, 7 days above the five year average, suggesting that while trending down inventory levels are still little higher.

Key Takeaways from Lam Research's Q3 Results

Sporting a market capitalization of $80.3 billion, more than $4.61 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.

Lam Research met but not outperformed analysts expectations this quarter. While the revenue growth was still very strong and inventory levels decreased slightly, analysts are expecting a slowdown on the horizon. Zooming out, we think this was on ok quarter but some shareholders might have been hoping for more. The company is down 3.47% on the results and currently trades at $547 per share.

Lam Research may have had a good quarter, so should you 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.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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