Lam Research (NASDAQ:LRCX) Q4: Beats On Revenue, Provides Encouraging Quarterly Guidance

Anthony Lee /
2023/07/26 4:14 pm EDT

Semiconductor equipment maker Lam Research (NASDAQ:LCRX) reported Q4 FY2023 results exceeding Wall Street analysts' expectations, with revenue down 30.8% year on year to $3.21 billion. Guidance for next quarter's revenue was $3.4 billion at the midpoint, 2.19% above analysts' estimates. Lam Research made a GAAP profit of $802.5 million, down from its profit of $1.21 billion in the same quarter last year.

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Lam Research (LRCX) Q4 FY2023 Highlights:

  • Revenue: $3.21 billion vs analyst estimates of $3.15 billion (1.83% beat)
  • EPS (non-GAAP): $5.98 vs analyst estimates of $5.13 (16.5% beat)
  • Revenue guidance for Q1 2024 is $3.4 billion at the midpoint, above analyst estimates of $3.33 billion
  • Free cash flow of $1.04 billion, down 35% from the previous quarter
  • Inventory Days Outstanding: 251, up from 202 in the previous quarter
  • Gross Margin (GAAP): 45.5%, in line with the same quarter last year

"Lam executed well in the June quarter with profitability levels exceeding the 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 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 strong, averaging 22.1% annually. But as you can see below, its revenue declined from $4.64 billion in the same quarter last year to $3.21 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 30.8% year on year. This could mean that the current downcycle is deepening.

Lam Research looks like it's headed into the trough of the semiconductor cycle, as it's guiding for a year-on-year revenue decline of 33% next quarter. Analysts are also estimating a 14.1% decline over the next 12 months.

In volatile times like these, we look for robust businesses with strong pricing power. Overlooked by most investors, this company is one of the highest-quality software companies in the world, and its software products have been the gold standard in critical industries for decades. The result is an impressive business that's up an incredible 18,000%+ since its IPO. You can find it on our platform for free.

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 251, which is 119 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from Lam Research's Q4 Results

Sporting a market capitalization of $87.4 billion, more than $5.37 billion in cash on hand, and positive free cash flow over the last 12 months, we believe that Lam Research is attractively positioned to invest in growth.

We were impressed by how significantly Lam Research blew past analysts' earnings expectations this quarter. We were also glad that next quarter's revenue guidance came in higher than Wall Street's expectations. On the other hand, its inventory levels materially increased, its operating margin declined and revenue has declined in absolute terms. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The stock is up 2.2% after reporting and currently trades at $657.2 per share.

So should you invest in Lam Research right now? When making that decision, it's important to consider its valuation, business qualities, and what's happened in the latest quarter. We cover this and more in our full company report, and it's free.

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