Semiconductor equipment maker Lam Research (NASDAQ:LCRX) announced better-than-expected results in the Q4 FY2022 quarter, with revenue up 11.8% year on year to $4.63 billion. On top of that, guidance for next quarter's revenue was surprisingly good, being $4.9 billion at the midpoint, 6.44% above what analysts were expecting. Lam Research made a GAAP profit of $1.2 billion, improving on its profit of $1.14 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) Q4 FY2022 Highlights:
- Revenue: $4.63 billion vs analyst estimates of $4.21 billion (10% beat)
- EPS (non-GAAP): $8.83 vs analyst estimates of $7.33 (20.4% beat)
- Revenue guidance for Q1 2023 is $4.9 billion at the midpoint, above analyst estimates of $4.6 billion
- Free cash flow of $318.1 million, down 48% from previous quarter
- Inventory Days Outstanding: 142, up from 141 previous quarter
- Gross Margin (GAAP): 45.3%, down from 46.2% same quarter last year
“Lam delivered record levels of revenue and earnings per share in the June quarter, while continuing to operate in a supply-constrained 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 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 22.8% annually. But as you can see below, last year has been slower, with quarterly revenue growing from $4.14 billion to $4.63 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).
While Lam Research beat analysts' revenue estimates, this was a slow quarter with just 11.8% revenue growth. This marks 11 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 believes the growth is set to even accelerate, and is guiding for revenue to grow 13.8% YoY next quarter, and Wall St analysts are estimating growth 12.3% 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.
This quarter, Lam Research’s inventory days came in at 142, 29 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 Q4 Results
With a market capitalization of $62 billion, more than $3.65 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.
We were impressed by how strongly Lam Research outperformed analysts’ earnings expectations this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. On the other hand, revenue growth is overall a bit slower these days and gross margin deteriorated a little. Overall, we think this was still a strong quarter, that should leave shareholders feeling very positive. The company is up 2.45% on the results and currently trades at $479 per share.
Should you invest in Lam Research 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.