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    LRCX
    Earnings call· Mar 2025(Q3 FY25)

    LAM RESEARCH CORP LRCX

    Apr 23, 2025 Source

    Executive summary

    Lam Research Q3 FY25 — Record Foundry Revenue and Gross Margin Expansion

    Lam Research delivered robust Q3 FY25 results, driven by record foundry revenue and expanding gross margins, reflecting successful execution of its long-term outperformance strategy. The company is experiencing significant momentum in leading-edge technologies and installed base services, positioning it to outgrow overall WFE. While closely monitoring macro uncertainties and tariff impacts, Lam remains focused on innovation and operational efficiency.

    Highlights

    5

    • Revenue of $4.72 billion, exceeding the midpoint of guidance.

    • Gross margin of 49%, a record since the Novellus merger, with guidance for further expansion to 49.5% in Q4 FY25.

    • Foundry revenue reached a new record in dollar terms, representing 48% of systems revenue, up from 35% in the prior quarter.

    • Operating margin of 32.8%, near the high end of guidance, with Q4 FY25 guidance of 33.5% representing the highest since the late 1990s.

    • Strong momentum in new products like Striker SPARC ALD and Akara etch system, securing multiple key wins at leading-edge customers.

    Concerns

    4

    • Deferred revenue balance is expected to move lower by the end of 2025.

    • Other Income & Expense (OI&E) is projected to have a slight negative bias in the June quarter.

    • China revenue concentration is expected to be down year-over-year for calendar year 2025.

    • The second half of FY25 is anticipated to be lower than the first half, partly due to approximately $700 million of previously planned, second-half-weighted business from now-restricted Chinese customers.

    Guidance & targets

    10
    CategoryTargetConfidence
    Revenue
    $5 billion, plus or minus $300 million
    high materiality
    High
    Non-GAAP Gross Margin
    49.5%, plus or minus 1 percentage point
    high materiality
    High
    Non-GAAP Operating Margin
    33.5%, plus or minus 1 percentage point
    high materiality
    High
    Non-GAAP EPS
    $1.20, plus or minus $0.10
    high materiality
    High
    Diluted Share Count
    approximately 1.28 billion shares
    medium materiality
    High
    Non-GAAP Tax Rate
    low to mid-teens
    medium materiality
    High
    Calendar Year WFE Spending
    $100 billion range
    high materiality
    High
    Deferred Revenue Balance
    move lower
    medium materiality
    Medium
    Other Income & Expense (OI&E)
    slight negative bias
    low materiality
    Medium
    CSBG Revenue
    flattish
    medium materiality
    Medium

    Segment performance

    7
    SegmentRevenueYoYQoQMargin
    Memory Systems Revenue
    Nonvolatile memory growth driven by technology conversions from 1xx layer to 256-layer class devices, primarily from non-Chinese customers. DRAM spending focused on technology upgrades across 1-alpha, 1-beta, and 1-gamma nodes to enable DDR5, LPDDR5, and high-bandwidth memory.
    Nonvolatile Memory (NAND) Systems Revenue: 20% (down from 24% QoQ)DRAM Systems Revenue: 23% (down from 26% QoQ)
    		43%—down from 50%—
    Foundry Systems Revenue
    This level represents a new record in dollar terms for Lam. Shipments for gate-all-around nodes and advanced packaging were strong. Also benefited from mature node spending with domestic Chinese customers. Last time at these revenue levels (late 2022), foundry was in the low to mid-30% range.
    		48%—up from 35%—
    Logic and Other Systems Revenue
    Decrease primarily driven by reduced leading-edge spending.
    		9%—down from 15%—
    China Revenue
    Most revenue from China continues to come from domestic Chinese customers.
    		31%—flat—
    Taiwan Revenue
    Represented a new record level for Lam in dollar terms.
    		24%———
    Korea Revenue
    No specific commentary provided beyond the percentage.
    		24%———
    Customer Support Business Group (CSBG)
    Sequential decline attributable to lower Reliant Systems revenue, partly offset by record upgrade revenue. Spares continue to be the biggest individual component of CSBG, with upgrades growing significantly this year and Reliant down.
    		~$1.7 billion21% higherdown slightly—

    Operational metrics

    22
    Non-GAAP gross margin
    49.0%up from 47.5% QoQ
    Q3 FY25

    Highest quarterly gross margin percentage since Lam merged with Novellus in 2012, reflecting stronger mix and efficiencies from 'close to customer' manufacturing strategy.

    Non-GAAP operating expenses
    $763 millionup from $735 million QoQ
    Q3 FY25

    Increase due to growth in R&D activities associated with ongoing roadmap differentiation.

    Non-GAAP operating margin
    32.8%up from 30.7% QoQ
    Q3 FY25

    Near the high end of guidance, primarily due to higher revenue and stronger gross margin performance.

    Non-GAAP tax rate
    13.3%in line with expectations
    Q3 FY25

    Expected to be in the single-digit range for Q4 FY25 due to an anticipated tax reserve release.

    Other income expense
    -$7 millionvs. $11 million income QoQ
    Q3 FY25

    Change due to lower gains on equity investments and lower interest income.

    Share repurchases
    $347 million
    Q3 FY25

    Allocated to open market share repurchases.

    Dividends paid
    $296 million
    Q3 FY25

    Paid in the March quarter.

    Debt retired
    $500 million
    Q3 FY25

    Unsecured notes that reached maturity were retired using cash from the balance sheet.

    Diluted EPS
    $1.04
    Q3 FY25

    Based on a diluted share count of approximately 1.29 billion shares.

    Diluted share count
    1.29 billion sharesflat QoQ
    Q3 FY25

    Used for diluted EPS calculation.

    Remaining share repurchase authorization
    $8.8 billion
    Q3 FY25

    Remaining on the Board-authorized share repurchase program.

    Cash and short-term investments balance
    $5.5 billiondown slightly from $5.7 billion QoQ
    March quarter end

    Primary factors behind decrease were debt repayment, capital spending, and capital return activities.

    Total debt
    $4.5 billiondown $500 million QoQ
    March quarter end

    Declined due to the retirement of $500 million in unsecured notes.

    Days sales outstanding (DSO)
    62 daysdown from 69 days QoQ
    Q3 FY25

    Improved from the prior quarter.

    Inventory
    $4.5 billionslight increase QoQ
    March quarter end

    Increased as the company prepares for higher revenue levels in the June quarter.

    Inventory turns
    2.2xup from 2.1x QoQ
    Q3 FY25

    Improved from the previous quarter.

    Equity compensation
    $87 million
    Q3 FY25

    Noncash expense for the quarter.

    Depreciation
    $83 million
    Q3 FY25

    Noncash expense for the quarter.

    Amortization
    $14 million
    Q3 FY25

    Noncash expense for the quarter.

    Capital expenditures
    $288 millionup $100 million QoQ
    Q3 FY25

    Major driver of increase was the purchase of land in India for planned lab expansions; otherwise focused on lab investments in the U.S. and global growth in manufacturing.

    Headcount
    18,600 employeesup 300 QoQ
    March quarter end

    Headcount growth primarily in factory and field organizations to support increased tool installation and manufacturing activities, and in R&D for long-term product roadmap.

    R&D as % of total operating expenses
    70%
    Q3 FY25

    Reflects investment in roadmap differentiation.

    Industry KPIs

    8
    MetricValueDetails
    Ai data center revenue—
    Services installed base$1.7 billionUSD
    Fab capacity utilization—
    Wfe industry spend outlook$100 billion rangeUSD
    Design wins socket pipelinemultiple key wins
    Inventory channel inventory$4.5 billionUSD
    Node platform ramp schedule—
    End market segment revenue mixMemory 43%, Foundry 48%, Logic and Other 9%%

    Orderbook & backlog

    1
    Deferred revenue balance$2 billionMarch quarter end

    essentially flat QoQ

    Advance payments trended lower, while other components of the deferred balance trended higher. Expected to move lower by end of 2025.

    Product announcements

    6
    ProductTypeDetails
    Striker SPARC ALD toolmilestone
    ALTUS Halo systemexpansion
    Akara etch systemexpansion
    20-millimeter PECVD toolslaunch
    Pulsed Laser Deposition solutionslaunch
    SEMulator3D virtual fabrication platformexpansion

    Deals & partnerships

    2
    large memory customerMultiyear spares agreementmultiyear

    Agreement for their latest technology node.

    3 large customersLicensing agreements for virtual fabrication platform

    Agreements for SEMulator3D, which applies advanced modeling, simulation, data science, machine learning, and artificial intelligence.

    Capital programs

    1
    India Lab Expansionsunderway
    Period spend: $288 million (part of total capex)

    Benefit: planned lab expansions

    A major driver of the increase in capital expenditures in the March quarter was a purchase of land in India to enable planned lab expansions there.

    Risks & headwinds

    4
    Tariff and global economic environmentOngoing, short-term (90-day reprieve) and longer-term

    Dynamic environment, potential for macro impact and softer economy.

    Mitigation: Agile manufacturing and supply chain capability, flexible global footprint (U.S., Austria, Malaysia, Taiwan, Korea) to lessen direct impact.

    China restrictions impact on H2 FY25 revenueH2 FY25

    Approximately $700 million of planned H2 FY25 business from previously unrestricted Chinese customers is no longer there.

    Mitigation: Not explicitly stated for this specific impact, but general manufacturing flexibility applies.

    Other Income & Expense (OI&E) volatilityQ4 FY25

    Slight negative bias in the June quarter.

    Mitigation: Not stated, noted as susceptible to market-related fluctuations.

    Deferred revenue balance declineBy end of CY25

    Expected to move lower by end of 2025 from $2 billion.

    Mitigation: Not stated.

    What to watch in Q4 FY25

    5

    NAND upgrade cycle sustainability

    Beyond June quarter
    CurrentStrong growth, biggest percentage growth in systems revenue for Lam in June quarter.
    TargetContinued strong growth beyond June, broadening of spending beyond 1-2 customers.

    Why it matters

    Indicates the longevity of a key growth driver for Lam, impacting both new tool sales and CSBG upgrades.

    The nonvolatile memory segment is being driven by customer spending on technology conversions from 1xx layer to 256-layer class devices. We currently expect this segment to represent the biggest percentage growth in systems revenue for Lam in the June quarter.

    Q&A highlights

    6

    Inquired about the longevity of the NAND upgrade cycle beyond June, potential for broader customer spending, and the split between new tools and CSBG upgrades, as well as Lam's share of wallet.

    Tim Archer stated that 2/3 of industry bits are still at 1xx layer, indicating a large upgrade opportunity. Lam benefits from upgrading its own tools (high wallet share) and new tools needed for 3xx/4xx layers (e.g., Halo Moly). Doug Bettinger confirmed sustainability.

    “As we talked a couple of times on earnings calls recently, a significant portion, we said 2/3 of the industry's bits are still at around the 128 level. That's the 1xx generation. So we see a tremendous number of bits that ultimately have to get upgraded to 2xx plus.”

    asked by Christopher Muse · answered by Timothy Archer

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Outperformance Drivers

    Lam Research reiterated its three key drivers for outperforming overall WFE growth in the coming years. These include expanding its served market (SAM) faster than WFE due to increasing deposition and etch intensity from greater semiconductor device complexity. The company also expects to gain market share with its product portfolio targeting billion-dollar technology inflections such as gate-all-around, backside power distribution, advanced packaging, and dry EUV photoresist processing. Furthermore, Lam aims to grow its Customer Support Business Group (CSBG) revenue faster than its installed base by offering upgrades, automation, and equipment intelligence solutions to enhance customer productivity.

    02

    New Product Momentum and Key Wins

    The company highlighted significant adoption and key wins for its new product offerings. Lam's Striker SPARC ALD tool, which delivers dense conformal low-k carbide films, secured multiple key wins for spacer applications at a leading-edge foundry. The ALTUS Halo system, enabling barrierless atomic layer deposition of molybdenum, is seeing increased adoption across leading 3D NAND customers due to its ability to reduce resistance in critical contact and interconnect layers by 50%. Additionally, the new Akara etch system, featuring ultrafast plasma control, has rapidly solidified its market position, winning critical etch applications at a major DRAM manufacturer.

    03

    CSBG and Installed Base Value Creation

    Lam reported record revenues in its upgrades business within the Customer Support Business Group (CSBG), primarily driven by NAND technology conversions. Key DRAM and foundry logic customers are also actively upgrading and repurposing existing tools to optimize capital spending. The company views its upgradable architecture as a growing point of differentiation, enabling customers to cost-effectively scale technology on existing equipment while creating revenue and share gain opportunities for Lam. A new multiyear spares agreement was signed with a large memory customer for their latest technology node, ensuring component quality, cost, and availability.

    04

    Specialty Technologies and Virtual Fabrication Advances

    In specialty technologies, Lam achieved two key milestones: displacing a competitor and shipping multiple 20-millimeter PECVD tools for silicon carbide-based wide-bandgap power device fabrication, and extending its Pulsed Laser Deposition solutions, with the latest tool shipping this year for an advanced memory application. The company also announced new licensing agreements with three large customers for its virtual fabrication platform, SEMulator3D. This platform applies advanced modeling, simulation, data science, machine learning, and AI to enhance equipment performance and shorten process optimization time, becoming a required discipline in advanced technology development.

    05

    Operational Efficiency and Gross Margin Expansion

    Lam Research achieved a gross margin of 49% in the March quarter, marking the highest percentage since the Novellus merger in 2012, and guided for further expansion to 49.5% in the June quarter. This improvement reflects a stronger product mix and efficiencies derived from its 'close to customer' manufacturing strategy. Management noted that this strategy has contributed an estimated 200 basis points or more to gross margin uplift over the past several years, benefiting customers through closer proximity, faster turnaround times, and more affordable solutions.

    AI-generated summary of the company’s earnings call. Not investment advice.