Lam Research CEO Discusses Q4 2010 Results - Earnings Call Transcript

Lam Research Corporation ( LRCX)

Q4 2010 Earnings Call

January 26, 2011 5:00 pm ET


Shanye Hudson - Investor Relations

Steve Newberry - Chief Executive Officer
Ernest Maddock - Chief Financial Officer


C.J. Muse - Barclays Capital
Satya Kumar - Credit Suisse
Patrick Ho - Stifel Nicolaus
Krish Sankar - Bank of America Merrill Lynch
Steve Chin - UBS
Atif Malik - Morgan Stanley

Atif Malik - Morgan Stanley

Edwin Mok - Needham & Company

Timothy Arcuri - Citigroup

Jim Covello - Goldman Sachs

Jagadish Iyer - Arete Research

Ben Pang - Caris & Company

Mehdi Hosseini - Susquehanna International

Peter Kim - Deutsche Bank



Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Lam Research Corporation December 2010 quarterly results conference call. (Operator Instructions)

I would now like to turn the conference over to Shanye Hudson, Director of Investor Relations. Please go ahead, ma’am.

Shanye Hudson

Thank you, Jeremy. Good afternoon everyone and welcome to Lam Research Corporation’s quarterly conference call. Joining me today are Steve Newberry, Chief Executive Officer and Vice Chairman of the Board, and Ernie Maddock, Senior Vice President and Chief Financial Officer.

Ernie will first discuss the financial results for the December 2010 quarter. Steve will then share Lam’s business outlook for the March 2011 quarter before opening up the call for Q&A. The press releasing detailing our financial results was distributed by business wire shortly after 1:00PM this afternoon and is also available on our website at

Today’s call contains certain forward looking statements including those related to our forecast of market share, shipments, revenues, expenses, margins, earnings per share, and cash generation as well as other statements of the company’s expectations, beliefs, and plans. There are important factors that could cause actual results to differ materially from those described in these forward looking statements, and a list of these factors can be found in the supplied package accompanying this conference call and on our most recently filed 10K form with the Securities and Exchange Commission.

All forward looking statements are based on current information, and the company assumes no obligation to update any of them. This call is scheduled to last until 3:00PM and we ask that you please limit questions to one per firm with a brief follow. With that I will turn the call over to Ernie.

Ernest Maddock

Thank you, Shanye. Lam delivered an outstanding close to 2010. In the December quarter, Lam delivered strong cash flow, record shipments, record revenues, and record earnings per share. The December quarter performance extends to the year as Lam’s full calendar year revenue, earnings per share, shipments, and operating cash flows all set record levels as well. This performance reflects the company’s continued progress in market share and ongoing enhancement of our business model.

Turning to the specifics, shipments for the December quarter were 892 million, up 10% from the September quarter. Application and market segment breakdown for the quarter were as follows. 65 nanometer and bellow applications represented 88% of total system shipments. VRAM and NAND memory each represented 19% of total system shipments, with other memory comprising 2% making the total memory segment 40% of system shipments.

Foundry customers accounted for 38% of system shipments while logic and others constituted the balance of 22%. December quarter revenues were approximately $871 million exceeding the high end of our guidance range. This represents a sequential increase of 8% over the prior quarter and reflects strength in all product lines particularly our single-wafer clean products.

Ongoing gross margin was 46.8% which is aligned with our guidance range for the quarter. December quarter ongoing operating expenses were $166 million sequentially up $8 million. This increase is driven by continued investments in both core and customer specific R&D programs in support of our market share expansion. Ongoing operating income was $241 million reflecting a 10% growth over the September quarter and resulted in an ongoing operating margin of 27.7% which is at the high end of our guidance range.

Our ongoing tax rate for the December quarter was 10.3% somewhat lower than we had expected primarily due to the favorable impact of the federal R&D tax credit extension which affected both the September and the December quarters. In addition to the benefit reflected in our ongoing December quarter tax rate, our US gap net income was further favorably impacted by $4.8 million R&D tax credit related to the prior fiscal year bringing our December quarter gap tax rate down to 8.4%. Going forward we would expect an overall fiscal year tax rate in the low teens.

For the December quarter, our ongoing diluted EPS was $1.74 based on a share count of approximately $125 million. About $0.13 of the difference between this result and the $1.55 guidance midpoint was generated from our strong operating performance, and the remainder was primarily attributable to lower taxes.

Turning to the balance sheet, our crash and short term investments including restricted cash and investments totaled $1.2 billion. In December, we generated $186 million in cash from operations, and there were no share purchases under our existing board authorization.

For the calendar year 2010, Lam generated $716 million in cash from operations representing 24% of overall revenue. Accounts receivable days outstanding were 72 days, up from 59 days in the September quarter and reflect minor timing differences related to year end customer payment.

Inventory returns were 5.6, up from the September quarter end performance of 5.1.

At the end of the quarter, differed revenue was $223 million and as usual excludes shipments to Japanese customers that will revenue in future quarters. The revenue value for these shipments totaled $48 million. Non tax expenses include among other items 13 million for equity compensation and 19 million for depreciation and amortization. Capital expenditures were 38 million and our employee headcount at December end was approximately 3,400.

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