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Lam Research Runs Past Estimates

Shares were higher in extended trading.

Updated from 4:56 p.m. EDT

Lam Research

(LRCX) - Get Lam Research Corporation Report

topped Wall Street's targets for its fiscal fourth quarter, but shares dropped after the chip-equipment company provided disappointing goals for its first quarter.

Shares briefly hit an 18 month high of $33.55 before dropping back to $31.30 on Island ECN. Shares ended Wednesday's regular session up 4.7% to $32.55.

Lam Research reported earnings of $66.5 million, or 47 cents a share, on sales of $353.8 million for the quarter ended June 26. During the same period last year, the company earned $52.7 million, or 38 cents a share, on sales of $329.6 million.

Analysts had expected earnings of 44 cents a share and sales of $349 million, on average, according to Thomson First Call.

At the quarter's start, Lam predicted flat orders, earnings between 41 cents and 45 cents a share, and revenue of $340 million to $350 million. The company had also forecast shipments of $345 million and gross margins of 50%.

Actual gross margins were 49.7% vs. 50% in the previous quarter and 48.3% in the same quarter last year. Orders were flat, and shipments jumped to $358 million.

For the first quarter, Lam predicted orders flat to down 5%, earnings of 26 cents to 30 cents a share including an equity impact of 5 cents a share, revenue of $310 million to $330 million, gross margins of 48% and shipments of $280 million.

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Analysts had expected earnings of 41 cents a share excluding the effects of equity compensation and sales of $345 million.

CEO Steve Newberry said the lower-than-expected revenue target and the declines in shipments for the current quarter are a function of strong shipments during the first half of the calendar year. He said fiscal first-quarter orders could exceed his goals based on the timing of some projected projects.

Newberry even issued some preliminary targets for the fiscal second quarter. For the December period, shipments should increase 15% to 20% and revenue should be flat. He predicted that total shipments in the second half of calendar 2005 will drop 15% vs. the first half. "We didn't want people to get the impression that

the shipment decline was something that would continue," Newberry said.

Likewise, CFO Martin Anstice pointed out that the company has $550 million of future revenue potential based on the company's backlog of $350 million, deferred revenue of $150 million and shipments into Japan of $50 million that are awaiting acceptance. This is down from $600 million in the March quarter, stemming from a $50 million decrease in the order backlog.

The report marks a new beginning of sorts for Lam. Last month, Jim Bagley, the company's chief executive since 1997, officially handed over his title to Newberry, who was Lam's president and COO. Bagley remains as executive chairman of the board.

Last week, Newberry told

that the company would largely continue forward along the same path but that he hoped to "get to another standard of excellence."

He foresaw product expansion around Lam's core competency of etching tools, which remove portions of films from silicon wafers in order to create semiconductors. Lam ranked as the ninth largest maker of semiconductor equipment last year.