LRCX Strong Beat and Guide

Lam reported strong beat & guide, memory returns-
China trade and Covid impact near zero-
Looking at a strong H2 with WFE in mid $50B+-

Back on Cruise Control

Lam reported a great quarter, easily beating expectations coming in at $2.79B and $4.78 in non GAAP EPS-
Guide is for $3.1B +-$200M and EPS of $5.06+-$0.40-
Margins and all financial metrics were equally good-
Guidance for 2020 WFE spending is for mid to high $50B range-
December is also projected to be a “strong” quarter so the second half looks very solid for 2020 for Lam-
China Trade & Covid = No Worries-

Management said there was no impact from China trade restrictions on Lam’s sales. Lam appears to be somewhat “self policing” in terms of looking at non-military end use customers in China. We find it a bit hard to believe that zero military end use chips are made on Lam equipment sold in China. But apparently government regulators either don’t care or aren’t enforcing any restrictions.

Aside from some slight increases in shipping costs Lam said there was no ongoing impact from Covid as they have worked through most all the supply chain issues.

Lam said they have pretty much caught up from prior supply chain constraints and it sounds like they are no longer supply constrained as they are confident in $3B + in sales.

There may be some concern that at 34% of Lam’s business, even bigger than Korea at 32%, China may be loading up on equipment prior to more restrictions placed on sales. Lam does not believe that there is some front end loading in China and seems to have no fear of any future restrictions.
China Trade restrictions are obviously a “paper tiger” – zhilaohu (纸老虎／紙老虎). The current administration talks a good game about getting tough on China and restricting US technology from being used in China for anti US purposes.

Reality is quite different as Lam seems to have seen zero impact and expects zero impact in the future from China trade restrictions as there aren’t any. It almost sounds as if restrictions don’t exist. This is obviously a far cry from ASML that saw its EUV scanner sale to China halted. If ASML was listening to the Lam call they should be screaming.

China , at 34% of Lams business was mostly to Chinese domestic customers not even foreign companies facilities in China.

China trade restrictions have turned out to be nothing more than a “paper tiger” with no teeth and zero impact, orchestrated more for show than reality.
Memory is climbing back to 61% of business…..

Memory, read that as Samsung NAND, is clearly coming back. Though the spend is still far from 2018 insane levels they are much higher than the low trough we saw last year.

DRAM is slower to come back as expected but is still recovering nicely.
Technology transitions are helping DRAM and clearly overall demand for memory in general remains solid for work from home and school at home etc;.
So far memory makers appear to be better in their spend patterns and haven’t gone crazy again (perhaps the memory debacle is still fresh in their minds)
At 61% of business, memory has not hit a level that should set off alarm bells. We would start to get concerned above 70%, and bells should go off above 80%.

2H2020 Looks good

The balance of 2020 looks very good according to Lam. This is somewhat juxtaposed to ASML that saw a sharp order drop off. There are likely two factors for the difference; Lam is more memory driven than ASML and ASML is probably a longer term leading indicator given the lead times of litho tools versus the “turns” business of etch and dep tools. Guidance on WFE spending suggests that December should be up again from September

The Stock

The earnings report was very positive and allayed any fears of Covid and China. The stock will obviously react very positively and has been on a tear since the depths of Covid concerns. With Covid and China behind us it seems like clear sailing for Lam at least for the balance of the year. For other stocks such as AMAT and KLAC we would expect similar positive tone as we would imagine that their China and Covid issues have been minimized as well.

Semiconductor Advisors

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