Lam- good quarter but supply chain headwinds limit upside
Memory seems OK for now but watch pricing
China will also weaken which may add caution
Performance remains solid as does technology prowess
The yellow caution flag in the Semi race impacts Lam as well
As we suggested two weeks ago and saw with ASML this morning, supply chain issues are coming home to the semiconductor industry itself. While not yet putting a major dent in business we are seeing some weakness or caution in outlook.
Despite all this, Lam put up great numbers. Revenues at $4.3B were a tad on the light side but still resulted in good earnings at $8.36/share. Street numbers were $4.32B and EPS of $8.21. Guidance is for $4.4B +-$250M and EPS of $8.45 +- $0.50 versus street of $4.4B and $8.47…so more or less in line. A half beat and an “in-line”.
Lam remains the “poster child” for memory sector
Memory was 64% of Lams business with NAND being about 70% of that. Although Lam management went to ;lengths to talk about foundry/logic they are still inextricably tied to memory as their mainstay.
Memory pricing weakness could be an early negative sign
We have started to see some weakness in memory pricing with the weakness already reaching some retail products in the form of discounted pricing on SSD’s.
We are likely at or past the peak demand season for memory on a seasonal basis. Much memory related product bound for holiday sales is already built and on a boat to the US.
The memory industry usually sees its weakest period in the post holiday period of Q1.
Memory has not been the cause of most of the reported semiconductor shortages and has remained in good supply.
We need to continue focus on the memory space as memory makers are usually the fastest at shutting off the spigots of new capacity and tool buying in the chip industry as they tend to have the fastest reaction and shortest outlook radar. While ASML has an 18 month backlog, Lam is more of a turns business.
Supply Chain headwinds are less complex
While Lam talks about supply chain headwinds like shipping costs and issues we do not think they are nearly as complex as ASML which makes a much more complex tool with a much more complex and international supply chain.
Lam also spoke about some margin pressure due to the start up ,of its new Asian manufacturing whose costs are not yet amortized.
Lam still says it is supply constrained and it does not appear that the constraint is going away and it obviously is weighing down the future outlook.
Despite the caution business is at record levels- Imagine a Duck
Despite all the concerns business is at record levels. We may be seeing a bit of slowing as you can’t grow that fast forever but its still great.
Shareholder returns and financials are all in fantastic shape. We imagine the image of a duck everything appears calm and beautiful on the surface but likely furiously paddling away underneath the water to make shipments and get components.
Given the conservative outlook coupled with the softness of revenues, investors are not going to be happy. Add to that some concerns about supply chain headwinds and a sprinkling of memory nervousness and you will see stock weakness.
As with others in the sector it appears that the stocks may have rolled over with no real catalyst to get them moving again.
The dreaded “supply chain” words have gone from a positive influence of chip shortages to a negative influence of sand in the gears of production. While the numbers are still great the “spin” is not at all positive.
It would be nice to be able to bottle up all the great results to save them for a time when they would be more of a positive influence on investors but alas that is not the case.