– Lam reported as expected and guided flat- No recovery yet
– Some mix shifts but China still 40% (8X US at 5%)-NVM still low
– HBM is promising but Lam needs a broad memory recovery
– Lam has not seen order surge ASML saw- Likely lagging by 3-4 QTRs
An in line quarter and uninspiring flat guide for Q1
As compared to ASML’s huge order report this morning Lam put up relatively in line numbers and a flat guide with no visibility on an upturn. Revenues were $3.76B and EPS of $7.52 with the year at $14.3B and $27.33EPS.
Although the company suggested that overall WFE would go from low $80B 2023 to mid $80B in 2024 we did not hear that they were on the road to recovery just yet.
The flat guide coupled with conservative language makes it clear that we are not yet in recovery mode. This sense was underscored by a headcount reduction and keeping expenses and inventory under control.
They talked about memory fab utilization remaining low DRAM was 31% of business , NAND remained relatively low at 17%. Service was $1.46B or about 39% of business so tools sales continue to be very weak.
China is “stable” at 40% of business- Could represent over 50% of tool sales
Lam still remains highly dependent upon China which was 40% of business and according to management will likely remain at elevated levels. This compares to the US at 5%, so China is outspending the US at Lam by eight to one.
We think this exposure remains an overall negative on the story. If we back out the service business which is obviously dominant in older markets we could imagine that China is likely over 50% of Lam’s sales which is exposed if there are any serious restrictions imposed.
Lam will likely lag ASML by 3-4 quarters
given the lead times of litho tools versus the turns business that are Lam’s tools we would expect Lam to see an order pick up in the second half or end of 2024. Customers are not going to buy dep and etch tools without having a litho tool to drive patterning.
This would tend to imply a flattish 2024 overall with perhaps some pick up at the end of the year.
High Bandwidth memory and DDR5 are bright spots
As we have mentioned many times HBM will clearly be great given how strongly it will be driven by AI growth, however HBM is a relatively small part of the overall memory market. We also remain concerned about potential oversupply and price collapse as all HBM makers are rushing to put on more capacity or move existing other DRAM capacity to HBM. There will clearly be a bunch of HBM spend in the near term but Lam needs a much broader recovery in the broader memory market.
The NAND/NVM market remains oversupplied with capex spending at historical lows.
With the current and continued oversupply in memory we don’t see the need for any new memory fabs in quite some time. What we will likely see are mainly upgrades in existing fabs to HBM or DDR5.
Lam has historically been the poster child for memory and Korea related to it. Lam has done a good job in the weak memory market by diversifying into foundry/logic. China has obviously made up for much of the Korean weakness as well.
Lam was flat in the after market after being up 2% on the strong ASML news.
We are not motivated to go out and buy either Lam or AMAT based on Lam’s mediocre earnings call. There is not enough evidence of a near term recovery and the stock is already trading at a premium that we believe is above what the stock deserves given where the company is in the cycle.
Given the differential between what we heard from ASML and Lam, ASML remains our clear preference.
We do think Lam will obviously recover but after ASML and the recovery may not be nearly as strong as ASML which is driven by EUV and the High NA introduction.
We have maintained the view that the memory over supply is large. If we are just now starting to see an uptick in memory fab utilization it will likely be a much longer time before they start buying more NAND equipment and even the bright spots of HBM and DDR5 are not nearly enough to make up the difference.
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