LRCX- Coulda been worse but wasn’t so relief rally- Flattish is better than down

• Lam put in good quarter with flattish guide- still a slow recovery
• This is better than worst case fears of order drop like ASML
• China spend is slowing but tech spending increase offsets
• Relief rally as the market was braced for bad news and got OK news

Lam has OK, slightly better than in line quarter with OK guide….

It coulda been way worse but wasn’t.

It wasn’t a blow out quarter but at least it wasn’t a disaster that many had been bracing for after the ASML news last week.

Lam came in at $4.17B in revenues and $0.86 in EPS versus expected $4.05B and $0.80 so a “normal” slight beat.

Guidance is for $4.3B+-$300M and EPS of $0.87+-$0.10, flattish with street expectations of $4.24B and $0.84.

The fact that Lam is looking at flattish to slightly up is way better than the greater than 50% cut in orders ASML reported and the street was fearful of.

China moderating as expected but tech spending is improving.

China moderated from 39% of business to 37% of business with expectations of falling to about 30% in the December quarter. All this down from highs in the 40’s.

There were a ton of China questions on the conference call as analysts probed over their fears of a coming China collapse but there were no clear answers.

We did hear that tech spending, mainly in DRAM (read that as HBM) were improving while NAND is still languishing.

Still a very slow recovery from a very long and deep downturn

We have been covering the semiconductor industry for decades through many cycles and this is perhaps one of the slowest/longest recoveries we have ever seen the industry experience.

Memory obviously had built way too much excess capacity that we are still experiencing the after effects of.

Usually in a downcycle, all spending takes a holiday while capacity gets burned off. In this down cycle, China never stopped spending.

This downcycle was a whiplash cycle started by the COVID crisis which is largely responsible for the severity and the overbuild on the bounce back.

2025 WFE to be up from 2024….but how much?

Lam spoke about 2025 being better than 2024 but would not quantify by how much. Is it 1% better or 50% better….its anybody’s guess.

Our guess would be slightly up on the order of 10-15% with China slowing as we exit 2024 and technology spending picking up in foundry & DRAM.

The main issue we see is that with Samsung foundry and Intel not spending much its hard for the rest of the industry to offset that weakness.

The Stocks-Expect a short lived “relief rally”/bounce

The market was expecting news that was likely bad coming out of Lam after the ASML debacle last week.

Lams news was more or less in line and OK and wasn’t anywhere near the disaster that it could have been so we saw the aftermarket bounce in the stock and will likely see a bounce in the equipment stocks overall as investors breathe a sigh of relief.

We would caution investors that its clearly not off to the races as Lam’s lukewarm guidance underscores.

We see a quick bounce then settling in to a slightly lower overall valuation of the semi equipment market as the ASML dark cloud will still hang over the market until proven otherwise.

We would again point out that ASML is the canary in the coal mine of equipment orders as litho tools are always ordered well before other tools due to the long lead time.

Its also important to point out that Deposition and Etch tools that Lam and Applied makes are useless without litho tools to print the pattern that is then etched, so there is most certainly a relationship between the number of litho tools and dep and etch tools.

Bottom line is that the industry isn’t going to buy a lot of dep and etch tools while not buying litho tools….it just doesn’t work that way, that divergence does not exist (at least not for very long)

So be aware…..

About Semiconductor Advisors LLC

Semiconductor Advisors is an RIA (a Registered Investment Advisor),
specializing in technology companies with particular emphasis on semiconductor and semiconductor equipment companies. We have been covering the space longer and been involved with more transactions than any other financial professional in the space. We provide research, consulting and advisory services on strategic and financial matters to both industry participants as well as investors. We offer expert, intelligent, balanced research and advice. Our opinions are very direct and honest and offer an unbiased view as compared to other sources.

Also Read:

ASML surprise not a surprise (to us)- Bifurcation- Stocks reset- China headfake

SPIE Monterey- ASML, INTC – High NA Readiness- Bigger Masks/Smaller Features

Samsung Adds to Bad Semiconductor News

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