10-QPeriod: Q2 FY2013

LAM RESEARCH CORP Quarterly Report for Q2 Ended Dec 23, 2012

Filed January 31, 2013For Securities:LRCX

Summary

Lam Research Corporation (LRCX) reported its financial results for the fiscal quarter ended December 23, 2012. The company experienced a decrease in revenue compared to the previous quarter, reflecting a slowdown in demand for semiconductor capital equipment, particularly in the NAND memory sector. Despite this, year-over-year revenue saw a significant increase due to the acquisition of Novellus Systems, Inc., which was completed in June 2012. The integration of Novellus is a key focus, contributing to both increased operational scale and certain acquisition-related costs impacting gross margins. Financially, the company maintained a strong liquidity position with approximately $2.7 billion in cash and investments. However, profitability was significantly impacted by higher operating expenses, including increased R&D and SG&A costs, largely attributable to the Novellus integration and ongoing investments in technology. Net income and diluted EPS saw a substantial decline compared to the prior year's comparable period. Investors should monitor the company's ability to navigate the cyclical semiconductor industry, manage integration costs, and capitalize on anticipated demand increases in the latter half of 2013.

Financial Highlights

53 data points
Beta

Revenue

$860.89M

36.6% Gross Margin

Net Income

$6.41M

0.7% Net Margin

EPS (Diluted)

$0.00

Total Assets

$7.36B

Cash & Equivalents

$1.19B

Free Cash Flow

$193.23M

Financial Statements
Beta
Revenue$860.89M
Cost of Revenue$545.47M
Gross Profit$315.41M
R&D Expenses$165.95M
SG&A Expenses$145.42M
Operating Expenses$311.37M
Operating Income$4.04M
Interest Expense$14.97M
Net Income$6.41M
EPS (Basic)$0.00
EPS (Diluted)$0.00
Shares Outstanding (Basic)1.71B
Shares Outstanding (Diluted)1.73B

Key Highlights

  • 1Revenue for the quarter ended December 23, 2012, was $860.9 million, a decrease from the prior quarter's $906.9 million but an increase from $584.0 million in the same period last year, driven by the Novellus acquisition.
  • 2Gross margin percentage decreased to 36.6% from 36.8% in the prior quarter and 40.2% in the prior year's quarter, impacted by product rationalization costs, unfavorable factory utilization, and acquisition-related inventory adjustments.
  • 3Net income for the quarter was $6.4 million, a significant decrease from $33.2 million in the prior year's comparable quarter. Diluted EPS was $0.04 compared to $0.27.
  • 4Operating expenses (R&D and SG&A) increased significantly year-over-year due to the inclusion of Novellus' operations, higher employee compensation, supplies, and amortization of acquired intangible assets.
  • 5The company maintained a strong liquidity position with approximately $2.7 billion in cash, cash equivalents, and short-term investments.
  • 6Significant equity-based compensation expenses of $24.0 million were recognized for the quarter.
  • 7The company repurchased $355 million of its common stock during the quarter as part of its ongoing share repurchase program.

Frequently Asked Questions

The acquisition of Novellus Systems, Inc. in June 2012 significantly boosted Lam Research's revenue on a year-over-year basis, contributing to a larger operational scale. However, it also introduced acquisition-related costs, such as inventory fair value adjustments and amortization of intangible assets, which negatively impacted gross margins. Increased employee compensation and other operating expenses related to the combined entity also contributed to higher overall operating expenses.

The substantial decrease in net income and diluted EPS was primarily driven by a combination of factors. These include lower gross margins due to integration costs and operational inefficiencies, coupled with a significant increase in operating expenses (R&D and SG&A) stemming from the Novellus acquisition and ongoing investments. The cyclical downturn in the semiconductor capital equipment market also contributed to reduced profitability.

Lam Research maintained a strong liquidity position, with approximately $2.7 billion in cash, cash equivalents, and short-term investments as of December 23, 2012. The company generated positive cash flow from operations and used cash for share repurchases and capital expenditures. Management believes its current liquidity is sufficient to support operations for at least the next 12 months, despite the cyclical nature of the industry.

Management believes that demand for mobile products will continue to drive growth, potentially leading to increased capital equipment spending in the latter half of 2013. While the first half of 2013 is expected to be weaker, the long-term outlook is positive due to increasing complexity in semiconductor manufacturing and growing demand, particularly in mobility. Investors should watch for recovery signs and the company's ability to manage costs and integration challenges.