Q2 2021 Lam Research Corp Earnings Call
[music].
Please standby.
Good day and welcome to the Lam Research is December quarter Financial conference call at this it sounds like to turn the conference over to MS. Tina Correia corporate Vice President of Finance and Investor Relations. Please go ahead ma'am.
Thank you and good afternoon, everyone and welcome to the Lam Research quarterly earnings Conference call with me today are Tim Archer, President and Chief Executive Officer, and Doug Bettinger, Executive Vice President and Chief Financial Officer.
During today's call wheelchair our overview on the business environment, and we will review our financial results for the December 2020, Conger and our outlook for the March 2021 quarter.
The press release detailing our financial results.
Distributed a little after one o'clock P M Pacific time this afternoon.
The release can also be found on the Investor Relations section of the Companys website, along with the presentation slides that accompany today's call.
Today's presentation and Q&A includes forward looking statements that are subject to risks and uncertainties reflected in the risk factors disclosed in our SEC public filings. Please.
Please see accompanying slides in the presentation for additional information.
Today's discussion of our financial results will be presented on a non-GAAP financial basis, unless otherwise specified a.
A detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings press release.
This call is scheduled to last until three o'clock P M Pacific time.
A replay of this call will be made available later this afternoon on our website and with that I'll hand, the call over to Tim.
Thanks, Tina and good afternoon, everyone 2020 was a remarkable year for Lam research, our global James Rose to meet the unprecedented challenges of the COVID-19 pandemic and delivered the best year in our history total revenue of $11 9 billion.
And earnings per share of $20 45 were.
We'll go record highs for the company driven by served available market market share and customer support business growth.
Through the year, we also launched new products and announced breakthrough technology solutions that we believe lay the foundation for our continued success.
Before going into details I want to express my sincere thanks to our teams for their incredible execution in an extraordinarily difficult environment.
And to our customers and suppliers for their partnership and support as we all adapted to the unforeseen events of 2020.
We entered the new year with hopes that the world will soon emerge from the COVID-19 health crisis and move towards a global recovery.
From our view WP spending in 2020 ended in the high $50 billion range. This is about where we estimated at our Investor day in March just before the extent of COVID-19 impact was known.
We saw spending growth across all segments of the market led by a recovery in NAND continued expansion in foundry logic and a slight pickup in DRAM.
China domestic spending for the year was in the $10 billion plus range.
As we look to 2021, we see strong momentum across all parts of our business. Our early view is for substantial <unk> growth to the high <unk> to $70 billion range supported by the ongoing migration to higher layer counts demand.
Our strong spending environment in DRAM and increased investment in foundry logic as indicated by recent customer commentary.
Currently we are seeing spending by it somewhat towards the first half of 2021.
While today's absolute levels of <unk> are significantly higher than a few years ago. We believe the rapid digitization of the global economy combined with rising capital intensity due to greater process complexity supports robust multiyear WP spending in fact this is a common theme that.
Pins our outlook for the next several years. It is the sustainable growth throughout the semiconductor value chain will be driven by the proliferation of artificial intelligence high performance computing Iot five G and the incredible societal advances and user experiences these technologies enable.
We expect strong demand from a diverse set of end use markets to positively impact semiconductor and semiconductor equipment growth in 2021 and beyond.
Take for example, the $200 billion global online gaming market nearly 3 billion people worldwide actively play video games across a variety of platforms generating over the last five years more than a 50% CAGR in data growth as users embrace realistic experiences enabled by more powerful process.
Sirs faster memory and higher graphics resolution.
If you just look at a sub segment of the broader gaming market, namely gaming consoles. The number of these units shipped annually is much smaller than the number of smartphones sold however, when you consider that a GPU for a gaming console is approximately four times the size of the smartphone application processor. This is an important dry.
Ever of incremental WMC.
From a memory and storage perspective, newer consoles utilized approximately twice the DRAM bits and employee SSD based storage versus HDD in prior generations.
Add rising capital intensity trends on top of this semiconductor content growth and the impact on wip increases further.
We estimate that a 5% upside in the game console market has the potential to drive about $500 million of.
Incremental WMC.
And this is just one end use market example, if we similarly look at the impact of the <unk> phone market.
See that 5% improved incremental demand in five <unk> units has the potential to drive close to $1 billion.
Incremental <unk> it.
It is demand drivers such as these that have strengthened our conviction around the sustainability of <unk> spending over a multiyear period.
It is against this positive backdrop that Lam remains focused on executing to our long term objection objectives for Sam expansion market share gains and installed base business growth. We described at our Investor Day last March.
In NAND, we continue to extend our strong leadership position, we estimate that our tools have now cumulatively processed approximately $37 million more wafers than our nearest competition through the three most critical <unk> NAND applications.
Since we first provided this metric at our Investor day less than one year ago, we have widened the wafers processed experienced GAAP by more than 40%.
The accelerated learning that comes from our installed base of <unk>, NAND systems, which Lam in the best position to deliver the solutions needed to meet our customers' next generation manufacturing challenges. It also allows us to gain early insight into new opportunities being created by technology inflections for.
<unk> in 2020, we announced our new striker FTE atomic layer deposition system, which employs a unique I still capability for high aspect ratio dielectric GAAP film.
This tool addresses a new technology need for <unk> NAND devices scaling to 128 layers or more and production ramp of Stryker FTE is underway at multiple customers.
2020 also saw the launch of <unk>, our next generation etch platform and today, we announced our new <unk> high aspect ratio dielectric etch module on the <unk> site.
Phanteks features advanced RF technology, and new uniformity enhancements to enable next generation device roadmaps.
<unk> and <unk> together collect more data per wafer than ever before enabling advanced equipment intelligence and to deliver new levels of productivity and process control.
The timing of our Val Tex launch intercept DRAM and NAND roadmaps facing increasingly complex node to node scaling challenges.
As a result than Texas already in qualification with both DRAM and NAND customers and repeat orders have been received to ramp this system into high volume production in 2021.
For foundry logic, we continue to target new technology inflections to expand our opportunity and position.
Our <unk> conductor etch system has been engineered with an advanced RF pulsing capability to meet the unique requirements of extremely narrow high aspect ratio features. It also provides extend ability to future devices, featuring nano wire, where nano sheet architectures.
Leading edge foundry logic customers are increasingly adopting <unk> for their most critical front end of line applications of five nanometer and beyond where the need for atomic level precision pitch becomes more acute.
Moreover, as devices scale parasitic RC degrades transistor performance.
As a result, we are seeing increasing customer pull for Lam etch and deposition solutions designed to reduce RC effects, including atomic layer etch for self aligned context, new functional films and optimized metal solutions, which reduce via in line resistance by simplifying middle of line.
And back end of line process flows.
In DRAM, we are seeing incremental share and Sam growth also coming from growing complexity of node transitions we.
We assess that we have greater than 50% etch market share in DRAM and due to the importance of high quality hard masks and masked open edges with EV, we expect.
The additional pattern and share gains in etch and deposition as EOG passenger increase of future nodes.
Adoption of <unk> in foundry logic, and DRAM is also creating a significant Sam expansion opportunity for Lam is dry photoresist solution.
Using this new technology, we believe we can accelerate our growth in both foundry logic and DRAM by disrupting the existing wet photoresist equipment market.
Our solution is gaining significant traction with leading customers as they look to improve the cost metrics of EQT patterning <unk>.
<unk> of this magnitude do take time to realize but with tools now being installed in wafers being run per top DRAM and foundry logic customers. We are pleased with our progress readying this innovative technology for production.
And finally 2020 was another outstanding year for our customer support business group.
Our installed base has now reached nearly 66000 chambers and <unk> revenue growth exceeded chamber growth by a factor of more than two ex for the 2020 calendar year.
We generated record revenues for all sub segments within <unk>.
Growth in our reliant business was driven by automotive <unk> in consumer electronics, and we expect these areas to continue to outpace overall market growth in coming years.
Meanwhile, we delivered on the expectations, we set on our last earnings call for calendar year growth of 25% and productivity focused services and six ex growth and remote support engagements.
We are excited about the trajectory and broad strength of this business and especially its proven ability to deliver world class support of complex technologies in high volume manufacturing.
To wrap up landmark its 40th anniversary in 2020 with record financial performance, a strong slate of innovative new products and services and solid execution on our strategy to expand leadership across markets.
As our March quarter guidance suggests we are optimistic about the opportunities that lie ahead for Lam and believe we are in an excellent position to win.
Thanks, again and now here's Doug.
Excellent.
Tim.
Afternoon, and thank you all for joining us today on what I know is a very busy earnings time.
I Hope you and your families have been safe and healthy since we last spoke with you.
I'm really quite pleased to be reporting these outstanding results.
We came in at the high end or exceeded the range for all guided metrics in the December quarter.
Despite the challenges we faced during 2020 related to the global pandemic.
Lam delivered record financial performance in revenue.
Operating income dollars and earnings per share.
Our December quarter revenue came in at $3 46 billion.
At the high end of our guidance range and.
And represented an increase of 9% from the September quarter.
The strength of our performance was driven by investments of all device segments as our customers ramp to meet the demands from a diverse set of end markets such as data centers.
<unk> phones, Pcs gaming consoles, Iot and automotive.
Overall, our revenue increase was not only driven by the wafer fab equipment needs of the industry.
But also by the continuous growth of our installed base.
We continue to add value to our customers by delivering extra parts equipment upgrades refurbished tools and advanced service offerings.
Looking at the details of our systems revenue. The memory segment was strong in the December quarter coming in at 68% of systems revenue.
This strength was driven by demand segment, which represented 51% of our systems revenue versus 39% in the prior quarter.
December was a record revenue level of net quarterly revenue for the company.
We have clear leadership positions in finance segment with customers investing in equivalent for 64, 96, and $1 28 layer devices.
DRAM investments contributed 17% of our systems revenue.
DRAM spending was spread over the one why onesie and one alpha notes.
The revenue percentage was down slightly from the 19% in the September quarter.
We expect continuing healthy investments in the combined memory market as we see prudent inventory and profitability management.
And foundry segment sides spending remains robust.
We concluded 2020 with a record level of revenue in this segment.
The majority of the investments in the December quarter were concentrated at the leading edge seven and five nanometer nodes.
Foundry represented 26% of our systems revenue per the quarter versus 36% in the September quarter.
Rounding out the systems revenue picture logic and other contributed the remaining 6% of systems revenue in December quarter.
Which was flat with the prior quarter level.
From a regional revenue perspective, we continue to see solid levels of investment in the China region coming in at 35% of total revenues.
Different from the last several quarters the majority of the China spending this quarter came from our global multinational customers investing in their China looked at Fabs.
As Tim noted, we achieved another record quarter revenue for our customer support business from <unk>.
In a $1 1 billion, which.
Which is an increase of 12% from the September quarter and over 35% higher than the same quarter in 2019.
The growth we're seeing in each of the sub segments of this business is a testament to the value, we're providing to our customers for technology and productivity enhancements.
Remained very comfortable with our commitment to deliver greater than 40% cumulative CSP revenue growth between 2019 and 2023 as we outlined at our Investor day in March of last year.
The December quarter gross margin was 46.6% generally in line with our expectations.
As I've noted in the past gross margin can fluctuate quarter to quarter due to overall business levels, along with customer and product mix.
In the quarter, our factory utilization levels improved with the increased business volume.
I would mentioned we do have continued headwinds to gross margin related to elevated costs per air freight that will impact us until free claims get back to more normalized levels.
Operating expenses for December came in at $563 million, which is an increase from the prior quarter largely as a result of increased incentive compensation expense that was tied to our higher profitability levels.
During calendar year 2020, we spent over $1 $3 billion in research and development.
Which represents approximately two thirds of our operating expenses.
The R&D focus is a fundamental part of offering differentiated products and capabilities.
<unk> enhanced scale.
And drive resist that deliver on our long term growth objectives.
We had over $1 billion from operating income in the December quarter for the first time in company history with operating margin at the high end of the guidance range coming in at 33%.
This was due to our strong revenue and gross margin.
Our non-GAAP tax rate for the quarter was 11, 5%.
As we've discussed in the past, we will have fluctuations moving tax rate from quarter to quarter and you should continue to expect the ongoing tax rate to be in the low teens level for the 2021 calendar year.
I would mentioned we are monitoring potential tax changes that may arise from the new administration in the United States.
Other income and expense was approximately $53 million of expense fairly flat with prior quarter.
I would like to remind you that beginning in the March 2020 quarter, the benefits and costs of our.
Employee deferred compensation plan are no longer mismatch in our non-GAAP results.
They are mismatched to the GAAP results.
This mismatch was $24 million in the December quarter.
You can see this in the GAAP reconciliation table of our earnings release.
The fluctuations were higher this quarter due to the volatility in the market.
Let me now turn to our capital return activities for the December quarter, we paid $188 million from dividends.
And allocated $703 million towards share repurchase.
During the quarter, our board approved an additional $5 billion share repurchase authorization.
For calendar year, 2020, we repurchased three 8 million shares deploying $1 4 billion.
At an average repurchase price of approximately $360 per share.
We also paid out dividends totaling approximately $686 million during the year.
In total our capital return activities represented close to 100% of our free cash flow.
I'd also mention that since we increased the level of our capital return back in 2017, which paid out $2 $1 billion from dividends.
And deployed nine 3 billion towards buybacks repurchasing 47 3 million shares.
At an average price of $198 per share.
Diluted earnings per share came in at $6 <unk> or.
Little above the guidance range and more importantly at an all time high for the company.
Our diluted share balance was down slightly from the September quarter coming in at 146 million shares pretty much as we forecast.
The share count includes the dilutive impact of approximately 800000 shares from the 2041 convertible notes.
First of all over the balance sheet cash and short term investments, including restricted cash decreased to $6 3 billion from $6 $9 billion from the prior quarter largely due to the capital return activities that I discussed previously.
Net sales outstanding increased to 76 days in the December quarter from 66 days in September.
The increase is largely due to revenue linearity and the timing of collections that fell in the March fiscal quarter.
I just mentioned that we collected $136 million on the first day of the March 2021 quarter and over $570 million during the first week.
Inventory turns were slightly up from the prior quarter level coming in at three two times.
Cash flow from operations came in at $345 million, which is somewhat depressed as a result of the growth in accounts receivable and inventory.
We are growing inventory to support the higher expected March business volumes and to mitigate supply chain risks from any potential disruption from the COVID-19 environment.
Non cash expenses included approximately $52 million for equity compensation.
$9 million for depreciation and $17 million per amortization.
Capital expenditures for the December quarter increased from September to a total of $92 million.
We are investing to support the expanding operations at our new Malaysia factory.
Our manufacturing facility in Ohio, but focused on critical spare parts.
And the recently announced Korea Technology Center.
We expect to see somewhat higher levels of capital expenditures in 2021, as we support these critical initiatives.
And the head count for the December quarter was approximately 12200 regular full time employees.
Resources have been added to support the increased business volume in our factories.
To service our customers in the field and to further enhance our R&D capabilities.
Okay.
Now looking ahead I'd like to provide our non-GAAP guidance for the March 2021 quarter share.
Expected revenue of $3.700 billion plus.
Plus or minus $200 million.
Gross margin of 46% plus or minus one percentage point.
Operating margins of 35% plus or minus one one percentage point and finally earnings per share of $6 55, plus or minus 40.
Based on a share count of approximately 145 million shares.
Tim has already given you our outlook for 2021 WMC.
Just reiterate we do think it will be a somewhat first half weighted spent.
Thanks could change as the year unfolds.
Should take that into account as you build your models for the year.
So in summary, we just concluded the best financial year in Lam Research is history.
Additionally, we provided guidance for March but represents another record level of financial performance.
The company is executing well in a challenging environment.
We are delivering on our near term near term objectives, while laying the framework for continued long term execution.
This is a testament to Lam leadership team and our dedicated employees.
Operator that concludes my prepared remarks, Tim and I would now like to open up the call for questions.
Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to the Arsenal treat dry equipment again press star one to ask a question.
And we'll take our first question of day from John Pitzer with Credit Suisse.
Good afternoon, Tim Doug Thanks for let me ask the questions and congratulations on the great results, Tim I just want to go back to your <unk> target guide for this year of high <unk> to 70 <unk>.
Harken back to the analyst day, almost a year ago year, three to four year target out with sort of a range of $60 million to $70 million and so I'm curious how should we think about how quickly we've gotten here do we worry about cyclical overheating and in a similar vein as you think about this year being perhaps a little bit more first half weighted is definitely a comp.
Terry on normal seasonality, you want to add capacity in the first half the demand in the second half or as you look at the bottoms up are you worried about any areas that are kind of.
Perhaps cyclically heating up a little bit too much.
But a lot of questions in there Josh.
Yes.
Maybe yes, there is a covenant in my in my script, even that was.
Ted.
Many of the cases the outlook, we gave at Investor day.
That was formulated before we really knew about COVID-19, before we solve all of these tremendous work from home drivers a lot of things that just really kind of changed maybe the way semiconductors have.
And the role of semiconductors or play kind of in the world in the last 12 months.
And so we give our best view when we give it and at that time, we thought a range of 60 to 70 billion seem pretty pretty reasonable given what we thought about demand clearly some segments of the market have been have been growing a lot faster as we just mentioned from those demand trends.
We look at it.
There is there is an urgency to get tooling to meet demand and thats not just thats all of our customers. That's also us as we as we look Doug talked about investment in our Ohio facility to build critical spare parts as factories are running at.
Very high levels of utilization, so we're investing our customers are investing.
I think the outlook is.
It's difficult to say, we are telling you right now it looks like its first half somewhat first half weighted.
I also talked about long term demand drivers that we think fundamentally continue to.
Become growth drivers for this industry in the long term and we're just seeing growth I gave you a couple of examples <unk> gaming consoles.
Everybody has read about the shortages in automotive.
Image sensors.
Such a role that semiconductors play today.
I don't think Theres any segment, we would point to that we feel is.
Overheating relative to the day.
The long term trends we've talked about.
One example, because I know, we'll get the question at some point on NAND, we talked about the recovery in NAND, but if you look at the spending on NAND over the last three years and the average that out it's actually very close to the to the average annual spending that we've outlined to a couple of years at the flash memory summit.
Which says that you need roughly $70 billion over a five year period to hit the high thirty's demand bit growth rate and so we feel we feel reasonably comfortable with the <unk>.
<unk> profiles across all the segments right now and there'll be changes quarter to quarter and such but long term. We think they are they are in line with the demand we're seeing.
Very helpful. Thank you.
Ex China.
Next we'll hear from Chris <unk> with Cowen and company.
Yes, hi, Thanks for taking my question can.
And then just to follow up on the WOTC commentary.
In a way to quantify how much is it pent up levels was back out.
Instead of any upside to the back half of everything is going to come from normally domestic channel anything other than I had a quick follow up.
Yes.
We haven't we haven't quantified it and I don't think were going to do so right now Doug shaking his head no.
For you right now but.
I think that to your point and Doug kind of mentioned it's like this is our view now you can always deal with demand.
And the urgency for the next couple of quarters much much stronger than the quarters further out. So I think to your question is a good launches where where might we see changes later in the year.
You have to look at some of the demand drivers and again, there is a broadening of demand across.
It's not just driven by leading edge in fact, we were looking at the amount of foundry spending for instance, thats coming from 28 nanometer and above it's at very high levels. These days you see that in strength that gets reported into our CSP business to reliant business.
I think you'll continue to see strength there.
It's helped semiconductors be incorporated in everything.
The content in cars such as just.
Increasing it in quite a rapid rate and those tend to drive kind of net off leading edge business at a very rapid pace.
Where that gets manufactured I mean, there is a fair bit of investment in China. For instance that is that those those trailing edge nodes and I think thats why we have seen strength in China, and why we actually believe that China, especially at those trailing edge nodes continues to be an area of strength as they they satisfy a lot of that.
Mystic demands for those those kinds of applications like <unk> and cars and other things so.
I guess, you could say there might be might be added strength and those those broader demand drivers that could surprise us later in the year.
Got it that's super helpful and just a quick follow up more meaningfully.
Is the assumption for this year what are you modeling from domestic channel. We think is 10 billion left in just kind of curious.
Initiatives for this year. Thank you.
I don't think were ready to give like an exact number but what we've said is $10 billion plus this year and we expect growth this year.
I don't know if Doug wants every day.
Probably in the same range, Chris plus plus minus a little bit is kind of how we're thinking about.
Thanks, Tom Thanks Rajiv.
Yep.
Next we'll hear from Timothy Arcuri with UBS.
Hi.
I guess, Doug I wanted to ask the prior question, maybe a little bit differently.
You said WP. This year, it's probably 58, sorry about this year last year, probably about 58, five so youre share grew about 100 basis points up to like 16, 6%. So if I assume that the service business, maybe you could help Tommy this is right, but it seems like service is going to be maybe 12, 25% or $12 50 in March.
So if you use that same share number you get like an 18 518018 5 billion worth of Wip in Q1, so that's almost $74 million annualized so.
So I sort of look at the full year number.
You've got your guiding $160 70, so that would sort of imply that the back half of the year has to be at least where the industry has to be down pretty substantially off of or the first half of the years.
This coupled with Q1's running so I'm.
Im just kind of wondering if you can comment on that and sort of like doubleclick momentum and I have a follow up ex.
Yes, I'm not going to unveil the whole the whole number so we do.
And I can't go through all the numbers.
As I sit here that you just spit out I'm sure you're doing the right math or clubs.
As we look into the year. It does look like a first half weighted year things.
Things move around things change.
I think probably NAND is first half weighted I think foundry and logic, probably a little bit also and I think DRAM probably through the year is fairly steady.
Things move around things change, we always have pretty good visibility at this point into the first half from the second half was far enough away that it can move around so that's why we kind of tried to put some range as you guys will do the math.
To kind of think it through.
And often company here, but that's generally what I'm seeing and how I'm thinking about it.
Okay Cool backed ex and then I guess my second question is on NAND. So.
It looks like Capex.
He is going to run above EBITDA this year for the industry I mean.
Youre going to the industry, probably dive 19 billion in NAND I don't know if you'd agree with that 19 billion diluted share so thats pretty substantially above the 2000 14 billion run rate that you get when you divide your $70 billion five so I guess when we take those two factors when you look at Capex being about EBITDA, usually that's not all of that sustainable.
So.
I guess, what's the tone of your customers do you does that concern you at all.
I'm curious on that day.
Tim when you look at this it'll go up it'll go down nothing goes up every quarter.
The net flows and if you go back to 19, it was pretty low.
We go through 'twenty, It went up a little bit 21.
Flat to up a little bit maybe yeah, probably.
And then it will course correct based on whatever demand looks like when we step back on the reasons, Tim and I. Both talked about these long term demand drivers as thats. The important thing to think about over the next several years for the industry. It wont go up every quarter. It never does that better than I do or as well as I do.
And timing of fab investment when things come in it'll it'll go up it'll go down that is what always happens in is what will happen in 2021, most likely.
Yes, I think if I would just add Tim.
Yes.
The absolute spending in NAND in any given year is somewhat out of our control, but what we do control is.
How we continued to expand share of every dollar of wip spend and Thats why I talked about how we've leveraged the learning we're getting from.
Being the company that runs the vast majority of the critical application demand to identify new opportunities and new applications and grow into those next node our share of Wi Fi goes higher.
And can you talk about Stryker FTE.
The ALJ tool for GAAP fill.
Brand new application for us compete from a space, where we didn't compete for and.
As trend node transitions occur into the future. It means that our share of there'll be a fee increases.
It's also important to remember that our share of every dollar of WP spent on node transitions actually is the highest and thats simply because of the role that etch and deposition play in those transitions. So if you end up in a year, let's say and I'm not I'm not characterizing any given year and this way, but at the end of the year, where you do add lots of <unk>.
Wafer starts people become concerned that that might be split of overheating with new capacity, but actually we look at it is adding to what we would consider to be kind of our <unk> annuity. The three D. NAND annuity, which that installed base is larger which means that the next transition Lam will get an even greater share of the spending.
That is required to move that entire three D. NAND installed base forward to the next node so.
I would say at any given year something happens within the long term trend, we think lands opportunity continues to grow at <unk> net.
Totally thanks, any other done great. Thanks.
Thanks, Tim.
We'll now hear from BJ Muse with Evercore.
Yeah, Hi, Thanks for taking the question a question free on the <unk> business.
Is your commentary on the first half weighted year.
Reflective for that business as well and as part of that if I hold the business just flat at Q4 level.
That business would run about 16% in calendar 'twenty, one so how should we think about GAAP.
The growth rate this year, and then I have a quick follow up.
Yes, Sanjay my commentary on first half second half was very much targeted at WSI not necessarily install base now the installed base.
Won't necessarily go every single quarter will grow every single year like we've been saying.
Feel really good about where we're at though I mean, it's we're record after record.
Tim shared the chamber count with you.
But it's been over the last several years. So the tailwind there is really very good.
Yeah, and I guess I would just add that our investor day, we talked about the goal we had to expand the number the.
The number of products and services available for the installed base as a way of increasing revenue per chamber and I think you've seen our progress in that area.
In this past year, and we would expect that to continue.
The increase going forward as we focus on equipment intelligence into remote services and a lot of database productivity enhancers.
That's great and a quick follow up.
On your last call you talked about how given.
Given the preponderance of manufacturing and free you Couldnt ship to one large larger employers in China.
Curious, if you've been able to get a license.
Part of that are you, including the spend there in year 2021, domestic China outlook. Thank.
Thank you.
Okay.
And so where we're at right now suggests we're still in the application process from license Havent heard back.
When we look at China, that's plus or minus how we described flat to up.
There's a range around it.
But at this point, we haven't heard back on the license we have applied.
We are weighted.
Thanks, Doug.
Thanks Vijay.
Next we'll hear from Harlan sur with Jpmorgan.
Good afternoon, and congratulations on the solid results and execution.
For all of the leading growth leading edge growth trends that you highlighted in your prepared remarks, Tim go ahead.
Correspondingly significant attach rate of analog and mixed signal semiconductor as to these applications.
Additionally, some of your customers are moving to 12 inch analog manufacturing and then we know that there's pretty significant tightness in foundry capacity from lagging edge 28, and 40 nanometer Cmos so.
And obviously I think you mentioned this is driving some of the strength of business apart from any what percent of your overall business is that lagging edge technology node.
Do you see this expanding as the year unfolds.
Yes.
We don't breakout exactly what percentage of our business is in that segment, but I did say, we we do see that area continuing to grow again and it's that's what we would consider to be the strongest secular growing part of our market because it's being driven by.
Almost every aspect of the economy in terms of the types of products that semiconductors going into.
That are manufactured at those trailing edge nodes and so.
We just we've seen I don't maybe I think it's something like I could get it wrong, it's eight or nine quarters I think in a row that we've now.
<unk> reported record revenues in that trailing edge.
Space. So one we feel like we know how to compete and address that market and we think that it's it's going to be just one that just continues to grow maybe not quarter over quarter over quarter, but.
In our records every quarter, but certainly year to year to year. It will it will continue to be an area of strength for us.
And I'll just remind you what we said back at the Investor Day in March and still believe that the.
Segment of WPZ will outgrow the rest of the market by I don't know two times, maybe three times, although the leading edge stuff has picked up since then but it's still a very good growth area for us.
Yeah, no. Thanks for the insights there.
And then to kind of follow up on <unk> question in calendar year 'twenty as you mentioned services grew 22%.
Not only double your installed base.
Growth CAGR over the past few years, but it's double the trend line target of around 10% as it relates to your 2023 2024, our financial model and if you just look at the continued complexity on these next generation leading edge tools the strong demand for lagging edge nodes. It appeared that the service business is going to continue to.
Go faster in this 10% growth target that you guys have put out their upgrades advanced services reliant refurbished flows. So would you broadly agree with that or other sort of offsets that we should be thinking about that could dampen the year over year service tissue trajectory back to that kind of normalized kind of 10% to 12%.
Paul.
Yes.
I don't think we are ready to to up our long term objective, just yet, but I think youre pointing out.
Some other things that are doing quite well in that part of the business around advanced services and we talked about a six ex engaged.
The increase in remote support engagements.
I think if we look when we put out that model Investor day, as I mentioned as Covid.
Covid environment kind of evolved.
Some of the advanced services the database services the pull for.
The idea of like less people related maintenance using data and remote capabilities.
Clearly cost a lot more traction in the second half of the year, we need to see how much of that sticks as we kind of come out of this environment, but we believe that that those things are known.
These capabilities are now kind of demonstrating their value in a lot of Apple state those will be strong growth drivers nothing that happened in 2020 is there probably were some instances of spares being.
Ordered a bit ahead of normal trend as everybody, including land do you see some of our inventory numbers tried to hedge against disruptions due to COVID-19, and so you might see some moderation if youre looking for offsets in that space. So we feel as Doug said very comfortable about hitting the objectives, we put out.
At the Investor day, but we're not ready to set a new growth target for net business until we see a little bit more but the trend this year.
Okay, great. Thank you.
Hi, Charles.
We'll move on to Vivek Arya with Bank of America.
Alright, Thanks for taking my question for the first one.
Can I ask what do you think is the right way to gauge the utilization of your NAND shipments last year.
Is there some engagement with those customers on the CSB day side that gives you insight into what that installed base utilization is because I imagine the net number at least somewhat of an upside surprise and I just wanted to understand what's driving that.
Well I guess, if I understand the question about youre kind of asking how.
How much the tools that we have shipped are being utilized in our customers' fabs and that's not something I can really comment on other obviously to our engagements with customers we have good insight into that.
It's not something we can really talk about from misunderstood the question maybe.
Or maybe if Tim.
Do you think it's a supply demand balance from an right now among among your customers.
Well I think we I think if you if you consider that we talked about further strength in the NAND market into 2021, I would say that.
There is a sense that more equipment as needed to bring on additional capabilities in band at this point in time for sure.
And as a quick follow up Doug I think you alluded to some cost headwinds from air freight.
Some of your semiconductor peers, I think have managed to kind of thoughts on increasing costs in other areas foundries and day first and substrates and so forth.
This is the kind of cost you could pass on I'm trying to think how do you go from your operating margins right now so the 32% to 34% kind of range you had outlined at your analyst day at similar level of annualized sales.
Yeah, Vivek I mean, we're always trying to get the best pricing that we can get its hard at times, though they're kind of past stuff like this through we're doing our best.
And it is it is a bit of a headwind so I guess we're not.
Push it through at this point I.
I do think just part of things will mitigate at some point as the world gets back to normal and freight lanes get back to normal things are just constrained right now reflect things in and out of our factory a lot oftentimes or at least we used it on the belly of a commercial aircraft carrier at times and they are just not flying at the vault.
There used to be I do think that gets back at some point once we get the COVID-19 under control in the world.
Any way to quantify the headwind it looks like 100 basis points of gross margin 50 basis points.
Vivek.
I Havent given us.
Number, but I would tell you it's noticeable that meaningful it's a meaningful had been drawing wouldn't be talking about it.
We're doing our best to manage it and I do believe it will get better overtime, but I haven't quantified it.
Understood. Thank you.
Thanks, Patrick.
Next we'll hear from Joe Moore with Morgan Stanley.
Yes.
Great. Thank you.
You talked about the drivers of the higher WFAN counter 'twenty, one you talked about migration to higher layer counts.
In NAND.
As well as DRAM and foundry I guess in the NAND side does.
Does that mean, you think NAND spending is higher for the year or are you not going to go that far and then for DRAM. It.
It seems like the economics are improving.
That's.
Where people spending sort of independent of that just thinking maybe if you go to technology migration or have you seen sort of stronger spending because of the market.
As Ben has been stabilizing and improving.
Yes, Joe I'll start and then I'll, let Tim add on as well as we look into 2021 right now pretty much. We see every segment of our business up right it's up in <unk>.
Laundry logic, it's up in NAND, it's up in DRAM.
To different degrees and like I kind of alluded to earlier things can change, but thats our outlook right now.
Again, we see these longer term demand drivers as a large part of what's going on and Tim If you want to add anything.
No I think you pretty much got it I mean, I think you started the question about NAND I mean again it's.
Again, this layer transition as a way for customers to reduce their cost in.
But those those transitions are complex from an etch and dep perspective, so creating a lot of demand for for our tools to help those people those transitions.
And to the extent that there are a lot of the NAND spending is on layer count migration, rather than adding incremental wafers I mean does that wouldnt Lam normally outgrow the WMC.
And that kind of environment, assuming there isn't like a lot of capacity being added in NAND.
Yes, Joe.
And our conversion as Tim alluded to earlier.
When you're just doing the layer count conversion, that's the sweet spot for us in terms of the percent of spend so the answer is yes.
With the caveat that you know everybody's installed base is a little bit different there's always a handful of new wafers coming in and you got to kind of Peel the onion back to the next layer and looked at what's going on in any one period, but I would agree with your comment that in the layer count conversion, that's a good spot for us.
Great. Thank you very much.
Thanks, Joe.
Yes.
So share Hari with Goldman Sachs has our next question.
Hi, guys. Thanks for taking the question and congrats on the strong results I have two as well my first one is.
Somewhat related to Joe's question.
Wanted to get your thoughts on your ability to outperform WMC in 2021.
Jim.
Given sort of the application wins that you have in the bag.
Given sort of the device type of mix that you guys are assuming internally.
Would it be fair to assume kind of a similar magnitude of outperformance in your systems business from 2021 will go into 2020 or do you think 2020 was.
But you need given how strong that was.
<unk>.
Go ahead, Thats a lot of attrition you're asking for.
As we look I mean, Doug just mentioned I mean, clearly we see strength across all parts of the business I mean, NAND NAND expansion.
It's clearly good for us.
As I mentioned in my comments, no more than 50% share in.
In DRAM etch, we're expanding our deposition. So DRAM is good foundry logic is an area, where obviously from an exposure perspective Lam has.
It's been less than the past, but we've talked about our improvements there and so I think even even there as the nodes move forward. Some of these new products, we're talking about whether it's.
Dry resist that might not be a 'twenty one story, maybe but more of a 'twenty two and beyond story.
So we're working hard to increase our Sam as a percentage of <unk>. So.
Guess, what I would just say is in terms of outperformance.
You got to go back to what we said at Investor Day, which is the way our past outperformance is.
To expand our Sam and coming from where we are in the high <unk>, We said, we're going to get to 40% and as a percentage of Wi Fi.
That's that's increasing our opportunity and then we do think with new products like <unk> and other products that are kind of in the pipeline to come on later this year those will be market share drivers for us and so combination Sam expansion and market share gains.
Hopefully lead to continued outperformance of the market.
Yeah. That's helpful and then as my follow up you just mentioned <unk>.
Pretty pretty fascinating technology.
Wondering if you could kind of give us some color on areas our points of differentiation vis vis your nearest competitor in Asia and if you can remind us what your market share aspirations are and dielectric touch over the next couple of years and that would be super helpful. Just given how relatively speaking you've been stronger in conductor etch. So I think the opportunity set is bigger.
Dielectric thank you yes.
Okay, great well just a couple of things I mean, one the <unk> story is really two parts. One is it is the first module on the <unk> platform. So again when youre thinking about same site youre thinking about tremendous amounts of data collection and using that not only to improve the productivity of the platform.
The maintenance in and such but also.
Process control and as you look at it now and that dielectric high aspect ratio etch, which is where van Texas targeted those actions are becoming incredibly difficult.
Both in NAND, and DRAM where that.
Product is really targeted.
We've leveraged the learnings from from all of those.
Those wafers I talked about we've been running relative to the competition in <unk> NAND to really understand what it takes to build.
The World Class high aspect ratio ex here and Thats, what we think were delivered to the market.
We do really well in dielectric etch quite honestly in.
Both DRAM and NAND already but.
We're not going to we haven't quantified I believe our dielectric etch ambition, but clearly it's higher in years to come and we think <unk> science to.
The platform to do that.
Got it thank you so much.
Thanks, so share.
We'll now hear from Blayne Curtis with Barclays.
Hey, guys. Thanks for taking my question Martin.
Wanted to go back.
You talked about obviously don't want to guide you gave us.
Guideposts, and obviously DRAM with the strongest now path forward.
All in Big Foundry Capex number, but your NAND came in from the call can you just walk us through what three months, what kind of improve for you I know you don't want a thousand perfectly for the year, but just trying to get a better feel what youre expecting between the three segments.
I don't know blend obviously.
One large foundry customer upsized their capex I think everybody understands what happened there I don't think any of US saw the totality of that comment. So clearly that was a bit of bit of the upside maybe that would be the only thing I would specifically point to.
Gotcha.
Just back on gross margin.
Do you have.
The higher freight costs.
Turning it down a bit revenue up can you just kind of walk us through the March guide and then this opportunity to elaborate.
Gross margin or even the opex as we look for that per year.
Yes, Glenn Thanks for the question.
I think you know everybody knows.
This isn't really a huge fixed cost business. So when revenue goes up it matters, but it's not what matters.
As much as in like our customers business product mix matters customer mix matters customer concentration moves gross margin around.
That's happened in probably a little bit on the March quarter.
Little bit of a headwind if I think about the longer term.
Getting to that financial model that we put out for 'twenty three two things I would I would point you to on the gross margin and operating income for that matter. One is this freight headwind that we're dealing with.
Second.
I referred to ramping the factory in Malaysia.
Going to be.
Somewhat more efficient little bit bigger factor, a little bit more cost efficient factories, so theres some upside that.
We're going to see in gross margin, there and Thats really from where we are today to where we're trying to get to where we're going to get to what gets you there.
Thank you.
Excellent.
Yeah.
Our next question will come from <unk> Malik with Citi.
Thanks for taking my simple.
Tim as you guys have seen strong growth in treaty devices, particularly in Nigeria, and announcing a new technology for high application.
My question is from the logic side at the logic devices are now moving in three dimensions example, manners sheet that three nanometer Korean foundry this year and how does that impact of the deposition etch opportunity and should we be looking at that as maybe an inflection.
I would hope you would be.
We've been talking about really.
At some point along the Roadmaps every device ultimately is inflicting to <unk> simply because that's how you get continued scaling and so I talked about our key go Gx tool. One other you start seeing new types of technologies come in in the etch and also deposition space I mentioned that tool.
<unk> with its atomic layer etch capabilities those tools are well suited to the types of <unk> devices, you're going to see a manner sheet or nano wire architectures. There will also be other tools, which we haven't.
It really talked about so publicly that they are in the hands of our customers around selective etch that will become much more prevalent within <unk> logic foundry devices and.
And then a whole slew of new deposition films and also help I mentioned some of the ERC and such so.
Yes, I think it's an area, where we can continue to expand our our Sam by catching kind of those post <unk> inflections in logic and foundry.
Our R&D that Doug talked about is really targeted towards towards growing our opportunity in that space.
Great and that we have good about supply constraints.
Chips in printed circuit boards.
Okay.
Is the availability of a chip impacting.
The ability to.
For your customers.
Okay, and any supply chain and as complex as ours is with as many suppliers as we go up there is always something that you're working your way through and.
Certainly there is a handful of those things today, given volume is inflicting up but we're managing through it pretty well.
Thank you.
Thank you operator, we have time for one more question. Please.
Certainly our final question will come from Joe Quattrochi with Wells Fargo.
Yes, thanks for taking the question.
On your expectations for domestic China being flat how are you thinking about the efficiency of spending this year as our customers continue to ramp up there.
Technology curves.
In China, specifically, Joe is that your question.
Yes for your domestic China customers I think in the past you talked about there is some level of inefficient spend just given that there so kind of learning.
Yes.
Our domestic China customer base is very broad it's much broader I think perhaps then.
All of you realize and you've got people have all kinds of different points along wrapping technologies. Some are doing a per real long time, some are brand new to certain technologies, when our customers new to with technology. It takes a little while to get to an efficient ramp point. So its a broad set of.
Customers that are at different points I think that's what I would describe again, depending on how long they've been doing what they're doing.
Okay Fair enough and then quickly on the <unk> side, how are you thinking about the improvement of memory fab productivity last year contributing to the growth and then.
How do we think about that this year, because I assume that the spare parts business would be more of a modest contributor to growth for that business. This year.
Well, let me think about that question, Tim if you have anything you'd want to add.
Consumption of spares will ebb and flow across every one of our end markets with utilization the utilization side spare part consumption has been somewhat higher its just to make sure.
Yes.
As a consumable part obviously so.
We'd say would go along with volume.
I don't know if im answering your question, but thats true in the memory Fabs as true in foundry and logic as well.
As Tim suggested maybe there was a little bit of buy ahead in spares moving little bit but.
I don't think that was that was huge.
And I don't think that.
It was just something that would be specific to memory, but in general.
Couple of comments, we've made about spare parts, maybe just due to come into us.
We have we are always.
<unk> focused on.
The critical applications because critical application.
You have to keep those chambers in very pristine condition in order to deal with with the Homeaway from results of customer needs. They tend to be bigger drivers of spare parts and so I think as each of these technology nodes gets more complex.
Spare parts and the capability of those spares continues to grow that's good for our business, but the flip side of that of course is that as customers cost and so that's why we are continuously looking for things like the new since our platform to help our customers reduce maintenance costs and running cost of the systems.
I mentioned <unk>, the first adopters and the first one is the ramp that production are going to be in the memory space and that's simply because it delivers technology at high productivity and that's that's really the key how do you how do you find that balance of getting the results on the wafer without consuming too many spare parts and without.
Moving to much of the tool equipment timing.
I think Lam has become very good at that and I think that again, we point to the volume of learning we have a high volume production across NAND and DRAM cost sensitive applications I think we may be the best at that.
Okay.
Thank you.
Thank you Jeff.
That will conclude today's question and answer session I will now turn the call over to MS Korea for any additional closing remarks.
We just wanted to thank everyone for joining today and we will talk to you all again soon thank you.
That will conclude today's conference. Thank you for your participation you may now disconnect.
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Yes.
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