Q4 2021 Lam Research Corp Earnings Call
[music].
Good day and welcome to the June 'twenty, and 'twenty, 1 quarter financial conference call at.
At this time I would like to turn the conference over to Tina Correia corporate Vice President of Investor Relations. Please go ahead.
Thank you and good afternoon, everyone welcome to the Lam Research Corp.
<unk> 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, we will share our overview on the business environment and we will review our financial results for the June 2.
Quarterly for in 'twenty, 1 quarter.
And our outlook for the September 2021 quarter.
The press release detailing our financial results was distributed a little after 1 o'clock P. M Pacific time this afternoon.
The release can also be found on the Investor Relations.
<unk> section of the Companys website, along with the presentation slides that accompany today's call.
Today's presentation and Q&A include forward looking statements that are subject to risks and uncertainties reflected in the risk factors disclosed in our SEC public filings. Please.
Accompanying slides in the presentation for additional information.
Today's discussion of our financial results will be presented on a non-GAAP financial basis and.
Less otherwise specified of.
A detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings press release.
C of this call is scheduled to last until 3 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.
Thank you Tina and welcome everyone. Our June quarter results reflect continued strong execution across our systems.
And services businesses.
For the quarter came in well above expectations with record revenues of $4, 1.5 billion.
And earnings per share of $8.9 items, we also.
Generated record cash from operations in the quarter of $1.4 billion.
The June quarter marked the end of Lam fiscal.
The school year and despite of challenging operating environment, we delivered the highest revenue in the company's history.
To the prior fiscal year revenues grew more than 45% to $14.6 billion earnings per share increased at an even faster pace to a record $27.25.
In fiscal year, 2021, more than 70% higher than in fiscal year of 2020.
The demand environment for semiconductor equipment remained strong and we now see wafer fabrication equipment spending in calendar 2021 trending above $80 billion.
While absolute.
<unk> spending levels have risen to new highs, we remain confident in the health and sustainability of the industry at these levels.
For fab equipment spending as a percentage of semiconductor industry operating profit remains within historical ranges and semiconductors continue to enable critical technology.
Allergy transformations, such as AI <unk> high performance computing and Iot.
We believe robust semiconductor demand rising device manufacturing complexity and strategic regional investments are powerful drivers for multi year.
<unk> spending.
By device segments, we see strength across NAND, DRAM and foundry logic in calendar 2021.
Against the backdrop of broad demand increasing device manufacturing complexity plays well for Lam strength in critical applications and continue.
<unk> to create new growth opportunities.
Looking at the past 5 years as manufacturing complexity increased demand with the transition to <unk> Lam gained over 6 points of share of <unk>. In this segment and leaves the next closest supplier by about 8 points of customer spending.
In the June quarter, we secured another win for our critical deposition application and are now the tool of record for all of NAND manufacturers for this process.
Instrumental to our success has been the differentiation of afforded by our Quad station Chamber design.
Our multi station architecture.
True refined over many years allows us to use sequential processing to precisely tailor film properties to meet the needs of next generation devices without compromising the productivity required for high volume NAND, DRAM and foundry logic manufacturing.
Protection. Another example, where we believe we are well positioned to benefit from rising complexity is through our enablement of higher quality surface conditioning.
Surface properties have been shown to greatly impact device performance and existing surface preparation methods are in many cases insufficient to meet the stricter requirements.
Our new materials and tighter dimensional control at advanced nodes for.
The foundry logic segment, we recently introduced a range of novel selective etch strip and surface treatment solutions the <unk>.
Use our ultra high selectivity zero damage process capability to remove unwanted materials.
With minimal impact to other layers we.
We are gaining significant momentum with this new approach with multiple Lam tools selected by a large customer in the June quarter as tool of record for leading edge applications. We plan to share more details on this innovation in the near future.
Additional opportunities.
<unk> for Lam are being driven by the need for higher pattern Fidelity is foundry logic touch tolerance is tightened for.
For extremely small features the relationship between change in resistance to change and dimension is exponential therefore, necessitating an extreme level of precision in device fabrication and.
<unk> nodes.
Even small variations in pattern roughness, and the great RSV and transistor speed.
In response, we have developed.
<unk> solutions, such as our RF plasma pulsing capability to reduce line roughness by up to 30% the.
This technology has proven to be a.
In advance of enabler for many critical etch applications and when combined with our proprietary uniformity in RF power solutions has helped Lam maintain our overall market, leading position and multi patterning etch.
As the industry transitions to even more demanding <unk> patterning we.
King success applying these technology solutions to win new <unk> patterning steps.
Solving complex scaling challenges, including transitions to <unk> structures in foundry logic, and DRAM will not be accomplished without deeper collaboration across the ecosystem.
Our customers.
We are seeing increasingly highlighting the need for closer partnerships with the equipment industry to meet their overall device performance and cost Roadmaps.
As a result, we continue to expand R&D investments closer to customers with the aim of accelerating new application development shortening cycles of.
Learning and strengthening our understanding of the customers most difficult problems.
In addition to these regional R&D investments I am pleased to announce that we recently shipped our first modules from our new Malaysia factory.
This new facility adds resiliency to our global manufacturing network creates.
It's capability closer to key customers and supply chain partners and provides us with urgently needed capacity to support our continuing growth.
I would like to acknowledge the tremendous efforts of the Lam employees and partners. The completed the Malaysia project on time, despite the challenges of the COVID-19 pandemic.
And our customer support business June quarter revenue growth again outpaced growth in chamber count our service upgrades and reliant businesses all delivered record quarters reliance has now shown growth for 10 consecutive quarters driven by strong investments empower Cif.
And non leading edge foundry.
We achieved in the quarter of key etch penetration and 1 of the top 5 RF providers exhibiting our technical leadership in this space.
Also the spares team executed of major contract at a key customer in Asia, which secures the stream of revenue from our installed base.
While quarter on quarter of <unk> growth rates can vary based on customer investment patterns, we are very well positioned to deliver strong calendar year growth with the portfolio of products and services focused on our customers operational success.
We are increasing the productivity of our customers tools and extending.
Some of their equipment, which contributes to lowering the overall environmental impact of semiconductor manufacturing.
On the topic of sustainability I would like to share a few highlights for the company.
In June we released our annual environmental social and governance report.
I'm very proud of our organization's efforts.
The light here to support the needs of the communities in which we work and live to keep our employees safe through the COVID-19, pandemic and to advance inclusion and diversity across our global workplace.
This year's report introduced our goals of operating on 100% renewable energy by 2030, and achieving carbon net zero by 2000.
50.
We are driving innovations in product and process solutions in support of our sustainability objectives for.
For instance, our new sensor etch platform improved power efficiency and requires less of aluminum raw material for pool construction.
Our new drivers of this technology users 5 to 10.
10 times, less chemistry, and 2 times less energy than the current process of record.
Our parts cleaning repair refurbishment and re coding services are enabling more reuse and lessening waste the.
These solutions drive sustainability and make Lam products more competitive.
Additive in the marketplace.
I encourage you to check out of the report on our website to learn more.
So to wrap up we had an outstanding quarter and fiscal year. Most importantly, as we look to the future, we see rising device complexity and continuing transition to <unk> architectures.
Driving growth for Lam.
Thank you all for listening today and now here's Doug.
Thank you Tim.
Good afternoon, everyone and thank you for joining our call today on what I know was a very busy earnings season.
As the World continues to face challenges with the pandemic I hope you.
Some of these have been safe and healthy since we last spoke with you.
<unk> continued to deliver outstanding performance with record quarterly revenue operating income and earnings per share in the June 2021 quarter.
Our revenue gross margin and operating income came in at or above the mid.
Midpoint of our guidance and earnings per share were above our guidance range.
We're extremely pleased with our operational execution and we thank all of our customers suppliers and employees for their dedication and support.
Our revenue for the June quarter was for 1.5 billion.
Represented an increase of 8% from the March quarter.
We had record excuse me, we had record revenue in both our systems and our customer support business group.
So let me now turn to the details on systems revenue the.
Memory segment continues to be an area of strength for Lam and represented.
The 9% of systems revenue in the June quarter.
The NAND segment concentration was essentially flat with the prior quarter at 49% of our systems revenue.
And again hit another record level in terms of revenue dollars.
We saw customer investments in both capacity.
Ads and conversions the spa.
Pending primarily on 128 later class devices.
In the DRAM segment, we had 10% of our June quarter systems revenue versus 14% in the prior quarter.
The DRAM investments were concentrated mainly in the onesie and 1 off of nodes.
And I wouldn't just mentioned, we do see DRAM spending strengthening into the second half of this year.
For the foundry segment.
We had our second consecutive quarter of record revenues coming in at 35% of our June systems revenue as compared with 31% in the March quarter.
Foundry spending is occurring in both leading edge and mature technologies to meet the end demand for various market drivers like AI <unk> and gaming.
As well as specialty chips needed for things like Iot image sensors and power devices.
And finally lots of another contributed the remaining 6.
Percent of systems revenue in the June quarter, which was essentially flat to the prior quarter percentage.
Now looking at the regional profile of our total revenue.
The China region came in at 37% of our total revenues up from 32% in the March quarter.
The.
Lending profile for the China region was generally balanced between the domestic and multinational customers with their fabs that are located in China.
The Korea region also contributed for continued to be very strong in the June quarter, representing 30% of revenues.
Especially SPG, which is our installed base business came in at nearly $1.4 billion, which as I noted is another high point for this group.
The revenue level is an increase of 6% for the March quarter, and 49% higher than the same quarter in 2020.
All of the sub segments of.
This are delivering excellent performance.
For rely on product line that serves the specialty market.
Grades, where we're extending the life of our customers tools as well as spares and service out of the support that are supporting the high industry Utilizations.
All sub segments strong we've contributed.
In the quarter.
So now let me shift of profitability.
June quarter gross margin was 46, 5% right at the midpoint of the guided range.
I'll remind you that our gross margins fluctuate quarter to quarter due to overall business levels, along with customer and product mix.
I.
I would mentioned there continues to be elevated air air freight and logistics costs due to the COVID-19 environment impacting us in the current quarter, which are also reflected in the September quarter guidance.
Operating expenses for June were $574 million slightly higher than the prior quarter.
You May note in our earnings release that we did incur a charge during the quarter of approximately $6 million related to an asset impairment of the product line that we're shutting down.
This charge was excluded from our non-GAAP operating expenses.
We've demonstrated our ability to scale the company profitably.
As we've continued to decrease operating expenses as a percentage of revenue.
I'll also note that we've continued to prioritize R&D spending to ensure that we have the resources to continue to build on our technically differentiated leadership positions and we've maintained an emphasis on R&D spending and it continues to represent.
Present, approximately 2 thirds of our operating expenses.
Third quarter operating margin showed solid performance coming in over the midpoint of our guidance range at 32, 6%, reflecting strong gross margin and operating expense management.
This operating income percentage.
<unk> presents an all time high watermark for Lam research.
Our non-GAAP tax rate for the quarter was 12, 6% generally in line with our expectations.
And as we've noted in prior calls our tax rate will fluctuate from quarter to quarter.
We expect the ongoing tax rate to be in the low teens.
Rental for the 2021 calendar year.
And I would just mentioned, we're continuing to monitor potential tax changes that are under discussion in the current United States Administration.
Other income and expense was approximately $23 million in expense.
Which is lower than.
<unk> quarter as a result of a $30 million market gain in 1 of our venture capital investments.
As we've previously noted blayne is subject to market related volatility that could cause a difference from any typical run rate.
And also just to remind you of beginning in the March quarter of 2.
<unk> thousand 20, the benefits and costs of our employee deferred compensation plan are no longer mismatched in our non-GAAP results.
This mismatch was $17 million for the June 2021 quarter.
If you're interested you can see the details in the GAAP reconciliation tables in the earnings release.
Now, let me shift to capital return.
We paid $185 million in dividends and allocated $440 million towards share buyback.
This is in line with the long term capital return plans of 75% to 100% of our free cash flow.
Earnings per share.
At $8.09 above the guidance range.
The outperformance is due to the higher revenue and expense management as well as the favorability I noted in Hawaii.
The diluted share count balance was down slightly from the March quarter level coming in and of 144 million shares.
During the June quarter.
We redeemed the remaining 2041 convertible notes.
Which I'm happy to tell you is the less convert debt within our capital structure.
Let me shift to the balance sheet cash.
Cash and short term investments, including restricted cash totaled $6 billion.
Which is flat with the prior quarter.
Came in we had record performance in the June quarter for cash flow from operations, which came in at $1.4 billion.
During the quarter, our cash generation was deployed to the paydown of the $800 million of senior notes.
Of that were due in June as well as cash outlays for the capital return activities that I meant.
<unk>.
Day sales outstanding was flat for the March quarter at 66 days.
Inventory turns were up slightly from the prior quarter level coming in at 3.3 times.
During the quarter non cash expenses included approximately $56 million for equity compensation.
60 million for depreciation and $18 million for amortization.
We are investing in increasing our capacity in support of customers and as a result of capital expenditures for the June quarter were up from the March level and came in at $105 million.
We have investments occurring around the globe with our new Malaysia factory, which is formally opening this quarter ex.
Spansion in our U S critical spare parts facility in Ohio.
And R&D investments in our new Korean lab facility.
We expect to see somewhat levels.
Some.
Somewhat elevated levels of excuse me of capital expenditures in the remainder of calendar year 2021, as we support these growth initiatives.
The head count level ending the June quarter was approximately 14100 regular full time employees.
Resources have been added in our factories and in the field.
To meet the increased output levels and.
And to support customers and their technology of evaluations as well as tool installation requirements.
Yes.
My final commentary to touch on for the June quarter as a follow up in the ESG space, which obviously is strategically important for Lam research.
In June we extended and Upsized, our revolving credit facility to $1.5 billion.
The transition this facility to a sustainability linked revolver, which includes the pricing structure that is linked to certain performance metrics for energy savings and employee.
Steve.
In addition to the ESG focus areas of Tim noted. This credit facility is further demonstration of our commitment to integrate ESG principles and the all aspects of probably operate as a company.
So now looking ahead I'd like to provide our non-GAAP guidance for the September of 'twenty.
Save me 1 quarter.
We're expecting revenue of $4.3 billion plus.
Plus or minus $250 million.
Gross margin of 46% plus or -1 percentage point.
Operating margins of 32% plus or -1 percentage.
<unk> point.
Finally earnings per share of $8.10, plus or -50.
Based on the share count of approximately 143 million shares.
We continue to maintain a widened revenue range as we work to mitigate ongoing output.
2020 was in our global supply chain.
The supply chain challenges are also driving a modest headwind in our guided gross margin.
Customer demand continues to look strong in the second half of 2021 as well as into next year.
Lam is operating at record levels of financial performance as the result of the tireless efforts of our operational organizations and supply chain partners.
We continue to progress on our longer term share gain objectives with the investments in new platforms like <unk> and drivers list.
We'd like.
Like to think of the company for rising to the challenge and delivering on these objectives.
Operator that concludes my prepared remarks, Tim and I would now like to open up the call for questions.
Thank you if you would like to ask a question. Please signal by pressing star 1 on your telephone.
Pat if you were using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again press Star 1 to ask a question.
We will take our first question from John Pitzer of Credit Suisse.
Yeah. Good afternoon, guys. Thanks for letting me ask the question.
Phone chemo notwithstanding.
Comments in your prepared commentary about still feeling comfortable at the industry of spending at healthy levels for.
All sat here its all of <unk> adopted the kind of look at where your NAND quarterly revenue run rate is today and go back and look at where that peaked in 2018 to see that it's higher.
Tim I guess, maybe you can help us out of that you'd think about just the overall growth and complexity of NAND since <unk> and I guess more importantly, your market share gains how do we look at this number of the June quarter and compare it to sort of the 1287 you did in the March 18 quarter.
Yes.
Obviously the question that we spend a lot of time thinking about.
And I think you hit on the most important point, which is what does it mean for Lam to see not only of the transitioning the <unk>, which I gave some some element of how it changed our position in terms of the share of <unk> over the last 5 years that was my comment.
And over 6 points of share gain of WMC and the.
More importantly, what are we doing going forward to ensure kind of durability in this business, meaning defending the positions we have.
We've worked hard to gain but also benefiting from the complexity. That's this.
Thats occurring because of the layers scaling and thats really our product focus.
And so maybe just talk about complexity number of layers of increasing.
Clearly is driving a strong demand for of the tools that deposit those those film stacks ex the holes in the film stacks.
Well backfill them with the monetization of those are the strongest positions Lam.
The NAND and we feel extremely good about there.
Our defensibility of those positions.
But even those are seeing changes in so its different materials for instance to reduce line resistance.
We're seeing new opportunities for new tools, we've talked about the vector DT dealing with stress issues as layers layer counts increase both things.
Didn't exist that application didn't exist years ago, we're seeing the transition to <unk> GAAP, Phil again, it didn't that application did not exist as an ALJ film and therefore, not within Lam wheelhouse at.
At the last peak and so not only have we grown our existing positions because of the more layers.
<unk> has added more critical steps to the process and I think that just.
Bodes well.
Every piece of our goal is to expand our served market in the way that.
If the we come out stronger and bigger peak the peak.
Actually that's helpful and if I could follow up Doug in your commentary you talked about expectation for DRAM growth to accelerate from here I think year to date you guys are up about 13% versus the same periods last year, you had guys like ASML talked about DRAM capex being up as much as 60% for them now clearly that they are benefiting from some of <unk>.
For sure, but any numbers you can put around by Bay, how big of an acceleration you expect in the back half of the year.
Yes, John I'm, not going to quantify it because I never do when we're looking at the segments, but it's going to grow nicely in the second half of it's going to grow nicely because of our pattern of physicians and.
The third I feel really good about the trajectory when I look into the second half per day round.
For the bigger second half, let's leave it at the.
Perfect. Thanks, Scott.
Thanks Chuck.
Okay.
Thank you we'll take our next question from C J Muse of Evercore.
Yes. Good afternoon. Thank you for taking the question.
<unk> I guess first question on gross margins, Doug can you give us a little more granularity on what's driving that.
Headwind sequentially and I guess as part of that would love to hear how we should be thinking about the ramp of Malaysia capacity.
And the impact of gross margins.
The.
Yeah. Thanks for the question C. J I expected this 1 pretty quickly in the call listen when I look out over the next quarter.
There's challenges in the supply chain.
And some of those challenges as we work to mitigate them requires incremental spending.
When I look at.
Overcome happened in June and what happened in September maybe the incremental downtick in gross margin is primarily the result of that.
So that's 1 thing to kind of.
Put in the quarter Theyre, a little bit to think about as we go forward.
Work, our way through that it will get better overtime.
It will also.
Also get better over time as you rightly asked about as we ramp Malaysia now right now and when I look at Malaysia in the September quarter, it's not a benefit to gross margin because we're too early in the ramp of that facility that you've got the fixed cost sitting there and you've got startup costs. So that actually is driving a little bit of a headwind right now too and overtime that headwind.
When we'll shift to a tailwind as we get the benefit of the Asia based cost structure. So.
I look forward.
We've got the trajectory on gross margin that will get better over time.
And really right now, we're just dealing with the supply chain as we worked to mitigate some of the challenges that we see out there.
That's great and then as a follow up question I guess for perhaps could you provide a little more granularity on unreliable.
You know it certainly sounds like trailing edge demand is robust this year, but also it should be robust for some time. So we would love to hear your thoughts on how we should be thinking about the contributions there.
Overtime.
Sure.
I think we're gonna quantify of reliant itself, but what we can tell you is.
As you pointed out the specialty technologies, it's trailing edge foundry.
The extremely strong in fact, you heard from many of the industry, that's where a lot of the chip shortage.
Just today and so.
That is an area of that seen tremendous growth, but in many ways. The growth in that area has also been limited.
By the ability of those those companies to ramp and equipment to get out to them and we.
Would fully expect that that's an area of trailing edge foundry that continues to ramp strongly.
Really on into <unk>.
The 2 and maybe even beyond just.
Just remind you if you remember back at our Investor Day in March of last year seems like salons of what we talked about viewpoint that we still have today is that the trailing edge or the reliant exposed wip growth 2 to 3 times faster than overall, WMC and Thats still still how we see things.
Great. Thank you.
Thank you James.
Thank you we'll take our next question from Timothy Arcuri with UBS.
Yes.
Thanks, a lot.
Doug.
I know you've seen the headlines in China as to.
Some.
Delinquencies from some of your bigger.
$20 and some of the debt debt.
Yes.
But they'd be bolted on so I'm, just wondering whether that's having any impact for you whether there is any.
Uh huh.
Seeing that Youre doing there, whether you're seeing anything that's getting pushed out or any project timing of what's changing.
I guess I'd say 2 things Tim I mean, obviously in a situation like you are alluding to first thing I'd do is get them to talk to my guys in China to make sure I understand whats going on income.
For both wherever you sit today.
I would tell you that most of the business, we do with our <unk>.
Customers in the China region are under letters of credit. So it's money good we noticed.
It's money good.
So that's the 1 thing I'd also have you think about it relative to the plans of our customers in China I got to be careful about talking about a specific customer Tim.
But we haven't seen any change in anybody's plans as a result of anything.
Cool codec. Thanks.
And then.
The question I asked last quarter. The this math that you gave the 70 billion of over 5 years to add 35 per cent bit growth, which is like 15 billion of quarter. And then you gave the number of at least $350 million adds another 100 basis points. So if you sort of look at where NAND is running right. Now you would just sort of conclude well, maybe youre, adding more like mid.
The forties bit growth, but I know, you've also said hey of those numbers don't really hold anymore, because capital intensity has gone up as well. So I wonder if you've had time to put pen to paper on may be brushing up those numbers, if we could try to correlate.
Where we are back to growth.
Yes, Tim.
Not really on the call right now.
The update in any of those longer term numbers that would be something we do in a I don't know the investor day kind of format. We will do at some point in the future I think.
And you're right, it's the observation that overtime capital intensity grows.
And the device architecture in NAND.
And when we gave.
As they were kind of broad averages over long periods of time to try to be helpful and it's not a static number so.
I agree with you, we do need to update it I'm not ready to do it on the call right now.
But like Tim said, we're pretty comfortable with the strength of a best friend of NAND It looks pretty.
For those Donald for Us.
It's going to be a good year for investment in NAND and actually I think next year is gonna be a pretty good year too yeah. If I can just add something Tim I mean, it's.
While I agree with the comment that we made it that the rising capital intensity, probably means those numbers need to be updated on an absolute basis I want to point out as the lay of accounting.
Rash of increases in complexity increases.
We're taking actual share as well, meaning we're converting applications that had previously been done with older legacy technologies.
And we're moving those over to newer technologies like <unk> and so we're we're actually winning new applications as well so even within.
Counting of of that new number is we're benefiting from an expansion of that per.
Expansion of spending per bit added, but also from from actual application wins in.
We pointed 1 out debt.
Been a pretty big deal for us, which is the conversion to <unk> for for GAAP dielectric GAAP Phil So.
I think it's.
Another point of being.
The strong positioning in close collaboration with customers in the space really does give us great insight into what those next application opportunities are for our company.
Okay. Thank you very helpful.
Thanks, Jeff.
I'll take our next question from Krish, <unk> with Cowen and company.
Yeah, Hi, Thanks for taking my question I have 2 of them first of all neither for tumor Doug just a follow up on the NAND I think you articulated it pretty well.
The prior peak.
Clearly the mayor of Congress has gone up capital intensity has gone up and also the shares of the market.
Market share has gone up I'm, just kind of curious when you look at look to like the 2018 peak with us today.
Just dig 1 level below can you just see the mix of dielectric and conduct rich then with US today, because it seems to me the dielectric etch process tons of gone up that's also a big factor in it so I'm just kind of curious.
Is the flight if so.
So is there a meaningful difference of the split between dielectric in conductor etch for Lam not non today versus.
In 2018 in the amount of Hollywood.
Sure well a number of things have changed and as you mentioned the dielectric etch is is fundamentally tied to and its profit.
Of this time is fundamentally tied to layer counts. So clearly, it's it's scaling pretty dramatically as these.
Layer count has grown.
The other element in your planning process time is.
Relative to consumables in there for growth in our installed base business as well, which also scales nicely with the.
With the layer count growth. So there are a number of changes, but sure dielectric etch.
A very critical role in bringing net layer count expansion.
Got it.
On the sense of the etch platform the smart platform that you have I'm.
Curious you know actually the rollout of the platform.
Think of the installed base of advantage since of customers have to look at Samsung who items. They looked at another platform like the symmetry of whatever it might be so wood sensor actually the slight negative for you given the fact that your installed base.
Okay.
Because of me.
Well I mean, theres 2 elements to.
What makes the great 201 as the platform 1 is the process module technology and so I think.
The.
When the.
When we're enhancing the platform capability, adding all of this equipment intelligence, we're certainly not giving up the the income.
Competency power that's been developed I mentioned, even today proprietary RF systems proprietary uniformity solutions.
The new <unk>.
<unk> module on the sense of platform had of marries up all of that equipment intelligence and the use of data to make our.
Martin.
Market, leading etch chamber, even that much better and so.
Clearly, we thought a lot about the power of incumbency, but.
If you if you stagnate, we also leave an opportunity for you or for competitors to catch up that's not our plan.
Thanks James.
Thanks, Chris.
Thank you our next comment comes from Stacy <unk> with Bernstein research.
Thanks for taking my questions.
My first question I wanted to ask about leverage and I know operating leverage on I understand what's going on with gross margin next.
The next quarter and have it but please go to look at the analyst day model like the midpoint I think was something like mid 30, threes and EPS on the $16 billion revenue number you're run rating revenue right now over 17 billion, which of the high end of that guide and your run rate EPS sort of below.
The midpoint of the Analyst Day guide so I guess, how do we think I think EPS.
It's like 10% flow or even more so how do we think about I guess the progression of operating leverage from here as we go forward like even if revenues don't go should we think about over what time frame do we think about EPS kind of like reaching.
Those kind of model model levels that were that you talked about not that long ago.
Yes.
I would tell you that there there is a.
Revenue level component to the leverage there is also of time element to it.
For the entire element is dictated by some things like ramping of new factory in Malaysia.
Better cost structure.
It's also driven by.
I'm thinking of new a new etch platform like Sem side that we think will have a better profitability profile than than the 1 before it because it delivers incremental benefit to it so when I look at the leverage that we had in that model I still feel quite good about it when I think through and looked at the time aspects of how we deliver.
The benefit and it's still the right thing.
The right way to think about it the the financial amount of what you put out in March of last year's directly to think about the profitability opportunity for Lam.
Got it thank you for.
For my follow up I wanted to hit on the NAND point again.
Last quarter, you were explicit about.
The <unk> NAND would grow I guess half of where happened in the second half and you seem to be suggesting that pretty strongly for DRAM now, but you didn't you weren't explicit about manned but you also I think I did hear you said the you've got NAND would be in general strong this year will be strong next year.
So think of NAND growth in the second half of the calendar year and I guess you sounded like you expect nandan.
In calendar 'twenty 2 debt to be up from the calendar 2021 is that what you're trying to say.
I'm not trying to really say anything about 'twenty 2 with the accept exception that.
Looks like it continues to be strong.
The qualitative statement I made it's too soon for us to put numbers around 22.
Stacey.
And when we look at W. P.
So a quarter ago, we were talking about trending above 75, Tim now said, we see of trending above the J D.
I think overall, it's the second half weighted W of fee profile DRAM looks solid in the second half foundry logic looks pretty good in the second half 2 I.
And probably as I sit here today is more balanced half on half.
And a quarter ago, we said looks like it was a little bit the second half I can still see that potentially happening, but there is some.
The customer investment timing that might occur more in the first half of next year right now it looks kind.
I think all of us half on half as we sit here today.
Got it got it I guess, that's still a couple of quarters ago, you were saying that it would be down once you kind of like dialing it in as we go forward.
Yes, I mean as the year unfolds, obviously, we get better visibility to what's happening and we're now halfway through the year end of it includes the guide for September were 3.
3 quarters of the way through the year. So we just have better visibility of what's going on relative to the timing as well as the supply challenges the industry of safran.
Got it that's helpful. Thank you so much.
Yes. Thank you.
Thank you we'll take our next question from Harlan sur with J P. Morgan.
Oh.
Good afternoon, and thanks for taking my question could you see the team ramping new Penang systems manufacturing facility.
Unlocking a little bit more revenue capacity here in the second half of my understanding is that the team is targeting $3 billion of potential annual revenue capacity by the middle of next year auto Penang So.
Pretty meaningful part of your future of revenue profile and I think the goal is also the source more raw materials machining and other support services locally over the next few years in Malaysia. So all of this should provide the team with some pretty strong gross margin tail winds was most of this tailwind encompassed in the.
The 'twenty 'twenty 3 'twenty 'twenty 4 target financial model or is this the source of margin upside above your targets that you'd go revenues into this new facility over the next few years.
Yeah, all of that 1 of them. It says we always knew we were ramping our factory in Malaysia. So when we put that model of them under a year and a half for dough.
It was comprehended, we knew how big the factory was going to be we knew when it would be ramping and so forth. So it was all in in terms of the profitability of that kind of reference that was true.
These question.
So there isn't upside, but it is how we continued to deliver leverage that we see 100 of Tim if you'd add anything or 1.
Yeah, No and I think it's just that the the current the demand environment were in today.
The ramp rate for Malaysia is kind of flat out and while we haven't given any numbers for 2022, So I'm not sure I'm not sure where you got those but.
Clearly we are ramping it it will be of big facility for us and it will.
1 of the editing will eventually take on a lot.
<unk> position within our global manufacturing network.
Yes, thanks for the insights on debt and then on some of the uncertainties on the supply chain and therefore.
Let me wider revenue range on the guidance system for very.
The advanced capabilities right.
The huge storage systems complex sensor networks are power of secretary graphics user interface capabilities as the team being impacted by the chip shortages for some of your advanced platforms that have a lot of these papa Terra memory RF type of content.
Yeah Harlan of its when we sat here.
Competitor or 2 ago, we're thinking capacity constraints, we're really thinking about physical space and labor and quite honestly I think we've done a really nice job expanding the expanded in our little more California facility, our Oregon facility Korea.
As Brad just said shipping for Malaysia, so that physical capacity released.
Probably I heard the sort of free up we've hired a tremendous number of people also across across the globe.
And now were of being hit with that next level, we have very complex supply chain and you're right. It's chip shortages.
Shortages of other components as well and because it can it affect many different players within our supply.
We're really seeing it's a little bit more unpredictable and thats leading to.
Some of the increased guidance for Doug spoke to.
Again, I think the Atlanta is very proud of our ability to execute and.
I think these are these are issues that just every day, we're working through and with time, we would expect that these just like.
For the rest of the industry will begin to be result.
Great. Thank you.
Thank you Harlan.
Thank you we'll take our next question from Vivek Arya with Bank of America Securities.
Thanks for taking my question the for.
First 1.
I'm curious what.
Supply of Europe.
Estimated of China as a percentage of Wi Fi this year versus last is it in line with what you talked at the start of the yet and have you heard of any now.
Potential restrictions on shipping to any Chinese customers from the U S a regulatory perspective.
We've taken the then Tim can feel free to add on I think from a percent of WCS.
Probably fairly consistent I mean, nobody else for you overall this year is up nicely China is up nicely too.
And we have talked about license requirements for 1 of our foundry customers.
China, No new update for you there.
Tim unless you wanted to share something.
But it doesn't impact anything else that we should go on in China, Yeah. We're.
We're actively engaged as Doug said, we haven't seen significant movement on the licensing front, we will say, we've we've seen of the.
For the approval of a few licenses for spares and upgrades for mature technology node.
So I guess, if we were any update that we would say are some small progress, but we're you know we're actively engaged for the licensing agencies within the government.
To ensure we are fully compliant with with everything they have in place today, but also to be advocating for moving forward with additional approvals on time.
The other shipments.
Great.
Alright, and for my follow up you sound sort of optimistic about the growth opportunity.
For spending next year.
I'm wondering of your markets is the 1 market do you think that will have kind of a.
The greater horizon capital intensity right going into next year as the foundry and logic as the DRAM NAND and conceptually how does that impact your share gain potential as you look at next year I realize you're not giving a specific Wi Fi number, but let's say of fee in a growth environment.
But it is the 1 market where do you think.
Given all of the technology changes that there is going to be a go.
Greater than average rising capital intensity.
Sure Yes.
I guess you can interpret from all of the comments I've made about multiyear.
The impact of the WMC spending we see strong.
Long regional investments many places government supported rising device complexity, and then actually we think the demand environment still remains good overall for semi so those are we are not giving 2022 right now we don't see great clouds on the horizon the weed.
See a lot of positives.
About different areas of opportunity.
Opportunity for Lam to your point about what were my capital intensity rising the fastest store or maybe just spending.
We're really thinking about Lam, and therefore, whereas etch and depth of really going to play a bigger role word of land up the opportunity.
I see the across the board.
A lot of time on this call talking about NAND complexity, but youre seeing.
The <unk> transitions foundry logic space gate all around.
Vance packaging very etch and depth of intensive next year, if youre looking I'm, not saying, it's flat, but the idea, but if you were looking for flat WP Lam opportunity would be growing in those spaces because of etch and depth of capital intensity increases and.
And we are where we really are spending our time and effort. This year, maybe it's 2 places Doug talked a lot of about operational improvements, making sure we come out with infrastructure the better off from that perspective.
And what I tried to highlight was where we are investing in products. So that as these transitions occur for 3 D.
In foundry logic and DRAM over the next several years the Lam is going to be in the same position to benefit from those as what I highlighted happens.
<unk> for us in <unk> NAND and Thats.
I think it's places I've just talked about selective mentioned things like drive resistance to the.
Positioning we have in high aspect.
<unk> etch and depth relative to <unk> packaging.
I would just say, it's a it's a very opportunity rich environment for for a company like Lam right now.
Thanks very much.
Thank you.
Thank you we'll take our next question from Toshi Hari with Goldman Sachs.
Hi, good afternoon. Thanks, so much for taking my questions I had 2 as well.
I guess this one's probably for Doug I think historically you guys have spoken to.
Your thoughts on DRAM and NAND supply growth ex.
Existing the year.
I was hoping you can you can update us.
How youre thinking about.
That exiting 2021 based on what you've shipped in the first half and what your expectations are for the second half supply growth exiting the year relative to demand growth for both DRAM and NAND.
Yes, if you remember I think this year supply growth is still going to be below where demand growth for us I think.
For pretty well chronicled.
<unk> from from the industry the demand for DRAM bits per.
On the 20th low twenties, I think supply is probably high teens approaching 20 in DRAM I think on the NAND side, probably more of an imbalance.
I think supply demand mid high thirties.
It feels fairly balance.
For the year in NAND.
Got it and then as a quick follow up.
Wanted to ask a question about your opportunity and leading edge logic.
I think of the past you've talked about your application wins I guess initially of 2014.
Balance that's expanded 10 and your expectations as we sort of eventually transition to 7.
I guess, despite some of those comments you we haven't really seen that.
So up in numbers and I realized you disclose logic and other so there is another component in that line, but.
And what are you missing.
I think that I realize you don't want to talk about the specific customer, but the customer is ramping capex yet we're not seeing the uplift in your numbers. Thank you.
Yes, I think I'd say 2 things you've got the start of our 14, Japan, we've talked about of nice growth in applications.
Footprint buybacks as what we described in terms of number of applications and then the growing again from 10 to 7 and that's absolutely what we see happening.
I got to be careful talking about any 1 customer I think.
When you look at logic and other Youre absolutely right. There is the other component in there things like.
The image sensor.
The other logic devices, but also have to think about the timeframe in which any 1 customer is investing in the technology has been in the concentrated.
2 or 3 quarters or is it over a longer period of time.
And if it's over a longer period of time, you won't see it in any 1 quarter.
And so I would encourage you to think about both of those things when you looked at the logic and other stuff.
And then I would also suggest I think logic and the other is going to go to look pretty good in the second half also yeah and I think the only thing I would add is maybe we need to transition net.
Tory before was a lot about progress that youre going to make in <unk>.
Cash and I'll talk now we step up we think logic or logic and foundry basically similar devices similar trends.
As we move to gate all around for nano sheet structures and many of the products I talked about deals.
Dealing with selective etch and the the.
The processes that are required to create those complex structure.
And the challenges that foundry and logic customers at the leading edge C with RSC and its impact and therefore, the need for evolving the mineralization structure.
We talked about dry resist and the the potential to impact the cost performance of EV.
<unk> at future nodes, not only current nodes, but also high in the.
These are these are the ways in which Lam is ensuring that we have the right product portfolio, whether it's advanced foundry or advanced logic, whichever customer we might be talking about the we have a.
Very strong products to offer to help with those transitions and so.
I think over the years, our opportunity to engage those customers is just the.
Gotten stronger and broader.
Great. Thank you.
Forget the ship.
Thank you we'll take our next question from Joe Moore of Morgan Stanley.
Great. Thank you.
So you had a couple of quarters now of the installed base business growing 50% year on year, and we don't have a long time series of that but I mean is that of that.
I assume that's kind of a historically unusual growth rate.
And.
Anything in that debt that sort of makes you think.
I think you mentioned last quarter of people.
Accumulating spares of inventory a little bit and obviously, that's the growth of really good growth business and you've been vocal about that but is there any cyclicality. When you start talking about these types of growth rates that we should be aware of.
Yes, I'll take that I included in my prepared remarks, 1 line there that said.
Supposed to be hinting please.
Please don't count.
On this kind of growth every single quarter quarter on growth.
Yes. So there are there are components.
The kind of went back to the question about trailing edge foundry and how do we see that going forward, we don't see that abating, but that is an area, where we're seeing tremendous demand right now and eventually that may not kind of keep pace quite.
The growth in the installed base, but.
No. The elements you think about what's in their spares continues to grow with installed base and as we've seen this tremendous growth in installed base that becomes the recurring revenue stream going forward that really is just based on customers continuing to utilize what they have already bought so we feel very good about.
That so if there's 1 part that you might see a little bit of.
Investment timing impact it would be specialty technologies, and trailing edge or non leading edge foundry.
But our near term outlook for that remains quite strong.
Great. Thank you.
Thanks sure.
Thank you we'll take our next question from Patrick Ho of Stifel.
Thank you very much and congrats on the nice quarter.
Doug maybe for you in terms of the component.
Component supply constraints that you're facing I know theres a lot of moving parts.
But what are you trying to do to kind of quote mitigate it.
And I guess, what I'm looking for is the little more detail are you working with the additional suppliers are you working with your main component suppliers of getting those parts out of certain period of time, what are some of those I guess initiatives and efforts you're doing the trying.
I guess mitigate that situation.
I'm actually.
For the dividend, yes, im actually I actually pretty close to.
This 1 in.
I'd say is that there maybe of everything.
When you have your major customers really clamoring for for for on time shipments.
We're leaving no stone unturned. So in some cases, it's working with different suppliers, but again we have.
Supply chain.
<unk>.
And many in maybe the.
Many cases, we're looking at where those suppliers have additional facilities in other parts of the world So for impacted say buy.
Issues throughout the Covid pandemic in 1 part of the World, we transitioned to that same supplier and a different factories on the parts of the world.
That's usually the most expeditious means of of getting additional supply but at times we are.
Finding additional suppliers, where also I talked about refurbishment and re coding and reuse that's another area, where we're working with customers to actually qualify refurbishment processes that allow us to shorten the.
The time, so rather than having to procure brand new parts for instance, we do of refurbishment and that part can go back into the machine and that for.
The fewer parts for use within the installed base more you have available for build forward out of your factories and so I would just say between us and the customers very close collaboration and collaboration of our supply.
By chain partners are getting very creative of trying to mitigate these risks.
It's many many many different things.
Great. Thank you very much.
Thanks, Tom we have time for 1 of my question. Please.
Thank you, we'll take our last question from <unk>.
Joe <unk>.
<unk> with Wells Fargo.
Yes, thanks for taking the question I just wanted to try to understand the.
The kind of updated WMC guidance and your commentary around NAND, maybe all of it more balanced half on half.
I guess can you help me understand just.
What I guess increase to maybe offset some.
All of that including going to over 80 billion for <unk> is it just more foundry logic or is that in your comments around DRAM being stronger.
Any comments there would be helpful.
I think the practicality of it Joe is we're just further through the year, we're halfway through the year, we've got pretty good visibility into.
For the September quarter, because we just guided it and so is that right. It's an understanding of the customer's plans. It's an understanding of what we think the industry is going to be able to supply we still see of second half weighted wsb's spending profile.
We kicked it up somewhat as a result of just better visibility so what I would describe it.
Okay. That's helpful. And then just a quick question on the on the services business you know another quarter of a major spares contract win I was wondering if you could quantify maybe how much of your spares revenues based on long term contracts.
No.
[laughter] no debt we are obviously, we look.
We look at that of a quite a bit but the I would say that.
A large portion of the whether it's under long term contracts or you know we've seen you know I talked about our complex supply chain I mean in many ways for spare parts, it's very similar which means regardless of the length of contract we tend to be the primary supplier for the vast majority of those spares and so.
I would say the majority of.
Of our parks are under contract, but then the length of contract for not really ready to talk about at this point.
Okay.
Fair enough. Thanks.
Thank you Jeff great. Thanks.
Okay, operator, I think that was.
Yes.
If you want to close the so yeah just wanted to tell everyone. We appreciate your support and thank you for joining our call today.
This concludes today's call. Thank you for your participation you may now disconnect.
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