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Founded in 1980, Lam Research is a top seller of equipment to semiconductor manufacturers. Its machines are used to produce components critical to the tech industry, including the silicon wafers and the chips that power a variety of electronics. Over time, to keep up with industry innovation, Lam has adapted its equipment to handle increasingly tiny chip designs and ramped up production to meet the growing demand for chips in the AI era.

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Lam Research (LRCX): Company Profile, Stock Price, News, Rankings

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Lam Research

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Please also note, today's event is being recorded. I would now like to turn the conference over to Ram Ganesh, Vice President of Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. 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, we will share our overview on the business environment, and we will review our financial results for the September 2026 quarter and our outlook for the December 2026 quarter. The press release detailing our financial results was distributed a little after 1:00 P.M. Pacific Time. The release and the accompanying presentation slides for today's call can be also found on the investor section of the company's website. Today's presentation and Q&A include forward-looking statements based on our current beliefs, expectations, and assumptions. These statements are subject to risks and uncertainties, and actual results could differ materially from those expressed or implied in such statements.

For a discussion of factors that could cause actual results to differ materially, please refer to the risk factors in our most recently filed periodic reports on Form 10-K and Form 10-Q, and subsequent filings with the SEC and the cautionary statement in the accompanying presentation slides. Today's discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. A detailed reconciliation between GAAP and non-GAAP results can be found in the accompanying presentation slides. This call is scheduled to last until 3:00 P.M. Pacific Time. A replay of this call will be made available later this afternoon on our website. With that, I will hand the call over to Tim.

Thanks, Ram, and thank you to everyone joining us today. In the September quarter, Lam again delivered record revenue and profitability. Gross margin, operating margin, and EPS all reached new highs, with operating margin topping 40% for the first time. Our performance throughout the year reflects the broad strength of our product portfolio and a relentless focus on operational execution as AI continues to drive unprecedented semiconductor demand and increasing device complexity. Including the midpoint of our December quarter guidance, we expect calendar year 2026 systems revenue to grow well over 40% year-on-year. Rising deposition and etch intensity across all device types and advanced packaging solutions is continuing to drive greater opportunity for Lam. Over the past few years, increasing device complexity and a push towards greater 3D scaling have driven a four-point expansion of our served available market, or SAM, as a percentage of WFE.

When combined with share gains from products addressing this growing SAM, we expect 2026 to mark our third consecutive year of WFE outperformance. For calendar year 2026, we expect WFE in the mid $150 billion range. Our preliminary 2027 WFE outlook is for more than $200 billion of spending, with percentage growth led by DRAM, followed by leading-edge foundry logic and NAND. As we move into calendar year 2027, we see clean room space availability and supply chain constraints for certain components continuing to limit chip makers and equipment companies' ability to fully meet end demand. We are actively working with our suppliers to accelerate their capacity expansion plans, and are confident Lam is well-positioned to deliver on the strong demand we see ahead. Underpinning our outlook for WFE growth is the continued rapid adoption of AI by enterprises and consumers.

It is reported that average weekly token usage is up roughly 250-fold in the past 18 months. As AI moves increasingly towards autonomous agentic workflows, demand for compute, memory, and storage solutions continues to expand. For example, in NAND, AI performance and economics are driving demand for multiple tiers of storage, each optimized for different workloads. QLC today provides cost-effective storage for rapidly growing AI data volumes. TLC storage is used as a high-bandwidth tier for context memory and KV cache workloads. And SLC class NAND is emerging for low latency, high-speed access in agentic AI. We believe adoption of an SLC storage tier could become a meaningful driver of NAND wafer capacity. Converting from TLC to SLC class devices reduces bits per device by roughly 3 times.

Said differently, for each percentage point mix shift of NAND bits to SLC class devices, approximately 2% more installed wafer capacity will be needed to support the same bit demand. Incremental growth in bit demand would further amplify wafer capacity requirements. We expect all three storage tiers to grow, increasing the value and strategic importance of NAND. We believe Lam is best positioned to benefit from this inflection. We have the industry's largest installed base of NAND systems and a comprehensive product portfolio spanning all critical deposition and etch steps. Any increase in NAND bit demand, whether satisfied through installed base upgrades or capacity additions, will generate additional need for Lam's tools and technology. Foundry logic and DRAM are seeing a similar device-level evolution to satisfy AI's emerging performance requirements.

From advanced patterning and backside power to next-generation packaging, we see billions of dollars of potential SAM expansion and share gain opportunities for Lam in the years ahead. We are seeing the impact of our targeted investments in foundry logic and DRAM products in our calendar year 2026 results. These two market segments have accounted for approximately 80% of Lam's systems revenue growth year-to-date. A good example is our focus on advanced patterning requirements for foundry logic and DRAM. With each technology node bringing more stringent EUV pattern fidelity and defectivity requirements, Lam's Akara etch, conductor etch and Aether dry resist tools are being paired to deliver unprecedented scaling capability. Importantly, these tools are also helping improve the productivity of DRAM scaling at a time when maximizing fab output is a critical priority for our customers.

Multiple chip makers are adopting Akara for its ability to etch very high aspect ratio features with exceptional profile control, while at the same time delivering up to a 50% reduction in wafer-to-wafer and lot-to-lot variability, and up to a 50% gain in wafer output per fab footprint. Similarly, Lam's Aether dry resist solution has demonstrated sub-10 nanometer resolution at the highest pattern density and fidelity with High-NA EUV. It helps achieve this result while requiring 10% lower exposure dose, improving scanner productivity and reducing patterning cost per wafer. Aether solutions are already ramping in HBM high volume manufacturing with Low-NA EUV, and we see additional insertion opportunities ahead across both DRAM and foundry logic customers. As a result, we now expect cumulative Aether-related revenue to reach approximately $2.5 billion by the end of the decade, roughly $1 billion above our prior expectations.

Backside power is another example of where Lam's strength in deposition and etch is evident. Separating power and signal routing allows for thicker backside metallization to reduce resistance and improve power efficiency. Implementation increases process complexity, driving the need for more deposition, plating, and etch steps. As customers ramp backside power at 2 nanometer and below, our production-proven Vector, Sabre, and Flex tools are well-suited to the task. Vector provides industry-leading footprint density and wafer-to-wafer repeatability with its unique quad architecture. Sabre is the global industry benchmark for electroplating due to its high productivity and superior on-wafer performance. Flex delivers high throughput dielectric etch with low defect levels, leveraging its differentiated small volume chamber design and confined plasma. New materials such as molybdenum are also being introduced to enable more efficient electrical connections between the backside and front side of the wafer.

For this emerging application, our Halo tool is gaining traction by enabling both plasma and thermal processes within a single chamber while delivering industry-leading productivity. We are gaining share in this expanding backside power SAM opportunity and recently secured tool of record wins for all four products at a leading customer. In advanced packaging, our market-leading Syndion product is winning advanced logic in HBM TSV applications. Syndion's differentiated hardware design enables rapid process switching to deliver highly uniform TSV profiles, smooth sidewalls, and high volume productivity. Recently, we attained four new positions across multiple customers. Our Striker ALD product also achieved multiple TSV liner wins due to the film's superior step coverage and low etch rate. Beyond TSV applications, we secured additional Vector and VECTOR TEOS 3D wins for high-adhesion bonding films and interdie gap fill applications by delivering lower defectivity for thick film deposition.

With its high deposition and etch intensity, advanced packaging has become a major growth driver for Lam. For next-generation AI and high-performance computing devices, customers are increasingly turning their sights towards panel-level packaging to scale manufacturing. Our panel-level packaging portfolio continues to gain momentum across fan-out packaging, glass core substrates, and emerging substrate and interposer architectures. To date, we have shipped panel plating systems to more than 20 customers worldwide across panel sizes ranging from 300 by 300 millimeter-600 by 600 millimeter. Customers continue to select our Kallisto platform for its differentiated coplanarity and plating uniformity performance across bumps, pillars, and redistribution layers. Kallisto is also well-positioned to benefit from increasing adoption of glass core substrates through emerging through-glass via applications.

Given our customer engagement, installed base growth, and technology leadership, we expect to achieve panel-level packaging market share that surpasses the strong position we already hold in current wafer-level packaging. Finally, turning to CSBG, we are set to exit calendar year 2026 with solid momentum, with annual revenue expected to grow more than 30% year-over-year. This is more than twice the rate of our long-term target set at our last Analyst Day. Growth is broad-based across upgrades, spares, and services, supported by high fab utilization and customers' continued focus on installed base efficiency. The value we are delivering with Equipment Intelligence and Dextro Cobots recently helped us secure performance-based service contracts with multiple memory manufacturers. We expect CSBG momentum to continue in calendar year 2027, with revenue growing over 15% year-over-year.

To wrap up, we believe the industry is in the early stages of a multi-year investment cycle, with customer visibility extending through 2028. Increasing manufacturing complexity, new materials integration, and advanced packaging are driving higher deposition and etch intensity across device segments. Our technology leadership, growing installed base, and strategic investments in product innovation and manufacturing capacity position Lam to capitalize on these inflections and drive sustained outperformance. Thank you, and here's Doug.

Great. Thank you, Tim Archer. Good afternoon, everyone, and thank you for joining our call today during what I know is a very busy earnings season. We were pleased with our continued strong execution in the September quarter, resulting in our fifth consecutive quarter of record revenue, as well as record gross margin, operating margin, and earnings per share. September quarter revenue was $8.22 billion, which was up 22% sequentially and up 54% from the same period in 2025. The deferred revenue balance at quarter end was $2.66 billion, which was an increase of $227 million from the June quarter. This grew primarily due to increased sales volume, and it was partially offset by a decrease in customer down payments. From a market segment perspective, September quarter systems revenue in memory was 46%, which was consistent with the prior quarter.

On a dollar basis, this represented a record level for memory, and it was up 120% from the same period in 2025. Within memory, non-volatile memory accounted for 26% of our systems revenue, up from the June quarter's level of 23%. On a dollar basis, NAND revenue increased approximately 40% sequentially as the industry continued spending on conversions to 256-layer and above class devices. We are seeing initial spending on 384-layer class devices. DRAM revenue reached a record, growing sequentially on a dollar basis, but down a little bit on a percentage basis from 23% of systems revenue in the June quarter to 20% in the September quarter. DRAM spending remained focused on technology additions and upgrades across the 1α, 1β, and 1γ nodes that is enabling DDR5, LPDDR5, and more importantly, high-bandwidth memory. Foundry also achieved record revenue.

Its share of systems revenue increased to 46% from 44% in the June quarter. Strength in the quarter was driven by investment in leading-edge nodes, including advanced packaging, as well as mature node spending in China. Finally, Logic and Other were 8% of our systems revenue in the September quarter, slightly down from the prior quarter's level of 10%. Most of the spending here was targeted at leading-edge process nodes. Let me now discuss the regional composition of our total revenue. China contributed 35% of revenue, up from the June quarter level of 26%. We saw strong investments here by both domestic and multinational customers. In the December quarter, we expect China will represent a significantly lower percentage of our total revenue compared with the September quarter. Korea's contribution to revenue in the September quarter remained unchanged from the June quarter level at 20%.

The Taiwan region contributed 18% of revenue, down from the June quarter at 27%. The Customer Support Business Group generated a fourth consecutive quarter of record revenues at nearly $2.5 billion in the September quarter. This was up slightly from the June quarter and 40% higher than the same period in 2025. Each component of CSBG remains strong with the prior quarter. Turning to the gross margin performance. The September quarter came in at an all-time record of 52.4%, improving from the June quarter level of 52% due to favorable customer and product mix. Additionally, we continue to balance our cost and pricing postures. Operating expenses for the June quarter were $1 billion, up from the prior quarter amount of $916 million. The increase was primarily driven by higher incentive compensation due to our increased profitability levels.

We are also investing incremental resources to support growing programs like Akara, Halo, Panel Form Factors, and Dextro. R&D accounted for approximately two-thirds of our total operating expenses. Operating margin for the September quarter was another record at 40.2% compared to the June quarter level of 38.4%. This improvement reflected stronger gross margins and continuing operating leverage as our business scales. The non-GAAP tax rate was 16.5% for the quarter, compared to 11% in the June quarter and in line with our expectations. The increase was primarily driven by a higher U.S. tax rate on foreign earnings, as well as expected shifts in the geographic mix of income. We expect the tax rate to remain in this range for the December quarter and likely beyond. I'd encourage everyone to make sure they have their earnings models updated to this higher tax rate.

Other income and expense for the September quarter was approximately $16 million in income, compared with $19 million in expense in the June quarter. The improvement in OI&E was due to foreign exchange fluctuations, higher interest income, as well as favorability in our venture portfolio. As we've talked about in the past, you should expect to see some variability in OI&E quarter to quarter dictated by market factors. For the September quarter, diluted earnings per share were a record at $2.20. The diluted share count was roughly 1.26 billion shares, which was relatively unchanged with the June quarter. Let me pivot to capital return. We allocated approximately $1 billion to share repurchases, and we paid $325 million in dividends in the September quarter. During the quarter, we entered into an accelerated share repurchase structure that we'll continue to execute in the December quarter.

We returned approximately 41% of free cash flow in the quarter and 59% in the calendar year to date. I would point out that we also used $750 million to pay down maturing debt during the year. Our long-term plans remain to return 85% of free cash flow to shareholders. We have $3 billion remaining on our board-authorized share repurchase program. Our cash and short-term investments totaled $7.5 billion at the end of the September quarter, which was up from $5.6 billion at the end of the June quarter. The factors behind the increase were cash from operating activities, partly offset by our capital return activities as well as capital expenditure. The September quarter was also a record for our free cash flow, coming in at $3.24 billion in the quarter.

As I mentioned last quarter, we have been increasing our cash levels a little bit to support growing business volumes as well as capital investments in this growing demand environment. Day sales outstanding were 63 days in the September quarter, a decrease from 72 days in the June quarter. Inventory at the September quarter end totaled $4.6 billion, which was an increase of $274 million from the June quarter, as we are building inventory to meet the expected future demand for our products. Nonetheless, inventory turns continued to strengthen to 3.4x versus 3x in the prior quarter. I would just mention this was the highest level of inventory turns in nearly seven years. Our non-cash expenses for the September quarter included approximately $115 million in equity compensation, $106 million in depreciation, and $16 million for amortization.

Capital expenditures in the September quarter were $258 million, which was up from the June quarter at $189 million. Capital spending grew as we continue to increase our lab infrastructure and expand our manufacturing facilities globally. We ended the September quarter with approximately 24,300 regular full-time employees, which was a growth of approximately 1,900 people from the prior quarter. Headcount increased primarily in our factory and field teams to support expanding manufacturing activities and growing tool installations. We also added headcount in R&D. Let us turn to our non-GAAP guidance for the December 2026 quarter. We are expecting revenue of $8.6 billion ± $400 million. I would mention that this revenue guide would have been a bit higher if not for some near-term supply chain constraints that we are actively managing. We are expecting gross margin of 52.5% ± 1% point.

This is improving a little bit in spite of headwinds related to customer mix. We are expecting operating margin of 40.5% ± 1% point. Finally, earnings per share of $2.33 ± $0.15, based on a share count of approximately 1.253 billion shares. Let me wrap up. We continue to execute our strategy for outperformance, delivering another quarter of record revenue and profitability. Operating margin exceeded 40% for the first time in our history, and we are guiding for this to expand slightly. We are increasing R&D investment to strengthen the already strong product portfolio that we have. We are also investing in the infrastructure needed to support the growing demand we expect in the future. These activities continue to deliver a return on invested capital level that is comfortably above the competition. Operator, that concludes our prepared remarks.

Tim and I would now like to open up the call for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Once again, we do ask that you please limit yourself to one question and a single follow-up. Today's first question comes from Timothy Arcuri at UBS. Please go ahead.

Thanks a lot. Doug, I do not think I have ever seen a quarter where you grew systems 35% QoQ, so kudos on that. You did talk about the near-term constraints. I guess you can see that from payables. I think payables were up like $1.3 billion. Can you just give us a sense? Is it fair to say this is costing you $300 million-$400 million? Is that a reasonable number to assume that that is costing you in the guidance for December, and do you get that back in March? Do you actually get that back? Thanks.

Yeah, Tim, that is a good question. I am not going to put a specific number on it. In the script, I said it would have been a little bit higher. So it would have been a little bit higher. And yeah, Tim, to the extent that it is something we would have shipped in December, because of timing, we will ship that in the March quarter.

Okay, Doug. Can you just talk about there was a call hosted by a big memory company today, and they were talking about 4F².

They were saying that they're going to prioritize 3D DRAM rather than 4F², and your stock traded down, which was a bit odd to me. It seems that people don't really understand what your position is there. So Tim, I wonder, maybe you can talk about that. Can you talk about how you do for in a 3D world versus a 4F² world and what you're seeing in terms of your customers' DRAM roadmaps. Thanks, Tim.

Sure. Obviously, we don't know exactly what the reaction was or why people would have reacted in that way because we've said for a long time that as all device architectures go 3D, etch and deposition intensity rises. Now, I would say that in some ways, interestingly, the longer it takes to get there, the more we're seeing momentum for some of our other scaling activities. We focused on this, even in this call, advanced patterning. If you want to extend the current architecture in which patterns are getting even smaller, that's why we're starting to see this uptick in processes like Aether, processes like Akara for conductor etch, the processes that are needed to etch and create those smaller structures.

I would say in the short term, etch and dep intensity are rising, and if really we're making a leap right from 6F² into 3D DRAM, then etch and dep intensity is going to rise even faster, even sooner than we would have thought, and that's a great thing.

Thank you. Our next question today comes from Melissa Weathers at Deutsche Bank. Please go ahead.

Hi. Thanks so much for the question. I wanted to also ask on the supply constraints. I think you said you're working with your supply chain to make sure some of those bottlenecks get resolved. Can you just give a little more color on what actions you're taking? Could you consider any co-investments or help on the capital side with those guys? Just what needs to happen to relax those constraints?

Listen, Melissa. We're always working with our supply chain to make sure they're ready for the demand environment that we see. But given how strong things have been, we're seeing a little bit of tightness. I'm not going to get into specifically where it is, except I would tell you that we're managing it, just like we always do. We'll continue to do that, but it just got a little bit tight in the quarter. I have every expectation we'll effectively manage this as well as anybody in the industry will. If we needed to make some level investments, we'd be open to that. But frankly, a lot of our suppliers are well-capitalized and can manage this on their own from a financial standpoint. I don't know, Tim, would you add anything? No, I think that's correct.

For those of us who were around during the COVID shortages, this is nothing like that. We learned a lot of lessons during that period. In fact, just in the last two months, we've hosted a couple of big events with our global suppliers to really lay out what we have in terms of expectations for growth into the next couple of years. Where you can run into problems is within our own products, as we talked about etch and deposition intensity increasing in certain parts of our business, like we talked about advanced packaging, for instance, really being a major driver of growth for Lam. You can find certain suppliers that are seeing percentage growth of our demand to them rising even much faster than Lam itself is growing.

I think we have been very clearly communicating that to those suppliers and really asking for transparency to the help they need to keep up with the pace that we're dragging in the industry. I think we'll be caught up very shortly.

Thanks for that. On the NAND spending cycle, and that upgrade opportunity that you guys have been talking about, you pulled it in last quarter. It's nice to hear about the 384-layer devices that I think you guys are shipping to. Can you update us on what inning you think we're at in that NAND upgrade cycle? What trends are you seeing? Maybe any forward-looking comments on the SLC and some of those new opportunities.

Yeah, there's still room to go on the upgrade cycle. In fact, when you're in a period of high demand, actually taking tools offline to do the upgrade sometimes is also a scheduling challenge for customers and for us.

I'd say that we're working our way through that, and we said that we would be finishing that in 2027. But we also pointed out that then you just roll to sort of the next upgrade cycle. Remember, that upgrade was from the 128-layer to kind of into the 200-layer class devices. As you just mentioned, people are already moving into the 300 and 400-layer devices. We've been engaged on those in R&D for quite some time. But I think the real thing we wanted to point out today is that while we used to just talk about layer counts as the driver for Lam equipment demand and wafer capacity needs, now you're really seeing this separation of storage tiers and each of the devices within NAND starting to be more specialized to different workloads within AI.

That actually, just like it did in DRAM with HBM and the impact on bits that could be manufactured per wafer, you're starting to see the performance needs of AI start to create a need for higher performance, low latency devices. I think we just had a customer talk in some detail about that opportunity, and I think that's going to drive NAND wafer capacity demand, and intensity for Lam's equipment. Thanks, Melissa.

Our next question today comes from Krish Sankar with TD Cowen. Please go ahead.

Yeah, hi. Thanks for taking my question. I have two of them. Doug or Tim, when I look at your Q4 guide, I understand you are talking about mid-$150 billion WFE, but the implied WFE for Q4 is like almost $180 billion or so. I am just wondering, are there any episodic revenues in Q4, or is some of the price increases that the front-end semi equipment companies are doing impacting Q4 and kind of making the WFE number larger? Then I have a quick follow-up.

Yeah, Krish. No, there is nothing unique or one-off or episodic, to use your word, in the December quarter. It is just consistent with customer demand, frankly. Like I alluded to, it would have been a little bit higher if not for some of these supply chain constraints, but there is not anything one-off.

Got it, Doug. Then just a quick follow-up. I think in your prepared comments you mentioned China would be significantly lower in the December versus September. Kind of wondering, can you quantify that? How will the mix look like? Because seems like September quarter was a surprise on the upside with both multinationals and domestics coming in.

Yeah, Krish. To us, it wasn't a surprise. It was exactly as expected. I mean, the domestic customers in September were strong, but so were the global multinationals. I expect that in December we'll be meaningfully down, driven by the domestic customers in China. I expect in the December quarter, the multinationals in China likely continue to be reasonably strong, but the percent of revenue in China will be meaningfully down in the December quarter.

All right, next question today comes from Harlan Sur at JPMorgan. Please go ahead.

Yeah, good afternoon. Thanks for taking my question. On CSBG, 36% growth first nine months of this year, full year outlook greater than 30%. Very, very strong. The growth tailwinds, I assume higher spares as customer utilizations are at record levels, higher sales of higher dollar value upgrades for NAND, and maybe strength in Reliant, as the mature sectors of the market start to come back. Of course, you have your Equipment Intelligence services offerings. Can you guys just rank order these growth drivers? More importantly, on a year-over-year basis, how much higher are CSBG operating margins? I am just wondering if mix and volume dynamics within CSBG are contributing to the strong overall operating margin profile.

Yeah. I will let Doug talk about the rank order in terms of financial impact in the short term, but if I were to rank order them in terms of my excitement, clearly as we have talked about, we see Equipment Intelligence, the cobot-driven maintenance, the performance-based service contracts we talked about as really kind of the new part of our CSBG business that is really catching on. We are in an environment right now where just as there was an earlier question about if people are trying to shrink devices even faster to get more bits or more performance out. That creates an intolerance to variability in the process, whether that is in the process control or the maintenance. That is exactly where Equipment Intelligence and cobots come into play. So we are seeing strong pull for that element, and that is something new for our CSBG business.

I am very excited about that becoming a bigger growth driver for us than it has been in the past. I will let Doug talk about upgrades, spares, and everything else.

Yeah, Harlan, we do not specifically give you hard numbers on each of the individual subcomponents. What I would tell you relative to strength of each of them, though, given how strong utilization in the industry spares and service are just humming along, as you would expect. I have always said spares is the biggest individual component, and that continues to be true. But I am not going to be specific on the other ones. What you alluded to is right. Given where we are at in the NAND conversion/upgrade cycle, that portion of the business continues to be strong. Yes, Reliant did quite nicely last quarter given the strength of investment at mature node spending. I expect you will see all of these trends continue into next year.

Yeah, I appreciate that. As a follow-up, the supply tightness in leading-edge foundry logic is creating tightness in mature and specialty nodes, analog, power, microcontrollers. Foundry supply here is tightening very rapidly, right? It looks like mature foundry suppliers, internal IDM factories, they are all increasing capacity. You just said that this is reflected in your Reliant business, but if I exclude China, are you anticipating this segment of your customer base to grow this year?

Probably not in a meaningful way this year, Harlan. I do expect as we get into next year that mature spending outside of China will be strong because of the dynamics you were just referring to. I am not sure that it is really sticking out quite yet in 2026.

Thank you. Our next question today comes from Srini Pajjuri with RBC Capital Markets. Please go ahead.

Thank you. Tim, I am looking at your systems business growth. I think last year you were up 40%, and then this year you are probably going to grow 45%, both well above the WFE growth. Looking out to next year, given your $200 billion plus outlook, roughly 30%, let us say. I suspect you expect to outgrow that market next year as well. Can you talk about what are the drivers? Is it driven by any particular end market like NAND or DRAM or any product line or anything else you can comment on would be helpful.

Yeah, I guess at a very general level, I would say it is driven by the increase in deposition and etch intensity across all devices. If there were a few things I would point out, just as maybe obvious trends in the market, Lam's exposure in the advanced packaging space is extremely high, and I think advanced packaging continues to play an even more vital role in just about every device that is feeding into AI today. That is, I think, a great position where we will see outperformance. We talked even about that extending into panel level. It really is in every device. You see NAND layers growing. You see new architectures coming to NAND. We talked a little bit about the emergence of SLC class, and you are starting to hear from our customers. Foundry logic, we have talked about success in gate-all-around.

We invested four or five years ago in an entire set of products focused on improving our position in foundry logic and DRAM. I commented on the fact that today, those products are driving a significant portion of our growth here in the years in which foundry logic and DRAM are leading the charge on growth. We are extremely happy with that. NAND is yet to emerge as to its full potential from our perspective, and I think you are starting to hear about it and the strategic role it can play in AI. I do not know. It is hard to project exactly. We would love to see all the devices grow, but I think the single greatest theme is, regardless of which device we are talking about, deposition and etch will play a greater role in 2027.

If you think about We had this model, which was the $100 billion of AI CapEx being about $10 billion in WFE. The important thing is that $10 billion next year, Lam's opportunity in that $10 billion would be even greater than it is this year because of the device evolution. I think that etch intensity is just a way to think about Lam's opportunity.

Right. Then maybe on the gross margins. Doug, you are guiding actually slight increase despite, you highlighted some customer mix headwinds. I am suspecting

that is related to China. I guess on a normalized basis, as we look out to the next few quarters, once China normalizes, how should we think about gross margins? In the past, you did talk about some pricing actions, and of course, you have the cost and efficiency improvements as well. Just curious as to how we should think about gross margins as we go into next year.

Yeah, listen, in the near term, Srini, I think you are going to be plus or minus the level that we are at. We did suggest over the next several years, we see an opportunity to expand gross margin in the mid-50s. You kind of triangulate yourself between these two points. But in the near term, it will bounce around generally where it is. Yeah, the things that contributed to our very strong gross margin as well as our expectation of how we are going to drive improvement into the future are new product introductions, right? We have got some very nice technically differentiated new products like Akara and Aether. We are excited about where that is all going to trend from a profitability standpoint.

We've talked about our close-to-customer strategy relative to how we're manufacturing closer to where the fabs are, that's contributed and still have a little bit of juice left to squeeze there. Then we've also talked about the fact that we're working on pricing. All of those things have contributed to getting us to the all-time record level that we printed in the September quarter and levers we're going to keep trying to pull as we go into the future to get to that mid-50s that we've said we're going to drive towards.

Thank you. Our next question today comes from Vivek Arya with Bank of America Securities. Please go ahead.

Thanks for taking my question. For the first one, if I look at last year, you were able to consistently expand your WFE expectations. I think you started the year at mid-$130s. Now it is like mid-$150s. I am curious, what helped you increase WFE expectations last year, and then what are the constraints next year that you think can be resolved to help do better than the 30% or so industry growth? I know you mentioned some constraints in the near term. I am curious if they are the same constraints that limit industry growth for next year, or they are different. It is just what can help you do better than this 30% industry WFE growth?

Vivek, I will start and then I will let Tim add. As we have walked through this year, you are absolutely right. We started mid-$130s, and then we went to a little bit more than $140, and then a little more than $150, and then we just took you to mid-$150s. Basically, what we saw happening across all aspects of our customer base is everybody squeezed a little more out of the clean rooms that they had and/or pulled projects in a little bit quicker than maybe they originally intended. That is generally what happened. Frankly, we did exactly the same thing. With the more than 200 number, we are giving you our initial starting point, more than 200.

We normally do not give you this much specificity this early in the year, and we will give you a sharper pencil on that when we get to the earnings call next quarter.

Gotcha. For my follow-up, Doug, you mentioned something about an accelerated repurchase plan.

I think you can all guess what that is due to, but it would help to hear from you also, and if you could help give some sense of what the magnitude is, how long you plan to continue it. I know you mentioned you have $3 billion left in the buyback, but just how much is the ASR component, how long it continues? Thank you.

Yeah, Vivek, the way these accelerated share repurchase structures work is you enter into them, you get some shares up front, and then they execute over time, depending on where the share price is and volatility and things like that. I am not going to disclose actually the start or end date because there are ranges around it. I do not like people to know what we do and how we do it, except I will reinforce for you, it is going to continue to execute in December, and then we will likely be doing other things in the market relative to the buyback, right? Our medium long-term goals remain unchanged, which is to return 85% of free cash flow to shareholders.

Thank you. Our next question today comes from Atif Malik with Citi. Please go ahead.

Hi, thank you for taking my questions. The first one for Tim. Tim, I thought your panel-level packaging comments are extremely bullish. You are talking about a share that will exceed the wafer level packaging. Can you just kind of double-click in terms of the industry ramp on panel-level packaging and your products. Are the products the same as wafer level, like Sabre, that will drive this growth?

Yeah, at a fundamental level, they are similar. I think part of our optimism in this space is, one, it makes sense. Obviously we talked, I think, on the last earnings call about how packages themselves are getting larger, which in many cases they are too big for wafer level packaging, and so panels make sense as you try to assemble bigger and bigger system-level solutions. So we saw that quite a while ago, and we have been investing in panel for several years. I would say we are still, though, in the very early stages. Wafer level packaging is the predominant method. But as we talked about the shipments to more than 20 customers, you can think of those as really planting the seeds for an industry that I think is going to ultimately assume a fair bit of the packaging work for the industry.

The processes that we talked about, we do not call it Sabre in this case, but there is a plating aspect to this and some other processes that I think will do extremely well within panel level.

Great. Doug, on that +$200 billion wafer fab equipment outlook for next year, your rank order is DRAM, foundry logic, and NAND, which is the same as 90 days ago, but has the gap between DRAM and foundry logic expectations narrowed given some of the announcements on the new logic fabs from foundry and Terafab like?

No, Atif, they really haven't. As you might expect, all of these projects, perhaps, that people are now publicly hearing about, we knew about in advance of that. It really hasn't changed much.

Thank you. Our next question today comes from James Schneider at Goldman Sachs. Please go ahead.

Good evening. Thanks for taking my question. I was wondering, as you look into 2027, can you maybe frame for us some of the moving pieces that could adjust the WFE outlook higher or lower? How much of it really is your customers' individual spending plans for the different technology or product areas, versus just the general availability of clean room space overall?

Yeah, Jim, I'll start, and then I'll let Tim add. When we look in the next year, we see 10 new tier I fabs coming online between the beginning of the year and the end of the year, and they will layer in over time. That's obviously a contributor. This year has been primarily clean room constrained. In that, again, you see, like we said, some emerging supply chain constraints that we're confident we're going to be able to work through effectively, but the whole industry is going to have to work through very similar things. All this, at the end of the day, has to get balanced. Every equipment company needs to be able to supply things. Clean rooms need to come on schedule. People need to hire and train to make sure they're all ready.

The industry's good at doing this, and we're great at doing it. But all of those things have to come into play when you're thinking about what the next year is going to look like.

Yeah, I think in my prepared remarks, I talked about the fact that we have visibility through 2028. That's really from the demand side. I think that where we're saying it might just be a little bit early to give such a precise number on WFE is simply because we think by the January call, which is the normal time we would give that level of detail, we'll have a better view of clean room schedules, of supply chain constraints, and really be able to hone in on that. But those are the things we're looking at. Just as this year, we were able to work through those, and I think as we get closer, we'll get a better sense for how the industry is responding.

Our next question today comes from Stacy Rasgon with Bernstein Research. Please go ahead.

Hi, guys. Thanks for taking my questions. For the first one, I understand that this more than $200 billion WFE next year is a constrained number. Do you guys have a point of view on what that number would be if it was not constrained, if clean rooms were available, if supply chain was not as tight as it is? I guess what I am asking is, what do you think the demand for WFEs in 2027 versus the supply number that you have given?

Lam Research (LRCX) Q1 2027 Earnings Call Transcript

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