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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

lam research

day, and welcome to the Lam Research Corporation's March 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone.

To withdraw your question, please press star then 2. Please note this 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 Lam Research quarterly earnings conference call. With me today are Timothy Archer, President and Chief Executive Officer, and Douglas Bettinger, Executive Vice President and Chief Financial Officer. During today's call, we will share our overview on the business environment, and we'll review our financial results for the March 2026 quarter and our outlook for the June 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 also be found on the Investors section of the company's website.

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. Actual results could differ materially from those expressed in such forward-looking statements. Please see the accompanying presentation slides for additional information.

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 P.M. Pacific Time. A replay of this call will be made available later this afternoon on our website. With that, I'll hand the call over to Tim.

Thank you, Ram, and good afternoon, everyone. Lam is off to a solid start in calendar year 2026, with revenues and profitability in the March quarter at the upper end of our guidance ranges and earnings per share exceeding the top end of our guided range. Revenues were at record levels, highlighted by the 1st $2 billion quarter from our customer support business group. Our guidance for the June quarter points to Lam's strong momentum in an accelerating AI-driven semiconductor demand environment. In January, we shared our outlook for 2026 WFE in the $135 billion range. Since then, spending projections from customers have moved higher across all device segments.

We now expect WFE of $140 billion with a bias to the upside as the industry continues to work through various constraints. We believe this sets the stage for another year of compelling WFE growth in 2027.

For Lam, the AI-driven demand environment is creating an ideal setup for continued outperformance. Semiconductor technology inflections required to meet escalating AI compute needs are driving higher deposition and etch intensity. In 2026, we see Lam's served available market, or SAM, percent of WFE expanding to slightly more than the mid-thirties % level, well on track toward our stated goal of high thirties % over the next few years. Lam is prepared for this moment by transforming how we innovate, build, and support the semiconductor manufacturing equipment needed to address the industry's most critical challenges.

Our commitment to R&D and the velocity with which we have scaled our development capabilities have enabled us to create the broadest, most competitive product and services portfolio in the company's history. This is fueling our current outperformance and puts us in an excellent position to deliver on our future growth ambitions.

Across all device segments, we are seeing greater opportunity for Lam. In NAND, AI transformation is moving beyond compute and into the storage layer. Token economics are driving changes to the memory hierarchy used in AI data centers, including rising adoption of higher layer count QLC-based NAND devices for SSDs. We expect total data center bits this year to be greater than both PC and mobile segments combined, with continuing growth in data center mix into the future.

The growing device performance requirements of AI data centers are driving an acceleration of NAND technology upgrades. As you may recall, we said in early 2025 that roughly $40 billion in conversion spending would be required over several years to enable existing NAND-installed wafer capacity to produce devices with more than 200 layers.

We now anticipate that this conversion will be pulled forward, with the majority of spending occurring before the end of calendar year 2027. In parallel, we expect growth in bit demand will drive greenfield capacity investment, especially considering that overall industry installed wafer capacity is expected to decline more than 20% from prior highs by the end of this year. Looking further ahead, we see continued adoption of NAND in the AI memory stack driving even higher layer count NAND devices. With the largest installed base of tools for 3D NAND, Lam is uniquely positioned to benefit from this trend. As manufacturing complexity scales with layer count, we see an expanding set of deposition and etch opportunities.

All rooted in our established leadership in high aspect ratio cryo etch, dielectric stack deposition, word line metallization, backside stress management, and gap fill technologies.

In dielectric etch, our Vantex and Flex tool sets deliver the industry's highest power density and productivity for dielectric channel hole etch applications, where we have a market-leading position. In conductor etch, we are also seeing momentum for our Kiyo systems as customers collaborate with us to maximize device yield in a constrained capacity environment. In a recent win, a customer switched to Kiyo in the middle of their production ramp due to superior defect performance and better yield. In deposition, we are seeing the transition to higher layer count NAND also drive greater demand for our Strata, ALTUS Halo ALD, and VECTOR DT products.

Altogether, we believe the production-proven strength of our portfolio puts Lam in a great position to outperform overall NAND WFE growth as AI demand accelerates over the next few years.

In DRAM, AI's power and efficiency requirements are driving an industry transition to 1C generation devices. As feature dimensions shrink, the industry is shifting from traditional silicon nitride-based dielectric films deposited using furnace to more advanced ALD silicon carbide low-k layers to achieve bitline capacitance reduction. Studies have shown that re-architected device structures, combined with low-k bitline spacers, can reduce capacitance by over 60%. Lam's Striker carbide solution, with its unique plasma source, enables capacitance scaling by depositing dense, conformal, and tunable low-k dielectric films with high productivity. As a result, our Striker-based solutions are the tools of record at all leading memory makers for bitline spacer applications.

As the industry moves to 1C nodes, we see our total dielectric deposition, SAM and DRAM, growing more than 20%. With innovations like Striker ALD, we believe Lam is well-positioned to gain share within this expanding opportunity.

In foundry logic, calendar 2025 was a record year for Lam. We are carrying that momentum into 2026 as we capture more opportunities from inflections at the leading edge. Most notably this quarter, we achieved both dielectric etch wins at a key foundry logic manufacturer, our 1st dielectric etch wins at this customer. Finally, we see growing demand for our advanced packaging solutions, where we bring unmatched experience in equipment design and process technology for copper plating and TSV etch.

Lam's advanced packaging revenue growth is expected to exceed 50% in calendar year 2026. Turning to our customer support business group, we delivered our 1st $2 billion-plus revenue quarter. Demand was strong across spares, upgrades, and services. As customers look to improve fab output in a space-constrained environment, more opportunities are being created for CSBG to deliver innovations that increase productivity and enhance yield for our customers.

Our services business posted mid-teens growth over the December quarter. Highlights included a new agreement with a leading foundry logic customer to deploy our Equipment Intelligence services for critical deposition applications. A top memory customer is also set to utilize our Equipment Intelligence capabilities in R&D to enable faster ramps of new nodes for NAND and DRAM production. We are also gaining momentum with our Dextro cobots, which deliver an unprecedented level of automated tool maintenance precision and repeatability. Customers using Dextro in production are benefiting from higher output and, in some cases, improved yield from existing capacity.

In the March quarter, we expanded Dextro coverage to 8 Lam tool types, up from 6 last quarter. We also introduced the next generation of Dextro, which packs 10 times more compute power than the 1st generation into a smaller footprint.

This quarter, we will ship our 1st Dextro cobot for a deposition product, further increasing our ability to create value from our overall installed base of more than 100,000 chambers. It's an exciting time for the semiconductor industry and for Lam. In an accelerating demand environment, we see rising deposition and etch intensity, creating a multiyear outperformance setup for Lam. We have made strategic investments across the company to capitalize on this opportunity, increasing the velocity of both our technology development and our operational execution.

Our progress can be seen in our strong March quarter results, our higher June quarter outlook, and our expectation that H2 calendar year revenues will exceed the H1. In short, we are delivering on the tremendous opportunity in front of us with more to come. Thank you, and here's Doug.

Excellent. Thank you, Tim. Good afternoon, everyone, and thank you for joining our call today during what I know is a very busy earnings season. Lam's off to a solid start in 2026, building on the momentum we delivered across 2025. In the March quarter, revenue, gross margin, and operating margin came in above the midpoint of our guidance ranges, while earnings per share actually exceeded the high end of the range. We also achieved our 3rd consecutive record revenue quarter

. March quarter revenue came in at $5.84 billion, which was up 9% sequentially and up 24% from the same period in 2025. The deferred revenue balance at quarter end came in at $2.22 billion, which was flat sequentially. Within this balance, however, customer down payments came down by roughly $300 million, while the other line items increased with the growing business levels.

I just mentioned that down payments are now at the lowest level we've seen in nearly 4 years. From a market segment perspective, Foundry accounted for 54% of our systems revenue in the March quarter, which was down from 59% in the December quarter. Revenue in dollar terms was approximately flat sequentially, and it was up 35% year-over-year.

Foundry saw strength in investments at the leading edge, as well as ongoing mature node spending. Advanced packaging within Foundry continues to be an area of solid growth for us. Memory was 39% of systems revenue, up from 34% in the December quarter. Within Memory, we delivered record DRAM revenue, accounting for 27% of systems revenue, which was up from 23% in the December quarter. High bandwidth memory investments remained strong.

The profile of spending is also gravitating towards the 1C node and beyond, enabling the ramp of DDR5 and LPDDR5. Non-volatile memory contributed 12% of our systems revenue, up slightly from 11% in the December quarter. As Tim outlined, AI workloads are accelerating demand for higher capacity NAND, and LAM continues to benefit from strong leadership within this segment. We expect to see growth in NAND investments throughout the remainder of the year as the industry converts to 256 layer and above class devices.

Finally, the Logic and Other segment came in at 7% of systems revenue in March quarter, in line with prior quarter. Let's turn to the regional breakdown of our total revenue. China came in at 34%, which was a slight decrease from the prior quarter level of 35%. We expect that China revenue in the June quarter will decline from these levels.

Korea and Taiwan each came in at 23%, which was both up from 20% in the prior quarter. Both the Korea and Taiwan regions represent record revenue level in dollar terms in March. I just mentioned that this regional mix was generally in line with our expectations from the beginning of the quarter. Customer Support Business Group generated a record $2.1 billion in revenue in the March quarter, which was up 6% sequentially and up 25% from the same period in 2025.

Sequential growth was driven by our large and expanding installed base and the continued expansion across our spares, upgrades, and services business, partly offset by Reliant. Growth in spares and service is benefiting from strong factory utilization across the industry. Let's take a look at profitability.

Gross margin in the March quarter was 49.9%, which was at the high end of the guidance range, driven by multiple factors, including favorable customer product mix as well as improved factory efficiencies. Operating expenses in the March quarter came in at $866 million, up from the prior quarter's level of $827 million. The increase was driven by seasonal employee-related costs as well as higher headcount to support our growth. R&D accounted for 68% of total operating expenses. We will be growing R&D investments throughout the remainder of the year.

March quarter operating margin was 35% at the high end of our guidance range due to the higher revenue and the improved gross margin. The non-GAAP tax rate for the quarter was 9.2%, which came in lower due to benefits from higher equity compensation vesting, which is deductible on the taxes during the quarter.

We continue to see the tax rate in the low- to mid-teens% for calendar year 2026. Other income expense in the March quarter was $8 million in expense, compared with $10 million in income in the December quarter. The variance in OINE was primarily the result of small losses in our venture portfolio, as well as lower interest income. Interest income decreased due to the lower cash balance in the quarter. As we've talked about in the past, you should expect to see variability in OINE quarter to quarter.

For capital return in the March quarter, we allocated approximately $800 million to share buybacks through a combination of open share repurchases and a $200 million accelerated share repurchase transaction. Our average buyback price was approximately $211 per share. We also retired $750 million of unsecured notes that reached maturity using cash from the balance sheet.

Additionally, we paid $326 million in dividends. In the March quarter, we returned 139% of our free cash flow. Our plans remain to return at least 85% of free cash flow to our shareholders over time. The March quarter diluted earnings per share came in at a record of $1.47, which was above the high end of our guidance range. The diluted share count was 1.26 billion shares, which is flat with the December quarter, and consistent with our guidance.

I just mentioned that we have $4.3 billion remaining on our board-authorized share repurchase program. Let me pivot to the balance sheet. Cash and cash equivalents totaled approximately $4.8 billion at the end of the March quarter, which was a decrease from $6.2 billion at the end of the December quarter. The decrease was primarily driven by capital return activities, the debt paydown, as well as capital spending.

Days sales outstanding was 64 days in the March quarter, an increase from 59 days in the December quarter. Inventory turns improved to 2.9 times from 2.7 times in the prior quarter. These were our highest level of inventory turns in over four years. As a company, we remain focused on our strong asset utilization and return on invested capital. We're pleased with the sustained performance we continue to deliver here.

We will be managing our inventory and supply chain to align with the growing demand that we see in front of us. Non-cash expenses in the March quarter included approximately $97 million in equity compensation, $103 million in depreciation, and $13 million in amortization. Capital expenditures in the March quarter was $332 million, which was up $71 million from the December quarter. Spending was higher to support the strong demand environment that we're seeing.

Investments are enabling a 2nd manufacturing facility in Malaysia, as well as lab-related investments in the United States and Taiwan. Looking forward, we continue to expect capital expenditure to be in the 4%-5% of revenue range. We ended the March quarter with approximately 20,600 regular full-time employees, which was an increase of approximately 900 people from the prior quarter. Headcount increases were primarily within the manufacturing and field organizations to support volume growth, as well as in R&D to support our long-term product roadmap. As we scaled the organization, we also undertook a small workforce optimization focused on efficiency. You'll see this in our non-GAAP reconciliation.

Let's turn to our non-GAAP guidance for the June 2026 quarter. We're expecting revenue of $6.6 billion ±$400 million. Gross margin of 50.5% ±1 percentage point.

We're expecting this expanding gross margin despite slight headwinds that we're seeing from customer mix. We're forecasting operating margins of 36.5%, plus or minus one percentage point. Finally, we're forecasting record earnings per share of $1.65, plus or minus $0.15, based on a share count of approximately 1.255 billion shares. Let me wrap up. We're executing well against our financial objectives and driving operational efficiency while increasing R&D investments to extend our technology leadership. With our expanding installed base, the strength of our product portfolio, and our disciplined approach to capital allocation, we remain confident in Lam's setup for continued outperformance. Operator, that concludes our prepared remarks. We would now like to open up the call for questions.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, 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 2. Please limit yourself to 1 question and one follow-up. Our 1st question comes from Timothy Arcuri with UBS.

Thanks a lot. Doug, I wanted to ask about gross margin. The guidance is great. It's 50.5%. Sounds like despite mix being against you're kind of already at your target model, right? Because you were saying above 50%, and I'm not asking you to update that model, but can you deconstruct how you got here so fast? And maybe also, I think people want to hear how much capacity you have. I know you mentioned that you're adding another site in Malaysia. Can you just speak about what the puts and takes are going to be on margin going forward?

Yeah. No, Tim, it's a great question. I think we're pretty pleased with where we're at from a gross margin standpoint. It's been a lot of real hard work from the company, honestly. I think you'll remember, I don't know, 4 or 5 years ago, we talked about expanding our factory footprint to be closer to where our customers were. That has delivered efficiencies from just a proximity standpoint, from shorter freight logistic lanes, from slightly lower cost from a labor standpoint, a better supply chain setup, all of those things. Those were self-help activities that we undertook, and frankly, we've delivered on it.

When I think about the global operations part of the company, they've really done a wonderful job. On top of that, we're working on everything we can do to get paid for the value we're delivering to customers.

That's something we're always doing, and I think we're doing a reasonably good job with that, Tim. Anyway, when you put all of that together, I think we're pretty pleased with all of that, and I'll let Tim add a few things here.

Yeah, no, I was just going to add one other part that's pretty important and showing up as very important in this constrained period, which is the performance of our tools. Doug talked about some of our higher R&D spending. A lot of that was to ensure that all of these new tools that we have hitting the field enter at a level of maturity that's beyond what we had probably delivered in the past. That's very important for our customers in a period of fast ramp. That also yields benefits for us in terms of installation and warranty spending, which flows through to gross margin. You're seeing some of that as well. That's something that, again, we're focused on going forward, is reliability of systems, maturity of tools as they hit the fabs.

Yeah, let me add one quick thing. I know there's going to be a question on everybody's mind. Hey, how should I model gross margin for the rest of the year? I would encourage you to kind of keep it roughly in the levels that we just guided you to in June. This is going to kind of level out at where it's at, I think, for the rest of the year. As you build your models, keep that in mind.

Awesome, Doug. Thanks. I guess just as a follow-up.

There's been a big, massive new fab project. You guys have obviously seen this news, bigger than anything we've ever seen before. I'd think that this customer would have to get in the queue, given how booked out things are. I don't want to ask just about that one customer, but are you seeing signs of these huge new fab projects, sort of the customer base expanding? If you did want to comment on that particular fab project, if they're sort of coming to you as a new opportunity, that'd be great.

Yeah, obviously, we can't comment on any specific customer. Clearly the environment right now is such that there's just not enough compute, there's not enough memory in the world, and people are worried about supply. I don't think it's a surprise that more companies around the world will start to enter into the semiconductor space. That's why when we talk about the longer-term outlook, it's a combination both of increased demand, but really increased demand at some of the most compelling leading-edge opportunities that are presented to Lam. I think when we talk about WFE, there's only so much that can be executed in this year. Again, you see a lot of these projects starting to line up that I think represents opportunity in the future.

Our next question comes from C.J. Muse with Cantor Fitzgerald.

Good afternoon. Thanks for taking the question. I just wanted to touch on your commentary around 2027 visibility. Can you kind of speak to your discussions, conversations exceeding 18, 24 months, whether you're starting to see real slotting and desire to lock in time frames for delivery? I guess as part of that, how are you kind of working your supply chain for readiness for that ramp?

Yeah. Clearly we're about halfway through 2026, and so given our lead times, of course, we're having conversations with customers about 2027. In some cases, for planning purposes, like getting resources ready, engineers hired and trained in the right locations, some of those conversations even extend beyond that. We have customers who clearly announced fabs with openings in 2028. There's no reason not to start having conversations with them about what the tooling is that's going to be required based on the node that we run, kind of the size, the resourcing requirements.

I'd say we're in various stages of those conversations. The more visibility we have, the better we can get our supply chain and our own capabilities ready.

I think it is a case where today our view on WFE, as I said, for 2026, really has a lot to do with what we believe can be executed. We talked about this upward bias. We're working a lot with customers on near-term constraints, things they can do within their existing fabs, at the same time preparing for those new fab openings and true kind of greenfield shipments as they roll out later this year and through next year.

Yeah, C.J., I'd just add, it feels like it's setting up to be a pretty good year in 2027 right now based on what we can see.

Excellent. Maybe a question on CSBG. Obviously, tremendous focus on trying to get every bit out the door in this very tight environment. Curious if kind of the upgrade business that you're seeing is sustainable, and is there kind of work that we should be thinking about for full calendar year 2026 revenue growth in that bucket? Thank you.

Yeah, C.J., no, it's a great question. Listen, I think we're feeling really good about CSBG. Industry utilizations are high, so spares was quite strong in March. Service was quite strong in March. Tim talked about the new Equipment Intelligence and cobots that we're rolling out. We're excited about that. Our customers are excited about that. When you see how strong it was in March, I think it popped up. I think it's going to kind of sustain roughly at these levels as we go through the remaining quarters in the calendar year, maybe up a little bit.

I think we're feeling pretty good about the strength that we're seeing here. Frankly, we're innovating here too, so I think we feel pretty good.

Our next question comes from Harlan Sur with JPMorgan.

Hey, good afternoon. Thanks for taking my question. When I speak with the process development and integration engineers, obviously of your customers, they're very focused on next generation technologies and architectures, and that's what we hear on these calls, right? How Lam is enabling 3D device architecture, cell structures, driving high aspect ratios, new materials, et cetera. But then when we speak with the manufacturing and operations teams, it's a very different focus, right? And the vocabulary set is very different. It's all about throughput, uptime, defectivity, overall fab cycle time, right? And especially with the tight supply situation and constrained clean room space environment that we're in today, any incremental improvement in high volume productivity could unlock literally millions of dollars of incremental wafer output.

You've talked about things like the Dextro cobot, but any other enhancements that you're driving, Tim, to the install base on productivity and manufacturability, and more importantly, how are you guys monetizing this? I assume it's maybe primarily services and upgrades.

Yeah. It is a 2-focus world, as you talked about, and the good news is we've got the company organized in a way that we can focus on both with significant intensity. Clearly leading edge, being in front of those inflections a number of years, we said sometimes it's 5, 6, 7 years you're working with a customer in advance of that node ever reaching production. At the same time, especially in the environment we're in right now, production output, uptime, yield, those things are really what are most critical to customers in the immediate term.

Plus, I would say really identifying the bottleneck tools within the customer that's limiting output and helping them with those workstations.

Equipment Intelligence, if you think about what it does is it allows us to look at massive amounts of data coming from our tools on every single wafer, and that shortens troubleshooting time if there is a problem with the tool. It helps us with the time to ramp those tools, either on a new process or as they start up. It helps us to match tools better, tool to tool, chamber to chamber. All those things can lead to those tiny little improvements in yield that really do matter for the customer.

On the Dextro Cobot, we've talked about the fact that at some customers, the precision and repeatability of the maintenance has actually yielded improvements in both output and yield. It does that through better 1st time right. You do the maintenance, it comes back up and is back into production more quickly.

Just the improved repeatability of let's say, the new part placement inside the chamber, actually has had some positive impact on the yield. That's something we're really focused on. How do we monetize it? Yeah, it's through services, and obviously in some cases, new tool sales.

Yeah. Okay. Thank you. I appreciate that. For Doug, your OpEx grew 5% sequentially in the March quarter. Implied OpEx growth in June is 7%.

Given the leverage, it's allowing you to actually exceed your long-term operating margin targets of 35%. How should we think about the OpEx growth through the remainder of this year? I guess, when is the team going to update its long-term targets? As the year unfolds on more revenue growth, you're clearly going to drive margins above the 36.5% operating margin range that you guided to for June, right? When is the team contemplating updating its long-term targets? Thank you.

Yeah, no, Harlan, it's a great question. 1st, let me talk about the spending trajectory for the year. Listen, I think at the end of the day, this management team likes to see the top line growing faster than spending so that we can deliver leverage, and that's absolutely how we're thinking about things this year. Having said that, we're going to grow spending this year because frankly, we can afford to do so, and we have some things that I think are quite innovative that we've been thinking about that we wanted to put a little more money towards. We're going to do that. We've decided we're going to do that this year.

Yeah, we're talking internally about the fact that we're above the previous model that we gave, and yeah, I know we need to give you an updated framework, and we will do that later in the year. We haven't bottomed out on exactly when or exactly how we're going to do it, but we know we need to, and we will be doing that, Harlan.

Our next question comes from Atif Malik with Citi.

Hi, thank you for taking my question. My question is on the NAND market. It seems like near term, NAND is still low, like 12% of sales, but something has changed versus 90 days ago. You guys are talking about NAND growing through the year and the pull forward in the $40 billion number. What has changed in the NAND market? Are you seeing signs of capacity additions or what has changed? Maybe it's KV Cache.

Yeah. We didn't mention KV Cache, but I think it's a good example of exactly what I was referring to when I talked about its increasingly important role in the AI memory hierarchy. Clearly there is increased demand for NAND coming from AI data centers, and that's helpful. Also, if you think of the, on a relative basis, somewhat under-investment in that area, partly as customers made choices about clean room allocation and obviously, some other devices like HBM were so hot during that period. Also going back to what we said early last year, the installed base had gotten a little bit behind in terms of the state-of-the-art technology.

Most of the installed base at that time, early 2025, about 2/3 of it was still running in the 1XX 100-plus layer technologies.

Really, when you need to get those incremental bits out, now you need to be 200 layer plus. That's what's caused this acceleration as you need more bits, you need those bits to be more capable. You need QLC to meet AI data center demands. You've started to see the push for accelerated conversions in the technology, and that's what's caused a lot more activity in the NAND space.

As people push forward, we then also said, "Look, the conversions are going to happen because that's the quickest way to get to the higher capability. You'll also need greenfield because those technology improvements, like in Lam's case, to go above 200 layer, we talked about the number of new tools you need to add to manage the complexity of higher layer count stacks.

That in and of itself reduces total wafer output capacity of the industry. Eventually you need to add greenfield back to continue to get the big growth you need. That's the reason we've started talking about it, is it's materializing as a significant opportunity now on the revenue side for Lam, and looks to be so for quite some time.

Thanks, Tim. Doug, you talked about customer down payments at the lowest level in four years, and you're also talking about WFE growing in next year. Can you reconcile those 2 comments?

I guess what I would tell you, Atif, is the group of customers that generally provide the down payments aren't the ones that are growing the quickest, and that's absolutely what we're seeing going on right now. Thanks, Atif.

Our next question comes from Melissa Weathers with Deutsche Bank.

Hi there. Thanks for letting me ask a question. I had a more thematic question, maybe forTim or Doug, if you want to take a stab, you can too. We've heard a lot about reasons why this memory cycle is different with HBM and trade ratios and new applications like SoCAM. It does seem like AI is driving memory bit demand growth a lot faster than what we've seen historically.

I guess, do you ascribe to the view that this memory cycle is, I won't say the D word, but there's a change this time around? What kind of actions are you taking to de-risk the cyclical side of things, while still being able to capture the upside?

Okay. Well, it's a great question and maybe I won't use the D word either, but I think it's different for Lam in that, and there was an earlier question that talked about how so many of these new devices have different architectures, 3D scaling. I think the most important thing about this memory cycle is it is a cycle in which you're seeing dramatic improvement and change in the etch and dep intensity. The complexity of 3D scaling has created a lot of new opportunities for Lam.

That is driving both SAM expansion plus share gain for us through those new applications. I feel like compared to prior upturns in memory, we are and we're doing even better just because of that extra layer of etch and dep intensity scaling.

How do we prepare if there is ultimately that peak? Which we're certainly not calling right now given the tremendous demand that's out there. We operate very flexibly. Doug talked about a lot of our operational investments we've made. In many cases, some of the things we've talked about, Dextro Cobots, Equipment Intelligence, these are all kinds of capabilities that in many ways allow us to support our customers without so much of the fixed cost scaling that we had to make in the past.

We always have an eye on what's it going to look like if the business were to slow down. I think if you look at our track record in those periods, we've also outperformed.

Melissa, maybe I'd just add, the way I'm looking at this right now is memory is just so critical in all of these accelerated compute architectures. To feed the parallel compute, you need just data coming in to keep the machine going. The criticality of it maybe is more than it's ever been from my point of view. I observe, maybe I'll use a different D word, disciplined investment, right? Everybody likes profitability that they're generating right now. Everybody is just kind of plugging into where demand is, and I think that's a good thing for all of us in the industry.

Our next question comes from Srinivas Pajjuri with RBC Capital Markets.

Thank you. My question is on China. Doug, I think your comment about prepayments being down. I'm guessing that's related to China. Can you talk about what you're seeing in terms of the demand environment in China? As you go through the next few quarters, what's your expectations?

Yeah, I think Srini, what we described a quarter ago is still the way I would describe it this year. I think WFE in China is flattish year-over-year from 2025 - 2026. Maybe it's up a little bit. You're just seeing so significant growth from the global multinational set of customers that China as a percent of the overall revenue is coming down. The other dynamic in China is you're starting to see some of the global multinationals in China spending a little bit more too. When you look at that overall geographic distribution in China, it's also broadening out in that regard.

Yeah, you're right about the fact that down payments are down. Down payments tend to come from smaller customers, and a lot of them are in the China region. Those 2 things are correlated together.

Okay, great. My next question is on the CSBG. Obviously, I think it grew in a double-digit pace for the last several years. I think last quarter, if I recall correctly, I think you were expecting high single digits because of the Reliant slowdown here. It does feel like the clean room issue is not going to get resolved. Demand is very strong. My question is, are you seeing any acceleration in terms of your services and spares business? Is this something structural in your view going forward?

Listen, Srini, and I'll let Tim comment after I give you a little bit of data. What drives a lot of spares and service, frankly, is utilization in the overall industry. Utilization right now and in the March quarter is very, very high. A lot of the growth, or at least contributing to some of the sequential growth in CSBG, was the uptick in spares and service from that utilization. I don't know that utilization can get any higher than it is. Frankly, it's pretty full out right now. When you think about growth sequentially over the next couple of quarters, those components of CSBG are probably kind of plus or minus where they are. Now, Tim talked about advanced service and cobots and AI. That layers on top of that to a certain extent.

Lam Research (LRCX) Q3 2026 Earnings Call Transcript

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