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Lam Research Corp LRCX

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Lam Not Immune to Chip Shortage for Its Own Chipmaking Equipment in Fiscal Q2; Shares Undervalued

Abhinav Davuluri, CFA Sector Strategist

Analyst Note

| Abhinav Davuluri, CFA |

Wide-moat Lam Research reported fiscal second-quarter results that came in below our expectations and the midpoint of management's guidance due to delays in system components and broad supply chain hurdles, similar to equipment peer ASML. Due to the component delays, December quarter sales fell short by more than $200 million. Nonetheless, management remains confident that equipment demand is still robust and anticipates calendar 2022 wafer fab equipment, or WFE, spending of around $100 billion, which is consistent with our estimates. Supporting this growth in WFE are large 2022 capital expenditure budgets from TSMC ($44 billion) and Intel ($25 billion to $28 billion). Although Lam has historically had greater exposure to memory end markets, we think it has improved its foundry and logic design wins in recent years sufficiently to achieve healthy growth in 2022 once it is able to overcome its aforementioned supply chain headwinds. Our $720 fair value estimate remains intact, and we think prospective investors should find current levels attractive, particularly amid the recent sell-off in technology stocks.

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Company Profile

Business Description

Lam Research manufactures equipment used to fabricate semiconductors. The firm is focused on the etch, deposition, and clean markets, which are key steps in the semiconductor manufacturing process, especially for 3D NAND flash storage, advanced DRAM, and leading-edge logic/foundry chipmakers. Lam's flagship Kiyo, Vector, and Sabre products are sold in all major geographies to key customers such as Samsung Electronics, Micron, and Taiwan Semiconductor Manufacturing.

4650 Cushing Parkway
Fremont, CA, 94538
T +1 510 572-0200
Sector Technology
Industry Semiconductor Equipment & Materials
Most Recent Earnings Sep 30, 2021
Fiscal Year End Jun 30, 2021
Stock Type Cyclical
Employees 15,400