October 11, 2007 – Lam Research posted mixed results for its fiscal 4Q07, with sales flat and shipments and margins down sequentially. But some of the more interesting numbers came from CEO Steve Newberry’s comments in the conference call Q&A, where he expressed optimism for flat industry capex in 2008, vs. growing consensus of a negative year.
Sales for the company’s fiscal 4Q07 (ended Sept. 23) were up 13% Y-Y to $684.6 million, ahead of Wall Street expectations, though with lower gross (50.2%) and operating margins (28.9%). Sequentially, sales were essentially flat Q-Q, and shipments were down 10.5% from a previous record in the June quarter to $621M. Net income and EPS were not provided, as the company is still reviewing historical stock option practices and related accounting.
In a conference call discussing the results, CFO Martin Anstice noted that lower shipments reflected reduced business from both foundries and DRAM customers, and were heavily skewed in 4Q to memory (85% of total system shipments, 46/39 DRAM to NAND flash), vs. 8% logic and 7% foundry.
Examining the company’s marketshare positions, Lam president/CEO Steve Newberry noted that Lam should see a 4.5 point gain in dielectric memory to 41% share in CY07, with conductor share remaining at >60%. “We expect to continue to increase our share at the 5X and 4X technology nodes,” he said, citing 12 wins offsetting five losses for the year.
Newberry projected continued strong memory unit growth in CY07 (52% DRAM, 47% NAND flash), and a higher mix of memory spending (~25% vs. Lam’s prior view of 16%-19%), but overall memory spending is seen down 7% in 2H07 (-24% for DRAM, +44% for NAND). Foundry utilizations are >90% now, but mainly for 90nm and above processes. Foundry and logic spending are worse than expected in CY07 (down 15%-17% vs. -5%-7%), and foundry/logic WFE spending will be down ~28% in 2H07 (microprocessor spending is expected to be flat vs. 1H07).
Surveying the current and future landscape, Newberry projected current quarter sales (fiscal 1Q08) of $580-$600M, short of analysts’ expectations of $613.5M, though consistent with prior expectations that sales in calendar 2007 would be up 15%-20%, with gross margins flat to slightly down and operating margins down to ~25%. Shipments are seen down 5%-10% with some memory pull-ins from early 2008 offsetting foundry delays.
In a broader market outlook, he said WFE spending should trend upward 1H08, though flat for full-year 2008, with a potential 10%-15% decline in memory spending possibly offset by better combined spending by foundry, logic, and other segments. “I think clearly NAND is going to be a major driver […] and I expect that DRAM spending will have a multiple quarter decline environment,” he said in a response during the conference call’s Q&A. The length and severity of that DRAM decline will hinge on the current quarter — demand and excess DRAM capacity at year’s end, and how that impacts additional DRAM shipments in 1H08.
Prompted by another question about 200mm spending and 300mm conversion, Newberry predicted 2008 would be “a very strong year” in converting 200mm operations, projecting spending of $4.5B in WFE to replace idle 200mm memory output with the equivalent of about 130,000 300mm wafers. Hynix, in particular, he said, needs to aggressively move to a stronger 300mm position, and both Toshiba and Samsung need to move more 200mm capacity as well, he noted.
Looking even further ahead, Newberry said in the conference call Q&A that he expects “some stronger spending environments in 2009,” and that the company will invest in infrastructure, HR and other capital investments in 2008 in order to ready for anticipated accelerated revenue growth.
Newberry’s outlook for a flat 2008 in equipment spending (frontend loaded) runs somewhat counter to a recent update from Gartner, which sees a 4.4% decline in semiconductor capital spending next year, and it was called into questions by a couple of analysts during the conference call Q&A. (“There are a number of companies now that have come out and provided hard guidance, all of which is down real significantly for 2008, and the other companies that have that haven’t provided hard guidance have certainly made implications about declines,” said Goldman Sachs analyst Jim Covello. Add in “the five or six DRAM companies who are down [and] the processor companies [and] foundries which have suggested down a little bit, I still don’t see where you get the flat for the full year.”) Newberry reiterated that his conversations with memory suppliers are significantly less pessimistic, and they are “far more supportive of an environment where they intend to maintain their spending in memory in 2008.” Industry analyst Carl Johnson from Infrastructure notes the discrepancy, and claims he’s siding with the bears on this one. “I believe the industry is in for a few rough quarters,” he writes in a research note. (He’s taking a neutral position on stocks, though, suggesting that broader market cyclical trends will push both bull and bear analysts generally to the middle.)