The operator welcomes participants to the Lam Research Corporation December 2023 Quarterly Earnings Conference Call and introduces the speakers. The call will cover the business environment, financial results for the December 2023 quarter, and outlook for the March 2024 quarter. The presentation and Q&A will include forward-looking statements and will be presented on a non-GAAP basis. A replay of the call will be available on the company's website. CEO Tim Archer highlights strong performance in the December quarter and overall execution in a year with a decline in wafer fabrication equipment spending.

In 2023, Lam achieved a near doubling of EPS compared to the previous year cycle trough. This was due to improved positioning in the foundry, logic, and specialty technology segments, growth in the customer support business group, and improved cost management. WFE spending ended in the low $80 billion range, with memory WFE down by 40% and non-memory WFE down by mid-single digits. In 2024, a modest recovery in memory spending is expected to drive stronger growth, with an estimated WFE spending in the mid- to high $80 billion range. This growth will be driven by capacity additions and technology upgrades in DRAM and NAND.

In 2024, foundry logic spending is expected to increase due to higher leading-edge investment, while mature node investment outside of China may decline. Overall, domestic China spending is expected to remain stable. As the semiconductor industry continues to grow and become more complex, WFE spending will need to double from current levels. Lam is strategically positioning itself for this growth by investing in R&D and focusing on multiple billion dollar opportunities in memory and foundry logic. The company's advances in gate-all-around, backside power delivery, advanced packaging, and dry EUV patterning have gained traction with customers. In the December quarter, Lam secured additional wins for advanced packaging, demonstrating its competitive advantage over a large competitor.

In 2024, Lam expects their HBM related DRAM and packaging shipments to triple and outpace WFE growth. They have also entered the specialty technology market, delivering pulse laser deposition technology for manufacturing MEMS and high-frequency devices. They have invested in facilities near customers to enhance collaboration and ramp up supply chain and manufacturing operations. Their new manufacturing facility in Malaysia will increase their revenue contribution. Lam is also focused on reengineering their business processing systems to drive operational excellence with investments in digital capabilities.

Lam is focused on achieving organizational agility and has announced a small workforce reduction at the executive level. In the past year, the company has delivered strong financial results and is confident in its global infrastructure and technology portfolio. In the December quarter, revenue was $3.76 billion, up 8% from the previous quarter. Memory segment revenue was at a record high, with DRAM accounting for 31% of systems revenue.

The DRAM industry is experiencing growth due to the demand for high-bandwidth memory and the transition to DDR5. Nonvolatile memory WFE has been at historic lows, but there was a slight increase in the December quarter due to investments in technology projects. The Foundry segment saw growth from new fab shipments, while the Logic and Other segment declined due to mature node softness and timing of customer projects. China was the largest region for revenue, but it is expected to decrease in the future, while Korea, Japan, and Taiwan also contributed to revenue.

In the December quarter, the customer support business group generated revenue of $1.5 billion, showing a 2% increase from the previous quarter but a 16% decrease from the same quarter in the previous year. The business is stable, but memory customers are operating at low utilization rates. The gross margin was 47.6%, higher than expected and in line with the previous quarter. Operating expenses were $662 million, with a focus on product and technology differentiation. The operating margin was 30%, and the non-GAAP tax rate was 12.3%. For calendar 2024, the expected tax rate is in the low to mid-teens.

In the December quarter, the company saw a slight fluctuation in Other Income Expense (OI&E) due to changes in exchange rates. They allocated $640 million for share repurchases and paid $264 million in dividends. This was in line with their long-term capital return plans. The diluted earnings per share for the quarter was $7.52, and the company repurchased nearly 5 million shares in 2023. They have $2.1 billion remaining for share repurchases. The company's cash and short-term investments increased to $5.6 billion, and they had a record year for cash flows from operations at $5.3 billion. Inventory turns improved and the company will continue to work on reducing inventory in 2024. Noncash expenses for the quarter included $70 million for equity compensation, $78 million for depreciation, and $13 million for amortization.

In summary, for the December quarter, capital expenditures were $115 million, primarily for product development and lab expansions. Employee count remained flat at 17,200 regular full-time employees. For the March 2024 quarter, the company expects revenue of $3.7 billion, gross margin of 48%, operating margins of 29.5%, and earnings per share of $7.25. The quarter will have an extra week and R&D spending will increase. The company is focused on improving operations and expects to spend $300 million for business realignment and transformational activities.

Lam has a successful track record of managing their business and expects to further strengthen their operations and profitability. They have seen their big litho peer report huge orders for EUV, which could translate to an extra $9-10 billion in revenue. This could potentially impact the future of the market and discussions with DRAM customers, but Lam's forecast for WFE remains consistent with a modest recovery due to memory and a stronger end to the year.

The speaker believes that the current low mix of WFE in memory spending is unsustainable and will eventually correct itself. They also mention their long-term view on technology and spending patterns and the fact that lead times are longer in lithography. The speaker also notes that they have established strong positions in high-bandwidth memory and DDR5 through strategic actions taken years ago. The interviewer asks about the company's gross margin, to which the speaker responds that there are many moving parts, but a mix of factors such as cost relief are helping to improve it.

During a recent earnings call, Douglas Bettinger, the CFO of a company, discussed the impact of customer mix on their gross margin. He mentioned that the current mix is benefiting them by around 50 basis points, but this may change as mix normalizes. He also mentioned that the company has made operational improvements to lower costs and will benefit from growth in the future. In response to a question about utilization rates, the company's CEO, Timothy Archer, stated that they do track this closely and have seen some increase in utilization among their customers.

The company has seen an increase in pricing in markets like NAND and expects to benefit from this in their spares business and technology upgrades. They anticipate a large portion of the uptick in memory spending to come from technology upgrades using Lam equipment and additional equipment needed for high bandwidth memory. The company's CSBG business has grown at a 17% CAGR since 2019, faster than their previous target of 10-11% CAGR, and they expect a pickup in activity this year. The growth profile of CSBG will depend on a combination of increased activity and growth in the installed base business.

Timothy Archer and Douglas Bettinger discuss the impact of utilization cuts on CSBG revenues and the potential for growth in the future due to a larger installed base and pent-up demand. They also mention the four components of CSBG and the potential for a different dynamic with the Reliant product line. Atif Malik asks about Lam's competitive position in the NAND market and Archer discusses the potential for growth in the future.

The company is focused on cost-sensitivity and upgrading equipment to meet customer needs. They have a large number of chambers in the NAND marketplace and use customer collaboration and R&D to stay ahead in the industry. OpEx will be up, with R&D being the primary area of growth due to upcoming technological inflections.

Timothy Archer explains that the lead time for developing new products is longer than the lead time for revenue, so they are investing ahead of expected growth. Toshiya Hari asks about the trajectory of WFE and how it compares to the market, and Douglas Bettinger says they expect a slow start to the year but stronger performance in the second half, and all segments are expected to see growth.

The speaker discusses the inflections in the end markets and the role of etch and deposition intensity in different nodes. They also address the question about China's business and clarify that there is no slowdown, just timing of spending. The speaker then talks about the vision for a recovery in NAND and how investing in new areas can help drive WFE intensity and get back to peak levels.

The speaker discusses the potential for long-term bit growth and the role of etch and deposition in this growth. They mention that Lam captures a higher percentage of WFE in technology upgrades and expects to outperform NAND growth due to this. They also mention their focus on expanding into other markets and the potential for these to drive revenue and profitability to new highs. In response to a question about the impact of an extra week in the March quarter, the speaker defers to the CFO and their hesitation to provide full-year OpEx guidance.

The speaker is discussing the growth of the company's R&D and how it will impact their op margin. They also mention the increase in services business and how it will affect the mix between systems and services, but state that they are investing in both and do not see it as one trading off for the other. The growth of the systems business will also lead to a larger installed base.

The speaker believes that the ratio of CSBG revenue to overall revenue will remain consistent in the future. The CSBG revenue provides stability and opportunities for growth. The company plans to leverage artificial intelligence and data in the installed base services business. The deferred revenue increased by $238 million due to prepayments from new customers with uncertain creditworthiness.

During a conference call, Stacy Rasgon from Bernstein Research asked a question about the stability of the China BOP (balance of payments) in calendar year 2024. Douglas Bettinger, the operator, responded by saying that he doesn't expect a significant change in contribution from the China market compared to the previous year. He also mentioned that China DRAM (dynamic random access memory) was second half weighted in the previous year but may be more first half weighted in the current year. Rasgon then asked for clarification on the expected decrease in China mix, to which Bettinger explained that the comments were in reference to year-over-year stability and that China was a more modest contributor to WFE (wafer fab equipment) growth in the second half of 2023. Bettinger also mentioned that the customer mix may mitigate some of the effects of the China market in the following year. The next question was from Vivek Arya from Bank of America Securities.

Timothy Archer, CEO of Lam Research, was asked about the current state of NAND supply and demand and the company's opportunity to grow in this market. He stated that there is a high likelihood of technology upgrades occurring as capacity is brought back online, which will lead to a restart of utilization-driven revenue and technology upgrade revenues. He also mentioned that the shift towards HVM in the DRAM market may have an impact on the company's systems business, as they may need to add specific steps for advanced packaging related to HVM.

Vivek Arya asks about the growth of Lam's CSBG business and if it will align with the growth of their tools business. Douglas Bettinger responds that it depends on the pace of WFE growth, which they are not yet able to predict. He also states that Lam's performance will likely mirror the trajectory of WFE, with etch and dep outgrowing other areas. Krish Sankar asks if Lam's revenue in the second half of 2024 will be better than the first half, similar to WFE. Bettinger responds that it is likely to follow a similar trajectory.

During a conference call, Douglas Bettinger and Timothy Archer discuss the company's performance in the DRAM systems market in the December quarter. Bettinger states that they will mirror the performance of WFE, but does not provide specific numbers. Archer adds that the company's equipment for high-bandwidth memory and AI does not have a differential margin compared to other technologies. He also mentions that with each technology advancement, the intensity of etch and dep increases, leading to more equipment being needed. The next question from Joe Moore asks about the company's DRAM systems revenues in the December quarter, which were back to the highs of a couple of years ago, potentially due to events in China and packaging.

In the December quarter, high bandwidth memory and DDR5 contributed to the strength in DRAM, along with a China customer in the second half of the year. Going forward, there may be a decrease in demand from the China customer, but core DRAM and HVM are expected to increase. It is difficult to predict the exact growth of each segment of WFE, but overall, all segments are expected to grow to some extent in 2024. The decline in DRAM industry spending in 2023 was better than initially expected due to the impact of high bandwidth memory and DDR5.

The speaker is not able to disclose the current delivery times for the company, but they have returned to a more normal level after being stretched out due to supply chain shortages during the pandemic. Customers would need to provide orders and forecasts quickly in order for the company to make shipments within the year. The company has made investments in new manufacturing and supply chain operations within their customer ecosystems.

The speaker discusses how diversifying their supplier base will make them more responsive to customer needs. They also mention the increasing importance of backside power processes in the semiconductor industry, which will likely have a significant impact on Lam's revenue. They believe that the next era of semiconductors will involve more complex 3D architectures, which will benefit their products. The final question asks about their view on the HBM market.

The company is concerned about the potential for the HBM market to peak in 2024 and 2025, but they are currently focused on maintaining their strong position in the market and keeping up with the fast-paced growth of the AI industry. They also discuss their efforts to work down inventory, with a larger portion of it being related to memory.

The operator is ending the question-and-answer session and announcing the conclusion of the conference. They thank the attendees for participating and give instructions to disconnect.

This summary was generated with AI and may contain some inaccuracies.