The operator welcomes everyone to the Lam Research March 2024 Earnings Conference Call, and introduces Ram Ganesh, Head of Investor Relations. Ram gives an overview of the call and introduces Tim Archer, President and CEO, and Doug Bettinger, EVP and CFO. The presentation and Q&A will include forward-looking statements and will be presented on a non-GAAP financial basis. A replay of the call will be available later on the company's website. Tim thanks everyone for joining and mentions that Lam has had a strong start in 2024.

Lam's March quarter results exceeded expectations and their outlook for the June quarter remains strong. The industry environment is progressing as predicted, with WFE spending for 2024 expected to be in the low to mid $90 billion range. DRAM remains strong, while Foundry Logic is partially offset by a decline in mature node spending outside of China. NAND is expected to see year-on-year growth in WFE spending in 2024. As supply and demand normalize, there is potential for strong spending in 2025. Lam is well-positioned to benefit from the growth and innovation in the semiconductor industry, particularly in emerging smart applications.

Lam is investing in advanced semiconductor manufacturing capacity to meet the growing demand for AI technology in both consumer and enterprise markets. They are focusing on collaboration with customers and leveraging their digital twin capabilities to reduce development time and costs. This has already resulted in important wins in DRAM and foundry logic. The impact of AI is expected to increase in the storage market, creating long-term growth opportunities for Lam's NAND business.

Lam is playing a crucial role in the transition from HDDs to ESSDs in enterprise data storage, with their technologies improving performance and cost scaling. They are leading the way in deposition and etch processes, using cryogenic etch and simulation tools to enhance productivity and reduce costs. In DRAM, Lam's tools are also important for enabling the use of HBM, which offers faster read-write speeds and lower power consumption, but requires increased wafer production. Lam's tools aim to provide both high-quality capabilities and industry-leading throughput to keep costs low for customers.

In the fifth paragraph of the article, the speaker discusses the company's position as a leading player in TSV applications for HBM and predicts a significant increase in HBM-related shipments in 2024. They also mention the company's tools being well-positioned for the transition from FinFET to gate all-around, which is expected to drive significant growth in shipments in 2024. The speaker also highlights the company's strong traction with customers and the multi-billion dollar growth opportunity in the AI market. They conclude by stating that the company's results for the March quarter were solid, with the highest gross margin percentage since the merging of Lam with Novellus and strong free cash flow.

The company's revenue for the March quarter was flat compared to the previous quarter, with a decrease in deferred revenue. Systems revenue and memory declined, with a focus on DRAM spending for new nodes. Non-volatile memory WFE remained at a subdued level, with one customer's investment in specialty DRAM being classified as non-volatile. The foundry segment saw growth driven by domestic China shipments, while the logic and other segments declined due to mature node softness. The China region accounted for 42% of total revenue, a slight increase from the previous quarter.

The March quarter saw an increase in revenue from multinational customers in China, with expectations for continued growth in 2024. Korea was the next largest region for revenue, with Japan and Taiwan following. The customer support business group saw a decrease in revenue, while the Reliant systems revenue also decreased due to weak investments in mature nodes. Gross margin improved due to favorable changes in mix and factory efficiencies. R&D spending increased, with a focus on extending product differentiation.

The company's operating margin for the current quarter was 30.3%, in line with the previous quarter and at the high end of their guidance. This was due to strong gross margin performance, although R&D investment did have some impact. The non-GAAP tax rate was 11.7%, as expected, and is expected to remain in the low to mid-teens for the rest of the year. Other income and expense increased to $10 million, driven by higher cash balances and interest rates. The company allocated $860 million to share repurchases and paid $263 million in dividends in the March quarter, in line with their long-term capital return plans. Diluted earnings per share were $7.79, towards the higher end of their guided range. The company's cash and short-term investments increased to $5.7 billion, largely due to collections offset by share buybacks, dividend payments, and capital expenditures.

In the March quarter, Lam Research saw a decrease in day sales outstanding and inventory levels, while maintaining flat inventory turns. Noncash expenses included equity compensation and capital expenditures were focused on expanding in the US and Asia. The company had 17,200 employees and expects a revenue of $3.8 billion for the June quarter, with a decline in gross margin due to customer mix. Lam is committed to prioritizing R&D spending and expects to benefit from the growth of artificial intelligence in the long term.

The company is prepared for upcoming changes in the industry, such as gate-all-around technology and advanced packaging. The call is now open for questions, and the first question is about market share dynamics for high aspect ratio etch in the NAND market. The company has an installed base of Cryo Etch tools and is focused on technology extension and manufacturing readiness to defend their position in the market.

Krish Sankar asked about the company's share and Doug Bettinger responded about margins and R&D investments. Tim Arcuri then asks about China.

The speaker is discussing the potential impact of changes in U.S. trade policy with China on their business for the rest of the year. They mention their strong government affairs team and past success in responding to export control policy. The speaker also addresses the dynamics of their Spares and Reliant business, noting that industry utilization is starting to improve.

During the earnings call, the company discussed the impact of softness in the Reliant market on their CSPG business, which is expected to be flat this year due to offsetting dynamics. However, they anticipate an increase in utilization and upgrade activity in the NAND space in the future. Analysts also raised concerns about constraints in high bandwidth memory and packaging, but the company is well-positioned in this market.

The Lam team is on track to drive over a billion dollars in advanced packaging revenues this year due to strong demand and expanding use cases. They are also investing in the panel processing space to ensure they can take advantage of long-term secular drivers for semiconductors and the equipment industry. With customers' spending outlooks improving and strong tailwinds in manufacturing complexity, the team's growth looks solid.

The speaker discusses the benefits of the company's new Malaysia manufacturing facility, including its low-cost location, highly skilled workforce, and established supply chain. They also mention their confidence in being well-positioned for an upcoming increase in demand and the potential for improved gross margins. However, they caution against making assumptions and emphasize the importance of staying focused on their financial model.

The speaker explains that Malaysia's future potential will be realized when volumes increase. The next question is about China's performance, which was in line with expectations. The speaker does not have specific information on which segments in China will see a slowdown in the second half of the year. The next question is about the impact of government subsidies on the company's business, to which the speaker responds that there have been recent announcements about grants from the CHIPS Act in the U.S.

Lam Research is expecting an increase in WFE (wafer fab equipment) spending in the next few years, particularly in the 2025-2027 timeframe. This is due to the construction of new fabs and the focus on leading edge nodes. The company has invested in R&D to position themselves well in this market. The updated WFE outlook has been increased by $7 billion, mainly driven by lithography, and the company expects low to mid-single digit growth. The four large drivers, including foundry logic, DRAM, and high bandwidth memory, are expected to see strong growth and outperform in the market.

Timothy Archer, a representative from the semiconductor industry, discusses the recent report from a peer company and how it has affected their view on the market. They believe that the majority of the change in the market is due to a shift towards China. They also mention that they may have missed this shift because it is not part of their addressable market. When asked about billion dollar opportunities in advanced packaging and gate-all-around, Archer believes they will fare better in 2024 due to technology transitions. They also mention that China is performing better than expected and this may lead to a higher gross margin, potentially above 46%.

The speaker discusses the current state of the NAND market and predicts that it will improve in the second half of the next year. They mention that the majority of bits being shipped are at the leading etch, but there is still potential for growth as customers upgrade their current technology. The speaker also mentions that Lam's capture rate of WFE will be higher due to these upgrades.

The speaker discusses Lam's potential for outperforming in the NAND market in 2025 due to expected high spending and technology advancements. They also mention other market segments and growth drivers for the company, including gate-all-around technology, advanced packaging, and dry photoresist processes for EUV. Another speaker mentions that multinational companies are increasing their spending in China, but the majority of spending still comes from indigenous Chinese customers. The question is then asked about Lam's potential in the NAND market.

Timothy Archer discusses the potential transition from tungsten to molybdenum in the market, which could have a significant impact on Lam's business. The change to molybdenum has device benefits and allows for stack height reduction, making it an important inflection for the industry and an opportunity for Lam. The company's HBM business is expected to grow 3X year-over-year and is a significant contributor to overall demand. The demand for HBM is expected to continue into 2024, adding to the overall market growth.

The company is investing in their SABRE 3D and deep silicon etch tools for AI enablement, and this form factor will continue to be important. There was some confusion about a customer being classified as NAND or DRAM, but it is actually a non-volatile device. The Reliant business may see changes as utilization in trailing etch nodes decreases, potentially leading to more refurbished tools and implications for profitability.

The speaker believes that the company will mostly continue to sell new tools for etch nodes, but there may be some demand for refurbishing tools from fabs. The next question is about the relative capital intensity of upgrades versus greenfield investments for NAND growth in 2025. The speaker agrees with the questioner's understanding that the absolute amount of WFE in an upgrade-driven cycle would be lower than in a greenfield cycle. However, the speaker believes that Lam's outperformance in this cycle will be higher due to their higher capture rate.

Lam Research's CFO, Doug Bettinger, and CEO, Timothy Archer, discuss the company's position in the industry and their expectations for the Chinese market. Archer mentions that they are not indifferent to the upgrade cycle versus the greenfield cycle, as their strong position in the industry carries forward through each cycle. Bettinger clarifies that the slide stating sustained investment in DRAM and weakness in foundry logic in China is not entirely accurate, as the market is expected to modulate throughout the year.

During a conference call, an analyst from Bank of America Securities asks about recent comments made by the operator regarding spares doubling. The operator clarifies that they actually said there was a double-digit percent growth in spares revenue, not a doubling. They explain that this is a positive sign for the company and the industry, as it indicates an increase in utilization of fabs. However, they note that this does not necessarily mean an increase in equipment spending, which is still expected to occur in 2025.

The speaker discusses the expectations for CSPG growth and clarifies that it will be flat for this calendar year. They also address a question about DRAM and mention that the capacity for HBM will increase by 3X this year due to the addition of specific tools. They also mention that the direct revenue from HBM is expected to be good, but there is a broader capacity question for DRAM that is fungible with HBM.

The paragraph discusses the challenges and opportunities associated with transitioning from conventional DRAM to HBM. It mentions the larger die size required for HBM due to the addition of TSVs, which may require more equipment. The company also mentions the expected revenue of a billion dollars from gate-all-around this year, indicating the potential for growth in this area.

The companies discussed how the increase in AI server penetration would lead to an incremental $1 billion to $1.5 billion increase in WFE. Last year, due to under-utilization and focus on conversion activity, the math was lower. However, with recovery in utilization rates for advanced foundry and DRAM nodes, the growth in AI is expected to drive spending levels consistent with the $1 billion to $1.5 billion estimate. The exact timing of shipments for gate-all-around in 2024 was not disclosed, as it is up to the customers to discuss their expansion plans.

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