The paragraph is a transcript from the Lam Research March 2025 Earnings Conference Call. The operator introduces the call and hands it over to Ram Ganesh, the Vice President of Investor Relations. Ram welcomes everyone and notes the key participants, including Tim Archer, the CEO, and Doug Bettinger, the CFO. He mentions the release of financial results and provides instructions on accessing them. The presentation includes forward-looking statements and will discuss non-GAAP financial results. Tim Archer then begins his part by noting that Lam's financial performance for the March quarter exceeded expectations in several key metrics. The call is scheduled to last until 3 PM Pacific time, and a replay will be available later.

The company reported a record quarter for foundry revenues and gross margin percentages, largely due to past investments in manufacturing and supply chain improvements. They anticipate further gross margin expansion in the upcoming quarter. The expected drivers for Wafer Fab Equipment (WFE) spending in the year ahead, such as leading-edge foundry logic and advancements in NAND and DRAM, are unfolding as predicted. Despite a dynamic tariff and global economic environment, customer plans remain mostly unchanged, and the company's agile supply chain mitigates tariff impacts. The strategic focus is on new products, advanced services, and digital transformation to achieve growth and profitability goals. The company aims to expand its served market faster than overall WFE growth in response to increasing semiconductor device complexity.

The paragraph highlights Lam's strong product portfolio and market gains in various advanced technologies. It details the success of Lam's atomic layer deposition (ALD) products, like the Stryker Spark tool and Altus Halo system, which have secured significant wins due to their superior performance in applications like spacer and interconnect layers, crucial for AI-driven 3D NAND solutions. The new ACARA system for etch, featuring innovative plasma control, has solidified Lam's market-leading position, gaining momentum in both leading-edge foundry logic and DRAM manufacturing. Overall, Lam's offerings are driving increased adoption and market share growth.

The paragraph discusses Lam's strategic advancements in the semiconductor industry, highlighting future opportunities with 3D DRAM and CFET technologies. It notes record revenues in their Upgrades business, driven by NAND technology conversions and increased tool upgrades by key customers. Lam's upgradeable systems are seen as a differentiation point, enabling cost-effective scaling and creating revenue opportunities. Collaborations with customers focus on optimizing operating costs, as exemplified by a new multiyear spares agreement with a large memory customer. In Specialty Technologies, Lam achieved significant milestones by displacing a competitor with 200mm PCBD tools for silicon carbide power devices and expanding their pulse laser deposition solutions for advanced memory applications, while finding new ways to add value as customers scale R&D and manufacturing globally.

The paragraph discusses Lam's advancements and success in the semiconductor industry, highlighting new licensing agreements for their virtual fabrication platform, Simulator 3D. The company sees virtual fabrication as vital for technology development, positioning Lam as a leader in this area. They report strong performance in the March quarter and are optimistic about the June quarter, emphasizing innovation and customer support as key competitive advantages. Lam aims to mitigate tariff impacts and adapt to demand changes while anticipating outperforming the overall semiconductor industry in the future. Doug Bettinger expresses satisfaction with the company's solid execution and strong start to 2025.

In the March quarter, Lam achieved its highest gross margin percentage since merging with Novelis in 2012, driven by operational efficiencies and a customer-centric manufacturing strategy. Revenue increased by 8% to $4.72 billion compared to the prior quarter, while the deferred revenue balance remained stable at $2 billion. Memory systems revenue decreased, with non-volatile memory and DRAM accounting for smaller percentages compared to the previous quarter. However, NAND revenue grew from non-China customers, and technology upgrades for DRAM supported advanced memory standards. Foundry systems revenue set a new record, rising to 48% from 35% in the prior quarter.

In the March quarter, shipments for gate all-around nodes and advanced packaging were strong, along with contributions from mature node spending with domestic Chinese customers. The revenue from the China region remained at 31% with Taiwan and Korea each contributing 24%, with Taiwan achieving record levels in dollar terms. Logic and Other systems revenue decreased due to reduced leading-edge spending. The customer support business group generated $1.7 billion, down from the previous quarter but up 21% from the same period in 2024. The gross margin improved to 49% from 47.5% due to a stronger mix and manufacturing efficiencies. Operating expenses rose to $763 million, driven by increased R&D activities, accounting for 70% of expenses.

In the March quarter, the operating margin increased to 32.8% from 30.7% in the December quarter, driven by higher revenue and strong gross margin performance. The non-GAAP tax rate was 13.3%, aligning with expectations. A single-digit tax rate is anticipated for the June 2025 quarter due to a tax reserve release. Other income and expense showed a $7 million expense in the March quarter, a shift from an $11 million income in December, affected by lower equity gains and interest income. A slight negative bias is expected in the June quarter. The company spent $347 million on share repurchases and $296 million on dividends, retiring $500 million in unsecured notes. The return of 63% of free cash flow was lower than usual due to the debt retirement. Diluted EPS was $1.04 with 1.29 billion shares, and $8.8 billion is left in the share repurchase program. The cash and short-term investments totaled $5.5 billion, down from $5.7 billion in December.

In the March quarter, the company experienced a decrease in cash primarily due to note repayments, capital expenditures, and capital return activities, reducing total debt by $500 million to $4.5 billion. They reported a drop in day sales outstanding and a slight increase in inventory in anticipation of higher revenues in June. Non-cash expenses included equity compensation, depreciation, and amortization. Capital expenditures rose significantly due to a land purchase in India and investments in labs and manufacturing growth. The company increased its full-time employees by 300, focusing on factory, field, and R&D roles. For the June 2025 quarter, the company anticipates revenue of $5 billion, with growth in foundry and NAND systems revenue, and maintains that this aligns with initial yearly expectations without future quarter projections being adjusted.

The paragraph discusses financial guidance and expectations for a company, highlighting anticipated record levels of gross margin, operating margin, and earnings per share as the company enters 2025. It details an expected gross margin of 49.5% and operating margin of 33.5%, both with a plus or minus one percentage point deviation. Earnings per share are projected at $1.20 with a plus or minus $0.10 deviation, based on approximately 1.28 billion shares. These would be the highest operating margins since the 1990s for the company. Despite uncertainties due to tariffs, customers continue to invest in technology, and the company is focused on innovation, operational efficiency, and profitability. The company anticipates outperforming growth in the wafer fabrication equipment (WFE) market in 2025 and beyond. The paragraph ends with the operator opening the floor to questions, with C.J. Muse asking about the sustainability of growth driven by the NAND upgrade beyond the June quarter.

In the paragraph, Tim Archer discusses the growth of the industry focusing on tool upgrades and the share of market opportunities. He explains that a significant portion of industry units (referred to as "bits") are still operating at older technology levels (128 or 1XX generation) and need to be upgraded to 2XX plus levels. Although the exact pace of this upgrade is uncertain, there is a noticeable trend towards it. Lam is well-positioned because they both upgrade their own tools and provide new tools required for advanced processes like stacking beyond 200 layers. Archer highlights the importance of innovations, such as sacrificial carbon gap fill and backside deposition tools, which are crucial for wafer stress management and enabling further technological advancements. Additionally, new tools like the halo molybdenum are gaining traction and contributing to industry momentum.

In the paragraph, Tim Archer and Doug Bettinger discuss Lam's strong revenue performance in Taiwan, emphasizing its sustainability due to investments in leading-edge foundry logic and advanced packaging. Archer highlights the strength in Taiwan as a result of executing new product roadmaps and mentions tools like the ACARA Conductor etch and Spark ALD. Bettinger agrees with Archer, confirming the sustainability of this performance due to advancements in gate-all-around nodes and advanced packaging technologies.

Tim Archer discussed the company's efforts to limit the impact of tariffs by leveraging their flexible manufacturing and supply chain operations across various global locations, including the US and Asia. This strategy, developed over several years, allows the company to efficiently deliver tools to customers and adapt to changing environments. Doug Bettinger highlighted that the company's widespread factory presence in countries like Austria, Malaysia, Taiwan, and Korea provides added flexibility. The conversation shifts to Timothy Arcuri asking Doug about the continued upgrades in NAND technology.

The paragraph discusses the financial expectations and challenges faced by a company, as explained by Doug Bettinger and Tim Archer. Doug confirms that revenue will be more concentrated in the first half of the year due to losing Chinese customers, which resulted in a $700 million shortfall anticipated for the second half. Tim Archer addresses concerns about tariffs on countries like Malaysia and Taiwan, which have a 90-day respite. He is asked whether the company has enough manufacturing capacity in the US, given the tariffs and the company's consolidation strategy, which previously included operations in Oregon and California but now has a focus on a Malaysian factory.

The paragraph discusses a company's strategy of positioning its capabilities near its customers, especially as demand grows in the US. The company has demonstrated flexibility in its manufacturing and supply chain, adapting to changes like those brought on by COVID. Doug Bettinger emphasizes that the company can adjust its operations with enough lead time, addressing potential changes in regulations or tariffs. Harlan Sur inquires about potential cost impacts from tariffs on materials sourced from China, but Doug Bettinger refrains from specifics, reiterating the company's global supply chain and ability to adapt to changing circumstances.

In this exchange, Stacy Rasgon from Bernstein Research questions Doug Bettinger about the expected decline in China revenue and its impact on gross margins, which tend to be higher with China business. Bettinger confirms that they still expect the China concentration to decrease year over year, but he is not providing specific quarterly details. He mentions that gross margins will fluctuate depending on various factors like customer and product mix and overall revenue levels, acknowledging that there will be variability in gross margins rather than consistent levels. Rasgon seeks clarification on whether this suggests a downward trend, to which Bettinger emphasizes the variability, implying fluctuations both upward and downward.

In the discussion, Doug Bettinger addresses questions about the company's ability to meet non-U.S. customer demand from overseas manufacturing sites. He explains that while they don't produce every tool at every factory, they can adjust production with enough lead time depending on the rules and circumstances. Regarding visibility in China, Bettinger indicates that customer communication about plans and roadmaps is consistent across regions, including China, Korea, and Taiwan, suggesting that the situation in China is not fundamentally different than before. Krish Sankar acknowledges the explanations provided by Doug Bettinger.

The paragraph discusses the factors driving growth in the foundry logic segment, highlighting significant developments and strategies. Srinivas Pajjuri asks about the sequential strength in the foundry logic, particularly regarding NAND growth and advanced logic spending. Doug Bettinger responds by emphasizing the impact of technology inflections like gate-all-around nodes and backside power, which require advanced etching and deposition tools. He also mentions the importance of advanced packaging, highlighting Lam's leadership in TSV etch, copper plating, and dielectric deposition films, which play a crucial role in the market's growth and their strategy.

The paragraph discusses Lam's progress in dry EUV resist processing, which is essential for continued advancements in lithography on the Foundry Logic roadmap. Lam is making progress on both the DRAM side and with advanced Foundry Logic customers, presenting significant technology opportunities for the company. Despite guiding for mid-single-digit growth in wafer fab equipment (WFE), Lam's first-quarter results and second-quarter outlook show over 20% growth. While specific future outperformance figures are not provided, Lam remains confident in its ability to outgrow the market. The company's served market is benefiting from new tools and advanced technologies, contributing to its performance. Additionally, customer plans remain stable within a $100 billion WFE range.

In the paragraph, Doug Bettinger discusses how the company prepares for and handles potential restructuring changes from their North American customers, especially regarding foundry plans. He emphasizes that the company is typically aware of such changes well before they become public, allowing them to plan accordingly, such as staffing and spare parts availability. Atif Malik asks about the lack of pull-ins from future quarters for the company's June outlook. Doug explains that this stability is due to their advanced knowledge of customer plans, which have not altered since the outlook was set late last year. While acknowledging potential impacts from tariffs and economic changes, he states that the company's forecast for the year remains unchanged and stable despite the possibility of shifts in the environment.

In the paragraph, the conversation revolves around the sales forecast for the second half of the year, with Vivek Arya questioning why the sales cannot exceed the first half levels if all China restrictions have already been considered. Doug Bettinger responds that the market's overall nature is such that growth does not occur every quarter, and currently, customer plans and project timelines indicate a slight bias toward the first half. Tim Archer adds that the projects are often inconsistent, involving phases of large shipments, installation, and upgrades, leading to fluctuations in different quarters. Vivek seeks clarification on whether the second half of the year might be impacted by China restrictions or if the caution is due to non-restricted customers, to which Doug Bettinger implies that the focus should not solely be on China.

In the paragraph, the conversation revolves around recent changes in customer shipping restrictions and their impact on business plans. Vivek Arya asks about the potential impact on gross margins, specifically regarding CSPG fluctuations versus shipping more from Malaysia. Doug Bettinger responds by stating that CSPG doesn't significantly affect gross margin variability. He notes that gross margins have increased from 45-46% in late 2022 to 48-49%, attributing this improvement to a close-to-customer strategy rather than changes in geographic sales mix. Bettinger highlights that this strategy has contributed around 200 basis points to the gross margin, and he and Tim feel positive about its execution.

The paragraph discusses how the company is positively impacting customers by being closer, more responsive, and affordable, which has improved gross margins over the years. Blaine Curtis from Jefferies asks about the impact of tariffs on customer demand and investment strategies, suggesting that customers might either increase orders before tariffs or reconsider future capacity. Tim Archer explains that, despite conversations with customers, there hasn't been a significant change in demand due to tariffs. He notes that customer investments are long-term and often technology-driven to meet future needs, such as those in AI, regardless of immediate end-demand.

The paragraph involves a discussion between Blaine Curtis and Doug Bettinger about the impact of tariffs on guidance for gross margins, with Doug confirming that the 49.5% guidance includes the tariff impact. However, Doug declined to quantify the impact further. Blaine appreciates this response. The operator then introduces Mehdi Hosseini, who asks about wafer fabrication equipment (WFE) in the context of strategic investment versus technology upgrade, as well as wafer capacity addition. The discussion also touches on how investments in advanced packaging and technology positioning are essential for maintaining competitiveness.

The paragraph features a discussion between Tim Archer and Mehdi Hosseini regarding the focus of questions on China's influence and the sensitivity of the $100 billion wafer fabrication equipment (WFE) market to macroeconomic changes. Archer redirects the conversation to emphasize Lam's long-term strategy, focusing on product alignment with customer technology roadmaps. He highlights Lam's potential to outperform the industry through market expansion in deposition and etch intensity, and their execution in current and future strategic R&D investments. Archer underscores the importance of these strategic moves for Lam's future success, regardless of current WFE market conditions. Mehdi acknowledges this, indicating he has a follow-up question for Doug.

In the paragraph, Doug Bettinger discusses the company's strategy of increasing R&D investment due to unique opportunities in etch and deposition, aiming to outperform and expand their market share. Mehdi Hosseini acknowledges this approach as part of the company's record-level operating margin. Doug Bettinger affirms their satisfaction with the current performance and intention to maintain it through ongoing investment. Additionally, there's a mention of the CSBG segment remaining flat for the year, with Reliant being a headwind and concerns about service spares due to restrictions in China, though no specific customers have been restricted.

The paragraph discusses the dynamics of the tools and services business, particularly in relation to China and the NAND market. While reliance on China has declined, there's a significant growth in upgrades, especially in NAND, which results in stronger overall utilization year over year. The discussion also highlights the growth of the intelligent services sector, including equipment intelligence and cobots, which aims to support global manufacturing expansion and improve service capabilities. The importance of AI in enhancing tool repair and troubleshooting is noted, with a strategic focus on growing the services business within the CSBG. Additionally, the paragraph touches on the changes in Reliant, which transitioned from a refurbished tools business to primarily new tools due to market conditions.

The paragraph features a conversation between several individuals, including Doug Bettinger and Tim Archer, discussing the current state of tools in the industry, specifically within the context of Reliant. They mention that there is still a focus on new tools, with little refurbishment happening. The conversation shifts to Tom O'Malley from Barclays posing a broader question about the potential $40 billion opportunity from upgrades of existing equipment, as mentioned on Analyst Day, particularly in the NAND industry. Tim Archer acknowledges the complexity of the question and notes that the timeframe to realize this opportunity could range from a few years or longer, depending on market conditions and the development of NAND technology to be significant for AI data centers and enterprise SSDs.

The paragraph discusses the demand and investment trends in the tech industry, particularly focusing on the need for tool upgrades and new technologies to support higher layer counts, which presents opportunities for SAM (Serviceable Available Market) expansion and market share gains. Tom O'Malley raises a question about the relationship between increased capacity underutilization and the demand for tool upgrades. Tim Archer responds by explaining that typically, when utilization falls, there tends to be an increase in technology upgrades during the subsequent upcycle, which benefits companies like Lam. The conversation concludes with Doug Bettinger indicating that there will be one more question in the discussion.

In the article paragraph, the discussion focuses on the state and future outlook of the spares and NAND upgrade opportunities within the company. Doug Bettinger notes that spares are performing well due to increased opportunities and favorable utilization trends. Tim Archer adds that the demand for NAND upgrades and new equipment is expected to become more balanced over the next few years. He explains that both upgrades to existing tools and sales of new equipment are crucial to meeting higher layer counts. Additionally, there's potential for customers to develop new sites, which would further drive new equipment sales. Overall, the situation is described as a mix of upgrades and new sales that is expected to persist for several years.

The speaker thanks the attendees for joining and expresses anticipation of seeing them throughout the rest of the quarter. The operator then concludes the conference, thanking participants and indicating they may now disconnect.

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