What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-24 compared with 2022-04-26 · 89 added, 87 removed, 152 unchanged (54% of the section changed)

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and the sufficiency of our financial resources or liquidity to support future business activities (including but not limited to operations, investments, debt service requirements, dividends, and capital expenditures).

Such statements are based on current expectations and are subject to risks, uncertainties, and changes in condition, significance, value, and effect, including without limitation those discussed below under the heading “Risk Factors” within Part II Item 1A and elsewhere in this report and other documents we file from time to time with the Securities and Exchange Commission (“SEC”), such as our annual report on Form 10-K for the year ended June 27, 2021 (our “2021 Form 10-K”), our quarterly reports on form 10-Q for the fiscal quarters ended September 26, 2021 and December 26, 2021, and our current reports on Form 8-K.

Such statements are based on current expectations and are subject to risks, uncertainties, and changes in condition, significance, value, and effect, including without limitation those discussed below under the heading “Risk Factors” within Part II Item 1A and elsewhere in this report and other documents we file from time to time with the Securities and Exchange Commission (“SEC”), such as our annual report on Form 10-K for the year ended June 26, 2022 (our “2022 Form 10-K”), and our current reports on Form 8-K.

Such risks, uncertainties, and changes in condition, significance, value, and effect could cause our actual results to differ materially from those expressed in this report and in ways not readily foreseeable.

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Documents To Review In Connection With Management’s Discussion and Analysis Of Financial Condition and Results Of Operations

For a full understanding of our financial position and results of operations for the three and nine months ended March 27, 2022, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations below, you should also read the Condensed Consolidated Financial Statements and notes presented in this Form 10-Q and the financial statements and notes in our 2021 Form 10-K.

For a full understanding of our financial position and results of operations for the three months ended September 25, 2022, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations below, you should also read the Condensed Consolidated Financial Statements and notes presented in this Form 10-Q and the financial statements and notes in our 2022 Form 10-K.

Lam Research Corporation 2023 Q1 10-Q 19

EXECUTIVE SUMMARY

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These trends are driving significant inflections in semiconductor manufacturing, such as the increasing importance of vertical scaling strategies like three-dimensional architecture as well as multiple patterning to enable shrinks.

We believe we are in a strong position with our leadership and competency in deposition, etch, and clean to facilitate some of the most significant innovations in semiconductor device manufacturing.

We believe we are in a strong position with our leadership and expertise in deposition, etch, and clean to facilitate some of the most significant innovations in semiconductor device manufacturing.

Our Customer Support Business Group provides products and services to maximize installed equipment performance, predictability, and operational efficiency.

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(iii) our collaborative focus with semi-ecosystem partners;

and (iv) our ability to identify and invest in the breadth of our product portfolio to meet technology inflections;

(iv) our ability to identify and invest in the breadth of our product portfolio to meet technology inflections;

and (v) our focus on delivering our multi-product solutions with a goal to enhance the value of Lam’s solutions to our customers.

The wafer fabrication equipment demand environment is strong in calendar year 2022 driven by increasing device manufacturing complexity and the robust secular demand for semiconductors for NAND, DRAM, and foundry logic markets.

Over the longer term, we believe that secular demand for semiconductors will continue to drive sustainable growth for our products and services, and that technology inflections in our industry, including 3D device scaling, multiple patterning, process flow, and advanced packaging chip integration, will lead to an increase in the served addressable market for our products and services in the deposition, etch, and clean businesses.

During the quarter-ended March 27, 2022, customer demand remained solid;

however, ongoing supply chain constraints broadened during the quarter and impacted our ability to fulfill demand.

We expect supply shortages as well as inflationary cost pressures to persist in at least the near term.

Risks and uncertainties related to the COVID-19 pandemic, broadening supply chain challenges, and inflationary pressures may continue to negatively impact our revenue and gross margin.

Overall calendar year 2022 continues to be a solid investment year in wafer fabrication equipment spending driven by robust secular demand for semiconductors and increasing complexity in manufacturing NAND, DRAM, and foundry logic devices.

However, the demand environment, particularly in memory, has been weakening recently, and as a result, we expect a reduction in wafer fabrication equipment spending in calendar year 2023 .

Additionally, t he United States government has recently imposed new controls, including expanded export license requirements that significantly impact trade with China for the shipment of wafer fabrication equipment and related parts and services.

We expect these regulatory conditions, on top of the slowing economic environment, to negatively impact our financial results in the December 2022 quarter and in calendar year 2023.

We also estimate that our deferred revenue balances will trend down in the December quarter.

Over the longer term, we believe that secular demand for semiconductors combined with technology inflections in our industry, including 3D device scaling, multiple patterning, process flow, and advanced packaging chip integration, will drive sustainable growth and lead to an increase in the served addressable market for our products and services in the deposition, etch, and clean businesses.

During the quarter-ended September 25, 2022, customer demand remained strong, and we further increased our production output levels from the June quarter as a result of improving supply chain conditions.

Although we have seen improvements in both our operations and those of our suppliers, we continue to expect supply shortages as well as inflationary cost pressures to persist in at least the near term.

Risks and uncertainties related to the COVID-19 pandemic, supply chain challenges, and inflationary pressures may continue to negatively impact our revenue and gross margin.

Lam Research Corporation 2023 Q1 10-Q 20

The following table summarizes certain key financial information for the periods indicated below:

Three Months Ended

2022 December 26,

September 25,

2022 June 26,

(in thousands, except per share data and percentages)

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Diluted net income per share $ 10.39 $ 8.74

In the March 2022 quarter, revenue decreased 4% compared to the December 2021 quarter as a result of continued supplier-related delays in an already heavily constrained supply-chain environment.

The decrease in gross margin as a percentage of

revenue in the March 2022 quarter compared to the December 2021 quarter was primarily as a result of unfavorable customer and product mix;

increased spending due to supply chain, freight and logistics and inflationary pressures;

and lower factory absorption and field utilization, partially offset by decreased variable compensation.

The decrease in operating expenses in the March 2022 quarter compared to the December 2021 quarter was primarily driven by decreases in variable compensation, partially offset by increases in employee-related costs from seasonality and increased headcount.

Our cash and cash equivalents, investments, and restricted cash and investments balances decreased to $4.6 billion at the end of the March 2022 quarter compared to $5.6 billion at the end of the December 2021 quarter.

This decrease was primarily the result of $1.3 billion of share repurchases, including net share settlement on employee stock-based compensation;

$210.6 million of dividends paid to stockholders;

and $145.4 million of capital expenditures, partially offset by $757.7 million of cash generated from operating activities.

Employee headcount as of March 27, 2022 was approximately 16,900.

In the September 2022 quarter, revenue increased 9.5% compared to the June 2022 q uarter, driven by increases in both systems revenue and customer support-related revenue partnered with increased factory output, reflective of the improving supply chain environment.

Deferred revenue at the end of the September 2022 quarter increased to $2,755 million compared to $2,198 million as of the end of the June 2022 quarter.

We aim to balance the requirements of our customers with the availability of resources, as well as performance to our operational and financial objectives.

As a result, from time to time, we exercise discretion and judgment as to the timing and prioritization of manufacturing and deliveries of products, which has impacted, including in the current quarter, and may in the future impact, the timing of revenue recognition with respect to such products.

The increase in gross margin as a percentage of revenue in the September 2022 quarter compared to the June 2022 quarter was primarily a res ult of increased factory output and favorable customer and product mix, partially offset by higher levels of manufacturing-related spending as a result of continued inflationary pressures.

The increase in operating expenses in the September 2022 quarter compared to the June 2022 quarter was primarily driven by increases in employee-related expenses.

Our cash and cash equivalents, investments, and restricted cash and investments balances increased to $4.6 billion at the end of the September 2022 quarter compared to $3.9 billion at the end of the June 2022 quarter.

This increase was primarily the result of $1,189.6 million of cash generated from operating activities, partially offset by $205.6 million of dividends paid to stockholders;

$140.1 million of capital expenditures, and $109.8 million of share repurchases, including net share settlement on employee stock-based compensation.

Employee headcount as of September 25, 2022 was approximately 18,700.

RESULTS OF OPERATIONS

Three Months Ended Nine Months Ended

2022 December 26,

2021 March 27,

2022 March 28,

Three Months Ended

September 25,

2022 June 26,

2022 September 26,

Revenue (in millions) $ 5,074 $ 4,636 $ 4,304

China 30 % 31 % 37 %

Korea 24 % 25 % 23 % 25 %

Taiwan 22 % 19 % 15 %

Korea 17 % 24 % 21 %

Southeast Asia 11 % 5 % 8 %

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Europe 5 % 7 % 2 %

Revenue for the March 2022 quarter decreased 4% from the December 2021 quarter due to continued supplier-related delays given the broad supply chain issues in the industry, which impacted our ability to fulfill demand.

Revenue for the nine months ended March 2022 increased 20% compared to the same period in the prior year driven by increased wafer fabrication equipment spending by semiconductor manufacturers.

Revenue for the September 2022 quarte r increased 9.5% from the June 2022 quarter reflecting increased customer spending on capital equ ipment and increasing factory output levels.

Lam Research Corporation 2023 Q1 10-Q 21

The following table presents our revenue disaggregated between system and customer support-related revenue:

Three Months Ended Nine Months Ended

2022 December 26,

2021 March 27,

2022 March 28,

Three Months Ended

September 25,

2022 June 26,

2022 September 26,

(In thousands)

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The following table presents the percentages of leading- and non-leading-edge equipment and upgrade revenue to each of the primary markets we serve:

Three Months Ended Nine Months Ended

2022 December 26,

2021 March 27,

2022 March 28,

Three Months Ended

September 25,

2022 June 26,

2022 September 26,

Memory 52 % 54 % 64 %

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Logic/integrated device manufacturing 14 % 20 % 11 %

Three Months Ended Nine Months Ended

2022 December 26,

2021 March 27,

2022 March 28,

Three Months Ended

September 25,

2022 June 26,

2022 September 26,

(in thousands, except percentages)

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Percent of revenue 46.1 % 45.3 % 45.9 %

Gross margin as a percentage of revenue was lower in the March 2022 quarter compared to the December 2021 quarter primarily as a result of unfavorable customer and product mix;

increased spending related to supply chain, freight and logistics and inflationary pressures;

and lower factory absorption and field utilization;

partially offset by decreased variable compensation.

The decrease i n gross margin as a percentage of revenue in the nine months ended March 2022 compared to the same period in the prior year was primarily driven by unfavorable customer and product mix, and lower field utilization.

Gross margin as a percentage of revenue was higher in the September 2022 quarter compared to the June 2022 quarter primarily as a result of increased factory output and favorable customer and product mix, partially offset by increased manufacturing-related spending as a result of ongoing inflationary pressures.

The increase i n gross margin as a percentage of revenue in the three months ended September 2022 compared to the same period in the prior year was primarily driven by favorable customer and product mix and improved factory utilization, offset by higher levels of manufacturing-related spending as a result of increased inflationary pressures.

Research and Development

Three Months Ended Nine Months Ended

2022 December 26,

2021 March 27,

2022 March 28,

Three Months Ended

September 25,

2022 June 26,

2022 September 26,

(in thousands, except percentages)

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Percent of revenue 8.5 % 8.9 % 8.9 %

We co ntinued to make significant R&D investments in the March 2022 quarter focused on leading-edge deposition, etch, clean and other semiconductor manufacturing processes.

The increase in R&D expense in the March 2022 quarter compared to the December 2021 quarter was primarily driven by increases in employee-related expenses as a result of increased headcount and seasonality, mostly offset by decreases in variable compensation.

The increase in R&D expense in the nine months ended March 2022 compared to the same period in the prior year was primarily driven by increases of $78 million in employee-related expenses mainly as a result of increased headcount and $18 million in spending for supplies, partially offset by a decrease of $22 million in deferred compensation plan-related costs.

We co ntinued to make significant R&D investments in the September 2022 quarter focused on leading-edge deposition, etch, clean and other semiconductor manufacturing processes.

The increase in R&D expense in the September 2022 quarter compared to the June 2022 quarter was primarily driven by increases in employee-related costs.

The increase in R&D expense in the three months ended September 2022 compared to the same period in the prior year was primarily driven by increases in employee-related expenses mainly as a result of increased headcount and increases in spending for supplies.

Lam Research Corporation 2023 Q1 10-Q 22

Selling, General, and Administrative

Three Months Ended Nine Months Ended

2022 December 26,

2021 March 27,

2022 March 28,

Three Months Ended

September 25,

2022 June 26,

2022 September 26,

(in thousands, except percentages)

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Percent of revenue 4.1 % 4.5 % 5.2 %

SG&A expense during the March 2022 quart er decreased in comparison to the December 2021 quarter, primarily driven by a decrease in variable compensation.

SG&A expense during the nine months ended March 2022 increased compared to the same period in the prior year, primarily driven by increases of $31 million in employee-related expenses, $25 million in outside service spending, and $20 million in rent and utility expenses, partially offset by a decrease of $15 million in deferred compensation plan-related costs.

SG&A expense during the September 2022 quart er decreased in comparison to the June 2022 quarter, primarily driven by a decrease in amortization for acquired intangible assets as the intangible assets associated with our Novellus Systems, Inc.

transaction have fully amortized, partially offset by increases in employee-related costs.

SG&A expense during the three months ended September 2022 decreased compared to the same period in the prior year, primarily driven by a decrease in amortization for acquired intangible assets as the intangible assets associated with our Novellus Systems, Inc.

transaction have fully amortized.

Other Income (Expense), Net

Other income (expense), net consisted of the following:

Three Months Ended Nine Months Ended

2022 December 26,

2021 March 27,

2022 March 28,

Three Months Ended

September 25,

2022 June 26,

2022 September 26,

(in thousands)

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$ (43,095) $ (120,448) $ (28,857)

Interest income decreased in the March 2022 quarter compared to the December 2021 quarter and in the nine months ended March 2022 compared to the same period in the prior year primarily as a result of lower cash and investment balances.

Interest expense remained relatively flat in the March 2022 quarter compared to the December 2021 quarter as our debt balances remained flat.

Interest expense decreased in the nine months ended March 2022 compared to the same period in the prior year due to the payoff of $800 million of our notes in June 2021.

The gains and losses on deferred compensation plan-related assets in the periods presented were driven by fluctuation in the fair market value of the underlying funds.

Interest income increased in the September 2022 quarter as compared to the June 2022 quarter due to higher average yields and higher cash balances.

Interest income increased for the three months ended September 25, 2022, compared to the same period in 2021, primarily as a result of higher yields.

Interest expense remained relatively flat in the periods presented as our debt balances remained flat.

The gains and losses on deferred compensation plan-related assets in the periods presented were driven by fluctuations in the fair market value of the underlying funds.

Foreign exchange fluctuations were primarily due to currency movements against portions of our unhedged balance sheet exposures.

Other, net generated income for the nine months ended March 2022 and December 2021 quarter primarily due to gains from our equity investments;

the December 2021 quarter included an individually significant gain on one such equity investment.

Refer to Note 5, “Other Income, (Expense), net,” of our Condensed Consolidated Financial Statements, included in Part 1 of this Form 10-Q for additional information.

The losses in other, net for the three months ended September 25, 2022, were lower compared to three months ended June 26, 2022, primarily as a result of an individually significant equity investment that was disposed of during the three months ended June 26, 2022.

The gain and losses (net) compared to the same period in 2021 were driven by fluctuations in the fair market value of equity investments.

Income Tax Expense

Our provision for income taxes and effective tax rate for the periods indicated were as follows:

Three Months Ended Nine Months Ended

2022 December 26,

2021 March 27,

2022 March 28,

Three Months Ended

September 25,

2022 June 26,

2022 September 26,

(in thousands, except percentages)

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Effective tax rate 13.8 % 11.0 % 12.2 %

The decrease in the effective tax rate for the March 2022 quarter compared to the December 2021 quarter was primarily due to stock-based compensation excess tax benefits.

The increase in the effective tax rate for the nine months ended March 2022 compared to the same period in the prior year was primarily due to the change in level and proportion of income in higher and lower tax jurisdictions and higher stock-based compensation excess tax benefits in the nine months ended March 2021.

We transferred our international sales operations from Switzerland to Malaysia, effective from fiscal year 2022.

Through fiscal year 2036, we expect to operate under various tax incentives in Malaysia which provide exemptions on foreign income earned and are contingent upon meeting certain conditions.

Lam Research Corporation 2023 Q1 10-Q 23

The increase in the effective tax rate for the September 2022 quarter compared to the June 2022 quarter and compared to the same period in the prior year was primarily due to the change in level and proportion of income in higher and lower tax jurisdictions.

International revenues account for a significant portion of our total revenues, such that a material portion of our pre-tax income is earned and taxed outside the United States.

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LIQUIDITY AND CAPITAL RESOURCES

Total gross cash, cash equivalents, investments, and restricted cash and investments balances were $4.6 billion at March 27, 2022 compared to $6.0 billion as of June 27, 2021.

This decrease was primarily driven by $3.0 billion of share repurchases, including net share settlement on employee stock-based compensation, $607.2 million in dividends paid, and $420.3 million of capital expenditures, partially offset by $2.7 billion of cash generated from operating activities.

Cash Flow from Operating Activities

Net cash provided by operating activities of $2.7 billion during the nine months ended March 27, 2022, consisted of (in thousands):

Total gross cash, cash equivalents, investments, and restricted cash and investments balances were $4.6 billion at September 25, 2022 compared to $3.9 billion as of June 26, 2022.

This increase was primarily driven by $1,189.6 million of cash generated from operating activities, partially offset by $205.6 million in dividends paid, $140.1 million of capital expenditures, and $109.8 million of share repurchases, including net share settlement on employee stock-based compensation.

Net cash provided by operating activities of $1,189.6 million during the three months ended September 25, 2022, consisted of (in thousands):

Net income $ 1,425,879

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Significant changes in operating asset and liability accounts, net of foreign exchange impact, included the following uses of cash:

increases in inventory of $851.5 million, accounts receivable of $676.7 million, and prepaid expense and other assets of $42.7 million, along with a decrease in accrued expenses and other liabilities of $194.0 million.

increases in inventory of $415.1 million, accounts receivable of $261.2 million, along with a decrease in accrued expenses and other liabilities of $176.2 million.

The uses of cash are offset by the following sources of cash:

increases in deferred profit of $577.8 million and trade accounts payable of $173.0 million.

increases in deferred profit of $379.3 million and trade accounts payable of $132.9 million, along with a decrease in prepaid expense and other assets of $93.6 million.

Cash Flow from Investing Activities

Net cash provided by investing activities during the nine months ended March 27, 2022, was $688.2 million, primarily consisting of net proceeds from sales of available-for-sale securities of $1.1 billion, partially offset by capital expenditures of $420.3 million.

Net cash used for investing activities during the three months ended September 25, 2022, was $127.8 million, primarily consisting of $140.1 million in capital expenditures, partially offset by net proceeds from maturities of available-for-sale securities of $14.7 million.

Cash Flow from Financing Activities

Net cash used for financing activities during the nine months ended March 27, 2022, was $3.6 billion, primarily consisting of $3.0 billion in treasury stock repurchases, including net share settlement on employee stock-based compensation,and $607.2 million in dividends paid, partially offset by $51.1 million combined proceeds from issuance of common stock and reissuance of treasury stock.

Net cash used for financing activities during the three months ended September 25, 2022, was $310.9 million, primarily consisting of $205.6 million in dividends paid, and $109.8 million in treasury stock repurchases, including net share settlement on employee stock-based compensation, partially offset by $6.8 million combined proceeds from issuance of common stock.

Lam Research Corporation 2023 Q1 10-Q 24

Given that the semiconductor industry is highly competitive and has historically experienced rapid changes in demand, we believe that maintaining sufficient liquidity reserves is important to support sustaining levels of investment in R&D and capital infrastructure.

Anticipated cash flows from operations based on our current business outlook, combined with our current levels of cash, cash equivalents, and short-term investments as of March 27, 2022, are expected to be sufficient to support our anticipated levels of operations, investments, debt service requirements, capital expenditures, capital redistributions, and dividends through at least the next twelve months.

Anticipated cash flows from operations based on our current business outlook, combined with our current levels of cash, cash equivalents, and short-term investments as of September 25, 2022, are expected to be sufficient to support our anticipated levels of operations, investments, debt service requirements, capital expenditures, capital redistributions, and dividends through at least the next twelve months.

However, uncertainty in the global economy and the semiconductor industry, as well as disruptions in credit markets, have in the past, and could in the future, impact customer demand for our products, as well as our ability to manage normal commercial relationships with our customers, suppliers, and creditors.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis