What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-01-30 compared with 2022-10-24 · 77 added, 76 removed, 165 unchanged (48% of the section changed)

46 unchanged sentences

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 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 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.

For a full understanding of our financial position and results of operations for the three and six months ended December 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 Q2 10-Q 21

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Along with meeting technical requirements, wafer processing equipment must deliver high productivity and be cost-effective.

Demand from cloud computing, the Internet of Things, and other markets is driving the need for increasingly powerful and cost-efficient semiconductors.

Demand from cloud computing, 5G, the Internet of Things, and other markets is driving the need for increasingly powerful and cost-efficient semiconductors.

At the same time, there are growing technical challenges with traditional two-dimensional scaling.

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

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.

Calendar year 2022 was 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 weakened, and as a result, we expect a reduction in wafer fabrication equipment spending in calendar year 2023.

Additionally, the United States government imposed new controls which significantly impact trade with China for the shipment of wafer fabrication equipment and related parts and services.

We expect these regulatory conditions, and the slowing economic environment, to negatively impact our financial results in calendar year 2023.

As a result of the expected reduced business levels, we announced a plan for the March 2023 quarter to reduce headcount by 1,300 employees, and we expect to incur charges of approximately $80.0 million in connection with the plan.

Over the course of calendar year 2023, we are projecting expenditures in the range of $150.0 million to $250.0 million associated with various business process improvements and initiatives, inclusive of the March 2023 quarter restructuring activity.

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.

In the quarter-ended December 25, 2022, customer demand was strong and with improvement in supply chain constraints we were able to fulfill shipments of many critical parts required for revenue recognition.

Although we have seen improvements in both our operations and those of our suppliers, we may continue to experience supply shortages as well as inflationary cost pressures 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.

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2022 September 25,

2022 June 26,

(in thousands, except per share data and percentages)

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Diluted net income per share $ 10.77 $ 10.39

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.

In the December 2022 quarter, revenue increased 4.0% compared to the September 2022 quarter, driven by an increase in systems revenue as a result of the improving supply chain environment.

We were able to fulfill shipments of critical parts which drove down our deferred revenue balance to $1,984 million at the end of the December 2022 quarter compared to $2,755 million as of the end of the September 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.

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 fiscal year, and may in the future impact, the timing of revenue recognition with respect to such products.

The decrease in gross margin as a percentage of revenue in the December 2022 quarter compared to the September 2022 quarter was primarily a result of unfavorable customer and pr oduct mix.

T he increase in operating expenses in the December 2022 quarter compared to the September 2022 quarter was primarily driven by an increase in deferred compensation plan-related costs, outside service spending and supplies expense.

Our cash and cash equivalents, investments, and restricted cash and investments balances increased to $4.8 billion at the end of the December 2022 quarter compared to $4.6 billion at the end of the September 2022 quarter.

This increase was primarily the result of $1,140.2 million of cash generated from operating activities, partially offset by $456.3 million of share repurchases, including net share settlement of employee stock-based compensation, $236.0 million of dividends paid to stockholders;

and $163.4 million of capital expenditures.

Employee headcount as of December 25, 2022 was approximately 19,200.

RESULTS OF OPERATIONS

Three Months Ended

September 25,

2022 June 26,

Three Months Ended Six Months Ended

2022 September 25,

2022 December 25,

2022 December 26,

Revenue (in millions) $ 5,278 $ 5,074 $ 10,352 $ 8,531

China 24 % 30 % 27 % 31 %

Taiwan 22 % 19 % 15 %

Korea 20 % 17 % 19 % 23 %

Southeast Asia 11 % 5 % 8 %

Taiwan 19 % 22 % 20 % 17 %

Japan 11 % 9 % 10 % 11 %

Southeast Asia 10 % 11 % 10 % 9 %

United States 10 % 6 % 8 % 6 %

Europe 6 % 5 % 6 % 3 %

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.

Revenue for the December 2022 quarte r increased 4.0% from the September 2022 quarter primarily due to improving supply chain conditions which allowed us to fulfill shipments of critical parts.

Lam Research Corporation 2023 Q2 10-Q 23

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

Three Months Ended

September 25,

2022 June 26,

Three Months Ended Six Months Ended

2022 September 25,

2022 December 25,

2022 December 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

September 25,

2022 June 26,

Three Months Ended Six Months Ended

2022 September 25,

2022 December 25,

2022 December 26,

Memory 50 % 52 % 50 % 61 %

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Logic/integrated device manufacturing 19 % 14 % 17 % 11 %

Three Months Ended

September 25,

2022 June 26,

The decrease in the memory market for the six months ended December 25, 2022 as compared to the same period in 2021, is primarily due to decreases in DRAM investments by our customers during this time period.

Three Months Ended Six Months Ended

2022 September 25,

2022 December 25,

2022 December 26,

(in thousands, except percentages)

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Percent of revenue 45.0 % 46.1 % 45.5 % 46.4 %

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.

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

The decrease in gross margin as a percentage of revenue in the six months ended December 25, 2022 compared to the same period in the prior year was primarily driven by higher levels of manufacturing-related spending as a result of increased inflationary pressures, partially offset by favorable customer and product mix.

Research and Development

Three Months Ended

September 25,

2022 June 26,

Three Months Ended Six Months Ended

2022 September 25,

2022 December 25,

2022 December 26,

(in thousands, except percentages)

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Percent of revenue 8.8 % 8.5 % 8.7 % 9.2 %

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.

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

The increase in R&D expense in the December 2022 quarter compared to the September 2022 quarter was primarily driven by an increase of $14 million in spending for supplies and $11 million in deferred compensation plan-related costs.

The increase in R&D expense in the six months ended December 25, 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 as well as for $32 million in spending for supplies.

Lam Research Corporation 2023 Q2 10-Q 24

Selling, General, and Administrative

Three Months Ended

September 25,

2022 June 26,

Three Months Ended Six Months Ended

2022 September 25,

2022 December 25,

2022 December 26,

(in thousands, except percentages)

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Percent of revenue 4.4 % 4.1 % 4.2 % 5.4 %

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.

SG&A expense during the December 2022 quart er increased in comparison to the September 2022 quarter, primarily driven by an increase of $14 million in outside service spending.

SG&A expense during the six months ended December 25, 2022 decreased compared to the same period in the prior year, primarily driven by a decrease of $23 million in amortization for intangible assets, as the intangible assets associated with our Novellus Systems, Inc.

transactions have fully amortized.

Other Income (Expense), Net

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

Three Months Ended

September 25,

2022 June 26,

Three Months Ended Six Months Ended

2022 September 25,

2022 December 25,

2022 December 26,

(in thousands)

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Interest expense (46,661) (46,052) (92,713) (91,821)

(Losses) gains on deferred compensation plan-related assets, net (12,726) (32,316) 7,437

Foreign exchange gains (losses), net 6,821 (2,380) (17)

Gains (losses) on deferred compensation plan-related assets, net 10,871 (12,726) (1,855) 7,381

Foreign exchange (losses) gains, net (10,114) 6,821 (3,293) 714

Other, net (8,455) (6,194) (14,649) 65,818

$ (28,234) $ (43,095) $ (71,329) $ (10,858)

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.

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.

Interest income increased for the three months ended December 25, 2022 compared to the September 2022 quarter, and the six months ended December 25, 2022 , compared to the same period in 2021, primarily because of higher yields partially offset by lower average balances.

Interest expense is consistent across all periods presented.

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

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

The losses in other, net for the three and six months ended December 25, 2022, were driven by fluctuations in fair value of equity investments.

For the six months ended December 26, 2021, other, net includes an unrealized gain totaling $46.6 million associated with an equity investment that completed a business combination and public offering during that period.

Income Tax Expense

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

Three Months Ended

September 25,

2022 June 26,

Three Months Ended Six Months Ended

2022 September 25,

2022 December 25,

2022 December 26,

(in thousands, except percentages)

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Lam Research Corporation 2023 Q2 10-Q 25

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.

The decrease in the effective tax rate for the December 2022 quarter compared to the September 2022 quarter was primarily due to the change in level and proportion of income in higher and lower tax jurisdictions in this quarter, recognition of previously unrecognized tax benefits from lapses of statutes of limitation, and a net tax benefit associated with legal entity restructuring.

The increase in the effective tax rate for the six months ended December 25, 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.

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 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):

Total gross cash, cash equivalents, investments, and restricted cash and investments balances were $4.8 billion at December 25, 2022 compared to $3.9 billion as of June 26, 2022.

This increase was primarily driven by $2,329.8 million of cash generated from operating activities, partially offset by $566.1 million of share repurchases, including net share settlement on employee stock-based compensation;

$441.6 million in dividends paid;

and $303.4 million of capital expenditures.

Net cash provided by operating activities of $2,329.8 million during the six months ended December 25, 2022, consisted of (in thousands):

Net income $ 2,894,386

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Changes in operating asset and liability accounts (739,652)

Other (2,751)

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

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.

increases in inventory of $894.5 million, along with a decrease in trade accounts payable of $116.3 million, accrued expenses and other liabilities of $92.3 million, and deferred profit of $19.9 million.

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

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.

decreases in accounts receivable of $249.1 million, and prepaid expense and other assets of $134.2 million.

Cash Flow from Investing Activities

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.

Net cash used for investing activities during the six months ended December 25, 2022, was $395.1 million, primarily consisting of $303.4 million in capital expenditures and $120.0 million of net cash disbursed for business acquisitions, partially offset by proceeds from maturities of available-for-sale securities of $32.4 million.

Cash Flow from Financing Activities

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.

Net cash used for financing activities during the six months ended December 25, 2022, was $973.2 million, primarily consisting of $566.1 million in treasury stock repurchases, including net share settlement on employee stock-based compensation, and $441.6 million in dividends paid, partially offset by $52.7 million combined proceeds from issuance of common stock.

Lam Research Corporation 2023 Q2 10-Q 26

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 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.

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 December 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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We believe that, if necessary, we will be able to access the capital markets on terms and in amounts adequate to meet our objectives.

However, the ongoing COVID-19 pandemic has in the past caused disruption in the capital markets and were it to do the same in the future, that could make any financing more challenging, and there can be no assurance that we will be able to obtain such financing on commercially reasonable terms or at all.

However, domestic and global macroeconomic and political conditions, or the ongoing COVID-19 pandemic, could cause disruptions to the capital markets and otherwise make any financing more challenging, and there can be no assurance that we will be able to obtain such financing on commercially reasonable terms or at all.

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