What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-04-24 compared with 2023-01-30 · 84 added, 69 removed, 173 unchanged (47% of the section changed)

10 unchanged sentences

management’s plans and objectives for our current and future operations and business focus;

restructuring activities;

volatility in our quarterly results;

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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 26, 2022 (our “2022 Form 10-K”), our quarterly report on Form 10-Q for the fiscal quarter ended September 25, 2022, 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”), our quarterly reports on Form 10-Q for the fiscal quarters ended September 25, 2022 and December 25, 2022, 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 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.

For a full understanding of our financial position and results of operations for the three and nine months ended March 26, 2023, 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 Q3 10-Q 22

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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.

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.

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.

In the quarter-ended March 26, 2023, customer demand weakened due to wafer fabrication equipment spending reductions resulting primarily from incremental demand weakness in memory.

We did, however, continue to see improvement in supply chain constraints and were able to fulfill shipments of nearly all our outstanding back order systems.

As a result of expected reduced business levels we initiated a restructuring plan in the March 2023 quarter designed to better align the Company’s cost structure with its outlook.

We incurred a charge for the workforce actions associated with the restructuring plan in the March quarter of approximately $98.5 million.

Over the course of calendar year 2023, we are projecting expenditures in the range of $250 million associated with various business process improvements and initiatives, inclusive of the March 2023 quarter restructuring activity.

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 Q3 10-Q 23

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Three Months Ended

2022 September 25,

2023 December 25,

(in thousands, except per share data and percentages)

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Diluted net income per share $ 6.01 $ 10.77

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.

In the March 2023 quarter, reve nue decreased 27% compared to the December 2022 quarter, driven by a decrease in both systems and customer-support related revenue as a result of the weakening demand environment, compounded by regulatory trade restrictions imposed on shipments of wafer fabrication equipment and related parts and service to certain customers in China.

The deferred revenue balance was $2,002.7 million at the end of the March 2023 quarter, consistent with the balance at the end of the December 2022 quarter of $1,984.0 million.

Advanced deposit additions from newer customers increased during the March 2023 quarter, offsetting the decline in deferred balances related to shipments we completed of tools that had critical parts outstanding.

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 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.

The decrease in gross margin as a percentage of revenue in the March 2023 quarter compared to the December 2022 quarter was primarily a result of costs associated with restructuring related activities and product rationalization charges, as well as unfavorable absorption costs due to lower business volumes and customer and product mix.

The decrease in operating expenses in the March 2023 quarter compared to the December 2022 quarter was primarily driven by decreases in outside service spending and supplies expense, partially offset by an increase in restructuring related charges, employee-related expenses from seasonality, product rationalization costs and transformational costs.

Our cash and cash equivalents, investments, and restricted cash and investments balances increased to $5.6 billion at the end of the March 2023 quarter compared to $4.8 billion at the end of the December 2022 quarter.

This increase was primarily the result of $1,726.4 million of cash generated from operating activities, partially offset by $581.9 million of share repurchases, including net share settlement of employee stock-based compensation, $234.0 million of dividends paid to stockholders;

and $119.5 million of capital expenditures.

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

Employee headcount as of March 26, 2023 was approximately 18,700.

We expect the employee headcount balance to decrease further in the June 2023 quarter as many of the employees impacted by our restructuring activity have termination dates in early April.

RESULTS OF OPERATIONS

Three Months Ended Six Months Ended

2022 September 25,

2022 December 25,

Three Months Ended Nine Months Ended

2023 December 25,

2022 March 26,

2023 March 27,

Revenue (in millions) $ 3,870 $ 5,278 $ 14,221 $ 12,591

China 24 % 30 % 27 % 31 %

Korea 22 % 20 % 20 % 23 %

China 22 % 24 % 26 % 32 %

Taiwan 18 % 19 % 20 % 16 %

Japan 11 % 9 % 10 % 11 %

Southeast Asia 10 % 11 % 10 % 9 %

United States 16 % 10 % 9 % 6 %

Japan 10 % 11 % 10 % 11 %

Europe 8 % 6 % 6 % 3 %

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.

Southeast Asia 4 % 10 % 9 % 9 %

Revenue for the March 2023 quarter decreased 27% from the December 2022 quarter primarily from reductions in wafer fabrication equipment spending as well as from regulatory trade restrictions imposed on shipments of wafer fabrication equipment and related parts and services to China.

Lam Research Corporation 2023 Q3 10-Q 24

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

Three Months Ended Six Months Ended

2022 September 25,

2022 December 25,

Three Months Ended Nine Months Ended

2023 December 25,

2022 March 26,

2023 March 27,

(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 Six Months Ended

2022 September 25,

2022 December 25,

Three Months Ended Nine Months Ended

2023 December 25,

2022 March 26,

2023 March 27,

Memory 32 % 50 % 46 % 62 %

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Logic/integrated device manufacturing 22 % 19 % 36 % 12 %

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,

The decrease in the memory market for the nine months ended March 26, 2023 as compared to the same period in 2022, is primarily due to decreases in NAND investments by our customers during this time period.

Three Months Ended Nine Months Ended

2023 December 25,

2022 March 26,

2023 March 27,

(in thousands, except percentages)

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Percent of revenue 41.5 % 45.0 % 44.4 % 45.8 %

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.

Gross margin as a percentage of revenue was lower in the March 2023 quarter compared to the December 2022 quarter primarily due to $66.7 million in restructuring-related charges and $26.8 million in costs associated with product rationalization, as well as unfavorable customer and product mix.

The decrease in gross m argin as a percentage of revenue in the nine months ended March 26, 2023 compared to the same period in the prior year was primarily driven by costs associated with restructuring related activities, product rationalization, as well as 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 Six Months Ended

2022 September 25,

2022 December 25,

Three Months Ended Nine Months Ended

2023 December 25,

2022 March 26,

2023 March 27,

(in thousands, except percentages)

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Percent of revenue 11.1 % 8.8 % 9.3 % 9.5 %

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.

We co ntinued to make significant R&D investments in the March 2023 quarter focused on leading-edge deposition, etch, clean and other semiconductor manufacturing processes.

The decrease in R&D expense in the March 2023 quarter compared to the December 2022 quarter was primarily driven by a decrease of $22.1 million in supplies expense and $11.5 million in outside services.

Lam Research Corporation 2023 Q3 10-Q 25

The increase in R&D expense in the nine months ended March 26, 2023 compared to the same period in the prior year was primarily driven by a $46.8 million increase in employee-related expenses mainly as a result of increased headcount and a $31.9 million increase in spending for supplies.

Selling, General, and Administrative

Three Months Ended Six Months Ended

2022 September 25,

2022 December 25,

Three Months Ended Nine Months Ended

2023 December 25,

2022 March 26,

2023 March 27,

(in thousands, except percentages)

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Percent of revenue 5.0 % 4.4 % 4.5 % 5.4 %

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.

SG&A expense during the March 2023 qua rter decreased in comparison to the December 2022 quarter, primarily driven by a decrease of $24.5 million in outside service spending.

SG&A expense during the nine months ended March 26, 2023 decreased compared to the same period in the prior year, primarily driven by a decrease of $34.6 million in amortization for intangible assets, as the intangible assets associated with our Novellus Systems, Inc.

transactions have fully amortized.

Restructuring Charges, Net

Three Months Ended Nine Months Ended

2023 December 25,

2022 March 26,

2023 March 27,

(in thousands, except percentages)

Restructuring charges, net $ 107,128 $ — $ 107,128 $ —

Percent of revenue 2.8 % — % 0.8 % — %

In the three and nine months ended March 26, 2023, we initiated a restructuring plan designed to better align our cost structure with our outlook for the economic environment and business opportunities.

Under the plan we terminated approximately 1,400 employees, incurring expenses related to employee severance and separation costs.

Employee severance and separation costs primarily relate to severance, non-cash severance, including equity award compensation expense, pension and other termination benefits.

Additionally, we made a strategic decision to relocate certain manufacturing activities to pre-existing facilities.

During the three and nine months ended March 26, 2023 net restructuring costs of $66.7 million and $40.4 million were recorded in restructuring charges, net - cost of goods sold, and restructuring charges, net - operating expenses, respectively of our Condensed Consolidated Financial Statements, included in Part I of this Form 10-Q.

Please refer to Note 18, “Restructuring charges, net,” to our Condensed Consolidated Financial Statements, included in Part I of this Form 10-Q for additional information.

Other Income (Expense), Net

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

Three Months Ended Six Months Ended

2022 September 25,

2022 December 25,

Three Months Ended Nine Months Ended

2023 December 25,

2022 March 26,

2023 March 27,

(in thousands)

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$ (3,331) $ (28,234) $ (74,660) $ (68,260)

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 income increased for the March 2023 quart er compared to the December 2022 quarter, primarily because of higher yields and higher average balances.

Interest income increased for the nine months ended March 26, 2023, compared to the same period in 2022, primarily because of higher yields.

Lam Research Corporation 2023 Q3 10-Q 26

Interest expense is consistent across all periods presented.

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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.

The gains and losses in other, net for the three and nine months ended March 26, 2023, were driven by fluctuations in fair value of equity investments.

For the nine months ended March 27, 2022, other, net includes an unrealized gain totaling $63.6 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 Six Months Ended

2022 September 25,

2022 December 25,

Three Months Ended Nine Months Ended

2023 December 25,

2022 March 26,

2023 March 27,

(in thousands, except percentages)

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Effective tax rate 13.3 % 11.1 % 12.7 % 11.4 %

Lam Research Corporation 2023 Q2 10-Q 25

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.

The increase in the effective tax rate for the March 2023 quarter compared to the December 2022 quarter was primarily due to the change in level and proportion of income in higher and lower tax jurisdictions, recognition of previously unrecognized tax benefits from lapses of statutes of limitation, and a net tax benefit associated with legal entity restructuring in the December 2022 quarter.

The increase in the effective tax rate for the nine months ended March 26, 2023 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 lower stock-based compensation excess tax benefits in the nine months ended March 26, 2023.

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 $4.8 billion at December 25, 2022 compared to $3.9 billion as of June 26, 2022.

Total gross cash, cash equivalents, investments, and restricted cash and investments balances were $5.6 billion at March 26, 2023 compared to $3.9 billion as of June 26, 2022.

This increase was primarily driven by $4,056.2 million of cash generated from operating activities, partially offset by $1,148.0 million of share repurchases, including net share settlement on employee stock-based compensation;

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and $422.9 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):

Lam Research Corporation 2023 Q3 10-Q 27

Net cash provided by operating activities of $4,056.2 million during the nine months ended March 26, 2023, consisted of (in thousands):

Net income $ 3,708,394

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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 $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.

increases in inventory of $964.0 million, along with a decrease in trade accounts payable of $392.0 million, and accrued expenses and other liabilities of $101.5 million.

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

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

decreases in accounts receivable of $1,058.5 million, deferred profit of $268.9 million, and prepaid expense and other assets of $128.5 million.

Cash Flow from Investing Activities

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.

Net cash used for investing activities during the nine months ended March 26, 2023, was $479.4 million, primarily consisting of $422.9 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 $71.9 million.

Cash Flow from Financing Activities

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

Net cash used for financing activities during the nine months ended March 26, 2023, was $1,792.7 million, primarily consisting of $1,148.0 million in treasury stock repurchases, including net share settlement on employee stock-based compensation, and $675.6 million in dividends paid, partially offset by $52.7 million combined proceeds from issuance of common stock.

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 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.

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 26, 2023, 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, factors outside of our control, including uncertainty in the global economy and the semiconductor industry, as well as disruptions in credit markets, have in the past, are currently, 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.

In the longer term, liquidity will depend to a great extent on our future revenues and our ability to appropriately manage our costs based on demand for our products and services.

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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