What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-08-15 compared with 2022-08-24 · 78 added, 57 removed, 244 unchanged (36% of the section changed)

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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 IoT, 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.

Wafer fabrication equipment spending was strong throughout the 2022 fiscal year 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 fiscal year 2022, customer demand remained solid;

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

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

During fiscal year 2023, customer demand weakened in the second half of the year due to wafer fabrication equipment spending reductions resulting primarily from incremental demand weakness in memory.

In addition, the U.S.

government’s restrictions on sales of equipment, parts, and service for specific technologies and customers in China further impacted equipment demand in the year.

While we did experience supply chain constraints in the first half of fiscal year 2023, there were improvements and we were able to fulfill shipments of nearly all our outstanding back order systems in the second half of the year.

As a result of the expected reduced business levels, we initiated a restructuring plan in the quarter-ended March 26, 2023 designed to better align the Company’s cost structure with our outlook.

We incurred a charge for the workforce actions associated with the restructuring plan of approximately $107 million in fiscal year 2023.

Over the course of calendar year 2023, we are projecting expenditures in the range of $250 million

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

associated with various business process improvements and initiatives, inclusive of the fiscal year 2023 restructuring activity.

Risks and uncertainties related to trade restrictions, supply chain challenges, and inflationary pressures may continue to negatively impact our revenue and gross margin.

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 available market for our products and services in the deposition, etch, and clean businesses.

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

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Net income per diluted share $ 33.21 $ 32.75 $ 26.90 $ 0.46 1.4 % $ 5.85 21.7 %

Fiscal year 2023 revenu e was slightly higher than fiscal year 2022.

Customer support-related revenue increased in fiscal year 2023 due to continued strength in specialty node investments, which was offset by a decline in our systems revenue as a result of semiconductor demand weakness, largely in the memory market.

Gross margin as a percentage of revenue decreased due to inflationary cost pressures that led to higher spending on material costs, as well as costs associated with restructuring related activities, partially offset by favorable customer and product mix.

The increase in operating expenses in fiscal year 2023 compared to fiscal year 2022 was driven by higher deferred compensation plan-related costs, restructuring-related charges, employee-related costs as a result of increased headcount, depreciation and amortization, and supplies, partially offset by a decrease in amortization of intangible assets as the intangible assets associated with the acquisition of Novellus have fully amortized.

Fiscal year 2022 revenue increased over 17% compared to fiscal year 2021, reflecting continued strong customer demand for semiconductor equipment.

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The increase in operating expenses in fiscal year 2022 compared to fiscal year 2021 was mainly driven by higher employee-related costs as a result of increased headcount, supplies expense, rent, repair and utilities expense, and outside services spending, partially offset by lower deferred compensation plan-related costs.

Fiscal year 2021 revenue increased approximately 46% compared to fiscal year 2020, reflecting stronger customer demand for semiconductor equipment.

Gross margin as a percentage of revenue increased primarily due to customer and product mix, partially offset by higher costs incurred in freight and logistics as well as start-up expenses for our new Malaysia manufacturing facility.

The increase in operating expenses in fiscal year 2021 compared to fiscal year 2020 was mainly driven by higher employee-related costs as a result of increased headcount and outsourcing services, deferred compensation plan-related costs, and supplies, partially offset by lower travel expenses and miscellaneous costs.

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.

Our cash and cash equivalents, investments, and restricted cash and investments balances totaled approximately $5.6 billion as of June 25, 2023, compared to $3.9 billion as of June 26, 2022.

Cash flow provided from operating activities was $3.1 billion for fiscal year 2022 compared to $3.6 billion for fiscal year 2021.

Cash flow provided from operating activities in fiscal year 2022 was primarily used for $3.9 billion in treasury stock purchases, including net share settlement on employee stock-based compensation;

Cash flows provided from operating activities was $5.2 billion for fiscal year 2023 compared to $3.1 billion for fiscal year 2022.

Cash flows provided from operating activities in fiscal year 2023 was primarily used for $2.0 billion in treasury stock purchases, including net share settlement on employee stock-based compensation;

$908 million in dividends paid to our stockholders;

and $502 million of capital expenditures.

These cash outflows were partially offset by $114 million of treasury stock reissuance and Common Stock issuance resulting from our employee equity-based compensation programs.

Results of Operations

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Europe 7 % 4 % 3 %

Revenue increased in fiscal year 2022 compared to fiscal years 2021 and 2020, primarily due to the increased investment by our customers in semiconductor capital equipment as well as higher revenue from our Customer Support Business Group for spares, services, upgrades and mature node equipment.

The overall Asia region continued to account for a majority of our revenues as a substantial amount of the worldwide capacity investments for semiconductor manufacturing continued to occur in this region.

The deferred revenue balance was $2.2 billion as of June 26, 2022 compared to $1.1 billion as of June 27, 2021, driven by additional deferrals related to tools pending full delivery and future servicing of our existing installed base.

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Revenue increased i n fiscal year 2023 compared to fiscal year 2022 mainly due to higher revenue from CSBG related to strength in mature node equipment.

Revenue increased in fiscal year 2022 compared to fiscal year 2021 primarily due to the increased investment by our customers in semiconductor capital equipment as well as from CSBG for spares, services, upgrades and mature node equipment.

While the overall Asia region continued to account for a majority of our revenues, the U.S.

and Europe regions increased in each of fiscal years 2023 and 2022 compared to the prior fiscal year as these regions prioritized domestic capacity investments for semiconductor manufacturing.

The deferred revenue balance was $1.8 billion as of June 25, 2023 compared to $2.2 billion as of June 26, 2022.

Advance deposit additions from newer customers increased in fiscal year 2023, compared to fiscal year 2022, offsetting the decline in deferred balances related to shipments we completed of tools that had critical parts outstanding.

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

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Percent of revenue 44.6 % 45.7 % 46.5 % (1.1)% (0.8)%

The decrease in gross margin as a percentage of revenue for fiscal year 2023 compared to fiscal year 2022 was due to inflationary cost pressures that led to higher spending on material costs, partially offset by favorable customer and product mix.

The decrease in gross margin as a percentage of revenue for fiscal year 2022 compared to fiscal year 2021 was due to inflationary cost pressures that led to higher spending on material costs, freight and logistics, and labor-related expenses, as well as unfavorable customer and product mix, partially offset by decreased variable compensation.

The increase in gross margin as a percentage of revenue for fiscal year 2021 compared to fiscal year 2020 was primarily related to customer and product mix, partially offset by increased spending on freight and logistics due in significant part to COVID-19 disruptions, start-up expenses for our Malaysia manufacturing facility, and deferred compensation plan-related costs.

Research and Development

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We continued to make significant R&D investments focused on leading-edge deposition, etch, clean, and other semiconductor manufacturing processes.

The increase i n R&D expense during fiscal year 2022 compared to fiscal year 2021 was mainly driven by an increase of $89 million in employee-related costs due in part to increased headcount and $43 million in spending for supplies, partially offset by a decrease of $44 million in deferred compensation plan-related costs.

The increase in R&D expense during fiscal year 2021 compared to fiscal year 2020 was mainly driven by an increase of $137 million in employee-related costs due in part to increased headcount, $49 million in outside service costs, $32 million in deferred compensation plan-related costs, and $27 million in spending for supplies

The increase i n R&D expense during fiscal year 2023 compared to fiscal year 2022 was primarily driven by

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an increase of $43 million in employee-related costs as a result of increased headcount, $26 million in deferred compensation plan-related costs, $22 million in spending for supplies, and $14 million of depreciation and amortization.

The increase in R&D expense during fiscal year 2022 compared to fiscal year 2021 was mainly driven by a n increase of $89 million in employee-related costs due in part to increased headcount and $43 million in spending for supplies, partially offset by a decrease of $44 million in deferred compensation plan-related costs.

Selling, General, and Administrative

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Percent of revenue 4.8 % 5.1 % 5.7 % (0.3)% (0.6)%

The de crease in SG&A expense during fiscal year 2023 compared to fiscal year 2022 was primarily driven by a decrease of $44 million in amortization of intangible assets, as the intangible assets associated with the acquisition of Novellus have fully amortized, as well as from $12 million in lower employee-related costs, partially offset by $17 million in higher deferred compensation plan-related costs.

The increase in SG&A expense during fiscal year 2022 compared to fiscal year 2021 was primarily driven by an increase of $28 million in outside service costs, $28 million in spending for rent, repair and utilities, and $26 million in employee-related costs due in part to increased headcount, partially offset by a decrease of $29 million in deferred compensation plan-related costs .

The increase in SG&A expense during fiscal year 2021 compared to fiscal year 2020 was primarily due to a $97 million increase in employee-related costs due in part to increased headcount, $37 million in outside service costs, and $21 million in deferred compensation plan-related costs, partially offset by a $9 million decrease in travel and entertainment costs.

Restructuring Charges, Net

Year Ended Change

2023 June 26,

2022 June 27,

2021 FY23 vs.

FY22 FY22 vs.

(in thousands, except percentages)

Restructuring charges, net $ 120,316 $ — $ — $ 120,316 100.0 % $ — — %

Percent of revenue 0.7 % — % — % 0.7% —%

In fiscal year 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 1,650 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 and incurred costs to move inventory and equipment and exit selected supplier arrangements.

During fiscal year 2023 net restructuring costs of $78 million and $42 million were recorded in restructuring charges, net - cost of goods sold, and restructuring charges, net - operating expenses, respectively of our Consolidated Financial Statements.

Please refer to Note 22:

Restructuring charges, net of our Consolidated Financial Statements in Part II, Item 8 of this 2023 Form 10-K for additional information.

Lam Research Corporation 2023 10-K 31

Other Income (Expense), Net

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Interest expense (186,462) (184,759) (208,597) $ (1,703) 0.9 % $ 23,838 (11.4) %

(Losses) gains on deferred compensation plan related assets, net (38,053) 61,838 5,999 $ (99,891) (161.5) % $ 55,839 930.8 %

Gains (losses) on deferred compensation plan related assets, net 20,186 (38,053) 61,838 $ 58,239 (153.0) % $ (99,891) (161.5) %

Foreign exchange (losses) gains, net (7,078) (723) (6,962) $ (6,355) 879.0 % $ 6,239 (89.6) %

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$ (65,650) $ (188,708) $ (111,219) $ 123,058 (65.2) % $ (77,489) 69.7 %

Interest income increased in fiscal year 2023 compared to fiscal year 2022 primarily because of higher yields and higher cash balances.

Interest income decreased in fiscal year 2022 compared to fiscal year 2021 as a result of lower cash balances.

Interest income decreased in fiscal year 2021 compared to fiscal year 2020 as a result of lower yield.

Interest expense decreased in fiscal year 2022 compared to fiscal year 2021 primarily due to the payoff of $800 million of our notes in June 2021.

Interest expense increased in fiscal year 2021 compared to fiscal year 2020 primarily due to the full-year impact of the issuance of $2.0 billion senior notes in fiscal year 2020.

The gains or losses on deferred compensation plan related assets, net in fiscal years 2022, 2021 and 2020 were driven by fluctuations in the fair market value of the underlying funds.

Interest expense in fiscal year 2023 was flat compared to fiscal year 2022.

Interest expense decreased in fiscal year 2022 compared to fiscal year 2021 primarily due to the payoff of $800 million of senior notes in June 2021.

The gains or losses on deferred compensation plan related assets, net 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 variation in other, net for the fiscal year 2023 compared to fiscal years 2022 and 2021 was primarily driven by fluctuations in the fair market value of equity investments.

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Effective tax rate 11.7 % 11.3 % 10.6 % 0.4% 0.7%

The increase in the effective tax rate in fiscal year 2022 as compared to fiscal year 2021 was primarily due to the change in level and proportion of income in higher and lower tax jurisdictions.

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The decrease in the effective tax rate in fiscal year 2021 as compared to fiscal year 2020 was primarily due to a cumulative income tax benefit reversal due to a court ruling in fiscal year 2020, as outlined below.

In November 2019, the U.S.

Court of Appeals for the Ninth Circuit (“Ninth Circuit”) rejected the en banc appeal petitioned by Altera Corporation (“Altera”) in July 2019.

In that quarter, we evaluated the impact of the decision and viewed the denial as an indication that Altera’s position of excluding stock-based compensation expense in an intercompany cost-sharing arrangement was unlikely to be sustained upon further litigation.

As a result, we reversed $75 million of net tax assets associated with stock-based compensation benefits related to previous years in the Condensed Consolidated Financial Statements in the three months ended December 29, 2019 and we no longer reflected a net tax benefit within our financial statements related to excluding stock-based compensation from our intercompany cost-sharing arrangement.

In February 2020, Altera petitioned the Supreme Court of the United States ("SCOTUS") to hear their case.

In June 2020, the SCOTUS denied the petition.

The increase in the effective tax rate in fiscal year 2023 as compared to fiscal year 2022 and the increase in the effective tax rate in fiscal year 2022 compared to fiscal year 2021 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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Please refer to Note 7 of our Consolidated Financial Statements in Part II, Item 8 of this 2023 Form 10-K.

A provision enacted as part of the 2017 Tax Cuts & Jobs Act requires companies to capitalize research and experimental expenditures for tax purposes in tax years beginning after December 31, 2021 (our fiscal year 2023).

If this provision is not repealed or deferred, we expect our fiscal year 2023 cash tax payments to increase significantly compared to our fiscal year 2022.

On August 16, 2022, the Inflation Reduction Act was signed into law.

Beginning in our fiscal year 2023, a provision enacted as part of the 2017 Tax Cuts & Jobs Act requires us to capitalize research and experimental expenditures for tax purposes.

Due to this provision, we expect our cash tax payments to increase significantly in the near term and stabilize in future years as the capitalized expenditures continue to amortize.

On August 16, 2022, the IRA was signed into law.

In general, the provisions of the IRA will be effective beginning with our fiscal year 2024, with certain exceptions.

The IRA includes a new 15% corporate minimum tax.

We are in the process of evaluating the potential impacts of the IRA.

The impact on income taxes due to changes in legislation is required under the authoritative guidance of Accounting Standard Codification (“ASC”) 740, Income Taxes, to be recognized in the period in which the law is enacted.

While we do not currently expect the IRA to have a material impact on our effective tax rate, our analysis is ongoing and incomplete, and it is possible that the IRA could have a material adverse effect on our tax liability.

We will continue to monitor issuance of additional guidance.

We have evaluated the potential impacts of the IRA and do not expect it to have a material impact on our effective tax rate.

However, we expect future guidance from the Treasury Department and will further analyze when the guidance is issued.

Lam Research Corporation 2023 10-K 32

Deferred Income Taxes

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Our gross deferred tax assets were $1,303 million and $1,103 million at the end of fiscal years 2023 and 2022, respectively.

These gross deferred tax assets were offset by gross deferred tax liabilities of $234 million and $187 million and a valuation allowance representing our entire California deferred tax asset balance due to the single sales factor apportionment resulting in lower taxable income in California of $309 million and $277 million at the end of fiscal years 2022 and 2021, respectively.

The change in gross deferred tax assets, gross deferred tax liabilities, and valuation allowance between fiscal year 2022 and 2021 is primarily due to increases in gross deferred tax assets for outside basis differences of foreign subsidiaries and tax credits and increases in gross deferred tax liabilities for capital assets.

These gross deferred tax assets were offset by gross deferred tax liabilities of $238 million and $234 million and a valuation allowance primarily representing our entire California deferred tax asset balance due to the single sales factor apportionment resulting in lower taxable income in California of $352 million and $309 million at the end of fiscal years 2023 and 2022, respectively.

The change in gross deferred tax assets, gross deferred tax liabilities, and valuation allowance between fiscal year 2023 and 2022 is primarily due to increases in gross deferred tax assets for outside basis differences of foreign subsidiaries, tax credits, and capitalized research and experimental expenditures.

We evaluate if the deferred tax assets are realizable on a quarterly basis and will continue to assess the need for changes in valuation allowances, if any.

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• the recognition and measurement of current and deferred income taxes, including the measurement of uncertain tax positions, which impact our provision for income tax expenses;

Lam Research Corporation 2022 10-K 32

• the valuation and recoverability of long-lived assets, which impacts gross margin and operating expenses when we record asset impairments or accelerate their depreciation or amortization.

We believe that the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements regarding the critical accounting estimates indicated above.

See Note 2, “Summary of Significant Accounting Policies,” of our Consolidated Financial Statements in Part II, Item 8 of this 2022 Form 10-K for additional information regarding our accounting policies.

Summary of Significant Accounting Policies of our Consolidated Financial Statements in Part II, Item 8 of this 2023 Form 10-K for additional information regarding our accounting policies.

Revenue Recognition:

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Fixed consideration includes amounts to be contractually billed to the customer while variable consideration includes estimates for discounts and credits for future usage which are based on contractual terms outlined in volume purchase agreements and other factors known at the time.

We generally invoice customers at shipment and for professional services either as provided or upon meeting certain milestones.

We generally invoice customers at shipment and for professional services either as

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provided or upon meeting certain milestones.

Customer invoices are generally due within 30 to 90 days after issuance.

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Our policy is to include interest and penalties related to uncertain tax positions as a component of income tax expense.

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Long-lived Assets :

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If after completing the quantitative assessment the carrying value of a reporting unit exceeds its fair value, we would record an impairment charge equal to the excess of the carrying value of the reporting unit over its fair value, up to the amount of the goodwill assigned to the reporting unit.

Lam Research Corporation 2023 10-K 34

For other long-lived assets, we review them whenever events or changes in circumstances indicate the carrying value of an asset or asset group may not be recoverable.

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Recent Accounting Pronouncements

For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see Note 3, “Recent Accounting Pronouncements,” of our Consolidated Financial Statements, included in Part II, Item 8 of this 2022 Form 10-K.

For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see Note 3:

Recent Accounting Pronouncements of our Consolidated Financial Statements, included in Part II, Item 8 of this 2023 Form 10-K.

Liquidity and Capital Resources

Total gross cash, cash equivalents, investments, and restricted cash and investments balances were $5.6 billion at the end of fiscal year 2023 compared to $3.9 billion at the end of fiscal year 2022.

This decrease was primarily due to Common Stock repurchases in connection with our stock repurchase program, dividends paid, and capital expenditures, partially offset by cash provided by operating activities.

This increase was primarily due to cash provided by operating activities, partially offset by Common Stock repurchases in connection with our stock repurchase program, dividends paid, and capital expenditures.

Cash Flow from Operating Activities

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Changes in operating asset and liability accounts 158,738

Other (44,751)

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

increases in accounts receivable of $1.3 billion, inventories of $1.4 billion, and prepaid expenses and other assets of $53 million;

partially offset by the following sources of cash:

increases in deferred profit of $605 million, accounts payable of $168 million, and accrued expenses and other liabilities of $123 million.

Lam Research Corporation 2022 10-K 34

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

decreases in accounts receivable of $1.5 billion, deferred profit of $163 million, and prepaid expenses and other assets of $136 million;

partially offset by the following uses of cash:

increase in inventories of $962 million, and decreases in accounts payable of $522 million, and accrued expenses and other liabilities of $109 million.

Cash Flow from Investing Activities

Net cash provided by investing activities during fiscal year 2022 was $612 million, primarily consisting of net sales/maturities of available for sale securities of $1.2 billion, partially offset by capital expenditures of $546 million.

Net cash used for investing activities during fiscal year 2023 was $535 million, primarily consisting of $502 million in capital expenditures and $120 million net cash disbursed for business acquisitions, partially offset by proceeds from sales and maturities of available-for-sale securities of $98 million.

Cash Flow from Financing Activities

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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 June 25, 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, 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.

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.

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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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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 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.

Off-Balance Sheet Arrangements and Contractual Obligations

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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-K

Item 7. Management’s Discussion and Analysis