What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-01-29 compared with 2023-10-23 · 79 added, 81 removed, 196 unchanged (45% of the section changed)

48 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 25, 2023 (our “2023 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 24, 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 2023 Form 10-K.

For a full understanding of our financial position and results of operations for the three and six months ended December 24, 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 2023 Form 10-K.

Lam Research Corporation 2024 Q2 10-Q 17

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

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

Demand from cloud computing, artificial intelligence, 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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(ii) our ability to effectively leverage cycles of learning from our broad installed base;

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

(iii) our collaborative focus with semi-ecosystem partners, including our close to customer focus;

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

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As a result of the reduced business levels in calendar year 2023, 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 $107.1 million in the second half of fiscal year 2023 and $5.5 million in the September 2023 quarter.

We continue to work towards a number of business process improvements and initiatives and expect to incur expenditures in the range of $250 million, inclusive of the restructuring activity.

Risks and uncertainties related to trade restrictions and the semiconductor demand environment may continue to negatively impact our revenue and operating margin.

We incurred a charge for the workforce actions associated with the restructuring plan of approximately $107.1 million in the second half of fiscal year 2023 and $7.3 million in the first half of fiscal year 2024.

We continue to work towards a number of business process improvements and initiatives throughout the 2024 fiscal year and expect to incur expenditures from these activities in the range of $300 million, inclusive of the restructuring activity.

Risks and uncertainties such as trade restrictions and the semiconductor demand environment may continue to negatively impact our revenue and operating 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.

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2023 September 24,

2023 June 25,

(in thousands, except per share data and percentages)

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Diluted net income per share $ 7.22 $ 6.66

In the September 2023 quarter, reve nue increased 9% compared to the June 2023 quarter, primarily as a result of increased investments in the DRAM segment as well as increased spending by our China customers for mature node equipment.

The deferred revenue balance was $1,690.4 million at the end of the September 2023 quarter, a decrease to the balance at the end of the June 2023 quarter of $1,837.9 million, primarily due to a decrease in advanced deposits.

In the December 2023 quarter, reve nue increased 8% compared to the September 2023 quarter, mainly due to increased investments in the dynamic random access memory (“DRAM”) market segment.

The deferred revenue balance was $1,928.0 million at the end of the December 2023 quarter, an increase to the balance at the end of the September 2023 quarter of $1,690.4 million, mainly due to an increase in advanced deposits.

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 delivery of products, which has impacted, 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 2023 quarter compared to the June 2023 quarter was primarily due to favorable customer mix, partially offset by unfavorable factory absorption costs.

The increase in operating expenses in the September 2023 quarter compared to the June 2023 quarter was primarily driven by increases in employee-related costs, supplies expense, and outside service spending, partially offset by a decrease in deferred compensation plan-related costs.

Our cash and cash equivalents, investments, and restricted cash and investments balances decreased to $5.2 billion at the end of the September 2023 quarter compared to $5.6 billion at the end of the June 2023 quarter.

This decrease was primarily the result of $843.2 million of share repurchases, including net share settlement of employee stock-based compensation;

$253.1 million of repayment of debt, largely associated with the purchase of certain properties under finance leases;

and $230.3 million of dividends paid to stockholders, partially offset by $951.2 million of cash generated from operating activities.

Employee headcount as of September 24, 2023 was approximately 17,200.

The decrease in gross margin as a percentage of revenue in the December 2023 quarter compared to the September 2023 quarter was primarily a result of restructuring-related activities, deferred compensation plan-related costs and unfavorable product mix, partially offset by favorable customer mix.

The increase in operating expenses in the December 2023 quarter compared to the September 2023 quarter was driven by increases in deferred compensation plan and employee-related costs, and spending for outside services and supplies, including transformational charges.

Our cash and cash equivalents, investments, and restricted cash and investments balances increased to $5.6 billion at the end of the December 2023 quarter compared to $5.2 billion at the end of the September 2023 quarter.

This increase was primarily the result of $1,453.8 million of cash generated from operating activities, partially offset by $645.5 million of share repurchases, including net share settlement of employee stock-based compensation;

$264.4 million of dividends paid to stockholders;

and $115.3 million of capital expenditures.

Employee headcount as of December 24, 2023 was approximately 17,200.

RESULTS OF OPERATIONS

Three Months Ended

September 24,

2023 June 25,

Three Months Ended Six Months Ended

2023 September 24,

2023 December 24,

2023 December 25,

Revenue (in millions) $ 3,758 $ 3,482 $ 7,240 $ 10,352

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Japan 14 % 9 % 12 % 10 %

United States 8 % 8 % 6 %

Taiwan 13 % 7 % 10 % 20 %

United States 5 % 8 % 7 % 8 %

Europe 5 % 7 % 6 % 6 %

Southeast Asia 4 % 5 % 4 % 10 %

Revenue for the September 2023 quarter increased 9% from the June 2023 quarter primarily as a result of increased investments in the DRAM segment as well as increased spending by our China customers for mature node equipment.

Revenue for the December 2023 quart er increased 8% fro m the September 2023 quarter primarily as a result of strengthening investments in the DRAM market segment.

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

Three Months Ended

September 24,

2023 June 25,

Three Months Ended Six Months Ended

2023 September 24,

2023 December 24,

2023 December 25,

(In thousands)

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The percentage of leading- and non-leading-edge equipment and upgrade revenue from each of the markets we serve was as follows:

Three Months Ended

September 24,

2023 June 25,

Three Months Ended Six Months Ended

2023 September 24,

2023 December 24,

2023 December 25,

Memory 48 % 38 % 43 % 50 %

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Logic/integrated device manufacturing 14 % 26 % 20 % 17 %

The decrease in the memory market for the three months ended September 24, 2023 as compared to the same period in 2022, is primarily due to decreases in NAND spending by our customers during this time period.

Three Months Ended

September 24,

2023 June 25,

The increase in the memory market segment for the December 2023 quarter compared to the September 2023 quarter is primarily due to increases in DRAM spending by our customers during the period.

The decrease in the memory market segment for the six months ended December 24, 2023 as compared to the same period in 2022 is primarily due to decreases in NAND spending by our customers during this time period.

Three Months Ended Six Months Ended

2023 September 24,

2023 December 24,

2023 December 25,

(in thousands, except percentages)

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Percent of revenue 46.8 % 47.5 % 47.1 % 45.5 %

Gross margin as a percentage of revenue was higher in the September 2023 quarter compared to the June 2023 quarter primarily due to favorable customer mix partially offset by unfavorable factory absorption costs.

The increase in gross m argin as a percentage of revenue in the three months ended September 24, 2023 compared to the same period in the prior year was primarily due to favorable customer mix as well as reduced spending on material costs, freight and logistics, partially offset by unfavorable factory utilization.

Gross margin as a percentage of revenue was lower in the December 2023 quarter compared to the September 2023 quarter primarily a result of costs associated with restructuring-related activities, deferred compensation plan-related costs and unfavorable product mix, partially offset by favorable customer mix.

The increase in gross margin as a percentage of revenue in the six months ended December 24, 2023 compared to the same period in the prior year was primarily due to favorable customer mix as well as reduced spending on material costs, partially offset by increased costs associated with restructuring-related activities.

Research and Development

Three Months Ended

September 24,

2023 June 25,

Three Months Ended Six Months Ended

2023 September 24,

2023 December 24,

2023 December 25,

(in thousands, except percentages)

1 unchanged sentence

Percent of revenue 12.5 % 12.1 % 12.3 % 8.7 %

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

The increase in R&D expense in the September 2023 quarter compared to the June 2023 quarter was primarily driven by increases in supplies and employee-related costs, partially offset by a decrease in deferred compensation plan-related costs.

The decrease in R&D expense in the three months ended September 24, 2023 compared to the same period in the prior year was primarily driven by a decrease in outside service spending and lower employee-related costs.

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

The increase in R&D expense in the December 2023 quarter compared to the September 2023 quarter was primarily driven by increases in deferred compensation plan-related costs, employee-related costs, and supplies expense.

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R&D expense in the six months ended December 24, 2023 was flat to the same period in the prior year, as increase in deferred compensation plan-related costs were largely offset by decreases in spending for outside services.

Selling, General, and Administrative

Three Months Ended

September 24,

2023 June 25,

Three Months Ended Six Months Ended

2023 September 24,

2023 December 24,

2023 December 25,

(in thousands, except percentages)

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Percent of revenue 6.1 % 5.9 % 6.0 % 4.2 %

SG&A expense during the September 2023 qua rter increased in comparison to the June 2023 qua rter, primarily driven by an increase in employee-related costs.

SG&A expense during the three months ended September 24, 2023 is flat to the same period in the prior year.

SG&A expense during the December 2023 qua rter increased in comparison to the September 2023 qua rter, primar ily driven by increases in deferred compensation plan-related and transformational costs, as well as increased spending for outside services.

SG&A expense during the six months ended December 24, 2023 was flat to the same period in the prior year, as increases in transformational and deferred compensation-related costs were largely offset by decreases in spending for supplies and outside services.

Restructuring Charges, Net

Three Months Ended

September 24,

2023 June 25,

Three Months Ended Six Months Ended

2023 September 24,

2023 December 24,

2023 December 25,

(in thousands, except percentages)

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

The restructuring charges in the September 2023 quarter decreased compared to the June 2023 quarter, due to the timing of employee separation activities.

No restructuring charges were recognized during the three months ending September 25, 2022.

During the three months ended September 24, 2023 net restructuring costs of $7.9 million and $2.0 million were recorded in restructuring charges, net - cost of goods sold, and restructuring charges, net - operating expenses, respectively in our Condensed Consolidated Financial Statements, included in Part I of this Form 10-Q.

The restructuring charges in the December 2023 quarter increased compared to the September 2023 quarter, due primarily to increases in facility-related restructuring charges.

During the six months ended December 24, 2023, net restructuring costs of $22.9 million and $3.7 million were recorded in restructuring charges, net - cost of goods sold, and restructuring charges, net - operating expenses, respectively in our Condensed Consolidated Financial Statements, included in Part I of this Form 10-Q.

Please refer to Note 15, “Restructuring charges, net,” to our Condensed Consolidated Financial Statements, included in Part I of this Form 10-Q for additional information.

No restructuring charges were recognized during the six months ended December 25, 2022.

Other Income (Expense), Net

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

Three Months Ended

September 24,

2023 June 25,

Three Months Ended Six Months Ended

2023 September 24,

2023 December 24,

2023 December 25,

(in thousands)

1 unchanged sentence

Interest expense (46,313) (45,331) (91,644) (92,713)

(Losses) gains on deferred compensation plan-related assets, net (2,901) 16,598 (12,726)

Foreign exchange gains (losses), net 1,269 1,734 6,821

Gains (losses) on deferred compensation plan-related assets, net 25,530 (2,901) 22,629 (1,855)

Foreign exchange (losses) gains, net (568) 1,269 701 (3,293)

Other, net (6,405) (7,000) (13,405) (14,649)

$ 29,839 $ 2,601 $ 32,440 $ (71,329)

Interest income increased in the September 2023 quarter as compared to the June 2023 quarter, primarily due to higher average yields partially offset by lower average cash balances.

Interest income increased for the three months ended September 24, 2023, compared to the same period in 2022, because of higher average yields and higher average cash balances.

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Interest income for the three months ended December 24, 2023 is consistent with interest income for the three months ended September 24, 2023.

Interest income increased for the six months ended December 24, 2023, compared to the same period in 2022, primarily because of higher yields and higher cash balances.

Interest expense is consistent across all periods presented.

The gains and 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.

Lam Research Corporation 2024 Q1 10-Q 21

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 September 2023 quarter were lower compared to the June 2023 quarter, primarily driven by fluctuations in the fair market value of equity investments.

The losses in other, net for the three months ended September 24, 2023, were flat compared to same period in 2022.

The losses in other, net for the three months and six months ended December 24, 2023 were lower compared to the three months ended September 24, 2023 and six months ended December 25, 2022, respectively, primarily 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

September 24,

2023 June 25,

Three Months Ended Six Months Ended

2023 September 24,

2023 December 24,

2023 December 25,

(in thousands, except percentages)

1 unchanged sentence

Effective tax rate 12.2 % 13.5 % 12.8 % 12.5 %

The increase in the effective tax rate for the September 2023 quarter compared to the June 2023 quarter was primarily due to the change in level and proportion of income in higher and lower tax jurisdictions, and the recognition of previously unrecognized tax benefits from lapses of statutes of limitation in the June 2023 quarter.

The effective tax rate for the September 2023 quarter compared to the same period in the prior year remained consistent.

The decrease in the effective tax rate for the December 2023 quarter compared to the September 2023 quarter was primarily due to the change in level and proportion of income in higher and lower tax jurisdictions, and the recognition of previously unrecognized tax benefits from lapses of statutes of limitation in the December 2023 quarter.

The effective tax rate for the six months ended December 24, 2023, compared to the same period in the prior year remained consistent.

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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• the valuation of inventory, which impacts gross margin;

Lam Research Corporation 2024 Q2 10-Q 22

• 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;

1 unchanged sentence

Refer to our “Critical Accounting Policies and Estimates” included in Part II, Item 7 of our 2023 Form 10-K for a discussion of the critical accounting estimates identified above.

Lam Research Corporation 2024 Q1 10-Q 22

Recent Accounting Pronouncements

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LIQUIDITY AND CAPITAL RESOURCES

Total gross cash, cash equivalents, investments, and restricted cash and investments balances were $5.2 billion at September 24, 2023 compared to $5.6 billion as of June 25, 2023.

This decrease was primarily driven by $843.2 million of share repurchases, including net share settlement on employee stock-based compensation;

$253.1 million of repayment of debt largely associated with the purchase of certain properties under finance leases;

and $230.3 million in dividends paid;

partially offset by $951.2 million of cash generated from operating activities.

Net cash provided by operating activities of $951.2 million during the three months ended September 24, 2023, consisted of (in thousands):

Total gross cash, cash equivalents, investments, and restricted cash and investments balances were $5.6 billion at December 24, 2023, flat to June 25, 2023.

Cash generated from operating activities totaling $2,405.0 million was offset by $1,488.7 million of share repurchases, including net share settlement on employee stock-based compensation;

$494.7 million in dividends paid;

and $254.1 million of repayment of debt largely associated with the purchase of certain properties under finance leases.

Net cash provided by operating activities of $2,405.0 million during the six months ended December 24, 2023, consisted of (in thousands):

Net income $ 1,841,664

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Changes in operating asset and liability accounts 353,760

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

decreases in deferred profit of $100.1 million, and accrued expenses and other liabilities of $39.8 million, along with an increase in prepaid expenses and other current assets of 43.8 million.

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

increase in accounts payable of $53.5 million along with decreases in inventory of $51.7 million and accounts receivable of $9.0 million.

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

decreases in inventory of $350.2 million and accounts receivable of $114.6 million and increases in deferred gross profit of $97.7 million, and trade accounts payable of $14.5 million.

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

a decrease in accrued expenses and other liabilities of $189.8 million and an increase in prepaid expenses and other current assets of $33.4 million.

Cash Flow from Investing Activities

Net cash used for investing activities during the three months ended September 24, 2023, was $74.7 million, primarily consisting of $77.0 million in capital expenditures, partially offset by proceeds from maturities of available-for-sale securities of $7.3 million.

Net cash used for investing activities during the six months ended December 24, 2023, was $176.6 million, primarily consisting of $192.3 million in capital expenditures, partially offset by proceeds from maturities of available-for-sale securities of $23.1 million.

Cash Flow from Financing Activities

Net cash used for financing activities during the three months ended September 24, 2023, was $1.3 billion, primarily consisting of $843.2 million in treasury stock repurchases, including net share settlement on employee stock-based compensation, $253.1 million of repayment of debt, largely associated with the purchase of certain properties under finance leases, and $230.3 million in dividends paid.

Net cash used for financing activities during the six months ended December 24, 2023, was $2.2 billion, primarily consisting of $1,488.7 million in treasury stock repurchases, including net share settlement on employee stock-based compensation, $494.7 million in dividends paid, and $254.1 million of repayment of debt, largely associated with the purchase of certain properties under finance leases.

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 24, 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.

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 24, 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.

Lam Research Corporation 2024 Q2 10-Q 23

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.

2 unchanged sentences

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.

Lam Research Corporation 2024 Q1 10-Q 23

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