What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-29 compared with 2024-01-29 · 73 added, 79 removed, 196 unchanged (44% of the section changed)

46 unchanged sentences

the probability of making payments under our guarantees;

the impact of the COVID-19 pandemic;

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”), our quarterly report on Form 10-Q for the fiscal quarter ended September 24, 2023, 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 25, 2023 (our “2023 Form 10-K”), our quarterly reports on Form 10-Q for the fiscal quarters ended September 24, 2023 and December 24, 2023, 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 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 nine months ended March 31, 2024, 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 Q3 10-Q 18

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

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

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

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

Several factors create opportunity for sustainable differentiation for us:

Several factors create opportunities for sustainable differentiation for us:

(i) our focus on research and development, with several on-going programs relating to sustaining engineering, product and process development, and concept and feasibility;

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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 2023 customer demand weakened due to wafer fabrication equipment spending reductions resulting primarily from weakness in the memory market.

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.

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 $7.3 million in the first half of fiscal year 2024.

In calendar year 2024, we anticipate higher wafer fabrication equipment spending, driven primarily by an increase in memory and non-memory market segments.

In calendar year 2023, customer demand weakened due to wafer fabrication equipment spending reductions resulting primarily from weakness in the memory market.

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 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.

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Three Months Ended

2023 September 24,

2024 December 24,

(in thousands, except per share data and percentages)

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Diluted net income per share $ 7.34 $ 7.22

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.

In the March 2024 quarter, revenue increased 1% compared to the three months ended December 24, 2023 (the “December 2023 quarter”), primarily driven by an increase in revenue generated in our China region.

The deferred revenue balance was $1,745.8 million at the end of the March 2024 quarter, a decrease relative to the balance at the end of the December 2023 quarter of $1,928.0 million, mainly due to a decrease 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 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.

The increase in gross margin as a percentage of revenue in the March 2024 quarter compared to the December 2023 quarter was primarily a result of favorable changes in product and customer mix, as well as improved factory efficiencies, partially offset by increased transformational charges and costs associated with the impairment of long-lived assets.

The increase in operating expenses in the March 2024 quarter compared to the December 2023 quarter was driven by increases in employee-related costs as a result of the extra week in the March 2024 quarter and seasonality, partially offset by reduced spending on transformational activities.

Our cash and cash equivalents, investments, and restricted cash and investments balances increased slightly to $5.7 billion at the end of the March 2024 quarter compared to $5.6 billion at the end of the December 2023 quarter.

This increase was primarily the result of $1,384.8 million of cash generated from operating activities, partially offset by $980.6 million of share repurchases, including net share settlement of employee stock-based compensation;

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and $103.7 million of capital expenditures.

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

Employee headcount as of March 31, 2024 was approximately 17,200.

RESULTS OF OPERATIONS

Three Months Ended Six Months Ended

2023 September 24,

2023 December 24,

Three Months Ended Nine Months Ended

2024 December 24,

2023 March 31,

2024 March 26,

Revenue (in millions) $ 3,794 $ 3,758 $ 11,034 $ 14,221

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United States 6 % 5 % 7 % 9 %

Europe 5 % 7 % 6 % 6 %

Southeast Asia 5 % 4 % 4 % 9 %

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.

Europe 5 % 5 % 5 % 6 %

The decrease in revenue for the nine months ended March 31, 2024 as compared to the same period in 2023 is primarily due to decreases in NAND as well as Foundry and Logic spending by our customers, partially offset by increases in dynamic random-access memory (“DRAM”) spending during this period.

Lam Research Corporation 2024 Q3 10-Q 20

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

Three Months Ended Six Months Ended

2023 September 24,

2023 December 24,

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

Three Months Ended Nine Months Ended

2024 December 24,

2023 March 31,

2024 March 26,

(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 Six Months Ended

2023 September 24,

2023 December 24,

Three Months Ended Nine Months Ended

2024 December 24,

2023 March 31,

2024 March 26,

Memory 44 % 48 % 44 % 46 %

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Logic/integrated device manufacturing 12 % 14 % 17 % 18 %

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,

The decrease in the memory market segment for the March 2024 quarter compared to the December 2023 quarter is primarily attributable to DRAM spending.

This is partially offset by increases in the Foundry market segment predominantly related to spending by our domestic China customers in the same period.

Three Months Ended Nine Months Ended

2024 December 24,

2023 March 31,

2024 March 26,

(in thousands, except percentages)

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Percent of revenue 47.5 % 46.8 % 47.2 % 44.4 %

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.

Gross margin as a percentage of revenue was higher in the March 2024 quarter compared to the December 2023 quarter primarily as a result of favorable changes in product and customer mix, as well as improved factory efficiencies, partially offset by increased transformational charges and costs associated with the impairment of long-lived assets.

The increase in gross margin as a percentage of revenue in the nine months ended March 31, 2024 compared to the same period in the prior year was primarily due to favorable customer mix and reduced spending on material costs.

Research and Development

Three Months Ended Six Months Ended

2023 September 24,

2023 December 24,

Three Months Ended Nine Months Ended

2024 December 24,

2023 March 31,

2024 March 26,

(in thousands, except percentages)

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Percent of revenue 13.5 % 12.5 % 12.7 % 9.3 %

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.

We co ntinued to make significant R&D investments in the March 2024 quarter focused on leading-edge deposition, etch, clean and other semiconductor manufactu ring processes.

Th e increase in R&D expense in the March 2024 quarter compared to the December 2023 quarter was primarily driven by increases in employee-related costs as a result of seasonality and the extra week in the quarter, as well as increased spending on transformational activities.

R&D expense in the nine months ended March 31, 2024 increased compared to the same period in the prior year, driven by increases in employee-related costs, deferred compensation plan-related costs and depreciation, as well as higher spending on supplies.

Lam Research Corporation 2024 Q3 10-Q 21

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 Six Months Ended

2023 September 24,

2023 December 24,

Three Months Ended Nine Months Ended

2024 December 24,

2023 March 31,

2024 March 26,

(in thousands, except percentages)

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Percent of revenue 5.7 % 6.1 % 5.9 % 4.5 %

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.

SG&A expense during the March 2024 qua rter decreased in comparison to the December 2023 qua rter, primar ily driven by decreases in transformational costs.

SG&A expense during the nine months ended March 31, 2024 increased compared to the same period in the prior year, driven by increases in transformational and deferred compensation-related costs, partially offset by decreases in spending for outside services and supplies.

Restructuring Charges, Net

Three Months Ended Six Months Ended

2023 September 24,

2023 December 24,

Three Months Ended Nine Months Ended

2024 December 24,

2023 March 31,

2024 March 26,

(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 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.

Restructuring charges in the March 2024 quarter increased compared to the December 2023 quarter, due primarily to employee severance and separation costs associated with workforce reduction activities during the March 2024 quarter.

Restructuring charges decreased during the nine months ended March 31, 2024 compared to the same period in the prior year due primarily to lower employee severance and separation costs.

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 Six Months Ended

2023 September 24,

2023 December 24,

Three Months Ended Nine Months Ended

2024 December 24,

2023 March 31,

2024 March 26,

(in thousands)

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Interest expense (47,153) (46,313) (138,797) (139,930)

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)

Gains on deferred compensation plan-related assets, net 26,495 25,530 49,124 3,588

Foreign exchange losses, net (4,344) (568) (3,643) (8,812)

Other, net (10,677) (6,405) (24,082) (12,661)

$ 36,073 $ 29,839 $ 68,513 $ (74,660)

Lam Research Corporation 2024 Q2 10-Q 21

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 income increased for the three and nine months ended March 31, 2024 compared to the three months ended December 24, 2023, and nine months ended March 26, 2023, respectively, primarily due to higher yields and higher average 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 Q3 10-Q 22

The gains 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 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.

The losses in other, net for the three and nine months ended March 31, 2024 increased compared to the three months ended December 24, 2023 and nine months ended March 26, 2023, 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 Six Months Ended

2023 September 24,

2023 December 24,

Three Months Ended Nine Months Ended

2024 December 24,

2023 March 31,

2024 March 26,

(in thousands, except percentages)

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Effective tax rate 11.7 % 12.2 % 12.4 % 12.7 %

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.

The decrease in the effective tax rate for the March 2024 quarter compared to the December 2023 quarter and for the nine months ended March 31, 2024 compared to the same period in the prior year was primarily due to the change in level and proportion of income in higher and lower tax jurisdictions and higher stock-based compensation excess tax benefits.

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;

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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 Q3 10-Q 23

Recent Accounting Pronouncements

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LIQUIDITY AND CAPITAL RESOURCES

Total gross cash, cash equivalents, investments, and restricted cash and investments balances were $5.6 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;

Total gross cash, cash equivalents, investments, and restricted cash and investments balances were $5.7 billion at March 31, 2024 compared to $5.6 billion as of June 25, 2023.

This slight increase was primarily driven by cash generated from operating activities totaling $3,789.8 million, partially offset by $2,469.3 million of share repurchases, including net share settlement on employee stock-based compensation;

$757.5 million in dividends paid, $295.9 million in capital expenditures;

and $255.2 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 cash provided by operating activities of $3,789.8 million during the nine months ended March 31, 2024, consisted of (in thousands):

Net income $ 2,807,490

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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.

decreases in accounts receivable of $614.5 million and inventory of $439.4 million, and an increase in trade accounts payable of $55.9 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.

a decrease in accrued expenses and other liabilities of $354.3 million, a decrease in deferred gross profit of $93.5 million, and an increase in prepaid expenses and other current assets of $41.6 million.

Cash Flow from Investing Activities

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.

Net cash used for investing activities during the nine months ended March 31, 2024, was $269.0 million, primarily consisting of $295.9 million in capital expenditures, partially offset by proceeds from net maturities of available-for-sale securities of $37.8 million.

Cash Flow from Financing Activities

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.

Net cash used for financing activities during the nine months ended March 31, 2024, was $3,421.7 million, primarily consisting of $2,469.3 million in treasury stock repurchases, including net share settlement on employee stock-based compensation, $757.5 million in dividends paid, and $255.2 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 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.

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 31, 2024, 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.

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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 Q3 10-Q 24

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