What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-28 compared with 2024-04-29 · 94 added, 105 removed, 164 unchanged (55% of the section changed)

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trends and opportunities in the global economic environment;

trends and opportunities in the semiconductor industry, including in the end markets and applications for semiconductors, and in device complexity;

trends and opportunities in the semiconductor industry, including in the end markets and applications for semiconductors, in device complexity, and in the complexity of device manufacturing;

growth or decline in the industry and the market for, and spending on, wafer fabrication equipment;

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customer and end user requirements and our ability to satisfy those requirements;

the performance and benefits of our products and services;

customer spending and demand for our products and services, and the reliability of indicators of change in customer spending and demand;

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our research and development programs;

our ability to create sustainable differentiation;

the opportunities in our industry for, and our ability to create sustainable differentiation;

technology inflections in the industry and our ability to identify those inflections and to invest in research and development programs to meet them;

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our ability to manage and grow our cash position;

our strategic relevance with our customers;

our ability to scale our operations to respond to changes in our business;

our goals and initiatives with respect to environmental, social and governance matters, including emissions, and human capital, including inclusion and diversity;

the value of our patents;

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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 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 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 30, 2024 (our “2024 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 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.

For a full understanding of our financial position and results of operations for the three months ended September 29, 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 2024 Form 10-K.

Lam Research Corporation 2025 Q1 10-Q 15

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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.

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.

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

In calendar year 2024, we anticipate higher wafer fabrication equipment spending, driven by an increase in both memory and non-memory market segments versus calendar year 2023.

In the short term, volatility in the semiconductor demand environment, as well as other risks and uncertainties, may 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.

On May 21, 2024, the Company announced a ten-for-one stock split which was effective October 2, 2024.

All references made to share or per share amounts throughout this Form 10-Q, including those presented in the Management’s Discussion and Analysis of Financial Condition and Results of Operations, have been retroactively adjusted to reflect the stock split.

Lam Research Corporation 2025 Q1 10-Q 16

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Three Months Ended

2024 December 24,

September 29,

2024 June 30,

(in thousands, except per share data and percentages)

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Diluted net income per share $ 0.86 $ 0.78

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.

In the September 2024 quarter, revenue increased 8% compared to the three months ended June 30, 2024 (the “June 2024 quarter”), driven by increases in systems revenue as a result of strengthened investments in the dynamic random access memory (“DRAM”) market segment as well as increases in customer support-related revenue.

The deferred revenue balance was $2,047.0 million at the end of the September 2024 quarter, an increase relative to the balance at the end of the June 2024 quarter of $1,551.6 million, mainly due to an increase in customer 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 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.

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 increase in gross margin as a percentage of revenue in the September 2024 quarter compared to the June 2024 quarter was primarily a result of improved factory efficiencies, partially offset by increased incentive compensation expense.

The increase in operating expenses in the September 2024 quarter compared to the June 2024 quarter was driven by higher headcount and incentive compensation expense, as well as increases in outside services spend, partially offset by lower spending for supplies.

Our cash, cash equivalents, and restricted cash balances increased to $6.1 billion at the end of the September 2024 quarter compared to $5.9 billion at the end of the June 2024 quarter.

This increase was primarily the result of $1,568.5 million of cash generated from operating activities, partially offset by $997.0 million of share repurchases, including net share settlement of employee stock-based compensation;

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and $110.6 million of capital expenditures.

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

Employee headcount as of September 29, 2024 was approximately 17,700.

RESULTS OF OPERATIONS

Three Months Ended Nine Months Ended

2024 December 24,

2023 March 31,

2024 March 26,

Three Months Ended

September 29,

2024 June 30,

2024 September 24,

Revenue (in millions) $ 4,168 $ 3,872 $ 3,482

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Korea 18 % 18 % 16 %

Japan 9 % 14 % 11 % 10 %

Taiwan 15 % 15 % 7 %

United States 12 % 10 % 8 %

Japan 7 % 7 % 9 %

Southeast Asia 6 % 8 % 5 %

Europe 5 % 3 % 7 %

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.

The increase in revenue for the September 2024 quarter compared to the same period in 2023 is primarily due to increases in Foundry and DRAM spending by our customers, partially offset by decreases in non-volatile memory spending during this period.

Lam Research Corporation 2025 Q1 10-Q 17

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,

Three Months Ended

September 29,

2024 June 30,

2024 September 24,

(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 Nine Months Ended

2024 December 24,

2023 March 31,

2024 March 26,

Three Months Ended

September 29,

2024 June 30,

2024 September 24,

Memory 35 % 36 % 38 %

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Logic/integrated device manufacturing 24 % 21 % 26 %

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,

The decrease in the memory market segment for the September 2024 quarter compared to the June 2024 quarter is primarily attributable to decreases in non-volatile memory spending, partially offset by increased investments in DRAM.

Additionally, the Logic market segment saw strengthened investments as compared to the June 2024 quarter.

Three Months Ended

September 29,

2024 June 30,

2024 September 24,

(in thousands, except percentages)

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Percent of revenue 48.0 % 47.5 % 47.5 %

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.

Gross margin as a percentage of re venue was higher in the September 2024 quarter compared to the June 2024 quarter primarily as a result of improved factory efficiencies, partially offset by increased incentive compensation expense.

The increase in gross margin as a percentage of revenue in the three months ended September 29, 2024 compared to the same period in the prior year was primarily due to improved factory efficiencies and reduced spending on material costs, offset by unfavorable changes in customer and product mix, increased transformational charges, and increased employee-related expenses.

Research and Development

Three Months Ended Nine Months Ended

2024 December 24,

2023 March 31,

2024 March 26,

Three Months Ended

September 29,

2024 June 30,

2024 September 24,

(in thousands, except percentages)

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Percent of revenue 11.9 % 12.9 % 12.1 %

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.

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

Th e decrease in R&D expense in the September 2024 quarter compared to the June 2024 quarter was primarily driven by a decrease in supplies spending, partially offset by increased headcount and incentive compensation expense, as well as higher elective deferred compensation plan-related costs.

R&D expense in the three months ended September 29, 2024 increased compared to the same period in the prior year, driven by increases in headcount and incentive compensation expense, elective deferred compensation plan-related costs, as well as higher spending on outside services.

Lam Research Corporation 2025 Q1 10-Q 18

Selling, General, and Administrative

Three Months Ended Nine Months Ended

2024 December 24,

2023 March 31,

2024 March 26,

Three Months Ended

September 29,

2024 June 30,

2024 September 24,

(in thousands, except percentages)

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Percent of revenue 5.8 % 5.6 % 5.9 %

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 Nine Months Ended

2024 December 24,

2023 March 31,

2024 March 26,

SG&A expense during the September 2024 quarter increased in comparison to the June 2024 quarter, primarily driven by increases in headcount and incentive compensation expense.

SG&A expense during the three months ended September 29, 2024 increased compared to the same period in the prior year, driven by higher spending for transformational activities, as well as increases in headcount and incentive compensation expense.

Restructuring Charges, N et

Three Months Ended

September 29,

2024 June 30,

2024 September 24,

(in thousands, except percentages)

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Percent of revenue — % 0.1 % 0.3 %

During 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.

In fiscal year 2023, we initiated a restructuring plan that continued into fiscal year 2024, designed to better align our cost structure with our outlook for the economic environment and business opportunities.

Under the plan we terminated approximately 1,760 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.

Employee severance and separation costs were primarily related 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.

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.

The restructuring plan was substantially completed as of June 30, 2024.

Please refer to Note 14, “Restructuring charges, net,” to our Condensed Consolidated Financial Statements, included in Part I of this Form 10-Q for additional information.

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

Three Months Ended Nine Months Ended

2024 December 24,

2023 March 31,

2024 March 26,

Three Months Ended

September 29,

2024 June 30,

2024 September 24,

(in thousands)

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Interest expense (44,946) (46,439) (45,331)

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)

Gains (losses) on deferred compensation plan-related assets, net 17,420 9,643 (2,901)

Foreign exchange (losses) gains, net (9,686) (1,194) 1,269

Other, net (1,156) (241) (7,000)

$ 30,081 $ 27,796 $ 2,601

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.

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.

Interest income increased in the September 2024 quarter as compared to the June 2024 quarter, primarily due to higher cash balances.

Interest income increased for the three months ended September 29, 2024, compared to the same period in 2023, because of higher yields and higher cash balances.

Interest expense was flat for 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.

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 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.

Lam Research Corporation 2025 Q1 10-Q 19

The variations in other, net for the September 2024 quarter compared to the June 2024 quarter and September 2023 quarter were 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 Nine Months Ended

2024 December 24,

2023 March 31,

2024 March 26,

Three Months Ended

September 29,

2024 June 30,

2024 September 24,

(in thousands, except percentages)

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Effective tax rate 13.7 % 11.6 % 13.5 %

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.

The increase in the effective tax rate for the September 2024 quarter compared to the June 2024 quarter was primarily due to the change in level and proportion of income in higher and lower tax jurisdictions.

The effective tax rate for the September quarter 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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Please refer to Note 7, “Income Taxes,” to our Consolidated Financial Statements in Part II, Item 8 of our 2024 Form 10-K for additional information.

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

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

The IRA includes a new 15% corporate minimum tax.

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.

We re-evaluate uncertain tax positions on a quarterly basis.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

A critical accounting policy is defined as one that has both a material impact on our financial condition and results of operations and requires us to make difficult, complex and/or subjective judgments, often as a result of the need to make estimates about matters that are inherently uncertain.

The preparation of financial statements in conformity with U.S.

generally accepted accounting principles (“GAAP”) requires management to make certain judgments, estimates and assumptions that could affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

We base our estimates and assumptions on historical experience and on various other assumptions we believe to be applicable and evaluate them on an ongoing basis to ensure they remain reasonable under current conditions.

Actual results could differ significantly from those estimates, which could have a material impact on our business, results of operations, and financial condition.

Our critical accounting estimates include:

• the recognition and valuation of revenue from arrangements with multiple performance obligations which impacts revenue;

• the valuation of inventory, which impacts gross margin;

• 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;

• 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.

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.

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Our critical accounting policies and estimates are unchanged from those disclosed in “Critical Accounting Policies and Estimates” in Part II, Item 7 of our 2024 Form 10-K.

Recent Accounting Pronouncements

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LIQUIDITY AND CAPITAL RESOURCES

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

Total gross cash, cash equivalents, and restricted cash balances were $6.1 billion at September 29, 2024 compared to $5.9 billion as of June 30, 2024.

This slight increase was primarily driven by cash generated from operating activities totaling $1,568.5 million, partially offset by $997.0 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 $3,789.8 million during the nine months ended March 31, 2024, consisted of (in thousands):

$261.0 million in dividends paid;

and $110.6 million in capital expenditures.

Net cash provided by operating activities of $1,568.5 million during the three months ended September 29, 2024, consisted of (in thousands):

Net income $ 1,116,444

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

an increase in deferred gross profit of $519.5 million, an increase in accrued expenses and other liabilities of $240.4 million and an increase in trade accounts payable of $82.6 million.

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

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.

increases in accounts receivable of $414.1 million, inventory of $23.8 million, and prepaid expenses and other current assets of $17.8 million.

Lam Research Corporation 2025 Q1 10-Q 20

Cash Flow from Investing Activities

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.

Net cash used for investing activities during the three months ended September 29, 2024, was $110.6 million, primarily consisting of capital expenditures.

Cash Flow from Financing Activities

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.

Net cash used for financing activities during the three months ended September 29, 2024, was $1,259.3 million, primarily consisting of $997.0 million in treasury stock repurchases, including net share settlement on employee stock-based compensation, and $261.0 million in dividends paid.

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 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.

Anticipated cash flows from operations based on our current business outlook, combined with our current levels of cash and cash equivalents as of September 29, 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.

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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

Quantitative and Qualitative Disclosures About Market Risk

For financial market risks related to changes in interest rates and foreign currency exchange rates, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk”, in our 2024 Form 10-K.

Our exposure related to market risk has not changed materially since June 30, 2024.

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