Item 2. Management’s Discussion and Analysis
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
With the exception of historical facts, the statements contained in this discussion are forward-looking statements, which are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Certain, but not all, of the forward-looking statements in this report are specifically identified as forward-looking, by use of phrases and words such as “believe,” “estimated,” “anticipate,” “expect,” “probable,” “intend,” “plan,” “aim,” “may,” “should,” “could,” “would,” “will,” “continue,” and other future-oriented terms. The identification of certain statements as “forward-looking” does not mean that other statements not specifically identified are not forward-looking. Forward-looking statements include, but are not limited to, statements that relate to: trends and opportunities in the global economic environment; 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; the anticipated levels of, and rates of change in, margins, market share, served available market, capital expenditures, research and development expenditures, international sales, revenue (actual and/or deferred), operating expenses and earnings generally; management’s plans and objectives for our current and future operations and business focus; restructuring activities; business process improvements and initiatives; volatility in our quarterly results; the makeup of our customer base; 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; the effect of variability in our customers’ business plans or demand for our products and services; our competition, and our ability to defend our market share and to gain new market share; the success of joint development and collaboration relationships with customers, suppliers, or others; outsourced activities; our supply chain and the role of suppliers in our business, including the impacts of supply chain constraints and material costs; our leadership and competency, and our ability to facilitate innovation; our research and development programs; 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; our ability to deliver multi-product solutions; the resources invested to comply with evolving standards and the impact of such efforts; changes in state, federal and international tax laws, our estimated annual tax rate and the factors that affect our tax rates; legal and regulatory compliance; the estimates we make, and the accruals we record, in order to implement our critical accounting policies (including, but not limited to, the adequacy of prior tax payments, future tax benefits or liabilities, and the adequacy of our accruals relating to them); hedging transactions; debt or financing arrangements; our investment portfolio; our access to capital markets; uses of, payments of, and impact of interest rate fluctuations on, our debt; our intention to pay quarterly dividends and the amounts thereof, if any; our ability and intention to repurchase our shares; credit risks; controls and procedures; recognition or amortization of expenses; our ability to manage and grow our cash position; 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, the value of our patents; the materiality of potential losses arising from legal proceedings; the probability of making payments under our guarantees; 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 30, 2024 (our “2024 Form 10-K”), our quarterly reports on Form 10-Q for the fiscal quarters ended September 29, 2024 and December 29, 2024, 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. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on information currently and reasonably known to us. We do not undertake any obligation to release the results of any revisions to these forward-looking statements, which may be made to reflect events or circumstances that occur after the date of this report or to reflect the occurrence or effect of anticipated or unanticipated events.
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 30, 2025, 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.
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EXECUTIVE SUMMARY
Lam Research Corporation is a global supplier of innovative wafer fabrication equipment and services to the semiconductor industry. We have built a strong global presence with core competencies in areas like nanoscale applications enablement, chemistry, plasma and fluidics, advanced systems engineering, and a broad range of operational disciplines. Our products and services are designed to help our customers build smaller and better performing devices that are used in a variety of electronic products, including mobile phones, personal computers, servers, wearables, automotive vehicles, and data storage devices.
Our customer base includes leading semiconductor memory, foundry, and integrated device manufacturers that make products such as non-volatile memory, dynamic random-access memory, and logic devices. Their continued success is part of our commitment to driving semiconductor breakthroughs that define the next generation. Our core technical competency is integrating hardware, process, materials, software, and process control, enabling results on the wafer.
Semiconductor manufacturing, our customers’ business, involves the complete fabrication of multiple dies or integrated circuits on a wafer. This involves the repetition of a set of core processes and can require hundreds of individual steps. Fabricating these devices requires highly sophisticated process technologies to integrate an increasing array of new materials with precise control at the atomic scale. Along with meeting technical requirements, wafer processing equipment must deliver high productivity and be cost-effective.
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. 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 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 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; (ii) our ability to effectively leverage cycles of learning from our broad installed base; (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; 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 fiscal year 2025, we anticipate strong wafer fabrication equipment spending levels driven by an increase in both the memory and non-memory market segments. In the short term, volatility in the semiconductor industry environment from trade restrictions, tariffs, as well as other direct and indirect risks and uncertainties, have, and in the future 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 October 2, 2024, the Company effected a ten-for-one stock split of its common stock and a proportional increase in the number of authorized shares. 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.
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The following table summarizes certain key financial information for the periods indicated below:
Three Months Ended
March 30,
2025 December 29,
2024
(in thousands, except per share data and percentages)
Revenue $ 4,720,175 $ 4,376,047
Gross margin $ 2,313,686 $ 2,072,981
Gross margin as a percent of total revenue 49.0 % 47.4 %
Total operating expenses $ 751,927 $ 739,097
Net income $ 1,330,667 $ 1,191,018
Diluted net income per share $ 1.03 $ 0.92
In the March 2025 quarter, revenu e increased 8% compared to the three months ended December 29, 2024 (the “December 2024 quarter”), driven by an increase in systems revenue as a result of strengthened investments in the Foundry market segment. T he deferred revenue balance was $2,010.9 million at the end of the March 2025 quarter, a slight decrease relative to the balance at the end of the December 2024 quarter of $2,031.6 million.
We aim to balance the requirements of our customers with the availability of resources, as well as performance to our operational and financial objectives. As a result, from time to time, we exercise discretion and judgment as to the timing and prioritization of manufacturing and deliveries of products, which has impacted, including in the current fiscal year, and may in the future impact, the timing of revenue recognition with respect to such products.
The increase in gross margin as a percentage of revenue in the March 2025 quarter compared to the December 2024 quarter was primarily a result of favorable changes in customer and product mix. The increase in operating expenses in the March 2025 quarter compared to the December 2024 quarter was driven by an increase in employee-related costs as a result of seasonality and higher headcount, as well as increased supplies expense, offset by lower elective deferred compensation plan-related costs.
Our cash, cash equivalents, and restricted cash balances decreased to $5.5 billion at the end of the March 2025 quarter compared to $5.7 billion at the end of the December 2024 quarter. This decrease was primarily the result of $504.0 million of principal payments on debt instruments and debt issuance costs; $435.3 million of share repurchases, including net share settlement of employee stock-based compensation and excise tax; $295.7 million of dividends paid to stockholders; and $288.1 million of capital expenditures; partially offset by $1,308.7 million of cash generated from operating activities. Employee headcount as of March 30, 2025 was approximately 18,600.
RESULTS OF OPERATIONS
Revenue
Three Months Ended Nine Months Ended
March 30,
2025 December 29,
2024 March 30,
2025 March 31,
2024
Revenue (in millions) $ 4,720 $ 4,376 $ 13,264 $ 11,034
China 31 % 31 % 33 % 43 %
Korea 24 % 25 % 23 % 20 %
Taiwan 24 % 17 % 19 % 10 %
Japan 10 % 8 % 9 % 11 %
United States 4 % 9 % 8 % 7 %
Southeast Asia 4 % 7 % 4 % 4 %
Europe 3 % 3 % 4 % 5 %
The increase in revenue for the nine months ended March 30, 2025 compared to the same period in 2024 was due to increases in equipment spending by our customers across all market segments as well as higher customer support-related revenue.
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The following table presents our revenue disaggregated between systems and customer support-related revenue:
Three Months Ended Nine Months Ended
March 30,
2025 December 29,
2024 March 30,
2025 March 31,
2024
(In thousands)
Systems revenue $ 3,035,276 $ 2,625,649 $ 8,053,655 $ 6,751,758
Customer support-related revenue and other 1,684,899 1,750,398 5,210,543 4,282,121
$ 4,720,175 $ 4,376,047 $ 13,264,198 $ 11,033,879
Please refer to Note 3, “Revenue,” to the Condensed Consolidated Financial Statements of this Form 10-Q for additional information regarding the composition of the two categories into which revenue has been disaggregated.
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
March 30,
2025 December 29,
2024 March 30,
2025 March 31,
2024
Memory 43 % 50 % 43 % 44 %
Foundry 48 % 35 % 42 % 39 %
Logic/integrated device manufacturing 9 % 15 % 15 % 17 %
The decrease in the memory market segment for the March 2025 quarter compared to the December 2024 quarter was primarily attributable to a decrease in non-volatile memory. There was also a decrease in Logic spending by our customers in the quarter. These decreases were offset by increased Foundry spending for both leading and mature node investments.
Gross Margin
Three Months Ended Nine Months Ended
March 30,
2025 December 29,
2024 March 30,
2025 March 31,
2024
(in thousands, except percentages)
Gross margin $ 2,313,686 $ 2,072,981 $ 6,389,350 $ 5,212,693
Percent of revenue 49.0 % 47.4 % 48.2 % 47.2 %
Gross margin as a percentage of re venue was higher in the March 2025 quarter compared to the December 2024 quarter mainly as a result of favorable customer and product mix.
The increase in gross margin as a percentage of revenue in the nine months ended March 30, 2025 compared to the same period in the prior year was primarily due to improved factory efficiencies, partially offset by unfavorable changes in customer mix and increased transformational charges.
Research and Development
Three Months Ended Nine Months Ended
March 30,
2025 December 29,
2024 March 30,
2025 March 31,
2024
(in thousands, except percentages)
Research & development (“R&D”) $ 525,904 $ 494,947 $ 1,516,209 $ 1,404,615
Percent of revenue 11.1 % 11.3 % 11.4 % 12.7 %
We continued to make significant R&D investments in the March 2025 quarter focused on leading-edge deposition, etch, clean and other semiconductor manufacturing processes. The increase in R&D expense in the March 2025 quarter compared to the December 2024 quarter was primarily driven by an increase in employee-related costs as a result of seasonality and higher headcount, as well as increased lab-related spending, partially offset by lower elective deferred compensation plan-related costs.
R&D expense in the nine months ended March 30, 2025 increased compared to the same period in the prior year, driven by higher employee-related costs as a result of increased headcount, as well as spending on outside services, partially offset by lower supplies expense and lower elective deferred compensation plan-related costs.
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Selling, General, and Administrative
Three Months Ended Nine Months Ended
March 30,
2025 December 29,
2024 March 30,
2025 March 31,
2024
(in thousands, except percentages)
Selling, general, and administrative (“SG&A”) $ 226,023 $ 244,150 $ 713,301 $ 651,770
Percent of revenue 4.8 % 5.6 % 5.4 % 5.9 %
SG&A expense during the March 2025 quarter decreased compared to the December 2024 quarter as a result of lower facilities costs and elective deferred compensation plan-related costs.
SG&A expense during the nine months ended March 30, 2025 increased compared to the same period in the prior year, driven by higher employee-related costs as a result of increased headcount as well as higher spending for transformational activities, partially offset by lower elective deferred compensation plan-related costs.
Restructuring Charges, N et
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 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. The restructuring plan was substantially completed as of June 30, 2024.
No restructuring charges were recorded during the nine months ended March 30, 2025. During the nine months ended March 31, 2024, the company recorded net restructuring costs of $57.1 million.
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.
Other Income (Expense), Net
Other income (expense), net consisted of the following:
Three Months Ended Nine Months Ended
March 30,
2025 December 29,
2024 March 30,
2025 March 31,
2024
(in thousands)
Interest income $ 50,638 $ 57,611 $ 176,698 $ 185,911
Interest expense (45,184) (45,299) (135,429) (138,797)
(Losses) Gains on deferred compensation plan-related assets, net (16,903) 4,502 5,019 49,124
Foreign exchange losses, net (4,702) (5,117) (19,505) (3,643)
Other, net (8,884) 2,565 (7,475) (24,082)
$ (25,035) $ 14,262 $ 19,308 $ 68,513
Interest income decreased in the March 2025 quarter as compared to the December 2024 quarter, primarily due to lower interest rates and lower cash average balances. Interest income decreased for the nine months ended March 30, 2025, compared to the same period in 2024, primarily due to lower interest rates, partially offset by higher cash balances.
Interest expense was at consistent levels for all periods presented.
The variations in 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 was primarily driven by fluctuations in the fair market value of equity investments for all periods presented.
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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
March 30,
2025 December 29,
2024 March 30,
2025 March 31,
2024
(in thousands, except percentages)
Income tax expense $ 206,057 $ 157,128 $ 541,019 $ 398,376
Effective tax rate 13.4 % 11.7 % 12.9 % 12.4 %
The increase in the effective tax rate for the March 2025 quarter compared to the December 2024 quarter was primarily due to the recognition of previously unrecognized tax benefits from lapses of statutes of limitation and the income tax benefit from a change in tax law in the December 2024 quarter.
The increase in the effective tax rate for the nine months ended March 30, 2025 compared to the same period in the prior year was primarily due to lower benefit of the R&D tax credit as a percentage of pre-tax income and lower stock-based compensation excess tax benefits, offset by the income tax benefit from a change in tax law in the nine months ended March 30, 2025.
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. International pre-tax income is taxable in the United States at a lower effective tax rate than the federal statutory tax rate. 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.
We re-evaluate uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Any change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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
See Note 2 - Recent Accounting Pronouncements, of our Condensed Consolidated Financial Statements, included in Part 1 of this Form 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
Total gross cash, cash equivalents, and restricted cash balances were $5.5 billion at March 30, 2025 compared to $5.9 billion as of June 30, 2024. The decrease was primarily driven by $2,130.0 million of share repurchases, including net share settlement on employee stock-based compensation and excise tax; $854.3 million in dividends paid; $587.0 million in capital expenditures; and $506.0 million of principal payments on debt instruments and debt issuance costs, partially offset by cash generated from operating activities totaling $3,619.1 million.
Cash Flow from Operating Activities
Net cash provided by operating activities of $3,619.1 million during the nine months ended March 30, 2025 consisted of (in thousands):
Net income $ 3,638,129
Non-cash charges:
Depreciation and amortization 287,838
Equity-based compensation expense 249,085
Deferred income taxes (211,568)
Changes in operating asset and liability accounts (337,013)
Other (7,395)
$ 3,619,076
Changes in operating asset and liability accounts, net of foreign exchange impact, included the following uses of cash: increases in accounts receivable of $706.3 million, inventory of $319.7 million, and prepaid expenses and other current assets of $41.9 million.
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These uses of cash were offset by the following sources of cash: increases in deferred gross profit of $464.6 million, trade accounts payable of $193.8 million, and accrued expenses and other liabilities of $72.5 million.
Cash Flow from Investing Activities
Net cash used for investing activities during the nine months ended March 30, 2025 was $578.8 million, primarily consisting of capital expenditures.
Cash Flow from Financing Activities
Net cash used for financing activities during the nine months ended March 30, 2025 was $3,427.1 million, primarily consisting of $2,130.0 million in treasury stock repurchases, including net share settlement on employee stock-based compensation and excise tax, $854.3 million in dividends paid; and $506.0 million of principal payments on debt instruments and debt issuance costs.
Liquidity
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 and cash equivalents as of March 30, 2025, 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.
During the three months ended March 30, 2025, $500 million principal value of our 2025 Notes were settled upon maturity using available cash on hand.
In January 2025, we entered into a Third Amended and Restated Credit Agreement. The amendment increased the unsecured revolving credit facility commitment from $1.5 billion to $2.0 billion and extended the maturity of the facility from June 2026 to January 2030. The facility provides for an expansion option that will allow us, subject to certain requirements, to request an increase in the facility of up to an additional $750 million, for a potential total commitment of $2.75 billion. Please refer to Note 11, “Long-term Debt and Other Borrowings,” to our Condensed Consolidated Financial Statements, included in Part I of this form 10-Q for additional information.
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. While we have substantial cash balances, we may require additional funding and need or choose to raise the required funds through borrowings or public or private sales of debt or equity securities. 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, 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.
ITEM 3. 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.