Lam Research Corporation (LRCX) Earnings Call Transcript & Summary

All right. It looks like we're starting time, but I don't have any sell-side support here. So Anybody have any questions in the room? Listen, I know Jim is probably honest way over. I'll start with everybody, please have a look at the safe harbor language that's up on the screen right now. By the way, I do not intend to make any new statements today. So I don't think this is all that important. But -- to the extent that I do talk about any forward-looking statements, it's protected by the safe harbor language that you see on the screen that you will also find on the Investor Relations portion of our website. So I don't know where Jim Schneider is, Jim is coming.

Probably coming from Dan Media.

Yes. He's probably on his way Okay. I'm going to do an audible. Anybody in the room have any questions you'd like to ask me to get us going. Oh, there's Jim. There you go. I know you're moving from room to room. I understand I'm right. I got this one with the safe harbor. How are you very well.

Okay. Sorry to be late. Welcome, everybody. I think you've done the intro, the safe harbor? Okay. Excellence. So thanks everybody Jim Schneider from Goldman Sachs. Thank you for being here guys.

Well, thanks for having us.

Doug, I want to maybe start off from the strategic perspective for a second. What are the one or two most critical imperatives you drive in the company to over the next 12 to 18 months? And then what's going to dictate your success in achieving those kind of both near and medium term?

Yes. No, that's a great spot to start. Tim and I and the leadership team at Lam, I think right now, we're very focused on customers for obvious reasons, right? Demand is extremely strong. It's grown quite quickly. And honestly, customers want things sooner than we can get it for them. Things are relatively tight. So A lot of the focus right now, and it's maybe not strategic Jim, it's more tactical and operational is making sure we can take care of customer commitments, on-time delivery, managing lead times, managing quality -- honestly, hiring. We're hiring tons of people right now because the business is so strong. There's lots of new fabs and new locations all over the world that we need to put new teams in place. So that's a key focus. And frankly, in an environment like this, it's critically important to manage operational execution -- and -- but also not lose sight of the long term, not lose sight of the product delivery road map, not lose sight of the R&D road map, not lose sight of the schedules that we have for new products that are not yet in customers' hands because you got to manage that and manage the long term and not just get myopically focused on the short term. So there's lots of stuff going on, a lot of which is operational, but it's also make sure the product road map continues to be executed the way it needs to be executed.

Maybe can you help us frame the level that you see in terms of demand and visibility either in terms of the duration of forecast you're seeing or in terms of order backlog?

Maybe let me describe a little bit of how things are working with customers and then how that shows up relative to how we're managing the company. I think that will provide color for everybody that hopefully will be illustrative. [ Listen ], things are sold out, right? The industry just fundamentally sold out. The industry is constrained right now by cleaner availability. And there's tons of new clean room coming online between now and the end of next year and beyond, frankly, we've talked about -- when you look at our Tier 1 customers, read that to be the biggest customers, Jim. We see [ 10 ] new clean rooms coming online between now and the end of next year. And so right now, the conversation of every single customer is, tell us what you need today. Tell us what you need over the next year and tell us where you think you're going beyond that. I wouldn't tell you that, that doesn't always happen. It does. But frankly, I would tell you that the intensity of those conversations, the conviction of those conversations, I've never seen stronger in come in the industry. So I think that's important. We need to know what the customers need. We need to know when they need it, so that we can be prepared. We don't want to be the constraining item and our objective is not to be. And so the customer doesn't want us to be either. So -- that's important to understand. That's an important starting point for us then to step back and say, okay, where do we need to be with our own bricks and mortar and hiring plans to manufacture tools as well as to do installation and warranty work in all of these new locations. So that's important for us. And then we have to take that and propagate it back to our own supply chain to make sure they're prepared as well. Everybody understands demand is very, very strong right now. And almost everybody is willing to make the investments needed but everybody needs to know to what degree to what magnitude. So that's kind of what's happening right now. Hopefully, that maybe didn't directly answer your question, but gives you color around, I think, what you were getting at you.

Never been better.

I haven't seen it this strong and I've been around for a while.

Yes. And to the point, you have been around for why we've seen prior cycles, so is there anything that kind of like gives you any warning signs or a sense of kind of like concern that we were potentially in a risky situation in terms of overbuilding the industry or anything like that?

Listen, this industry has always had a level of a cycle to it. That's always in the back of everybody's mind right now, but it's pretty far in the back right now. I think I'm more concerned for the company and the leadership is more concerned about missing the upside. I don't want to tell you, we've forgotten how to think about, hey, if a downturn comes what we're going to do. We've developed an operating model over 40 years, where we know how to run the company when and if that happens. But that's not the primary concern right now.

Yes. Now I mean to that point, on sustainability, your customers are incredibly profitable right now, more so than I ever seen in my career.

Yes. Sure. I agree. Probably more than they've ever been.

Exactly. Like some of your customers' customers were actually driving the ultimate spending on those chips. They're spending well over $1 trillion per year run rate, and that appears to be moving a lot higher. So -- but many of those companies even are tapping capital markets just sustain the current levels of CapEx. So how do you think about the ultimate returns of AI as you see them for the supply chain? And again, kind of like any systematic risk that you worry about?

Yes. I mean I think everybody tries to understand that. When I step back and generically look at what is going on in the industry, I think you see these large levels of investment because the end customer ultimately sees a real opportunity to create barriers to entry around what they're doing. And that requires investment in compute infrastructure, and that will be fundamentally differentiating. And so the investments I look at in trying to step back and think about, well, if I was running those companies, if I was the CFO of those companies would have be doing anything different in the absolute answer I'd be making all those same investments. I'd be doing all the same things because they are fundamentally creating barriers to entry around what the future is going to look like, I think. Then when I abstract and look at what I see us at Lam doing and frankly, probably what all of us in this room are doing with AI, is fundamentally changing everything you do. The value is obvious when you actually look at things. And you may ask me about like what are you doing with AI at Lam, I'm happy to get into that.

I will.

But it is very differentiating. And if you're not doing it, you're going to be at a fundamental competitive disadvantage to someone that is. And so that -- I just see immense value from all of this opportunity to do things differently and do it better, which I think is important at the end of the day. There's clear value here.

Yes. Now to that point, I'm asking -- I mean this conference is permeated by discussions around AI. I'm asking all the companies that I talked to, what are you doing internally at your company to leverage AI? And where does that mean? Is it just a cost-saving thing? Or is it actually something that's going to drive revenue? And maybe talk a little bit about that?

I think it's both, Jim, at the end of the day. And listen, we're doing tons of things. I'd spend all the rest of the time talking about all of it if we got into it. Maybe I'll select a couple of things just to give you an indicative of what we're doing. One of the really interesting things, I think, were the company is providing AI capability for the engineering community that's in the field. So what am I talking about? We hire tons of engineers that have to support our customers. They have to go in and install our equipment. They have to come in and troubleshoot the equipment. They need to provide warranty services. They need to help just do fundamental service. Oftentimes -- listen, and we hire the best and the brightest. But if you're a new engineer coming in and doing this work, you're not really good at it on day 1, right? There's an experiential component of -- you just have to have seen certain things. And historically, how that would show up as new engineer goes into the customer's fabs. These a problem doesn't maybe has a couple of ideas, drive some things, can't fix the problem, then has to come back out of the fab, start making phone calls, has to start talking to his or her manager and trying to figure out, okay, what do I need to do to fix this? And then go back into the fab, try something out and hopefully fix it, but if not, this will iterate. Every time we ever solve a problem, we document how we solve it. We have 30-plus years of history of all this data of every time we've troubleshot something, what did we do? Well, we're training AI models on this to make the field service engineer more productive. The uptake of this -- when I -- when we look at like who's using this, it's 2/3 of the engineering community in the field. So obviously, there's huge value where you wouldn't see 2/3 of the engineering community using it. This is one example, and there's many more of things like this, but this is a really big opportunity for us, I think, to drive productivity, to drive time to solution and frankly, to begin to deliver new advanced services using this kind of capability. So that's an example, Jim. It's a huge opportunity, I think, for us. And there's many more like that as well.

Yes. Excellent. Okay. I want to ask about some of the regional dynamics of your business, starting with the U.S. I mean, obviously, the U.S. is like the world in semi production for the last 20-plus years. It seems that, that could be mean changing a little bit with TSMC [indiscernible], Samsung Foundry and now Intel. Maybe speak to a little bit about your position in the U.S. market, if you can dimensionalize it that way. And does that reflect maybe just the broad global share you have among your largest customers? Or are there specific focus points you have among those kind of capacity customers in the U.S. that gives you a bit of an advantage.

Yes. Our strategy is to try to do what we do and do it being close to customer because our point of view on that is you can do it more effectively and better if you're near where the customer is doing what they do. And so when you think about the fact that, yes, there's a lot of new fab invested in the United States. We are making investments in all of those locations to make sure we've got the engineering capability to support what the customer needs in those locations. So that's one. You probably also saw Jim, I think it was -- it was 2 weeks ago, we announced a large new lab investment in Oregon, right, which is a key part of $3 billion investment that we plan to do in lab and engineering capability. We do a lot of the innovation at the company here in the United States where the company is headquartered, not far from here in Fremont, California. But we also have a large engineering organization in Oregon. And so when you think about all that innovation, we're making large investments because that's where we do what we do. Now we do it elsewhere also, but the biggest lab investments that we're making in the company are frankly, in the United States. So you got to support the customer, you got to support the customer where the customer is and the fact that a lot of our customers are doing more and more in the United States means so are we.

Yes. So do you think your share of U.S. capacity can actually be higher than this globally?

It's consistent.

Consistent, Okay.

It's not really any different. If you think about a large customer like TSMC, what they're doing in Arizona, if they weren't doing there, they would have probably been doing it in Taiwan, and we support them the same no matter where they are.

Yes. There's a few unconventional customers that are coming to market now, notably SpaceX with Terrafab. Maybe talk about sort of like do you have a technical collaboration with them? And sort of like what do you see the opportunity for that project in general being for the industry or for you?

Yes. Listen, there's a potential large amount of demand that shows up there. We are deeply engaged already with that specific customer. I have to be careful not talking too much about any one customer, but the engagement there is already in place and will be. And also, when you think about a new type customer, the opportunity to do more and provide even more for a customer like that is very high, and we're making sure we're very, very focused on it, Jim.

Yes. Okay. Excellent. China has been kind of a point of controversy for years going back now. I mean, I think I want to ask about 2 kind of elements of it. One is -- just in terms of the CapEx opportunity you see there, I mean, clearly, China it feels like it's now spending more again from a CapEx perspective, China native-based to make companies. Now there's been -- the export controls have been a challenge for you in terms of who you can play with. Exactly. So I guess the first question I had is just sort of like it seems like you can now look like that China is going to grow a little bit for you. Do you think that's sustainable? And then maybe can you talk about just kind of the competitive landscape from China-based equipment companies as you see it and their ability to kind of in any way [indiscernible] threaten your position in the customers you serve you can serve [indiscernible] controls.

So I think the first -- first, let me describe what we see happening in China relative to WFE. It's slightly up. When you think about, okay, it's slightly, that's good, right? It's good to have things growing. Everything on the side of that region of the world is growing a whole lot more. And so I think when you listen to all of us in the equipment space described, China as a percent of overall spending is going to come down because the significant growth you see is happening outside of China. So that's one thing to understand you're etching, there's a whole bunch of customers and certain technologies in China that we can't support because of regulations or restrictions. That is what it is. So there's a set of customers that are making investments that we can sell to any longer. When you think about, okay, what does that mean for the local Chinese equipment industry. Well, they have a captive set of customers than frankly, are making investments that they uniquely are able to supply to. So they're doing well in those areas for all these reasons, we can't sell. I would tell you, in the customer base where we can sell, our market share continues to be very high in China. But you comply with the rules and regulations and just kind of is what it is.

Yes, I understand. So maybe you want to talk about the end markets and your business segments as well. CSBG is kind of a key driver for you.

I love CSBG.

I know, I know. When you think about moving pieces in that business, what continues to kind of come in directionally above or below your expectations? And then sort of going forward, where do you think growth rates are going to head as we go into 2027?