Lam Research (LRCX) shares declined approximately 9% on Thursday, even after the chip-equipment maker posted record fiscal first-quarter results. The sell-off was driven by supply chain constraints that could limit shipments and an anticipated drop in revenue from China.
The company reported revenue of $8.22 billion for the quarter, surpassing the consensus estimate of $8.14 billion and marking the fifth consecutive quarterly record. Sales surged 54% year-over-year and 22% sequentially. Adjusted earnings per share reached a record $2.20, exceeding analysts' expectations of $2.18.
Profitability also improved, with gross margin expanding to 52.4% from 52% in the June quarter. Operating margin climbed to 40.2% from 38.4%, crossing the 40% threshold for the first time. Lam generated record free cash flow of $3.24 billion and ended the quarter with $7.5 billion in cash and short-term investments, up from $5.6 billion in June. The company repurchased $1 billion in shares and paid $325 million in dividends.
Supply Constraints Limit December Outlook
For the December quarter, Lam forecast revenue of $8.6 billion, plus or minus $400 million, and adjusted earnings of $2.33 per share, plus or minus $0.15. The earnings guidance was slightly above the consensus estimate of $2.32. Gross and operating margins are expected to reach 52.5% and 40.5%, respectively, each with a one-percentage-point margin of error.
However, CFO Doug Bettinger noted that the outlook would have been stronger without supply chain constraints. "I would mention that this revenue guide would have been a bit higher if not for some near-term supply chain constraints that we are actively managing," he said. Bettinger declined to confirm an analyst's estimate that the constraints would affect revenue by $300 million to $400 million, but said shipments delayed from December would move into March.
CEO Tim Archer indicated that some suppliers are facing demand growth exceeding the pace of Lam's own business. The company is working with suppliers to expand capacity and would consider investments if necessary. "For those of us who were around during the COVID shortages, this is nothing like that. We learned a lot of lessons during that period," Archer said. "I think we'll be caught up very shortly."
China Revenue Share Expected to Decline
China accounted for 35% of Lam's September-quarter revenue, up from 26% in June. The company expects that contribution to fall substantially in the December quarter. "I expect that in December we'll be meaningfully down, driven by the domestic customers in China," Bettinger said. Multinational customers operating in China are expected to remain reasonably strong, although the CFO did not quantify the anticipated overall decline. He also expects mature-node spending outside China to strengthen in 2027, with little meaningful growth this year.
Cantor Fitzgerald Maintains Bullish View
Cantor Fitzgerald argued that investors may be focusing on the wrong numbers. Analyst CJ Muse maintained an Overweight rating and a $500 price target, representing over 110% upside from Thursday's trading levels. Lam remains on the firm's "Top Pick" list.
"Lam delivered a solid beat for the September Q results, and December Q guide a touch above consensus," Muse said. "We would note the guide came in below more bullish expectations coming into the print – thus the modest sell-off," he added. According to Cantor, some investors had discussed numbers as high as $8.9 billion, "a figure we viewed as impossible."
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