Lam Research Corporation (LRCX) reported first quarter fiscal 2013 non-GAAP earnings of 53 cents per share, handily beating the Zacks Consensus Estimate of 41 cents by 29.3%. The beat, which could be attributed to strong revenue growth, led the share price to hike 1.0% in the after-hours.
Lam Research’s revenue of $906.9 million grew 22.3% sequentially and 33.3% from a year ago. The year-over-year improvement was aided by higher shipments, which indicated escalating demand for LRCX product suites.
Revenue by Geography
Revenue contribution from North America in the first quarter was 18.0%, up from 12.0% in the prior quarter. Europe’s contribution remained flat sequentially at 7.0%, while contribution from Japan edged up from 7.0% in the prior quarter to 8.0%. Contribution from Korea was 24.0% of the total revenue, down from 39.0% in prior quarter, Asia Pacific was 15.0%, up from 10.0% in the fourth quarter of 2012 and Taiwan was 28.0%, climbed from 25.0% in the fourth quarter of 2012.
Revenue by Shipments
Shipments were roughly $935.0 million during the quarter, increasing 14.6% from $816.0 million in the prior quarter. Foundry shipment accounted for 48.0% of total shipment to $448.8 million, NAND $205.7 million, DRAM $177.65 million, Logic $93.5 million and Others accounted for rest $9.35 million.
From a geographical perspective, North America contributed 18.0% of first quarter fiscal 2013 shipments (14.0% in fourth quarter of 2012), Europe generated 7.0% (6.0% in the prior quarter), Japan brought in 8.0% (flat sequentially), Korea contributed 16.0% (32.0% in the previous quarter), Asia Pacific contributed 22.0% (12.0% in the prior quarter) and Taiwan accounted for 29.0% (28.0% in the previous quarter).
Margins
The GAAP gross margin decreased 490 bps year over year to 36.8%. Lower volumes coupled with unfavorable product and customer mix were the main reasons for the gross margin contraction.
Total operating expenses of $317.2 million were up 71.9% from the year-ago quarter’s $184.5 million. The operating margin was 1.8%, down 1280 bps from 14.6% recorded in the previous-year quarter. Both research and development and selling, general and administrative expenses increased as a percentage of sales, and the lower gross margin was an offsetting factor.
Net Income
The GAAP net income was $2.8 million, or 0.3% of sales, compared with income of $71.8 million, or 10.6% in the year-ago quarter. Reported earnings per share were 2 cents, down from 58 cents in the prior year quarter. After adjusting for restructuring charges and impairment of long-lived assets on a tax-adjusted basis, the non-GAAP came to 2 cents in the quarter, compared with 58 cents in the year-ago quarter.
Balance Sheet
Inventories declined 10.3% sequentially to $567.9 million in the first quarter. The company ended with cash, cash equivalents and short-term investments of $2.7 billion, down from $2.9 billion in the previous quarter. Lam Research’s long-term debt and capital lease balance was $1.3 billion in the first quarter. Day sales outstanding (DSO) were 64 days and inventory turns were 4.0X. The cash from operations were $249.3 million in the first quarter, up from $96.7 million in the previous quarter.
Guidance
Lam Research guided for a weak second quarter as some of its customers lowered their spending plans.
For the second quarter 2013, Lam Research expects revenue in the range of $820.0–$880.0 million. Shipments are expected to be roughly in the range of $770.0–$830.0 million. The gross margin is expected to be in the range of 43.0%–45.0% and operating profit at 9.5%–12.5%. Earnings are forecasted to be in the range of 38 cents –52 cents on a share count of 172.0 million shares. Zacks Consensus Estimate for the second quarter is pegged at 50 cents.
The company also lowered its wafer fabrication equipment-spending outlook for the remainder of 2012.
Our Recommendation
Lam Research delivered impressive first quarter 2013 results with the bottom line surpassing the Zacks Consensus Estimate. Year over year revenue growth was encouraging, citing strong product demand. But the company’s second quarter guidance was sequentially weak, reflecting uncertainty of semiconductor spending pattern.
Lam Research is well-positioned in the semiconductor industry and is giving tough competition to the key players such as Applied Materials (AMAT), Tokyo Electron and ASML Holding NV (ASML). It has further solidified its position with the addition of Novellus Systems Inc.’s thin-film deposition and surface preparation product lines.
Despite its growth prospects, we assign the stock a Zacks #5 Rank, implying a short-term “Strong Sell” rating on the back of weak second quarter guidance and lackluster demand situation in the semiconductor market.
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