Lam Research Corporation (LRCX) reported second-quarter fiscal 2015 non-GAAP earnings of $1.19 per share, which beat the Zacks Consensus Estimate by 7 cents.
This Zacks Rank #2 (Buy) company has a good earnings surprise history and posted an average positive four-quarter surprise of 5.28%.
Revenues of $1.23 billion increased 6.9% sequentially and 10.4% year over year. Revenues were in line with the Zacks Consensus Estimate. This quarter marked the sixth successive quarter of greater than $1 billion in revenues and concluded a record breaking year for Lam with total annual revenue touching $4.9 billion. This was attributed to market share gain, SAM expansion opportunities that surpassed expectations and increasing innovation.
Revenues by Geography
Region-wise, Taiwan contributed 25% of fiscal second quarter 2015 revenues (up 48.5% from the prior quarter). Korea added 24% (up 35.1% from the last quarter), the U.S contributed 18% (down 31.3% from the previous quarter) and Japan brought in 12% of the revenues (up 28.3% from the prior quarter). China accounted for 8% of the revenues (down 5% from the previous quarter). Southeast Asia added 7% (down 16.8% from the previous quarter. Europe contributed the remaining 6% (down 8.3% from the prior quarter).
Shipments
Total system shipments were roughly $1.25 billion during the quarter, up 12% from $1.11 billion in the prior quarter. The memory segment collectively accounted for 53% of the shipments (up from 44% in the previous quarter). NAND shipments contributed 10% (down from 26% in the prior quarter) while DRAM added 43% (up from 18% in the previous quarter).
Foundries accounted for 32% of total shipments, down from 45% in the previous quarter.
Geographically, Korea accounted for 30% of fiscal second quarter 2015 shipments (up from 16% in the previous quarter) and was the largest contributor. Taiwan accounted for 23% (up from 21% in the prior quarter). The U.S contributed 16% (down from 25% in the previous quarter). Japan brought in 13% (up from 11% in the prior quarter) while Europe and China generated 7% each (both down from 8% in the previous quarter). Southeast Asia constituted 4% of the total shipments (down from 11% in the previous quarter).
Margins
Non-GAAP gross profit was $560.0 million, or 45.4% of revenues, a decrease of 37 basis points from the previous quarter. This was largely in line with management expectations and driven by the mix of business.
Total operating expenses were $330.2 million, up 2.8% sequentially. The operating margin was 18.7%, an increase of 70 basis points from the prior quarter.
Net Income
Non-GAAP net income was $207.6 million compared with income of $167.7 million in the prior quarter.
Balance Sheet
Exiting fiscal second quarter 2015, cash and cash equivalents, short-term investments, and restricted cash and investment balances were $3.0 billion, flat sequentially. Cash flow of $65.5 million was utilized for treasury stock purchases, which included net share settlement on employee stock-based compensation. Capital expenditures amounted to $61.4 million. The company paid $29.4 million of cash dividends to stockholders during the Dec 2014 quarter.
Deferred revenue increased 4.7% from the previous quarter, to $373.7 million while deferred profit balances increased marginally to $254.8 million from the previous quarter. Long term debt and capital leases amounted to $830.9 million compared with $824.2 million in the prior quarter.
Guidance
Lam Research provided guidance for the third quarter of fiscal 2015.
On a non-GAAP basis, it expects revenues of approximately $1.37 billion (+/- 50 million). Shipments are expected to be roughly $1.45 billion (+/- 50 million). The gross margin is expected to be approximately 44% (+/-1%) while operating margin is expected to be around 19% (+/-1%). Earnings per share are projected to be $1.30 (+/- 7 cents) on a share count of approximately 174.0 million.
Our Take
Lam Research delivered modest fiscal second quarter 2015 results with earnings beating the Zacks Consensus Estimate and revenues coming in line with the same. DRAM was a bright spot during the quarter.
In calendar 2014, the company made significant progress in meeting market share targets, and rolling out new products and services to participate in market expansion opportunities in various technology inflections, including multi-patterning, FinFET, 3D NAND and advanced packaging.
The company believes that the upcoming quarter would be impacted by both a mix toward more new tools that haven't fully moved on the cost curve yet and heavier customer concentration. These items might lead to a lower gross margin. Lam expects this trend to continue and extend into the June quarter. However, it foresees improvement in gross margin percentage in the second half of the year.
The company believes that its strong early position, combined with its commitment to its customers and value enhancing collaboration with them will help drive performance over the next several years.
Better-ranked stocks in the technology sector include IAC/InterActiveCorp (IACI), PetMed Express, Inc. (PETS) and Ellie Mae, Inc. (ELLI). All these stocks sport a Zacks Rank #1 (Strong Buy).
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