Spending on semiconductor manufacturing equipment is poised to
bloom this year and next as tech companies gain confidence in the
global economy and seek cutting-edge technologies for making
With semiconductors going into everything from consumer
electronics to cars, the fabrication-gear spending trend lays a
favorable foundation for continued growth atLam Research (
), an equipment and services provider to the chip industry.
"Business conditions are looking pretty good," Andy Ng, a
Morningstar analyst who covers the company, said in an
Ng says investors are bullish on Lam Research's near-term
outlook, and he says the company appears favorably exposed to
developing tech trends over the next couple years that could
boost its odds of producing strong earnings.
Lam Research Chief Financial Officer Doug Bettinger says the
company is "wonderfully well-positioned" to capitalize on current
conditions, as the equipment and processes it develops are in
Lam Research makes and services semiconductor processing
equipment used to fabricate integrated circuits. Its customers
include chipmakers that produce everything from memory to
microprocessors, for use in electronics.
Performance In The Process
The stock has surged this year; since Lam Research reported
quarterly earnings April 23, shares have risen about 27% to trade
around 67. Jefferies Group analysts initiated coverage this month
with a "buy" rating and a 75 stock-price target.
Lam Research should see rising product-pricing power,
Jefferies analysts say, as chipmaking customers reach a peak in
terms of reducing costs and bolstering performance by minimizing
the size of transistors. The thinking goes that customers such
) and Samsung will seek advancements from suppliers such as Lam
Research to fill a performance-improvement void, via alternative
materials and manufacturing process enhancements.
Lam Research is forecast to nearly double its annual earnings
per share this year. Analysts polled by Thomson Reuters on
average expect $4.40, up from $2.22 last year.
For its third quarter of fiscal 2014 ended March 30, Lam
Research logged $1.23 billion in revenue, up 45% year over year
and atop analyst views for $1.22 billion.
Profit came in at $216.4 million, or $1.26 a share, on an
adjusted basis. That excluded some costs tied to the 2012
acquisition of Novellus Systems and some other special items. The
result came in ahead of analyst estimates for $1.17, and compares
with EPS of 44 cents a year earlier and $1.10 a quarter
For the current quarter, the Fremont, Calif.-based firm
expects revenue between $1.19 billion and $1.29 billion, and
adjusted EPS of $1.14 to $1.28. Analysts in the Thomson Reuters
poll anticipate EPS of $1.23 on revenue of $1.25 billion.
Lam Research is the fourth company in size, by market cap, in
IBD's Electronics-Semiconductor Equipment industry group,
afterASML Holding (
),Applied Materials (
) andKLA Tencor (
) . The group is currently ranked No. 72 of 197 that IBD
SEMI, the global semiconductor industry association,
forecasts fab equipment spending
will jump 24% to $35.7 billion this year and another 11% in 2015.
Such a development would follow double-digit percentage declines
logged the last two years.
SEMI's research chief Chris Dieseldorff says the rise of
mobile devices, in lieu of PCs that require more semiconductor
content, coupled with global economic uncertainty influenced the
declines in investment levels the past two years.
"The overall sentiment had an impact on the semiconductor
industry," Dieseldorff said in an interview. "Companies just
didn't have the confidence to invest."
But now, Dieseldorff says, confidence in the economic vigor of
the U.S. and Asia, along with belief in a European recovery, is
The kind of companies Lam Research caters to are eager to
capitalize on cutting-edge processes and willing to make
investments in order to boost performance of a range of equipment
used to outfit everything from computers to flat-screen
"We are in the right place at the right time," CFO Bettinger
said in an interview.
Dynamic random-access memory (DRAM) equipment spending, for
instance, is projected by SEMI to grow 40% this year. Lam
Research has a strong position in the memory market. The
company's memory segment accounted for about two-thirds of its
shipments in the March quarter, and Bettinger says DRAM upgrades
developed in collaboration with customers are driving new
The DRAM example is just one of many, he says. Demand for tech
upgrades is developing on "multiple fronts." And it is coming
from regions around the globe.
SEMI predicts that, in 2014, fab equipment spending will surge
36% in the Americas, 69% in China, 79% in Europe and the Mideast,
23% in Korea, and 11% in both Taiwan and Japan.
In its latest reported quarter, Lam Research generated 10% of
its revenue in the U.S., 28% in Korea, 22% in China, 19% in
Taiwan, 11% in Japan and 6% in Europe.
For all the anticipated momentum, Ng of Morningstar notes that
Lam Research is in a historically cyclical industry. Investors,
he says, tend to push up stocks such as Lam Research when
conditions are favorable and expectations are high.
"But when things are bad, everyone runs out the door," he
said, noting that Lam Research traded around 35 a share just two
years ago and around 25 in mid-2009.
Bettinger says that Lam Research "is not immune" to cyclical
"The macroeconomic environment is always something we need to
be monitoring," he added.
But operating conditions globally range from stable to growing
and, against that backdrop, there is likely to be strong and
ongoing demand for new electronics, from smartphones to wearable
devices, he says. And to satiate that demand, Lam Research's
customers are likely to continue to invest in new equipment to
develop more and better products for consumers.
"We have a very strong business," Bettinger said.
In addition to a new stock buy-back program, he notes, Lam
Research recently announced a 18-cent-per-share dividend slated
for July 2. Bettinger calls it a show of confidence by the
"It will be an ongoing dividend," he said. "It really does
reflect confidence in our future business."