Lam Research Corporation (LRCX) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects a positive outlook with strong financial metrics and optimistic guidance, despite the challenges in China. The company is poised to capture significant market expansion, particularly in AI and NAND. The Q&A section reinforced this sentiment, with management confident in their strategic positioning and growth prospects, notably in advanced packaging and WFE share gains. The anticipated growth in 2026 and strategic investments suggest a favorable stock price movement.
Key Financial Performance
Revenue for calendar year 2025 $20.6 billion, up 27% year-over-year. The increase was driven by strong execution across the company and broad-based strength across the product portfolio.
CSBG Revenue for calendar year 2025 $7.2 billion, a record high. Growth was attributed to an expanding installed base and innovation in advanced services.
Gross Margin for calendar year 2025 49.9%, the highest result since the Novellus merger in 2012. This was due to better-than-expected customer mix and operational efficiency.
Gross Profit for calendar year 2025 $10.3 billion, up 31% year-over-year. The increase was driven by revenue growth and improved gross margins.
Operating Margin for calendar year 2025 34.1%, a record high. Operating profit dollars increased 41% year-over-year to $7 billion, reflecting strong leverage from top to bottom of the P&L.
Diluted Earnings Per Share (EPS) for calendar year 2025 $4.89, up 49% year-over-year. This was driven by strong revenue growth and operational efficiency.
Revenue for December 2025 quarter $5.34 billion, a record high and above the midpoint of guidance. This marked the tenth consecutive quarter of revenue growth.
Deferred Revenue Balance at December 2025 quarter-end $2.25 billion, down sequentially due to an approximately $500 million reduction in customer advanced down payments.
Foundry Systems Revenue for December 2025 quarter 59% of systems revenue, up from 35% in December 2024. Growth was driven by leading-edge investments and mature node spending in China.
Memory Systems Revenue for December 2025 quarter 34% of systems revenue, in line with the prior quarter. DRAM revenue accounted for 23% of systems revenue, up from 16% in the September quarter, driven by high-bandwidth memory and node migrations.
Nonvolatile Memory Systems Revenue for December 2025 quarter 11% of systems revenue, down from 18% in the September quarter. The decline was in line with customer plans for the year.
Logic and Other Systems Revenue for December 2025 quarter 7% of systems revenue, slightly up sequentially.
Customer Support Business Group (CSBG) Revenue for December 2025 quarter Approximately $2 billion, up 12% sequentially and 14% year-over-year, driven by growth in spares and record upgrade revenue in NAND spending.
Gross Margin for December 2025 quarter 49.7%, exceeding the high end of guidance due to better-than-expected customer mix.
Operating Expenses for December 2025 quarter $827 million, roughly flat sequentially. R&D accounted for 68% of total operating expenses.
Operating Margin for December 2025 quarter 34.3%, exceeding the high end of guidance.
Non-GAAP Tax Rate for December 2025 quarter 13.2%, in line with expectations.
Other Income and Expense (OI&E) for December 2025 quarter $10 million in income, up from $8 million in the September quarter, driven by gains in the venture portfolio.
Capital Return for December 2025 quarter $1.4 billion allocated to share buybacks and $328 million paid in dividends. In calendar year 2025, 85% of free cash flow was returned to shareholders.
Diluted Earnings Per Share (EPS) for December 2025 quarter $1.27, above the guidance range.
Cash and Cash Equivalents at December 2025 quarter-end $6.2 billion, down from $6.7 billion at the end of the September quarter, due to capital return and CapEx spending.
Days Sales Outstanding (DSO) for December 2025 quarter 59 days, down from 62 days in the September quarter.
Inventory Turns for December 2025 quarter 2.7x, up from 2.6x in the prior quarter and 1.5x two years ago.
Capital Expenditures for December 2025 quarter $261 million, up $76 million from the September quarter, driven by investments in manufacturing capacity, R&D, and lab infrastructure.
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Operating Highlights
New Product Launches: Introduced Akara, a next-generation conductor etch system, which doubled its installed base in a year. It has been adopted for advanced DRAM and foundry/logic applications, including EUV and high aspect ratio etch. Akara is expected to expand its applications in gate-all-around devices and DRAM nodes.
Advanced Packaging: Lam's advanced packaging business is projected to grow over 40% in 2026, driven by high-bandwidth memory (HBM) and complex packaging schemes for mobile and AI applications.
Market Expansion: Expanded manufacturing and R&D footprint to meet strong customer demand. Achieved record revenues of over $20 billion in 2025 and increased SAM share of WFE to mid-30% range.
Regional Revenue Growth: China accounted for 35% of revenue in the December quarter, followed by Taiwan and Korea at 20% each. Growth in these regions was driven by foundry and memory investments.
Operational Efficiency: Doubled manufacturing capacity over the last 4 years and launched automated warehouses in 2025 to enhance production efficiency. Improved inventory turns to 2.7x from 1.5x two years ago.
Customer Support: Recognized with nearly 40 supplier awards in 2025 for fast tool installations and production ramp support. CSBG revenue grew 14% year-over-year, driven by spares and upgrades.
AI Transformation: Positioned to capitalize on AI-driven semiconductor demand, with WFE expected to grow to $135 billion in 2026. Investments in gate-all-around transistors, advanced packaging, and NAND are key focus areas.
R&D Investments: Transformed R&D capabilities with velocity labs and digital twin technology to accelerate product development and innovation.
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Risk or Challenges
Clean room space constraints: The growth in semiconductor demand is constrained by a shortage of available clean room space, which could limit the industry's ability to meet demand in 2026.
Customer mix headwinds: Slight headwinds from customer mix are expected to impact gross margins in the March 2026 quarter.
Supply chain and manufacturing capacity: Despite investments in manufacturing and R&D, the company faces challenges in scaling operations to meet the accelerated pace of customer demand and the fast-ramping market environment.
Geopolitical risks: China accounted for 35% of revenue in the December quarter, and changes in affiliate rules impacted shipment timing, indicating potential geopolitical and regulatory risks.
Market undersupply: The market is expected to remain undersupplied in 2026 due to clean room space constraints, which could hinder growth opportunities.
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Guidance & Outlook
WFE (Wafer Fab Equipment) Market Outlook: The company expects the WFE market to grow to approximately $135 billion in 2026, up from $110 billion in 2025. Growth is anticipated to be weighted towards the second half of the year, driven by robust investments across DRAM, leading-edge foundry/logic, and NAND.
AI Transformation Impact: The AI transformation is expected to drive significant industry spending, with strong demand for greater compute and storage capabilities. Lam anticipates being well-positioned to capitalize on this trend with its deposition and etch capabilities.
Advanced Packaging Growth: The advanced packaging business is projected to grow by more than 40% in 2026, outperforming the overall WFE growth in this segment. This growth is driven by the transition to HBM4 and 4E, stacking up to 16 layers, and increased adoption of complex packaging schemes for mobile and other applications.
NAND Market Growth: Demand for NAND is expected to grow faster than previously anticipated, driven by new use cases for high-capacity SSDs and non-volatile context memory layers for AI inference. Lam projects incremental growth in NAND bit demand for every $2 million to $3 million accelerators sold.
Product Portfolio Expansion: Lam expects its newly launched products, such as the Akara conductor etch system, to gain significant traction. The Akara system is projected to expand its applications in next-generation gate-all-around devices and advanced DRAM nodes, with a 2x to 3x increase in usage.
Manufacturing and R&D Investments: The company plans to continue expanding its manufacturing and R&D footprint to meet growing demand. Investments include state-of-the-art automated warehouses and velocity labs to enhance production efficiency and accelerate product development.
Revenue Guidance for March 2026 Quarter: Lam projects revenue of $5.7 billion, plus or minus $300 million, for the March 2026 quarter.
Gross Margin and Operating Margin Guidance: The company forecasts a gross margin of 49%, plus or minus 1 percentage point, and an operating margin of 34%, plus or minus 1 percentage point, for the March 2026 quarter.
Earnings Per Share Guidance: Lam expects earnings per share of $1.35, plus or minus $0.10, for the March 2026 quarter.
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Shareholder Return Plan
Dividends Paid in December Quarter: $328 million
Dividends Paid in Calendar Year 2025: 85% of free cash flow returned to shareholders
Share Buybacks in December Quarter: $1.4 billion allocated through open market share repurchases
Share Buybacks in Calendar Year 2025: Approximately 39 million shares repurchased at an average price of $104 per share
Remaining Share Repurchase Authorization: $5.1 billion remaining on Board-authorized share repurchase plan
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Key Q&A
Q:Doug, I had a question about WFE this year. So you said we're going to be constrained because of this fab readiness. Is it possible to say how much?
A:Douglas Bettinger declined to provide a specific number, citing fluid plans and efforts to increase clean room space. He mentioned that the constraints set up for a strong 2027 and highlighted multiyear agreements reflecting strong demand and limited clean room availability.
Q:Doug, and then you're guiding gross margin down a bit on revenue, it sounds like it's predominantly related to China. So China was 35% in December. Is it going to come down?
A:Douglas Bettinger confirmed that the gross margin decline is due to customer mix, which will be less rich in the March quarter. He emphasized the importance of product and customer mix in their business.
Q:Doug, could you speak a bit about the work you're doing with the supply chain, bringing on manufacturing, ramping Malaysia and how we should think about that in the context of gross margins as revenues ramp in the second half of calendar '26 and beyond?
A:Douglas Bettinger highlighted their global manufacturing ramp-up, with Malaysia being their largest location. He emphasized that mix will be more important than volume ramping in the near term.
Q:Is the uplift in CSBG that you saw in the December quarter and assumed continued strength in March sustainable throughout the year?
A:Timothy Archer explained that CSBG growth is driven by customers' near-term actions and their transformation of the service business with equipment intelligence and automated maintenance. Douglas Bettinger added that CSBG growth aligns with their Investor Day projections of high single-digit to low double-digit growth.
Q:On the DRAM market, when do you see the volume adoption of 4F [Square] from 6F [Square]?
A:Timothy Archer stated that 4F [Square] adoption is expected towards the end of the decade, with current engagements focusing on technical needs. He emphasized Akara's suitability for high aspect ratio features and its foundational role in future transitions.
Q:On the NAND market, do you see NAND makers slowing down technology migrations as they focus more on profitability? When do you see NAND new capacity additions coming on?
A:Douglas Bettinger noted that NAND dynamics played out as expected, with growth anticipated in 2026. He observed prioritization of DRAM over NAND due to better profitability but mentioned a new fab announcement emphasizing NAND capacity. He expects upgrades before capacity additions, with $40 billion in investments happening faster than expected.
Q:Do you expect to maintain or gain WFE share this year? What are you assuming for China contribution overall for WFE?
A:Timothy Archer confirmed plans to increase WFE share, driven by technology transitions and new product success. He expects China to remain flattish year-on-year, becoming a smaller percentage of overall revenue as other regions grow.
Q:Where are we now versus the $40 billion addressable opportunity to upgrade the installed base to higher layer counts?
A:Timothy Archer stated that the $40 billion opportunity is materializing faster than expected, with NAND upgrades accelerating. He mentioned potential updates to the number later in the year.
Q:The 1 point of WFE share that you gained, is it coming primarily in foundry and logic or across the board?
A:Timothy Archer explained that share gains came from both NAND and foundry/logic, with progress in advanced foundry/logic nodes and advanced DRAM.
Q:How should we think about the op margin fall through as we go through the next few quarters?
A:Douglas Bettinger highlighted their focus on delivering leverage to the bottom line and mentioned plans to update their longer-term model later in the year.
Q:When do you expect customers to pivot from NAND upgrades to more greenfield NAND capacity additions?
A:Timothy Archer expects greenfield NAND capacity additions to occur in 2027-2028, with current focus on technology transitions and upgrades.
Q:Do you see the potential rank order of growth rates changing among foundry, DRAM, and NAND as we head into 2027?
A:Douglas Bettinger and Timothy Archer anticipate robust investment across all device segments into 2027 but did not provide a rank order of growth rates.
Q:As your customers ramp up more onshore manufacturing, would it lead to you increasing shipments from your U.S. facilities rather than Malaysia?
A:Douglas Bettinger stated that they have a global manufacturing footprint and flexibility to adjust as needed, but they feel good about their current setup.
Q:Are customers moving away from single-wafer ALD to batch ALD for moly?
A:Timothy Archer confirmed that customers committed to production using moly in NAND have chosen Lam tools, emphasizing their strong position and production tool capabilities.
Q:Is the stronger velocity of demand having a similar impact to your manufacturing capability and ability to procure necessary components?
A:Timothy Archer noted improvements in their supply chain and manufacturing operations, emphasizing their ability to meet demand without being a constraint.
Q:Can you quantify how much advanced packaging grew for the team in calendar '25?
A:Douglas Bettinger did not quantify 2025 advanced packaging growth but confirmed strong growth and a 40% increase expected in 2026.
Q:How are you thinking about inventories on a days or dollars basis?
A:Douglas Bettinger anticipates building inventory in total dollar terms to support growing business while focusing on asset utilization and efficiency.
Q:Is there any area of your supply chain where you're pushing suppliers that could be a potential area of shortage?
A:Timothy Archer stated that they do not foresee significant problems but are working across their global supply chain to meet demand.
Q:Is the flattish China WFE due to the affiliate rule impacts or a change in underlying demand?
A:Douglas Bettinger attributed flattish China WFE to a combination of the affiliate rule and broad-based customer spending.
Q:How do you see the roadmap for foundry growth in '26 and '27 with leading-edge foundries accelerating?
A:Timothy Archer highlighted opportunities from etch and depth intensity, backside power, and advanced packaging, emphasizing a positive product perspective.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer to the question about the specific cost of constraints on WFE this year, citing fluid plans and efforts to increase clean room space. Additionally, they did not provide a hard number for China's mix in the March quarter or quantify advanced packaging growth in 2025.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI transformation
DRAM edge
Executive
HBM
Investor Relations
NAND demand
Officer
President Chief
President Investor
SAM
Today
Vice President
afternoon
application DRAM
aspect ratio
customer demand
demand environment
deposition etch
dimension
etch application
event
footprint
foundry logic
generation
hardware
momentum
pm Pacific
presentation
production
ramp
semiconductor demand
share WFE
stage
state
transistor
velocity
view WFE
win
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