Friday, April 13, 2007

Color on Quarter: Lam Research (NASDAQ:LRCX)

Lam Research (NASDAQ:LRCX) getting plenty of comments following quarterly report.

- Citigroup says that Lam not only blew through consensus (EPS of $1.15 vs. $1.06), but it also raised its C07 EPS guidance significantly to $4.50-4.70, from $4.10-4.30. They were at $4.52 going into the call while consensus was at $4.05. Firm expects consensus to again rise to meet their estimates. C2H07 shipment guidance was also increased due to a smoothing of memory shipments, higher confidence by management in the sustainability of memory spending, and a pickup in Foundry activity.

While Lam is forecasting C2H07 shipments to be down 7% from C1H07, this is substantially better than the down 18% it was forecasting previously. Firm anticipates additional Foundry activity and unexpected turns business for Flash (which occurred in the prior 2 yrs) will drive upside shipments in C2H07. As they have forecasted all along and contrary to consensus, C07 is shaping up to be a strong year and the implosion in memory that the market was fearing appears unlikely to materialize.

- Morgan Stanley says LRCX had solid March Q with revs/EPS/shipments all better than their/consensus expectations. Half of the EPS upside ~$0.05 driven by better operating performance and the other half by a better tax/stock buyback strategy. June Q revs/EPS guidance of $665MM/$1.15 much better than their/consensus expectations but shipments guided slightly lower by ~$15MM (excludes March upside) versus their model. Management attributed lower shipments to a smoothing in memory related projects (we believe Nanya and Samsung-Austin). Checks suggest the smoothing to be normal 1-2 month fab timing related issue for the industry.

- ThinkEquity believes investors could be underestimating the magnitude of decline in memory spending. While the logic and foundry segment should recover from very depressed levels, the production capacity expansion is likely to be at 130nm and 90nm, the nodes where Lam's share is not as high. While virtually all DRAM and flash devices are at 65nm, the median logic and foundry segment is still at 180nm, moving toward 130nm. As the foundry and
advanced logic segment recovers, firm anticipates capacity (as opposed to R&D and tapeouts) spending primarily at 90nm and 130nm nodes, where Lam's share is much lower.

- Bank of America notes that memory customers are slipping shipment dates at LRCX. Prior forecast for June shipments was greater than 25% Q-o-Q growth; it is now 10-15%. Firm suspects Samsung contributed the most to that change in outlook. Memory remains at very high levels as a percent of the mix, 78% in the March quarter.

The shipment push outs in conjunction with a sharp decline in first quarter memory prices and the surge in memory investment over the last 5 years suggest to us that they are in a topping out process for the memory cap-ex cycle. Firm would use the recent run in the stock above $50 to lower exposure.

Notablecalls: Current year's memory capex is still very much first half loaded and shipment pushouts only magnify this theme, lessening the willingness for second half orders. Samsung, largest memory capex spender by far also echoed this, noting that close to 40% of memory capex was already spent in the first quarter. Also, Samsung is pushing 200mm to c2009 and pushing out NAND shipments, probably in conjunction with the oversupply. DRAM is still having oversupply. LRCX mgmt's comments and guidance seem to be somewhat in disconnection with the big picture. Alltogether, I would expect the stock to trade down today. Not a very high conviction call, though.

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