Lam Research Corp (LRCX) June 2, 2026 Conference Transcript

Good morning. Welcome back to BFA Global Tech Conference. I'm Vivek Arya from our Semiconductor Semicap Equipment team. I'm really delighted to have the team from LAM Research join us for this fireside at Doug Bettinger, the Chief Financial Officer. And as always, I'll go through my questions, but please feel free to raise your hand if you'd like to bring something up. Before we start, Doug, I believe you have a safe harbor.

Yeah, I need to start with a safe harbor to keep my legal team happy let me give me a couple or a minute here today's discussion may include forward-looking statements that are subject to risks and uncertainties and actual results made different materially additional information concerning factors that could cause results to differ materially from those forward-looking statements can be found the risk factors disclosed in our public filings with the sec including our most recent 10k and 10q and i'm done wonderful thank you so that's the exciting part of that i know people are always excited to see how fast i can read that uh so maybe just let's start with kind of a state of the union right since the start of the year we have seen lamb consistently raise expectations for a wafer fab equipment market this year uh you know so from started in the low you know mid uh low 130s now it's kind of over 140 right plus as we said yeah for this year uh what do you think have been the incremental drivers of growth since the start of the year i think the first thing to understand is the industry from our point of view is constrained by clean room space availability i think you're hearing that statement from everybody and you're absolutely right we started the year thinking wfe was going to be 135 was a specific number on the last call tim and i updated it to 140 perhaps with a bias to a little bit of upside and what's changed is it's been across all segments of the business there's just a little bit more clean room maybe projects got pulled in a little bit one of our customers bought a fab and was able to take equipment a little bit sooner everybody's trying to figure out in this constrained environment how to get a little how to squeeze a little bit more out of what's there and that's exactly where we saw the upside it wasn't any one specific thing just a little bit everywhere and i'm not saying there's going to be a little bit more but everybody's working on trying to get a little more output that's what showed up is there a way to think about what the unconstrained WFE might be this year, like if there was enough clean room space? Yeah, listen, everybody wants to know the answer to that question. And frankly, I don't have a specific number for you, except I would tell you the industry is undersupplied right now. You're seeing it in memory pricing, absolutely, in profitability, advanced foundry is constrained, advanced packaging is super tight. I don't have a specific number for what unconstrained WFE might be. But what I will tell you is this bodes pretty well for what WFE is going to be next year, because this is going to roll into next year as projects come more available into 27. I think it's going to be a pretty darn good year in 27 and maybe beyond that. But I don't have a specific number for you, Vivek.

You know, if you look at visibility, right, that seems to be extending out, right, over the next number of years. Is there a way to quantify, Doug, what is kind of your usual period of visibility and what it is right now?

I think what I would tell you is right now, given the environment I described, there's very deep conversations occurring with every one of our customers about, okay, what does the next several quarters look like? What do you have? What could push or pull in or out and so forth based on these clean room projects that are underway? and then the conversation almost immediately transitions to okay what does that mean for next year because at the end of the day our customers don't want us to be what constrains them and we certainly don't want to be in that position either right so okay that project looks like it's showing up in 27 in the second half and so what might that mean for what do you need from us it doesn't necessarily mean i've got a purchase order for next year but the robustness of these conversations is as strong as i've ever seen it frankly and all the time i've been in the industry that's what's happening and it's pretty easy to understand okay that new fab project is scheduled to be completed next year and so we can also do our own assessment of okay the customer saying this and we look at it and say yeah okay that generally makes sense that's what's happening right now and then it follows on obviously for us then we're going to go talk to our supply chain partners we're going to plan our own physical bricks and mortar consistent with what is the customer saying they're going to need from us that's what's happening right now and like i said the richness the conviction in these conversations is as strong as i've ever seen it got it and the fact that it's the data center and market that is driving.

It's AI. It's AI. You're right. Versus in the past, you know, many of the growth cycles have been more consumer driven, right? Whether it was PCs or phones and such.

It was mobile. Yeah, all of those things. And now AI is layered on top of it. And frankly, the longevity of this, to me, feels like it's here for quite a good amount of time got it okay because it's uh ai driven where everyone wants to build as soon as possible do you think there is an acceleration and how quickly customers are willing to adopt the high end of the stack so to speak right your leading edge technology right versus in prior times where demand is showing up from these ai compute i mean these accelerator chips are very very big die um maybe not the most advanced known but pretty close and so that generally means it's the most advanced equipment it's the newest capability required to deliver these very advanced features very small high aspect ratio features and things that you look at it's high bandwidth memory it's a lot of DRAM needed in the compute infrastructure and it's NAND is also being show up right you got to store these tokens not just generate them and so it's showing up everywhere and it's primarily showing up at a pretty advanced process node which generally needs our most advanced equipment okay um you know in terms of lamb specific output right lamb has been a market share gainer i think in the past you said that the goal was to go from kind of the mid 30s wfe sam towards the high 30s where is lamb in that you know transition and do you think your sam kind of expands it absolutely has been and will continue you to be i mean that's the unique story about our company everybody benefits in equipment when wfe raises that's that's great rising tide lifts everybody the unique position we sit in and maybe we're a little bit lucky but also we're executing extremely well you look across the totality of advanced process nodes in foundry in logic in dram in nand things are inflecting in the third dimension right high bandwidth memory is a 3d structure 6f squared going to 4f squared is a 3d structure 3d DRAM is being worked on is an even more 3d structure the NAND stack keeps growing that's a 3d structure gate all around is an advanced 3d structure advanced packaging is a 3d structure when things inflect in the third dimension edge and deposition intensity grows That's all we do. And so a year and a half ago, we began describing this growth in our addressable market. And what we said back then in early 25, we did our last investor day. Then we were coming off a year where we address low 30% of overall WFE. So call it 32 cents of every dollar spent on WFE was spent on etch and deposition. We said we see a path over the next several years for that to grow to the high 30s. That's what you were just describing, Vivek. As we sit here today, it's in the mid-30s. Right, a year and a half later, after we said low 30s, we're already in the mid-30s. Because of the evolution of these architectures, this is going to continue. There's a couple of cool data points, I think, from my point of view anyway, cool data points, where we said in Foundry from 5 nanometer to CFET, our SAM per wafer will double because of the intensity of creating this very complicated CFET structure. Gate all around is a step towards that. Backside power is another step towards that. These are just examples of what I'm describing. So we sit in a unique position within the equipment sector in that everything we do is growing. That's wonderful. On top of that, the strength of our product portfolio Leo has never been stronger from my point of view and from the executive team's point of view. And so as we see this growing SAM, based on our products that are coming out like Akara, like Vantex, like the Mali tool, like Halo, we call it, we believe we're going to win half of this growing SAM, right? So low 30s going to high 30s. We believe because of what we're able to deliver, we're going to do really well in winning that growing SAM. That's the unique story about LAM research. Everybody in equipment is going to do well over the next several years. We're going to do even better. We outperformed WFE last year. We're going to outperform it this year. We're going to outperform it for the next several years based on what I see. And what I've been pointing out, actually, I think people that know the company know that NAND flashes are strongest end market. That is growing a good amount, but growing slower than the other leading end process nodes. And yet we're still outperforming with NAND still sort of on the come line. So I feel great about where we're positioned, about what we've invested in, about how we're executing. We're going to keep delivering on that.

I think you peeked at my next question. So let me ask it again. You can come around better. Anyway, I get excited about this stuff. Yes, I can see. So, you know, despite, you know, NAND having a, you know, relatively slower year, right, versus DRAM, Foundry Logic, you know, packaging, what do you think is helping LAM outgrow? I can only imagine it's mostly share gains, but, you know, people do associate LAM more with NAND than with DRAM. So despite NAND being a software year, what do you think is helping LAM outgrow the market? And what if, you know, NAND is software next year also? Can you still outgrow the market?

Yeah. Listen, everything I just rattled on about all of these 3D architectures is what's happening. And the strength of the product portfolio is what is enabling us to win a good amount of that. One thing I'll point out, yes, people think of us as the NAND company or the memory company from an equipment standpoint. Last quarter, 54% of our systems revenue was in Foundry. The quarter before, 59% was in Foundry. So yes, I love our memory strength. I love our memory customers immensely. But we've done extremely well in advanced Foundry and Logic because of investments we made three or four years ago. We saw some of these inflections coming. We knew we were going to be really well positioned to win. And we've delivered on it.

Right.

It's gate all around. It's backside power that really hasn't meaningfully showed up quite yet. It will. It's advanced packaging where we do the through-silicon via steps. I call it the drill and fill. We etch the silicon to create the space for the interconnect. And then we have a wonderfully strong electroplating business. That's the fill, the drill and the fill. We own a good amount of that across the totality of the industry. HBM, Coas, Fobros, all of those things we enable with the TSV. And we do other things in advanced packaging, but we're just really well positioned.

On the memory side, Doug, if we were to think of a scenario where, let's say, if memory pricing goes down next year for whatever reason, Do you think your memory customers would still be as incentivized to put money in all these fabs, build all these clean rooms? Or do you think their thinking is very sensitive to the pricing of memory?

I think everybody is being very purposeful about investments that they're making. And honestly, if you think about everything around AI, there are many things that are constraining the ability of everybody in the industry to supply true end demand. be it power be it data center be it leading edge foundry being high bandwidth memory all of these things right now the demand is beyond what supply is able to support and so i see everybody legging their way into trying to step that forward to a certain extent but also with a clear eye on profitability that's important and so as long as everybody is as profitable as they are they're going to invest and they are investing got it and one thing you know we have seen is several of these memory companies, you know, starting to do more long-term agreements with their customers.

So I imagine that part of that. Good for everybody. Yeah, it kind of helps extend that visibility. So has the nature of their discussions with, you know, their suppliers, i.e., you know, have they changed? Because now they are on the hook to provide and assure that assurance of capacity for the next few years.

I think that's probably a part of what's behind these very rich, robust longer-term conversations that i was describing earlier in our talk but that i mean like i said the confidence in these conversations is very very high and this is probably certainly part of it uh on uh you know dram uh how is your content changing you know from three uh you know hbm three to four and i saw yesterday samsung talk about hbm five you know as well so how is your kind of content evolving along these different hbm generations yeah as the stack grows and as the dimensionality of the holes we're drilling gets tighter the need for equipment grows obviously right if you go from 8 to 12 to 16 die you're putting together for the same construct you need more equipment and again we own the tsv we do most of the tsv for everybody in the industry and so that's a big part of of what's showing up and then if you layer on these die get bigger the trade ratio changes you've got the process noted in of itself going from one beta to one c to one gamma and beyond our sam grows just in the process itself and then you layer hbm on top of it does your opportunity change doug if um memory goes from kind of more conversions and upgrades towards more more greenfield if you could kind of walk us through you know does it make any difference to lamb um you're really asking a nand question now because largely what we see happening in nand are conversions right the installed base is converting from one process node to the next is what's happening right now um i'll take you back to a year and a half ago we described a view that the industry would need to spend 40 billion dollars over several years to go through these conversions. On our last call, Tim updated that statement to be, okay, that $40 billion, we believe, will be largely complete by the end of next year. So it's happening sooner. And so at the point that you get through, okay, things have been converted, you're going to need wafer capacity added. We're happy with conversions. We get a bigger share of spending. When wafer capacity gets added, The customer base will need to spend more. Our share is still quite strong. So we're almost agnostic between one or the other. We're here to support customers in whatever makes sense for them. Right now, that's largely oriented around conversions. But at some point, you're going to need a little bit more wafer capacity.

Do you think the allocation of, you know, new clean room to NAND kind of lags? Because, you know, most memory companies are a lot more profitable than DRAM. So it makes more sense for them to allocate.

That's what I observed happening, whether people are consciously saying this or not. Right now, clean room is a constraining item. Three of my customers do both NAND and DRAM. And to the extent that there's clean room constraining things, what are you going to invest in? Well, you're going to invest in where the highest profit opportunity is. And right now, that's DRAM. NAND is getting closely caught up, though. And profitability is quite attractive in NAND right now. So NAND will accelerate at some point, but right now DRAM is getting the priority is what I observe happening.

The fact that, you know, over time, more clean rooms can, you know, if let's say there is a lag with which clean rooms get allocated to NAND, does that extend your growth cycle kind of further out, right, versus, right, some of your peers who might be more DRAM exposed? Is that a...

You know, I think so. but listen everything is tight right now and so that's going to extend the investment profile until these constraints start loosening up which i just don't see happening in the near term okay and then within the clean room that customers have do you see them upgrade their tools faster and i'm talking more dram rather than that listen there's always upgrades that happen yeah that's a high return way to get the next generation tool capability is if there's an upgrade path for a tool almost always the first priority is going to be do the upgrade before buying new equipment okay uh what do you think has helped lamb do so well in in you know foundry logic right you mentioned over half the business was in foundry the last two uh quarters uh is it

all share gains is it is it just that you know the pace with which technology is you know rolling out you mentioned the change in uh you know transistor you know geometries and transistor forms what has head plan.

Yeah, it's back to what I tried to describe earlier. Things are inflecting in the third dimension. In the most advanced foundry, you have a FinFET structure going to gate all around. And if you look at the little pictures of this, there's these nanosheets that need to get created. They get created by depositing material and then etching it, sometimes selectively etching it. So it's a different way of etching. You're doing it sideways. That's etching deposition. so our sam grows the opportunity to sell more equipment grows because of the technology inflections that show up so that that's one statement right there's ald steps in there there's selective etches in there there's always conductor and dielectric etch in there it's just it plays to the strength of what we do and the product portfolio is very strong we are the unequivocal leader in conductor etch in this industry unequivocal by a lot and so when you see that showing up that helps and then you layer on top of that advanced packaging again back to the tsv these are 3d structures it's just what we do got it you know one of the very key part of

your business is the you know customer service and business group right cs uh you know csbg in many ways it's my favorite part of the business model is the customer support business group right and now over two billion dollars right on a quarterly 2.1 last quarter yeah um why do you think the growth rate or when do you think the growth rate there starts to converge with your tool business or or it is you know that that's just the natural consequence of you know this is kind of a long tail you know kind of secular right uh uh embedded base business as opposed to something that's exposed to new tools yep so let me unpack it a little bit for those that might be new to the story the customer support business group we call it cspg four components of that

business it's upgrades it's service it's spare parts um spare parts is a pretty large component of it and so when you when you think through why is it so strong right now utilization in the industry is very high right it's basically running at 100 so you think about spares and service the consumption of spares and service is modulated by the number of chambers in the field as well as utilization. Utilization is 100%, can't get any higher. So in the March quarter, that's why it grew so much. 100%, you can't grow beyond 100%. So those two things in the more near term are going to grow, but not as much as you saw in the March quarter. So that's why I tried to pull people back a little bit relative to what's going on the the place we're innovating in this is what we call advanced service it's using equipment intelligence and co-bots to deliver service in a different more predictable way that frankly customers like quite a lot so that portion of when you think about service that drives incremental growth on top of everything else but i love this part of the business model and in fact a lot of these meetings i've been doing today and last week people don't ask about this part of the business it's a third of the business right very profitable very recurring right fabs are always running which means they consume spares and service so like i said in many ways to me as the cfo of the company this is my favorite part of the business model. It just keeps running. People are often surprised to hear that our tools literally will run for decades. The Reliant product line I didn't talk about, but this is the part of the business where we're selling tools that have been around for a long time. It used to be refurbished tools. Today, there's almost no refurbished because nobody's given up equipment, but it's selling older model equipment into fabs. That's a really good part of the business model because the tool was designed a long time ago requires not a lot of r&d we're just building the same tool that we built 10 years ago and selling it so you see that in the analog space in power in cmos image sensors a lot of the business that we have in the china region is the reliant product line great part of the business so anyway when you put this all together it's quite profitable it's quite cash generative and it's very recurring got it um i know we have had this discussion before but do you think you would ever feel comfortable giving like a backlog right for because if this business is to be rated as you know let's say a sass right subscription type business then people would also love to know what what is the backlog no we don't give backlog okay asked and answered um listen i i think the thing everybody when you ask me about backlog you want to know the visibility we have into the business i already described what's going on there right industry is constrained industry is going to grow again next year right i mean the nature of the conversations showing up are very robust you don't need backlog to hear me describe that and i'm a pretty conservative guy generally speaking i'm talking as optimistically as you've ever heard me if you've listened to me talk for a while because i've i've not seen it as

as rich as it is right now with these conversations been right uh one thing that um i think lamb has perhaps said or some of your peers have said is that there is there is the potential for you know just fab equipment to grow faster in 27 than in 26 is that still a reasonable expectation you feel 27 is going to be a pretty good growth year again because we're constrained this year all of the unmet demand will roll into next year clean rooms will become more available if you look at totality of projects in the industry 27 should be a pretty good year and do you think the mix changes in any way? Does it, you know, favor any one of the areas?

I think you're going to see continued investment in Leading Edge Foundry, you're going to see continued investment in DRAM, and you're going to see NAND begin to catch up a little bit to those other two. Okay.

One of the questions that, Doug, as you've seen come up is, you know, are semi-caps extracting as much value as every other player in the ecosystem? And then we have definitely seen, you know, gross margins that used to be in the mid-40s have now come up, right, towards 50. Into the low 50s, yeah. Yeah, low 50s. Do you think that that's a durable trend and how much more upside is kind of left in this margin expansion journey?

Yeah, listen, I think we're very focused on right now making sure we're getting fairly paid for the value we're delivering. And that's not a new phenomenon. That's always been the case with our business. We're always working on that. And your observation is exactly right, right? For the first decade I was at the company, our gross margin was pretty consistently in the middle 40s. And then we moved into the high 40s and we're now touching low 50s. And we've got inflationary headwinds we're dealing with. When you've got oil above $100 a barrel, we fly stuff all over the world. You've got to manage all of those type things that show up both for us directly as well as in our supply chain. We're dealing with a little bit of a headwind and customer mix. Some of the most profitable customers aren't growing nearly as much as the biggest customers who tend to get a little more favorable pricing, a little bit anyway. And so as you think through that, I went out of my way on the last call to say, listen, as we go through the year, we see these headwinds. We're working on efficiencies. We're working on pricing. And so I said, keep gross margin right where it is, in that 50-ish percent, 15.5% is what we just guided to. We're managing the headwinds that we see in the short term through a variety of things, including pricing.

You know, historically, WFE and SemicapX have kind of grown in that 8%, 10% range. But, you know, here we are in front of multiple years of, you know, 20%, 25%, right? Strong growth, yes. Much stronger than before. How is land prepared, right, from an operational perspective, from a capacity perspective? Where are you seeing the constraints in your ability to kind of execute to that growth?

Listen, I think, again, also on our last call, we went out of our way to say, hey, we're building a second manufacturing facility in Malaysia. So that's part of this. We anticipated what was happening and we're getting ready for it. Like I said, we are spending a lot of time with customers working on the demand signal they're providing to us such that we can then make sure that propagates back through our own supply chain. And so I don't want to say it's working flawlessly, perfectly. When you build this complicated of a product as we build, there's always things that you're having to expedite and work on, and it costs money to expedite things. And so we're managing all of that pretty effectively. It's not to say that it's easy. It's absolutely requiring a ton of time, a ton of effort to make sure every single component in the bill of materials shows up when it is required and needed. And we're having to expedite lots of different stuff, but we're managing it pretty well. And I, you know, I know my team listens to me when I talk at these things. I want to thank the Global Operations Organization at Lamb Research. I know everybody that works there is working super hard on all of this stuff. And it's enabling execution that is extremely good from us.

Got it. Hypothetically, if next year WFE grows 35, 40 plus percent, what would LAM need to do differently today?

We're doing everything we can do to make sure we are not going to be the constraining item in the industry based on the demand signal we're getting from our customers. So we're actioning everything that I think we need to do to be ready for what customers are telling us they need. And I'm not going to say that growth number you said is the right growth number. It's going to be a good year next year, but I'm not going to endorse that number necessarily.

China, should one just assume it kind of stays in this 25%, 30% exposure and that that's just the easiest way to...

I think so right now. I mean, the way we've described the wafer fab equipment spending in China is it's flattish to slightly up this year from last year. And as a result, as a percent of overall WFE and as a percent of LAM Research's revenue, it will decline because everything else outside is growing faster than that. So that's the way I think about China. It's not going away. It's just pretty steady.

On just kind of capital allocation, so I think the semi-cap industry has done a remarkable job, although not always appreciated as much for kind of buybacks and returns, right? Retiring, actually retiring a big chunk, right, of outstanding shares. How do you think about capital allocation? And is there a scope to actually target even higher dividend years or you think buybacks are still a better way to use your cash?

Great question. Listen, our plans are to return 85% of free cash flow to shareholders. In the last several years, we've returned more than that. Underneath the covers of that, our intention is to grow the dividend on an annual basis. I think the last three years, we've grown it annually 15%. We'll grow the dividend again this year. I'm not going to apologize for the fact that the dividend yield has declined because the share price has gone up. You know, that's a good problem for all of us. I do look at that yield. I do benchmark it to everybody else in the industry. I want to make sure we're competitive with that. But then to get to the 85%, we supplement that annually growing dividend with share buyback. And that's still the plans of the company.

I know M&A is tough in the industry, but any places where you think there is a scope for kind of tuck-in acquisitions? I don't know.

Over the years, we've done some small tuck-ins, and in fact, we did a panel packaging tuck-in that I'm super happy that we did a few years ago, but that's all that's left in the industry. The big stuff is in the rearview mirror. Large-scale M&A, I think, is in the past.

Thank you so much, Jack. Thank you for having me. Appreciate it.