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Lam Research (LRCX) Q3 Earnings Beat, Revenues Miss

Lam Research Corporation LRCX reported third quarter fiscal 2016 non-GAAP earnings of $1.18 per share, surpassing the Zacks Consensus Estimate by 8 cents. Earnings decreased 25.0% sequentially and 16.1% year over year.

This Zacks Rank #2 (Buy) company has an average positive earnings surprise of 6.84% over the trailing four quarters.

Revenues

Revenues of $1.31 billion decreased 7.8% sequentially and 5.7% year over year. Revenues lagged the Zacks Consensus Estimate by approximately $0.04 billion.

Revenues by Geography

Region-wise, Taiwan contributed 27% to third quarter revenues (down 19.7% from the prior quarter), Japan added 13% (down 45.5%), China contributed 15% (down 18.7%) and Korea brought in 27% (down 65.9%).

The U.S. accounted for 7% of the revenues (down 7.8%), Southeast Asia brought in 7% (up 22.9%) while Europe contributed the remaining 4% (up 22.9%).

Shipments

Total system shipments were roughly $1.45 billion during the quarter, up 12.3% from $1.29 billion reported last quarter.

Geographically, Taiwan accounted for 19% of the shipments (down from 38% in the previous quarter), Japan 12% (down from 21%), China 27% (up from 9%), Korea 25% (up from 15%), the U.S. 6% (down from 8%), Southeast Asia 8% (up from 5 %); and Europe 3% (down from 4%).

Margins

Non-GAAP gross profit was $592.5 million, or 45.1% of revenues, a decrease of 39 basis points (bps) sequentially and 44 bps year over year.

Total operating expenses were $350.2 million, down 0.5% sequentially. Operating margin was 18.4%, a decrease of 235 bps from the prior quarter and 145 bps from last year.

Net Income

Non-GAAP net income was $202.8 million (15.4% of sales) compared with $270.3 million (19.0%) last quarter and $244.9 million (17.6%) in the year-ago quarter.

Balance Sheet

Exiting fiscal third quarter 2016, cash and cash equivalents, short-term investments, and restricted cash and investment balances were $4.8 billion, compared with $4.7 billion at the end of second quarter.

Capital expenditures amounted to $46.0 million. The company paid $47.5 million of cash dividends to stockholders during the Mar 2016 quarter.

Guidance

Lam Research provided guidance for the fourth quarter of fiscal 2016.

On a non-GAAP basis, the company expects revenues of approximately $1.525 billion (+/- $75 million). Shipments are projected to be roughly $1.575 billion (+/- $75 million). Gross margin is predicted to be around 46.0% (+/-1%), while operating margin is likely to be about 22.0% (+/-1%). Earnings per share are projected to be $1.63 (+/- 10 cents) on a share count of nearly 173 million. The Zacks Consensus Estimate is pegged at $1.47 per share, so guidance was stronger than expected.

Our Take

Lam Research delivered mixed fiscal third quarter 2016 results with earnings outperforming our estimates but revenues lagging behind.

So far, 2016 has been pretty good for the company as it continues to see strong success in the areas of device architecture, process flow and technology inflections.

In the quarter just ended, Lam delivered revenues and shipments above the midpoints of the guidance. Gross margin, operating income and non-GAAP EPS were above the high-end of the guidance range.

Lam Research has high hopes from KLA-Tencor Corporation KLAC which it has acquired recently. Management expects that the combined company will contribute significantly toward sustainable growth, generating cash and creating value.

Going forward, in 2016, the company sees increased adoption rates of 3D NAND technology, FinFETs and multi-patterning. It is likely to continue as the market leader in dielectric etch as Flex F and G Series dielectrics have been extremely successful products thus far. The company anticipates strong demand for leading-edge silicon in the enterprise market, driven by the long-term move to the cloud, storage and competition applications.

However, concerns persist in the form of volatility and lower growth expectations globally, with slow but steady improvement in some developed markets balancing the weakness in certain emerging economies.

The company believes that its strong position, combined with its commitment to customers and value-enhancing collaborations will help drive performance over the next several years.

Other stocks worth considering in the technology sector are ASML Holding NV ASML and FEI Company FEIC each carrying a Zacks Rank #1 (Strong Buy).

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LAM RESEARCH (LRCX): Free Stock Analysis Report
 
KLA-TENCOR CORP (KLAC): Free Stock Analysis Report
 
ASML HOLDING NV (ASML): Free Stock Analysis Report
 
FEI COMPANY (FEIC): Free Stock Analysis Report
 
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