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Lam is a leader in the etch and deposition markets and counts major chipmakers, such as Samsung Electronics and Taiwan Semiconductor Manufacturing, as customers.
Lam has achieved superior share gains in recent years due to its strong equipment offerings in etch and deposition, combined with the 3D NAND and multiple patterning inflections that require more of those particular tools.
Technological advancements in the areas of multi-patterning, 3D device architecture and advanced packaging technologies are playing to Lam’s strengths. Technology transitions help to increase the efficiency of semiconductor manufacturing processes. Since new manufacturing techniques necessitate spending on new equipment, these changes usually lead to increased investment in manufacturing equipment.
However, the semiconductor capital equipment industry experiences rapid changes and is highly competitive globally. To compete effectively, considerable financial resources are required to strengthen and augment product and services portfolio as well as maintain customer service and support locations worldwide. Semiconductor manufacturers assess capital equipment suppliers, and the ability to do well in the marketplace depends upon how well the existing products are maintained and enhanced while new ones are launched to meet customer requirements on a timely basis.
Lam Research derives a major portion of its revenues from outside the U.S. This is natural because a lot of the semiconductor facilities using its manufacturing equipment are located in Asian countries. In fact, in fiscal 2016, revenues from the United States accounted for only 8.4% of its revenues, while Korea and Taiwan contributed 18% and 25%, respectively.
Why are investors bullish about LRCX?
The products manufactured by LRCX are viewed as the essentials for the semiconductor industry.
Semiconductor equipment companies should show double-digit growth year-on-year.
Companies with exposure to memory chip production should benefit from continued growth in memory demand.
In the coming 5 years, LRCX has devised a plan to return 50% of free cash flow to stockholders and raise its quarterly dividend to $1.10 per share (a 120% increase from June 2018).
Besides this, a $2 billion share repurchase program will start in the next 12-18 months.
What do the bears say?
While the semiconductor equipment industry is forecast to grow double-digit in 2018, growth will only be a quarter of the growth exhibited in 2017.