The boom in AI data center construction is directly translating into orders for semiconductor equipment manufacturers. On April 22, Eastern Time, U.S. semiconductor equipment maker Lam Research, often referred to as the "American ASML," released its financial results for the third quarter of fiscal year 2026 (ended March 29, 2026). The report revealed that both revenue and earnings per share reached new all-time quarterly highs, surpassing Wall Street expectations. The company's stock rose approximately 4% in after-hours trading. Key financial data included:
Revenue for the quarter reached $5.84 billion, a 24% increase year-over-year and a 9% increase sequentially, exceeding analyst expectations of $5.75 billion. GAAP net income was $1.825 billion, up approximately 37% from $1.331 billion in the same quarter last year and about 14% higher than the $1.594 billion reported in the previous quarter. Non-GAAP diluted earnings per share were $1.47, beating market expectations of $1.36 and representing a 41% increase from $1.04 per share a year ago. The operating margin improved year-over-year from 33.1% to 35.0%, indicating continued enhancement in profitability. The GAAP gross margin for the quarter was 49.8%, up 20 basis points from the prior quarter.
CEO Tim Archer stated in the earnings release, "Lam Research achieved record revenue and earnings per share in the March quarter. AI-driven demand is reshaping the semiconductor industry. Our strategic investments and execution efficiency are generating strong momentum, supporting our customers' AI roadmaps, and enabling Lam Research to consistently outperform the market during this critical growth phase." During the earnings conference call, Archer added, "For Lam Research, the AI-driven demand environment is creating ideal conditions for sustained market outperformance." Looking further ahead, he commented, "Right now, it feels like 2027 is going to be a pretty good year."
AI Demand Fuels Sustained Growth for Equipment Suppliers
Lam Research's core products are etch and deposition equipment—essentially machines that carve and build up microscopic circuits on silicon wafers, making them indispensable steps in the chip manufacturing process. The company is a global leader in this market alongside Applied Materials and Tokyo Electron. As the construction of AI data centers accelerates, chip manufacturers like TSMC and Micron are significantly increasing their capital expenditures, thereby driving up demand for equipment. This current upturn cycle began in late 2023 and has continued to the present. Regarding revenue breakdown, system revenue for the quarter was $3.73 billion, while customer support and services revenue was $2.11 billion, both showing sequential growth. Geographically, China remained the largest market, accounting for 34% of the quarter's revenue. South Korea and Taiwan each contributed 23%, Japan accounted for 8%, and the United States represented only 6%.
Next Quarter Guidance Exceeds Expectations Again
For the fourth quarter of fiscal year 2026 (ending June 28, 2026), Lam Research provided revenue guidance of $6.6 billion (±$400 million). Non-GAAP diluted earnings per share are projected to be approximately $1.65 (±$0.15). Both figures surpassed market expectations based on analyst consensus data tracked by LSEG. The gross margin guidance is 50.5% (±1%), and the operating margin guidance is 36.5% (±1%), both indicating improvement compared to the current quarter. If achieved, this would mark Lam Research's third consecutive quarter of record revenue.
A Notable Detail: Decline in Customer Prepayments
Behind the strong earnings figures, one detail attracted market attention: deferred revenue at the end of the quarter was $2.22 billion, slightly down from $2.25 billion in the previous quarter. Furthermore, customer prepayments decreased by approximately $300 million sequentially—reaching their lowest level in nearly four years. Deferred revenue represents orders that have been paid for but not yet delivered. A reduction in prepayments could, on one hand, simply reflect normal timing shifts of orders between quarters. On the other hand, it might suggest that customers are becoming more cautious with the pace of their capital commitments. Financial media outlet Finimize pointed out that "large chip projects often advance not at a steady pace, but in pulses," leading to a wave-like pattern in equipment orders. The fact that the deferred revenue balance remains at a high level indicates a solid order backlog. However, the decrease in prepayments signals that external investors should pay attention to potential shifts in short-term demand rhythm.
Cash Flow and Capital Return
Regarding cash, cash and cash equivalents at the end of the quarter decreased to $4.75 billion, down over $1.4 billion from $6.18 billion at the end of the prior quarter. This was primarily due to a significant capital return program executed during the quarter: share repurchases totaled approximately $1.16 billion, debt principal repayments were around $750 million, and dividend payments amounted to about $330 million. Cash flow from operations for the quarter was $1.14 billion, lower than the $1.48 billion in the previous quarter, mainly impacted by changes in working capital, including an increase in accounts receivable of approximately $640 million. Cumulative operating cash flow for the first three fiscal quarters was $4.4 billion, with the overall balance sheet remaining robust.
Cycle Perspective: Upturn Expected to Extend into 2027
From a longer-term cyclical perspective, Lam Research historically relied on cyclical demand driven by consumer electronics, but the AI era has altered this dynamic. Barron's noted that this upturn cycle, which began in late 2023, "looks set to extend into next year," with Lam Research poised for three consecutive quarters of record revenue. In the wave of AI capital expenditure, equipment suppliers play the role of "pick-and-shovel" providers, typically enjoying higher visibility of demand. However, Barron's also observed that the average analyst price target of around $286 suggests that growth expectations for 2026-2027 are already somewhat reflected in the stock price, adding that "some investors are even already positioning for the next downturn."
Comments