To The Moon

$Lam Research(LRCX)$ $DJIA(.DJI)$  $NASDAQ(.IXIC)$ $Invesco QQQ Trust-ETF(QQQ)$  

Lam Research Corporation is a supplier of wafer fabrication equipment and services to the semiconductor industry. The Company designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits. Its products and services are designed to help its customers build devices that are used in a variety of electronic products, including mobile phones, personal computers, servers, wearables, automotive vehicles, and data storage devices. Its customer base includes semiconductor memory, foundry, and IDMs that make products, such as non-volatile memory (NVM), dynamic random-access memory (DRAM) and logic devices.

Investment Overview

Diversified revenue source, benefitting from de-globalization trend. The company sells its products and services to the semiconductors' industry in the United States (accounts for 8% of FY22 revenue), China (31%), Taiwan (19%), Korea (24%), Europe (7%), Japan (6%) and Southeast Asia (5%). The company operates in three main segments DRAM chips, NAND chips, and foundry/logic. LRCX has successfully expanded the logic/foundry segment, which now contribute c.46% of total revenue, vs c.36% in 2019. Under the de-globalization trend in the global semiconductor industry, diversified revenue source ties in nicely with the broad-based elevated demand the industry is currently experiencing. The revenue and earnings growth is expected to be less volatile than its corresponding peers.

Riding on the industry’s transition from 2D NAND to 3D NAND; AI to fuel growth. Most of LRCX’s business comes from its memory segment, with NAND and DRAM making up 50% of revenue as at Dec 2022. LRCX is particularly exposed to NAND at 39% of revenue during the last quarter. It would be a long -term driver for the NAND business despite the weakening consumer spending in the short to mid-term. In the artificial intelligence (AI) space, advanced AI servers have significantly higher leading-edge logic, memory, and storage content. Every incremental 1% penetration of AI servers in data centers is expected to add $1B to $1.5B of additional WFE investment. LRCX is broadening its product portfolio to ride on the AI trend. Emerging growth drivers such as generative AI are only in their initial stages of adoption and will be fundamental to drive increasing investment in both memory and foundry logic fabs over the next several years.

Impressive shareholder returns with a highly visible dividend track record. Historical ROE of 57% is among the highest in the industry. Projected ROE of 60.7% and ROC of 40.9% also stand out among peers. Furthermore, the company has initiated dividend payment seven years ago and has raised it every year since. The current yield is 1.86%, and it is extremely safe with a payout ratio below 20%. We could expect decent another dividend payout, based on its current strong track record.

Geopolitical risks. Potential restrictions on chips making equipment to China expand from advanced node to the trailing node and hamper the equipment sales in China. China accounted for 26% of the total revenue in the recent quarter.

LRCX’s share price has outperformed NASDAQ YTD as the demand for advanced semiconductor equipment remains relatively strong during the industrial downturn. We expect LRCX to continue to achieve steady growth with its diversified product and client mix, and benefit from 3D NAND industrial's transition and the AI drive in the long run. We also expect its steady growing dividend to secure a stable shareholder return base.

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