Lam Research Corporation (LRCX) reported fourth quarter fiscal 2014 non-GAAP earnings of $1.25 per share, which beat the Zacks Consensus Estimate by 3 cents. Earnings decreased 0.6% sequentially but increased 55.9% on a year-over-year basis. The increase was primarily driven by improved revenues for the quarter.
This Zacks Rank #3 (Hold) company has a good earnings surprise history, posting an average positive four-quarter surprise of 10.2%.
Revenues of $1.25 billion increased 1.7% sequentially and 26.6% year over year. Revenues also beat the Zacks Consensus Estimate of $1.22 billion. The improvement in revenues was primarily attributable to solid execution across the business, driven by the recently updated long term financial models.
Revenues by Geography
Region-wise, the U.S. contributed 18% of fiscal fourth quarter 2014 revenues (up 83.1% from the prior quarter). Europe’s share was 6% (up 1.7% from the the prior quarter) while Japan brought in 14% of the revenues (up 29.5% from the prior quarter). China accounted for 11% of the revenues (down 49.1% from the previous quarter), Korea added 28% (up 1.7% from the last quarter) and Taiwan contributed 20% (up 7.1% from the previous quarter). Southeast Asia contributed the remaining 3% (down 23.7% from the previous quarter).
Total system shipments were roughly $1.16 billion during the quarter, down 7.9% from $1.26 billion in the prior quarter. The memory segment collectively accounted for 59% of the shipments (down from 66% in the previous quarter), NAND shipments contributed 20% (down 48.9% from the prior quarter) while DRAM added 39% to the same (up 19% from the previous quarter).
DRAM shipments comprised 25 nanometer (nm) conversions as well as 20nm pilot production. The DRAM market is seeing healthy pricing and increased demand, which led to increased investment to support both 25nm and 20nm nodes. The company benefitted immensely from these shipments due to its strong position in the multi-patterning applications market.
Foundries accounted for 30% of total shipments, down 1.4 % from the previous quarter Strength at foundry customers should continue as they invest in cutting edge technologies to enable node transitions. Management expects new players to enter the market this year. In the meantime, investment at 28nm and 20nm nodes will continue.
Logic and others constituted 11% of total shipments, which increased 68.8% from the last quarter.
Geographically, the U.S. accounted for 23% of fiscal fourth quarter 2014 shipments (up 92.5% from the first quarter of fiscal 2014). Europe generated 7% (up 28.9% from the prior quarter), while Japan brought in 14% (up 17.2% from the prior quarter). Korea contributed 25% (down 17.8% from the previous quarter) and was the largest contributor for the quarter. Taiwan accounted for 18% (down 24.7% from the prior quarter). China constituted 9% (down 58.9% from the previous quarter), while Southeast Asia contributed 4% (up 22.8% from the previous quarter) of total shipments.
Non-GAAP gross profit was $579.9 million, or 46.4% of revenues, compared with non-GAAP gross profit of $558.9 million, or 45.5% of revenues in the prior quarter. Several factors such as favorable customer mix, product mix and higher business volume contributed to the improved gross margin performance.
Total operating expenses were $322.2 million, up 3.6% sequentially and 8.5% from the year ago quarter. Operating margin was 20.6%, up 45 basis points (bps) from 20.2% recorded in the prior quarter.
Non-GAAP net income was $217.2 million compared with income of $216.4 million in the prior quarter. Non-GAAP net margin was 17.4%, up 45 bps from 20.2% in the previous quarter.
Exiting fiscal fourth quarter 2014, cash and cash equivalents, short-term investments, and restricted cash and investment balances were $3.2 billion compared with $2.9 billion in the prior quarter. This increase was mainly attributable to around $246 million in cash flow from operating activities during the reported quarter, partly offset by $42 million of capital expenditure and $40 million worth of stock repurchases.
Deferred revenue and deferred profit balances improved to $361.6 million and $235.9 million, respectively, compared with $431.5 million and $257.3 million in the prior quarter. Long term debt and capital leases amounted to $817.2 million compared with $810.7 million in the prior quarter.
For the first quarter of fiscal 2015, Lam Research provided guidance on both GAAP and non-GAAP basis.
On a GAAP basis, management expects revenues of approximately 1.15 billion (+/- 50 million). Shipments are expected to be roughly $1.11 billion (+/- 50 million). Gross margin is expected to be approximately 43.7% (+/-1%) while operating margin is expected to be around 14.3% (+/-1%). Earnings per share are projected to be 71 cents (+/- 7 cents) on a share count of $177.0 million.
On a non–GAAP basis, it expects revenues of approximately 1.15 billion (+/- 50 million). Shipments are expected to be roughly $1.11 billion (+/- 50 million). Gross margin is expected to be approximately 45.5% (+/-1%) while operating margin is expected to be around 17.5% (+/-1%). Earnings per share are projected to be 92 cents (+/- 7 cents) on a share count of $177.0 million.
Lam Research delivered encouraging fiscal fourth quarter 2014 results with both the top and bottom lines beating the Zacks Consensus Estimate. Foundries are not the only segment witnessing growth. Lam’s memory business was also very strong in the quarter.
Further, the company provided strong guidance for the first quarter of fiscal 2015. Management believes that the strong WFE spending trends, Lam’s cutting edge solutions and good execution will help the company create value for its shareholders. Lam Research believes that the company’s product mix including multi-patterning, 3D device and advanced packaging industry transitions will boost growth and profitability going forward.
Other better-ranked semiconductor stocks include Fairchild Semiconductor International Inc. (FCS), ON Semiconductor Corp. (ONNN) and Analog Devices (ADI), all carrying a Zacks Rank #2 (Buy). Considering their favorable Zacks Rank, these stocks may be better selections at this time.