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Technology Stocks : Lam Research (LRCX, NASDAQ): To the Insiders -- Ignore unavailable to you. Want to Upgrade?

To: Proud_Infidel who wrote (3963)	2/12/2000 6:06:00 PM
From: Jong Hyun Yoo	Respond to of 5867

This is why SSB chose LRCX as top picks for 2000! 01/28/00 Lam Research Corporation (LRCX $129.50,1-H,Tgt $191.00) Milind --FUNDAMENTALS-------------------------------------------------------------- Price (01/27/00)......:$129.50 52 Wk Range...........:$143.06-$26.25 2000 P/E Rel. to S&P 500:128.6% Target Price..........:$191.00 Dividend/Yield..........:$N/A/N/A% EPS 06/2001E..........:4.90 Book Value/Shr(00)......:$11.02 EPS 06/2000E..........:3.90 Cash Flow/Shr 06/2000E.....:$N/A EPS 06/1999A..........:-1.42 ROE 06/1999.............:N/A% EPS Proj 5 Yr Grwth Rt:25.0% LT Debt-to-Capital(a)...:39.9% P/E 06/2001E..........:26.4x S&P 500 (01/27/00)......:1,445.57 P/E 06/2000E..........:33.2x Shares (Million)........:44.1 (a) Data as of the most recently reported quarter. 01/28/00 Lam Research Corporation (LRCX $129.50,1-H,Tgt $191.00) --OPINION:------------------------------------------------------------------ COMPANY DESCRIPTION Lam is a leading supplier of etch equipment for the semiconductor industry. Lam's revenues are primarily (80%-90%) derived from the etch market and secondarily (10%) from CMP. The company participates in each subsegment of the etch market: metal etch (30% of the total market), oxide etch (50%), and polysilicon etch (20%). Lam led the market between 1994 and 1996 with an estimated 43% (No. 1 position) market share in polysilicon etch in 1996, 31% (No. 1 or No. 2) market share in metal, and 26% (No. 3) market share in oxide etch. Currently, we believe Lam holds a 16% market share in oxide, 32% share in metal, and 38% in polysilicon. In the oxide market, we believe it is a tough battle between Lam, Applied Materials, and Tokyo Electron currently, with Tokyo Electron as the overall market share leader with a 40% share. The new management team put into place in 1997 (led by James Bagley) has performed a remarkable operational turnaround and we believe Lam is well positioned in both a product and financial standpoint. INVESTMENT THESIS Lam has introduced two solid products in Exelan (etch) and Teres (CMP). We believe that Lam will be able to achieve market share gains with the Exelan given its simplicity and performance advantages. The key is differentiating the attributes that the product provides versus competitors' systems. The Teres CMP machine is also a unique tool which has advantages for specific applications such as STI and copper. Etch is an extremely competitive business, as three strong companies - Applied Materials, Lam Research, and Tokyo Electron - have locked horns with each other. Given the narrow system differentiation, we believe that the etch market is also seeing more pricing pressure than the other front-end segments. Lam's redesigned Exelan is a correct step to establish product differentiation and lower material and support costs. The key variables in assessing the future margin structure are competitive pricing pressures in etch, the ability of management to control SG&A expenses to offset the operating margin impact, and the 300 mm R&D development costs. We believe the shares of Lam have more upside potential mainly for three reasons: 1) appreciable gross margin upsides - we are modeling Lam Research to reach gross margins of 46.3% during FY01 which opens up the possibility of 200-300 basis point upside potential - 2) new product cycle in CMP - we believe that with Applied Materials holding CMP market share of 70%, there is clear need for a strong competitor and the revolutionary advantages of the linear polisher open up significant room for Lam to rapidly ascend from 0% to 30% market share - and 3) better end market exposure - for the last 4 years, we have been surprised by the CMP market growth (for example during 1999 we estimate that the CMP market grew 60%-80% versus the industry growth rate of 20%), and we believe that there are at least 1-2 years of accelerated growth in store for the CMP market. With the Teres ready to ramp, Lam is positioning itself in a solid end-market. Net-net, we rate Lam 1H (Buy, High Risk) and Top Pick 2000 and believe it should be the best performing stock in our coverage universe. RECENT RESULTS Lam Research announced a significantly better than expected 2Q00, with EPS of $0.98 versus our estimate of $0.72 (consensus). The upside was mainly due to higher revenues ($289M vs. $270M estimate), higher gross margins (43.5% vs. 42.8% estimate), and better operating expense leverage (27.1% vs. 29.7% estimate). Orders accelerated from September and increased 25% sequentially (versus a 10% sequential increase in September) to approximately $350 million from $280-$285 million. Unlike many equipment companies that recorded a disproportionately high percentage of orders from Taiwan, Lam's orders were well distributed in all regions of the world with particular strength from North America and increased penetration into Japan. Following the better than expected results and our expectation for faster etch market growth (40%+), we raised our FY00 EPS estimate to $3.90 (consensus-$3.82) from $2.97 and our FY01 estimate to $4.90 (consensus-$4.86) from $3.46. With 200-300 basis point upside in gross margins, a new CMP product cycle kicking in, and a richer end-market exposure, we believe that Lam Research will be the best performing stock in our coverage universe during 2000. We reiterated our 1H (Buy, High Risk) and Top Pick 2000 rating and raised our price target from $98 to $191, or 35 times our calendar 2001 EPS estimate of $5.46. VALUATION Trading at about 24-25 times calendar 2001 EPS estimates, Lam is trading at a discount to its peer group (both Applied Materials and KLA-Tencor are trading at 35 times calendar 2001 EPS). We believe this discount is unwarranted and look for the stock to trade at a multiple inline with its peers. Our price target of $191, looks for the stock to reach a multiple of 35x our calendar 2001 EPS estimate of $5.46. We believe Lam deserves a peak multiple equal to its Applied, KLA-Tencor, and Novellus given the gross margin upsides yet to be discounted by the Street. We rate the shares of Lam 1H and Top Pick 2000. RISKS Etch is an extremely competitive business and we believe the pricing pressures will persist with three strong competitors - Applied Materials, Lam Research, and Tokyo Electron. In addition, Lam is operating at a lower level of backlog than it did before. While this is a positive in many respects (shorter cycle times), it is a negative in that it leaves a smaller cushion when orders decline.

To: Proud_Infidel who wrote (3963)	2/15/2000 9:55:00 PM
From: Jong Hyun Yoo	Read Replies (1) \| Respond to of 5867

Looks like LRCX has scored some significant order in the oxide etch at the expense of AMAT and TEL with Motorola. Currently, chip companies in the North America region are starting to expand their production capacity. Considering LRCX had a large portion of revenue coming this region last Q, more robust business condition in North America bodes extremely well for LRCX. Many chip companies are increasingly looking for low cost solution. Trend in the etch business is shifting away from HDP low pressure process to medium pressure process, which is what Exelan offers. LRCX seems to be the company with the right machine at the right time. Additional share gain in the oxide etch will substantially increase EPS growth potential.