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

To: H-nator who wrote (1750)	1/22/1998 3:36:00 PM
From: Clarksterh	Read Replies (4) \| Respond to of 5867

CC Notes: Before listing the results of the CC, I should point out that Lam is taking a different attitude to the SEA/DRAM problems than the rest of the industry. They stated very clearly that although many of the other executives in the industry believe that the hiccup may last only 1 or 2 quarters, Lam believes that the industry will not see a substantial upturn in orders until late calendar '98. Thus, they are being more conservative in regards to accounting practices, and growth of operating expenses. So, on with the notes: 1) Rev's for last quarter were $292M, new orders were $281M. In addition the backlog was purged of all doubtful items, which includes all items without firm shipment dates. The backlog thus stands at $277M. For the shipments this quarter, 44% was North America, 19% Europe, 10% Korea, 18% Taiwan, 5% Japan, and the rest was general SEA. For new orders this last quarter, it was 48% N.A., 19% Europe, 5% Korea, 18% Taiwan, 7% Japan, and the rest was general SEA. 2) GM was 37.8%, much the same as last quarter. The reason for the lack of growth was primarily that the product mix shifted substantially towards the Alliance product which has a lower GM, although moving rapidly upward. A secondary reason for the lack of improvement in GM was currency. However, they are actively working on getting to the 48% GM by mid calendar '99. They are doing this by cutting their cost of materials by 15% (and given that it currently makes up 30% (their number)of costs, that equates to a 4.5% (my derivation) change in GM). Simultaneously they are expecting to get another 4-5% by improving the warranty situation (discussed later). And finally, 1% or so comes from throughput related efficiencies. 3) Cash is at $440M, and inventory turns went to 2.8X. 4) New orders for last quarter were substantially smaller than origninally expected. They had expected $350M, and they lost $110M in cancellations from Korea, and $20M from DRAM manufacturers. However, they managed to get an additional $50M of orders from unexpected sources. (Take the numbers as approximate, since I did not have time to write them all down immediately.) 5) Next quarters revenues will be $255M to $270M. They are actively managing the revenue stream to minimize impact of slow down. This is something that they acknowledged that they are having to do sooner than other companies because 1) they are more pessimistic about the industry over the next year, and 2) they don't have the backlog to fall back on that other companies do. They expect EPS of $0.04-0.06 next quarter. 6) Product info to follow: a) CVD. Thermal CVD efforts will be slowed somewhat in an effort to maintain control of the operating expenses in this downturn. However, HTP CVD is in the final stages of acceptance at three of Lam's customers. They only have a few more kinks to work out, and then they expect to be very competitive. But, no firm dates given. b) Etch. Poly - Still industry leader. Oxide - lost substantial market share over last two years (he also went through the plan for recovery, but I didn't follow it since I don't speak 'damascene'.). Metal - lost market share over the last few years, but expect recovery with their new product. However, recovery can take time since they have to qualify their equipment at a customer, and then that qualification will allow the customer to buy machines as they need them. (Author's note: Thus, presumably, they can confidently predict a recovery long before it shows up in revenues - and they were predicting a recovery, although it was hard to follow.) Lam will continue to spend aggressively in the etch area. c) Post CMP cleaner - Currently will ship in April, although were originally expecting March. Expect incremental revenue in the last 2Q of calendar '98. Software is the current holdup. This continues to be a priority for Lam. d) Alliance tool. This last quarter it made up over 40% of revenues, but expect it to make up greater than 55% next quarter. The original cycle time on the Alliance was 5-6 weeks, and it has now been reduced 25%, and they expect another 25% before they are done. 7) They expect to improve their gross margin substantially by changing their warranty policy. They currently operate with a 2 year warranty, but they will be moving to a 1 year warranty with an option for another year. In addition they will be changing their product in order to bring down warranty costs. 8) General market conditions. Many Japan DRAM expansions have been delayed 6-12 months or deleted altogether. Japanese logic expenditures are expected to be flat. Taiwan DRAM is only spending for technology improvements, and not for expansions. However the Taiwan logic foundries are still going strong. Finally, it was noted that DRAM expansions are few and far between; almost all DRAM orders are for technology improvements.