Lam Research (LRCX) Earnings Call Signals Powerful Upswing

Lam Research Corp ((LRCX)) has held its Q2 earnings call. Read on for the main highlights of the call.

Lam Research Delivers Record Results Amid AI and NAND Tailwinds

Lam Research Corp’s latest earnings call painted a picture of powerful operational momentum and broad-based financial outperformance. Management emphasized record revenue, margins, profit and EPS for fiscal 2025, underpinned by strong execution, share gains and expanding product wins. The tone was notably optimistic around accelerating AI-related demand, advanced packaging growth and a faster-than-expected NAND recovery, even as executives acknowledged constraints such as clean-room capacity, regional mix shifts and some near-term margin pressure. Overall, the call underscored a company leaning into a cyclical upturn with growing confidence that its market position is strengthening.

Record Annual Revenue and Accelerating Top-Line Growth

Lam closed fiscal 2025 with revenue of $20.6 billion, up 27% year over year and the highest in its history. The strong top-line performance reflects rising wafer fab equipment (WFE) demand, especially for AI and advanced nodes, as well as Lam’s expanded served available market. With the December quarter delivering a record $5.34 billion in revenue and marking the tenth consecutive quarter of growth, the company is clearly benefiting from a powerful up-cycle in semiconductor capital spending.

Record Profitability and EPS Leverage

Profitability scaled even faster than revenue. Full-year gross margin reached 49.9%, the best combined-company result since 2012, and gross profit climbed 31% to $10.3 billion. Operating profit jumped 41% year over year to $7.0 billion, and diluted EPS surged 49% to $4.89. Management highlighted this margin and EPS leverage as evidence that Lam is not just riding industry growth but also structurally improving its business mix and cost base.

Quarterly Performance: Momentum Above Expectations

The December quarter extended Lam’s winning streak, with revenue of $5.34 billion setting a new quarterly record and diluted EPS of $1.27 landing above guidance. It marked the tenth straight quarter of revenue growth, reinforcing that demand is broad and persistent across key end markets. The continued upside to internal forecasts suggests conservative guidance and operational outperformance remain hallmarks of the story.

Installed Base and Customer Support Fuel Durable Revenue

Lam’s customer support business (CSBG) continues to be a major growth engine. CSBG revenue hit a record $7.2 billion in fiscal 2025, supported by an installed base that has now surpassed 100,000 chambers. Importantly, CSBG revenue grew faster than the installed base itself, underscoring Lam’s success in driving higher attach rates, service intensity and upgrade penetration within its existing footprint—creating a more recurring, resilient revenue stream.

Market Share Gains and SAM Expansion

The company reported further progress expanding its served available market and its share of WFE. Lam’s SAM share now sits in the mid-30% range, moving closer to its multiyear goal in the high 30s, while ship share of WFE increased by well over a percentage point year over year. These gains suggest Lam is taking a larger slice of an already growing market and capitalizing on technology transitions that favor its portfolio.

Product and Technology Wins Led by Aqara

On the technology front, Lam highlighted notable product wins, particularly for its Aqara conductor etch system. Aqara’s installed base doubled over the past year, bolstered by tool-of-record positions in EUV-related etch and high-aspect-ratio applications. The company also secured multiple wins in advanced DRAM and leading-edge foundry logic. These design-ins should support share gains over multiple nodes and cycles, reinforcing Lam’s role in the most complex process steps.

Advanced Packaging and HBM: Positioned for AI Era Growth

Advanced packaging emerged as a key growth pillar tied to AI and high-bandwidth memory (HBM) demand. Lam expects its advanced packaging business to grow more than 40% in 2026, supported by strong activity in HBM3E and HBM4 as chipmakers stack more memory closer to compute. The company’s strength in electroplating and etch is central to these packaging architectures, suggesting Lam is tightly aligned with the structural shift toward chiplet designs and 3D integration.

NAND Upgrade Upswing Supports Recovery Narrative

NAND was a standout positive on a full-year basis, even if the latest quarter was softer. Lam reported record upgrade revenue in 2025 driven by NAND, up more than 90% year over year, as customers aggressively retool for next-generation 3D NAND nodes. Management noted NAND demand is growing faster than previously expected, signaling that the memory downturn has definitively turned. While the December quarter saw NAND systems revenue fall to 11% of systems sales (from 18% in September), Lam expects NAND strength to build through 2026.

Capital Returns and Balance Sheet Strength

Lam continued to return substantial cash to shareholders while maintaining a robust balance sheet. In the December quarter, it deployed approximately $1.4 billion toward share repurchases at an average price of about $154 and paid $328 million in dividends. Across fiscal 2025, Lam repurchased roughly 39 million shares at an average price of $104 and returned about 85% of free cash flow to investors. The company ended the quarter with $6.2 billion in cash and equivalents, supporting both continued buybacks and strategic flexibility.

Operational Capacity and Efficiency Investments

To keep pace with demand, Lam has nearly doubled its manufacturing capacity over the last four years and rolled out automated warehouses in 2025. It is also investing in R&D and global footprint expansion while broadening the use of its Dextro collaborative robots across six tool types. These moves are designed to increase throughput, improve cost efficiency and support faster cycle times—critical factors as the industry navigates tight capacity and complex supply chains.

Clean-Room Capacity Constraints and WFE Growth Limits

Despite strong end-demand, Lam flagged sold-out clean-room capacity across the industry as a key constraint on WFE growth in 2026. Management’s view is for industry WFE around $135 billion in 2026 versus roughly $110 billion in 2025, but they acknowledged they cannot fully quantify demand that may be deferred or lost due to limited fab space. This constraint suggests the upturn is likely second-half weighted and raises the possibility of undersupply in some device categories, which can support pricing but add timing risk to tool shipments.

China Mix Volatility and Regional Shifts

China remains a large but volatile piece of Lam’s business. Revenue from China fell sequentially to 35% of total in the December quarter, down from 43% in the prior period, with timing effects tied partly to affiliate rules. Management expects China WFE to be roughly flat year over year, implying China will become a smaller percentage of total revenue as other regions ramp more quickly. For investors, this points to a more diversified geographic mix but also highlights ongoing sensitivity to regional policy and regulatory dynamics.

Margin Headwinds from Mix and Near-Term NAND Weakness

Lam’s December-quarter gross margin slipped by about one percentage point sequentially, driven by a less favorable mix of customers and products. Guidance for the March quarter calls for further mild pressure, with gross margin expected around 49% plus or minus one percentage point, reflecting continued customer-mix headwinds. Additionally, the quarter saw a sequential pullback in NAND systems revenue to 11% of systems sales, though management framed this as a temporary dip within an improving multi-quarter NAND trajectory.

Deferred Revenue and Cash Movements

The company’s deferred revenue balance declined to $2.25 billion at quarter-end, driven by roughly $500 million of reduced customer advance payments. Cash and cash equivalents decreased from $6.7 billion in September to $6.2 billion, primarily reflecting capital returns and capital expenditures. These movements indicate customers are taking delivery against prior prepayments while Lam continues to invest and return capital aggressively, consistent with its free-cash-flow deployment framework.

Supply Chain Ramps and Inventory Build

Management emphasized ongoing operational efforts to meet demand that is ramping faster than initially anticipated. Lam plans to build higher dollar inventory to support this growth and provide flexibility as orders accelerate, particularly in AI-related nodes and advanced packaging. While no critical shortages were reported, the company acknowledged variability in other income/expense and supplier ramp dynamics, underscoring that execution on the supply chain side remains a key focus area.

Lumpiness in Service-Related Revenue Streams

Within the otherwise strong CSBG performance, Lam noted some lumpiness, particularly tied to its Reliant systems business. Certain service-related components can produce quarter-to-quarter volatility even as the overall trajectory remains positive. Investors should therefore expect occasional noise in CSBG growth rates, while recognizing that the large and expanding installed base continues to underpin a durable service revenue stream over time.

Forward Guidance: Solid Outlook with Mix and Capacity Caveats

For the March 2026 quarter, Lam guided to non-GAAP revenue of $5.7 billion plus or minus $300 million, gross margin of 49% plus or minus one percentage point, operating margin of 34% plus or minus one point and diluted EPS of $1.35 plus or minus $0.10, assuming a share count of about 1.26 billion and a tax rate in the low-to-mid-teens. Capital expenditures are expected to remain in the 4%–5% of revenue range. Management reiterated a strong balance sheet with $6.2 billion in cash, $5.1 billion left on the buyback authorization and a plan to return at least 85% of free cash flow while retaining flexibility around debt repayment. They maintain an industry WFE outlook of roughly $135 billion for 2026, heavily second-half weighted, and project more than 40% growth in advanced packaging, positioning Lam for continued top- and bottom-line strength despite modest near-term margin headwinds from customer mix and clean-room capacity constraints.

In summary, Lam Research delivered a record year across virtually every major financial metric and signaled confidence that AI, advanced packaging and a strengthening NAND cycle will drive further growth. While investors must weigh risks around fab space limitations, China mix volatility and quarter-to-quarter margin and service lumpiness, the company’s market share gains, expanding installed base and robust capital return strategy underline a compelling up-cycle story. The overall sentiment from management was one of measured but strong optimism as Lam enters 2026 from a position of record scale and improving competitive leverage.