Semiconductor equipment maker Lam Research (NASDAQ:LRCX) beat Wall Street’s revenue expectations in Q4 CY2024, with sales up 16.4% year on year to $4.38 billion. On top of that, next quarter’s revenue guidance ($4.65 billion at the midpoint) was surprisingly good and 7.7% above what analysts were expecting. Its non-GAAP profit of $0.91 per share was 3.5% above analysts’ consensus estimates.
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Lam Research (LRCX) Q4 CY2024 Highlights:
- Revenue: $4.38 billion vs analyst estimates of $4.31 billion (16.4% year-on-year growth, 1.4% beat)
- Adjusted EPS: $0.91 vs analyst estimates of $0.88 (3.5% beat)
- Adjusted Operating Income: $1.34 billion vs analyst estimates of $1.30 billion (30.7% margin, 3.2% beat)
- Revenue Guidance for Q1 CY2025 is $4.65 billion at the midpoint, above analyst estimates of $4.32 billion
- Adjusted EPS guidance for Q1 CY2025 is $1 at the midpoint, above analyst estimates of $0.87
- Operating Margin: 30.5%, up from 28.1% in the same quarter last year
- Free Cash Flow Margin: 12.7%, down from 35.6% in the same quarter last year
- Inventory Days Outstanding: 172, down from 177 in the previous quarter
- Market Capitalization: $95.87 billion
"Lam is executing at a high level at a pivotal moment for semiconductor manufacturing. Increasing demands on chip performance play into Lam's strengths, with advanced deposition and etch applications set to comprise a growing share of WFE," said Tim Archer, Lam Research's President and Chief Executive Officer.
Company Overview
Founded in 1980 by David Lam, the man who pioneered semiconductor etching technology, Lam Research (NASDAQ:LRCX) is one of the leading providers of wafer fabrication equipment used to make semiconductors.
Semiconductor Manufacturing
The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.
Sales Growth
A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Lam Research’s sales grew at a solid 11.2% compounded annual growth rate over the last five years. Its growth surpassed the average semiconductor company and shows its offerings resonate with customers, a great starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. Lam Research’s recent history marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 7.8% over the last two years. 
This quarter, Lam Research reported year-on-year revenue growth of 16.4%, and its $4.38 billion of revenue exceeded Wall Street’s estimates by 1.4%. Company management is currently guiding for a 22.6% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 9.8% over the next 12 months, an improvement versus the last two years. This projection is above average for the sector and indicates its newer products and services will fuel better top-line performance.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Lam Research’s DIO came in at 172, which is 16 days above its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are higher than what we’ve seen in the past.
Key Takeaways from Lam Research’s Q4 Results
We were impressed by Lam Research’s optimistic revenue and EPS guidance for next quarter, which blew past analysts’ expectations. We were also happy this quarter's revenue and EPS outperformed Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 6% to $79.76 immediately following the results.
Lam Research had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
