Lam Research Earnings: Dreary Memory Demand Doesn’t Cloud Our Long-Term Optimism

Wide-moat Lam Research reported fiscal third-quarter results in line with our expectations, with weak memory equipment sales partially offset by strength in foundry and logic applications. Management expects calendar 2023 wafer fab equipment spending to be down over 25% to the low- to mid-$70 billion range, which is slightly lower than our outlook. Due to elevated inventories, weaker end-market demand, and macroeconomic headwinds, we’re seeing slowing equipment demand at many of Lam’s key customers. Historically, Lam was most leveraged to memory chipmakers, which have slashed their 2023 capital expenditure budgets by 40% to 50% on average. Although the firm has done well to gain share at logic and foundry customers such as TSMC and Intel, we see the next several quarters being quite rough for Lam. However, we believe this weakness is mostly priced into the stock, and we see shares of wide-moat Lam as undervalued relative to our unchanged $620 fair value estimate.