Lam Research at Morgan Stanley Conference: Strategic Growth Amid Challenges

On Tuesday, 04 March 2025, Lam Research (NASDAQ: LRCX) presented its strategic vision at the Morgan Stanley Technology, Media & Telecom Conference. The company highlighted its plans to capture significant growth in the Wafer Fab Equipment (WFE) market, focusing on technological advancements and digital transformation. While Lam Research is optimistic about its future revenue targets, it also acknowledged challenges such as export controls impacting its China business.

Key Takeaways

• Lam Research aims for $25 billion to $28 billion in revenue by 2028 with a 50% gross margin.
• The company is focusing on vertical scaling in NAND, DRAM, and foundry logic to drive growth.
• Export controls are expected to impact $700 million in revenue from China.
• Lam Research is undergoing a digital transformation to improve operating margins by 150 basis points.
• New tools and an expanded CSBG business are central to the company’s growth strategy.

Financial Results

• WFE Growth: Anticipates mid-high single-digit CAGR.
• Revenue Target: $25 billion to $28 billion by 2028.
• Gross Margin: Aiming for approximately 50% by 2028.
• Operating Margin: Targeting mid 30%.
• China Revenue Impact: $700 million affected by export regulations.
• Advanced Packaging Shipments: $1 billion in shipments between foundry logic and HBM.
• Growth in DRAM and Logic: DRAM expected to grow 1.7 times and logic 2 times.

Operational Updates

• Vertical Scaling: Focus on NAND, DRAM, and foundry logic to boost deposition and etch intensity.
• New Tools: Introduction of two new tools to increase market share.
• CSBG Growth: Expansion to enhance profitability and stability.
• NAND Upgrades: $40 billion upgrade opportunity in NAND over the coming years.
• Cryo Etch and Gate All Around: Significant investments in cutting-edge technologies.
• Cobot Implementation: Use of cobots in memory fabs for automated maintenance.

Future Outlook

• 2028 Financial Model: Revenue between $25 billion to $28 billion, adjusted EPS between $6 to $7.
• Digital Transformation: A multi-year program to modernize business processes and upgrade ERP.
• Leading Edge Focus: Concentration on leading-edge customers in foundry logic, DRAM, and NAND.
• 3D DRAM: Implementation expected in the early 2030s, with a transition to 4F2.
• CSBG Revenue: Anticipates more than doubling in the expanding semiconductor market.

Q&A Highlights

• Two Nanometer Share: Strong positioning in gate all around technology.
• Spending Timeframe: Determined by customer and market demand.
• Power Delivery Systems: A technical differentiator for Lam Research.

For a detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - Morgan Stanley Technology, Media & Telecom Conference:

Joe Moore, Analyst, Long and Stanley Healthcare Research: Great. Welcome back, everyone. I’m Joe Moore at Long and Stanley Healthcare Research and very happy to have with us today the management team of Lam Research, CEO, Tim Archer and CFO, Doug Bettinger. I think before we get started, Doug is going to read a safe harbor and then we’ll jump right in.

Doug Bettinger, CFO, Lam Research: Yes. Give me thirty seconds for this. I always like to keep the attorneys happy. Today’s discussion may include forward looking statements that are subject to risks and uncertainties. Actual results may differ materially.

Additional information concerning these risk factors that could cause actual results to differ and those forward looking statements can be found in the risk factors disclosed in our public filings with the SEC on Form 10 ks and 10 Q. And with that, Joe, we’re ready to go.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Great. So maybe we could start, you just did your Investor Day a couple of weeks ago, so fresh in everybody’s mind. Can you remind the audience what messages you want us to take away from that meeting?

Tim Archer, CEO, Lam Research: Sure. Yes. Thanks, Joe. It’s great to be here. It was just a couple of weeks ago, we had our Investor Day.

First one we’ve done in five years. And so we had a whole bunch of messages we wanted to deliver. But really at a very high level, the message is focused around Lam’s expectation ability to outperform WFE as we enter this period of vertical scaling. Basically, if we look at what’s on the roadmaps for every device type, whether it’s NAND or foundry logic or DRAM, we see increased focus on increasing performance, increasing scaling by going in the third dimension. And what that means for us was that deposition and etch intensity will grow.

We’ve seen this coming. We were obviously the leader in the transition from two d to three d NAND. We saw it coming years ago that it would eventually be here in DRAM and foundry logic. And so we’ve been preparing a number of new tools. And so we introduced two significant new tools last week as well we can talk about, which will allow us to gain an increasingly higher share through those inflections.

And then the third key message, since we hadn’t updated in five years, but we’ve talked about it on every earnings call, was our CSBG business, which has just become an ever increasingly important part of our growth and revenue story and especially our profitability and stability story because it has proven to be a lot less a lot more resilient to the kind of WFE cycles that we see in our industry. Every year, our installed base of system grows and every year, we’re working hard to increase our ability to capture more revenue from that growing installed base. And so really at those levels, WFE moving in our favor, the right products at the right time and an installed base that helps us through cycles.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Great. Very strong message given your history with vertical NAND, as you mentioned. Can you talk about maybe this for Doug, talk about some of the market assumptions behind your 2028 financial model, both the WFE and share?

Doug Bettinger, CFO, Lam Research: No, sure. Yes. Listen, when you’re forecasting something that’s three, four years into the future, lots of assumptions going to it, Joe, as you might imagine. Maybe I’ll unpack a little bit of it and then you can ask me clarifying questions if you’d like to. I think overall, first, let’s start with our outlook for WFE.

We think WFE grows at a CAGR of, I don’t know, mid high single digits, a good working assumption, I think. And then maybe more importantly, when we look at the markets we’re in to the point Tim was making, we see things inflecting in the third dimension with Git all around, the NAND stocks continuing to grow, DRAM going from 6F to 4F to eventually three d. When we look at our addressable market, we see that going from the low 30% of WFE to the mid high 30%. So that’s important. It’s just we’re in a good neighborhood is how I like to describe it.

Thinking through that then, where is that growth coming from? It’s coming from every end market, right? You’ve got we see NAND from current node to future node growing 1.8x, DRAM 1.7x and Thunder and Logic actually where we’ve done really well, two times. We’re obviously excited about that. Like I said, we sit in a good neighborhood.

And so when we look at that, Tim talked about the new products that we announced, right. Acara, right, first new bottoms up conductor etch platform in twenty odd years. We feel great about the strength of the product portfolio such that in that growing share of WFE, we believe we gain a 50% share of that incremental growth in WFE because of the strength in the product portfolio, Joe. Maybe I’ll stop there at the top line. You might want to ask later about profitability and stuff.

I’ve got other stuff I can talk about there. Yes.

Joe Moore, Analyst, Long and Stanley Healthcare Research: I would love to go into that as well. But maybe sticking on the topic of WFE, if you could talk about this year, you guys are looking at mid single digits. Which end markets are driving that? Where kind of how do you bottom up, get to a mid single digit?

Doug Bettinger, CFO, Lam Research: Yes. When we look through it, you’re getting a little bit of an uptick in NAND, primarily conversion related spending. It’s not up a huge amount, but coming off two years of almost no investment, Joe, that’s good for us, right. We get a great share of spend in a conversion environment. That’s what we see happening in NAND.

DRAM, when you unpack it, outside of China, DRAM is growing nicely, right. You get the move to DDR5, walking on the process nodes, high bandwidth memory showing up where we do extremely well in the through silicon via application. So feel good about what’s going on in DRAM. And then foundry and logic, leading edge foundry and logic continues to be strong with the move to gate all around and the incremental addressable market for us in that. That’s what’s driving a little bit of the growth from ’24 to ’25.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Great. So maybe we could double click on some of the markets, starting with NAND. And it’s so impressive how well you guys have done the last couple of years as NAND has really been tough, right, down 70% or so from peak. You talked about the need at the update for $40,000,000,000 over the next several years upgrade. Can you talk about how much of that is your Sam and what your target market share is within that segment?

Tim Archer, CEO, Lam Research: Sure. What we laid out was our view. I mean, obviously, the last couple of years for NAND have been incredibly tough. I mean, the economics of the industry have been pretty challenging coming off of the peak in 2022, where we saw almost $20,000,000,000 of NAND spend down to something in the kind of mid single digit spend at its low. But what we really laid out was the fact that two thirds of the industry’s bits now find themselves being manufactured at layers less than 200 layers on the device.

And that $40,000,000,000 in upgrade spending we see over the next several years is such that customers can begin to migrate that installed base to higher layer counts, higher performing NAND bits, implementing things like QLC, implementing many of the different stacking technologies in that NAND device to make themselves more competitive and more suited to the where the demand is in the marketplace. And so for us, what it means is that we will be selling upgrades to our existing installed base, that large installed base that’s manufacturing today at the 128 and 1XX node, but also we’ll be able to provide new systems that help enable that layer count growth. We talked about a few of these at the Investor Day, things like pCVD carbon gap fill. That’s a critical technology for enabling stacking so that you can stack tiers of layers on top of each other to build ever taller devices. There’s a tool we sell that helps to manage the stress on the wafer by depositing a film on the backside of the wafer that compensates for the front side stress.

And then of course, we also introduced a new tool that deposits moly, molybdenum metalization, which helps with the resistance of the metal lines, which becomes increasingly critical as you go to higher layer counts. So in the upgrade market, it’s a combination of both those install base plus new tools. And we estimate that our SAM is over two thirds of the WFE that gets spent on upgrades. And we capture a very large percentage of that SAM. So the upgrade environment is actually very favorable for Lam.

Yes.

Joe Moore, Analyst, Long and Stanley Healthcare Research: I mean, it’s impressive because your peers didn’t really show the same uptick in NAND that you did. So exactly what you’re saying is spending on upgrading your capacity to maybe enterprise capable NAND and things like that rather than adding supply. And then you’ve talked about the ability to for you to get back to NAND kind of peak revenues without getting to peak WFE. I think it’s some of the effects you just talked about. Can you give more color on that?

Tim Archer, CEO, Lam Research: That’s right. I think it’s exactly the effect of that. If we’re capturing over two thirds of the WFE WFE that’s our SAM and we’re capturing a large portion of that in that upgrade market, clearly, we don’t need the overall WFE spending to reach that new peak before Lam’s capture rate allows us to reach new NAND revenue peaks. And so we haven’t given an exact timeframe for that, but that $40,000,000,000 upgrade market that’s going to take place over the next several years definitely presents an opportunity for us to achieve that new peak revenue.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Okay, great. And then maybe just to touch on a question we get a lot. Tokyo Electron has been pretty aggressive about cryo etch and their opportunity to gain some business in the end through that the use of that tool. Can you just talk to that generally?

Tim Archer, CEO, Lam Research: Yes. So we’ve we have talked a lot about this in the last year. We spent a lot of time working on high aspect ratio edge many, many, many years. Obviously, we’ve been the leader in that space since the advent of three d NAND. And today, we now have what we call the cryo three point zero process.

It’s a process that delivers what we believe are the industry’s best results for creating very high aspect ratio, very vertical structures, again with good repeatability and good productivity. And so we think we’re extremely competitive there. We also have another very favorable offering for the customer, which is that technology can be upgraded to our existing installed base. And so again, we view our customers in this space while the economics may start to improve in NAND, everybody is always looking for the lowest cost, easiest means of upgrading to that next technology node. And so the upgradeability of our tools to now implement Kryo three point zero, I think gives us an edge for any future investments made by our customers.

And so we feel very good about that market.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Okay, great. And then just another development in NAND, the use of hybrid bonding that something that Sandisk and Kioxia talked about in their recent IPO type events, something that I think there’s been some discussion of Samsung licensing some of that capability. Can you just talk about the importance of that for Lam?

Tim Archer, CEO, Lam Research: Sure. So I think if you think about hybrid bonding in NAND, it’s really part of a much bigger trend, which is people have figured out that packaging type technologies, advanced packaging technologies are very suited to helping with scaling. And so we’ve seen that in other devices and now it’s coming demand where you’re going to put the array underneath the cell. You’re going to bond it. And in that case, it creates opportunities for Lam because that bonding process now introduces the need for new tools that help ensure that, that bond is done in a high quality way.

And just one example, we sell a tool which deposits a film around the bevel of the wafer. And that way, during that bonding process, we get a very high performance bond. And so again, it will be important. We show that occurring at some customers at the 200 plus layers and others at nodes beyond that. And so we do think it is the future trend of the NAND roadmap.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Okay, great. Thank you. So maybe on the other markets, starting with DRAM, you talked about three d DRAM. What do you see as the timeframe of implementation and what are the opportunities for Lam?

Tim Archer, CEO, Lam Research: Yes. Big disruptions like three d DRAM will take some time. While we haven’t put an exact timeframe on it, it’s probably the in our view, probably the early 2030s. Okay. But importantly, on the way there, you’re going to get some important learning and some important opportunity for Lam and that is through the transition to 4F2, which starts to introduce the idea of vertical scaling into DRAM in the first sense.

And basically the gates become more vertical and you end up needing high aspect ratio etch. One of the new tools we just introduced, the Acara Conductor Etch Tool, what its real specialty is, is very high aspect ratio conductor etch, very suitable for the challenges that you’re going to see in 4F2. And those same capabilities will then translate nicely into three d DRAM. So we do see this evolution taking a number of years. But over those next seven, eight years, they’ll be learning along the way and DRAM will begin to scale much more vertically.

And as Doug mentioned, in that case, our STAM expands from where we are today through three d DRAM by 1.7x. Okay,

Joe Moore, Analyst, Long and Stanley Healthcare Research: great. And then maybe similarly for Logic, if you could talk to Gate all around and the opportunities for Lam around that investment?

Tim Archer, CEO, Lam Research: Yes. Foundry Logic, I mean, it’s been a real bright spot. I mean, we always start every discussion with NAND, but probably we would now start if we really want to talk about we’re making progress, it’s Foundry Logic. Two fronts, gate all around, we talked about the fact that just in this past year, we shipped over $1,000,000,000 worth of equipment to the gate all around nodes. And the second story in foundry logic is advanced packaging, where we also said $1,000,000,000 of shipments in advanced packaging between foundry logic and HBM, but foundry logic really being one of the critical drivers there of especially the advanced technologies.

So we see our move into foundry logic really being quite successful as deposition and atomic layer deposition, selective etch. And these are areas where, again, Lam looking to expand our SAM began the development of these tools a number of years ago. And now we’re starting to see those processes begin to ramp and that’s contributing to that $1,000,000,000 in shipments in gate all around and we just expect it to grow. And if you look beyond gate all around to CFET, the devices become even more vertical and therefore depth intensity increases even further.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Okay, great. I wonder if you could talk to the cyclical environment and logic spending because it seems like to me when I look at the spend, there’s a lot of spending in gate all around. There’s a lot of spending with which you guys see through Alliant and the more legacy nodes. And there’s actually not that much spending in kind of three, five, seven nanometer, which are the workhorse nodes for kind of everything that we spend all day talking about. So much of the investment is going to advanced technology, advanced packaging and legacy.

Is there an opportunity to see a rebound in kind of the more mainstream technologies as well?

Doug Bettinger, CFO, Lam Research: I guess, Joe, I think about it in two categories. First, the leading edge stuff where we talked about the SAM expansion. Investments there is very strong, driven by AI and things like that, the stuff everybody in the room is excited about. So I think it’s pretty well understood what’s going on there. That was strong last year, we believe continues to be strong this year.

Then when you broaden it out and look at some of the more mature node spending, it’s kind of I think about it in two buckets. Right. You’ve got a decent amount of spending occurring in the China region, which I think everybody understands that shows up in our CSPG business in the Reliant product line. That was quite strong last year, continues to be reasonably strong this year. And then if you look outside of China, we’re coming through a classic semi cycle and analog and microcontrollers and things like that.

I think that’s pretty well understood if you follow semis. Investment there was soft last year, not insignificant, but softer. And I think continues to be soft ish this year. But as we move through that analog cycle, that’ll come back around as well. And we do extremely well in some of that mature node investment, Joe, as you know.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Great. So I wonder if you could talk about China a little bit. Just starting with your kind of views on 2025, you seem to be conservatively approaching that market, obviously, some incremental export restrictions that you have. Can you just talk to your expectations?

Unidentified speaker: Yes. Our view, when you look

Doug Bettinger, CFO, Lam Research: at China this year is as a percent of total revenue is going to be down this year. I think you’re hearing that from all of the equipment companies. We’re no exception. Part of the down percent is a little bit of a softening in the spending in China, but also a strengthening outside of China. So that’ll move that around a little bit.

There were some incremental new regulations that showed up in December and we talked about the impact of that. That was roughly $700,000,000 of revenue we had forecasted, Joe, that would have shown up for us in the second half. And so the fact that that is no longer accessible contributes to that downtick, I guess, in the China percentage.

Joe Moore, Analyst, Long and Stanley Healthcare Research: If you look at those China rules, is there a judgment call about what you can ship and what you can’t? I remember two years ago, everybody had different treatments and then it turned out you could ship stuff to you and think you could six months later. Is it pretty clear cut what you’re allowed to ship and not allowed to ship? And because I know there’s also some customers that aren’t on the entity lists that you’re also not shipping to out of various other restrictions. So Yes, listen, the way

Doug Bettinger, CFO, Lam Research: I look at this and Timmy, if you’re free to add, there’s end use and end user restriction. End use is technology nodes. We do a deep technical assessment of the capability of our tools and make sure we understand that really well. So we know where we can and can’t ship. And then there’s end user restrictions, which are certain companies ended up on the entity list that might not have been before.

You just can’t ship

Joe Moore, Analyst, Long and Stanley Healthcare Research: to them anymore.

Doug Bettinger, CFO, Lam Research: And so it goes into those two buckets.

Tim Archer, CEO, Lam Research: Yes. I think, Joe, the only thing I’d add is, I mean, to your point, we do understand what we can and cannot do. And if there’s any question, obviously, we don’t. And so that’s, yes, I think we feel very comfortable about understanding those restrictions.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Let May I ask the question because you guys have a slightly larger headwind than your two closest peers from a dollar basis and a percentage basis? Any sense for why that would be?

Doug Bettinger, CFO, Lam Research: Joe, it’s always hard for me to answer a question like that because I have no idea what somebody else saw or thinks or contemplated. When we give you that 700, it was a forecast from those customers that just no longer we can ship to. So we can talk about what’s going on here at Lam. Hard for me

Unidentified speaker: to

Doug Bettinger, CFO, Lam Research: guess what might have been going on at another company.

Joe Moore, Analyst, Long and Stanley Healthcare Research: And then what do you think about these export controls from a competitive dynamic standpoint? You have companies like YMTC, which have been on the entity list for years, have gotten to to approaching 10% share of NAND by the end of this year. You have companies like AMEC and NARA, which not really direct competitors to Lam, but they’re very excited about these rules, Chinese capital equipment companies that get a shot in the arm from all of this. And a very resourceful and resilient economy that wants semiconductor self sufficiency. Does this all create headwinds for you five, ten years down the road that you’re sort of creating this level of competition?

Tim Archer, CEO, Lam Research: Yes. I guess maybe I’ll start and Doug can add. But I think clearly, local equipment companies in China have gained traction where we have not been able to compete. Obviously, where we’ve had to exit, they’ve stepped in and been able to take some of that business. Where we are able to compete, we still do extremely well.

It’s there’s a value to the maturity and the reliability and the productivity of our tools and the support that we provide as a global leader in these spaces. But I think that as I step back, we think the future for Lam Research and if we look at where deposition and etch intensity is growing and where we’re investing in new products and a lot of the growth we projected at the Investor Day and we’ve talked about today, it’s all coming in leading edge customers, the far leading edge, whether it be foundry logic and DRAM and NAND. And so we’re really focusing our intention there and making sure that with those customers, those global leaders, we’re running as fast as we can. We’re helping them run as fast as they can. I think that’s the way you stay ahead of any competitor regardless of where they are in the world.

And so while it’s always disappointing not to be able to compete everywhere, We really don’t see it as a real impediment to the long term growth of the company as we’ve laid out last week or two weeks ago.

Joe Moore, Analyst, Long and Stanley Healthcare Research: And it’s hard to ask about the future when it comes to things like export controls because none of us knows. But I guess you guys do seem to have something of a voice in that conversation. I know you’ve had some strong hires in the government affairs area a few years ago. And do you feel like because obviously semiconductor companies are going to have their desire about what can’t be built in China. Do you feel like you have a voice in that conversation as well?

Tim Archer, CEO, Lam Research: Yes. I think we have a voice. I mean, obviously, we always lobby for and advocate for a level playing field for us. We like to be able to compete globally, but we also understand that there are greater considerations at play at times. And as I said, we always adhere to whatever export controls are in place wherever we do business.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Great. So maybe CSBG, I actually have two questions here, both for Tim, but I know Doug loves to talk about it. Maybe give an overview of why you’re so excited about it. It’s my favorite part of the business, I know. And you always get mad if I don’t ask you.

So and then Tim, I want to follow-up on some of the technology. No problem.

Doug Bettinger, CFO, Lam Research: Yes. Listen, CSPG is a great part of the business model, right? On average, our tools after they’re sold will generate more revenue over the life of the tool than when we sell them themselves. And we spend all of these meetings talking about WFE, but this is an important part of the business. It’s spares service upgrades and then the Reliant product line.

And our tools literally run for decades. And Tim can talk about some of the first tools he worked on that we believe are still running in the fabs today. It is a wonderful part of the business model, very cash generative, very profitable. It’s just an awesome part of what we do.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Yes. And it has stayed that way for a long time, for sure. Maybe you could talk a little bit about the Reliant portion of it. We get the question a lot, how big a portion of that is Reliant. And are you seeing a return to an actual refurbished tools business, which is where we began with that?

Or is it still Yes.

Tim Archer, CEO, Lam Research: No, Reliant for the

Doug Bettinger, CFO, Lam Research: most part, we’re selling older models, but new equipment. Yes. We’re always looking opportunistically for is something in the aftermarket that we can sell and refurbish that used to be largely how we competed in Reliant, but not so much anymore, Joe. The biggest individual component of CSPG is spares, always has been. Reliant is number two.

It was pretty strong last year, softening a little bit this year, primarily because of the China stuff that we were talking about. Although when we look at CSPG this year, we think it ends up being flattish year over year because of the strength in the upgrade business.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Great. And then you also talked at the Analyst Day about the cobot aspect of that business. I wonder if you can give us an overview of what’s happening there.

Tim Archer, CEO, Lam Research: Yes. I think that there’s a couple of things going on. One, with respect to semiconductors kind of reglobalizing, meaning that many regions that haven’t done semiconductor manufacturing for a long time or maybe countries that are doing it for the first time, they’re running into challenges with starting up these fabs and then finding the skilled personnel to maintain them. And so that’s true whether it’s an advanced location like United States or it’s one of the newer countries entering the market. And so one of the ideas we have is to use equipment intelligence, which essentially is our ability to use data coming off the tool to make smart decisions about when to perform maintenance, how to match chambers to each other and then marry that up with cobots.

So basically to do automated maintenance at a level of precision that’s beyond what humans can do. And in our first implementation, we’ve implemented this in several memory fabs now. And what we’re seeing is that not only is it eliminating the types of work that our engineers don’t like to do, it’s also doing that work much better. And we’re seeing the tools come back at a higher percentage right first time after preventative maintenance. We’re seeing less unscheduled downtime and this has real benefits for the operating cost of a fab.

And so the use of I think this idea of the use of robotics for maintenance of systems is just going to grow. We’re expanding the number of applications. It was first done on our high aspect ratio of dielectric etch systems because that was pretty intensive and frequent maintenance that had to be done. But now we’re expanding it to more systems, more applications. And I think it’s going to become a big driver of what we call advanced services growth into the future.

Joe Moore, Analyst, Long and Stanley Healthcare Research: That is pretty cool. Is that a different revenue model for you? Or I know a lot of what you do in the services is sort of ensure results in the way for a thing like that. Is that

Tim Archer, CEO, Lam Research: Essentially, it is what we would probably refer to as a results based contract. We’re basically taking over the maintenance using these cobots and using this equipment intelligence and the customer is getting a result performance result out of their tool in exchange. And so I think it’s a win win for us and the customer. And as I said in some of these places, it resolves this issue with not being able to hire and find enough skilled talent in that particular region.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Great. Okay. And if we could follow-up on the financials, if you could talk about idiosyncratic growth drivers to gross margin and operating margin.

Doug Bettinger, CFO, Lam Research: Sure. Yes. Let me take that one. Yes, we just gave an updated financial model for 2028 and then with this cute little model of what a trillion dollar industry might look like for Lam Research. For the first time, Joe, we put a gross margin number out there that started with a five handle.

We were pretty excited to be able to do that. A lot of that frankly comes from an expansion of our Asia factory network, right. As business grows, we will expand increasingly in the Asia regions. Malaysia actually today is our largest factory. And so as business grows, we can more efficiently support that growth in business.

And it’s not just about labor content, it’s also about localization of the supply chain. It’s also about freight lanes that are shorter distances on inbound freight and things like that, that enable we’re just moving stuff around a shorter distance. So you’ve actually already seen some level of benefit from that, Joe. And I actually feel really good, really proud of the company in terms of when the memory market turned on in early ’twenty three, we told you we were going to go do this and restructure things and we did. And it’s showing up now as we’re beginning to see some resumption of business growth.

You’ve already seen 100 basis point improvement in gross margin. So as we look at where we are and where we’re going to go from a gross margin standpoint, it’s largely about that, right, expanding top line and supporting that for manufacturing and doing a lot of the operational work in the Asia region where the customers are frankly, right, it’s just being closer to customers. And so there’s that and then there’s the digital transformation stuff that we began to talk about that.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Yes. I’d love to hear more about that.

Doug Bettinger, CFO, Lam Research: Yes. So let me unpack that for you a little bit. We it’s interesting. Business has grown meaningfully since the last time we did something like this at the company, right? I don’t know, we’re probably five times as big today and maybe even more than the last time we did something like this twenty plus years ago.

And the last time we did something like this, we were a single product company. We hadn’t yet brought Lam and Novelis together, single factory location. We are now a global company with a global footprint, both manufacturing customer. And so as we began to look at business expansion, we realized, you know what, we need to get on and modernize things here. We need better systems to support not just where we are today, but where we see this growth into the future.

And so this is going to be a multi year program. We call it digital transformation or you’ll hear us describe it easier to use an acronym, where we’re modernizing business process, we are modernizing the ERP, we’re going to upgrade the ERP across the totality of the company. We are making ourselves AI ready or AI capable in a lot of ways, right. You got to cleanse data and have things set up for the hooks that these compute algorithms need. And so we’re doing all of that stuff.

So we’re going to go through a couple of years where this is a drag on profitability, Joe. I don’t know, three or four years from now though, it will be accretive to operating profit. And from the trough to where it begins to generate future returns, it’s an improvement of 150 basis points to operating margin. And so that’s also a part of how we get from where we are today in the low 30% operating margin to that mid 30%. In addition to the gross margin stuff I talked about, DT is going to help get us there as well.

Tim Archer, CEO, Lam Research: And Joe, I guess one thing I’d add is, I mean, there’s a common thread running to a lot of what Doug just said, whether it was where we’re looking at supply chain and manufacturing, whether it’s DT, a lot of this is about speed and efficiency and being able to service our customers better. One element we haven’t talked about, but has been a key part of our strategy the last several years is putting a lot of our development capability very close to our customers. This is an industry where our leading customers work with us on our most advanced tools. And the closer you can be to make sure that interaction occurs with that speed and efficiency, the faster we can turn out new tools to solve their problems. Those tools tend to be much better fit for purpose, meaning they’re more competitive.

And so you’ve seen us do that. So whether it’s the supply chain, whether it’s our development centers we put in place like Korea and Taiwan, whether it’s DT, whether it’s the semi verse and our virtual simulation and digital twin activity, all of these things are designed to create that next iteration of process or equipment solution faster for the customers. And I think that that’s going to be highly valuable for our competitiveness as we look forward in the next few years.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Great. Let me see, open up to the audience, see if they have any questions.

Doug Bettinger, CFO, Lam Research: We got one up here in the third row, I guess. Go ahead and shout it out. We’ll repeat it.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Repeat it. Will you comment on how much share you can get in two nanometers?

Doug Bettinger, CFO, Lam Research: So the question was, how much share are we going to gain in two nanometers? I don’t know if you want to answer that. Listen, two nanometer is all about gate all around. And so there’s an expansion of creating that nanosheet, right? Selective edge ALD, we feel really good about the strength of our positioning.

Sam is expanding and our product portfolio has enabled some level of share gain. We haven’t broken down what magnitude of share gain versus SAM expansion, but it’s a little bit of both.

Tim Archer, CEO, Lam Research: Yes. I think the when you think about any one of these particular technology nodes also pulls in, but as two nanometers are just beyond, it’s gate all around, it’s the backside power distribution, you end up with a lot more advanced packaging. All these are areas that are highly suited and highly targeted to deposition and etch technologies. And that’s so it’s both SAM expansion plus share gain. And so I wouldn’t tie it quite so much to the specific numerical node as much as those technology inflections like get all around, ultimately, CFET, backside power distribution, advanced packaging.

Those are the types of drivers for us that are highly And how much

Joe Moore, Analyst, Long and Stanley Healthcare Research: does it matter if you have one, two or three foundries supplying those nodes? Like does it change the opportunity if

Tim Archer, CEO, Lam Research: Well, it’s only an opportunity and time. Eventually, when you look at it, all customers, I think, ultimately end up on the same technology roadmap. These things are being done. Take backside power. It may exist on at different points on different customers’ roadmap, but everybody wants better performance at lower power.

And that’s what backside power distribution delivers. And so eventually, everybody gets there. It’s the same as in NAND. There may be different cut in points for, say, moly, but everybody wants lower resistance metal, better performance, lower power. So everybody gets there within maybe one or two nodes of each other just by their own strategic choices.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Other questions from the audience.

Doug Bettinger, CFO, Lam Research: Got one over here. The

Tim Archer, CEO, Lam Research: higher aspect ratio etch tools, sort of anodic plasma power delivery systems? Power delivery systems in our system. Well, we work with a lot of leading companies for different innovative power delivery systems to our tool. Relative to high aspect ratio conductor edge, we recently talked about a new innovation on the Acara system, the most recently introduced tool, which is what we call Direct Drive, which allows us to it’s basically the industry’s first RF matchless system for plasma etching. And what that allows us to do is switch the and control the plasma about 100 times faster than previous approaches.

Today, almost all applications for high aspect ratio include very, very fine pulsing sequences and that finer control with an RF Matchless system allows us to do that. So the power delivery, power source for our plasma is a technical differentiator for the company.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Less than one minute. Is there any

Tim Archer, CEO, Lam Research: more questions? One more over here.

Joe Moore, Analyst, Long and Stanley Healthcare Research: Yes.

Doug Bettinger, CFO, Lam Research: One last one here.

Unidentified speaker: Size of the low end of the scenario versus like if it’s being spent in three years, obviously, on a per annum basis, WFU number will be higher. If it’s being spent on five year Over the next five years, it will be a smaller WFE number. So I’m just wondering how to think about the brisk card rails on that. And obviously, if an end market does better, that’s helpful. But I’m just wondering how you guys think about in the context of Samsung spending and the other guys are reluctant to spend at this point?

Tim Archer, CEO, Lam Research: Yes. So the question was just about the timing for that $40,000,000,000 We didn’t put a timeframe on it. We said next several years. And that’s frankly because our customers and the end market will determine exactly the rate and pace at which those upgrades occur. But what we are certain of is that customers will spend that amount by our estimation to move from the 100 the 1XX layers up to current state of the art.

So whether it’s three years, four years, five years, it’s less important for us. We’re positioned with the right products. We’ve got the installed base. Our SAM is over two thirds of all that WFE spending. And we’re going to capture a large portion of it.

So it’s a great opportunity for Lam.

Doug Bettinger, CFO, Lam Research: Awesome. Well, with

Joe Moore, Analyst, Long and Stanley Healthcare Research: that, we’ll wrap it up there. Tim, Doug, thank you so much. Great. Thanks

Doug Bettinger, CFO, Lam Research: for having us,

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