Lam Research Posts Gains But React To No Guidance and Lower Margins

Lam Research (LRCX) beat earnings on the surface, but it appears that the easy trade is to harp on margins after seeing Intel last night and today.

Diluted EPS: $1.15
Revenue: $633.4 million
Estimates were $1.11 EPS & about $621 million in revenues.

Gross margin for the quarter was $322.9 million, or 51.0 percent, compared to gross margin of $313.2 million, or 51.8 percent, for the September 2006 quarter.  New orders recorded in backlog increased 7 percent sequentially to $779 million.  Deferred revenue and deferred profit balances were $284.4 million and $176.8 million; unshipped orders in backlog were approximately $719 million.

"In 2007 we will seek to continue achieving the benefits of our business model and expand upon the momentum in our core etch businesses. We are making excellent progress in our activities associated with our expansion into markets adjacent to etch and are confident that our new products will deliver the type of best-in-class, yield enhancing results that our customers have come to expect from Lam Research," said Steve Newberry, president & CEO of Lam. 

So it looks like we have no formal guidance out of the company and that may keep a lid on after-hours trading activity until the conference call has concluded.  Shares of LRCX have traded up as much as 1% to $54.45 in after-hours, and that is after closing up 1.6% at $54.13 in normal trading.  Shares look down marginally down under $54.00, so right now it seems the easy trade is to harp on margins.  After seeing the reaction on Intel’s margins from last night it is always possible that the street will focus on that 0.8% sequential decline, but who knows until the guidance is out.

The larger companies in chip equipment and chip testing are Kla-Tencor (KLAC), Applied Materials (AMAT), and Novellus (NVLS).  LRCX has a $36.66 to $57.05 trading range over the last 52-weeks.

Jon C. Ogg
January 17, 2007