LRCX
#Thanks <UNK>
Good afternoon everyone and thank you for joining us today for our March 2017 quarterly earnings call
The March quarter represented a solid start to the calendar year
We delivered record levels of shipments, revenue, gross margin dollars, operating income dollars, and earnings per share
Each of these metrics grew double digits quarter over quarter
Financial performance was above the midpoint of guidance for all metrics, with operating margin and earnings per share above the high-end of the range we provided to you last quarter
Shipments for the quarter were strong at $2.413 billion which was up 25% sequentially and again above the midpoint of the guided range
Memory shipments were very strong in the quarter, as customers continued their investments in three 3D NAND capacity
Our customers are investing in new 3D wafers, they're converting planar to 3D and they're also embarking on 3D technology conversions to increase layer count
NAND demand continues to be strong driven by growth in enterprise and client SSDs as well as mobile device density increases
The combined memory segment represented 73% of total system level shipments and that compares with 61% in the prior quarter
Memory shipments were weighted heavily towards - excuse me, the nonvolatile segment which represented 50% of shipments in the March quarter compared with 37% in the prior quarter
DRAM shipments grew 24% sequentially in dollar terms and made up 23% of system shipments
DRAM shipments comprise 24% of system shipments in the December quarter
We're seeing an uptick in DRAM spending in line with improving demand in content growth from areas such as smartphones and servers
DRAM spending is largely focused on conversions with the majority being conversions to the 1x nanometer node
The foundry segment was flattish sequentially in dollar terms accounting for 24% of system shipments
Foundry spending was a combination of leading-edge 10 nanometer capacity, initial 7 nanometer pilot investments as well as continued spending at 28 nanometer and above with the latter being primarily focused in <UNK>a
And finally the logic and other segment contributed 3% of system shipments
Revenue came in at $2.154 billion in the March quarter, which was up roughly 14% from the December quarter
Gross margin for the period came in 46.1% above the midpoint of our guidance
And as I've shared with you before, our gross margins are a function of a number of factors such as overall business volumes, product mix and customer concentration, so you will see variability quarter to quarter
And I just like to remind you that our financial model is still the best way to think about our ongoing profitability performance
Operating expenses in the quarter grew as we knew they would to $414 million
This compares to $384 million in the December quarter
Operating expenses as a percent of revenue decreased to 19% compared to 20% in the prior quarter
And as <UNK> pointed out, the majority of our OpEx spending continues to be allocated to funding our critical R&D programs
Operating income in the March quarter came in at $578 million and that compares to $490 million in the prior quarter
Operating margin was 26.9%, above the high end of the guided range
The tax rate for the quarter was 12% compared with 15% last quarter
The tax rate in the March quarter was favorably impacted by the release of tax liabilities from the conclusion of certain tax matters
Additionally, we had a reserve release related to the Novellus acquisition that is included in the GAAP results
The tax rate in the low-to-mid teens for the remainder of 2017 would be reasonable for you to use in your earnings models
Based on our share count of approximately 182 million shares, earnings per share for the March quarter totaled $2.80, above the guided range
This share count includes dilution on a non-GAAP basis from both the 2018 and 2041 convertible notes, with a total dilutive impact of about 16 million shares
And I’ll remind you that dilution schedules for the 2018 and 2041 convertible notes are available on our Investor Relations website for your reference
This quarter we returned $213 million to our shareholders, $73 million in dividend distributions and $140 million in share repurchases
We took delivery of 1.2 million shares at an average price of $114.30. We’ve completed approximately 20% of our current $1 billion share repurchase authorization and I'll let you know that we plan to initiate a $500 million accelerated share repurchase program in the June quarter
Now let me return to the balance sheet
We continue to have both a solid cash position and healthy cash generation
Cash and short-term investments including restricted cash increased modestly to $6.140 billion at the end of the quarter
Cash from operations was $423 million and that compares to $404 million in December
DSO held steady at 69 days in the March quarter, the same level as in December
Inventory turns were 4.2 which was up slightly from 4.1 in the prior quarter
This turns number is the highest we've achieved since we've combined LAM with Novellus
We exited the quarter with deferred revenues of $842 million, which was up from $673 million in December
This amount excludes $260 million in shipments to customers in Japan which will revenue in future quarters
These Japanese shipments are up from $129 million in the December quarter
And I'll just remind you that these Japanese shipments remain on our balance sheet as inventory carried at cost
And I'll just do the math for you
I'd like to point out that this combined deferred shipment bucket now stands at $1.1 billion and it grew 37% in the March quarter
I expect deferred revenue will grow again in the June quarter
Company noncash expenses for the quarter included the following; $35 million for equity comp, $38 million for amortization and $38 million for the depreciation
Capital expenditures were $44 million which was up from $37 million in the December quarter
We ended the quarter with approximately 8,600 regular full-time employees, which was up about 400 from the end of the December quarter
The increase in headcount was in support of our growing business levels primarily in the operations and field organizations
Additionally, we're bringing on board the talent required to execute on our forward looking R&D programs
Now looking ahead, I’d like to provide you our guidance - for non-GAAP guidance for the June quarter
We're expecting another record shipment of $2.500 billion plus or minus $100 million
We’re expecting record revenue of $2.300 billion plus or minus $100 million
We’re forecasting gross margin of 46%, plus or minus 1 percentage point and we're forecasting operating margins of 27% plus or minus 1 percentage point
And finally, we’re forecasting earnings per share of $3, plus or minus $0.12 based on a share count of approximately 180 million shares
We're obviously pleased with our performance this quarter and with the guidance we've just shared for the June quarter
Our business has never been stronger financially and we're continuing to execute extremely well
We're in the right place at the right time with the right products
We're partnering with our customers to enable the transitions happening within the industry today and we're making the investments required to sustain our business long term
Operator that concludes my prepared remarks, <UNK> and I would now like open up the call for questions
Question-and-Answer Session
The only thing I’d like to point out <UNK> is obviously, you know what memory revenue is likely to be this year, it's super strong, right
And so you’ve always have to think about affordability and clearly the levels that are going on today are affordable given how strong revenue and memory is
Yeah, I mean we're - Tim, as you know we guide one quarter at time, we’ll give you a little bit of color which is what <UNK> did, when he said a little more balanced than the 55/45 and there's also reason I gave you the deferred revenue number, so you can think about how that likely transpires through the year
I'm not going to guide the third calendar quarter or the fourth, but I think we've given you enough to model it pretty closely
But specifically is your question, Tim, as more kind of headline for us in terms of the timelines for ship to install and therefore acceptance of revenues
In any one quarter and you don't get to see this unfortunately, but the specific scheduling of shipments in any one week or any one day of any one month, I mean, that kind of jerks the ratios around
So there's is no real story here in terms of kind of changing dynamic of timeline
I mean it’s continued focus on just managing our remote factories, managing our own internal facilities, anticipating what we were going to need to be able to support at this point months and months ago and communicating that to our supply chain partners, <UNK>
I mean it's operational excellence, the way Lam has always executed, just at a different scale here
Yeah, you’re reading too much into Krish
I mean, any time you're doing more this year than you did last year you need more people to execute that, that's the statement around R&D
The biggest area of increase in headcount though Krish is, operations as well as the field who are shipping product real time and installing it at the customers facility
C
J
, the guidance I gave you as you think to margin percentages, even though we’re maybe not exactly on the financial model, we provided to you the margin percentages in the financial model are still good guideposts if you will in terms of how to model our business
So I’d encourage you to go back and have a look at what we shared with you in November there
I’ll give you a comment, <UNK>
I think March is probably the low point in terms of what the calendar year looks like from a system shipment standpoint in the logic and other, it’s going to strengthen through the back half of the year
Will be very small, Joe
Yeah
<UNK> with all due respect, 27 and 26 isn’t wildly different
So me guiding you back the model is a place that you ought to gravitate towards
I don't have a model out there that's a $10 billion model, <UNK>, but if there was one, it probably would be better profitability than the $9 billion model
There is leverage in the model
You've seen it from us as we've grown and I would expect that you would continue to see it if we were to grow beyond the high end of what I have out there right now
When we announced the buyback, it was $1 billion program, $1 billion buyback over a 12 to 18 month timeframe
As we executed through it, I felt like getting into the June quarter, we needed to step up the pace a little bit to execute to what we said we're going to do and that's what we're doing and why we're doing a little bit more in June
And yet <UNK>, I wish I'd done it a quarter ago when the share price was lower, but hindsight's always 2020 with stuff like that
<UNK>, we finished last quarter, I think it was probably about ---+ maybe a little bit about 30% onshore, so about 70% offshore
Whole question around tax reform and when or if or what have you obviously is very topical and feels like every day, it's a little bit different
We're very much taking a wait and see approach, now whether or not to be any tax reform, there's a variety of different ways you navigate through that
But I'm more encouraged today than ever that we're actually going to get something done
