LRCX
#Thank you, <UNK>
Good afternoon, everyone, and thank you for joining our call today and what I know is a busy earnings day
We ended the calendar year was strong performance for the December quarter exceeding the midpoint of our guidance and all financial metrics
We delivered record levels for shipments revenue, operating income dollars, and earnings per share both through the December quarter as well as for the calendar year 2016, again demonstrating the company’s ability to grow the business at a pace that is materially faster than WFE as a whole
So we dive more deeply in December quarter, momentum in our shipments continued totaling $1,923 million, which was up approximately 13% compared to the September quarter and was at the high end of our guided range
Shipments for the combined memory segment came in at 61% of system shipments, which was up from 56% in the September quarter
Non-volatile memory shipments made up 37% of the system shipments, which was down a little bit from 43% in the prior quarter
Customers are committed to their technology roadmaps investing in the vision of economically scaling the technology in step with increasing product performance
As we share during our Analyst Day in November, this is an exciting time for the segment to the market, with 3D NAND possibly the largest growth driver in the industry
We’re pleased with our leadership in 3D NAND, in particular with our strong position in the most critical applications like the channel whole edge, the mold stack and the word line fill
DRAM shipments grew 24% of total system shipments compared to 13% in the prior quarter
But the tightening of the supply demand balance in the DRAM segment, customers increase their investments in the December quarter
Content growth in areas such as servers and smartphones, have contributed to a burn down of inventory and corresponding upward movement in DRAM prices
The foundry segment remained strong at 31% of system shipments in the December quarter, which was down slightly in absolute dollars from the record level we saw in the September quarter
Foundry spend was focused primarily on 10 nanometer
As <UNK> mentioned, we’ve made some significant market share gains in the foundry and logic space as our customers are migrating to smaller geometries and implementing more challenging architectures
And finally, the logic and other segment contributed 8% of system shipments, which was flat with the September quarter
December quarter revenues were $1,882 million, which was up 15% compared to the prior quarter
Gross margin improved to 46.4%, which was up 120 basis points from the 45.2% in the September quarter
This was primarily due to business volumes, product and customer mix
And as I always mentioned, you should expect to see some quarter-to-quarter variability in gross margin, the multiple factors such as product mix, customer concentration overall business volumes
And I remind you that our financial model continues to be the right tool for you to use to build your own models, and to think about our ongoing financial performance
Operating expenses came in at $384 million for the quarter, which was up from $372 million in the September quarter
OpEx decreased to about 20% of revenue in the quarter compared to 23% in the prior quarter
Spending allocated R&D was about 64% of total spending in the December quarter, up from 63% in September
You should expect to see more variability in our quarterly spending in 2017 and historically as we’ve changed our methodology and how we record variable compensation to better align the expense with the quarterly profitability
Operating profitability was very strong in the quarter; we generated operating income of $490 million, which was an increase of 34% compared to the $366 million that we generated in September quarter
Operating margin increased to 26%, which was up from 22.4% in the prior quarter, driven by the higher revenue and then improvement in gross margin
The December quarter tax rate came in at about 15%, which was higher than roughly 12% rate last quarter and in line with our expectations
A rate in the middle teens would be a reasonable number for you to use in your modeling for the March quarter as well as 2017. Based on a share count of approximately 181 million shares earnings per share for the September quarter were $2.24. The share count includes dilution from both the 2018 and 2041 convertible notes with a total dilutive impact of about 16 million shares on a non-GAAP basis
And I just remind you, dilution schedules for the remaining convertible notes are available on our Investor Relations website for your reference
We returned $0.30 per share for a total of $48 million in dividend distributions to our shareholders in the quarter
At our analyst meeting in November, we announced an increase in the dividend level to $0.45 per share
The first distribution at the new level was paid out earlier in the month of January
In addition, we initiated purchases under our $1 billion board authorized share repurchase program, which was also announced at our analyst event
In the December quarter, we spent $65 million and took delivery of approximately 619,000 shares at an average share price of $105 per share
Let me now take you through the balance sheet
We ended the quarter with $6.089 billion in cash and cash equivalents on the balance sheet
The cash remains approximately 40% onshore and 60% offshore
During the quarter, we redeemed the $600 million 2023 senior notes and the $1 billion 2026 senior notes under the special mandatory redemption provision of those notes
Cash generation for the company continues to be healthy
In the December quarter, we generated $404 million in cash from operations
In the December quarter, days sales outstanding improved to 69 days from 72 days
Inventory turns also improved from 3.9 to 4.1 times
We exited the December quarter with a deferred revenue balance of $673 million, down a little bit from $704 million in the September quarter
That number excludes approximately $129 million from shipments to customers in Japan
This number is up from $65 million last quarter
I’d like to remind you that those Japanese shipments remained as inventory carried across on the balance sheet and will convert to revenue in future quarters
I do expect to see deferred revenue grow again in the March quarter
Company non-cash expenses during the quarter included the following: $32 million for equity compensation, $39 million for amortization, and $39 million for depreciation
Capital expenditures were $37 million, which is down a little bit from the $42 million that we spent in the September quarter
We exited the quarter with approximately 8,200 regular full-time employees
Headcount additions were targeted at supporting increased business levels and customer ramps
Let me now turn to our outlook for the March quarter
I’d like to provide with our non-GAAP guidance
We’re expecting record shipments of $2.350 billion plus or minus $75 million
We expect record revenues of $2.125 billion plus or minus $75 million
We expect gross margin of 45.5% plus or minus 1 percentage point
Gross margin is down somewhat from the previous quarter due to business mix
Forecasting operating margins of 25.5% plus or minus 1 percentage point
Spending is up in the forecast due to profit depended expenses and payroll related taxes in addition to new R&D investments
And finally, we forecast record earnings per share of $2.55 plus or minus $0.10 based on a share count of approximately 180 million shares
So in closing, we’re very pleased with our performance in the December quarter, as well as calendar year 2016 and the milestones we achieved throughout the year
Looking ahead, we remain committed to our objective of creating value for shareholders and to successfully executing on the growth opportunities ahead of us
We continue to expect 2017 will be a first-half weighted year with shipments more first-half weighted than revenue
Also, as we sit here today relative to the June quarter, we’re expecting June shipments that are roughly in line with what we’re seeing for March
That concludes my prepared remarks
Operator, <UNK> and I would now like to open up the call for questions
Question-and-Answer Session
Yes, it might, Tim, but as always remind you, keep in mind the financial model when you model things
We’re right in the sweet-spot of where we should be relative to that financial model relative to operating income percentage, and gross margin and spending obviously both go into that number
But we’re kind of where we should be is how I think about it
There’ll always be puts and takes around it as you’ve seen over the last couple of years
Thanks, Tim
I’m not going to give you a dollar number, C
, but I’ll remind you, the way to think about it is when you’ve got an accelerating shipment profile like we’ve had you always get revenue lags as it just takes time to get things into the fab and they accepted
And when you’re seeing a guide in March where revenue again is lagging shipments and so I accept deferred revenue will build in March
What happens when shipments level off or if they in one quarter might go down a little bit, then revenue will catch up
Over time it all normalizes and it’s going to be the same numbers, right? It’s just a matter of the rate of change, a second derivative if you will of what’s going on there
For calendar 2017.
Thanks, <UNK>
You think about all time, <UNK>, I mean the practical reality of it is until there is a definitive law out there that you can understand exactly what it requires and what are the laws you do, it’s hard to specifically answer the question
Obviously, if we get accessibility to worldwide cash without having tax penalty that creates a whole lot more flexibility for us to access the cash to do a variety of different things
Some of which might be capital return investment in the business, as <UNK> talked about adjacent M&A
We haven’t had any definitive conversation, because just too early right now and too much uncertainty
But stay tuned, we’re paying very close attention to it
<UNK>, you heard <UNK> described kind of more first half weighted overall both WFE and shipments, and also describe NAND is maybe more first half weighted than the other stuff, so that’s a data point for you
When we look at March as well as June, everything is pretty strong
Everything investments are recurring at leading edge, it’s NAND, it’s DRAM, it’s foundry logic, it’s hitting on all cylinders from my perspective I don’t know, <UNK>, if you…
There you go
You got a follow-up, <UNK>?
Yes, <UNK>, I mean, it grew consistent with our expectations
I can’t remember off the top of my head whether it grew a little bit more in the equipment business or not
But it was roughly in line
It’s still roughly a quarter of the company’s overall business
And you got it right, it’s very cash generative, very profitable business, very broad-based in terms of the number of engagements and number of customers
And generally speaking that chart that Tim Archer showed you at the Analyst Day, we’re very much on track to deliver that, that growth that we had targeted and are targeting
Thanks, <UNK>
Thanks, Chris
That’s probably a reasonable assumption, <UNK>, yeah, it’s - that’s not unreasonable
I am not going to give you specificity is just investments we were making with an eye towards of penetration, two nodes from now that didn’t end up come into fruition
And so we ended up with some assets that didn’t have a forward useful life, so that’s what that was, it was an investment that we decided we were no longer investing in
I don’t know if it’s necessarily more profitable year on year, <UNK>
It’s always been quite profitable
It’s a great business, right? All the investment occurs in new equipment
It gets leveraged in installed base
It doesn’t require a whole lot of investment
It’s just - it’s a very profitable part of the business
But on a year-on-year basis I don’t think it’s really more profitable necessarily
Thanks, <UNK>
Okay, operator, that’s going to be our last question
