In Like A Lion Out Like A Lam

3/21/2011


  Recent Price
$52
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
10
  Shares (millions)
125
  Long-Term Debt as % of Capital
1%
  52-Week Price Range
$59.10 - $32.56

Lam Research’s ($52; LRCX) business relies on the spending of semiconductor makers, a cyclical group whose demand for manufacturing equipment can be irregular and unpredictable. Adding to that volatility, Lam derives half of its revenue from three customers — Samsung Electronics, Taiwan Semiconductor Manufacturing ($12; TSM), and Toshiba.

However, Lam’s management expects fairly stable conditions for the semiconductor industry in 2011. The worst of the inventory correction in the semiconductor market appears to be over, and companies could begin replenishing inventory in the second half of the year.

Lam makes equipment that etches and cleans silicon wafers as they are being transformed into semiconductors. Lam earns an Overall Quadrix® score of 99, helped by its strong operating momentum, discount valuation, and sturdy balance sheet. The stock is a Focus List Buy.

Optimistic guidance

Lam sees shipments for the first half of the calendar year resembling levels from the latter half of 2010. That would imply year-over-year growth of 19% for the first six months of 2011. For the March quarter, the midpoint of Lam’s guidance equates to $800 million for revenue, up 26%, and earnings of $1.33 per share, up 41%.

With the environment appearing to stabilize, Lam is turning its attention toward cash generation. Based on management’s comments and analysts’ revenue targets, cash provided by operations could reach $457 million to $522 million in the six months ending June, implying growth of 66% to 90%. Even the low end of that range, combined with first-half operating cash of $441 million, would exceed Lam’s all-time high of $824 million, set in fiscal 2007.

At the end of December, Lam held about $1 billion in cash, up 60% and equating to more than $8 per share. Management has been quiet on its plans but did suggest it will consider stock buybacks at the right price.

Industry effects

Lam’s stock — along with those of other semiconductor-related companies — slipped in recent weeks as a wave of jitters swept over the industry following the release of weak January semiconductor-equipment sales and concerns about a glut in computer tablets later this year.

Other indicators are more positive. Global semiconductor sales rose 1.5% in January after two months of declines. And Taiwan Semiconductor, which accounts for 15% of Lam’s revenue, reported 9% higher February sales. The tragedy in Japan has already caused some component prices to rise. But with the bulk of Japan’s semiconductor production located well south of the earthquake’s epicenter and Lam’s largest customers already reporting some Japanese factories back on line, the effect on Lam’s operating results should be temporary.

At less than 10 times trailing earnings, Lam shares trade 20% below the average semiconductor-equipment stock in the S&P 1500 Index. Lam seems capable of a rise to $64 to $66 over the next 12 months. An annual report for Lam Research Corp. can be obtained at 4650 Cushing Parkway, Fremont, CA 94538; (800) 526-7678;
www.lamresearch.com.

 

LAM RESEARCH
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Dec '10
1.74
vs.
0.54
+ 79%
52.91
-
36.77
10 - 7
Sep '10
1.52
vs.
0.13
+ 153%
43.76
-
35.39
12 - 10
Jun '10
1.10
vs.
(0.46)
+ 219%
43.42
-
35.33
20 - 17
Mar '10
0.94
vs.
(0.71)
+ 263%
41.56
-
32.07
NM
Year
(Jun.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2010
2.13
2.71
0.00
43.42
-
25.51
16 - 9
2009
1.12
(1.00)
0.00
40.42
-
14.72
NM
2008
2.47
3.55
0.00
60.82
-
35.98
17 - 10
2007
2.57
4.71
0.00
57.05
-
36.66
12 - 8
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
99
97
89
95
94
40
78

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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