Lam Research Corp.: Circuit Trained

Despite 94% drop in quarterly profits, wafer fab equipment maker remains confident in future growth.

When you break it down, every business is customer-driven. So when the economy struggles, a manufacturer's survival depends on whether its customers can still afford to buy their products. That capability, or rather a lack thereof, is one reason why wafer fabrication equipment maker Lam Research Corp. saw its net income drop by 94% from the year-earlier period.

The IW 50 Best Manufacturer for 2008 posted third-quarter net income of just $8.9 million, compared with $148.6 million during the year-earlier period. Lam Research's president and CEO Steve Newberry said the results reflect the challenging environment for semiconductor equipment and the worsening conditions throughout the global economy.

"With weakening consumer spending, electronics growth will not be as robust as in recent years, and it is clear that IC [integrated circuit] unit growth going forward will be weaker as well," Newberry explained. "Supply and demand imbalance in semiconductors, especially in memory, appears to have worsened over the past few weeks."

The semiconductor industry's response to the financial crisis has resulted in a significant deterioration in the near-term outlook for wafer fab spending, according to Newberry. Memory pricing is not trending below cash cost at some manufacturing facilities, which has caused manufacturers to close fabs, reduce outputs, and delay investments in new capacity.

Lam Research expects its own wafer fab equipment investment for 2008 to be down around 35% from the spending in 2007. Looking to 2009, preliminary expectations are for spending to be down anywhere between 15% to 30%, relative to 2008.

To manage the downturn, the company plans to reduce operating expenses by $20 million from the second to fourth quarter. Additional cost reduction activities are also being investigated to lower break-even revenue levels, which include evaluation of investment projects and reassessment of near-term priorities.

Lam Research Corp.
At A Glance


Lam Research Corp.
Fremont, Calif.
Primary Industry: Computers & Other Electronic Products
Number of Employees: 3,800
2007 In Review
Revenue: $2.48 billion
Profit Margin: 26.72%
Sales Turnover: 1.22
Inventory Turnover: 6.24
Revenue Growth: 56.29%
Return On Assets: 29.65%
Return On Equity: 49.12%

Despite the significant challenges in the marketplace, the company's long-term outlook is still optimistic for wafer fab equipment spending in support of global IC unit demand. Newberry said the company's strong balance sheet and current cash balance of approximately $1.2 billion will give it the flexibility to make targeted, strategic investments without compromising future growth opportunities.

"We believe these efforts will help us emerge from the present environment in a strong position to enable future revenue and profit growth," he added. "Customers are making tough financial decisions right now, but they are continuing to evaluate the system and service solutions they will need to achieve low-cost, high-yield at next generation technology nodes. That is where Lam Research excels, and we expect to benefit from it in the future."


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