Lam Research Is Misreading Tea Leaves on NAND Memory Outlook
Summary
Lam Research faces persistent challenges in the NAND market, with demand weakened by prolonged oversupply and slow recovery in pricing
Overreliance on China for revenue, representing up to 41% in early 2024, exposes Lam Research to regional and geopolitical risks as U.S. restrictions and China’s policy shifts intensify
China’s revenue share for Lam Research is expected to normalize to 30% by the end of 2024, but further declines are possible if demand aligns with ASML’s forecasted 20%
Lam Research positioned to capture demand shifts through advanced packaging and AI-driven applications
Lam Research (LRCX) delivered robust results in the September quarter, exceeding both revenue and earnings per share targets, with profitability surpassing the high end of guidance. This marks the company’s fifth consecutive quarter of revenue growth, indicating strong execution in a challenging environment where NAND spending remains subdued. The outlook for the December quarter remains solid, reinforcing confidence in its ability to navigate a volatile market.
Outlook for Wafer Fab Equipment (WFE) Spending in 2024 and Beyond
I expect WFE spending in 2024 to remain in the $90 billion range, but down from 2023 revenues on the basis of catastrophic results from Intel and a drop in its WFE spend. Artificial intelligence (AI) continues to drive strong investments in advanced logic nodes and packaging, including high-bandwidth memory (HBM). Domestic China WFE spending is projected to decline in the second half of 2024, with Lam’s revenue from China normalizing to about 30% of total sales in the December quarter, down from 37% in Q3.
In 2025, I anticipate that WFE will drop further from 2024 levels due to cuts in China spend, particularly at lithography supplier ASML, according to The Information Network’s report entitled “Global Semiconductor Equipment: Markets, Market Shares and Market Forecasts.”
Readers must remember that for ASML’s (ASML) DUV lithography to work below 32nm, multiple patterning is needed with a combination of etch-deposition-lithography. As lithography sales drop in China to be closer to ASML’s historic 20% of revenues from high 40% through half of 2023 and all of 2024, sales of etch and deposition will also drop. I addressed this in an October 20, 2024 Substack article entitled “ASML’s Q3 2024 Earnings: Navigating China Sanctions Amid Broader Market Weakness.”