Lam Research
Thesis
- The business: one of the five WFE manufacturer specialized in etch and deposition.
- Moat:
- Scale - sustained R&D amortized over a large installed base.
- Qualification lock.
- Accumulated process capability.
- Low cost manufacturing footprint.
- Growth drivers:
- Industry WFE spending.
- Share increase.
- Etch and deposition content rising with each 3D device transition (gate all around logic, advanced packaging and HBM, the 3D NAND upgrade cycle).
- Installed base support revenue driven by utilization and node transitions.
- New materials (longer term).
- China headwind.
- Margin drivers:
- Growth margin has been improving on volume shifted to its low-cost Malaysia plant, new differentiated products and pricing actions.
- Operating margin has been improving on lower R&D intensity and SG&A share.
- Risks:
- Clean room constraint releasing that pressures pricing.
- China demand.
- Deepening customer concentration.
- Commodity risk.
Lam versus Applied Materials
- Applied has stronger overall power position, but weaker growth.
- Breadth protects Applied's share of total WFE; depth grows Lam's share of the WFE increment.
- Lam has more concentrated customer base.
- With leaner footprint, Lam absorbs a supply or policy shock with less working capital and less friction.
Lam versus ASML
- Growth engine: Lam by intensity, not capacity. ASML by adoption and is capacity limited.
- Lam has higher growth and is closing the margin gap (less R&D intensity).
- They have similar service revenue, even though ASML is 40% larger by revenue.
- Supply resilience: Lam is subject to a general slowdown, while ASML is subject to a single customer deferring a node and a single critical supplier (Carl Zeiss SMT).
