Chipmaking equipment company is latest Silicon Valley company to announce cuts
Lam Research Corp. shares declined in the extended session Wednesday after the silicon-foundry equipment supplier said it will cut its workforce by 7%, while increasing the portion it spends on R&D, as a big drop in memory-chip demand sours its outlook.
Lam Research LRCX, +1.91% shares declined as much as 4% after hours, following a 0.2% decline to close the regular session at $488.40.
The Fremont, Calif., company said it plans to reduce its global workforce by 1,300 employees by the end of March, which does not include a separate 700-person reduction to its “temporary workforce” who were let go at the end of December.
The layoffs come following a big personnel buildup during the COVID-19 pandemic. Lam reported having 17,700 employees this past August, a 65% increase from the 10,700 positions it reported in August 2019.
Layoffs are only one of the cost cuts Lam is making, Chief Financial Officer Doug Bettinger said on the call with analysts. One segment at Lam will not get cut, however, and that’s R&D. Bettinger said the company expects that R&D as a percentage of operating expenses in 2023 will increase compared to 2022.
The cuts come as Lam expects fiscal third-quarter adjusted earnings to come in between $5.75 and $7.25 a share on sales of $3.5 billion to $4.1 billion, while analysts surveyed by FactSet, on average, are projecting earnings of $7.78 a share on revenue of $4.35 billion.
Even with record earnings and revenue in 2002 amid supply-chain difficulties, a drop in spending is forcing the company to take proactive measures, said Tim Archer, Lam’s chief executive.
Lam makes the very complicated machinery used by foundries like Taiwan Semiconductor Manufacturing Co. TSM, +1.13% to make the silicon for chips made by the likes of Nvidia Corp. NVDA, +2.48% and Apple Inc. AAPL, +1.48%, while chip makers like Intel Corp. INTC, +1.31% forge their own silicon.
“With these actions, Lam is focused on accelerating our strategic priorities to capitalize on the semiconductor industry’s long-term growth prospects,” Archer said. On Tuesday, Texas Instruments Inc. TXN, -0.54% announced it would forge ahead in building out its own capacity at a time when many others are cutting back amid a chip downturn.
A drop in demand for computer memory chips hurt Lam especially as it derives half its revenue from memory-chip makers like Micron Technology Inc. MU, +2.05%.
Memory chips consist of DRAM, or dynamic random access memory, the type of memory commonly used in PCs and servers, and NAND chips, which are the flash memory chips used in smaller devices like smartphones and USB drives.
On the call, Bettinger said he expects “we will see both NAND and DRAM revenue declined meaningfully in the March quarter,” and that NAND spending will decline more than DRAM. For calendar 2023, he expects NAND spending to decline more than DRAM.
Lam reported fiscal second-quarter net income of $1.47 billion, or $10.77 a share, compared with $1.19 billion, or $8.44 a share, in the year-ago period. Adjusted earnings, which exclude amortization and other items, were $10.71 a share, compared with $8.53 a share in the year-ago quarter.
Revenue rose to $5.28 billion from $4.23 billion in the year-ago quarter. Analysts surveyed by FactSet had forecast adjusted earnings of $10.03 a share on revenue of $5.1 billion, based on Lam’s forecast of $9.25 to $10.75 a share on sales of $4.8 billion to $5.4 billion.
Lam Research shares have fallen 17% over the past 12 months, compared with a 13% drop in the PHLX Semiconductor Index SOX, +1.63%, an 8% decline by the S&P 500 index SPX, +1.10%, and a 16.5% fall by the tech-heavy Nasdaq Composite Index COMP, +6.59%.