Lam Research Corp Q4 2026 Earnings Call

Good day, welcome to the Lam Research Corporation June 26th earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ram Ganesh, Vice President of Investor Relations. Please go ahead. Thank you, good afternoon, everyone.

Welcome to the Lam Research quarterly earnings conference call. With me today are Tim Archer, President and Chief Executive Officer, and Doug Bettinger, Executive Vice President and Chief Financial Officer. During today's call, we will share our overview on the business environment, we'll review our financial results for the June 2026 quarter and our outlook for the September 2026 quarter. The press release detailing our financial results was distributed a little after 1:00 P.M. Pacific Time. The release and the accompanying presentation slides for today's call can be found on the investor section of the company's website. Today's presentation Q&A include forward-looking statements based on our current beliefs, expectations, and assumptions. These statements are subject to risks and uncertainties, actual results could differ materially from those expressed or implied in such statements.

For a discussion of factors that could cause actual results to differ materially, please refer to the risk factors in our most recently filed periodic reports on Form 10-K and Form 10-Q, subsequent filings with the SEC and the cautionary statement in the accompanying presentation slides. Today's discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. A detailed reconciliation between GAAP and non-GAAP results can be found in the accompanying presentation slides. This call is scheduled to last until 3:00 P.M. Pacific Time. A replay of this call will be made available later this afternoon on our website. With that, I'll hand the call over to Tim.

Thanks, Ram. In the June quarter, Lam delivered record revenue, operating margin, and earnings per share. Sequential top-line growth was led by a doubling of NAND revenue from the prior quarter, underscoring the growing importance of storage to AI system performance. Our Customer Support Business Group also posted strong revenue growth driven by robust demand for upgrades, Reliant, and Equipment Intelligence-enabled services. As we enter the second half of the year, we expect calendar 2026 wafer fab equipment spending, or WFE, to be in the low $150 billion range, up from our prior outlook of $140 billion with upside bias. Against this backdrop of rising demand, Lam's momentum is strong. Our $8.1 billion September quarter revenue guide represents more than 20% growth quarter-on-quarter, we see 2026 shaping up to be our third consecutive year of relative outperformance to WFE.

Looking into 2027, we see an extraordinary setup for WFE growth. AI is driving record revenue and profitability for our customers, who have signaled unprecedented long-term demand visibility. They've also announced multi-year timelines for new fab projects and are working with us to secure equipment orders to fill the incremental clean room space as it comes online. Spending on capacity is occurring alongside investments in technology transitions that are creating structural opportunities for Lam to outgrow WFE. As a driver of industry investment, we are seeing AI progress through distinct waves, from training to inference to agentic, and now increasingly physical AI. Each wave is building on what came before, creating new AI use cases, greater demand, and new performance requirements. We're seeing the impact of this progression, notably in NAND, where expanding context windows and persistent memory requirements are driving significantly higher demand for flash storage.

In response, customers are in the near term adding bit supply and improving device capability through installed base conversions to 200-plus layer architectures. As layer counts rise and manufacturing complexity grows, so does our opportunity. We expect Lam Served Available Market, or SAM per wafer in NAND, to double from the 128-layer node to 500-plus layer devices. AI is also reshaping the technology requirements in advanced foundry logic and DRAM. Gate-all-around, CFET, HBM, 4F squared, and panel-level advanced packaging all feature prominently in the current and future AI device roadmaps. Through these transitions, increasing deposition and etch intensity remains the common thread. Higher aspect ratio structures, more complex 3D architectures, smaller pitch patterning, and new materials integration are all areas where Lam is a leader.

We see the benefit of this technology acceleration in our expanding SAM, and we are moving towards our target of high 30s SAM as a percentage of WFE faster than what we had outlined at our 2025 Investor Day. Let me highlight a few examples that illustrate why we're excited about what's ahead for Lam. Starting with conductor etch, Lam is the industry leader with an installed base of more than 40,000 chambers worldwide. With our latest platform, Akara, we are further strengthening our position. Akara combines unique direct drive plasma technology with industry-leading high aspect ratio patterning capabilities. First adopted for 2 nanometer and below gate-all-around architectures in foundry logic, Akara is now gaining momentum in advanced DRAM. We have secured several strategic tool of record positions, including recent wins for the most challenging gate etch applications.

Since its launch, Akara's installed base has doubled every year, and we expect that growth trajectory to continue in 2027. DRAM pitch scaling is also driving higher interconnect density and wiring complexity. Shrinking dimensions place increasing demands on pattern fidelity, RC performance, and reliability, driving adoption of advanced hard masks, etch stops, and diffusion barriers. We previously addressed these patterning challenges in foundry logic and are now extending those capabilities and our production-proven technologies into DRAM. For example, DRAM customers are adopting our Vector hard mask deposition platform for low-K film patterning. By co-optimizing the hard mask film properties with our conductor etch process, we have shown we can deliver improved transistor performance and better yield. Lam's co-optimized solution also offers over 20% cost savings to customers compared to traditional approaches. Similarly, DRAM customers are increasingly adopting our Vector diffusion barrier systems to meet next-generation requirements.

Our modular architecture combines interface cleaning, etch stop enhancement, and hermetic protection to prevent shorting at tighter pitches and reduce capacitance by approximately 5% versus competing technologies. As devices scale, surface engineering becomes increasingly important for reducing defectivity and variability. In the transition from FinFET to gate-all-around, the number of applications requiring surface treatment roughly doubles. Our Argos selective etch system uniquely addresses this need. By leveraging proprietary plasma technology, Argos creates a radical-rich environment that enables highly selective surface treatment with minimal substrate damage. As a result, we are winning leading-edge foundry logic customers at two nanometer and below and expanding Argos into a growing set of DRAM applications. Turning to advanced packaging. As an industry leader in TSV etch and electroplating, we are on track to deliver greater than 70% year-on-year growth.

The long-term opportunity is even more compelling, as AI performance will increasingly depend less on transistor density scaling and instead on integrating more chiplets, more HBM stacks, and greater memory bandwidth within a single package. We expect each successive generation of advanced packaging to require more redistribution layers, denser copper interconnects, taller mega pillar structures, and increasingly complex power delivery networks. We also see future AI packages exceeding nine times the reticle size, roughly three times larger than today's mainstream device designs. This is driving the industry to look beyond traditional wafer-based architectures toward larger format, panel-level packaging approaches. Panels enable the creation of larger AI packages, but they also introduce new challenges to maintain deposition uniformity, material properties, defect control, and yield across the larger panel area.

By leveraging technology and learning from our wafer-based SABRE 3D and advanced wet processing platforms, we have shipped 510 by 515 millimeter panel systems into development programs across multiple geographies. This year, we will also ship our first 310 by 310 millimeter panel tool, putting us at the leading edge of this important packaging transition. In CSBG, customers are increasingly leveraging Lam's Equipment Intelligence and fab automation solutions to help increase capacity as they race to meet growing AI demand. Lam's Dextro Cobots, the industry's first collaborative maintenance robots, are seeing rapid adoption. The precision and repeatability of automated maintenance is leading to improved first-time right recovery, higher tool availability, and increased output, all critical at a time of industry-wide supply shortages. We are accelerating Dextro application development, and since the start of 2026, have doubled the number of preventative maintenance tasks that can be automated.

Importantly, many of the Equipment Intelligence and Dextro solutions initially proven out for NAND are now expanding into DRAM, creating additional service revenue opportunities in the second half of the year. Overall, we are still in the very early stages of a multi-year rollout of these offerings across our installed base. To sum up, this is an exciting time for the industry and for Lam. AI is driving unprecedented demand, greater technical requirements, and accelerated architectural scaling at both the device and packaging level. These trends all point to more opportunities for Lam. With our etch and deposition technology leadership, our close customer partnerships, and our increasing operational velocity. We believe we are well positioned to outperform this year and in the years ahead. Thank you, and here's Doug.

Excellent. Thank you, Tim. Good afternoon, everyone, and thank you for joining our call today during what I know is a very busy earnings season. We were pleased with our continued strong execution in the June quarter, resulting in our fourth consecutive quarter of record revenue, our highest quarterly gross margin in 20 years, record operating margin, and record earnings per share. We just finished fiscal year 2026, and we had record revenue of $23.2 billion and gross margin of 50.6%. Our diluted earnings per share in fiscal year 2026 was also a record, coming in at $5.82, which was up 41% from fiscal year 2025. We're ahead of the profitability objectives we discussed at our 2025 Investor Day, delivered through robust top-line growth and strong operational execution. Let's look at the details of our June quarter financial results.

Our revenue was above the midpoint of guidance, while gross margin, operating margin, and earnings per share all exceeded the high end of our guided range. Revenue for the June quarter was $6.72 billion, which was up 15% sequentially and up 30% from the same period in 2025. Our deferred revenue balance at quarter end was $2.43 billion, which was an increase of $213 million from the March quarter. The increase was driven by a variety of factors, the largest of which was customer down payments. From a market segment perspective, June quarter systems revenue in memory was 46%, an increase from 39% in the prior quarter. On a dollar basis, this represented a record level for us in total memory. Within memory, non-volatile memory accounted for 23% of our systems revenue, which was up from the March quarter level of 12%.

NAND revenue dollars more than doubled sequentially as the industry focuses on conversions to 256 layer and above class devices, primarily enabling enterprise SSDs. DRAM remained strong, representing 23% of systems revenue, compared with 27% in the March quarter. On a dollar basis, DRAM revenue was flattish with the record level we set in the March quarter. DRAM spending remained directed towards wafer additions and technology upgrades across 1-alpha, 1beta, and 1-gamma nodes, enabling DDR5, LPDDR5, and high bandwidth memory. Foundry represented 44% of our systems revenue, down from the percentage concentration March quarter of 54%. Mature node spending with our customers in China was down sequentially. This was largely offset by strength in leading-edge process node investments in 2 and 3 nanometer capability, as well as advanced packaging.

Finally, logic and other were 10% of our systems revenue in the June quarter, which was up from the prior quarter level of 7%. Let me now discuss the regional composition of our total revenue. The Taiwan region contributed 27% of revenue, up from the March quarter at 23%. Taiwan represented a new record level for us in dollar terms. China declined as we expected it would and accounted for 26% of revenue. I'll just remind you that China was 34% of revenue last quarter. I would mention that within China, the global multinational customers grew sequentially, while the domestic customer base declined. Our next largest geographic region was Korea at 20% of revenue in the June quarter, down a little bit from the March quarter level of 23%.

The Customer Support Business Group generated a third consecutive quarter of record revenue at nearly $2.5 billion in the June quarter, which was up 17% sequentially from March quarter and 43% higher than the same period in 2025. Sequentially, the increase was primarily due to record upgrade revenue. We also saw smaller increases in Reliant and services. Spare part purchases remained consistent with their strong level from the March quarter. Let's look at the gross margin performance. The June quarter came in at 52%, exceeding the upper end of our guidance range and improving from the March quarter level of 49.9%. Gross margin was stronger due to a myriad of factors, including pricing actions, operational and scale efficiencies, as well as a favorable product mix. Operating expenses in the June quarter were $916 million, up from the prior quarter amount of $866 million.

The increase was mainly due to employee-related spending associated with higher headcount and variable compensation expense as a result of our improving profitability. R&D accounted for 67% of our total operating expenses. We are funding incremental product spending that should enhance the breadth and competitiveness of our future portfolio. Operating margin for the June quarter was 38.4%, also exceeding the upper end of our guidance range and improving from the March quarter level of 35%. This improvement was primarily due to the higher revenue and stronger gross margin. Our non-GAAP tax rate third quarter was 11%, in line with our expectations. We do believe the tax rate will be in the mid-teens in the September quarter due to the increase in revenue in higher tax jurisdictions, primarily the U.S., as we enter the new fiscal year. The U.S. GILTI rate is also higher as we enter the fiscal year.

We should expect this uptick in the tax rate to continue for the remainder of 2026 and likely beyond. Other income and expense for the June quarter was approximately $19 million in expense, compared with $8 million in expense in the March quarter. The change in OI&E was primarily due to foreign exchange. As we've talked about in the past, you should expect to see variability in OI&E quarter to quarter. Let's look at capital return. We allocated approximately $246 million to share repurchases, and we paid $325 million in dividends in the June quarter. We returned 45% of free cash flow in the quarter. Year to date, we've returned 81% of free cash flow, and our plans remain to return at least 85% of free cash flow to our shareholders over time. For the June quarter, diluted earnings per share were a record $1.82.

The diluted share count was roughly 1.26 billion shares, down from the March quarter. We have $4 billion remaining on our board-authorized share repurchase program. Let me pivot to the balance sheet. Our cash and short-term investments totaled $5.6 billion at the end of the June quarter, up from $4.8 billion at the end of the March quarter. The primary factors behind the cash increase were cash from operating activities, somewhat offset by our capital return activities. As the business grows, we'd like to build a little bit more cash on the balance sheet to support potential liquidity needs like capital spending and working capital. Days sales outstanding were 72 days in the June quarter, an increase from 64 days in the March quarter.

Inventory at the June quarter end totaled $4.3 billion, which was an increase from the March quarter, as we are building inventory to meet growing customer demand. Nonetheless, inventory turns continued to improve, coming in at 3 times versus 2.9 times in the prior quarter. This is the highest inventory turns level we've delivered in almost 5 years. Our non-cash expenses in the June quarter included approximately $104 million for equity compensation, $105 million in depreciation, and $15 million in amortization. Capital expenditures in the June quarter were $189 million. Capital spending was centered on lab investments in the U.S. and global growth in our manufacturing facilities. We ended the June quarter with approximately 22,400 regular full-time employees, which was an increase of approximately 1,800 people from the prior quarter.

We had headcount growth primarily in the factory and field organizations to support increased tool installations as well as growing manufacturing activities. We also added headcount in R&D. Now let's turn to our non-GAAP guidance for the September 2026 quarter. We're expecting revenue of $8.1 billion plus or minus $400 million, gross margin of 52%, plus or minus one percentage point, operating margins of 39.5%, plus or minus one percentage point. I would just mention, we are growing spending in the September quarter, albeit at a much slower rate than the growth in revenue. And finally, we're expecting earnings per share of $2.15, plus or minus $0.15, based on a share count of approximately 1.255 billion shares. So let me wrap up by sharing a brief update to the long-term profitability framework that we introduced at our investor day a year and a half ago.

Since then, demand has strengthened significantly and we're executing well to the strategy that we outlined. As Tim mentioned, we see 2026 shaping up to be our third consecutive year, our outperformance to the growth in WFE. We've been growing the CSBG business faster than the installed base, and our close-to-customer strategy has helped expand our margins. The technology inflections increasing deposition etch intensity reinforce our confidence that we can continue to expand our SAM while creating additional opportunities for gaining share. Our SAM expansion is trending toward that high 30% range that we communicated. Now, within this framework, we intend to drive gross margins to the mid 50% level and operating margins to the mid 40% level over the next several years as the AI transformation drives continued greater investment in global semiconductor capacity. Operator, that concludes our scripted remarks.

We would now like to open up the call for questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question today comes from Timothy Arcuri with UBS. Please go ahead. Thanks a lot.

Doug, I know you usually don't guide by segment, but service was up so much in June, and based upon the gross margin guidance, which you're guiding basically flattish on such a big up revenue. I would imagine that it's up big again in September. Can you give us some sense of sort of what to expect in service within the guidance for September?

Listen, Tim, I think you're going to see similar profile of what we saw this quarter, and I won't get into specific numbers necessarily, but upgrades are going to continue to be strong, I think, right? Driven by what you got going on in NAND investment. I expect spares to continue to be pretty strong given the high utilization in the industry. Then we're excited about what's going on in advanced service with all the cobot and Equipment Intelligence. I think it's going to be pretty consistent across the board, Tim, similar to what we saw this quarter.

Great, Doug. The new gross margin of mid-50s, that makes perfect sense. That's great. I guess the question is, how long will it take to get gross margin to that level? I know, obviously, if you look at your margins versus, say, the large foundry margins, you used to be within 5 points, and now it's between 5 and 7 points as early as the first half of 2024, and now the gap is like 2x that. There's obviously a lot of room for you to move it up. How long will it take for you to move that up? Is it like a revenue thing or is it a time thing?

A little bit of both, Tim, honestly, right? Part of it is scale and scope and revenue growth. Part of it is new product introduction and getting fairly paid for the value we're delivering. I expect, Tim, this is over the next several years, that we'll continue to drive it on an annual basis for sure, but it's going to take several years, I think, to get to those levels, Tim.

Okay, Doug. Thank you. Yep.

Thanks, Tim. The next question comes from C.J.

Muse with Cantor. Please go ahead.

Good afternoon. Thank you for taking the question. I guess a follow-up on the CSBG side of the house. It looks like you're going to grow in the mid 30s, plus or minus. Just curious, how do you think about the growth rate beyond 2026 into 2027? How much strength should we continue to see from NAND's inside here? How are you thinking about Reliant? Does that start to recover more meaningfully? Do we see sustained kind of spares as well? Would love to hear your thoughts there.

C.J., I'll start and then I'll let Tim add on. The framework we put out the investor day a year and a half ago, still, I would encourage you to think about it in a similar way. Clearly we've grown faster than that suggested back a year and a half ago, and that's come a little bit from advanced services. We're super excited about that driving incremental growth. It's come, Tim, also from just really high utilization in the industry, which drives consumption of spares and service to the extent that that continues, spares and service will continue to be really strong from that. I think the way to think about Reliant is think about what's going on in the mature node investment, a little bit of what's happening in China, and then more broadly, what's happening in the analog industrial automotive space.

That'll be a little bit more situational, I guess. That's the framework to think about. We're probably going to do a little bit better than the growth that we talked about a year and a half ago though, C.J.

Perfect. I guess, could you speak to perhaps new entrants or more meaningful spending from historically larger spenders on the logic front? What kind of visibility do you have today and what kind of growth should we expect into 2027 and beyond?

Yeah, C.J., you're funny, asking that tricky question about new logic customers. Yeah, there's some new stuff going on. There's clearly dialogue, and I'll let Tim comment a little bit. We are talking to that new logic customer in the U.S. That is happening. Yeah, I don't have much to add other than say we're engaged.

I think what's exciting for us is that, in many cases where we have new entrants come into founder logic or memory or any of the spaces, they're always looking at some of the more innovative approaches. They're not encumbered by kind of the roadmaps and install base it's existed in. I think that we're hopeful that when we think about all of the new systems that we've talked about, I mentioned a few in the prepared remarks, but we've talked about a lot of others in other calls. That's an opportunity for us to showcase the significant technical improvement Lam has made on the foundry logic side. I think that's what new entrants mean for us, is more opportunities to grow our share within that space.

Thank you. Thanks, C.J. The next question comes from Harlan Sur with JPMorgan.

Please go ahead. Good afternoon.

Thanks for taking my question. As I look back historically, your gross margins seem to have taken a structural step up in 2023. I believe this corresponded to the team moving a bigger part of the volume manufacturing flowing through your more efficient low-cost Malaysia facility. As the team has continued to scale volumes higher through Malaysia since then, you've been able to drive incrementally higher margins on these products, and that continues to be a gross margin benefit. Looking at your strong gross margin results for June and for the September outlook, how much of the incremental gross margin improvement is coming from the volume mix to Malaysia and the increases there? Or could it be product mix, new product introduction upgrades, and/or just incremental pricing increases on your systems?

Maybe which of these dynamics is going to be most influential in driving you to your mid-50s sort of new long-term targets?

Yeah. Harlan, let me start. I know you want to get to the quantification. I'll let Doug do some of that to the extent that he can. I just wanted to point out, when we look at the tremendous operational execution, I refer to it as operational velocity inside the company, I wanted to just make sure it's clear. We have been able to execute to what have been really accelerated customer demands because of what I see as a strategic asset in our global manufacturing footprint and global supply chain footprint. We have factories in Oregon and California and Ohio, in Malaysia and Taiwan and Korea and Austria. Really, as we've looked at this tremendous growth period we've gone through and expect to continue to go through, we've leveraged that full scope of sites and supply chains.

What's really helped us is that they're not all interrelated, they're not all being driven by the same demand. In that way, we can both get what we need when we need it and also at the prices that we need it. There's an element of really being able to leverage this global capability. I think that's somewhat unique in how Lam has driven our operational structure. I'll let Doug talk to the second part of your question.

Yeah, Harlan, a lot of the uptick that you're seeing gross margin has come from exactly what Tim just outlined. On top of that, we got new products coming out every single year, theoretically adding more value to customers and driving improving profitability. Clearly, that's going to be our ongoing objective. Clearly, we're always working to get fairly paid for the value we're delivering to the customers. We're absolutely working on that. Yes, a lot of it has come from operational efficiencies, close to customer strategy. All of that were conscious strategies that we've outlined over the last several years and have been talking about.

No, I appreciate that. On advanced packaging, you came into this year with a view of greater than 40% growth. You upped that to greater than 50% growth last earnings. Now you're looking at 70% growth today, right? Is the increase in the outlook due to HBM or 2.5D to 3.5D SOIC advanced packaging transitions happening faster, or is it customers just pulling in production capability from next year into this year? Curious. Yeah, Harlan, it's just everything.

Advanced packaging, I mentioned it in my prepared remarks, it's becoming quite a technical tool for our customers and for the industry to drive greater performance. It's everything you just mentioned. It's 2.5D. It's in the foundry logic space. It's in HBM. I think that what we're excited about is, obviously, as it moves also into panel packaging, that's a place where Lam, we feel like we've gotten out to an early start there. We think that transition is very early stages, but it's in an important inflection point there as well. I think just next few years, advanced packaging growth will be a little bit hard to predict because adoption is just occurring all over the place.

Our clear leadership, Harlan, I'll just remind you, in the TSV etch and the copper electroplating, I call it the drill and fill, we just have really strong product offerings there. As that goes, we just benefit extensively from our technical leadership.

No, absolutely. Thanks, Tim. Thanks, Doug.

Yeah. Thanks, Harlan. The next question comes from Atif Malik with Citi.

Please go ahead. Hi, thank you for taking my questions.

I know you guys talked about doubling of NAND revenues and the context window, KV cache. There is a third-party TrendForce forecasting a divergence in memory fundamentals next year. They're calling for an oversupply in NAND because of the NAND demand getting pulled down by weaker consumer, and shortages to continue in the DRAM side, which is more driven by data center. Are you seeing anything in your conversations with the memory makers that are pointing to some sort of an oversupply or a reversal in the NAND fundamentals for next year?

I think that, as we've said on NAND, clearly customers are right now progressing through upgrades to 200-plus layer devices. There's some greenfield this year. It's a ways out before there's a lot of greenfield coming into NAND. I think that, again, next year, we're still having conversations about how to continue to upgrade the existing installed base and get the fleet up to kind of current state-of-the-art in terms of NAND. I think it's a little early on 2028, but our view right now is the fundamentals are still about the same for us. I think what I tried to highlight in my prepared remarks is the Lam story is a lot bigger than just NAND. There's often this focus. What we've done is we've successfully looked at these vertical scaling trends that are occurring in both DRAM and foundry logic, and we've applied all of that learning and expertise that we have from 3D NAND into those, and those are the basis for a lot of the wins that I was talking about in my remarks.

I think that's a trend that continues into 2028 and beyond as well. You've got NAND, and then you've got DRAM and foundry logic as well. I would point out, we said that we believe 2027 looks like a great setup, not only for the industry, but for Lam. That's an environment where next year we still see DRAM being the fastest grower, foundry logic being the second fastest grower, and NAND being third. That's exactly the setup that we came into this year on.

Clearly, our results so far in 2026 are quite good. We think even in that environment, Lam can do extremely well.

Thank you, Tim. Taiwan was a record revenue year. Can you just talk about your foundry share gains at three nanometer and two nanometer?

Sure. I can't tell you specifically, obviously, since some of that gets quite close to a single customer. Look, it's back to the things that we've talked about. As customers are shrinking and they're moving to gate-all-around, it's the verticalization of the transistor structure. It's the focus on things like RC performance. If you go back and look at our transcripts from the last number of calls, we've been talking about things like low-k spacers, and we talked about the importance of patterning etch as features become ever smaller and taller because of EUV patterning and device shrink. I would just say anything that's related, again, to something becoming higher aspect ratio, it requires etch.

If it has to do with RC, meaning metallization resistance or dielectric capacitance, those are areas where Lam's new ALD tools, where our new etch tools like Akara are doing extremely well. Not just in Taiwan, but really at every leading-edge foundry logic customer around the world, because these are unique capabilities built into our newest tools, and they're doing great at the customer.

Thank you. Thanks, Satya. The next question comes from James Schneider with Goldman Sachs.

Please go ahead. Good afternoon, and thanks for taking my question.

I was wondering, as you look at the growth rates the industry is going to post in 2026, how would you handicap looking into 2027, whether you could see a similar better or worse growth rate relative to this year?

Yeah, Jim, we're not going to get into talking specifically about next year, at least not numerically. I would tell you, though, that as we look at what's being invested in, the industry is still meaningfully undersupplied, right? You've got clean room coming online over the next, I don't know, 12 months and beyond, frankly, and all that will lead to incremental opportunity as we get into 2027. It's too soon for us to put quantification around what 2027 is going to be, but it looks like it's going to set up to be a pretty darn good year, Jim. I guess I'd just leave it at that.

That's fair enough. Understand. Maybe just as a follow-up, you mentioned pricing being one of the factors that drove gross margin performance in the quarter. Can you speak to some of the factors that drove that? Do you see opportunities for further pricing actions in the short term, for example, like-to-like pricing pieces, even within the same program, the same fab project?

Yeah, Jim, we're always working on getting fairly paid for the value we're delivering. Last quarter was no different than it ever has been. Pricing is always a component of what's been going on, in addition to operational efficiency, that close to customer strategy I talked about. All these new products that we're bringing out, delivering better gross margin because it's solving more difficult technical challenges. All that contributes to what you're seeing us deliver in gross margin, and frankly, how we will strive to continue to expand gross margin to that mid 50% level. We're going to work on all of this stuff.

Thank you. Yeah. Thanks, Jim.

The next question comes from Srini Pajjuri with RBC Capital Markets. Please go ahead. Thank you.

Tim, on your WFE comment about $150 billion, I think you said you alluded to maybe further upward bias for the year. I'm just trying to get a sense of what your lead times are, and in case if there's more upside, I guess, in the second half of the year, how well-positioned you are to be able to supply to any potential upside.

Yeah, sorry, that might have been poorly worded in the remarks. Our previous quarter's guidance was $140 billion with upside bias, that upside bias played out to get us to $150 billion now. This outlook was in the $150 billion range. We didn't say upside bias for this current outlook. To that extent, your second part of your question about what capability do we have, I know we were thinking one of the questions might be, how did you go from $140 billion to $150 billion when you said it was clean room constrained? People find ways, the demand is very strong, people have squeezed out a little bit of extra space. They've resolved bottleneck tools. If we happen to be the bottleneck tool from a throughput perspective in places, we work with customers to resolve those, that sometimes frees them up to spend a little bit more to resolve other bottleneck tools.

That's kind of the $140 billion to $150 billion. From this point forward, as you said, lead times are challenging. Maybe referring back to the answer I gave about our strategic global manufacturing supply chain, our team is doing a phenomenal job, a heroic job, I think, responding to urgent customer requests. When those do come up, we've been able to meet those needs. I think as we move through the second half of the year, that becomes more and more difficult to see anything further in this year as true surprise upside.

That's why the discussions are now out into 2027 and beyond, to make sure that as new fabs come into play, this is my comment about visibility. As those new fabs are opening up, customers want to make sure they have secured the tools they need from Lam. Those discussions are taking place at lead time or beyond.

Thank you. My follow-up, maybe on gross margins. Doug, pretty impressive gross margin performance despite the fact that China declined pretty meaningfully sequentially. I'm just trying to get a sense of what you're seeing in terms of China overall demand. Are you expecting, I guess, China to recover in the next few quarters? I see your deferred revenue balance went up a little bit. Just trying to get a sense of how to think about China going forward.

Srini, I still think China overall WFE is flat to slightly up, similar to what we said before. Quarter by quarter, you'll see some lumpiness to it, but our view is still largely the same. I would just also point out a comment that I made in my script, and maybe that we're going to continue to see, is understanding that China region, you also have the global multinational customers with fabs in China showing up in that number, that 26%. In the June quarter, those global multinationals in China actually grew somewhat while the indigenous Chinese customers declined. It won't surprise me if that's a similar trend that we see as we go through the latter part of the year as well.

Thank you. Yeah. Thanks, Srini.

The next question comes from Vivek Arya with Bank of America Securities. Please go ahead. Hi, this is Michael Mani on for Vivek Arya.

Thanks so much for taking our question. My first question is on NAND. It seems like the company's pretty close to realizing the $40 billion upgrade opportunity faster than expected. As you've described in the past, that's not so much of a static opportunity. Like whatever has been upgraded to 200 layers eventually has to migrate to 300 layers and above, which could trigger another wave of spending for NAND. Where are we in that kind of second phase of upgrades? Is there a way to kind of contextualize how big that opportunity could be relative to the initial $40 billion upgrade opportunity we saw in the last couple of years? Thank you. Yeah, it's a good question.

We've said that it is not a static thing. In fact, as the industry, if we look at this year, we made a comment. It's a combination of both upgrades plus some greenfield shipments, and that's kind of going to characterize the next couple of years. Most of that $40 billion we had previously said would likely occur in upgrades would likely occur before the end of 2027. Then, as you pointed out, it kind of all starts again. But the key is, since greenfield additions have been made in that period of time, the next time it rolls through and you go from 200 to 300-plus or 400-plus, it's an even bigger installed base. While we haven't quantified that, but it's a good action item for us to get to you into the future.

You can imagine that as you go, as we've described, from 200 to 300 to 400 to 500 layers. I said that our SAM will double from the 200-plus layer to the 500-plus layer on a per wafer basis. That's a combination of longer process times to process the taller stacks, plus additional tools that get added in to deal with all the complexity of all that stacking. That's where Lam's opportunity really lies, is helping address the complexity of stacking to 500 layers and beyond for customers.

Great, thank you. For my follow-up, I wanted to ask about DRAM. I think a lot of the strong outgrowth Lam has seen over the last couple of years in share gains has been mainly driven by HBM, which are TSV drilling and electroplating tools. Could you talk about your share opportunity in traditional and conventional DRAM, especially as you move to new nodes like 1C and 1-gamma? Given that right now, that seems like where most of the industry capacity constraints are over the next couple of years. Thank you. Yeah, sure. Obviously, as you mentioned, HBM has been tremendous for Lam from the standpoint of the position we have in the TSV formation and other elements of the HBM process itself.

I mentioned a couple of improvements. As DRAM performance at the device level continues to push forward into future nodes, they're incorporating more processes that are associated with higher performance. It's low-k's. It's also introduction of more EUV layers, which pulls in and makes Lam's patterning etch tools that much more critical. We're seeing wins across very conventional front-end types of devices. In my prepared remarks, I talked about if you're trying to build very high-performance DRAM, you start to worry about things, as I mentioned, like the diffusion barrier performance and the etch stop layer performance.

That's an area where today we hold a very strong leadership position in advanced leading-edge foundry logic. The reality is, as you try to push DRAM performance ahead, it starts to look a lot like leading-edge foundry logic.

I think that's where the real strength of Lam's portfolio is that in many ways, the performance requirements across all three devices, as we see more vertical scaling, more performance, they're all converging. I think that a couple of years from now, we're going to look back and we'll say, "Hey, everything kind of became 3D NAND-like." Much taller, much more complex, requiring higher performance tools. Right now, I think DRAM is seeing that. We are winning in conventional DRAM, but it's related to the strength of the device, the patterning of the device, the materials that are being introduced, and I think that continues. Then you layer on top of that, if you do HBM, it's even better for us.

Thank you very much. Yep, thank you.

The next question comes from Melissa Weathers with Deutsche Bank. Please go ahead. Hi. Thank you for the question.

I wanted to bring it back to a framework that you guys brought up on one of your calls last year, about the relationship between WFE spending and total data center spending. Especially with the market looking at potential slowing of AI spending or more efficient models. Is there any way you can help us think about your view of WFE in the context of potential slowing AI spending, and how do we think about the resilience of your business there?

Yeah. Listen, Melissa, I think as we look into next year, the fact that the industry is undersupplied this year is going to roll into next year. We feel great about what's going to happen with WFE. Yeah, that metric, we talked about the $100 billion data center CapEx equating, if I remember the number, to roughly $8 billion in WFE. That was probably a little bit of a low estimate as we sit here today. It's probably trending, I don't know, a billion or two higher. That clearly, at the end of the day, is what's driving demand. At the end of the day, the hyperscale investment is trickling all the way back to WFE, and that is absolutely a driver. The numbers are probably a little higher than we had talked about, whatever it was, middle part of last year.

Perfect. Thank you. On the supply side, I'm sure you guys are getting more visibility from your own customers, but I was wondering, Doug, you talked about higher inventory turns. What kind of partnership and visibility are you giving your suppliers to make sure you can bring on capacity for this strong ramp?

All the same visibility we get, Melissa, is propagating its way all the way back through our supply chain, and even a couple of layers deep in the supply chain. We're doing everything we can to make sure we're not going to be the bottleneck. I would tell you, it's a lot of work. We got a lot of things we're expediting and working our way through. We'll continue to do that. That part of the company is doing an extraordinary job managing this for us.

Thanks, Doug. Yep. Thanks, Melissa.

The next question comes from Stacy Rasgon with Bernstein Research. Please go ahead. Hi, guys.

Thanks for taking my questions. For the first one, Doug, I know you said 2027 is going to be kind of a remarkable year. I want to ask you to give us a number, but I mean, are clean rooms really the limiter to how big 2027 can be? If clean rooms were unlimited, I think you guys think WFE is growing from like 110 to 150 this year, so that's mid-thirties. If clean rooms were unlimited, is there no question that we could grow that much next year or even more? Is the demand there to do something like that?

Yeah. Stacy, again, I'm not going to put numbers on it right now. It's too soon for us to do that. When I look into what's going on in the industry, I don't know. When you just look at the bigger customers, there's probably eight, nine, 10 new fabs coming online between now and the end of next year that's going to enable the reception of more equipment. We're excited about where this is going. I'm not going to put a number on it quite yet, though. We'll do that as we get further down the road here.

Got it. For my follow-up, let me try one more way. Again, I'll try to ask this without you having to put numbers on it, but if 2027 is going to be that good, do you think the setup is good enough where at a minimum, we could see sequential growth from here until the end of 2027? Is the setup, and I guess, the availability of space enough that at least you could be willing to sign up for something like that?

Yeah, maybe, Stacy. When you look at it, this doesn't all come on in any one quarter, so it comes on kind of bit by bit. I'm, again, not going to guide you quarter by quarter through next year, but I feel incrementally good about each successive quarter as I sit here right now. As we get a little bit closer, maybe I'll give you a little more color.

Got it. That's super helpful. Thank you, Doug. Thanks, Stacy.

The next question comes from Krish Sankar with TD Cowen. Please go ahead. Yeah. Hi.

Thanks for taking my question. I had two of them. Doug, you mentioned about growing inventory, but the inventory management is still lean. When I look at prior cycles, this is the time where you should be building a lot more inventory, given the huge WFE potential ahead. I'm just wondering, is this a new norm for inventory management, or is this more supply chain being constrained on capacity? If you can just triangulate that to what your lead times are today, that'd be helpful too.

No, it's just us efficiently managing the built-in inventory. We are absolutely growing inventory. I think it grew $300 million or something last quarter, but at the same time, turns improved. I think you're going to continue to see us think about it in the same way. We clearly are going to need to build inventory as you get into revenue growth like we're seeing. We'll also be focused on efficiency and making sure we're managing the cash for the company well.

Got you. A quick follow-up on gross margins. I thought you mentioned that some of the strength in June came from pricing too. I understand product mix might have an impact, but if you assume current level of volumes, is 50-plus % the right baseline for gross margins to assume?

You mean as we go forward, Krish? Is that your question? Yeah.

If you're at these volume levels, yeah.

Yeah. No, I think so. Listen, we're in that 51%, 52% range right now. I think we can continue to deliver that in the near term.

Thanks a lot, Doug. Thanks, Krish.

The next question comes from Blayne Curtis with Jefferies. Please go ahead. Hey, good afternoon, guys.

I actually want to ask on pricing. It's been a kind of an investor theme, and I'm kind of just curious what you're seeing like for like pricing, in the industry and you.

Yeah, Blayne, I'm not going to talk about like for like pricing. When I describe the solid gross margin that we saw last quarter, I talked a little bit about pricing, about operational and scale efficiencies, and about product mix. All of that contributed. We're always doing everything we can to get fairly paid for the value we're delivering. That's true today. It's been true for, I don't know, a decade, longer. We're working on all of those things, Blayne.

Got you. I want to ask you, in terms of just your CapEx plans and in terms of adding this back-end capacity, there's a lot of talk of WCG $300 billion. Just kind of curious, what are you starting today, and what could that spending be over the next year or two years?

Yeah, Blayne, I still think we can manage the company to 4%-5% of revenue going towards CapEx as we build out lab infrastructure. We're making big investments in labs, by the way. This isn't just manufacturing capacity. We're also very focused, Blayne, on, I don't know, I think about it as footprint densification, getting more output for the same square footage that we have in manufacturing. The company's doing a really nice job at that. We probably haven't talked enough about it. We're making the investments we need to support where we believe the customers are going to be. We'll be ahead of that.

Thank you. I think if you don't mind, I'd just add to Doug's comment about labs.

If we think about CapEx and investments and long-term for the company, we sit in a position where as etch and dep intensity is growing and playing a much more important role to kind of our future roadmaps of our customers, we see a lot of opportunity for new product development, to accelerate SAM expansion even further. Labs play a big role in that. Tooling for those labs plays a big role in that. Where we see opportunity, we will invest in the company to accelerate growth.

Thanks, Blayne. The next question comes from Vijay Rakesh with Mizuho.

Please go ahead. Hi, Tim and Doug.

Just a question on when you look at the DRAMs side, obviously going very nicely, but when you look at HBM4 and HBM4E, obviously looks like your capital intensity starts to pick up significantly for Lam. Any way of kind of sizing the opportunity there for every 100 wafers, whether it's HBM4E with TSVs or in HBM4? Thanks, I have follow-up. Yeah, Vijay, we haven't put numbers around that, clearly, I mean, relative to your HBM question, as the stack gets taller, process times take longer, you need more equipment, clearly we're enabling a lot of that with the things we do around the TSV.

We haven't put specific numbers on it, and I'm not prepared to do it right now.

Got it. When you look at the Lam revenues this year, 2026, looks like you're somewhere in that $30 billion neighborhood on $150 billion WFE, so about 20% share back of the envelope. You talked about a 30% SAM. When do you start to kind of scale and bridge into that, I guess? What would be the timeframe?

Yeah, Vijay, what we talked about, I got to take you back to the investor day in the beginning of 2025. We at that point, were talking about our SAM expanding from the low 30% of WFE range into the high 30% range. As we sit here today, we're probably trending already to that high level. We're, I don't know, I'd guess 36%, 36.5% this year, something like that. We're progressing quite nicely. I'm not exactly sure the math that you were doing. It might be confusing a little bit of the CSBG business in there as well, which isn't purely WFE. Maybe we can take that offline.

Got it. Great. Thanks. Yep.

Thank you. Operator, we will take one more question, please.

Okay. Our final question will come from Shane Brett with Morgan Stanley. You may go ahead. Thank you for letting me ask a question.

My first question is, you talk a lot about etch and dep, but you've gained quite a bit of share in cleaning over the last few years. Could you talk about the role cleaning plays in your SAM expansion? Is there a world where you actually become the leading market shareholder for clean? Thank you. Yeah, I guess we've so focused on the 3D scaling that's occurring in all these devices, we sometimes forget about clean.

You're right, it's a very important business for us and one that has grown nicely. I think, again, as customers focus-- we talked a little bit today, although it's not purely cleaning, but we talked about the selective etch process kind of surface treatment. Clean kind of plays into that as well, although obviously with different tools. It's the focus as you are getting to more and more difficult technologies, the need to control surfaces, the need to perform cleans, eliminate defectivity, all just are becoming much more important to the customers. We've seen our performance in clean, where we are really the focused on the high-performing critical cleans, we've done extremely well.

I don't know about the number one player, because there's a lot of. I'd have to go look at that market. In terms of critical cleans, that of course would be our objective, is to help our customers with all of their processes.

Got it. Thank you. For my follow-up, apologies if this is a little repetitive to prior questions, I want to dig into DRAM. Your DRAM revenue may double this year, you mentioned earlier to a question that DRAM will be the fastest driver next year. Just how big could DRAM be for you in 2027 as a percentage of your system revenue? Kind of how much of that growth could be based on share gain? Thank you. Yes, Shane, we're not going to put numbers around next year yet.

Too soon. What Tim said is, as we look into next year, we expect the growth drivers next year to be largely the same as they are this year, led by growth in DRAM WFE, followed by leading-edge foundry and logic, followed by NAND. We see everything growing into next year. Frankly, Shane, when we think about the guide for next quarter at $8.1 billion, I think you're going to see everything growing next quarter as well.

Great. Thank you. Thanks, Shane.

This concludes our question and answer session. I would like to turn the conference back over to Doug Bettinger for any closing remarks.

Yeah, I would just say thank you all for joining our call. We're very excited about what's going on in the industry right now and our unique position in it. As we talked about, both Tim and I, we're looking into what we believe to be our third consecutive year of outperforming growth in WFE because of the intensity of etch and deposition, and I wouldn't change our position for anybody in the industry. Our execution's been great, and we intend to continue delivering that. We look forward to seeing all of you guys on upcoming NDRs and conferences. With that, operator, we're all concluded.

The conference has now concluded. Thank you for attending today's presentation.