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UPDATE 2-Lam posts higher profit, cautious on outlook
Wed Oct 11, 2006 7:42pm ET

http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20061011:MTFH76897_2...

By Scott Hillis

SAN FRANCISCO, Oct 11 (Reuters) - Lam Research Corp. (LRCX.O: Quote, Profile, Research), a supplier of tools for making microchips, posted a higher-than-expected fiscal first quarter profit on Wednesday but gave a cautious outlook for its second quarter. Its stock fell in after-hours trading.

Lam Research said it expected that profit for its second quarter will be lower than the first quarter, while orders will be flat for several quarters as memory chip makers, who accounted for 75 percent of bookings last quarter, ease up on capital spending.


"The direction of memory spending is going to be a lot more difficult to sustain," said Bill Ong, an analyst with American Technology Research. "If memory slows, that will have a dramatic impact on Lam."

Lam, which mainly makes tools for etching circuitry on wafers of silicon, beat Wall Street forecasts for its first fiscal quarter.

Its net income rose to $183.5 million, or $1.27 per share, from $49.5 million, or 35 cents per share, a year earlier.

Earnings excluding special items such as a $15.8 million favorable legal judgment and a $10 million tax benefit, were $1.13 per share.

Excluding special items, the company was expected to earn $1.03 per share, according to the average analyst forecast on Reuters Estimates.

Revenue rose 88 percent to $604.4 million, beating the average estimate of $593.6 million.

Chief Executive Stephen Newberry said he expected Lam to show a profit of $1.07 a share to $1.11 a share on revenue of $605 million to $625 million for its second fiscal quarter ending in December.

"Overall, I expect order rates to stabilize and flatten out for the next few quarters," Newberry told a conference call.

Shares in Lam have fallen by about 10 percent since hitting a year high of $53.49 in May, but are still up 55 percent from a year ago as the company benefited from a strong capital spending by chip companies.


Even after that rise, the company trades at a substantial discount to its rivals. Lam trades at about 13 times expected 2007 earnings, compared to 16 times for Applied Materials Inc. (AMAT.O: Quote, Profile, Research), the industry's biggest player, and 17 times for KLA-Tencor Corp. (KLAC.O: Quote, Profile, Research).

Ong said that with the company notching record margins, revenue and profits, investors were concerned that any misstep may drag the stock down.

"Any kind of hiccup and people are worried."

Lam shares shot up nearly 6 percent after the earnings were announced, but then gave up all those gains and more once executives gave the outlook. The stock traded at $47.75, down 0.8 percent in extended electronic trading after closing at $48.12 on the Nasdaq.

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