Executive Summary
Lam Research delivered a robust QQ1 2026 performance, underscored by record quarterly revenue of $5.324 billion, gross margin of 50.4% (50.6% in the transcript reference), and a post-Novelty era record operating margin of 35%. Management framed the quarter as evidence of Lam’s enduring leadership in deposition and etch, driven by AI-related data-center demand and NAND upgrade activity. The company reinforced a constructive 2026 WFE outlook, highlighting a sizable AI-infrastructure spend translating into continued Smith-Pac growth in leading-edge foundry logic, DRAM, and NAND-upgrade spending, while also acknowledging a meaningful China revenue headwind from policy actions. Free cash flow remained exceptionally strong at approximately $1.59 billion for the quarter, with sizable buybacks (~$990 million) and a dividend (~$292 million) supporting shareholder value. Lam explicitly guided for a December 2025 quarter revenue of $5.2 billion ± $0.3 billion with a gross margin around 48.5% and a 33% operating margin, plus an EPS of $1.15 ± $0.10, reflecting a second-half–weighted year and a higher tax rate in 2026. The company also signaled a strategic export of growth from CSBG (spares, upgrades, and services) and advanced packaging (SABER, Cindian etch) as AI spend broadens the application envelope. In a Macro view, Lam’s leverage to the AI and data-center cycle remains compelling, yet the company faces notable regulatory risk in China (affiliate-rule headwinds, reduced China share) and near-term tariff headwinds. Overall, Lam’s QQ1 outcome reinforces a constructive long-term thesis around outsize WFE growth driven by deposition/etch intensity and AI-inflected demand, with the near-term caveat of geopolitical/regulatory and tax-rate headwinds.
Key Performance Indicators
Key Insights
Revenue: $5.324B in QQ1 2026 (YoY +37.5%, QoQ +3.0%).
Gross margin: 50.4% (2Q3 gross margin commentary cites 50.6% in the press call; Lam asserts a record gross margin in the post-Novelus period).
Operating income: $1.829B, 34.3% margin (operating margin at 35% per call, high end of guidance).
Net income: $1.569B, 29.5% margin (YoY up; QoQ up).
EPS (Diluted): $1.24; Diluted shares ~1.264B.
EBITDA: $1.960B with an EBITDA margin ~36.8%.
Cash flow and liquidity: Net cash provided by operating activ...
Financial Highlights
Revenue: $5.324B in QQ1 2026 (YoY +37.5%, QoQ +3.0%).
Gross margin: 50.4% (2Q3 gross margin commentary cites 50.6% in the press call; Lam asserts a record gross margin in the post-Novelus period).
Operating income: $1.829B, 34.3% margin (operating margin at 35% per call, high end of guidance).
Net income: $1.569B, 29.5% margin (YoY up; QoQ up).
EPS (Diluted): $1.24; Diluted shares ~1.264B.
EBITDA: $1.960B with an EBITDA margin ~36.8%.
Cash flow and liquidity: Net cash provided by operating activities $1.779B; Capex $0.185B; Free cash flow $1.593B; Cash at period-end $6.693B; Net debt position: net cash ≈ $2.209B.
Shareholder returns: Buybacks ~$990M in the quarter; dividends $293M; Board-approved buyback authorization ≈ $6.5B remaining.
Balance sheet health: Total assets $21.901B; total liabilities $11.707B; total stockholders’ equity $10.193B; robust liquidity and conservative leverage.
Segment mix and geography: Foundry ~60% of systems revenue; Memory ~34% (NAND upgrades driving demand); China accounted for 43% of revenue in the quarter; CSBG (support services) ≈ $1.8B.
Guidance and outlook: 2026 outlook calls for continued WFE strength with China headwinds from affiliate rules; 2026 calendar year expected to be second-half weighted; 2025 to close with three consecutive quarters >$5B; December 2025 quarter guidance: ~$5.2B revenue, gross margin ~48.5%, op margin ~33%, EPS ~$1.15.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
5.32B |
37.52% |
12.80% |
| Gross Profit |
2.68B |
45.14% |
16.04% |
| Operating Income |
1.83B |
60.96% |
17.12% |
| Net Income |
1.57B |
53.75% |
17.89% |
| EPS |
1.24 |
58.97% |
19.63% |
Management Commentary
- AI data-center demand and WFE strength: Tim Archer stressed that AI-driven demand should support gains in leading-edge foundry logic and DRAM, with NAND upgrades continuing to be a driver. He noted a robust setup for 2026 WFE and highlighted Lam’s role in deposition and etch across AI compute needs. Quote: "AI-related demand should support sustained strength in leading-edge foundry logic and DRAM as well as continued NAND upgrade spending." (Tim Archer)
- NAND upgrade momentum and capacity dynamics: Management cited a roughly $40B NAND upgrade spend over the next several years, with upgrades remaining strong into 2026; a potential acceleration versus prior expectations was noted, tempered by clean-room capacity constraints. Quote: "In NAND, customers are continuing to upgrade existing fabs to meet the need for higher layer count, higher performance devices. We have estimated that these conversions will require $40 billion of WFE spending over the next several years." (Tim Archer)
- China exposure and guidance impact: Lam indicated a material China revenue headwind due to the 50% affiliate-rule, estimating December quarter impact and a 2026 revenue contribution of less than 30% from China; the company expects the China mix to normalize lower as global multinationals shift growth. Quote: "The December guidance does contemplate roughly a $200 million revenue impact from the recently announced 50% affiliate rule restricting shipments to certain domestic China customers. Currently, we expect this rule to impact our calendar year 2026 revenues by approximately $600 million" (Tim Archer)
- CSBG strength and services strategy: The CSPG/CSBG narrative remains a growth pillar, with stronger mix in spares/upgrades and ongoing services expansion; management highlighted record CSBG momentum and the importance of CSBG to long-term profitability and customer retention. Quote: "CSBG remains a key part of our growth strategy, given the expanding installed base and our innovation in advanced services. We expect CSBG to deliver year-over-year growth in 2025." (Doug Bettinger)
- Product portfolio momentum (Acara, Aqara, Halo) and packaging: Archer referenced continued progress in Acara and Halo for DRAM, NAND, and foundry logic; he also highlighted advanced packaging ramp (SABER/Callisto) and the potential of panel packaging as a longer-term opportunity.
Lam delivered a solid September quarter, highlighted by record revenues of $5.3 billion, a gross margin of 50.6%, and a record operating margin of 35%.
— Tim Archer
Over the longer term, Lam's markets, etch and deposition will outgrow WFE because of nearly every trend that's taking place technology‑wise in semiconductor manufacturing, whether that's 3D devices, in foundry logic, in NAND, stacking using advanced packaging. They're all deposition and etch intensive products, and, therefore, I think over the longer term, confidence to outperform WFE is very high.
— Tim Archer
Forward Guidance
Lam’s December 2025 quarterly guidance reflects a measured near-term normalization in gross margin (48.5% ±1pp) and earnings (EPS $1.15 ± $0.10) against a backdrop of a China revenue headwind from the 50% affiliate rule. Management signaled a calendar 2026 WFE environment that is robust, with AI data-center demand acting as a primary growth driver across all device segments (foundry logic, DRAM, NAND upgrades). The company emphasized a second-half–weighted 2026 outlook, suggesting that the bulk of incremental WFE demand and associated Lam tool shipments will occur later in the year as new capacity and upgrades come online. Our assessment: - The AI-fueled data-center spend should continue to expand Lam’s served available market in deposition and etch, underpinning sustained top-line growth. - The NAND upgrade cycle remains a meaningful source of demand, with a potential acceleration beyond prior expectations, supported by high-capacity SSD deployments. - China-related headwinds present the biggest near-term risk to margins and revenue mix; Lam’s 30% revenue share cap in 2026 makes diversification into multinationals and non-China markets critical. - Tariffs and GILTI/global minimum tax policy could modestly raise the tax rate in 2026, adding to non-operating headwinds. - The ability to sustain gross margins above 48% in a rising cost environment will hinge on product mix, tariffs, and China exposure normalization. Key factors investors should monitor include: (1) actual WFE growth in 2026 by subsegment, (2) China revenue trajectory and potential offsets from non-China demand, (3) progress on Acara/Aqara/Halo, and (4) CSBG margin progression given ongoing services outsourcing and regional investments (e.g., Malaysia). Overall, Lam’s guidance indicates a constructive but disciplined growth path with a focus on expanding TAM in AI-driven packaging, ALD, and advanced etch while navigating regulatory and geopolitical headwinds.