EPS of $0.92 increased by 28.3% from previous year
Gross margin of 47.4%
Net income of 1.19B
"“In calendar 2025, Lam shipments to gate-all-around nodes and advanced packaging combined should be well over $3 billion.”" - Tim Archer
Lam Research Corporation (LRCX) QQ2 2025 Earnings Analysis: AI-era Deposition & Etch Momentum, NAND Upgrades, and Margin Resilience
Executive Summary
Lam Research reported a solid December quarter (Q2 2025 calendar), delivering revenue of $4.376 billion, gross margin of 47.5%, and operating margin of 30.7%, with net income of $1.191 billion and diluted EPS of $0.92–$0.93. The company continued to outpace WFE trends through its strategic mix shift toward higher-growth end markets, including NAND upgrade cycles, gate-all-around (GAA) nodes, and advanced packaging. Management highlighted early signs of a favorable upgrade cycle in NAND driven by carbon gapfill and molybdenum (Moly) technologies, as well as the expansion of CIS (CSBG) offerings and AI-era process innovations. Lam also emphasized meaningful margin improvements in calendar 2024, driven in part by Asia manufacturing expansion, and guided for continued incremental margin expansion in 2025 despite ongoing investments in R&D and digital transformation initiatives. The March 2025 quarter guide and the February Investor Day cadence underscore the company’s strategy to outgrow WFE spend through product leadership, strategic capacity scaling, and a broader addressable market.
Q2 2025 ( quarter ended Dec 29, 2024 ) highlights:
- Revenue: $4.376B, up 16.4% YoY and 4.99% QoQ
- Gross profit: $2.072B, gross margin 47.37%
- Operating income: $1.334B, operating margin 30.48%
- Net income: $1.191B, net margin 27.22%
- EPS (diluted): $0.92–$0.93; Weighted shares ~1.287B
- Cash flow: operating cash flow $0.742B; free cash flow $0.853B
- Balance sheet: cash & equivalents $5.677B; total debt ~$4.982B; net debt = -$0.683B (net cash)
- CSBG gross margin: 47.5% in Dec quarter (vs 48.2% Sept); operating margin in CSBG ~30.7%
- Working capital: DSO ~67.97 days; inventory ~$4.36B; inventory turns ~2.1x; current ratio ~2.54; quick ratio ~1.73; cash ratio ~1.06
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
4.38B
16.44%
4.99%
Gross Profit
2.07B
17.95%
3.51%
Operating Income
1.33B
26.17%
5.51%
Net Income
1.19B
24.81%
6.68%
EPS
0.93
28.28%
8.14%
Key Financial Ratios
currentRatio
2.54
grossProfitMargin
47.4%
operatingProfitMargin
30.5%
netProfitMargin
27.2%
returnOnAssets
6%
returnOnEquity
13.5%
debtEquityRatio
0.57
operatingCashFlowPerShare
$0.58
freeCashFlowPerShare
$0.66
dividendPayoutRatio
25%
priceToBookRatio
10.54
priceEarningsRatio
19.49
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key takeaways from management commentary and Q&A:
- Growth drivers and AI-era inflection: Tim Archer highlighted that deposition and etch are increasingly vital to semiconductor manufacturing and Lam’s investments have strengthened the portfolio, with gate-all-around and advanced packaging shipments exceeding $1B in 2024; calendar 2025 WFE spend is seen rising to about $100B, with Lam’s GAA and advanced packaging shipments expected to be well over $3B in 2025. Quote: “In calendar 2025, Lam shipments to gate-all-around nodes and advanced packaging combined should be well over $3 billion.”
- Cryo 3.0, Aether, and Semiverse: Archer noted Cryo 3.0 wins in high-aspect-ratio dielectric etch and the Aether dry-resist tool being production-ready for high-bandwidth DRAM; Semiverse is expanding modeling/data analytics across fabs. These innovations are framed as accelerants to Lam’s competitive differentiation.
- NAND upgrade cycle and carbon gapfill: Doug Bettinger stressed NAND upgrades as the primary year-on-year growth lever in 2025, aided by carbon gapfill for multi-tier stacking and the moly transition; he framed the trend as compelling but not at peak NAND spending levels, and cautioned that some China-related demand shifts would affect mix.
- Margin progression and Asia exposure: Bettinger and Archer emphasized that the 2024 margin expansion (~160 bps) was driven by cost structure improvements and Asia/near-shoring benefits; Lam expects incremental gross-margin improvement as production scales in Asia and as the company continues its digital transformation.
- Guidance and capital allocation: The company reaffirmed a March 2025 revenue guide of $4.65B ± $0.30B with gross margin ~48% ±1pp, operating margin ~32% ±1pp, and non-GAAP EPS ~ $1 ± $0.10; management signaled ongoing investment in R&D and digital initiatives while delivering leverage to the P&L. On capital return, Lam repurchased ~$650M in open-market shares and paid $298M in dividends in the December quarter, with $9.2B remaining on the buyback authorization.
“In calendar 2025, Lam shipments to gate-all-around nodes and advanced packaging combined should be well over $3 billion.”
— Tim Archer
“NAND will be up this year. I don't know if it's going to double necessarily.”
— Doug Bettinger
Forward Guidance
Management-provided outlook for the March 2025 quarter:
- Revenue guidance: $4.65B ± $0.30B
- Gross margin: ~48% ± 1pp
- Operating margin: ~32% ± 1pp
- EPS (diluted): ~$1.00 ± $0.10, based on ~1.29B shares
- Tax rate guidance: mid-teens for March quarter; management noted an expectation of low-to-mid-teens annualized tax rate in the near term
- Commentary: Lam intends to continue leveraging the transition to higher-layer-count NAND, GAA, and advanced packaging, while funding R&D and digital transformation initiatives; investor day on Feb 19 will outline long-term model updates and validate growth assumptions. Key factors investors should monitor include: WFE trajectory toward ~$100B in calendar 2025, NAND upgrade cadence and carbon-gapfill/mol y adoption pace, CSBG mix dynamics (Reliant vs upgrade-driven revenue), potential China export-control impact, and the productivity/lift from Asia manufacturing ramp.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
LRCX Focus
47.37%
30.50%
13.50%
19.49%
ASML
51.50%
29.40%
10.70%
59.99%
KLAC
60.30%
40.40%
23.00%
25.47%
ACLS
43.80%
20.60%
5.44%
22.54%
TER
57.20%
13.90%
2.76%
45.88%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Lam Research is positioned to outgrow the broader WFE market through a combination of leadership in deposition and etch, a diversified portfolio spanning NAND upgrades, advanced packaging, and DRAM/foundry logic, plus a digital transformation agenda that should yield sustainable margin expansion. The QQ2 2025 results demonstrate solid execution: revenue $4.376B, gross margin ~47.4%, and net income ~$1.19B with FCF generation of ~$0.853B in the quarter, reinforcing a healthy balance sheet (net cash, ~$5.7B cash, $0.68B net cash on hand) and ample liquidity for ongoing buybacks and R&D investment. The 2025 outlook remains constructive, with management guiding March quarter revenue of ~$4.65B ± $0.30B and gross margin around 48%, underscoring the company’s ability to leverage higher-value deployment cycles (NAND upgrades, carbon gapfill, moly), and a strengthening Asia manufacturing footprint that supports cost discipline. Key risks to monitor include China regulatory exposure and potential China demand softness, CSBG mix volatility, and macro WFE cycles. Overall, Lam’s trajectory combines near-term profitability strength with durable long-term growth drivers in AI-enabled semiconductor manufacturing, making the stock appealing for investors seeking exposure to the AI hardware supply chain and high-value precision semiconductor equipment.
Key Investment Factors
Growth Potential
Significant upside from NAND upgrade cycle (2xx+ layer transitions to 256-layer and beyond), carbon gapfill and Moly adoption enabling higher-density NAND and multi-tier stacking; strong position in GAA nodes and advanced packaging, with Lam guiding for >$3B of gate-all-around/advanced packaging shipments in 2025. Higher efficiency from Asia manufacturing and ongoing digital transformation initiatives (R&D expansion alongside cost-structure improvements) should yield sustained margin expansion and earnings upside. Semiverse and CSBG innovations (Dextro cobot, maintenance automation) broaden Lam's service and installed-base monetization.
Profitability Risk
Concentration in China revenue and the exposure to export-controls and regulatory constraints, which Lam quantified as an approximately $700M foregone revenue footprint in the year ahead; ongoing macro demand cycles and potential NANDDRAM mix volatility; dependencies on capex cycles in leading-edge foundry/DRAM; potential CSBG headwinds from Reliant and mature-node spending in non-China regions; foreign exchange and OI&E volatility; sustaining ESG and workforce initiatives within capex and opex budgets.
Financial Position
Robust liquidity and cash generation underpinning flexibility: cash and short-term investments of ~$5.68B; net debt of -$0.683B (net cash); total debt ~$4.98B; free cash flow of ~$0.853B in the quarter and ~$4.0B for the full-year 2024 return of 98% of free cash flow; stepped-up revolver facility to $2.0B and a $500M unsecured note maturing in March 2025 to be paid with cash; deferred revenue ~$2.0B; DSO ~68 days; inventory ~$4.36B; strong operating cash flow of ~$0.742B in the quarter; capex ~$0.111B; headcount growth to ~18,300.
SWOT Analysis
Strengths
Scale and installed base: ~96,000 chambers installed; CSBG revenue nearly $1.8B in the December quarter; broad exposure across memory, logic, foundry, and CSBG.
Leadership in deposition and etch: Cryo 3.0, Aether dry-resist, and carbon-gapfill/moly transitions position Lam to address high-density NAND, DRAM, and advanced packaging applications.
Product portfolio breadth: Semiverse analytics, DX automation (Dextro cobot), and Asia manufacturing capabilities enhancing efficiency and service offerings.
Financial strength: net cash position, strong free cash flow, sizable buyback capacity, and robust liquidity.
Weaknesses
Customer concentration and geographic mix: China revenue concentration remains a consideration with regulatory exposure; 31% of revenue in China in the December quarter (down from 37% prior quarter).
CSBG mix sensitivity: reliance on Reliant and upgrade revenues can swing with regional capex cycles; ongoing mix shifts may complicate margin trajectories in the near term.
Opportunities
NAND upgrade cycle accelerators: Moly and carbon-gapfill enable multi-tier stacking and higher layer counts, driving several hundred million dollars of NAND shipments in 2025.
Advanced packaging and HBM growth: GAA and high-density packaging demand remains a key growth vector; Lam indicated >$3B of GAA/advanced packaging shipments in 2025.
AI-era deployment and foundry logic expansion: Lam aiming to capitalize on leading-edge foundry demand and packaging-enabled performance.
Service automation and Semiverse-led productivity gains: Cobots and Semiverse analytics can expand CSBG revenue and support workforce constraints in the industry.
Threats
Regulatory/regulatory export controls: China restrictions could meaningfully impact projected revenue footprints in 2025 (Lam cited ~$700M foregone in forecasted China revenue from restricted customers).
Macroeconomic and WFE cycle risk: Semiconductor capex cycles, NAND DRAM mix shifts, and end-market demand fluctuations can affect WFE growth trajectories.
Competitive intensity and technology transitions: While Lam leads in advanced deposition/etch, rivals could accelerate offerings or pricing pressures in core end-markets.
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