Lam Research: A Long-Term View to R&D
03/22/2017 2:50 am EST
Semiconductor-equipment maker Lam Research (LRCX) credits its success to long-term thinking, focusing on three- to five-year trends rather than near-term market forces, explains Richard Moroney, editor of Dow Theory Forecasts.
Of course, a lot of companies say such things, but Lam has history of investing in next-generation technology before the demand for it takes off. That prescience has paid off in the form of excellent growth.
The company holds a 53% share of the market for semiconductor-etching equipment. Here are a few trends Lam expects to drive growth in the next few years:
* Applications with enhanced computing power and storage capacity to accommodate customers operating in the cloud.
* Mobile devices and connected electronics, which often require more memory in a tight space. Lam's 3-D NAND, which packs memory cells vertically, is in high demand
* Improving demand from China, with Lam likely to see a bigger impact in 2018 than in 2017.
In November, Lam boosted its quarterly dividend 50% (it now yields 1.4%) and authorized the repurchase of up to $1 billion in shares (10% of the current stock-market value) over the next 12 to 18 months.
We rate Lam a Focus List Buy and a Long-Term Buy. The shares trade at 18 times trailing earnings, 19% below their industry median and 20% below their own five-year average.