Lam Research Supply Chain Flashing Bearish Signals Into Earnings

(Bloomberg) -- When Lam Research Corp. reports second-quarter results on Wednesday after the market closes, investors may focus on the company’s revenue forecast after negative signals were shown over the last month on both sides of the company’s supply chain, according to Bloomberg Supply Chain data.

Key customer Samsung Electronics Co. Ltd., reported quarterly profit and sales that missed expectations two weeks ago. Analysts subsequently reduced estimates for Samsung capital spending for both the first and second quarter by about 10 percent.

Another top customer, Micron Technology Inc., cut its capital spending budget on Dec. 18 to a range of $9 billion to $9.5 billion, a reduction of $1.25 billion from its previous plan at the midpoint.

Samsung and Micron each account for over 10 percent of Lam Research’s revenue, according to Bloomberg Supply Chain data.

On Dec. 19, VAT Group AG, a supplier to Lam Research and other chip-equipment maker, extended its short-time work scheme for production employees by an added three months, citing "persistent soft market conditions, especially in semiconductor equipment." Vontobel analyst Michael Foeth wrote in a note later that day that VAT’s "announcement confirms our view that demand weakness for semi equipment will stretch well into 2019 and that the market in 2019 will decline versus 2018." Lam Research accounts for 6.1 percent of VAT’s revenue, according to Bloomberg supply chain data.

Through Friday’s close, Lam shares have gained 7 percent since Micron cut its capex outlook on Dec. 18, beating the S&P 500’s increase of 4.9 percent and the Philadelphia Semiconductor Index’s gain of 4.3 percent. On July 26, Lam Research forecast first-quarter earnings and revenue that missed analysts’ estimates, but shares rallied 7.2 percent higher the following day as the company called for a near-term bottom.

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