Sterne Agree: Lam Research Outlook Bodes Well For Chip Makers

Lam Research Corporation's LRCX disappointing second-quarter outlook may bode well for a couple of major flash memory manufacturers, an analyst said Thursday.

Lam, which makes equipment used to manufacture the chips, expects that investments by its customers for flash memory equipment "will continue to be very disciplined."

Although the statement may help explain why Lam's outlook failed to meet expectations, Sterne Agee's Vijay Rakesh said it also reflects on potential profits for Micron Technology, Inc. MU and SanDisk Corporation SNDK.

Semiconductor sector shares have been hurt recently by fears of over supply. But Hynix, which also reported quarterly results recently, expects strong demand in 2015 as standard low and mid-end smartphones shift to higher memory, according to Rakesh.

About 46 percent of Lam's 2013 revenue came from its three largest customers: Samsung Electronics Co. Hynix Inc., and Taiwan Semiconductor Manufacturing Co., according to its most recent annual report, which doesn't mention Micron or SanDisk.

Micron Technology recently beat fourth-quarter estimates by a whopping 79 percent and is expected to post results for the current period in early January.

SanDisk recently beat quarterly estimates by more than 8 percent and is expected to report results again in late January.

Rakesh maintains Buy ratings on both Micron and SanDisk and has no ratings on Lam or Hynix.

Lam gained nearly 6 percent in mid-day trading Thursday, while Micron and SanDisk were each up more than 2 percent.