Lam Research On The Cusp Of Healthy Chip Industry Environment; Argus Initiates At Buy

Analysts Jim Kelleher and T.W. Smith said the company's etch and deposition tools are enabling vertical scaling, an innovative process in the production of semiconductor chips. With the impending end of Moore's law, the analysts noted that semiconductor companies are seeking to improve the performance of chips through vertical scaling.

Therefore, the analysts said Lam Research stands to benefit, as its products allow vertical scaling and other key technological advancements. Additionally, the analysts said the company is benefiting from particularly strong demand growth and pricing power in memory, the source of three-quarters of the company's system shipments in the fiscal year fourth quarter.

Argus noted that the company's fiscal year fourth-quarter earnings released in late July showed 52 percent year-over-year jump in revenues, widening margins and a 93-percent increase in non-GAAP earnings per share.

Argus also noted that unshipped orders in backlog were $2.1 billion at the end of fiscal year 2017, higher than $1.4 billion at the end of 2016, This, according to the firm, is reflective of the surging demand for the company's products.

On valuation, the firm noted that Lam Research shares were up 58 percent year to date compared to a 20-percent gain by the peer group of Argus semiconductor stocks and a 22-percent gain by the PHLX Semiconductor. This has come on top of the 37-percent gain in 2016.