Lam Research (LRCX) Q4 2025 earnings review
Record Results Clouded by Warning of a Peak in Late 2025
Lam Research delivered a stellar quarter, with revenue growing 10% sequentially to $5.17 billion and non-GAAP EPS hitting a new company record of $1.33. Gross margin surpassed 50% for the first time since the Novellus merger, a significant milestone. The company also raised its calendar 2025 Wafer Fab Equipment (WFE) forecast to ~$105 billion, driven by strength in China. However, this exceptional performance was overshadowed by management's explicit warning on the earnings call. While September quarter guidance is strong, the CFO guided for a sharp sequential revenue decline and a significant gross margin contraction to ~48% in the December quarter, suggesting the current cycle of accelerating profitability is set to peak and reverse.
🐂 Bull Case
The company achieved record non-GAAP gross margin of 50.3% and record EPS, demonstrating strong operational execution and a favorable product mix benefiting from advanced technology nodes.
Lam raised its CY25 WFE forecast by $5B to ~$105B. Key segments like Foundry hit record revenue levels, driven by investment in Gate-All-Around (GAA) and mature nodes.
🐻 Bear Case
Management explicitly guided for a sharp gross margin contraction to ~48% in the December quarter (from 50.3% now), citing unfavorable mix, rising tariffs, and lower revenue. This signals an end to the current margin expansion cycle.
China revenue concentration increased to 35% and was the primary driver for the raised WFE forecast. This elevates geopolitical risk, especially with management noting a 90% QoQ increase in spending from global multinationals in the region.
⚖️ Verdict: 🔴
Bearish. While the reported quarter was exceptional, the CFO's direct and unprompted warning about a significant drop in revenue and gross margin for the December quarter is a material negative. It overrides the current strong results by signaling that the positive momentum is not sustainable through the end of the calendar year.
Key Themes
Management Warns of December Quarter Slowdown
In a highly unusual move, the CFO provided a clear, negative outlook for the December quarter (26Q2). He guided for gross margin to fall to ~48%, a steep 200 basis point drop from the September quarter's guided midpoint. He also stated revenue would decline to a level similar to March 2025 (~$4.7B), implying a ~9% sequential drop. The stated reasons were a less favorable customer and product mix, rising tariffs, and lower volume.
China Drives Upside but Elevates Risk
China's contribution to revenue grew to 35% from 31% last quarter. The company's decision to raise the CY25 WFE forecast to ~$105 billion was attributed 'predominantly due to an uptick in domestic China related spending'. While this is driving near-term results, it significantly increases concentration risk amid ongoing geopolitical tensions and potential for further trade restrictions.
Technology Leadership in Critical Inflections
Lam continues to execute on its strategy of winning key technology transitions. Management highlighted significant progress in Molybdenum (Moly) ALD, where it is the only company with tools in production for foundry/logic and is ramping with multiple NAND customers. Advanced packaging tools are also gaining traction, with SABRE 3D market share expected to grow by nearly 5 points in CY25. These wins are fundamental to the company's long-term thesis of outperforming WFE.
Foundry Strength Continues
The Foundry segment was 52% of systems revenue, marking a second consecutive record quarter in dollar terms. This was driven by spending on both leading-edge processes like Gate-All-Around (GAA) and mature nodes. This sustained strength demonstrates successful diversification away from the more cyclical memory market and validates the company's strategic R&D investments.
NAND Upgrade Cycle Drives Growth
Non-volatile memory (NAND) revenue jumped to 27% of systems revenue from 20% last quarter. The company's Upgrades business within CSBG also achieved a new record, driven by NAND customers converting fabs to higher layer counts. Management reiterated the NAND upgrade cycle represents a multi-year, $40 billion investment opportunity for the industry.
WFE Forecast Raised on China Spending
Management raised its calendar 2025 WFE forecast from ~$100 billion to ~$105 billion. The increase was explicitly linked to stronger-than-expected spending from domestic Chinese customers. The company now expects WFE to be roughly flat in the second half of the calendar year compared to the first half, a slight change from the previously expected 'first half weighted' profile.
Other KPIs
Stable. The CSBG segment remained consistent with the prior quarter and prior year. Within this, the upgrades business hit a third consecutive record, driven by NAND conversions. Management expects modest growth for CSBG for the full calendar year, providing a stable, high-margin revenue base.
Increased by $670 million from the prior quarter. The CFO attributed this to 'customer advanced on payments from several newer customers.' This provided a significant boost to operating cash flow ($2.55 billion) for the quarter but also points to a shifting customer and payment mix.
The company returned approximately $1.6 billion to shareholders, consisting of $1.3 billion in share buybacks and $295 million in dividends. A total of $7.5 billion remains on the current share repurchase authorization.
Guidance
Decelerating. The midpoint represents just 0.6% sequential growth, a sharp slowdown from the 9.6% growth reported in Q4. This signals a flattening of the strong revenue ramp seen in recent quarters.
Reversing. After four quarters of sequential expansion, the guided midpoint of 50.0% is a 30 basis point decline from the 50.3% achieved in Q4. This marks the initial step down from the peak.
Reversing. The midpoint of $1.20 is a 9.8% sequential decline from Q4's record $1.33. This is driven by the lower gross margin and a slightly lower guided share count, indicating profitability per share is contracting.
Decelerating Sharply. This informal but direct guidance from the call implies a ~9% sequential revenue decline and a 200 bps gross margin contraction from the Q1 guided midpoint. This is a significant negative signal for the end of calendar 2025.
Key Questions
Bridging the Gross Margin Decline
Regarding the December quarter gross margin outlook of ~48%, can you provide a bridge for the ~200 basis point drop from the September guidance? How much of that is attributable to customer/product mix, rising tariffs, and lower volume absorption, respectively?
Assessing China Risk Profile
China revenue grew to 35% of total, and you noted spending from 'global multinationals' in China increased over 90% QoQ. How do you assess the risk that this specific activity could become a target for future U.S. export controls?
DRAM Spending Trajectory
DRAM as a percent of systems revenue fell sharply from 23% to 14%. Given the strong industry narrative around HBM, was this pause specific to one customer's project timing, and should we expect a significant rebound in the second half of the calendar year?