Inside Lam Research’s Risk Factors

California-based Lam Research (LRCX) supplies wafer fabrication equipment used in semiconductor component manufacturing. The company says that nearly every advanced chip built today uses its technology. Lam Research was recently added to the North America-focused Dow Jones Sustainability Index for the first time in recognition of its corporate sustainability efforts.

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For its December 2021 quarter, Lam reported revenue of $4.23 billion, which fell short of the consensus estimate of $4.41 billion. It posted adjusted EPS of $8.53, beating the consensus estimate of $8.51.

Lam anticipates revenue of $4.25 billion, give or take $300 million, for the March 2022 quarter. But Wall Street is looking for revenue of $4.49 billion for the quarter. Lam expects adjusted EPS of $7.45 with a variation of $0.75. The consensus estimate calls for EPS of $8.72.

The company distributed a quarterly dividend of $1.50 per share in January. Lam stock currently offers a dividend yield of 0.95%.

With this in mind, we used TipRanks to take a look at the risk factors for Lam Research.

Risk Factors

According to the new TipRanks Risk Factors tool, Lam Research’s main risk category is Finance and Corporate, representing 36% of the total 28 risks identified for the stock. Tech and Innovation; Legal and Regulatory; and Ability to Sell are the next three major risk categories, each accounting for 14% of the total risks. Lam Research has recently updated several risk factors that it had previously highlighted to stress certain challenges it faces.

The company reminds investors in an updated Tech and Innovation risk factor that its business relies a lot on technology, intellectual property, and other sensitive information, some of which may be licensed from third parties. It cautions that these may be susceptible to cybersecurity threats. Although Lam Research has taken various measures to protect its information systems, it may still suffer cybersecurity breaches, which could have a material adverse impact on its business.

Lam Research has also updated a Production risk factor to stress the challenges facing its product development and manufacturing infrastructure. It explains that its manufacturing and R&D facilities are located in places that are subject to disruptions beyond its control. The company mentions disruptions arising from natural disasters, terrorist activities, and political unrest. It cautions that such disruptions may lead to delays in product development and deliveries to customers. As a result, the company could lose business and customer trust.

The Finance and Corporate risk factor’s sector average is 48%, compared to Lam Research’s 36%. Lam Research’s stock has gained about 29% over the past 12 months.

Analysts’ Take

Following Lam Research’s December quarter report, Stifel Nicolaus analyst Patrick Ho reiterated a Buy rating on Lam Research stock but lowered the price target to $775 from $790. Ho’s new price target suggests 26.68% upside.

Citing the company’s soft guidance for the March quarter, the analyst observed that Lam may be grappling with stronger supply-chain headwinds than anticipated. But despite the supply-chain constraints, Ho notes that demand trends continue to be robust.

Consensus among analysts is a Moderate Buy based on 12 Buys and 6 Holds. The average Lam Research price target of $738.63 implies 20.74% upside potential to current levels.

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