Lam is one of the best-managed businesses you'll find. Yet, despite a blinding outlook and dominant market position, it is now being discounted for no valid reason. Time to back up the truck!
Amazing article Daan! Never would have heard of Lam, grateful that you brought this opportunity to our attention 💪
Just one Q — wouldn’t it be a better strategy to invest FCFs into the business than to pay out dividends / undertake share repurchases? With that kind of firepower, why not look at acquisitions / expanding into newer business lines?
You make a good point. However, at some point, Lam sees no more need to invest more directly into its operations in a way that would translate into a good ROI, making dividends and share repurchases the best use of excess cash.
You see, the company operates in a semiconductor manufacturing niche, as most of its peers do. As a result, there aren't too many acquisitions that would make sense. Acquiring a business in a different niche is very risky due to the years of R&D and process understanding required. Meanwhile, Lam is already a dominant force in its respective markets, so there aren't too many acquisition options. As a result, acquisitions wouldn't really make sense for Lam and could be value-destroying. Management isn't looking to force anything - it doesn't have to.
Similarly, expanding into other niches is really tough due to the required R&D, process experience, and understanding required. This is exactly why there isn't too much competition for Lam and why every peer has its own niche process focus. Again, expanding into new business lines is unlikely to be rewarding.
Lam prefers to be conservative here and focus on the areas where it excels, where it still has plenty of room to grow.
That's a tough question. I might go with your last option, although I don't want to trim ASML and TSM at these levels. Out of these, I might cut AMD. I am more bullish on the others long-term.
Amazing article Daan! Never would have heard of Lam, grateful that you brought this opportunity to our attention 💪
Just one Q — wouldn’t it be a better strategy to invest FCFs into the business than to pay out dividends / undertake share repurchases? With that kind of firepower, why not look at acquisitions / expanding into newer business lines?
Hi Siddharth, thank you for your question!
You make a good point. However, at some point, Lam sees no more need to invest more directly into its operations in a way that would translate into a good ROI, making dividends and share repurchases the best use of excess cash.
You see, the company operates in a semiconductor manufacturing niche, as most of its peers do. As a result, there aren't too many acquisitions that would make sense. Acquiring a business in a different niche is very risky due to the years of R&D and process understanding required. Meanwhile, Lam is already a dominant force in its respective markets, so there aren't too many acquisition options. As a result, acquisitions wouldn't really make sense for Lam and could be value-destroying. Management isn't looking to force anything - it doesn't have to.
Similarly, expanding into other niches is really tough due to the required R&D, process experience, and understanding required. This is exactly why there isn't too much competition for Lam and why every peer has its own niche process focus. Again, expanding into new business lines is unlikely to be rewarding.
Lam prefers to be conservative here and focus on the areas where it excels, where it still has plenty of room to grow.
Thanks Daan, that makes sense! Again, really appreciate these deep dives you do :)
Very informative. Thanks, Daan! Which one do I sell to make room for LRCX: AMD, TSM or ASML? Or do I trim them up a little and snuck it in? :)
That's a tough question. I might go with your last option, although I don't want to trim ASML and TSM at these levels. Out of these, I might cut AMD. I am more bullish on the others long-term.
Yes, it is a tough one. I guess when things are hard to decide it might be wiser to do nothing at all.