Global TMT, Consumer, Korea, Deep Fundamental

Julian Yoon

Equity Bottom-Up

<ul><li>In sweet spot of semiconductor equipment spending. More than 50% of wafer fabrication equipment ('WFE') spending is in deposition and etch, which are the company's core segments.   <a href="https://www.smartkarma.com/entities/1116" target="_blank" data-smartkarma-citation="entities:1116:1">Lam Research Corp (LRCX US)</a> is a key beneficiary of explosive NAND memory demand.  </li><li>Long term secular industry growth.  Company is leveraged to exponential growth in semiconductor content including mobile, cloud, IoT/5G, automotive, virtual/augmented reality, robotics and machine learning/artificial intelligence.</li><li>Large and growing market.  The total market size for wafer fabrication equipment ('WFE') was $36 billion in 2016 according to Gartner and is expected to grow at a CAGR of 5% through 2019.  While overall industry growth is expected to remain strong, LRCX also benefits from increasing share of the overall WFE spending pie.  Company's servable addressable market ('SAM') as a percent of overall WFE spending has increased from 26.5% in 2013 to 34% in 2016.  This is due to the increasing complexity of making ever smaller transistors which is increasing the demand for the company's products.        </li><li>Increasing capital intensity.  Moore's Law states that number of electronic components which can be crammed into an integrated circuit doubles every two years.  However, as Moore's law reaches its limitation as we approach atomic level scale, capital intensity is increasing in order to achieve ever smaller microchips benefitting semiconductor equipment players, especially those with good technology.         </li><li>Track record of top-line growth and margin expansion.   Company has grown revenue at a CAGR of 23% from 2012 to 2015 and expanded operating margin by 11.5%p during the same time period.  </li><li>Substantial excess cash balance / foreign cash repatriation.  Company has significant excess cash that can be utilized to enhance shareholder return.    </li><li>Upside from capital management.  Company's commitment to enhanced shareholder return supported by high free cash flow yield.    </li><li>Attractive relative valuation.  Discount to peers and overall market on both forward P/E and P/E ex-cash basis.  </li></ul>

In sweet spot of semiconductor equipment spending. More than 50% of wafer fabrication equipment ('WFE') spending is in deposition and etch, which are the company's core segments.   Lam Research Corp (LRCX US) is a key beneficiary of explosive NAND memory demand.  Long term secular industry growth.  Company is leveraged to exponential growth in semiconductor content including mobile, cloud, IoT/5G, automotive, virtual/augmented reality, robotics and machine learning/artificial intelligence.Large and growing market.  The total market size for wafer fabrication equipment ('WFE') was $36 billion in 2016 according to Gartner and is expected to grow at a CAGR of 5% through 2019.  While overall industry growth is expected to remain strong, LRCX also benefits from increasing share of the overall WFE spending pie.  Company's servable addressable market ('SAM') as a percent of overall WFE spending has increased from 26.5% in 2013 to 34% in 2016.  This is due to the increasing complexity of making ever smaller transistors which is increasing the demand for the company's products.        Increasing capital intensity.  Moore's Law states that number of electronic components which can be crammed into an integrated circuit doubles every two years.  However, as Moore's law reaches its limitation as we approach atomic level scale, capital intensity is increasing in order to achieve ever smaller microchips benefitting semiconductor equipment players, especially those with good technology.         Track record of top-line growth and margin expansion.   Company has grown revenue at a CAGR of 23% from 2012 to 2015 and expanded operating margin by 11.5%p during the same time period.  Substantial excess cash balance / foreign cash repatriation.  Company has significant excess cash that can be utilized to enhance shareholder return.    Upside from capital management.  Company's commitment to enhanced shareholder return supported by high free cash flow yield.    Attractive relative valuation.  Discount to peers and overall market on both forward P/E and P/E ex-cash basis.  

Semi-Equipment Top Pick:  Long Term Secular Winner