On an adjusted basis, gross margins contracted 80 basis points over last year to 46.4%, while operating margins shrank 260 basis points to 27% primarily due to higher research & development expenses.
On a regional basis, Japan and China brought in 54% of revenues to the chip equipment maker compared to 58% contribution from Korea and Japan last year.
Lam’s stock has taken a beating in 2018, decreasing more than 20% due to lower demand from its clients. Chip makers have reduced their spending on beefing up production as inventories piled up due to weakness in the semiconductor market.
Analysts expect the memory market to pick up only in the second half of next year, which means lower demand for wafer equipment makers like Lam and its peers Applied Materials (AMAT) and KLA-Tencor (KLAC). In 2018, Applied Materials stock has plunged 32% while KLA’s shares dropped 11% in line with the weak sentiment for the sector.
Despite the weak macro factors, Lam’s second quarter outlook topped analysts’ estimates. The company expects revenue to touch $2.5 billion (plus or minus $150 million) and earnings per share of $3.65 (plus or minus 20 cents) compared to street consensus of $2.38 billion revenue and $3.35 earnings per share.