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Lam Research stock rises on Q1 earnings beat

Lam Research’s (LRCX) stock increased about 4% during the extended hours of trading as the company’s first quarter results beat analyst estimates. The chip equipment maker is the first firm to report earnings for the semiconductor industry and analysts view Lam’s results as an indicator of what’s in store this earnings season for the sector.

The company’s earnings came in at $3.36 per share compared to $3.22 per share expected by the street. Revenue for the quarter stood at $2.33 billion, which topped analysts estimates of $2.31 billion. However, revenue and earnings dropped 5.7% and 2.9% respectively over prior year period due to weak demand for the company’s products.

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.

Applied Materials stock slips on weak outlook

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.

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