# How Lam Research makes money

CXProWealth Business Lens · Lam Research (LRCX) · Q1 FY2027

Read from the 10-Q for the period 2026-06-29 to 2026-09-27, filed 2026-10-22 with the SEC (accession 0000707549-26-000054): https://www.sec.gov/Archives/edgar/data/707549/000070754926000054/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $8.2B (+54.4% on the year)
- Operating income: $3.3B (operating margin 40.0%)
- Net income: $2.8B (net margin 33.5%)
- Gross margin: 52.3%
- Free cash flow: $3.2B (39.4% of revenue)
- Cash conversion (operating cash flow / net income): 1.27x
- Capital expenditure: 3.1% of revenue

## Where the money goes (Q1 FY2027)

- Systems revenue → Revenue: $5.7B
- Customer support-related revenue and other → Revenue: $2.5B
- Revenue → Cost of goods sold: $3.9B
- Revenue → Gross margin: $4.3B
- Gross margin → Total operating expenses: $1.0B
- Total operating expenses → Research and development: $666.4M
- Total operating expenses → Selling, general, and administrative: $348.7M
- Gross margin → Operating income: $3.3B
- Operating income → Income before income taxes: $3.3B
- Other income (expense), net → Income before income taxes: $28.5M
- Income before income taxes → Income tax expense: $559.1M
- Income before income taxes → Net income: $2.8B

## Where the revenue comes from

### Products and services (REVENUE - Schedule of Disaggregation of Revenue (Details))

| Member | Value | Share |
|---|---:|---:|
| Systems revenue | $5.7B | 69.7% |
| Customer support-related revenue and other | $2.5B | 30.3% |

The members sum to total revenue.

### Regions (REVENUE - Schedule of Disaggregation of Revenue (Details))

| Member | Value | Share |
|---|---:|---:|
| Southeast Asia | $531.7M | 6.5% |
| Europe | $301.3M | 3.7% |

The members do not sum to total revenue.

## Income statement, as filed

| Line | Q1 FY2027 | Of revenue |
|---|---:|---:|
| Revenue | $8.2B | 100% |
| Cost of goods sold | $3.9B | 47.7% |
| **Gross margin** | $4.3B | 52.3% |
| Research and development | $666.4M | 8.1% |
| Selling, general, and administrative | $348.7M | 4.2% |
| **Total operating expenses** | $1.0B | 12.4% |
| **Operating income** | $3.3B | 40.0% |
| Other income (expense), net | $28.5M | 0.3% |
| **Income before income taxes** | $3.3B | 40.3% |
| Income tax expense | ($559.1M) | 6.8% |
| **Net income** | $2.8B | 33.5% |
| Basic (in dollars per share) | $2 | 0.0% |
| Diluted (in dollars per share) | $2 | 0.0% |
| Basic (in shares) | 1,250,883,000 |  |
| Diluted (in shares) | 1,255,768,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2009 | $1.1B | -$281.2M | -$302.1M | -$78.1M | $44.3M | -$122.4M |
| FY2010 | $2.1B | $425.4M | $346.7M | $350.7M | $35.6M | $315.1M |
| FY2011 | $3.2B | $804.3M | $723.7M | $881.0M | $127.5M | $753.5M |
| FY2012 | $2.7B | $237.7M | $168.7M | $499.0M | $107.3M | $391.8M |
| FY2013 | $3.6B | $118.1M | $113.9M | $719.9M | $160.8M | $559.1M |
| FY2014 | $4.6B | $677.7M | $632.3M | $717.0M | $145.5M | $571.5M |
| FY2015 | $5.3B | $788.0M | $655.6M | $785.5M | $198.3M | $587.2M |
| FY2016 | $5.9B | $1.1B | $914.0M | $1.4B | $175.3M | $1.2B |
| FY2017 | $8.0B | $1.9B | $1.7B | $2.0B | $157.4M | $1.9B |
| FY2018 | $11.1B | $3.2B | $2.4B | $2.7B | $273.5M | $2.4B |
| FY2019 | $9.7B | $2.5B | $2.2B | $3.2B | $303.5M | $2.9B |
| FY2020 | $10.0B | $2.7B | $2.3B | $2.1B | $203.2M | $1.9B |
| FY2021 | $14.6B | $4.5B | $3.9B | $3.6B | $349.1M | $3.2B |
| FY2022 | $17.2B | $5.4B | $4.6B | $3.1B | $546.0M | $2.6B |
| FY2023 | $17.4B | $5.2B | $4.5B | $5.2B | $501.6M | $4.7B |
| FY2024 | $14.9B | $4.3B | $3.8B | $4.7B | $396.7M | $4.3B |
| FY2025 | $18.4B | $5.9B | $5.4B | $6.2B | $759.2M | $5.4B |
| FY2026 | $23.2B | $8.2B | $7.3B | $5.9B | $966.4M | $4.9B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +26.0% (year before +23.7%): accelerating
- Operating income: +39.0% (year before +38.4%): steady
- Net income: +35.6% (year before +40.0%): slowing
- Free cash flow: -9.7% (year before +27.2%): slowing

## Operating figures stated in the filing

- Employee headcount: 24,300 employees (as of 2026-09-27). "Employee headcount as of September 27, 2026 was approximately 24,300." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Memory customers' share of equipment and upgrade sales: 46.0% (as of 2026-09-27). "Memory 46 % 46 % 34 %" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Memory customers' share of equipment and upgrade sales: 34.0% (as of 2025-09-28). "Memory 46 % 46 % 34 %" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Foundry customers' share of equipment and upgrade sales: 46.0% (as of 2026-09-27). "Foundry 46 % 44 % 60 %" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Foundry customers' share of equipment and upgrade sales: 60.0% (as of 2025-09-28). "Foundry 46 % 44 % 60 %" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Logic and integrated device makers' share of equipment and upgrade sales: 8.0% (as of 2026-09-27). "Logic/integrated device manufacturing 8 % 10 % 6 %" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Logic and integrated device makers' share of equipment and upgrade sales: 6.0% (as of 2025-09-28). "Logic/integrated device manufacturing 8 % 10 % 6 %" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- China's share of sales by customer location: 35.0% (as of 2026-09-27). "China 35 % 26 % 43 %" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- China's share of sales by customer location: 43.0% (as of 2025-09-28). "China 35 % 26 % 43 %" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)

## Key insights

### Operating costs grew a third as fast as sales

Revenue rose 54.4% but operating expenses only 18.6%, so operating income grew 79.5% and nearly 40 cents of each sales dollar became operating profit.

Total operating expenses were $1.02B against $856M a year earlier, 12.35% of revenue against 16.1%. Research and development rose 15.6% to $666M and fell to 8.11% of revenue from 10.8%. The filing attributes the cost growth mainly to higher headcount, incentive pay tied to profitability, engineering supplies and depreciation. _(from the filing)_
Operating margin rose 5.6 points to 39.95%. Gross margin supplied 1.87 points of that, which the filing credits to favorable product mix and efficiencies from higher volumes. The other 3.72 points came from operating costs falling as a share of revenue, so about two thirds of the gain came from costs below gross margin growing slower than sales. _(from the filing)_
The quarter's operating income of $3.28B equals 40.0% of the $8.20B Lam earned in all of FY2026. _(from the filing)_
Analysis: the same structure works in reverse. Research is set by multi-year programs, and the filing says research and worldwide support must continue when revenue falls. In the last downturn, revenue fell to $14.91B in FY2024 from $17.43B in FY2023, while operating income fell to $4.26B from $5.17B, so profit fell further than sales in proportion. _(analysis)_

### One quarter brought two thirds of last year's free cash

Free cash flow of $3.24B is about two thirds of FY2026's $4.89B, as operating cash flow ran 1.27 times net income after trailing it last year.

Operating cash flow was $3.50B against net income of $2.75B, and capital spending was $257.7M, 3.1% of revenue. A year earlier, operating cash flow was $1.78B against net income of $1.57B. The filing attributes the increase to higher net income and to changes in operating assets and liabilities, chiefly higher accrued expenses and payables, partly offset by more receivables and inventory. _(from the filing)_
Across FY2026, operating cash flow was $5.86B against net income of $7.27B, or 80.6%, and free cash flow of $4.89B was below FY2025's $5.41B. In Q3 FY2026, operating cash flow was $1.14B against net income of $1.83B, or 62.5%. _(from the filing)_
Analysis: cash conversion in this business swings with working capital. Fast growth ties cash up in inventory and receivables, while accrued liabilities and customer payments can release it. One strong quarter after a weak year may reflect timing as much as a new level, and the quarters ahead show which it is. _(analysis)_

### Memory makers now match foundries in equipment spending

Memory customers took 46% of equipment and upgrade revenue, up from 34%, while foundries fell to 46% from 60%: memory budgets now set the pace.

The filing says both the foundry and memory segments grew in dollars over the year, with the increase in memory revenue exceeding that of foundry. It ties systems growth of 61.6% to higher semiconductor demand leading to more investment in both memory and non-memory segments, and names AI as the driver of higher industry spending across both. _(from the filing)_
The regional mix moved as well. China's share of revenue fell to 35% from 43% while total revenue rose 54.4%. Southeast Asia brought $531.7M and Europe $301.3M, 6.5% and 3.7% of revenue. Against the prior quarter, the filing attributes a rise in the foundry share to the timing of mature node investments in China. _(from the filing)_
Analysis: the shift spreads the business across more buyers than a year ago, but it ties more of each quarter to memory capacity decisions. Those follow memory prices and AI server demand, and memory spending has tended to be the most volatile part of chip capital budgets. _(analysis)_

### Competitive edge

- **A qualified tool tends to stay on the line** Chipmakers tend to keep a qualified tool for years, and gross margin rose from 45.1% of revenue in FY2019 to 52.3% this quarter.
- **Service, spares and older tools brought $2.49B** Customer support-related revenue and other grew 40.0% to $2.49B, 30.25% of revenue, led by older-generation tools and spares for the installed fleet.
- **Capital spending took 3.1% of revenue** Capital spending was $257.7M, 3.1% of revenue, against 4.2% across FY2026, as Lam designs and integrates tools while relying on suppliers for many parts.

### What to watch

- **Export rules shape how much China can buy** China was 35% of revenue against 43% a year earlier, and U.S. export licenses and Chinese rare earth controls both bear on that business.
- **Demand rests on AI budgets at a few chipmakers** The filing names AI as a significant driver of equipment spending and warns that a few large customers, in a cyclical industry, can move results quickly.
- **Tariffs, scarce inputs and single suppliers press on costs** Steel and aluminum tariffs raised manufacturing costs and hurt margins in FY2026, and some key parts have long lead times or a single supplier.

## Investor view

**Operating income rose 79.5% as chipmaker orders outran Lam's slower-growing cost base**

### How it makes money

Lam sells the machines that deposit, etch and clean the layers of a chip, and then services them. Systems revenue, new leading-edge equipment, was $5.73B, or 69.7% of the quarter's $8.22B. Customer support-related revenue and other was $2.49B, or 30.3%: services, spares, upgrades and older-generation tools from the Reliant line. _(from the filing)_
Demand is set by a small group of chipmakers' capital budgets. The filing says it is driven by "customers’ investments in wafer fabrication capacity, technology advancement, and installed base support." This quarter memory makers and foundries each took 46% of equipment and upgrade revenue, and logic and integrated device makers 8%. _(from the filing)_
Sales follow where fabs are built, and most of them are outside the United States. China was 35% of revenue by customer location. Southeast Asia brought $531.7M and Europe $301.3M, 6.5% and 3.7% of revenue. _(from the filing)_
The cost structure is lean above gross margin. Of each revenue dollar this quarter, cost of goods sold took 47.7%, research and development 8.1%, and selling, general and administrative 4.2%. That left an operating margin of 39.95% and a net margin of 33.5%. _(from the filing)_

### What shifted

Revenue rose 54.4% to $8.22B from $5.32B a year earlier. Systems revenue grew 61.6% and support revenue 40.0%, so systems rose 3.12 points to 69.75% of revenue. The filing ties systems growth to "higher levels of semiconductor demand" across memory and non-memory customers, and support growth to non-leading-edge equipment and spares. _(from the filing)_
The customer mix turned toward memory. Memory makers took 46% of equipment and upgrade revenue, up from 34% a year earlier, while foundries fell to 46% from 60%. The filing says both grew in dollars, with memory growing more. China's share of revenue fell to 35% from 43%. _(from the filing)_
Margins widened at every level. Gross margin reached 52.3% from 50.4%, which the filing credits to "favorable changes in product mix, as well as improved efficiencies as a result of higher business volumes." Operating expenses grew 18.62%, so they fell 3.72 points to 12.35% of revenue, and operating margin rose 5.6 points to 39.95%. _(from the filing)_
Cash ran ahead of profit. Operating cash flow was $3.50B against net income of $2.75B, a cash conversion of 1.27. Free cash flow was $3.24B, 39.4% of revenue, against $4.89B for all of FY2026. Income tax expense rose 92.45%, faster than pretax income, which the filing puts mainly down to a higher U.S. tax rate on foreign income and a shift in where income was earned. _(from the filing)_

### Risks in the filing

Demand is cyclical. The filing says the industry "has historically been characterized by rapid changes in demand" and that Lam must keep investing in research and worldwide support even when revenue falls. It names AI as the main driver of current spending and lists what could change it: slower adoption, gains in compute efficiency, or an oversupply of AI infrastructure. _(from the filing)_
Trade policy limits where Lam can sell. U.S. export license requirements restrict sales to certain Chinese entities, and the filing warns that competitors not bound by those controls, including government-backed ones, can take that business. China's controls on rare earth elements, used in some of Lam's products, could delay or block parts supply. _(from the filing)_
A few customers buy most of the equipment. The filing says the actions of even one large customer can move results, that large customers can press on price, and that once a chipmaker qualifies a competitor's tool for a production step it tends to keep using it. Consolidation and industry alliances can make a rival's tool the standard. _(from the filing)_
Supply and input costs are exposed. Some key parts come from a single supplier or carry long lead times. Tariffs on steel and aluminum raised manufacturing costs in the last fiscal year and hurt margins, restrictions on PFAS chemicals could remove parts with no ready replacement, and the Middle East conflict has disrupted commodities the industry uses, including helium. _(from the filing)_
Two of these risks already show in the results. The fall in China's share of revenue over the year, and its swings from quarter to quarter, track trade rules and the timing of Chinese investment. The jump in memory customers' share shows how much a single quarter depends on the capital plans of a handful of buyers. _(analysis)_

## Founder view: mechanisms

### Every tool sold starts a service stream

A wafer fabrication tool runs in a customer's fab for many years and needs spare parts, field service and upgrades throughout. Lam sells that support through its Customer Support Business Group, and resells older-generation designs to fabs that do not need the leading edge. The filing names "cycles of learning from our broad installed base" as an advantage: the fleet in the field also teaches the engineers. _(analysis)_

### A slow cost base under a fast order book

Most of Lam's operating costs are engineers and staff tied to multi-year development programs, not to the number of tools shipped. When chipmakers raise spending, revenue climbs much faster than those costs and operating margin widens. The same structure cuts the other way: the filing says research and worldwide support must continue even when revenue falls. _(analysis)_

### Winning the slot on the production line

A chipmaker qualifies one supplier's tool for a specific process step on a specific line, at real cost in time and test wafers. The filing says that once chosen, the manufacturer "generally relies upon that equipment for that specific production line application for an extended period of time." The sale is won years before volume, during development with the customer, and reorders follow as the line adds capacity. _(analysis)_

### Design and integrate, buy the rest

Lam keeps the engineering and integration of its tools and relies on suppliers and outsource providers for many parts and subassemblies, so its factory footprint stays small relative to sales. Customer down payments and deferred revenue, which the filing describes, fund part of the working capital. Most of the cash the business generates is free to return or retain. _(analysis)_

## Member research

Signed-in members read, on the page: what Lam Research's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Lam Research 10-Q for the period to 2026-09-27: https://www.sec.gov/Archives/edgar/data/707549/000070754926000054/ (2026-10-22)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02