Lam Research: The Global Leader in Semiconductor Equipment, Part 1

The market size, industry characteristics and future technology trends make the company a long-term winner

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Jun 10, 2022
  • Lam’s leadership in wafer fabrication equipment and adjacent diverse services positions it as a market leader with less volatility than its more specialized competitors.
  • Semiconductors are the foundational element of all future technology – from the automotive market and internet of things to gaming AI and data storage.
  • Patents, economies of scale, production costs, switching costs and investments in R&D all but close this market off to newcomers, entrenching large players such as Lam further.
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Lam Research Corp. (LRCX, Financial) is a global leader in the semiconductor manufacturing equipment and processing industry, specifically in wafer fabrication equipment. The company supplies equipment used in the process steps of etch, deposition and cleaning and provides equipment for a broad variety of manufacturing and testing capabilities. The company’s core specialty markets include Dielectric and Metals, ALD/PECVD, Etch and Wet Clean.

The company's wide array of services positions it as a diverse market leader, allowing for deeper and less volatile market penetration than its more specialized competitors. With over 30 years of operational history, the company’s 2021 annual report noted size is highlighted by its massive and growing installed base of 66,000 process chambers as of 2020.

The semiconductor manufacturing market

Lam Research is a large, dominant company in an industry that is going from strength to strength. MarketsandMarkets reported the semiconductor manufacturing equipment industry is expected to reach $116 billion by the end of 2022 and is closely tied to the mammoth semiconductor industry, which it supplies and which recorded sales of $555 billion in 2021, according to the Semiconductor Industry Association. Both industries are subjected to volatility due to the cyclicality of demand for semiconductors.

So what drives this industry? Future growth will be determined by companies’ abilities to produce more sophisticated products to meet the backlogged and increased demand for tech products (and the semiconductors used in them). MarketsandMarkets expects the semiconductor manufacturing equipment industry to increase at a compounded annual growth rate of 8.5% through 2027. noted Lam Research currently controls approximately 10% of the market for semiconductor manufacturing equipment.


What are some of the sectors driving demand? Growth is expected to be driven by new technologies, primarily the intelligent automotive market, smart homes, the internet of things and the growth of the gaming industry, among others.

According to MarketsandMarkets, the market for automotive semiconductors is estimated to reach $48 billion by the end of 2022, or a little less than 10% of the overall semiconductor market. This represents a CAGR of 5.8% from 2019 as automotive companies race to install the newest technology in their vehicles.

The internet of things, or IoT, is not new technology, but it could have wide-ranging implications for the way we live. One of its key use cases is smart homes; homes that integrate lights, air conditioning and other appliances to increase convenience and performance while decreasing energy costs. Fortune Business Insights noted the market for IoT services in 2021 was $385 billion and estimates project a 26.4% CAGR over the next five years.

Grand View Research said the gaming industry is estimated to grow 12.9% over the next decade as the industry continues to gain popularity, driving further sophistication in the latest video game titles. All devices used to play these games contain semiconductors.

Artificial intelligence, along with its continued proliferation in everything we use, presents new market opportunities for the semiconductor industry. Additionally, the need for ever-growing computational capacity and data storage, both for consumers and businesses, represents another opportunity.

Sectors aside, Lam’s services are primed to be disruptive in the coming decades. Internet penetration worldwide is expected to grow to 90% by the end of the decade, based on data from, and “global south” regions such as Latin America and the Middle East will represent the biggest growth opportunities over the next two decades for tech companies and the semiconductor companies that supply them.

Overall, the future growth of semiconductors and, by extension, the semiconductor manufacturing equipment industry is tied to the development of new technology and its continued distribution.

Competitive landscape and market characteristics

Lam Research’s competitors are primarily well established companies in the semiconductor industry. The reason for that is simple – newcomers face significant barriers to entry.

First, proprietary technology and patents allow for a legal monopoly on the specific machinery produced by Lam and its peers (Lam maintains a large number of patents and trade secrets in order to protect its competitive advantage). This makes it impossible for entrants to have a competitive product to sell.

Second, established, large players like Lam Research benefit from economies of scale that are inaccessible to smaller competitors. Through at-scale production, the company was able to reduce its cost per unit sold by approximately 30% (data gleaned from primary research). Doing so allows Lam to remain a low-cost producer and defend its competitive edge.

Third, there are considerable costs associated with starting a semiconductor manufacturing equipment company. If we ignore the fact that a newcomer would need a competitive product to be a viable business (as mentioned above, impossible because of the patents), establishing the company would require setting up a precision equipment manufacturing facility. Semiconductor equipment manufacturing takes place in extreme clean-room settings, where even minute corruption from unwanted matter could compromise the performance of the product. Setting up such an operation represents a significant fixed cost that could deter prospective entrants to the market.

Fourth, customers of semiconductor manufacturing equipment have high switching costs associated with adjusting their assembly line, making it difficult for newcomers to enter the market. Switching equipment out for another player entails taking on the costs of purchasing new machines, shutting down operations, reconfiguring the assembly chain and restarting production. For customers to even justify jumping through these hoops and taking on the expense, a newcomer would have to offer a product that is miles better. This creates brand stickiness for established players and poses yet another hurdle for newcomers.

Finally, the high rate of change and advancement in the semiconductor manufacturing equipment industry favors large industry players such as Lam and Applied Materials Inc. (AMAT, Financial), which are able to invest materially greater sums in research and development to stay ahead of the curve. Small, specialized players and newcomers who are not able to invest at that scale risk their products fading into obsolescence.

So who are Lam’s competitors? Primary competitors in the etch market include Tokyo Electron Ltd. (TOELY, Financial) and Applied Materials. In the single-wafer wet clean market, competitors include Dainippon Screen Manufacturing Co. Ltd. (DINRF, Financial), Semes and Tokyo Electron. In the tungsten CVD, PECVD, HDP-CVD, ECD and PVD markets, the main competitor is Applied Materials and in the PECVD market, it competes against both ASM International (ASMIY, Financial) and Wonik IPS (XKRX:240810, Financial).

In part two, I will dive deeper into Lam’s competitive edge, silicon reshoring in the light of global events, its revenue base and the proposed valuation.


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