Can Recently Downgraded Lam Research Afford a Dividend Payout?

Lam Research gets downgraded as Intel is upgraded

Lam Research (LRCX) was recently downgraded to “equal-weight” from “overweight” by Morgan Stanley, according to a note to clients cited by Bloomberg. Although Morgan Stanley is generally cautious about the semiconductor industry, which explains its downgrading of Lam Research, it sees Intel (INTC) differently after its selection of a finance-focused CEO. Morgan Stanley upgraded its rating for Intel stock to “overweight” from “equal-weight” and raised its price target to $64 from $55.

Can Recently Downgraded Lam Research Afford a Dividend Payout?

Sitting on $3.9 billion in cash

Lam Research, which supplies chip production equipment, recently announced a plan to pay shareholders $1.10 per share in dividends by April 10. The company paid $168 million in dividends during the December quarter.

Lam Research is also planning to release as much as $5.0 billion to shareholders through stock repurchases, and is committed to returning more than 50% of its free cash flow to shareholders through dividend payments and share repurchases. The company exited last year with $3.9 billion in cash, which it could use to finance the planned dividend payout.

Revenue fell 2.3%

Lam Research generated $2.5 billion in revenue and made $569 million profit in the December quarter. Its revenue fell 2.3% YoY (year-over-year) in the quarter, while Xilinx’s (XLNX), ASML Holding’s (ASML), and KLA-Tencor’s (KLAC) revenue grew 34%, 27%, and 15% YoY, respectively.