The global shortage of microchips has not prevented semiconductor manufacturing equipment maker Lam Research (LRCX:NASDAQ) from breaking into the top 10 holdings of the Blue Whale Growth Fund (BD6PG78) during March.
Blue Whale is often compared to Terry Smith’s Fundsmith Equity (B41YBW7) fund, a hugely popular holding in thousands of retail investor portfolios, albeit with a slightly higher tech angle (as we explained in July 2021).
The fund, run by Stephen Yiu, was already a firm backer of semiconductor companies, with US chip designer Nvidia (NVDA:NASDAQ) and Dutch chips kit maker ASML (ASML:AMS) already in its top 10, but Lam Research is another unique play in this exciting space.
‘Anyone who has tried to buy a new car or the latest gaming console in the past year will have been confronted with either a frustrating lack of stock, or a lengthy waiting time for delivery,’ said Yiu.
‘This is, in large part, due to a shortage of semiconductors - a key electronic component in a variety of electronic products, including mobile phones, personal computers, servers, wearables, automotive vehicles, and data storage devices.’
LAM RESEARCH REVEALED
Lam is a supplier of semiconductor manufacturing equipment, focused on meeting the industry’s escalating demands. The manufacturing equipment that enables production of devices is becoming ever more critical, especially given the increasing complexity of semiconductor devices.
The Silicon Valley-based business designs specialist equipment that helps semiconductor manufacturers improve yields, lower costs, shrink processing time and reduce defects on microchips. Customers include Intel, Toshiba, Samsung and Micron Technology.
Traditionally big in memory chips, this is an area booming thanks to the rapid rise of cloud computing, big data, mobile devices and other connected world applications. Since data storage is the starting point of the digital economy, there is a huge demand for memory chips, particularly the more efficient variety.
A NEW WORLD OF TECH ADVANCES
But technological advancements in areas like in-car electronics, 3D device architecture and advanced packaging technologies are also playing to Lam’s strengths.
‘Lam is at the forefront of those companies enabling manufacturers to keep up with growing global demand,’ said Blue Whale’s Stephen Yiu, as the proliferation of technologies, such as artificial intelligence, high performance computing and 5G networks tighten their grip on everyday life.
Since 2015, revenues have gone from $4.6 billion to more than $14.6 billion (to 30 June 2021), while net income has jumped well over 300% to $3.9 billion or $32.90 per share.
Next year, to 30 June 2023, the company is forecast to put up net income of $38.60 per share on $19.4 billion revenues, according to data from Koyfin.
Lam Research shares have understandably come under pressure this year, falling 30% to $503.64, yet have still soared nearly 300% over the past five years, handing investors an average 32.9% annual return, according to Morningstar data. That compares to 20.5% for the Nasdaq and 14.7% from the S&P 500 index.
Lam Research was a Shares Great Idea at $312.30 on 25 June 2020.
DISCLAIMER: Author Steven Frazer has a personal investment in Blue Whale Growth and Fundsmith Equity.
