Lam Research just had the best quarter in its history. Revenue for the three months to September 27, 2026 came to $8.22 billion, up 22 percent from June and 54 percent from a year earlier. Non-GAAP gross margin hit a record 52.4 percent, operating margin cleared 40 percent for the first time, and non-GAAP EPS of $2.20 beat the $2.18 consensus.
The stock fell almost 12 percent the next day. It closed at $230.15 on October 22.
The reason sits in the regional table. China made up 35 percent of revenue, up from 26 percent in June. In dollars that’s about $2.88 billion against $1.75 billion, so China supplied roughly three quarters of the $1.5 billion sequential gain. Then CFO Doug Bettinger told analysts China would be a “significantly lower percentage” of revenue in the December quarter, with the drop coming from Chinese domestic customers. Multinationals running fabs in China should stay reasonably strong, he said.
December Guidance Matched Consensus and the Stock Still Fell
Lam guided the December quarter to $8.60 billion, plus or minus $400 million, against a consensus of about $8.54 billion. EPS guidance is $2.33, plus or minus $0.15, versus $2.32 expected. Gross margin is pegged at 52.5 percent and operating margin at 40.5 percent.
On paper that’s fine. The trouble is the shares had run up nearly 80 percent over the prior year, and buy-side numbers sat above the published consensus. A range stretching from $8.2 billion to $9.0 billion gave bulls little to hold on to.
Bettinger also said the revenue guide “would have been a bit higher” without near-term supply constraints. Lam points to two limits: cleanroom space at customers and shortages of certain components, which it expects to hold the industry back into 2027. Asked whether the shortfall was in the $300 million to $400 million range, he wouldn’t give a number and said the deferred shipments would land in the March quarter. Lam added about 1,900 people in the quarter, mostly factory and field staff, taking headcount to 24,300.
Put together, revenue keeps rising while China’s share drops. That means the business outside China has to grow faster than the headline suggests. The worry is that part of September was Chinese domestic buying that won’t come back soon.
Memory Now Carries Almost Half of Systems Revenue
Memory was 46 percent of systems revenue, a record in dollars and up 120 percent from a year ago. Foundry also took 46 percent, up from 44 percent, leaving logic and other at 8 percent. NAND rose about 40 percent from June, while DRAM slipped to 20 percent of systems revenue from 23 percent.
Systems revenue jumped to $5.73 billion from $4.25 billion. Customer support and other barely moved ($2.49 billion against $2.47 billion), so nearly all of the sequential growth came from new tools.
CEO Tim Archer spent real time on NAND. AI workloads are pushing chipmakers toward several storage tiers, including SLC-class flash for low-latency access. Going from TLC to SLC cuts bits per device by about three times, so each point of mix shift needs roughly 2 percent more wafer capacity. Archer said an SLC tier “could become a meaningful driver of NAND wafer capacity.” Lam expects the current upgrade cycle to wrap up in 2027 as customers move toward 300- and 400-layer parts. For flash holders, that’s the line to keep. It fits with SK hynix calling the memory shortage through 2030 and with the demand behind SanDisk’s fiscal first quarter.
Wafer Fab Spending Seen Above $200 Billion in 2027
Lam now puts 2026 wafer fab equipment spending in the mid-$150 billion range, up from the mid-$130 billion range at the start of the year. Its first look at 2027 is above $200 billion, led by DRAM, then foundry logic, then NAND. It’ll refine that in January once cleanroom schedules are clearer. Systems revenue for calendar 2026 should grow well over 40 percent.
Cash was strong too. Free cash flow came to $3.24 billion. Lam bought back about $1.02 billion of stock, paid $325 million in dividends and declared $0.33 a share, up from $0.26 in June. Cash and equivalents ended at $7.45 billion.
The number to watch in January is China’s share. If it drops hard and Lam still lands near $8.6 billion, memory and foundry are carrying the company. If revenue slips with it, the supply explanation will get a much harder look.