Lam Research finished fiscal 2026 with cycle-high margins and the weakest cash conversion in years — and both facts come from the same source. Revenue rose 26.0% to $23.23 billion and gross margin reached 50.5% on a GAAP basis, the highest annual level in Lam's recent history; management flagged the June quarter's 52.0% non-GAAP gross margin as its best in 20 years. But free cash flow fell 9.7% to $4.89 billion, because two working capital lines reversed at once: accounts receivable ballooned by $1.96 billion as shipments accelerated into the final quarters, and deferred profit swung from a $1.15 billion inflow to a $286 million drain. For a wafer fabrication equipment (WFE) supplier riding an AI-driven upcycle, the question is not whether the boom is real but whether the company is being paid for it on schedule.
Unless otherwise noted, all figures are U.S. GAAP, taken from Lam Research's Annual Report on Form 10-K for the fiscal year ended June 28, 2026. Quarterly and forward-looking figures are from the company's July 29, 2026 results release and the accompanying earnings call.
1. Consolidated Balance Sheet
1-1. Major asset movements
| Item | FY2025 ($M) | FY2026 ($M) | Change % |
|---|---|---|---|
| Cash and cash equivalents | 6,390.7 | 5,579.2 | -12.7 |
| Accounts receivable, net | 3,378.1 | 5,339.7 | +58.1 |
| Inventories | 4,308.0 | 4,276.1 | -0.7 |
| Property, plant and equipment, net | 2,405.5 | 2,936.0 | +22.1 |
| Goodwill | 1,600.0 | 1,630.0 | +1.9 |
| Total assets | 21,345.3 | 23,529.7 | +10.2 |
Source: FY2026 Form 10-K, consolidated balance sheets.
Two lines tell the whole story, and they point in opposite directions.
Receivables grew 58.1% against revenue growth of 26.0%. Days sales outstanding — the average time to collect a bill — stretched from 66.9 days to 83.9 days, a 17-day slip. That is roughly $1.1 billion of revenue sitting uncollected relative to last year's collection pace.
Inventory is the counterweight. It fell 0.7% in absolute terms while cost of goods sold rose 21.7%. Inventory days dropped from 166.3 to 135.6. Lam turned its stock nearly a month faster, which is what a well-run ramp looks like. The working capital problem is at the customer end, not in the warehouse.
Property, plant and equipment rose 22.1%, driven by lab investments in the United States and manufacturing expansion globally. Right-of-use assets under ASC 842 grew to $397.4 million from $287.0 million — a lease accounting line, not a signal.
1-2. Debt structure
Financial debt is $3.72 billion carrying value, down from $4.47 billion. The $750 million 2026 Senior Notes matured in March 2026 and were retired with cash on hand. Nothing was refinanced.
The remaining maturity ladder is unusually comfortable: nothing is due for nearly three years. The next maturity is the $1.00 billion 4.000% 2029 Notes, due March 2029, followed by $750 million in 2030, then $750 million in 2049, $750 million in 2050 and $500 million in 2060. The weighted-average effective rate across the five notes is 3.49%, locked in fixed. With $5.58 billion of cash against $3.72 billion of debt, Lam holds a net cash position of about $1.86 billion.
Operating liabilities moved the other way. Accounts payable rose 52.5% to $1,302.5 million, and current contract liabilities — cash collected before revenue is recognized — fell 11.2% to $2,279.2 million. Deferred profit, the gross-profit component of that balance, is where the decline shows up in the cash flow statement, and section 3 returns to it.
In March 2026 the company raised its commercial paper capacity from $1.50 billion to $2.00 billion, explicitly noting the proceeds may fund share repurchases.
1-3. Capital structure
Equity rose 26.5% to $12.47 billion and the equity ratio improved from 46.2% to 53.0%. Retained earnings grew 20.6% to $34.95 billion, and the roll-forward ties within rounding: $28,988.9M plus net income of $7,265.4M less dividends of $1,304.1M gives $34,950.2M, against the reported $34,950.3M. Repurchases were charged to treasury stock rather than retained earnings, so the earnings reserve keeps compounding even while the company buys back stock aggressively. Accumulated other comprehensive loss widened to -$127.1 million from -$62.4 million, a small drag from currency and hedging.
2. Consolidated Statement of Operations
2-1. Core profitability
| Item | FY2024 ($M) | FY2025 ($M) | FY2026 ($M) | 3Y CAGR (FY23→26) |
|---|---|---|---|---|
| Revenue | 14,905.4 | 18,435.6 | 23,232.7 | +10.1% |
| Gross profit | 7,052.8 | 8,979.1 | 11,725.3 | — |
| Gross margin (%) | 47.3 | 48.7 | 50.5 | — |
| Operating income | 4,263.9 | 5,901.0 | 8,199.8 | +17.3% |
| Operating margin (%) | 28.6 | 32.0 | 35.3 | — |
| Net income | 3,827.8 | 5,358.2 | 7,265.4 | +17.2% |
| Net margin (%) | 25.7 | 29.1 | 31.3 | — |
| Diluted EPS, GAAP ($) | — | 4.15 | 5.76 | — |
Source: FY2026 Form 10-K, consolidated statements of operations. Margins are calculated from the reported figures.
Semiconductor capital equipment is a cyclical business, so the single-year figure needs framing. FY2024 was the trough at $14.9 billion of revenue and a 28.6% operating margin. FY2026 revenue sits 55.9% above that trough. But the three-year compound growth rate from FY2023 is only 10.1% — because FY2023 was itself a peak. The 10.1% is the through-cycle rate; the 26.0% is where in the cycle we are standing. Operating margin has averaged 31.3% across the last four years including FY2026 itself, against 35.3% today, so current profitability runs roughly 4.0 percentage points above that recent-cycle mean.
Operating leverage was strong. Revenue rose 26.0% and operating income rose 39.0% — every 1% of revenue growth produced about 1.50% of operating profit growth.
There were no restructuring charges in FY2026 or FY2025 (FY2024 carried $18.2 million). No impairments were recorded. This is clean, recurring operating income with no adjustment needed — a rarity worth stating plainly, since the headline numbers here are GAAP and require no normalization.
Gross margin gained 1.8 percentage points. Management attributes this to favorable customer mix, partially offset by aluminum and steel tariff-related spending. Note the direction: the improvement is mix, not price or structural cost reduction. Mix reverses.
A note on which EPS you are reading. The figures above are GAAP: diluted EPS of $5.76, up 38.8%. Most coverage of the July 29 release led with the company's non-GAAP full-year figure of $5.82, up 40%, alongside non-GAAP full-year gross margin of 50.6% versus 50.5% GAAP. The gap is small — roughly 1% at the EPS line — precisely because there were no restructuring or impairment items to strip out. Readers comparing this analysis to the headlines should know the two sets of numbers are describing the same year.
On a GAAP basis, EPS rose 38.8% against net income growth of 35.6%. The gap is buybacks — diluted share count fell approximately 2.3% to 1,261.1 million from 1,291.1 million. About 92% of EPS growth was operational; the remaining 8% came from the shrinking share count.
The effective tax rate rose to 12.07% from 10.07%. Still low, and dependent on the geographic mix of earnings — 93% of revenue was shipped to destinations outside the United States.
2-2. Cost structure and operating expenses
Total operating expenses grew 14.5% to $3,525.5 million, well below revenue growth of 26.0%. That gap is the entire operating leverage story.
R&D — expensed in full under US GAAP, never capitalized — rose 13.3% to $2,375.9 million, falling to 10.2% of revenue from 11.4%. SG&A rose 17.1% to $1,149.6 million. Both grew on employee costs from higher headcount and increased R&D supplies.
Headcount tells the deeper story: approximately 23,300 regular full-time employees as of August 4, 2026 (10-K, Human Capital), versus roughly 19,000 a year earlier — a 22.6% increase. But the share engaged in R&D fell from over 29% to over 26%. Hiring skewed toward manufacturing and operations to serve the volume ramp, not toward the lab. In a cycle-driven business, that fixed cost base is the thing that hurts on the way down. Equity-based compensation was $386.4 million, a modest 1.66% of revenue.
3. Consolidated Statement of Cash Flows
| Item | FY2025 ($M) | FY2026 ($M) | Change |
|---|---|---|---|
| Operating cash flow | 6,173.3 | 5,857.7 | -5.1% |
| Investing cash flow | -708.1 | -922.2 | outflow +30.2% |
| Financing cash flow | -4,936.6 | -5,717.8 | outflow +15.8% |
| Ending cash | 6,390.7 | 5,579.2 | -12.7% |
Source: FY2026 Form 10-K, consolidated statements of cash flows.
This is the section that complicates an otherwise excellent year.
Operating cash flow fell 5.1% while net income rose 35.6%. The bridge is working capital: changes in operating assets and liabilities consumed $1,913.9 million in FY2026 versus contributing $441.8 million in FY2025 — a $2.36 billion swing. Two items drive it. Receivables absorbed $1,962.1 million (versus $858.7 million last year). Deferred profit — gross profit on shipped equipment not yet recognized as revenue, and the reason current contract liabilities fell in section 1-2 — drained $286.4 million after adding $1,147.8 million in FY2025, a $1.43 billion reversal. Last year's cash tailwind became this year's headwind.
Quality of earnings (operating cash flow ÷ net income) fell to 0.81, from 1.15 in FY2025, 1.22 in FY2024 and 1.15 in FY2023. This is the first year below 1.0 in the period reviewed. One year of sub-1.0 conversion during a shipment surge is explainable — equipment ships, then gets collected. Two consecutive years would be a different conversation.
Capital expenditure was $966.4 million, up 27.3%, holding steady at 4.16% of revenue versus 4.12% last year. Capex is scaling with revenue, not ahead of it, and is directed at U.S. labs and manufacturing capacity — growth spending, not maintenance.
Free cash flow (operating cash flow − capex) was $4,891.3 million, down 9.7% from $5,414.1 million.
Capital returns totaled $5,155.4 million — $3,851.3 million of buybacks and $1,304.1 million of dividends. That is 105.4% of free cash flow, up from 85.0% in FY2025. The difference was funded by the cash balance, which fell $811.5 million, including $750 million used to retire debt. Repurchases consumed 23.4 million shares. The remaining authorization stood at $4,042.7 million at year-end, against $7,517.2 million a year earlier — a 46.2% reduction in the runway. Note the arithmetic: $7,517.2 million less $3,851.3 million of repurchases leaves $3,665.9 million, so the board added only about $377 million of incremental authorization during the year. That is a top-up, not a replenishment. At the FY2026 spending pace, the current authorization funds roughly one more year of buybacks before the board has to act again.
The quarterly dividend was $0.26 per share, $1.04 for the year.
Returning more than 100% of free cash flow in a single year is defensible for a company with net cash and no near-term maturities. Doing it while cash conversion is deteriorating, on an authorization the board is topping up rather than resetting, is the combination worth watching.
4. Additional Analysis
Taiwan overtook Korea over the full year. Revenue by shipment destination shifted sharply. Taiwan rose 51.6% to $5,222.9 million (22.5% of revenue, from 18.7%), consistent with management's attribution of systems growth to "foundry equipment customer spending." Korea grew a comparatively modest 9.1% to $4,505.3 million, and its revenue share fell from 22.4% to 19.4%. Southeast Asia grew 48.8%.
But the exit rate flipped, and that is the number Korean investors should hold onto. The full-year geography reads as a foundry year — the June quarter does not. On the Q4 call, management said NAND systems revenue rose roughly 44% sequentially, lifting memory to 46% of systems revenue from 39% in the March quarter, with DRAM flat in dollar terms at 23% and tied to 1-alpha, 1-beta and 1-gamma investment for DDR5, LPDDR5 and HBM. Management further expects DRAM WFE to lead growth in calendar 2027, ahead of leading-edge foundry/logic and then NAND. Reading FY2026's annual mix as evidence that Korean memory capex is lagging would be reading a rear-view mirror: the mix turned toward memory in the final quarter of the fiscal year, and the guided direction is more memory, not less.
The forward numbers are larger than the reported ones. Lam guided September-quarter revenue to $8.1 billion ± $400 million — over 20% sequential growth from the record $6.72 billion June quarter — with non-GAAP gross margin of 52% ± 1pp and EPS of $2.15 ± $0.15. The September midpoint of $8.1 billion, annualized, implies a run rate of roughly $32 billion — well above FY2026's $23.23 billion. The central tension in this report — record operating margins alongside the first sub-1.0 cash conversion ratio in the period reviewed — does not resolve at the guidance stage. It resolves when the receivables come in.