2011 ANNUAL REPORT Lam Research Corporation 4650 Cushing Parkway Fremont, California 94538 Phone: 1.510.572.0200 www.lamresearch.com 218488_LRC_CVR.indd 1 9/7/11 12:25 PM LAM RESEARCH finished fiscal year 2011 with a number of Company records. We achieved $3.2 billion in revenue, diluted earnings per share of $5.79, over 50% shipped market share for etch, and approximately 30% market share for single-wafer clean. Our focus on delivering leading-edge technology and cost-effective production performance positions us well for continued success. BOARD OF DIRECTORS EXECUTIVE OFFICERS James W. Bagley Stephen G. Newberry Chairman Chief Executive Officer and Vice Chairman Stephen G. Newberry Chief Executive Officer and Martin B. Anstice Vice Chairman President and Chief Operating Officer David G. Arscott General Partner, Ernest E. Maddock Compass Technology Group Senior Vice President and Chief Financial Officer Robert M. Berdahl President Emeritus, Richard A. Gottscho, Ph.D. Association of American Universities Senior Vice President, Global Products Eric K. Brandt Sarah O’Dowd, Esq. Executive Vice President and Group Vice President, Chief Financial Officer, Human Resources and Chief Legal Officer Broadcom Corporation Mukund Srinivasan, Ph.D. Michael R. Cannon Vice President and General Manager, General Partner, Clean Product Group MRC & LBC Partners, LLC Mike Morita Christine Heckart Vice President, Chief Marketing Officer, Business Development NetApp Grant M. Inman General Partner, Inman Investment Management Catherine P. Lego Member, Lego Ventures, LLC Kim Perdikou Executive Vice President, Office of the Chief Executive Officer, Juniper Networks Abhi Talwalkar Chief Executive Officer and President, LSI Corporation © 2011 Lam Research Corporation. All rights reserved. 201109-01608/15K 218488_LRC_CVR.indd 2 9/7/11 12:25 PM ANNUAL REVENUE $ 3.5 $ 3.0 $ 2.5 $ 2.0 $ 1.5 $ 1.0 BILLIONS $ 0.5 $0 FY02 FY03 FY04 FY05 FY06 FY07 FY08FY09 FY10 FY11 EARNINGS PER SHARE $ 6.0) $ 5.0) $ 4.0) $ 3.0) $ 2.0) $ 1.0) $ 0 ) ($1.0) DILUTED EPS ($2.0) ($3.0) FY02 FY03 FY04 FY05 FY06 FY07 FY08FY09 FY10 FY11 ETCH MARKET SHARE 60% 50% 40% 30% 20% 10% SHIPMENT SHARE 0% CY02 CY03 CY04 CY05 CY06 CY07 CY08CY09 CY10 2300® ETCH INSTALLED BASE 10,000 8,000 6,000 4,000 2,000 0 CUMULATIVE CHAMBERS CY02 CY03 CY04 CY05 CY06 CY07 CY08CY09 CY10 SINGLE-WAFER CLEAN MARKET SHARE 35% 30% 25% 20% 15% 10% 5% SHIPMENT SHARE 0% CY02 CY03 CY04 CY05 CY06 CY07 CY08CY09 CY10 SINGLE-WAFER CLEAN INSTALLED BASE 5,000 4,000 3,000 2,000 1,000 0 CUMULATIVE CHAMBERS CY02 CY03 CY04 CY05 CY06 CY07 CY08CY09 CY10 218488_LRC_NAR_R1.indd 1 9/9/11 9:05 AM letter TO OUR STOCKHOLDERS Lam Research delivered strong fiscal 2011 results as the semiconductor equipment industry quickly recovered from the recent global recession. Our fiscal year ending June 26, 2011, was a year of records for the Company, including shipments of $3.3 billion, revenues of $3.2 billion, and diluted earnings per share of $5.79. We also generated strong cash flows from operations of more than $880 million, or 27% of revenues, and ended the fiscal year with approximately $2.1 billion in cash, cash equivalents, and short-term investments. Our results reflect solid operational execution and strategic focus on managing our business for superior performance across industry cycles. That superior performance is validated by our calendar year 2010 performance compared with the wafer fabrication equipment (WFE) industry. Lam’s calendar year system shipments grew by nearly 200% over calendar 2009, compared with industry spending growth of approximately 127% over the same period. This shipment performance reinforces the significant gains in market share Lam Research achieved in calendar year 2010. We remain the market share leader in etch, with an estimated shipped share of greater than 50% at the end of fiscal 2011. We are also building a solid position in single-wafer clean, with market share of approximately 30% at fiscal year-end. We regard market share as a critical measure of customer trust, technical leadership, and business execution. Our ability to consistently deliver leading-edge technology and cost-effective production performance positions us well for the critical new application wins that ultimately drive future share gains. These core competitive strengths will play a critical role in the next stage of WFE industry growth. Our fiscal 2011 year-end coincided with a 12-month period in which the WFE industry returned to its historical cyclical spending peak in the range of $31 billion to $32 billion. As we write this letter, we believe that the rapid pace of industry recovery from the low point in calendar 2009 has led to a pause in spending as our customers absorb recent capacity expansions. In past cycles, these pauses often foreshadowed a sharp decline in spending given the semiconductor industry’s history of sizable, rapid corrections. However, we believe the WFE industry has started to evolve, driven by a couple of fundamental changes. First, there has been a significant concentration in our customer base caused by both mergers and macro-economic challenges that hindered access to capital markets. Second, equipment manufacturers’ improved ability to deliver on short lead-times has enabled our customers to better match deliveries to near-term demand. Fewer customers combined with better operating flexibility translates to an industry environment in which customers are better equipped to manage the timing of capacity expansions. While this industry dynamic leads to increased order and shipment variability quarter to quarter, we think this lowers the potential for prolonged periods of industry overcapacity, which historically has been the chief driver of extended cyclical lows. As a result, we believe the duration of a near-term spending pause will primarily be a function of the macro-economic environment and its relative impact on overall semiconductor demand. 218488_LRC_NAR_R1.indd 2 9/9/11 9:05 AM Over the next several years, we see the potential for strong semiconductor demand and healthy levels of WFE spending. The rapid growth and penetration of content-rich devices such as smartphones, tablets, and notebook computers should drive unit growth of integrated circuits in the low double digits over the next several years, reaching as many as 275 billion units by 2014. Our customers will need to continue expanding capacity to meet that demand. Moreover, the mobile and computing trends that are defining this next generation of consumer technology are placing new demands on the semiconductor industry. Smartphones and tablets will require greater memory density, while their logic chips must meet continuing lower-power and higher-performance requirements. Meeting these technical challenges requires new device architectures as technology nodes advance over the next few generations. We believe these requirements will drive sustained levels of high capital intensity in the semiconductor industry. Overall, higher capital intensity combined with a healthy demand environment supports our view of favorable WFE spending trends over the next several years, a time period in which we believe the industry has the potential to reach new cyclical peak spending levels. This environment offers both opportunities and challenges, and Lam Research is positioning itself well to address them. In fiscal 2011, we increased investments in core R&D and customer-specific programs in order to meet the technology and productivity needs that are apparent on the horizon. Our additional spending levels are an investment with an expected return of increased market share gains. In our etch business, we are building on the formula that has made us the leader, releasing multiple new products that address customer needs. We are also applying our etch model to the expansion of our clean business by establishing the same commitments to technical differentiation and operational excellence that have defined our long-term success. As we execute on these initiatives, we remain focused on continuing to deliver the superior operating and financial performance that we, and our shareholders, have come to expect. Our ability to deliver this performance is a direct function of our strong global organization, and we want to thank all of our employees for their drive and commitment to Lam’s success. We also want to express our gratitude to our customers for their continued support as we collaborate to address the ever-increasing performance demands that their products must meet. And finally, we thank our shareholders for their investment in Lam Research. Sincerely, Stephen G. Newberry James W. Bagley Chief Executive Officer and Vice Chairman Chairman of the Board SEPTEMBER 1, 2011 218488_LRC_NAR_R1.indd 3 9/9/11 9:05 AM directory INDEPENDENT REGISTERED PUBLIC CAUTIONS REGARDING FORWARD-LOOKING ACCOUNTING FIRM StaTEMENTS Ernst & Young LLP With the exception of historical facts, the statements San Jose, California contained in this Letter to Our Stockholders (Letter) are forward-looking statements. Forward-looking LEGAL COUNSEL statements are subject to the safe harbor provisions Jones Day created by the Private Securities Litigation Reform Act of 1995. We have identified certain, but not San Francisco, California necessarily all, of the forward-looking statements in the Letter by use of future-oriented words and TRANSFER AGENT AND REGISTRAR phrases such as “next several years”, “potential”, For a response to questions regarding “will”, “expect”, and “should”. However,