1. Lam Research (LRCX), Buy Recommendation, Feb. 2007 Analysis by William J. Trainor Jr., CFA

2. Identified in WSJ “Free Cash Flow” article, Jack Hough, 2/15/2007

3. Company Overview Lam Research Corporation (LRCX) designs, manufactures, markets and services semiconductor processing equipment used in the fabrication of integrated circuits and is a provider of such equipment to the worldwide semiconductor industry. It markets and sells product offerings that include single-wafer plasma etch systems with a range of applications and an array of services designed to optimize the utilization of these systems by its customers Founded in 1980, Lam is headquartered in Fremont, California, and maintains a network of facilities throughout the United States, Japan, Europe, and Asia in order to meet the needs of its global customer base. Source: Lam Research, WSJ

6. Positives December Quarter 2006 Highlights -Growth: New orders of $779 Million, up 7%, revenues $633M, up 5% -Profitability: Gross Margin 51%, operating margin 31%, Net Income per share $1.15Q -Liquidity, Cash from operations $162M Calendar Year 2006 -Growth: New orders of $2.7B, up 96%, Revenues $2.2B, up 59% -Profitability: Operating income up 121% -Liquidity: Record high cash from operations, $581M

7. Negatives

8. Sources of revenue: Source: Lam Quarterly Report

10. In thousands

12. Ratios Over Time, Source: Research Insight

13. Insiders – Only sell orders.

15. Calendar 2007 Expected Performance

16. What Others Think http://caps.fool.com/Ticker.aspx?source=icaedilnk995 0012&ticker=LRCX Source: Motley Fool.com From MSN: Motley Fool Business News: Foolish Forecast: Lam Out on a Limb: LRCX - MSN MoneyMotley Fool Business News: Foolish Forecast: Lam Out on a Limb: LRCX - MSN Money

17. From Smart Money

18. Three Stage Discount Model, Declining Growth Rate to Stage Three InputsBest EstimatePessimisticOptimistic Current FCFE or Dividend3.673.3034.037 Cost of Capital in stage 1, in decimal0.150.1650.135 Growth in stage 1, in decimal0.1750.15750.1925 Number of periods for stage 1, must be < 20555 Number of periods for stage 2, must be <20555 Cost of Capital in stage 3, in decimal0.120.1320.108 Growth in stage 3, in decimal0.060.0540.066 Output Value of stage 1$19.58$17.62$21.54 Value of stage 2$20.49$18.44$22.54 Value of stage 3$72.53$43.86$130.70 Value of stock$112.61$79.93$174.79 To calculate FCFE per share, plug in values below. This calculation assumes debt/equity ratio will remain the same to finance investments. Net income =559.00 Debt ratio =0.15 Capital Spending44.00 Depreciation Change in Working Capital = Generally negative Number of shares outstanding142.00 FCFE =3.673239437

19. Recommendation -At current stock price of $45.23, appears to be significantly undervalued. Price cash flow is 12, P/E is only 12, forward P/E is 10. This is half of what the industry is priced at. PEG ratio is only 0.5. Based on projected earnings of over $4 a share and even a moderate increase in the P/E ratio to 16 would give a price of $56+. Based on Price/Sales of 2.5 increasing to 3, (3.9 in June 06) and expected revenue increase of 10-15%, price would increase by 32%-38% or to $59 to $62. -Increasing earnings over last five years. Industry outlook solid but overcapacity and high inventories may be a problem. Despite this, company outlook very strong. -Recommend to buy at any price below $50 with current price projection of at least $60, with good possibility of reaching $75 or more in next 2 years.