LAM RESEARCH CORPORATION Letter to Stockholders October 3, 2005 To Our Stockholders: We are pleased to present you with our 2005 annual report, which summarizes an exceptionally strong performance in our 25th year of innovation, teamwork, and achievement. Fiscal year 2005 was a period in which business volume across our sector rose and fell within a short time frame, a common occurrence in the semiconductor equipment industry. However, as a result of the new agility gained in recent years from restructuring our business model, we were able to adapt quickly to meet the needs of our customers and deliver strong financial results to our stockholders. Several aspects of the Company’s recent performance stand out: • Continued market share growth and leadership in etch • Profitability that exceeded the performance of the prior cycle • Strong cash generation • Two announced stock repurchase programs totaling $750 million These achievements, detailed in the annual report, reflect several factors. The most important is that customers throughout the semiconductor industry continue to rely on Lam for the most advanced etch processing technology available. We believe our reputation for being first with next-generation processing equipment is a credit to our engineers and technologists who — collaborating closely with our customers through joint development activities — consistently anticipate and meet fast-changing technical demands to develop and deliver solutions that work. Our intense focus on product development and customer support reflects the deliberate choices we have made to restructure our business model and redefine our position in the market, and these choices — which we have been implementing for several years — are now delivering clear results. In short, Lam’s entrepreneurial culture and agile, team-based approach enable us to deliver the strongest portfolio of etch products and services in the industry, which in turn allows our customers to optimize their capital investments and continue to innovate. Meanwhile, throughout our operations, we held costs in check by adapting well to rapid changes in the marketplace, primarily through close partnerships with our outsource suppliers and our manufacturing supply chain. Lam has worked diligently to develop these partnerships, which provide us flexibility in managing our business in a volatile environment. We believe that our win-win approach to these partnerships is creating a long-term competitive advantage and yielding more value for our customers. We consider Lam’s financial performance, particularly profitability, to be the best in our history and among the best in the industry. Revenues increased 61 percent, or $567 million, year-over-year, driven by increased customer demand and gains in market share. Operating income increased 268 percent, or $285 million, over the prior year, reflecting our significant operating leverage achieved via effective cost containment and asset management optimization.
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