Semiconductor Equipment: What ROIC Doesn't Tell You About AMAT's Risk
The semiconductor equipment ROIC spread (LRCX 54% vs AMAT 27%) is observable in any screener. But SEC filings reveal four hidden signals: AMAT faces TWO government investigations plus $181M restructuring, KLAC's AI packaging segment grew 37% with 401bps margin expansion (proving AI demand is real), LRCX's cash conversion is declining -23.7% (hidden stress beneath high ROIC), and ASML's 4-customer concentration creates feast-or-famine cycles.
Semiconductor Equipment: What ROIC Doesn't Tell You About AMAT's Risk
Last Updated: January 9, 2026 Data Currency: FY2025 10-K and Q1 FY2026 10-Q filings. AMAT, KLAC, LRCX, ASML
TL;DR: The semiconductor equipment ROIC spread (LRCX 54% vs AMAT 27%) is observable in any screener. The real insight is in what filings reveal about FORWARD-looking risk: (1) AMAT faces TWO government investigations plus $181M in restructuring charges—defensive retrenchment, not strategic investment. (2) KLAC's PCB segment grew 37% with 401bps margin expansion—AI demand is real, not marketing. (3) LRCX's cash conversion is declining -23.7%—hidden stress beneath high ROIC. (4) ASML's 4 customers represent 53.8% of revenue—monopoly creates binary outcomes, not steady premium.
Key Facts:
- AMAT government investigations: TWO ongoing (China + DOJ federal awards)
- AMAT restructuring: $181M charges + 4% workforce cut + $41M goodwill impairment
- KLAC AI segment: +37% revenue with +401bps margin expansion
- LRCX cash conversion trend: -23.7% (8-quarter deterioration)
- ASML customer concentration: 4 customers = 53.8% of revenue
- ASML geographic concentration: Taiwan + China = 70% of sales
The ROIC Spread Is the Hook, Not the Insight
Lam Research generates 53.6% ROIC. Applied Materials generates 27.0% ROIC. That's a 2x spread in the same industry.
Stock screeners show this. But ROIC is backward-looking—it tells you what happened, not what's coming.
The real investor insight is in SEC filings, not rankings.
Our 5-pass filing intelligence analysis reveals four signals that ROIC doesn't capture:
| Signal | Company | Evidence | Why It Matters |
|---|---|---|---|
| Dual government investigations | AMAT | DOJ + China subpoenas since 2022 | Leading indicator of regulatory overhang |
| AI segment divergence | KLAC | +37% PCB vs -7% Specialty (44pp spread) | Proves AI demand is material, not marketing |
| Cash conversion decline | LRCX | -23.7% trend, working capital deteriorating | Hidden stress beneath high ROIC |
| Extreme concentration | ASML | 4 customers = 53.8%, fab pushouts happening | Binary feast/famine, not steady premium |
AMAT's Warning Signs: What 27% ROIC Doesn't Tell You
Applied Materials' 27% ROIC is the lowest among major semiconductor equipment peers. But the backward-looking metric understates the forward-looking risk.
TWO Government Investigations (Not One)
Most investors know AMAT faces China-related regulatory scrutiny. Fewer know there are two ongoing investigations:
"Since 2022, we have received multiple subpoenas from government authorities requesting information relating to certain China customer shipments and export controls compliance."
"Subpoenas from the U.S. Department of Justice requesting information related to federal award applications."
The DOJ investigation isn't about China—it's about federal awards, suggesting potential issues with CHIPS Act or other government program applications. This dual exposure creates regulatory uncertainty that competitors don't face.
Restructuring Reality: Defensive, Not Strategic
Management characterizes AMAT's investments as "strategic." The filing tells a different story:
| One-Time Item | Amount | Signal |
|---|---|---|
| Restructuring charges | $181M | 4% workforce reduction |
| Goodwill impairment | $41M | Past acquisition underperforming |
| Inventory charges | "Higher excess and obsolete" | Products not selling |
When a company simultaneously cuts 4% of its workforce, writes down goodwill, and takes inventory obsolescence charges, this isn't strategic positioning—it's defensive retrenchment.
Risk Landscape: Deteriorating Across Four Categories
Our risk landscape analysis shows AMAT with a "DETERIORATING" overall direction:
| Risk Category | Direction | Key Quote |
|---|---|---|
| Regulatory | ESCALATED | "U.S. government announced additional export regulations... These have limited the market for certain of our products" |
| Competitive | ESCALATED | "Competitors may be more successful in their AI strategy and develop superior products" |
| Geopolitical | ESCALATED | "Policies favoring domestic companies and local competitors" |
| Supply Chain | ESCALATED | "Global trade issues and changes in trade policies have adversely impacted our business" |
Zero risk categories have de-escalated.
What This Means for Investors
AMAT's 27% ROIC may get worse before it gets better. The dual subpoenas, workforce cuts, inventory writedowns, and deteriorating risk landscape suggest defensive mode—not the "strategic investment" narrative management presents.
Watch for: Updates on DOJ investigation, additional restructuring charges, China revenue percentage changes in upcoming quarters.
KLAC's AI Reality Check: 37% Segment Growth Proves It's Not Marketing
"AI beneficiary" is one of the most overused labels in 2025-2026. Every company claims AI tailwinds. How do you distinguish real AI demand from marketing narrative?
Look at segment divergence.
The 44 Percentage Point Test
KLAC's three segments tell a clear story:
| Segment | Revenue Growth | Margin Change | What It Proves |
|---|---|---|---|
| PCB & Component Inspection | +37% | +401 bps | AI packaging demand is REAL |
| Semiconductor Process Control | +13% | +19 bps | Solid core business |
| Specialty Semiconductor | -7% | -407 bps | Customer pushouts |
When one segment grows 37% with 401 basis points of margin expansion while another segment declines 7%, this isn't "benefiting from AI across the board." This is material, differentiated demand.
SEC Filing Quote (Verbatim)
"Revenues in the PCB and Component Inspection segment... increased by 37% compared to the three months ended September 30, 2024, primarily due to increased revenue from advanced packaging products related to AI."
Advanced packaging (chiplets, HBM stacking) is the AI compute bottleneck—KLAC's inspection tools are positioned exactly there.
Geographic Confirmation
Geographic revenue shifts confirm the AI thesis:
| Region | Growth | % of Revenue | Interpretation |
|---|---|---|---|
| Taiwan | +72% | 24.7% | AI packaging hub (TSMC advanced packaging) |
| Japan | +57% | 9.2% | Memory HBM growth |
| China | +6% | 39.5% | Stable, not export-restricted for inspection |
| North America | -41% | 9.3% | Mature market declining |
What This Means for Investors
KLAC's AI exposure is genuinely material, not narrative decoration. The 37% segment growth with margin expansion, combined with 72% Taiwan growth, proves differentiated demand.
Contrast with AMAT: While KLAC's filing shows real AI traction, AMAT's risk factors warn that "competitors may be more successful in their AI strategy." One company is executing; the other is worried about falling behind.
LRCX's Hidden Warning: 53.6% ROIC Masks Declining Cash Conversion
Lam Research delivers the highest ROIC in semiconductor equipment at 53.6%. This reflects genuine capital discipline: LRCX returns 79.5% of EBITDA to shareholders while maintaining operational excellence.
But ROIC is an accrual metric. Cash conversion tells a different story.
The -23.7% Trend No One Discusses
LRCX's cash conversion ratio is declining:
| Metric | Current (Q) | 8-Quarter Trend |
|---|---|---|
| Cash Conversion | 1.13 | -23.7% |
| OCF/NI Ratio | 1.13 | Declining |
| Working Capital | - | "Deteriorating" |
A -23.7% trend in cash conversion means LRCX is converting earnings to cash less efficiently over time. This doesn't show up in ROIC.
SEC Filing Evidence
The filing confirms working capital stress:
"These sources of cash were offset by the following uses of cash: increases in accounts receivable of $255.0 million."
Accounts receivable increasing $255 million in a single quarter means customers are taking longer to pay. This is a classic early warning sign.
Margin Pressures Acknowledged
Management acknowledges headwinds that could accelerate cash conversion deterioration:
| Pressure | Quote |
|---|---|
| Factory efficiency | "Reduced factory efficiencies" |
| Tariffs | "Higher tariff-related spend" |
| Materials | "Increased material costs" |
When factory efficiency, tariff costs, and material costs are all moving against you, maintaining 53.6% ROIC becomes harder.
What This Means for Investors
LRCX's ROIC leadership is real, but the declining cash conversion trend is a hidden warning. The -23.7% trend combined with "deteriorating" working capital assessment suggests stress that isn't yet reflected in profitability metrics.
Watch for: AR growth acceleration, inventory builds, or margin compression in upcoming quarters. If cash conversion continues declining while ROIC stays high, that's a sustainability question.
ASML's Binary Outcomes: Why Monopoly Doesn't Mean Stability
ASML has the only EUV lithography capability globally. No one else can make these machines. This monopoly commands premium valuation.
But monopoly doesn't guarantee steady returns—it can create binary outcomes.
The 4-Customer Problem
ASML's customer concentration is extreme:
"In 2024, four customers exceeded more than 10% of total net sales, totaling EUR15.2 billion, or 53.8%, of total net sales."
| Concentration Metric | Value | Risk Level |
|---|---|---|
| Top 4 customers | 53.8% of revenue | HIGH |
| Taiwan + China | 70% of geographic | HIGH |
| Purchase obligations | EUR13.3B | Limited flexibility |
When 4 customers account for 53.8% of revenue, their capex cycles become your revenue cycles. ASML doesn't have diversified demand—it has concentrated exposure to 4 mega-customers.
Current Softness Signal
The filing reveals current weakness:
"The Logic sector experienced a slower ramp of new nodes at some customers, leading to multiple fab push-outs and changes in the timing of demand."
"Multiple fab push-outs" means customers are delaying orders. This is timing, not demand destruction—but when 4 customers pause, revenue cliffs immediately.
The Locked Commitment Problem
ASML has EUR13.3B in locked purchase obligations. The asymmetry: ASML must honor supplier commitments while customers push out orders.
What This Means for Investors
ASML's monopoly premium is real, but so is the binary risk. This isn't steady-state outperformance—it's volatility tied to 4 mega-customers' capex cycles.
Watch for: TSMC, Samsung, Intel, and Micron capex guidance. Their capital allocation decisions directly determine ASML's revenue.
Quantitative Comparison: What the Data Actually Shows
ROIC Rankings with Forward Signals
| Company | ROIC (Q) | Trend | Forward Signal | Risk Direction |
|---|---|---|---|---|
| LRCX | 53.60% | +24.28% | Cash conversion -23.7% | Stable |
| KLAC | 43.64% | +6.78% | AI segment +37% | Deteriorating* |
| ASML | 35.24% | N/A | Fab pushouts ongoing | Moderate |
| AMAT | 27.03% | -9.09% | Dual subpoenas + restructuring | Deteriorating |
*KLAC risk driven by China exposure, offset by AI segment strength
Hidden Liability Exposure
| Company | Off-Balance Exposure | Primary Risk | Cancellation Flexibility |
|---|---|---|---|
| LRCX | $230M | Guarantees/letters of credit | High |
| AMAT | $643M | Guarantees | High |
| KLAC | $2.75B | Purchase commitments | Limited |
| ASML | EUR13.3B | Purchase obligations | Limited |
Segment Health
| Company | Strongest Segment | Growth | Weakest Segment | Decline |
|---|---|---|---|---|
| KLAC | PCB & Inspection | +37% | Specialty Semi | -7% |
| AMAT | Semiconductor Systems | +4.5% | Corporate/Other | -74% margin |
| LRCX | Foundry | Growing | Memory | Soft |
| ASML | EXE Systems | Strong | Logic | Pushouts |
Investment Implications: What To Do With This Analysis
AMAT: Avoid Until Visibility Improves
The dual subpoenas, $181M restructuring, 4% workforce cut, and "deteriorating" risk direction create too much uncertainty. The 27% ROIC may decline further before investigations resolve.
Catalyst to reconsider: Clear resolution of DOJ investigation, stabilization of restructuring charges, China revenue clarity.
KLAC: AI Segment Justifies Current Multiple
The 37% PCB segment growth with 401bps margin expansion is genuinely material. Geographic confirmation (Taiwan +72%) validates the thesis. China exposure remains a risk, but AI segment strength provides offset.
Watch for: PCB segment sustainability, Taiwan/China geographic mix evolution.
LRCX: Best Risk-Adjusted, But Monitor Cash Conversion
Highest ROIC (53.6%), lowest off-balance exposure ($230M), stable risk profile. But the -23.7% cash conversion trend is a hidden warning that merits monitoring.
Watch for: AR growth, inventory builds, margin compression signaling working capital stress.
ASML: Binary Risk Requires Position Sizing Discipline
Monopoly premium is real, but 4-customer concentration creates feast-or-famine cycles. Current "fab pushouts" are timing, not demand destruction—but this binary pattern will continue.
Watch for: TSMC/Samsung/Intel/Micron capex guidance as leading indicator.
The Bottom Line: The ROIC spread is the hook. The SEC filings reveal the insight.
How We Analyzed These Stocks
This analysis uses MetricDuck's 5-pass filing intelligence system to extract forward-looking signals from SEC filings:
- Pass 1: Narrative quality and executive summary extraction
- Pass 2: Accounting quality and earnings sustainability
- Pass 3: Hidden liabilities and off-balance sheet exposure
- Pass 4: Risk landscape evolution and direction
- Pass 5: Segment performance and revenue quality
All SEC quotes are verbatim from company filings linked above.
Related Analysis
- Semiconductor Equipment ROIC: Why KLA's 43% Returns Have a Catch - Our December 2025 analysis of KLA's China exposure and DuPont decomposition
- ROIC Complete Investor Guide - Framework for evaluating capital efficiency
- Earnings Quality Framework - How to assess sustainability of reported profits
MetricDuck Research
CFA charterholders and former institutional equity analysts