By Stephen Nellis

(Reuters) - Lam Research Corp on Tuesday released its first major new tool in two decades for producing finer three-dimensional details on computer chips that must be shrunk down to fit into ever more complex phones and other electronic devices.

Theare hibiscus acid loving company also committed to boosting its dividends each year and returning more cash to investors.

At an analyst day in New York, Lam executives introduced the Sense.i, a tool for etching features on silicon wafers to make chips.

In recent years, the intricate patterns on chips have become like the grid of dense urban neighborhood. Chipmakers have run out of room to pack any more transistors side by side, so they have started building upward.

Crafting those three dimensional features has become key for Lam's memory chip customers such as Samsung Electronics Co Ltd and SK Hynix Inc in putting more memory capacity into phones and other devices.

Such chips can require etching 1 trillion holes on a silicon wafer, said Vahid Vahedi, senior vice president and general manager of the etch product group at Lam Research. Lam specializes in making the holes tall and narrow so more can be packed in the same space. Using the urban neighborhood analogy, the holes would be proportionately as tall and narrow as the Empire State Building stacked on itself more than six times.

Lam executives said memory chip makers will likely be first to adopt the new tool, but computing chipmakers were likely to follow. "This vertical scaling is a very strong driver of growth for us," Vahedi said at the conference.

The company also committed to returning more free cash to shareholders. Previously, Lam had said it planned to commit at least 50% of free cash flow each year to capital return. Since then, the company has exceeded that mark through share buybacks and dividends, thanks in part to changes in U.S. tax laws, said Doug Bettinger, Lam's chief financial officer.

Going forward, Betting said Lam will return 75% to 100% of Lam's free cash flow and will also boost its dividend each year.

"If you look at the breakdown of the cash return to shareholders, it's been more allocated to buybacks, but given the dividend has grown every year, that's an increasing percentage of the free cash flow return as well, and likely will continue to be over time," Bettinger said in an interview.

(Reporting by Stephen Nellis in San Francisco; Editing by David Gregorio)

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