Core Insights - KLA Corporation reported strong second-quarter fiscal 2025 results, with non-GAAP earnings of $8.20 per share, exceeding estimates by 6.08% and reflecting an 11.9% year-over-year increase [1][2] - Revenues rose 23.7% year over year to $3.08 billion, surpassing the Zacks Consensus Estimate by 4.88%, leading to a 3.71% increase in share price during pre-market trading [2] Segment Performance - Semiconductor Process Control revenues, which account for 89.6% of total revenues, increased 25.6% year over year to $2.76 billion, with a sequential growth of 7% [3] - Specialty Semiconductor Process revenues were $160.4 million, up 6.9% year over year and 25% sequentially, while PCB and Component Inspection revenues increased 12.6% year over year to $161.1 million [4] Revenue Breakdown - Product revenues, making up 78.3% of total revenues, increased 25.4% year over year to $2.41 billion, while service revenues rose 18.1% year over year to $667.4 million [5] - Wafer Inspection revenues increased 34% year over year to $1.56 billion, while Patterning revenues rose 23% year over year to $531 million [6] Geographic Revenue Distribution - Revenue contributions came primarily from China (36%) and Taiwan (29%), followed by Korea (12%), North America (9%), Japan (7%), Europe (4%), and the rest of Asia (3%) [6] Operating Metrics - Non-GAAP gross margin was reported at 61.7%, exceeding guidance by 20 basis points [7] - R&D expenses increased 8% year over year to $346.2 million, while SG&A expenses rose 12.6% year over year to $267.1 million [8] Financial Position - As of December 31, 2024, cash and cash equivalents totaled $3.78 billion, down from $4.63 billion as of September 30, 2024, with long-term debt remaining at $5.88 billion [9] - Cash flow from operating activities was $849.5 million, down from $995.2 million in the prior quarter, with free cash flow at $757.2 million [9] Future Guidance - For the third quarter of fiscal 2025, KLA expects revenues of $3.0 billion, with non-GAAP earnings projected at $8.05 per share, indicating a year-over-year growth of 45.06% [11][12]

Core Insights - KLA Corp reported better-than-expected second-quarter financial results, with earnings of $8.20 per share, surpassing the analyst consensus estimate of $7.75 per share, and quarterly sales of $3.08 billion, exceeding the estimate of $2.94 billion [1][2] Financial Performance - The December quarter results were above the midpoint of guidance ranges, indicating strong performance despite challenges from new U.S. government export controls [2] - KLA anticipates third-quarter total revenues of $3.0 billion +/- $150 million and adjusted EPS of $8.05 +/- $0.60 [2] Market Reaction - KLA shares increased by 4.1%, closing at $742.43 following the earnings announcement [3] - Analysts adjusted their price targets for KLA, with Deutsche Bank raising it from $725 to $850 and Needham increasing it from $800 to $830, both maintaining a Buy rating [5]

Financial Data and Key Metrics Changes - KLA Corporation reported a revenue growth of 12% for calendar 2024, reaching a record $10.85 billion, with process control revenue also growing over 12% and services business growing 15% to $2.5 billion [9][10] - The company maintained industry-leading gross and operating margins at 61% and 41% respectively [9] - Free cash flow increased to $3.4 billion, with $2.9 billion returned to shareholders through dividends and share buybacks [10][18] - For the December quarter, revenue exceeded $3 billion for the first time, with non-GAAP diluted EPS at $8.20 and GAAP diluted EPS at $6.16 [11][20] Business Line Data and Key Metrics Changes - Advanced packaging revenue grew to approximately $500 million in calendar 2024, with expectations to exceed $800 million in calendar 2025, up from a previous estimate of $750 million [17] - The services business achieved $667 million in the December quarter, marking a 4% sequential and 18% year-over-year growth, resulting in 50 consecutive quarters of year-over-year growth [17][18] Market Data and Key Metrics Changes - KLA expects the wafer fab equipment (WFE) market to grow by a mid-single-digit percentage in 2025, driven by investments in leading-edge logic and high bandwidth memory [24] - The company anticipates a decline in its China sales by approximately 20% year-over-year due to export controls and market digestion [99] Company Strategy and Development Direction - KLA is focused on leveraging its differentiated portfolio to support customers in navigating increasing complexity and growing design starts in semiconductor devices [12][33] - The company aims to maintain its leadership position in process control, particularly in advanced packaging and AI-related technologies [15][33] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand for advanced semiconductors, stating that AI is a crucial driver for KLA's growth, with expectations for continued market share gains [15][33] - The company is cautious about the impact of recent export controls, estimating a revenue impact of approximately $500 million in 2025, primarily affecting the systems business [25][26] Other Important Information - KLA's balance sheet remains strong, with $3.8 billion in cash and cash equivalents and a debt of $5.9 billion, allowing for funding of growth strategies and capital returns [22] - The company plans to maintain its operating expense trajectory to support product development and scaling investments [29] Q&A Session Summary Question: What is happening to the process control part of the market this year? - Management indicated that KLA's share of overall WFE opportunity is expected to grow, driven by increased investment in leading-edge technology and strong demand in advanced packaging [43] Question: Can you help us with the linearity for revenue this year? - Management stated that they expect stability around the $3 billion level for the first half of the year, with potential fluctuations as the year progresses [47] Question: What is the growth outlook for your advanced packaging businesses? - Management confirmed a 60% growth outlook for advanced packaging, driven by increased complexity and demand for inspection and metrology solutions [56] Question: How do you expect your service business to perform in calendar '25? - Management anticipates high single-digit growth for the service business in the short term, with long-term growth expectations remaining positive despite current headwinds [73] Question: Can you provide details on the impact of export controls on revenue? - Management clarified that the estimated impact from export controls is primarily related to logic projects, with minimal contribution from memory [165]

Q2 Fiscal 2025 Earnings These forward-looking statements are based on current information and expectations and involve a number of risks and uncertainties. Actual results may differ materially from those projected in such statements due to various factors, including but not limited to: our vulnerability to a weakening in the condition of the financial markets and the global economy; risks related to our international operations; evolving Bureau of Industry and Security of the U.S. Department of Commerce rul ...

Core Insights - KLA reported a revenue of $3.08 billion for the quarter ended December 2024, marking a year-over-year increase of 23.7% and exceeding the Zacks Consensus Estimate of $2.93 billion by 4.88% [1] - The company's EPS for the same period was $8.20, up from $6.16 a year ago, representing a surprise of 6.08% compared to the consensus estimate of $7.73 [1] Revenue Breakdown - Semiconductor Process Control revenues reached $2.76 billion, surpassing the estimated $2.62 billion, with a year-over-year increase of 25.6% [4] - Specialty Semiconductor Process revenues were reported at $160.41 million, exceeding the average estimate of $141.12 million, reflecting a 6.9% year-over-year change [4] - Service revenues totaled $667.39 million, slightly below the estimated $671.85 million, but still showing an 18.1% increase compared to the previous year [4] - Product revenues amounted to $2.41 billion, exceeding the average estimate of $2.24 billion, with a year-over-year growth of 25.4% [4] - PCB, Display and Component Inspection revenues were reported at $161.08 million, above the estimated $147.47 million, representing a 12.6% year-over-year increase [4] Stock Performance - KLA shares have returned +13.2% over the past month, significantly outperforming the Zacks S&P 500 composite's +1.2% change [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

Group 1 - KLA reported quarterly earnings of $8.20 per share, exceeding the Zacks Consensus Estimate of $7.73 per share, and up from $6.16 per share a year ago, representing an earnings surprise of 6.08% [1] - The company achieved revenues of $3.08 billion for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 4.88%, compared to $2.49 billion in the same quarter last year [2] - KLA has consistently outperformed consensus EPS and revenue estimates over the last four quarters [2] Group 2 - KLA shares have increased approximately 13.2% since the beginning of the year, significantly outperforming the S&P 500's gain of 2.7% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the next quarter is $7.63 on revenues of $2.9 billion, and for the current fiscal year, it is $30.35 on revenues of $11.6 billion [7] Group 3 - The Zacks Industry Rank places Electronics - Miscellaneous Products in the top 36% of over 250 Zacks industries, indicating a favorable outlook for the sector [8] - Bel Fuse, another company in the same industry, is expected to report a quarterly earnings decline of 43.8% year-over-year, with revenues projected to decrease by 4.8% [9]

Financial Performance - KLA Corporation reported GAAP net income of $824.5 million and revenues of $3.08 billion for Q2 FY 2025, representing a 23.6% increase in revenue compared to $2.49 billion in Q2 FY 2024[2][3]. - Non-GAAP net income for Q2 FY 2025 was $1.10 billion, with non-GAAP net income per diluted share at $8.20, up from $6.16 in Q2 FY 2024[3][10]. - KLA Corporation reported a net income of $824,527,000 for the three months ended December 31, 2024, compared to $582,534,000 for the same period in 2023, representing an increase of 41.6%[11]. - Total revenues for reportable segments reached $3,077,230,000 for the three months ended December 31, 2024, up from $2,487,176,000 in 2023, reflecting a growth of 23.7%[12]. - KLA Corporation's non-GAAP net income for the three months ended December 31, 2024, was $1,098,444,000, compared to $839,202,000 in 2023, an increase of 30.9%[13]. - KLA Corporation's GAAP net income per diluted share for the three months ended December 31, 2024, was $6.16, up from $4.28 in 2023, reflecting a growth of 44.0%[13]. Revenue and Segment Performance - The Semiconductor Process Control segment generated revenues of $2,755,743,000, a 25.6% increase from $2,194,079,000 in the prior year[12]. - The company expects total revenues for Q3 FY 2025 to be in the range of $3.0 billion +/- $150 million, with GAAP diluted EPS projected between $7.77 and $8.37[4][5]. Cash Flow and Capital Expenditures - Cash flow from operating activities for the last twelve months was $3.65 billion, with free cash flow at $3.36 billion[4]. - KLA Corporation's free cash flow for the three months ended December 31, 2024, was $757,192,000, compared to $545,441,000 in 2023, marking an increase of 38.7%[15]. - The company reported capital expenditures of $92,323,000 for the three months ended December 31, 2024, compared to $76,801,000 in 2023, representing an increase of 20.2%[15]. Asset and Liability Management - Total current assets decreased to $9.77 billion as of December 31, 2024, down from $10.03 billion as of June 30, 2024[9]. - KLA's total liabilities were reported at $11.42 billion, a decrease from $12.07 billion as of June 30, 2024[9]. - KLA's total stockholders' equity increased to $3.58 billion as of December 31, 2024, compared to $3.37 billion as of June 30, 2024[9]. - KLA Corporation's total cash and cash equivalents at the end of the period were $1,838,278,000, compared to $1,665,054,000 at the end of the same period in 2023, an increase of 10.4%[11]. Impairment and Charges - The company experienced a $239.1 million impairment charge for goodwill and purchased intangible assets, impacting GAAP EPS by $1.76 per diluted share[4][10]. - Impairment charges for goodwill and purchased intangible assets were recognized due to downward revisions in financial outlook for PCB and Display reporting units[21]. - The impairment charge in fiscal 2024 was due to a downward revision in the PCB business forecast, while fiscal 2025 saw continued deterioration in long-term forecasts[21]. Stock Repurchase - The company repurchased $650,121,000 worth of common stock during the three months ended December 31, 2024, compared to $437,817,000 in the same period of 2023, indicating a rise of 48.3%[16]. Non-GAAP Financial Information - The company provides non-GAAP financial information to enhance understanding of operating performance and future prospects[20]. - Non-GAAP metrics include non-GAAP net income, non-GAAP net income per diluted share, non-GAAP gross margin, and free cash flow, which help compare performance across periods and with other companies[20]. - The income tax effect of non-GAAP adjustments includes tax impacts from excluded items and discrete tax items related to foreign currency gains/losses[22]. - Discrete tax items in fiscal 2024 included recognition of a deferred tax asset, while fiscal 2023 had a one-time tax benefit from restructuring international ownership of intellectual property[22].

Financial Performance - KLA Corporation reported GAAP net income of $824.5 million for Q2 FY 2025, with a diluted EPS of $6.16 on revenues of $3.08 billion, marking a significant increase from $2.49 billion in Q2 FY 2024 [1][3][8] - Non-GAAP net income for the same period was $1.10 billion, with a non-GAAP diluted EPS of $8.20, reflecting strong profitability despite challenges from new U.S. government export controls [4][8] Revenue Growth - Total revenues for Q2 FY 2025 reached $3.08 billion, exceeding the guidance range of $2.95 billion +/- $150 million, indicating robust demand in the semiconductor sector [2][8] - The revenue growth was driven by investments in AI and high-performance computing, aligning with increasing technology complexity and larger semiconductor devices [2][8] Segment Performance - The Semiconductor Process Control segment generated $2.76 billion in revenue, up from $2.19 billion in the same quarter last year, showcasing strong performance in this key area [14] - Specialty Semiconductor Process and PCB and Component Inspection segments also reported revenue increases, contributing to the overall growth [14] Cash Flow and Capital Returns - Cash flow from operating activities for the quarter was $849.5 million, with free cash flow of $757.2 million, demonstrating strong cash generation capabilities [8][15] - Capital returns for the quarter totaled $876.9 million, including $226.8 million in dividends and $650.1 million in stock repurchases, reflecting the company's commitment to returning value to shareholders [8][15] Guidance for Future Performance - For Q3 FY 2025, KLA expects total revenues to be in the range of $3.0 billion +/- $150 million, with GAAP diluted EPS projected between $7.77 and $8.37 [9][16] - The company anticipates a GAAP gross margin of approximately 60.6% +/- 1.0% and a non-GAAP gross margin of around 62.0% +/- 1.0% for the upcoming quarter [9][16]

Group 1 - The analysis focuses on identifying companies with a wide economic moat and long-lasting competitive advantage through key metrics [1] - The emphasis is on high-quality companies that can outperform the market over the long run due to their competitive advantages and high levels of defensibility [1] - The analysis is primarily focused on European and North American companies, without constraints regarding market capitalization, covering both large cap and small cap companies [1] Group 2 - The analyst has a beneficial long position in the shares of Intel (INTC) through stock ownership, options, or other derivatives [2] - The article expresses the analyst's own opinions and is not receiving compensation from any company mentioned [2]

Core Viewpoint - BofA Securities analyst Vivek Arya anticipates fourth-quarter earnings for semiconductor capital equipment, with key reports from ASML Holding, Lam Research Corp, and KLA Corp scheduled for late January [1] Subsector Sentiment - Year-to-date sentiment in the semiconductor capital equipment sector has improved, but complexities arise from potential impacts of DeepSeek's advancements [2] - Risks include reduced AI-related spending if DeepSeek's R1 leads to lower demand for large language models, capital expenditure cuts in memory sectors, and high consensus estimates compared to industry growth expectations [2] Positive Catalysts - If DeepSeek's technology makes inference more cost-effective at the edge, it could trigger a device upgrade cycle in PCs and smartphones, benefiting leading-edge Wafer Fab Equipment [3] - Recent developments include less severe China export restrictions, a positive capex outlook for Taiwan Semiconductor Manufacturing Co, and Intel's capital expenditure plans remaining intact [3] Market Forecasts - Arya maintains a $105 billion Wafer Fab Equipment outlook for calendar 2025, expecting alignment on key issues with upcoming earnings reports [4] - Price targets for KLA Corp, Nova Ltd, and Camtek Ltd have been raised due to favorable data points for leading-edge foundry/logic and HBM spending [4] China Market Insights - The forecast for China’s Wafer Fab Equipment market has been increased to $31.5 billion, reflecting a 15% year-over-year decline, as local semiconductor companies gain market share [5] Growth Estimates - Consensus estimates for the top five semiconductor capital equipment companies project a 10% year-over-year growth for calendar 2025, which is above Arya's forecast of 5% [6] - Excluding ASML, the top semiconductor capital equipment growth is estimated at 8% [6] Stock Performance - Despite the DeepSeek sell-off, semiconductor capital equipment stocks have outperformed the sector year-to-date, with notable gains from Nova Ltd, KLA Corp, Applied Materials, Camtek Ltd, and Lam Research [7] Valuation Insights - Valuations for semiconductor capital equipment companies have been adjusted to reflect anticipated WFE growth, with long-term CAGR projected at 7.5% through 2030-2032 [8] - The sector exhibits superior free cash flow margins compared to the median for S&P 500 industrial companies [8]