KLA: Benefiting From The Need For High Yields In Sub-5nm Chip Production

Core Insights - KLA (NASDAQ:KLAC) is distinct from other major equipment companies, focusing on "metrology and inspection" equipment rather than "processing" equipment [1] - KLA's equipment is essential for yield enhancement in semiconductor manufacturing, enabling defect detection and classification at various production stages [2][24] - KLA reported an EPS of $5.26 for Q3 2024, exceeding analyst estimates, with revenue of $2.36 billion, surpassing expectations by 2.16% [3] Financial Performance - KLA's guidance for Q4 fiscal 2024 anticipates total revenue between $2.50 billion +/- $125 million, compared to a consensus of $2.43 billion [4] - KLA's revenue growth was -5.5% in 2023, outperforming the overall WFE semiconductor equipment market, which declined by -9.0% to $86.6 billion [14] Market Position - KLA holds a dominant position in the metrology and inspection market, with a market share significantly larger than competitors like Applied Materials [21] - KLA's market share in the Wafer Inspection/Defect Review segment is 73%, while it holds 34% in Lithography Metrology and 58% in Thin Film Metrology [9][10][12] Growth Opportunities - KLA's revenues from China increased to 38% of overall revenues, amounting to $2.659 billion in 2023, up from 29% ($2.378 billion) in 2022 [16] - Planned fab construction in China for chip manufacturing at the 28nm node and above represents a significant growth opportunity for KLA, with total fab spending projected at $67.566 billion [18] Industry Trends - The increasing complexity of semiconductor chips is driving demand for KLA's advanced process control solutions, particularly as the industry shifts towards sophisticated architectures [22] - The average selling prices (ASPs) for wafers increase with decreasing node size, indicating that defects at smaller nodes have a greater financial impact [25]