KLA(US:KLAC)2025-10-29 22:02Financial Data and Key Metrics Changes - KLA reported revenue of $3.21 billion for the September quarter, exceeding the guidance midpoint of $3.15 billion [6][11] - Non-GAAP diluted EPS was $8.81, while GAAP diluted EPS was $8.47, both above the guidance midpoint [11] - Gross margin improved to 62.5%, 50 basis points above the guidance midpoint, driven by a stronger product mix and manufacturing efficiencies [12] - Free cash flow reached $3.9 billion with a free cash flow margin of 31% [9] Business Line Data and Key Metrics Changes - Advanced packaging revenue is expected to exceed $925 million for calendar year 2025, representing a 70% year-over-year increase [8] - Service revenue grew to $745 million in the September quarter, up 6% sequentially and 16% year-over-year [8] - Non-GAAP operating margin was reported at 43.2% [12] Market Data and Key Metrics Changes - KLA anticipates mid to high single-digit growth in wafer fab equipment (WFE) for 2025, driven by investments in leading-edge foundry logic and memory [16] - The advanced packaging market is expected to grow more than 20% compared to the previous year [16] - The company estimates a revenue impact of approximately $300 million-$350 million due to export controls affecting certain customers in China [17] Company Strategy and Development Direction - KLA is focusing on expanding its market leadership in advanced packaging and process control, addressing all growth markets in WFE [9][10] - The company emphasizes a disciplined approach to capital allocation, aiming to maximize total shareholder value [10] - KLA's product portfolio is designed to support technology transitions and ensure yield entitlement in high-volume production [18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the semiconductor industry's growth in 2026, with expectations for a broader spending profile compared to 2025 [17] - Customer discussions have become more constructive, indicating a growth year for the industry in 2026 [17] - The company remains focused on supporting customers and driving productivity across the enterprise [22] Other Important Information - KLA's total capital return in the September quarter was $799 million, including $545 million in share repurchases and $254 million in dividends [9] - The company announced a $5 billion share repurchase authorization and a 12% increase in quarterly dividends [14][15] Q&A Session Summary Question: Insights on WFE growth outlook - Management noted that the outlook is more about confidence in timing rather than a significant change in magnitude, with constructive discussions around leading-edge investments [29][30] Question: Decline in foundry/logic revenue - The decline is attributed to a reduction in China, which was elevated in the previous quarter, while leading-edge revenue is expected to increase [39][40] Question: Gross margin guidance - The guidance down is primarily due to product mix adjustments, with a consistent tariff impact [44][45] Question: Advanced packaging process control intensity - KLA's share of the advanced packaging market is expected to grow, with increasing process control intensity as designs become more complex [50][52] Question: AI spending impact on WFE - Management agreed that significant AI spending could translate to increased WFE demand, particularly in memory and advanced packaging [56][57] Question: Memory growth expectations - The company expects DRAM investment to grow next year, driven by strong customer announcements and increased spending [98][99] Question: Foundry-related revenue opportunities - There is a broadening of investment discussions with foundries, indicating a shift towards yield improvement tools [102][103]