KLA Corp. (KLAC) Exceeds Third Quarter Earnings and Revenue Estimates

KLA Society KLAC reported earnings per share of $5.13 in the third quarter of fiscal 2022, which beat Zacks’ consensus estimate of 6.8%. The figure rose 33.2% year over year, but fell 8.2% sequentially.

Revenue increased 26.9% from the prior year quarter, but fell 2.72% sequentially to $2.29 billion, beating the consensus estimate of 3.5% Zacks. The reported figure was at the upper end of the company’s indicative range of $2.1 billion to $2.3 billion.

Strong customer demand in each of the major product groups boosted quarterly results.

Investment growth in multiple nodes and increased capital intensity in foundry and logic contributed well to its quarterly performance.

Growing customer adoption of metrology applications in advanced technology development and capability monitoring propelled the optical metrology business, which remained a positive factor.

Management has a favorable outlook for the wafer fabrication equipment industry despite supply issues and macro headwinds. He expects the positive momentum in the industry to continue in calendar year 2022 due to strong demand for semiconductors.

KLA Corporation Price, Consensus, and EPS Surprise

KLA Corporation price-consensus-eps-surprise-chart | Quote from KLA Corporation

Front line details

Product revenue (accounting for 79% of total revenue) increased 30.9% year-over-year to $1.80 billion. Still, it was down 5.02% from the previous quarter.

Services revenue (21% of total revenue) increased 6.8% sequentially and 13.9% from the prior year quarter to $488 million.

Services revenue growth attributed to expanding installed base, growing customer adoption of long-term service agreements, higher utilization rates and expanding service opportunities in legacy nodes.

In terms of reportable segments, Semiconductor Process Control revenue grew 31% year-over-year to $1.98 billion, driven by foundry and logic strength. Foundry and logic accounted for 63%, and memory (accounting for 26% DRAM and 11% NAND) made up about 37% of solid-state process control systems revenue. Specialty Semiconductor Process revenue was $117 million, up 28% year-over-year. Revenue from PCB, displays and component inspection, however, fell 6% from the year-ago quarter to $193 million.

The Electronics, Packaging and Components or EPC group delivered strong results for the quarter, driven by strength in automotive, 5G and advanced packaging.

In terms of revenue breakdown by major products, Wafer Inspection, Patterning – which includes reticle inspection – and Specialty Semiconductor Process accounted for 40%, 27% and 5%, respectively, of the company’s total revenue in the third fiscal quarter. PCB, screen and component inspection accounted for 5%, service 21%, and other – which is reported in the Semiconductor Process Control segment – ​​constituted 2% of quarterly revenue.

In terms of regional revenue distribution, China, Taiwan, and Korea accounted for 31%, 23%, and 21% of total fiscal third quarter revenue, respectively. Again, the United States, Europe, Japan and the rest of Asia accounted for 10%, 7%, 6% and 3% respectively.

Operation details

Non-GAAP gross margin was in line with the prior year quarter figure of 62.9%. The figure was at the upper end of the guided range of 61.5 to 63.5%.

Research and development (R&D) spending rose 19.4% year-over-year to $285.2 million. Selling, general and administrative (SG&A) expenses also rose 18.3% year-over-year to $216.5 million. As a percentage of sales, R&D and SG&A expenses contracted 8 basis points and 7 basis points year-over-year, respectively.

For the quarter under review, the non-GAAP operating margin was 41.7%, up 130 basis points year-over-year.

Balance sheet

As of March 31, 2022, cash, cash equivalents and marketable securities totaled $2.58 billion, compared to $2.81 billion as of December 31, 2021.

Cash flow from operating activities was $818.9 million for the third quarter of the fiscal year, compared to $810.8 million in the prior quarter. Free cash flow was $718.6 million for the current quarter, compared to $745.9 million in the prior quarter.

During the third fiscal quarter, KLAC paid $159 million in dividends and repurchased $564.7 million in stock.

Forecast for the fourth quarter of fiscal 2022

For the fourth quarter of fiscal 2022, revenue is expected between $2.30 billion and $2.55 billion. Zacks’ consensus estimate for revenue is pegged at $2.36 billion.

The company expects non-GAAP EPS between $4.93 and $6.03. The Zacks consensus estimate for non-GAAP EPS is set at $5.35.

Management expects non-GAAP gross margin in the range of 61.5-63.5%.

Zacks Ranking and Stocks to Consider

Currently, KLA Corp. has a Zacks rank of No. 4 (sell).

Investors interested in the broader tech sector may consider stocks such as Jabil JBL, Jack Henry & Associates JKHY, and Broadcom AVGO. While Jabil currently sports a Zacks Rank #1 (Strong Buy), Jack Henry & Associates and Broadcom carry a Zacks Rank #2 (Buy). You can see the full list of today’s Zacks #1 Rank stocks here.

Jabil gained 13.3% year on year. JBL’s long-term earnings growth rate is currently projected at 12%.

Jack Henry & Associates gained 19.6% year on year. JKHY’s long-term earnings growth rate is currently projected at 17%.

Broadcom gains 26.9% over one year. AVGO’s long-term earnings growth rate is currently projected at 14.5%.

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