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KLA-Tencor (KLAC) Tops on Q4 Earnings, Merger in Progress

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KLA-Tencor Corporation (KLAC - Free Report) reported fourth-quarter fiscal 2016 earnings of $1.77 a share, beating the Zacks Consensus Estimate of $1.43 by 23.8%.

KLA-Tencor has agreed to be acquired by Lam Research (LRCX) in a cash and stock deal worth $5.08 billion. The acquisition is expected to be accretive to earnings and cash flow in the first twelve months following the closure. The companies expect to realize $250 million in annual ongoing pre-tax cost synergies within 1.5-2 years and $600 million by 2020.

The merger of these two companies will create an equipment powerhouse with a huge range of products, customer breadth and scale. The increased integration and efficiency of operations could also help the combined entity drive further extension of Moore’s Law.

The merger was approved by shareholders of both the companies in Feb 2016.

Given its merger with Lam Research Corporation, KLA-Tencor called off the earnings conference call. However it published a quarterly stockholder letter on its website.

KLA-TENCOR CORP Price, Consensus and EPS Surprise

KLA-TENCOR CORP Price, Consensus and EPS Surprise | KLA-TENCOR CORP Quote

Quarter in Details

KLA-Tencor reported fourth-quarter revenues of $919 million, up 29.1% sequentially and 21.6% year over year.

Cost of revenue for the fourth quarter fiscal 2016 was $337.6 million, up 4.4% on a year-over-year basis.

Research and development expenses for the quarter were $127.5 million compared with $128.8 million in the year-ago quarter,  down 1%.

Selling general and administrative expenses were $103.8 million, up 2% from $101.7 million in the year-ago quarter.

KLA reported a gross profit of $350.4 million, a 73% surge from the year-ago quarter.

Our Take

While uncertainties about the timing of capital equipment purchases remain for this leading provider of process control equipment, its acquisition by Lam Research is a positive for investors. Owing to the increase in 3D NAND deployments this year and Lam’s strength in the area, synergies are expected going forward. FinFET transition at foundries also remains a positive.

KLA shares currently carry a Zacks Rank #4 (Sell).

Better-ranked technology stocks include Digi International Inc. (DGII - Free Report) , Facebook, Inc and PetMed Express, Inc. (PETS - Free Report) , each sporting a Zacks Rank #1 (Strong Buy).

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