KLA Corporation (KLAC Quick QuoteKLAC - Free Report) reported fourth-quarter fiscal 2023 non-GAAP earnings of $5.40 per share, beating the Zacks Consensus Estimate by 12.03%. The figure declined 7.1% from the year-ago fiscal quarter’s level. Also, it was within management’s guided range of $4.23-$5.43.

Revenues decreased 5.3% on a year-over-year basis to $2.35 billion, surpassing the Zacks Consensus Estimate of $2.25 billion. The reported figure was within management’s guidance of $2.125-$2.375 billion.

The decline in the top line was attributed to softness in Semiconductor Process Control and PCB, Display and Component Inspection segments.

Also, weakness in the wafer inspection business was a concern.

Nevertheless, the company witnessed strong momentum in the Specialty Semiconductor Process segment in the reported quarter.

Further, the solid performance delivered by patterning, services and other businesses contributed well.

Coming to the price performance, KLA has gained 27.9% year to date compared with the industry’s rally of 19%.

However, weakening semiconductor demand, owing to economic slowdown and excess inventories, remains a major concern for the company in the near term.

Also, a slowdown in wafer fabrication equipment spending remains a major concern. Weakening momentum among memory customers is another negative.

Top Line Details

Products revenues (accounting for 77.1% of total revenues) decreased 8% year over year to $1.82 billion.

Services revenues (22.9% of total revenues) increased 5.3% from the year-ago quarter’s reading to $538.61 million. Growth in Services revenues is attributed to the growing installed base, strengthening momentum across long-term service agreements and solid prospects in legacy nodes.

In terms of reportable segments, Semiconductor Process Control revenues (88% of total revenues) decreased 1% year over year to $2.09 billion, which topped the Zacks Consensus Estimate of $1.94 billion. Foundry & Logic accounted for about 70%, while Memory constituted about 30% of semiconductor process control systems’ revenues.

Specialty Semiconductor Process revenues (6%) were $129 million, up 4% year over year. The figure came ahead of the consensus mark of $122 million.

PCB, Display and Component Inspection revenues (6%) declined 48% from the year-ago quarter’s actuals to $129 million, which lagged the Zacks Consensus Estimate of $170 million.

Regarding revenue breakdown by major products, Wafer Inspection, Patterning Systems, including metrology and reticle inspection, and Specialty Semiconductor Process accounted for 40%, 25% and 5%, respectively, of KLA’s total revenues for the fiscal fourth quarter. Wafer Inspection revenues declined 14% year over year. Speciality Semiconductor Process and Patterning revenues grew 6% and 19% year over year, respectively.

PCB, Display and Component Inspection accounted for 3%, Service represented 23%, and Other — reported in the Semiconductor Process Control segment — constituted 4% of the quarterly revenues.

Services and Other revenues were up 5% and 10% year over year, respectively, while PCB, Display and Component Inspection were down 64% in terms of major product groups.

In terms of regional breakdown of revenues, China, Taiwan and Korea accounted for 30%, 21% and 18% of the total revenues for the fiscal fourth quarter, respectively. Further, North America, Japan, Europe and the Rest of Asia accounted for 13%, 8%, 6% and 4%, respectively.

Operating Details

Non-GAAP gross margin contracted 120 basis points (bps) from the prior-year quarter’s level to 61.2%. This was attributed to increasing non-cash inventory reserves.

Research and development (R&D) expenses increased 6.8% year over year to $317.1 million. Selling, general and administrative (SG&A) expenses increased 5.95% year over year to $250.86 million. As a percentage of sales, R&D expenses expanded 160 bps year over year to 13.5%, while SG&A expenses expanded 120 bps from the year-ago figure to 10.7%.

For the reported quarter, the non-GAAP operating margin was 38.1%, contracting 370 bps year over year.

Balance Sheet

As of Jun 30, 2023, cash, cash equivalents and marketable securities totaled $3.24 billion compared with $2.89 billion as of Mar 31, 2023.

Long-term debt at the end of the fiscal fourth quarter was $5.89 billion compared with $5.9 billion in the previous quarter.

Cash flow from operating activities was $959.1 million for the reported quarter, down from $1.01 billion in the prior quarter. Free cash flow was $880.43 million for the fiscal fourth quarter.

During the fiscal fourth quarter, KLAC paid out $179.5 million in dividends and repurchased $388.8 million worth of shares.

First-Quarter Fiscal 2024 Guidance

For first-quarter fiscal 2024, revenues are expected between $2.225 billion and $2.475 billion. The Zacks Consensus Estimate for revenues is pegged at $2.22 billion.

KLA expects non-GAAP EPS within $4.75-$5.95. The Zacks Consensus Estimate for non-GAAP EPS is pegged at $4.77.

Management expects non-GAAP gross margin in the range of 60-62%.

Zacks Rank & Other Stocks to Consider

Currently, KLA carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology sector are Salesforce (CRM Quick QuoteCRM - Free Report) , AvidXchange (AVDX Quick QuoteAVDX - Free Report) and Akamai Technologies (AKAM Quick QuoteAKAM - Free Report) . Salesforce and AvidXchange sport a Zacks Rank #1 (Strong Buy), while Akamai Technologies carries a Zacks Rank #2.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Salesforce shares have gained 70.7% in the year-to-date period. The long-term earnings growth rate for CRM is currently projected at 19.25%.

AvidXchange shares have gained 21.1% in the year-to-date period. The long-term earnings growth rate for AVDX is currently projected at 22.90%.

Akamai shares have gained 9.5% in the year-to-date period. The long-term earnings growth rate for AKAM is currently projected at 10%.