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KLA-Tencor Corporation (KLAC - Free Report) reported fourth-quarter fiscal 2017 earnings of $1.64 a share, surpassing the Zacks Consensus Estimate of $1.59. Also, earnings increased 1.2% sequentially decreased 7.3% year over year.

KLA-Tencor's shares have returned only 27.1% year to date, underperforming the industry’s gain of 43.5%.

Let’s take a quick look at the numbers.

Revenues

KLA reported revenues of $939.0 million, increasing 2.7% sequentially and 2.1% from the year-ago quarter.Revenues were above the Zacks Consensus Estimate of $920.0 million and within management’s guidance range of $890–$970 million, courtesy of strong customer acceptance for the company’s new products.

Products generated 79% of total revenue, increasing 0.9% year over year. Services revenue comprised the remaining 21%, reflecting an increase of 7% year over year.

Orders

Shipments in the fourth quarter were $971 million, up 23.5% sequentially and above the guided range of $890–$970 million.

Order contribution by wafer front-end was as follows:

Foundry customers accounted for 64% of new semiconductor system orders, memory 32% and logic 4%.

Margins

KLA’s gross margin was up 50 bps sequentially but shrank 40 basis points (bps) year over year to 62.9%. The better-than-expected sequential gross margin was backed by a favorable mix of products and services.

Operating expenses of $241.7 million were up 4.5% from the year ago-quarter. As a percentage of sales, both research & development expenses increased from the year-ago quarter, while selling, general & administrative expenses decreased. Therefore, adjusted operating margin of 34.6% was down 70 bps year over year.

Pro forma net income was $259.0 million compared with $256.0 million in the previous quarter and $276.8 million in the year-ago quarter. Including restructuring and merger-related charges, GAAP net income was $256.2 million compared with $253.6 million in the previous quarter and $271.5 million in the year-ago quarter.

Balance Sheet

KLA ended the quarter with cash and short-term investments balance of $3.02 billion against $2.70 billion million in the previous quarter. Cash from operations was $462.6 million in the quarter.

Guidance

For first-quarter fiscal 2018, KLA expects shipments of $945–$1.025 billion. Revenues are expected between $910 million and $970 million, while the Zacks Consensus Estimate is pegged at $934.5 million. Non-GAAP EPS is expected in the range of $1.50–$1.74, the mid-point above the Zacks Consensus Estimate of $1.58.

For the first quarter, KLA expects gross margin to be in the range of 62.5–63.5%, flat at the midpoint on a sequential basis, and operating expenses to be around $250 million.

KLA-Tencor Corporation Price, Consensus and EPS Surprise

 

KLA-Tencor Corporation Price, Consensus and EPS Surprise | KLA-Tencor Corporation Quote

Zacks Rank & Other Key Picks

Currently, KLA-Tencor carries a Zacks Rank #1 (Strong Buy). Some better-ranked stocks in the same space are Lam Research Corporation (LRCX - Free Report) , carrying a Zacks Rank #1 and Applied Materials (AMAT - Free Report) and Fortive Corporation (FTV - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lam Research delivered a positive earnings surprise of 4.44%, on average, in the trailing four quarters.

Applied Materials delivered a positive earnings surprise of 3.35%, on average, in the trailing four quarters.

Fortive Corporation delivered a positive earnings surprise of 5.90%, on average, in the trailing four quarters.

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