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KLA-Tencor (KLAC) Beats Earnings and Revenue Estimates in Q4

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KLA-Tencor Corporation (KLAC - Free Report) reported fourth-quarter fiscal 2019 earnings per share (EPS) of $1.78, beating the Zacks Consensus Estimate by 7 cents. However, the figure was down 19.8% year over year and 1.1% sequentially.

Revenues increased 17.6% from the year-ago quarter to $1.26 billion, surpassing the Zacks Consensus Estimate of $1.25 billion. The figure was within the company’s guided range of $1.21-$1.29 billion.

Management continues to expect overall process control intensity to grow this year, driven by the expanding value of inspection and measurement in addressing critical customer problems, along with semiconductor industry expansion in China.

Foundry and logic is expected to continue performing well through the second half of 2019 and in 2020. The optimistic view is driven by next-generation technology development, capacity additions at leading-edge nodes, increasing competitive dynamics and investment in EUV infrastructure.

However, memory weakness will likely continue to impact customers’ caution toward equipment investment plans. Management continues to expect WFE to be down in 2019, largely due to weaker DRAM demand.

KLA-Tencor Corporation Price, Consensus and EPS Surprise

 

Top-Line Details

Products revenues (accounting for almost 73% of the total revenues) increased 9.2% year over year to $917.6 million.

Services revenues (27% of total revenues) increased 48.5% from the year-ago quarter to $340.8 million.

In terms of end market, Wafer Inspection and Patterning (including shipments from the reticle inspection business) contributed 32% and 23% to revenues, respectively. PCB display and component inspection revenues accounted for 10% of revenues. Specialty semiconductor processes, others (including solar, instruments and the KLA pro mature products enhancements business) and Service contributed 4%, 4% and 27% to revenues, respectively.

KLA Tencor continues to experience strong growth for Wafer Inspection solutions. Management stated that new capacity addition by Wafer manufacturers and the adoption of more complex architectures by IC customers are driving demand for new bare wafer products. These are needed to support more stringent wafer flatness and process tool cleanliness specifications in advanced technologies.

Shipments in Detail

Shipments in the fiscal fourth quarter were $1.354 billion, increasing sequentially and exceeding the company’s guided range of $1.235-$1.315 billion. Semiconductor process control shipments were approximately $1.080 billion in the quarter.

Memory accounted for 51% of fiscal fourth-quarter shipments, 35% of foundry customers and 14% of logic.

Operating Details

Per the press release, KLA Tencor’s gross margin contracted 1,180 basis points (bps) on a year-over-year basis to 52.9%.

Total operating expenses increased 47.9% year over year to $396.8 million. As a percentage of sales, both research and development, and selling, general and administrative expenses increased.

As a result, non-GAAP operating margin contracted 1,960 bps to 18.4%.

Balance Sheet

KLA Tencor ended the quarter with cash, cash equivalents and a marketable securities balance of $1.74 billion compared with $1.90 billion in the fiscal third quarter.

Cash from operations was $325.5 million in the fiscal fourth quarter versus $163.6 million in the prior quarter.

Fiscal First-Quarter 2020 Guidance

For first-quarter fiscal 2019, revenues are expected between $1.31 billion and $1.39 billion. The Zacks Consensus Estimate for revenues is pegged at $1.31 billion.

Memory is expected to be approximately 42% of shipments in the fiscal first quarter. Foundry is expected to constitute around 44% of total shipments and Logic is expected to remain flat in the quarter.

The company expects non-GAAP gross margin in the range of 60-61% and non-GAAP EPS within $2.04-$2.34. The Zacks Consensus Estimate for non-GAAP EPS is pegged at $2.01.

GAAP EPS is projected within $1.75-$2.05.

Zacks Rank & Key Picks

Currently, KLA Tencor carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector include Alibaba Group Holding Limited (BABA - Free Report) , Teradyne, Inc. (TER - Free Report) and eBay Inc. (EBAY - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth for Alibaba, Teradyne and eBay is currently projected at 26.8%, 11.4% and 9.4%, respectively.

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