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KLA-Tencor (KLAC) Beats Earnings and Revenue Estimates in Q1

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KLA-Tencor Corporation (KLAC - Free Report) reported first-quarter fiscal 2020 earnings per share (EPS) of $2.48, beating the Zacks Consensus Estimate of $2.20. Moreover, the figure was up 0.8% year over year and 39.3% sequentially.

Revenues increased 29.3% from the year-ago quarter to $1.41 billion, surpassing the Zacks Consensus Estimate of $1.35 billion. The figure was above the company’s guided range of $1.31-$1.39 billion.

Management continues to expect overall process control intensity to grow in 2019, driven by the expanding value of inspection and measurement in addressing critical customer problems, along with semiconductor industry expansion in China.

The demand for advanced logic nodes is expected to remain healthy through the remainder of 2019 and in 2020, driven by investment in EUV, competitive dynamics and capacity additions.

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

Management expects WFE demand to improve modestly in the near term, driven by investments and strong foundry demand.

KLA-Tencor Corporation Price, Consensus and EPS Surprise


Top-Line Details

Products revenues (accounting for almost 75% of total revenues) increased 27.6% year over year to $1.06 billion.

Services revenues (25% of total revenues) increased 34.6% from the year-ago quarter to $355.4 million.

In terms of end market, Wafer Inspection and Patterning (including shipments from the reticle inspection business) contributed 32% and 27% to revenues, respectively. PCB display and component inspection revenues accounted for 9% of revenues. Specialty semiconductor processes, others (including solar, instruments and the KLA pro mature products enhancements business) and Service contributed 4%, 3% and 25% 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.

Operating Details

Per the press release, KLA Tencor’s gross margin contracted 790 basis points (bps) on a year-over-year basis to 57.2%.

Total operating expenses increased 48.9% year over year to $398.9 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 1,280 bps to 26.3%.

Balance Sheet

KLA Tencor ended the quarter with cash, cash equivalents and a marketable securities balance of $1.75 billion compared with $1.74 billion in the fiscal fourth quarter.

Cash from operations was $496.2 million in the fiscal first quarter versus $325.5 million in the prior quarter.

Fiscal Second-Quarter 2020 Guidance

For second-quarter fiscal 2019, revenues are expected between $1.435 billion and $1.515 billion, indicating growth of 4% sequentially. The Zacks Consensus Estimate for revenues is pegged at $1.39 billion.

Memory is expected to be approximately 36% of system revenues in the fiscal second quarter. Foundry is expected to constitute around 55% of total shipments and Logic is anticipated to account for 9% of semi-process control system revenues.

The company expects non-GAAP gross margin in the range of 60-61% and non-GAAP EPS within $2.39-$2.69. The Zacks Consensus Estimate for non-GAAP EPS is pegged at $2.36.

GAAP EPS is projected within $2.13-$2.43.

Zacks Rank & Key Picks

KLA-Tencor currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include Itron, Inc. (ITRI - Free Report) , Booking Holdings Inc. (BKNG - Free Report) and Advanced Micro Devices, Inc. (AMD - Free Report) . While Itron sports a Zacks Rank #1 (Strong Buy), Booking Holdings and Advanced Microcarry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Itron, Booking Holdings and Advanced Microis currently projected at 25%, 13.08% and 23.61%, respectively.

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