KLA (KLAC) Tops Q1 Estimates as Chip-Inspection Sales Rise 29%

KLA (KLAC), which makes the machines chipmakers use to inspect and measure wafers, reported revenue of $4.14 billion for its fiscal first quarter, the three months to September, up 29% year on year. That beat the $4.05 billion analysts expected, according to Zacks. Adjusted earnings of $1.22 a share topped the Zacks consensus of $1.18. The results came out after the close on Wednesday, and the shares rose 5.5% on Thursday to close at $167.43.

All per-share figures here are after KLA’s ten-for-one stock split, which took effect in June. That is why the earnings look about a tenth the size of last year’s.

What stood out

Almost all of the growth came from KLA’s core business. Semiconductor process control, the inspection and measurement tools that catch defects on a chip production line, brought in $3.75 billion, 29% more than a year earlier and 15% more than in the June quarter, according to KLA’s quarterly filing and its letter to shareholders.

Chief Executive Rick Wallace said in the results release that the quarter beat the midpoint of KLA’s guidance on all key measures, and Benzinga and Investing.com reported the same. Foundry and logic customers took 72% of process-control systems sales, and memory makers took 28%.

The company is also turning that revenue into cash. Operating cash flow was $1.53 billion, free cash flow $1.34 billion, and KLA returned $1.24 billion to shareholders through dividends and buybacks, the release showed.

The outlook

KLA expects revenue of $4.7 billion, plus or minus $200 million, in the December quarter, with adjusted earnings of $1.44 a share, plus or minus 11 cents. At the midpoint, that would be about 43% more revenue than a year earlier. Benzinga and Investing.com both reported that the forecast came in above Wall Street’s estimates.

That forecast matters because of what happened a week ago. On 22 October, KLA fell 9.5% alongside Lam Research and Applied Materials after Lam (LRCX) warned that short supplies of parts and factory space would hold its customers back. KLA’s guidance did not show the same squeeze. Thursday’s gain left the stock 13% above that 22 October close, but still 44.5% below its 52-week closing high of $301.71 from 30 June.

Our take

This was a solid beat with a stronger guide: revenue jumped 13% in a single quarter, and the December forecast points to faster growth still. The beat over estimates was modest, at 2% on revenue, so most of the good news sits in the forecast. Next quarter we’d watch whether KLA hits that $4.7 billion midpoint despite the parts shortages Lam described, and how the split between foundry-logic and memory customers shifts.