KLA-Tencor Corporation
(
KLAC
) is scheduled to report its third-quarter fiscal 2012 results on
April 26, 2012. We see upward movement in analyst estimates in the
build-up to the release.
Prior-Quarter Synopsis
KLA-Tencor's second-quarter earnings exceeded the Zacks
Consensus Estimate by 6 cents. The quarter's results were driven by
better-than-expected gross margins and a lower tax rate, partially
offset by revenue decline.
Revenue was down 19.3% sequentially but up 16.2% year over year.
The sequential decline was due to overall market softness.
Gross margin was 58.3%, up 31 basis points (bps) sequentially,
as the lower revenue was almost totally offset by lower
inventory-related charges. The operating margins were down 700 bps
sequentially to 26.2% due to higher-than-expected operating
expenses.
Management Guidance
For the third quarter of fiscal 2012, KLA expects orders to be
down 13.2% to up 2.6%, revenue of between $770 million and $830
million, opex to be flat sequentially, other income/expense to be a
net expense of $10 million, a tax rate of 26% and a share count of
169 million, resulting in a non-GAAP EPS of between $1.00-1.18.
For the third quarter, the Zacks Consensus Estimate is currently
pegged at $1.09.
(Detailed earnings results can be viewed in the blog titled:
KLA Has a Good Quarter
Agreement of Analysts
Out of the 15 analysts providing estimates for the third
quarter, none revised the estimate in the last 30 days. Over the
same period, 1 analyst made an upward revision for fiscal 2012.
The analysts expect a decent third quarter, with revenue and
earnings coming in line with management's guidance. They believe
that KLA-Tencor will benefit from the pickup in foundry capex
spending in the near term, as
Taiwan Semiconductor Manufacturing Co.
(
TSM
) and Global Foundries increase their proposed spending on process
control tools.
Additionally, the eventual shift to 3D device structures in the
memory space will also benefit KLA-Tencor over the next few years.
The analysts believe that the challenges involved in these new
device structures will spur additional process control sales.
Analysts also believe that spending on 28nm technology,
particularly for yield improvement, is benefiting KLA-Tenor more
than its peers. They expect orders to come in at the high end of
the guidance range (down 13.2-2.6% sequentially) due to strength at
foundries (where the company has 70%+ market share).
Magnitude of Estimate Revisions
In the past 30 days, there was no change in the Zacks Consensus
Estimate for the third quarter, but it was up by a penny to $4.21
for fiscal 2012.
Over the 90-day period, the Zacks Consensus Estimate witnessed
an increase of 29 cents for the third quarter and a significant
jump of 66 cents for fiscal 2012. Therefore, positive sentiments
appear to have outweighed the negative, post-second-quarter
earnings.
Our Recommendation
KLA-Tencor is a supplier of process control and yield management
systems for the semiconductor and related microelectronics
industries.
In the near term, we believe thatKLAC will benefit from pickup
in foundry capex spending and the process technology changes
occurring in the industry.
However, we cannot ignore the excess capacity that already
remains at foundries, which increases the risk that any improvement
in the market could be short-lived. Hence, we believe that
significant growth in KLA's business is not likely until
semiconductor demand gains momentum, driving foundries to capacity
expansion.
Although KLA-Tencor is a leader in process control, it faces
competition from other large equipment suppliers, such as
Applied Materials Inc.
(
AMAT
),
Novellus Systems
(
NVLS
) and Hitachi High-Technologies Corporation.
KLA-Tencor shares carry a Zacks #2 Rank, implying a Buy rating
in the near term (1-3 months).
APPLD MATLS INC (
AMAT
): Free Stock Analysis Report
KLA-TENCOR CORP (
KLAC
): Free Stock Analysis Report
NOVELLUS SYS (
NVLS
): Free Stock Analysis Report
TAIWAN SEMI-ADR (
TSM
): Free Stock Analysis Report
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