) second-quarter earnings beat the Zacks Consensus Estimate by 7
cents helped by improving trends across segments. The backlog
growth and better-than-expected guidance drove share prices up
KLA reported revenue of $673.0 million, which was down 6.6%
sequentially and up 4.8% from the year-ago quarter. This was much
better than the mid-point of the guidance range and also exceeded
our expectations of around $635 million.
KLA remains an equipment supplier in a weak demand
environment, which is probably the worst spot to be in. Customers
are making the most of existing inventory, and maintaining low
Additionally, since each system is high-valued, there is a
natural customer concentration, which results in great
fluctuations in revenue/orders in times of weak demand. All these
factors were evident from KLA's second-quarter results.
Products generated 78% of total revenue, an 8.9% sequential
decline and 4.5% year-over-year increase. Services revenue
comprised the remaining 22%, up 2.3% sequentially and 5.8% year
The two main product lines declined sequentially. Defect
inspection declined 7.4% sequentially and grew 7.1% year over
year. Metrology was down 13.0% and 11.5% from the previous and
year-ago quarters, respectively.
The U.S., Japan, and Europe & Israel regions grew revenue
13.1%, 4.7% and 1.0% on a sequential basis, while Taiwan, Korea
and Other Asia declined 19.1% and 18.5% and 8.2%, respectively.
All except the U.S. and Taiwan declined from the year-ago
The last quarter was a good one for KLA in terms of orders, as
strong demand for tablets and other mobile devices kept the
pressure on foundries, which in turn increased their orders with
The 50.2% sequential increase in orders was mainly because of
the foundry segment, which grew 114.2% to 67% of total new system
orders. Memory customers grew 83.4% for a 17% share, with logic
declining 7.9% to a 16% share. Foundry, memory and logic
customers saw order declines of 12.8%, 21.1% and 56.0%,
respectively from the year-ago quarter. Non-semi and service
orders also increased sequentially.
KLA's fortunes are tied to the foundry segment, first because
the company is more exposed to this market and second, because
its process control equipment is in higher demand at foundries
that are always looking to improve efficiencies in order to drive
down costs. KLA's strength in the logic segment is tied to its
), which is en route to ramping its 14nm production.
The wafer inspection product line saw orders jump 41.4% on a
sequential basis, while declining 20.0% year over year. Reticle
Inspection grew 1,401.9% sequentially and dropped 38.5% from a
year ago. Metrology was up 90.3% sequentially and down 30.9% from
last year. Solar, storage, HB LED and other products were up
12.6% sequentially and down 20.0% from last year.
Taiwan and the U.S. drove most of the increase in orders.
Overall, the order contribution by geography was as follows-U.S.
33%, Europe 1%, Japan 7%, Korea 13%, Taiwan 39% and Other
Asia/Pacific 7%. The relatively higher concentration in Asia is
due to the presence of a larger number of foundries and memory
manufacturers in the region.
The six-month backlog at quarter-end was $1.09 billion, up
6.3% sequentially and down 22.1% from the year-ago quarter.
KLA's gross margin shrunk 149 bps sequentially and 322 bps
year over year to 55.1%, due to inventory reserves and
adjustments related to product transitions at customers. The
incremental gross margin stayed above the targeted 60-70%.
Operating expenses of $213.5 million were up 1.0% from the
previous quarter's $211.5 million. The operating margin was
23.4%, down 387 bps sequentially and 280 bps year over year. The
sequential decline in the operating margin was mainly because of
a weaker gross margin and higher R&D (as a percentage of
sales) although SG&A also increased. The decline from last
year was entirely on account of the weaker gross margin.
Excluding the impact of acquisition-related expenses on a
tax-adjusted basis and discrete tax items, the pro forma net
income came in at $106.0 million, or 15.7% of sales, compared to
$142.4 million, or 19.8% in the previous quarter and $121.9
million, or 19.0% of sales in the year-ago quarter.
Including the special items, the GAAP net income was $106.6
million ($0.63 per share) compared to income of $135.4 million
($0.80 per share) in the Sep 2012 quarter and $110.8 million
($0.66 per share) in the Dec quarter of last year.
Inventories were down 3.9% during the quarter, with inventory
turns flat at 1.8X. Days sales outstanding (DSOs) went from 68 to
around 82. KLA ended with cash and short term investments balance
of $2.58 billion, down $59.8 million during the quarter. The
company generated $77.4 million of cash from operations, spending
$17.1 million on capital expenses, $68.3 million on share
repurchases and $66.5 million on dividends during the
For the second quarter of fiscal 2013, KLA expects orders to
be $700 to $850 million, revenue of between $690 million and $750
million and non-GAAP EPS of between $0.76 and $0.96, well above
the Zacks Consensus Estimate of $0.73.
KLA's second quarter results and third quarter guidance
indicate stronger demand although the guidance range appears
wide. The backlog growth was encouraging however, as it followed
three quarters of decline. The fact that it was driven by growth
across all segments (semi, non-semi and services) is particularly
The technical complexity of manufacturing semiconductors and
increasingly challenging yield issues are long-term revenue
drivers for the leading manufacturer of process control
KLA shares currently carry a Zacks Rank #3, similar to peer
) but better than
), which has a Zacks Rank #4.
APPLD MATLS INC (AMAT): Free Stock Analysis
INTEL CORP (INTC): Free Stock Analysis Report
KLA-TENCOR CORP (KLAC): Free Stock Analysis
LAM RESEARCH (LRCX): Free Stock Analysis
To read this article on Zacks.com click here.