) reported second-quarter 2014 earnings of 85 cents a share,
beating the Zacks Consensus Estimate by 6 cents, or 7.6%.
KLA reported revenues of $705.1 million, up 7.1% sequentially,
4.8% from the year-ago quarter, within the guided range of
$670-730 million and more or less in line with our estimate.
Products generated 77% of total revenue, up 8.5% sequentially
and 4.0% year over year. Defect inspection, metrology and other
product lines grew 15.0%, -2.2% and -23.9%, respectively on a
sequential basis. They grew 7.3%, 11.5% and -49.7% from a year
Services revenues comprised the remaining 23%, up 2.8%
sequentially and 7.3% year over year.
North America, Japan and Europe & Israel declined 17.4%,
21.1% and 42.1%, respectively on a sequential basis, while
Taiwan, Korea and Other Asia grew strong double-digits. Revenue
from North America, Taiwan and Japan remained below year-ago
levels, while other regions grew. Overall, North America, Taiwan,
Japan, Europe & Israel, Korea and Other Asia/Pacific
generated 21%, 21%, 9%, 10%, 22% and 17% of quarterly revenue,
New orders in the second quarter were $728 million, down 7.8%
sequentially and 4.2% year over year. Management said that the
significant weakness versus expectations were on account of the
pushback of a large order for reticle inspection products.
On the other hand, shipments were up strongly from both
quarters. Backlog increased 2.3% sequentially and 12.5% from last
year. Backlog excluding the value shipped but not recognized as
revenue declined13.6% sequentially and 2.3% year over year.
Overall, the order contribution by segment was as follows:
foundry customers 47%, memory 46%, and logic 7%.
Wafer inspection products had a particularly bad quarter, with
revenue declining 23.8% and 14.2% from the previous and year-ago
quarters, respectively. Reticle inspection products grew 26.7%
and 5.4%, respectively. Other product orders increased 84.3%
sequentially but remained below year-ago levels. from both the
previous and year-ago quarters, while service orders grew from
both periods. Products were 78% of total orders with services
accounting for the balance.
Europe, Korea and Other Asia/Pacific declined. Overall, the
order contribution by geography was as follows: North America
26%, Europe 1%, Japan 12%, Korea 18%, Taiwan 30% and Other
Asia/Pacific 13%. The relatively higher concentration in Asia is
due to the presence of a larger number of foundries and memory
manufacturers in the region.
KLA's gross margin was up 159 basis points (bps) sequentially
and 468 bps year over year to 59.8%. The expansion in gross
margin was due to a favorable product mix, better-than-expected
manufacturing efficiencies and stronger volumes during the
Operating expenses of $228.1 million were flattish
sequentially and up 6.8% from a year ago. The operating margin
shrank 386 bps sequentially and 405 bps from last year. All
expenses dropped sequentially as a percentage of sales and only
R&D increased from last year.
The pro forma net income was $143.1 million, or 20.3% of sales
compared to $114.9 million, or 17.5% in the Sep 2013 quarter and
$106.0 million, or 15.7% in the Dec quarter of last year.
Including one-time items such as restructuring and
acquisition-related charges on a tax-adjusted basis, the GAAP net
income was $139.2 million ($0.83 a share) compared to $111.2
million ($0.66 a share) in the previous quarter and $106.6
million ($0.63 a share) in the year-ago quarter.
KLA ended with cash and short-term investments balance of
$2.95 billion, consistent with the previous quarter. The company
generated $115.3 million of cash from operations, spending $14.5
million on capital expenses, $60.3 million on share repurchases
and $75.0 million on dividends during the quarter.
For the third quarter of fiscal 2014, KLA expects orders of
$700-900 million and shipments of $720-780 million. Quarterly
revenues are expected to be between $790 million and $850
million, gross margin of 58.59%, opex in a range of $225-230
million and other income/expense of $10-11 million. The tax rate
is expected to be 23%, yielding non-GAAP EPS in the range of
$1.00 - $1.20, better than the Zacks Consensus Estimate of
KLA's second quarter results and third quarter guidance
indicate stronger growth in 2014. Particularly, KLA should see
accelerated growth in the memory business, especially from the
NAND segment. Foundry and logic could also pick up given key
) ambitious plans for the year. Earlier this year, Intel
cancelled plans to equip its 14nm fab in Arizona, but this could
come back later.
KLA-Tencoris an equipment supplier in gradually strengthening
demand environment. So while customers continue to make the most
of existing inventory, strengthening end markets could drive
demand for new equipment. At the same time, since each system is
high-valued, customer concentration is obviated, which results in
great fluctuations in revenue/orders in times of weak demand.
The underlying drivers (process node transition and strong
demand for smartphones and mobile computing devices) should
increase capex spending as we move through the year.
The technical complexity of manufacturing semiconductors and
increasingly challenging yield issues remain revenue drivers for
this leading manufacturer of process control equipment.
KLA shares currently have a Zacks Rank #3 (Hold), similar to
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