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

KLA-Tencor CorporationKLAC reported first-quarter fiscal 2019 earnings of $2.46 per share, beating the Zacks Consensus Estimate by 26 cents. The figure also surged 36.7% year over year and 10.8% sequentially.

Moreover, revenues increased 12.8% from the year-ago quarter to $1.09 billion, comfortably surpassing the Zacks Consensus Estimate of $1.07 billion. The figure was within management's guided range of $1.030-$1.110 billion.

Products' revenues (almost 76% of the total revenues) increased 9% year over year to $829.2 million.

Services revenues (24% of the total revenues) increased 26.5% from the year-ago quarter to $264 million.

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

Following first-quarter earnings, KLA-Tencor's shares gained 6.01% in after-hour trading. However, the company's shares have lost approximately 19.1% on a year-to-date basis compared with its industry 's decline of 17.4%.

Shipments Detail

Shipments in the fiscal first quarter were $1.01 billion, down approximately 5.6% sequentially but were at the high end of the company's guided range of $935 million to $1.015 billion, driven by strength in memory and sequential increase in shipments to foundry customers.

Memory accounted for 57% of fiscal first-quarter shipments, 38% of foundry customers and 5% of logic.

In terms of end market, Wafer Inspection, Patterning (including shipments from reticle inspection business), Service and Non semi (including back-end component inspection business) contributed 48%, 27%, 22% and 3% of shipments, respectively.

KLA-Tencor continues to experience strong growth for its 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.

The company registered strong growth in China. Management stated that China was strong in terms of both process control adoption and market share gains.

Operating Details

KLA-Tencor's non-GAAP gross margin expanded 150 basis points (bps) on a year-over-year basis to 65.2% and came in above the guided range of 64-65%. The growth was driven by a favorable product mix.

Total operating expenses increased 4.6% year over year to $263 million. As a percentage of sales, both research and development, and selling, general and administrative expenses decreased.

As a result, non-GAAP operating margin expanded 330 bps to 41.1%.

Balance Sheet

KLA-Tencor ended the quarter with cash, cash equivalents and a marketable securities balance of $2.78 billion compared with $2.88 billion in the last reported quarter. Cash from operations was $381.4 million in the quarter.

Fiscal Second-Quarter 2019 Guidance

For second-quarter fiscal 2019, KLA-Tencor expects shipments within $985 million to $1.065 billion. Revenues are expected between $1.03 billion and $1.11 billion. The Zacks Consensus Estimate for revenues is pegged at $1.10 billion.

The company expects non-GAAP gross margin in the range of 63.5-64.5%. Non-GAAP diluted EPS is expected in the range of $2.02-$2.34, while GAAP diluted EPS is projected within $1.88-$2.20. The Zacks Consensus Estimate for earnings is pegged at $2.27 billion.

KLA-Tencor Corporation Price, Consensus and EPS Surprise

KLA-Tencor Corporation Price, Consensus and EPS Surprise | KLA-Tencor Corporation Quote

Zacks Rank & Key Picks

Currently, KLA-Tencor carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the broader technology sector are Expedia EXPE , IAC/InterActiveCorp IAC and AMETEK, Inc. AME , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Expedia, IAC/InterActiveCorp and AMETEK is currently pegged at 16.1%, 15% and 10.97%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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