KLA-Tencor Corporation KLAC reported second-quarter fiscal 2018 earnings of $1.97 per share, beating the Zacks Consensus Estimate by 25 cents. The figure surged 30% from the year-ago quarter and 10% sequentially.
Revenues increased 11.3% from the year-ago quarter to $975.8 million, comfortably surpassing the Zacks Consensus Estimate of $964 million. The figure was within management’s guidance of $930-$990 million.
Products revenues (almost 78% of total revenues) increased 11.4% year over year to $761.6 million. The figure was better than the consensus estimate of $759 million.
Services revenues (22% of total revenues) increased 10.9% from the year-ago quarter to$214.2 million, which was also better than the consensus estimate of $208 million.
KLA’s shares have returned 38% in the last 12 months, substantially underperforming the 69.2% rally of the industry.
Shipments Details
Shipments in the second quarter were $1.041 billion, up 7% sequentially and above the guidance of $945 million to $1.025 billion.
Memory accounted for 71% (in line with guidance) of second quarter shipments, 20% of foundry customers and 9% of logic.
In terms of end market, Wafer Inspection, Patterning (includes shipments from reticle inspection business), Service and Non semi (includes back-end component inspection business) contributed 47%, 30%, 21% and 2% of shipments, respectively.
KLA continues to experience strong growth for its Wafer Inspection solutions. Management stated that new capacity addition by Wafer manufacturers and 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.
Moreover, Gen 5 broadband plasma wafer inspection platform continues to gain momentum in the marketplace. Management expects the solution to continue to support customers in development of 7-nanometer (nm) technology. It is also expected to have a larger role on the development and ramp of the 5-nm, node.
The company witnessed strong growth in China. Management said that China was strong in terms of both process control adoption and market share gains.
Also, orders from native Chinese customers nearly tripled in 2017 and this strong momentum is expected to continue in 2018.
Operating Details
KLA’s gross margin expanded 70 basis points (bps) on a year-over-year basis to 64.6% and came in above the guided range of 63-64%. The year-over-year growth was driven by favorable product mix.
Operating expenses, as percentage of revenues, increased 50 bps from the year-ago quarter to 26.9%.
As a result, operating margin expanded 60 bps to 35.6%.
Balance Sheet
KLA ended the quarter with cash, cash equivalents and marketable securities balance of $2.76 billion compared with $3.06 billion in the previous quarter. Cash from operations was $129.4 million in the quarter and free cash flow was $116 million.
Guidance
For third-quarter fiscal 2018, KLA expects shipments of $945 million to $1.025 billion. Revenues are expected between $970 million and $1.03 billion. The Zacks Consensus Estimate for revenue for the upcoming quarter is pegged at $1.01 billion.
Management expects foundry orders to be approximately 15% of shipments in the third quarter. Memory shipments are anticipated to be 70%, while Logic is currently projected to be 15% of the shipment.
KLA expects gross margin in the range of 63.5% and 64.5%. Operating expenses are expected to be $255 million.
Non-GAAP diluted EPS is expected in the range of $1.85 to $2.09, while GAAP diluted EPS of $1.84 to $2.08. The Zacks Consensus Estimate for earnings for the upcoming quarter is pegged at $1.84 billion
KLA-Tencor Corporation Price, Consensus and EPS Surprise
KLA-Tencor Corporation Price, Consensus and EPS Surprise | KLA-Tencor Corporation Quote
Zacks Rank & Other Key Picks
Currently, KLA carries a Zacks Rank #2 (Buy). A few other top-ranked stocks in the broader technology sector are PetMed Express PETS, sporting a Zacks Rank #1 (Strong Buy), while ASML Holding N.V. ASML and Lam Research Corporation LRCX, each sporting a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings per share growth rate for PetMed Express, ASML Holding and Lam Research is projected to be 10%, 19% and 14.9%, respectively.
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