KLA CORP Q1 FY2025 earnings call

Key Points

• September quarter exhibited strengthening customer demand with revenue of $2.84 billion, non-GAAP diluted EPS of $7.33, and GAAP diluted EPS of $7.01, all exceeding guidance ranges.
• Foundry logic and memory showed positive trends, with foundry logic benefiting from scaling and new technologies, and memory seeing improving supply-demand and technology development for AI and high-bandwidth memory.
• Advanced packaging portfolio growing, with revenue expected to exceed $500 million in 2024 and continue growing in 2025. AI driving business through process control intensity and KLA's early adoption of AI in products.
• Daily service business grew to $644 million in Q3, up 5% seq and 15% yoy, 49th consecutive quarter of yoy growth.
• Cash flow strong: quarterly free cash flow $935M, last 12 months FCF $3.2B, FCF margin 31%. Total capital return in Q3 $765M (share repurchases $567M, dividends $198M).

KLA's September quarter revenue was $2.84 billion. By reportable segments, foundry logic revenue from semiconductor customers is forecasted to be approximately 76% in the December quarter, and memory is expected to be approximately 24%. Within memory, DRAM is expected to be about 76% of the segment mix and NAND 24%. The daily service business grew to $644 million in the September quarter, up 5% sequentially and 15% year-over-year, marking the 49th consecutive quarter of year-over-year growth.

December Quarter Guidance

• Total revenue expected $2.95B ±$150M.
• Non-GAAP gross margin forecasted 61.5% ±1 percentage point.
• Non-GAAP operating expenses ~$580M.
• GAAP diluted EPS expected $7.45 ±$0.60, non-GAAP diluted EPS $7.75 ±$0.60.
• Expecting third consecutive quarter of sequential revenue growth and growth in 2025, driven by leading-edge foundry, logic, and memory investments, offsetting lower China demand.

Risks

• Export controls: Uncertainty around potential restrictions and their impact on business, not yet quantified.
• China exposure: Expectation of digestion of China investments, with China revenue percentage expected to drop from mid-40s in 2024 to ~30% in 2025.

Q: Vivek Arya asked about China exposure and December quarter exposure.

A: Bren Higgins responded that China revenue percentage is expected to drop to mid-30s in the December quarter and was in the low 40s in 2024, expecting it to drop to ~30% in 2025, with service business being a lower percentage of China revenue. On export controls, he stated they won't speculate on hypotheticals until clarity is available.

Q: Harlan Sur asked about 2025 view and process control business.

A: Bren Higgins said 2025 views haven't changed much, with leading-edge demand offsetting lower China revenue. On process control, metrology and reticle inspection expected to grow next year due to design starts and yield challenges.

Q: Joe Quatrochi asked about 2-nanometer process control and sampling.

A: Richard Wallace said 2-nanometer shows higher process control intensity with more sampling at higher levels, driven by squeezed process windows and higher variability in designs. Bren Higgins added that architecture changes drive process control higher, with new defect mechanisms creating opportunities for KLA.

Q: Tom O'Malley asked about NAND market and advanced packaging.

A: Bren Higgins said NAND has a low base, expecting incremental investment in 2025 but off a low level. Richard Wallace mentioned wafer-to-wafer bonding as a technology trend for NAND process control intensity. On advanced packaging, development activity but production expected in 2026/2027, with HBM creating higher process control opportunities.