KLA (KLAC) Beats Q2 Earnings And Revenue Estimates, Up Y/Y

KLA Corporation (NASDAQ:KLAC) reported solid second-quarter fiscal 2019 earnings of $2.44 per share, beating the Zacks Consensus Estimate by 24 cents. The figure also jumped 23.8% year over year.

Moreover, revenues increased 14.7% from the year-ago quarter to $1.12 billion, surpassing the consensus estimate of $1.07 billion. The figure also crossed management’s guided range of $1.03-$1.11 billion.

Products’ revenues (almost 76.1% of the total revenues) increased 11.9% year over year to $852.2 million.

Services revenues (23.9% of the total revenues) increased 25% to $267.7 million.

Shipments Detail

Shipments in the fiscal second quarter were $1.09 billion, up approximately 8% sequentially and surpassed the high end of the company’s guided range of $985 million to $1.07 billion. The upside was driven primarily by $65 million worth of deliveries scheduled for the third quarter of fiscal 2019.

Memory accounted for 61% of fiscal second-quarter semiconductor shipments, 24% of foundry customers and 15% of logic. DRAM composed 38% of system shipments.

Memory capacity investment reduced due to weakness in mobile demand and a lull in data center.

Foundry and logic investments increased. This uptrend is expected to continue in 2019, with customer investments in activities related to transition to advanced nodes and the insertion of EUV lithography.

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%, 28%, 21% and 3% of shipments, respectively.

KLA’s growth momentum in demand for wafer and mask inspection products remains strong, driven by enhanced wafer cleanliness and geometry specifications in the bare wafer market. The introduction of EUV and non-EUV projects at the 7-nanometer node in the mask shops is also driving the momentum.

Further, the company is witnessing significant adoption of its recently introduced products, including the Voyager laser scanning pattern inspection and the SP7 bare wafer inspection platforms.

However, 10-15% lower shipment in China was an overhang. This is expected to persist throughout the year.

Operating Details

KLA’s non-GAAP gross margin came in 40 basis points lower than the midpoint of guidance at 63.6%, as improvement in product mix was offset by higher manufacturing and service costs.

Total operating expenses were $275 million and in line with the midpoint of its guidance.

During the quarter, $115 million was paid in the form of regular and quarterly dividends and dividend equivalents upon the vesting of restricted stocks, and $250 million of common stock was repurchased.

Balance Sheet and Other Financial Details

KLA ended the quarter with cash, cash equivalents and a marketable securities balance of $2.69 billion compared with $2.78 billion in the last reported quarter.

Cash from operations was $282.2 million, lower than $381.4 million in the last reported quarter.

Fiscal Third-Quarter Fiscal 2019 Guidance

For third-quarter fiscal 2019, KLA expects shipments within $860-$940 million. Revenues are expected between $880 million and $960 million, down from the company’s projection in the first fiscal quarter. The memory shipment pull-ins from the third fiscal quarter, together with delays in certain shipments, led to the view cut.

Memory is expected to be approximately 40% of shipments in the fiscal third quarter. Foundry should be about 50% and Logic is expected to be around 10% of the total shipments in the quarter.

The company expects non-GAAP gross margin in the range of 61-62%. Non-GAAP diluted EPS is expected in the range of $1.39-$1.71 while GAAP diluted EPS is projected within $1.35-$1.67.

Zacks Rank & Stocks to Consider

KLA currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Computer and Technology sector are Synopsys, Inc. (NASDAQ:SNPS) , Twitter, Inc. (NYSE:TWTR) and Marvell Technology Group Ltd. (NASDAQ:MRVL) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Synopsys, Twitter and Marvell is projected to be 10%, 22.05% and 9.38%, respectively.

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