Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- KLA Corp (KLAC, Financial) reported June quarter revenue, gross margin, and EPS all above their respective guidance midpoints.
- The company saw strong customer demand and solid execution, with signs of a strengthening market environment.
- KLA Corp (KLAC) raised its estimate for advanced packaging revenue to more than $500 million for 2024, up from a previous estimate of $400 million.
- The service business grew to $614 million in the June quarter, a 4% sequential increase and 14% year-over-year growth.
- Quarterly free cash flow was $832 million, with a free cash flow margin of 31% over the last 12 months.
Negative Points
- Operating expenses were high at $553 million, including $324 million in R&D and $229 million in SG&A.
- Gross margin for the September quarter is forecasted to be lower at 61.5%, plus or minus one percentage point, due to weaker anticipated product mix.
- The company faces risks and uncertainties that could impact forward-looking statements, as highlighted in their disclosures.
- The memory market is expected to see a slower recovery, with less bullish expectations for flash memory into 2025.
- The revenue guidance range for the September quarter is wider than usual, indicating potential variability and uncertainty in revenue projections.
Q & A Highlights
Q: TSMC mentioned higher tapeouts for 2nm compared to 3nm and 5nm. What does this mean for KLA's outlook and WFE market?
A: Rick Wallace, CEO: We are having conversations with customers about the radical world and inspection for these verticals. We expect 2nm to impact 2025 and 2026. Strengthening in 3nm also contributes to our positive outlook. AI-driven larger die sizes and advanced packaging demands are increasing process control intensity, supporting our growth expectations.
Q: Can you clarify the $500 million advanced packaging revenue estimate? Is it for the full year or an exit run rate?
A: Rick Wallace, CEO: The $500 million estimate is for the business level in 2024, significantly above last year's $300 million. We expect this growth to continue into the first half of next year, driven by customer interest in front-end capabilities applied to packaging.
Q: What are your initial thoughts on memory market recovery in 2025, especially for DRAM and HBM?
A: Rick Wallace, CEO: 2024 is a transition year for memory, with growth expected in 2025. DRAM and HBM are key drivers. We see financial performance improvements translating into investments next year. Flash market recovery is less bullish, but overall, we expect growth led by DRAM and HBM.
Q: How do you see KLA's relative performance with increased memory mix?
A: Rick Wallace, CEO: We feel confident in our relative performance. DRAM and HBM require advanced process control, increasing our share of wallet. DRAM's process control intensity has improved with EUV introduction, and we expect this trend to continue, supporting our positioning into next year.
Q: What is your outlook for sequential growth into the December quarter and 2025?
A: Bren Higgins, CFO: We expect sequential growth into the December quarter, with high single-digit to low double-digit growth for the year. The funnel of opportunities into next year looks strong, supporting our outlook. We see incremental bullishness in the market.
Q: How do you view the impact of high NA on process control and its timing?
A: Rick Wallace, CEO: High NA will continue scaling, requiring smaller defect detection and new radical qualification challenges. We don't see any acceleration in timing; if anything, there's potential for delay in HVM implementation. Existing lithography tools will likely extend their life due to cost-effectiveness.
Q: What are your expectations for China revenue and its impact on gross margins?
A: Bren Higgins, CFO: We expect China revenue to be relatively flat half-to-half. For next year, we see consistent business levels. Gross margin variability is driven by product mix rather than customer or region mix. We expect gross margins to remain around the mid-61% range.
Q: Can you provide more details on the advanced packaging market and KLA's positioning?
A: Rick Wallace, CEO: The advanced packaging market is growing due to AI and packaging shortages. Customers are pulling us into packaging conversations, driving demand for our front-end capabilities. We expect this trend to continue, with significant growth opportunities in both process control and process tools.
Q: How do you view the potential impact of new U.S. export controls on your China business?
A: Rick Wallace, CEO: We can't speculate on potential new regulations. We will comply with all laws and support our customers within regulatory confines. Our business is driven by leading-edge investments, which are less impacted by legacy market fluctuations.
Q: What is your outlook for bookings and RPO trends?
A: Bren Higgins, CFO: Our RPO was slightly down quarter-on-quarter but remains strong. We expect the order profile to improve over the next few quarters, supporting our growth outlook. The funnel of opportunities looks promising, indicating a positive trend in bookings.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
