KLA Q1 Earnings Call Highlights

Key Points

• KLA reported record September-quarter revenue of $4.14 billion, up 13% sequentially and 29% year over year, with a company-record 46.1% operating margin and earnings above guidance.
• AI infrastructure demand is driving strong growth in leading-edge logic, memory and advanced packaging. KLA expects advanced-packaging process-control revenue to reach approximately $1.1 billion in calendar 2026, up more than 70% year over year.
• KLA projected December-quarter revenue of about $4.7 billion and raised its 2026 wafer-equipment market estimate to the mid-$150 billion range, while expecting the market to exceed $200 billion in 2027. China’s share of revenue is expected to decline to the low-20% range in 2027.

KLA NASDAQ: KLAC reported record September-quarter revenue of $4.14 billion, exceeding the midpoint of its guidance range as demand for process-control equipment remained strong across leading-edge foundry, logic, memory and advanced-packaging applications tied to artificial-intelligence infrastructure.

President and Chief Executive Officer Rick Wallace said revenue rose on continued investment in AI-related semiconductor capacity and growing process-control requirements for advanced devices and packaging. The company also projected December-quarter revenue of approximately $4.7 billion, plus or minus $200 million, signaling an acceleration in growth during the second half of calendar 2026.

“KLA's performance in the quarter was supported by continued strength in leading-edge foundry logic related to AI infrastructure investments and increasing process control intensity across leading-edge devices and advanced packaging,” Wallace said.

September-quarter results

Revenue increased 13% sequentially and 29% year over year to $4.14 billion. Non-GAAP diluted earnings per share were $1.22, while GAAP diluted earnings per share were $1.18, both above the midpoint of company guidance.

• Gross margin was 62.7%.
• Operating margin rose 240 basis points sequentially to a company-record 46.1%.
• Non-GAAP operating expenses were $688 million, including $395 million in research and development and $293 million in selling, general and administrative expenses.
• Net income was $1.60 billion, while GAAP net income was $1.55 billion.
• Cash flow from operations totaled $1.53 billion, and free cash flow was $1.34 billion.

KLA ended the quarter with $4.7 billion in cash equivalents and marketable securities and $5.95 billion in debt.

Services revenue reached $850 million, up 14% from a year earlier. Wallace said the increase reflected a larger installed base, more complex systems and customer focus on tool performance, productivity and availability amid high system utilization.

Advanced packaging and AI demand

The company said advanced packaging is becoming more important to AI infrastructure expansion as packaging roadmaps incorporate more sophisticated wafer-front-end processes. KLA expects revenue from advanced-packaging process-control systems to reach approximately $1.1 billion in calendar 2026, representing growth of more than 70% year over year.

Wallace said that growth rate would be nearly twice the growth rate of the advanced-packaging market. In response to analyst questions, Chief Financial Officer Bren Higgins said KLA expects its packaging business to continue growing faster than the market in 2027, with demand increasingly moving toward higher-sensitivity inspection systems as hybrid bonding and other advanced packaging processes expand.

KLA also expects strong memory-related demand. For the December quarter, foundry and logic are forecast to account for about 60% of Semiconductor Process Control Systems revenue from semiconductor customers, while memory is expected to account for approximately 40%. Within memory, DRAM is expected to represent about 84% and NAND about 16%.

Wallace said process-control intensity is rising in DRAM as customers seek higher yields and meet more stringent performance expectations, particularly for advanced memory products. Higgins added that some DRAM products now have process-control intensity comparable with leading-edge logic, aided by greenfield fab investment and demand for high-bandwidth memory.

Industry outlook and capacity investments

KLA raised its estimate for the calendar 2026 wafer-equipment market, including advanced packaging, to approximately the mid-$150 billion range. Higgins said customers are increasing long-term investment plans despite fab-space limitations and that KLA’s sales funnel visibility is “unprecedented,” supported by new fab investments from a broad customer base.

For calendar 2027, the company expects the wafer-equipment market to exceed $200 billion. Higgins said KLA anticipates sequential revenue growth over the next several quarters, with a more linear progression than the sharp second-half increase anticipated in 2026.

The company said it has been working with supply-chain partners for the past year to expand capacity, particularly for long-lead-time components such as optics. Higgins said average lead times are about 12 months, with some Gen4 and Gen5 product lines taking longer.

KLA is investing in manufacturing, service, engineering and applications staffing, as well as factory capacity. Higgins said capital expenditures should trend higher over the next several years, estimating annual spending of roughly $600 million to $800 million. He noted that a significant land purchase in India for a new campus was a major contributor to the quarter’s capital spending.

Management said supply availability had constrained shipments during the first half of 2026, but incremental capacity is now coming online. Wallace also noted that customers can face their own constraints, including delays in clean-room construction, materials and power availability.

Margins, China and December outlook

KLA forecast December-quarter gross margin of 62.5%, plus or minus 1 percentage point, and operating expenses of approximately $710 million. Higgins said persistently elevated memory costs for system image-processing requirements remain a margin headwind, though the company is working to reduce memory usage in its systems, lower product costs and capture value-based pricing on new capabilities.

For the December quarter, KLA expects non-GAAP diluted EPS of $1.44, plus or minus $0.11, and GAAP diluted EPS of $1.41, plus or minus $0.11. The company’s forecast assumes approximately 1.306 billion fully diluted shares, other expense of about $25 million and a planning tax rate of 14.5%.

On China, Higgins said the country’s revenue contribution is expected to decline as a percentage of total sales despite modest growth in absolute terms. He expects China to represent roughly 27% to 29% of revenue in the fourth quarter and to fall to the low-20% range in calendar 2027, as wafer-equipment spending outside China grows more rapidly.

About KLA (NASDAQ:KLAC)

KLA Corporation NASDAQ: KLAC develops process control, inspection and yield management solutions for the semiconductor and other advanced manufacturing industries. Its technologies help manufacturers identify defects, measure critical dimensions and monitor production processes to improve quality, reliability and manufacturing efficiency.

The company's product portfolio includes wafer and reticle inspection systems, metrology and measurement tools, defect review and classification systems, and software for analyzing manufacturing data.

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