KLA-Tencor Corporation’s (KLAC) first quarter earnings beat the Zacks consensus by 29 cents. Revenue beat the consensus by 3.1%. This follows significantly stronger results reported by ASML Holdings NV (ASML). We currently expect the other large equipment makers, Applied Materials (AMAT) and Lam Research (LRCX) to also report strong results.
Revenue
Revenue of $342.7 million was up 21.7% sequentially and down 35.6% year over year. The sequential strength was due to a larger section of customers increasing their capex investments, particularly in advanced technology. The technical complexity in manufacturing semiconductors and increasingly challenging yield issues are the drivers behind these investments.
Products generated 67% of total revenue, an increase of 30.1% sequentially and a decline of 43.5% year over year. Services revenue was 33% of the total, up 7.8% sequentially and down 10.7% year over year.
Orders
Orders were up strongly in the last quarter. The company reported $493 million in net bookings during the quarter, a 50% increase from Jun 2009. Other than the investment in technology upgrades, order strength is being spurred by the introduction of a major new product the Reticle Inspection business.
The foundry segment (76% of total orders) experienced broad-based strength, the memory segment started picking up (with a 13% contribution), while logic customers remained depressed (11% of total orders).
Orders by product line were—wafer inspection 32%, reticle inspection 22%, metrology 17% and solar storage high brightness LED and other non-semiconductor 7%. Services were 22% of total orders.
Around 51% of total orders came from Taiwan , followed by the U.S. with 13%, Japan 9%, Korea was 6%, rest of Asia 18% and Europe 3%.
The six-month backlog at quarter-end was $649 million.
Operating Results
The pro forma gross margin for the quarter was 52.4%, up 450 basis points (bps) from the previous quarter’s 47.9%. The gross margin benefited from higher volumes and the resultant improvement in fixed cost absorption over the larger sales base, as well as capacity improvements.
Operating expenses of $135.7 million were higher than the previous quarter’s $127.0 million. The operating margin was 12.8%, up 1,002 bps from 2.8% recorded in the previous quarter. All the three components of cost—COGS, R&D and SG&A decreased as a percentage of sales, contributing to the higher operating margin.
Excluding the impact of restructuring charges, acquisition-related expenses, stock compensation expenses and restatement-related charges, the pro forma net income was $49.5 million, or 14.4% of sales, compared to $17.3 million, or 6.2% in the previous quarter and $110.1 million, or 20.7% in the year-ago quarter. A lower tax rate was partially responsible for the stronger performance. Including the special items, the GAAP EPS was $0.12 compared to -$0.15 in the Jun quarter and $0.11 in the Sep quarter of last year.
Balance Sheet
Inventories were down 6.2%, raising inventory turns from 1.6X to 1.9X. Days sales outstanding (DSOs) dropping from 68 to around 65. The company ended with cash and short term investments of $1.39 billion, up $57.3 million during the quarter. Capital additions were $73.2 million in the quarter.
Guidance
For the second quarter, management expects revenue of $420-450 million (up 23-31%), with a little less than 30% coming from services.
Read the full analyst report on “KLAC”
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Read the full analyst report on “LRCX”
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