KLA CORP Q2 FY2025 earnings call

• Calendar 2024 saw KLA deliver relative growth outperformance, with revenue reaching $10.85 billion, process control growing over 12%, and services growing 15% to $2.5 billion. • The December quarter results were above the midpoint of non-GAAP guidance range, with revenue topping $3 billion for the first time. • AI is a crucial catalyst for KLA, with drivers including higher volume wafer demand, complex designs, and accelerating product cycles. • Advanced packaging revenue is expected to exceed $800 million in 2025, up from previous estimates. • The service business had 50 consecutive quarters of year-over-year growth, and quarterly free cash flow in 2024 was $757 million with significant capital returns to shareholders.

For calendar 2024, KLA's revenue grew 12% to a record $10.85 billion. The process control revenue grew by over 12%, indicating increased market share, and the services business grew 15% to $2.5 billion. In the December quarter, revenue was $3.08 billion, which was above the guidance midpoint. The gross margin was 61.7%, operating expenses were $596 million, and the operating margin was 42.3%. Advanced packaging revenue grew to approximately $500 million in 2024 and is expected to exceed $800 million in 2025. The service business grew to $667 million in the December quarter, with a 4% sequential increase and an 18% year-over-year increase.

• The WFE market is expected to grow by a mid-single-digit percentage in 2025 from the high $90 billion level in 2024. • The impact of recent U.S. export controls on KLA's 2025 revenue is estimated to be approximately $500 million plus or minus $100 million. • For the March quarter, total revenue is expected to be $3 billion plus or minus $150 million, with non-GAAP diluted EPS expected to be $8.05 plus or minus $0.60. • Full-year 2025 gross margins are expected to be approximately 62% plus or minus 50 basis points, and non-GAAP operating expenses are forecasted to increase by approximately $15 million per quarter in 2025.

• The U.S. export controls on China pose a significant risk, with an estimated $500 million revenue impact in 2025. • China's WFE market digestion could affect business growth. • Uncertainty regarding the licensing of export controls and their potential impact on business operations.

Q: What's happening to the process control part of the market this year?

A: Bren Higgins mentioned KLA's share of WFE at the N2 node is meaningfully greater than at N3, with DRAM and advanced packaging driving increased process control intensity.

Q: Linearity for revenue this year?

A: Bren Higgins stated they feel pretty good about relative stability around current business levels.

Q: Process control business growth in 2025?

A: Richard Wallace said they feel great about process control's position with leading edge dynamics favoring the business.

Q: Advanced packaging mix?

A: Bren Higgins said about 65%-70% is semi-process control versus process.

Q: China services impact?

A: Richard Wallace said service growth in 2025 is likely to be in the high single digits, below the long-term model.

Q: China sales resilience?

A: Bren Higgins said KLA's process control value and consistent investment profile make China sales more resilient.

Q: NAND and DRAM strength?

A: Richard Wallace said NAND has ticked up and DRAM demand supports AI infrastructure with slot availability issues.

Q: China impact quarterly?

A: Richard Wallace said the China impact is consistent across the year.

Q: Gross margin leverage?

A: Richard Wallace said as revenue accelerates, gross margin leverage will kick in.

Q: Foundry concentration?

A: Richard Wallace said they work with all customers, with the bulk of business with the top foundry customer on N2.

Q: China revenue contribution?

A: Bren Higgins said China revenue contribution will drop to the high 20s from the 35% level