KLA Corporation, the leading provider of semiconductor process control and yield management solutions, has reported its financial results for the third quarter of fiscal year 2024, showcasing its continued market dominance and strong execution amidst an evolving industry landscape.

Financials

For the full fiscal year 2023, KLA reported annual revenue of $9.81 billion and net income of $2.76 billion, demonstrating its ability to consistently deliver robust financial performance. The company's annual operating cash flow reached $3.31 billion, while free cash flow stood at $3.03 billion, underscoring its strong liquidity position and cash generation capabilities.

In the third quarter of fiscal 2024, KLA reported revenue of $2.57 billion, up 9.1% year-over-year, and non-GAAP diluted earnings per share of $6.60, exceeding analyst expectations. The company's gross margin for the quarter was 62.5%, at the upper end of the guidance range, driven by a richer product mix and higher revenue volumes.

Business Overview

KLA's Semiconductor Process Control segment, which accounts for the majority of its revenue, saw sales of $2.10 billion in the third quarter, down 3% year-over-year. This decline was primarily due to the broad, macro-driven slowdown that has impacted semiconductor demand, leading to industry-wide inventory rebalancing and reduced capital expenditure plans by memory device manufacturers and foundry/logic customers. However, the company's Specialty Semiconductor Process and PCB, Display and Component Inspection segments remained relatively flat, demonstrating the diversification of KLA's business.

Geographically, KLA continues to generate a significant portion of its revenue from Asia, with China, Taiwan, and Korea accounting for a combined 69% of total revenue in the third quarter. The company's management noted that while China revenue is expected to be relatively flat on a half-to-half basis, the mix is shifting, with infrastructure investments, logic/foundry, and memory all contributing to the overall performance.

Advanced Packaging Market

One of the key highlights of the quarter was KLA's continued progress in the advanced packaging market. The company raised its estimate for the total advanced packaging revenue opportunity to more than $500 million in calendar year 2024, up from the previous estimate of $400 million. This growth is driven by the increasing complexity and demand for advanced packaging solutions, which are critical enablers for the rise of artificial intelligence (AI) and other emerging technologies.

Services Business

KLA's services business also delivered strong performance, growing 14% year-over-year to $614 million in the third quarter. The company attributed this growth to steadily improving utilization rates across all business segments, as well as the increasing number of systems coming off warranty and transitioning into service contracts.

Outlook

Looking ahead, KLA provided guidance for the fourth quarter of fiscal 2024, expecting total revenue to be $2.75 billion, plus or minus $150 million. The company forecasts gross margin to be in the range of 61.5%, plus or minus 1 percentage point, as higher revenue volumes are expected to offset a weaker product mix. KLA also anticipates operating expenses to be approximately $565 million as it continues to invest in R&D and scaling to support the expected revenue growth.

The company remains optimistic about the industry's long-term prospects, with the return of scaling and increasing complexity solidifying its confidence in the growing importance of process control in enabling technology advancements. KLA expects the wafer fab equipment (WFE) market to be in the mid-$90 billion range for the full calendar year 2024, with the second half of the year expected to be stronger than the first half.

Beyond 2024, KLA is also bullish on the memory market, anticipating a return to growth in 2025, driven primarily by investments in DRAM, including high-bandwidth memory (HBM), as well as improvements in the supply-demand environment. The company believes that the increasing complexity of memory devices, such as the use of EUV technology and the challenges associated with bonding and packaging, will drive higher process control intensity, presenting significant opportunities for KLA.

In the foundry/logic segment, KLA is confident in its ability to maintain its relative performance, citing the continued scaling of technology and the growing complexity of designs, which are driving increased process control intensity. The company also expects its advanced packaging business to be a key growth driver, with the opportunity reaching over $500 million in calendar year 2024.

Liquidity

KLA's strong financial position, with $4.5 billion in cash, cash equivalents, and marketable securities, and a flexible debt structure, provides the company with the resources to invest in innovation, pursue strategic initiatives, and return capital to shareholders. The company's focus on operational excellence, customer success, and delivering innovative solutions has been a key driver of its industry-leading financial and free cash flow performance.

Conclusion

Overall, KLA's third quarter results and forward-looking guidance demonstrate the company's ability to navigate the evolving semiconductor industry landscape, capitalize on emerging trends, and maintain its position as a leading provider of process control and yield management solutions. Investors can expect KLA to continue leveraging its technological expertise, diversified product portfolio, and strong financial position to drive long-term growth and shareholder value.