KLA Corporation KLAC reported first-quarter fiscal 2025 non-GAAP earnings of $7.33 per share, beating the Zacks Consensus Estimate by 4.27%. The figure jumped 27.7% year over year.

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Revenues increased 18.5% year over year to $2.84 billion, surpassing the Zacks Consensus Estimate by 3.11%. Sequentially, revenues saw double-digit growth.

KLA shares were up 0.53% in pre-market trading. The company’s shares have underperformed the Zacks Computer & Technology sector year to date. While KLAC shares have appreciated 19%, the Computer & Technology sector has returned 27.6%.

KLAC Rides on Strong Semiconductor Sales

In terms of reportable segments, Semiconductor Process Control revenues (90.6% of total revenues) increased 20.6% year over year to $2.58 billion. Sequentially, the segment experienced 12% growth.

Foundry & Logic accounted for about 80%, while Memory constituted about 20% of Semiconductor Process Control revenues. Within memory, approximately 85% was from DRAM.

Specialty Semiconductor Process revenues (4.5% of total revenues) were $128.3 million, down 1.3% year over year. Revenues increased 6% on a sequential basis. 

PCB and Component Inspection revenues (4.9% of total revenues) increased 1.4% year over year to $138 million. Sequentially, revenues were down 1%.

KLAC Top Line Benefits From Strong Product Growth

Product revenues (which accounted for 77.3% of total revenues) increased 19.6% year over year to $2.2 billion. Service revenues (22.7% of total revenues) increased 15% year over year to $644.2 million.

In terms of major products, Wafer Inspection and Patterning Systems (including metrology and reticle inspection) accounted for 48% and 20%, respectively, of KLA’s total revenues for the fiscal first quarter.

Wafer Inspection revenues increased 36% year over year and 17% sequentially to $1.37 billion. Patterning revenues were up 6% year over year and 6% sequentially to $577 million.

In terms of regional breakdown of revenues, China and Taiwan led revenue contributions with 42% and 16%, respectively. North America followed with 18%, while Korea and Japan accounted for 8% and 7%, respectively. Europe accounted for 5% and the remaining 4% came from the rest of Asia.

KLA’s Operating Margins Expand Y/Y

In first-quarter fiscal 2025, the non-GAAP gross margin was 61.2%, 70 basis points (bps) above the lower end of the guidance range. 

Research and development (R&D) expenses increased 3.8% year over year to $323.1 million. As a percentage of sales, R&D expenses decreased 160 bps year over year to 11.4%.

Selling, general and administrative (SG&A) expenses increased 4.8% year over year to $251 million. As a percentage of sales, SG&A expenses decreased 120 bps year over year to 8.8%.

Non-GAAP operating expenses were $560 million, up 1.27% sequentially. Non-GAAP operating expenses comprised $322 million in R&D and $238 million in SG&A expenses.

The fiscal first-quarter non-GAAP operating margin was 41.5%, up 122 bps sequentially.

KLAC Balance Sheet Shows Strong Cash Flow

As of Sept. 30, 2024, cash, cash equivalents and marketable securities totaled $4.63 billion, compared with $4.5 billion as of June 30, 2024.

Long-term debt at the end of the fiscal first quarter was $6.63 billion, unchanged from the figure reported in the previous quarter.

Cash flow from operating activities was $995.2 million for the reported quarter, up from $892.6 million in the prior quarter. Free cash flow was $964.8 million for the fiscal first quarter.

During the fiscal first quarter, KLAC paid out $198 million in dividends and repurchased $567 million worth of shares.

KLAC Q2 Fiscal 2025 Guidance

For second-quarter fiscal 2025, revenues are expected to be $2.95 billion, plus/minus $150 million. The Zacks Consensus Estimate for revenues is pegged at $2.86 billion, indicating 14.96% growth year over year.

KLA expects non-GAAP earnings of $7.75 per share, plus/minus 60 cents. The Zacks Consensus Estimate for non-GAAP earnings is pegged at $7.44 per share, suggesting year-over-year growth of 20.78%.

KLA expects a non-GAAP gross margin of 61.5%, plus/minus 1%. Operating expenses are expected to be $580 million in the December quarter.

KLAC’s Zacks Rank & Stocks to Consider

Currently, KLA carries a Zacks Rank #4 (Sell).

Arista Networks ANET, Astera Labs ALAB and Audioeye AEYE are some better-ranked stocks that investors can consider in the broader Zacks Computer & Technology sector.

Arista Networks sports a Zacks Rank #1 (Strong Buy) at present, while Astera Labs and Audioeye carry a Zacks Rank #2 each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arista Networks’ shares have appreciated 68.2% year to date. ANET is set to report its third-quarter 2024 results on Nov. 7.

Astera Labs shares have expanded 18.2% year to date. ALAB is set to report its third-quarter fiscal 2024 results on Nov. 4.

Audioeye shares have increased 311.3% year to date. AEYE is set to report its third-quarter 2024 results on Nov. 7.

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