KLA Corp. impresses Wall Street with 'strong Q1,' though China concerns arise
Oct. 26, 2023 9:29 AM ET
By: Chris Ciaccia, SA News Editor
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Semiconductor equipment company KLA Corp. (NASDAQ: KLAC) impressed Wall Street after it reported "strong" first-quarter results and guidance, though concerns popped up as demand from China helped aid the quarter, an event that may not be sustainable.
Citi analyst Atif Malik said the company's management team conceded that demand out of China is likely to "moderate," though they still expect it will be consistent in 2024.
"Management mentioned the company is tracking about 30 projects in China," Malik, who has a buy rating and $570 price target, wrote in an investor note.
"This year would be about $2B for [statistical process control], including about 15-20% in memory (low because of export control), 20%-30% infrastructure, and the rest in foundry and logic. Next year infrastructure is expected to be flat, memory maybe less, and foundry and logic slightly bigger in a flattish environment."
KLA Corp. ( KLAC) shares rose 1.7% in pre-market trading on Thursday. Competitors Applied Materials ( AMAT) and ASML ( ASML) were higher, while Lam Research ( LRCX) slipped.
UBS analyst Timothy Arcuri also pointed out that demand out of China helped "save the day" for the quarter. However, he caveated that and said investors should "heavily discount these revenue dollars" because even in a best case scenario, it's likely this revenue will "ultimately cannibalize dollars currently being spent elsewhere."
Stifel analyst Brian Chin said the fact that the quarterly results were "strong" and the outlook topped expectations is indicative that the downturn in the business has "bottomed," even if visibility into a recovery is still uncertain.
"This objectively qualifies as a softer landing," Chin wrote.
For the period ending September 30, KLA Corp. earned an adjusted $5.74 per share as revenue fell 11.8% year-over-year to $2.4B. The company generated $883.7M in cash flow from operations during the period, while free cash flow came in at $815.7M. It returned $636.9M in cash to shareholders during the period.
A consensus of Wall Street analysts estimated that the company would earn an adjusted $5.37 per share on $2.35B in revenue.
Looking ahead, KLA Corp. ( KLAC), which competes with other semiconductor equipment firms such as Applied Materials ( AMAT) and Lam Research ( LRCX), said it expects second-quarter revenue to be $2.45B, plus or minus $125M.
Adjusted gross margins are expected to be 61.5%, plus or minus 1%, while adjusted earnings per share are forecast to be $5.86, plus or minus 60 cents.
Malik added that KLA Corp.'s ( KLAC) management is bullish on 2025 after having gone through a few years of inventory digestion, node transition and more, with the expectation that investments in memory "will come back."
"As one of the key drivers of process control is complexity and process changes, technology inflections such as [gate all around], backside power will also benefit KLA, and customers are talking about robust end market adoption of those new technologies," Malik added. "The biggest focus is still when recovery will happen in 2024 while waiting for clear signals of demand resumption."
Arcuri, who has a neutral rating and $480 price target on KLA Corp. ( KLAC), said the report indicates why this area of the semiconductor space is "very compelling" at these prices, with the investment thesis now revolving more than ever around geopolitics. However, there is concern that KLA Corp. is "underexposed" to memory, he added. |
