KLA(KLAC) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for the March quarter was $2.43 billion, representing a 6$5.03 and non-GAAP EPS was $5.49, both above the midpoint of their respective guidance ranges [5][11] - Non-GAAP operating expenses were$534 million, below the expectation of $545 million due to headcount reductions and cost management [12] - Quarterly free cash flow was$926 million, leading to a 20% increase in the last 12 months' free cash flow to $3.2 billion [26] Business Line Data and Key Metrics Changes - Services revenue grew to$529 million, up 8% year-over-year and 2% sequentially, driven by an increasing installed base and customer adoption of long-term service agreements [8] - The automotive-focused business showed rapid growth, with automotive semiconductor demand increasing significantly [7] Market Data and Key Metrics Changes - Foundry/Logic is expected to account for approximately 77% of semiconductor process control systems revenue, while memory is forecasted to be around 23% [14] - In memory, DRAM is expected to represent about 85% of the segment mix, with NAND at approximately 15% [14] Company Strategy and Development Direction - The company is focused on market diversification, particularly in the automotive sector, and is working to standardize in-line defect screening methodologies [7] - KLA aims to maintain its market leadership through innovation and high levels of R&D investment, with a market share gain of approximately 300 basis points in 2022 [24] Management's Comments on Operating Environment and Future Outlook - Management noted that while there are near-term headwinds due to the global macro economy, automotive demand and legacy markets remain strong [23] - The company expects WFE investments in memory to decline by 35% to 40% as customers adjust production to align with demand [30] - Management remains confident in the long-term semiconductor industry demand and investments, despite current market challenges [32] Other Important Information - The company returned $5.1 billion to shareholders over the last 12 months, including$4.4 billion in share repurchases and $711 million in dividends [13] - KLA ended the quarter with$2.9 billion in cash and cash equivalents, and 5.95 billion in debt [29] Q&A Session Summary Question: What is the outlook for foundry WFE in 2023? - Management indicated that lead times on optical inspection remain long, and customers continue to invest in their technology roadmaps, suggesting a stable demand environment [41] Question: How does management view memory demand recovery? - Management noted that memory sales were low at 14% in the March quarter, but they expect some stabilization in the second half of the year, albeit at low levels [44] Question: What is the expected growth for service revenues this year? - Management expects service revenues to grow in the mid- to high single-digit range, despite some headwinds from export controls [96] Question: How is the company addressing the impact of export controls on shipments to China? - Management clarified that they expect to recoup over 200 million in the second half of the year due to clarifications on export controls [94] Question: What is the expected performance of the EPC business? - Management anticipates the EPC business to improve modestly in the second half but expects it to decline year-over-year more than WFE-centric businesses [60]