Name: KLA CORP Q1 2026 Earnings Call
Start: 2025-10-29T21:00:00.000Z

Executive Summary

Solid beat with revenue $3.21B and non-GAAP EPS $8.81, both above guidance midpoints; non-GAAP gross margin reached 62.5% on favorable mix and manufacturing efficiencies .
September quarter strength underpinned by AI-driven investments and rising process control intensity; services revenue grew 16% YoY to ~$745M and free cash flow topped ~$1.07B .
December (Q2 FY26) guidance implies modest sequential growth: revenue $3.225B ±$150M; non-GAAP GM 62.0% ±1.0; non-GAAP EPS $8.70 ±$0.78; mix shifting to ~59% foundry/logic and ~41% memory in semi process control systems, with DRAM ~78% of memory .
Key 2026 setup: management more constructive on CY26 growth with broader spending; export controls expected to reduce revenue by ~$300–$350M through Dec and CY26 combined, but KLA still expects to outperform WFE given advanced packaging and DRAM/HBM intensity .

What Went Well and What Went Wrong

What Went Well
- “Strong all-around” quarter above guidance midpoints; double-digit YoY growth in revenue and EPS; positioned to benefit from AI infrastructure buildout across leading-edge logic, memory and advanced packaging .
- Non-GAAP gross margin of 62.5% (50 bps above guide midpoint), driven by stronger product mix and manufacturing efficiencies; non-GAAP operating margin 43.2% .
- Services momentum and cash generation: services up 16% YoY to ~$745M, free cash flow ~$1.07B; LTM FCF ~$3.9B (31% margin) and capital returns ~$799M in the quarter .
What Went Wrong
- Tariff headwinds persist at ~50–100 bps GM impact; mix guides non-GAAP GM modestly lower q/q to ~62% ±100 bps for December .
- China normalization and export controls: China was elevated at 39% in September and is guided down to high-20s % in December; export controls reduce revenue by ~$300–$350M across Dec and CY26 .
- Advanced packaging carries more dilutive gross margin vs corporate average (though expected to become less of a headwind over time as capability mix rises) .

Financial Results

Metric	Q3 FY2025	Q4 FY2025	Q1 FY2026
Revenue ($USD Billions)	$3.06	$3.175	$3.210
GAAP Diluted EPS ($)	$8.16	$9.06	$8.47
Non-GAAP Diluted EPS ($)	$8.41	$9.38	$8.81
Non-GAAP Gross Margin %	—	—	62.5%
Cash from Operations ($B)	$1.07	$1.16	$1.16
Free Cash Flow ($B)	$0.99	$1.06	$1.07

Q1 FY2026 YoY comparison

Revenue: $3.210B vs $2.842B (+13%) .
GAAP EPS: $8.47 vs $7.01 .
Non-GAAP EPS: $8.81 vs $7.33 .

Actual vs S&P Global Consensus (estimates marked with *)

Metric	Q3 FY2025 Estimate*	Q3 Actual	Q4 FY2025 Estimate*	Q4 Actual	Q1 FY2026 Estimate*	Q1 Actual
Revenue ($B)	3.01*	3.063	3.080*	3.175	3.170*	3.210
Primary EPS ($)	8.085*	8.41	8.553*	9.38	8.617*	8.81

Primary EPS – # of Estimates: Q3 21*, Q4 22*, Q1 21*. Revenue – # of Estimates: Q3 20*, Q4 21*, Q1 20*. Values retrieved from S&P Global.

Segment breakdown (Revenue)

Segment ($USD Millions)	Q1 FY2025	Q1 FY2026
Semiconductor Process Control	2,575.2	2,899.4
Specialty Semiconductor Process	128.3	119.8
PCB and Component Inspection	138.0	189.5
Total	2,841.5	3,209.7

Select KPIs and balance sheet

KPI	Q1 FY2025	Q1 FY2026
Product Revenue ($M)	2,197.4	2,465.0
Service Revenue ($M)	644.2	744.7
Cash & Equivalents ($M)	1,977.2	1,946.2
Marketable Securities ($M)	2,526.9	2,737.4
Capital Returns ($M, quarter)	765.5	799.1

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Total Revenue	Q1 FY2026 (from Jul-31) vs Q2 FY2026 (current)	$3.15B ±$150M (Q1 guide)	$3.225B ±$150M (Q2 guide)	Raised sequential midpoint
GAAP Gross Margin	Q1 FY2026 vs Q2 FY2026	60.7% ±1.0%	60.8% ±1.0%	Maintained/slight uptick
Non-GAAP Gross Margin	Q1 FY2026 vs Q2 FY2026	62.0% ±1.0%	62.0% ±1.0%	Maintained
GAAP EPS	Q1 FY2026 vs Q2 FY2026	$8.28 ±$0.77	$8.46 ±$0.78	Slightly raised midpoint
Non-GAAP EPS	Q1 FY2026 vs Q2 FY2026	$8.53 ±$0.77	$8.70 ±$0.78	Slightly raised midpoint
Operating Expenses	Q2 FY2026	—	~$635M (non-GAAP)	New detail
OI&E (net)	Q2 FY2026	—	~$32M expense	New detail
Effective Tax Rate	Q2 FY2026	—	~14%	New detail
Segment Mix (Semi PC systems)	Q2 FY2026	—	Foundry/Logic ~59%, Memory ~41%; DRAM ~78% of memory	New detail
Dividend	Payable Dec 2, 2025	$1.90/sh declared Aug 7 (maintained run-rate)	$1.90/sh declared Nov 6	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 FY25, Q4 FY25)	Current Period (Q1 FY26)	Trend
AI/Technology initiatives	“Leadership in process control is a key enabler of today's leading-edge AI investments” (Q3 PR) ; “unique opportunity within semi-cap for AI buildout” (Q4 PR)	CEO: AI infrastructure “profound change”; KLA uniquely positioned across logic, memory, advanced packaging	Strengthening
Advanced Packaging	Evolving opportunities highlighted (Q3/Q4 PRs)	KLA AP SAM ~$11B CY25; KLA AP revenue CY25 >$925M, ~+70% YoY; share ~6% and growing; margin currently dilutive but improving over time	Accelerating
DRAM/HBM momentum	Noted demand backdrop	DRAM process control intensity rising; EUV adds ~1pt, HBM another ~1pt to intensity; 2025 strong DRAM year, expected growth into 2026	Improving
China/Export controls	BIS risks flagged in PRs	China elevated at 39% in Sep; guided to high-20s in Dec; export controls impact ~$300–$350M through Dec and CY26	Normalizing lower
Gross margin/tariffs	GM guided in PRs	Non-GAAP GM 62.5%; tariff headwind ~50–100 bps; Dec GM guided ~62% ±100 bps	Mixed (headwind persists)
Lead times/backlog	—	Lead times normalized 7–9 months; ceased RPO disclosure	Stabilizing
Services growth	—	Services +16% YoY (Sep); 12–14% growth targeted in 2025 and similar in 2026	Stable/positive

Management Commentary

CEO Rick Wallace: “KLA produced a strong all-around September quarter... results reflect double-digit year-over-year revenue and EPS growth... AI infrastructure buildout represents a profound change... KLA is in a unique position to benefit... across leading-edge foundry/logic, memory, and advanced packaging” .
CFO Bren Higgins: “Gross margin was 62.5%, 50 bps above the midpoint of guidance, driven by a stronger product mix and manufacturing efficiencies... non-GAAP operating margin was 43.2%” .
On market outlook: “We continue to expect mid to high single digit growth in WFE... and remain on track to outperform... Advanced Packaging market is expected to grow >20% YoY” .
On China/export controls: “Revenue impact on the December and calendar 2026 to be approximately $300–$350 million” .

Q&A Highlights

WFE and 2026 trajectory: Management more constructive on CY26 growth with broader spending; H1 CY26 roughly flat to modestly up vs H2 CY25, accelerating in H2 CY26 .
Mix shift and China: China elevated at 39% in Sep; guided to high-20s % in Dec; leading-edge up in Dec, partially offset by lower China; export controls affect Dec minimally but are lost business longer term .
DRAM/HBM intensity: EUV insertion adds ~1pt to process control intensity; HBM requirements add ~1pt; 2025 strong DRAM year for KLA with growth into 2026 expected .
Margins: Tariffs continue to be a ~50–100 bps headwind; packaging is GM-dilutive near term; long-run incremental operating margin target 40–50% remains intact .
Operations: Lead times normalized to 7–9 months; backlog (RPO) disclosure discontinued to align with peers .

Estimates Context

KLAC beat S&P Global consensus on revenue and EPS in Q3, Q4 FY2025 and Q1 FY2026. Q1 FY2026: Revenue $3.210B vs $3.170B*; EPS $8.81 vs $8.62*; Q4 FY2025: Revenue $3.175B vs $3.080B*; EPS $9.38 vs $8.55*; Q3 FY2025: Revenue $3.063B vs $3.011B*; EPS $8.41 vs $8.08* . Values retrieved from S&P Global.
Guidance for Q2 FY2026 suggests modest sequential growth and sustained mid-60s non-GAAP GM range, which, coupled with stronger DRAM/HBM and Advanced Packaging commentary, may support upward revisions to mix assumptions (DRAM share, AP contribution) and modestly higher EPS depending on opex trajectory and tariffs .

Key Takeaways for Investors

AI-driven process control intensity and Advanced Packaging expand KLA’s SAM and underpin relative outperformance vs WFE through 2025–2026 .
Near-term beats continue, with Q1 FY2026 above guidance midpoints; Q2 guide implies modest growth with stable non-GAAP GM around 62% .
DRAM/HBM is a growing tailwind; management expects DRAM growth to continue into 2026 as intensity and capacity needs rise .
China normalization and export controls are headwinds (~$300–$350M through Dec/CY26), but mix shift to leading-edge and memory offsets near-term .
Tariff headwinds (~50–100 bps) persist; watch for mitigation efforts and AP margin trajectory as AP scales .
Services growth (12–14% in 2025; similar in 2026) and robust FCF (~$1.07B in Q1; LTM ~$3.9B) support dividends ($1.90/sh) and repurchases .
2026 setup constructive: broader customer spending, normalized lead times (7–9 months), and slot discipline support visibility; look for acceleration in H2 CY26 .

Notes:

All estimates marked with * are Values retrieved from S&P Global.

Sources:

Press release and 8-K (Item 2.02) for Q1 FY2026 results, guidance, financial statements, segments, and reconciliations .
Earnings call transcript for Q1 FY2026 management commentary, margins, mix, tax, opex, and outlook .
Prior quarter press releases for trend analysis and prior guidance .
Dividend press release within the quarter .

KLA CORP (KLAC)·Q1 2026 Earnings Summary