Q2 2025 Earnings Summary
- KLA Corporation is experiencing strong growth in process control intensity at advanced nodes like 2-nanometer and high-bandwidth memory (HBM), which is driving market share gains and outperformance relative to the wafer fabrication equipment (WFE) market.
- The company has a strong market position in key product areas such as optical pattern inspection, e-beam inspection, and advanced packaging, leading to increased demand for its solutions and contributing to growth.
- KLA expects to maintain high gross margins between 60% to 65% as revenue accelerates, benefiting from operating leverage without needing significant incremental investments, which supports strong profitability and shareholder value.
- Revenue decline from China due to export controls: KLAC expects the impact on revenue in calendar 2025 from recent export controls in China to be approximately $500 million. This represents a decline of about 20% in their overall China business , with roughly 70% of the impact affecting their systems business.
- High customer concentration risk: KLAC's business is heavily reliant on their top foundry customer at the leading-edge nodes. There are concerns about the company's exposure if other foundries are not expanding capacity aggressively, as "the dynamics have shifted much more towards the leader who's further ahead now than they've been in quite a while".
- Potential slowdown in Services growth: The new export controls and losing access to certain fabs in China may negatively impact KLAC's high-margin Services business. Growth for Services is expected to be in the high single digits for 2025, which is below the long-term model. Additionally, KLAC faces inefficiencies as they need to move resources around due to staffing impacts from the export controls.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q3 2025 | no prior guidance | $3B ± $150M | no prior guidance |
Non-GAAP Gross Margin | Q3 2025 | no prior guidance | 62% ± 1pp | no prior guidance |
Non-GAAP Operating Expenses | Q3 2025 | no prior guidance | $585M | no prior guidance |
Non-GAAP Other Income and Expense (Net) | Q3 2025 | no prior guidance | $36M expense | no prior guidance |
Tax Rate | Q3 2025 | no prior guidance | 13.5% | no prior guidance |
GAAP Diluted EPS | Q3 2025 | no prior guidance | $7.77 ± $0.60 | no prior guidance |
Non-GAAP Diluted EPS | Q3 2025 | no prior guidance | $8.05 ± $0.60 | no prior guidance |
Fully Diluted Share Count | Q3 2025 | no prior guidance | 133.3M shares | no prior guidance |
Revenue Mix | Q3 2025 | no prior guidance | Foundry/Logic: 73%, Memory: 27% (DRAM: 75%, NAND: 25%) | no prior guidance |
Sequential Operating Expense Increases | Q3 2025 | no prior guidance | +$15M per quarter | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q2 2025 | $2.95B ± $0.15B | $3,076.851 million | Met |
Gross Margin | Q2 2025 | 61.5% ± 1% | 60.3% (derived from Revenue $3,076,851- COGS $1,221,461) | Missed |
Operating Expenses | Q2 2025 | ~$580M | $613.238M (SG&A $267,081+ R&D $346,157) | Missed |
EPS - Diluted (GAAP) | Q2 2025 | $7.45 ± $0.60 | $6.16 | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Process control intensity at advanced nodes | Continues to drive KLA's growth at 2nm and 3nm, with architectural shifts (GAA) and EUV adoption increasing process control requirements. | Higher intensity at N2 vs. N3, driven by larger die, more defect challenges, and stronger customer demand. | Consistent focus; intensity keeps rising with each node, reinforcing KLA's long-term growth story. |
Advanced packaging | Strong demand from AI, CoWoS, HBM integration; revenue growing above $500 million with emphasis on reliability and yield improvements. | Revenue expected to exceed $800 million; driven by AI, 2.5D/3D packaging, and heterogeneous chip integration. | Sustained focus, with increasing complexity and customer pull; poised to remain a major growth driver. |
High-bandwidth memory (HBM) | Highlighted as a core opportunity due to larger die, limited redundancy, and future hybrid bonding adoption; seen as a component of memory recovery in 2025+. | Key driver of growth and process control intensity, especially for AI/HPC workloads; intensity in DRAM rising from 9–10% to 10–11.5%. | Continued importance, with sentiment growing more positive as AI demand expands HBM usage. |
Leading-edge foundry and logic investments | Major source of growth due to 2nm and 3nm ramps; expected to offset weaker memory in near term. | Strong momentum at N2; share of WFE 90–100 bps higher at N2 vs. N3; foundry/logic 73% of semi revenues. | Remains crucial for KLA’s outperformance, with continued high concentration at the most advanced node. |
China export controls and revenue risks | Emphasized uncertainty around future controls, though prior quarters generally waited for official rulings; China market share previously affected by loss of access. | Estimated $500M ± $100M impact for 2025, 70% on systems; China revenue to decline from 41% to 29%. | Increasingly cautious outlook; a key risk but partly offset by leading-edge demand elsewhere. |
Services business growth trends | Consistent double-digit YoY growth each quarter; driven by contract attach rates 95%, extended tool lifetimes, and stable installed base. | Services up 15% YoY; $667M revenue in Dec. quarter; expecting high single-digit growth in 2025. | Steady expansion despite China headwinds; long-term driver via larger installed base and high attach rates. |
Gross margin performance and operating leverage | Historically in 60–65% range; mix shifts (services vs. systems) and product blend (Gen4, Gen5) create quarterly variability. Operating leverage supported by previous R&D investments. | Gross margin 61.7%; targeting 62% ± 50bps for 2025; 40–50% incremental operating margin on revenue growth. | Stable margins, with slight improvement as FPD revenue phases out. Operating leverage model remains intact. |
Customer concentration risk at leading-edge nodes | Previously noted that one major foundry often dominates leading-edge spending; no major change in capital intensity from concentration. | Addressed top foundry dominance at N2; some analyst concerns about risk if that leading player struggles. | Ongoing discussion; concentration remains high, but no major strategic shift. |
Limited growth in memory (DRAM, NAND) | Memory viewed as lagging foundry/logic; 2025 was expected to see some DRAM revival (HBM) but still weaker for NAND. | Modest improvement in NAND (low base) and no major capacity rush in DRAM aside from advanced nodes and HBM. | Still subdued but with pockets of optimism around advanced DRAM (HBM). |
AI-driven demand for advanced technologies | Viewed as a central growth driver for advanced nodes, packaging, and HBM; KLA’s AI-based product enhancements also highlighted. | Considered a crucial catalyst; fueling larger wafers, more complex designs, advanced packaging, and HPC chip demand. | High-profile driver; remains a pivotal theme supporting advanced node investments and packaging. |
Supply constraints and long lead times | Earlier quarters noted improvements in supply chain constraints; lead times pulled in except for certain high-demand tools (Gen4, Gen5). | Some remaining supply constraints; discussions focus on slot availability for leading-edge demand. | Less severe but still a factor for key products; improving trend overall. |
Market share gains vs. WFE | KLA emphasizes leadership in advanced inspection, expecting consistent outperformance in process control vs. overall WFE. | KLA outpacing WFE by 500–700 bps; expects low-to-mid teens process control growth vs. mid-single-digit WFE. | Sustained outperformance due to advanced node focus and strong product portfolio. |
PCB market weakness | Not consistently mentioned; Q4 2024 noted sluggish PCB orders, tied to consumer electronics and overcapacity. | Relatively soft demand tied to mobility/capacity; overshadowed by semicap growth. | Persistently weak, overshadowed by stronger advanced node activities. |
Exit from flat panel display business | Exit was announced earlier; shipments scheduled to end by Q1 2025, with charges taken in Q3 2024. | Manufacturing ends this quarter; 20 bps margin benefit from ceasing shipments. | Concluded exit, boosting margins and sharpening focus on core businesses. |
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China Sales Impact
Q: How will China export controls affect your sales?
A: We expect our China business to decline by around 20% year-over-year due to export restrictions, reducing China's share of our revenue from 41% to about 29% in 2025. This includes a $500 million impact from new regulations. -
Process Control Growth
Q: Will your process control business outgrow WFE again in 2025?
A: While we don't guide for the year, we're confident in our position. Factors like increased scaling at leading-edge nodes and higher process control intensity in advanced DRAM and HBM should drive our process control growth, potentially outpacing WFE growth as we've done historically. -
Revenue Stability
Q: Should we expect revenue to be stable at $3 billion per quarter?
A: We anticipate revenue to hover around $3 billion per quarter, plus or minus, at least for the first half of the year. We'll see how the second half unfolds. -
Advanced Packaging Growth
Q: Can you explain the 60% growth in advanced packaging?
A: Our advanced packaging business is expected to grow by 60% this year, driven mainly by inspection and metrology solutions for 2.5D packaging technologies like CoWoS and HBM. The mix is about 65-70% semiconductor process control versus process. We're also positioned well for future 3D architectures, which are increasing in complexity. -
Services Impact from China
Q: How are China export controls affecting your services business?
A: The export controls lead to immediate headwinds in our services as we lose access to fabs. We expect services growth to be in the high single digits this year, below our long-term model. However, over time, capacity added elsewhere could offset this impact. -
Gross Margin Outlook
Q: What is your gross margin expectation moving forward?
A: We expect gross margins to remain around 62%, plus or minus 50 basis points. As revenue accelerates, we anticipate maintaining margins within the 60% to 65% range, benefiting from a richer revenue mix despite some product mix considerations. -
NAND and DRAM Demand
Q: Are you seeing improvements in NAND and DRAM markets?
A: In NAND, we've seen a slight uptick and expect modest growth off low levels, but not significant in 2025. For DRAM, demand driven by AI infrastructure is growing, and we're in discussions with customers about capacity, but no short-term changes in spending plans. -
Foundry/Logic Mix
Q: Why is Foundry/Logic revenue mix declining in guidance?
A: The mix shifts slightly due to memory being a higher percentage in 2025 than in 2024. Some non-N2, N3 customers contributed in December but aren't expected in the upcoming quarter, affecting the Foundry/Logic percentage. -
Process Control Intensity at N2
Q: How does process control intensity change from N3 to N2?
A: At the N2 node, we're seeing higher process control intensity and increased share of WFE compared to N3. We believe our share has improved by approximately 90 to 100 basis points, trending positively. -
Deferred Revenue Decline
Q: Why did RPO decline by $900 million this quarter?
A: RPO decreased by about $900 million; half was due to de-bookings from December 2 regulations affecting China, and the other half resulted from higher shipment levels in the quarter. -
EPC Business Outlook
Q: What is the outlook for your EPC business this year?
A: EPC is expected to grow by mid-single digits. We're winding down our flat panel display business, which impacts revenue, but growth in semiconductor products like SPTS driven by advanced packaging remains strong. -
China Revenue Contribution
Q: What is the expected China revenue share in the March quarter?
A: We expect China's revenue contribution to decrease to the high 20% range, possibly up to 30%, down from 35% due to export restrictions and revenue recognition policies. -
Resilience in China Sales
Q: Why are your China sales more resilient than peers?
A: Our consistent investment in process control helps maintain steady sales in China. We're essential in qualifying processes and aiding yield learning, leading to continuous adoption even when capacity-centric peers see fluctuations. -
Licenses as a Swing Factor
Q: Could licenses mitigate second-half revenue impact?
A: While not built into our plan, potential licenses could reduce the impact of export controls, representing a swing factor that might support second-half growth if approved.
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