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KLA CORP (KLAC)·Q2 2025 Earnings Summary

Executive Summary

  • Delivered solid Q2 FY25: revenue $3.08B at the upper end of guidance; non-GAAP EPS $8.20 near the upper end; GAAP EPS $6.16 was reduced by a $239.1M non-cash impairment ($1.76/share) tied to the PCB business .
  • Mix and execution supported profitability: non-GAAP gross margin was 61.7% and operating margin 42.3% (company presents discussion on a non-GAAP basis unless noted) .
  • Outlook: Q3 FY25 revenue guided to $3.0B ± $150M; non-GAAP GM 62% ±1 pt; non-GAAP EPS $8.05 ± $0.60; tax ~13.5% through June, ~14% in 2H CY25 with Pillar 2 .
  • Key catalysts and risks: accelerating leading-edge/AI/HPC and advanced packaging (now expected to exceed $800M in CY25) offsetting U.S. export-control headwinds (2025 revenue impact estimated ~$500M ± $100M; RPO down ~$900M from de-bookings) .

What Went Well and What Went Wrong

What Went Well

  • “The quarter revenue topped $3 billion for the first time” with non-GAAP EPS ($8.20) finishing at the upper end of guidance, underscoring healthy execution despite late-quarter export changes .
  • Advanced packaging momentum: “approximately $500 million in calendar 2024 and … expected to exceed $800 million in calendar 2025,” as customers pull front-end-class process control into packaging to manage higher cost-of-failure .
  • Confident market setup: “We expect the WFE market to grow by a mid-single-digit percentage in 2025…[and] continue to deliver growth outperformance” driven by higher process control intensity at N2 and HBM .

What Went Wrong

  • Non-cash impairment: $239.1M goodwill/intangibles in Q2 (PCB business deterioration) reduced GAAP EPS by $1.76; management excluded it from non-GAAP as non-core to ongoing operations .
  • Export controls: company estimates ~$500M ± $100M 2025 revenue impact, ~70% in systems; caution due to licensing delays; RPO fell ~$900M, ~half from de-bookings tied to the Dec 2 rules .
  • China normalization: share of revenue expected to decline to ~29% in 2025 (from 41% in 2024 exit), implying ~20% y/y dollar decline in China as mature-node digestion unfolds .

Financial Results

Headline metrics vs prior periods and (if available) estimates

MetricQ2 FY24Q1 FY25Q2 FY25Consensus (S&P Global)
Revenue ($B)$2.49 $2.84 $3.08 N/A (S&P Global consensus unavailable)
GAAP Diluted EPS$4.28 $7.01 $6.16 N/A
Non-GAAP Diluted EPS$6.16 $7.33 $8.20 N/A
Gross Margin % (non‑GAAP)N/A61.2% 61.7% N/A
Operating Margin % (non‑GAAP)N/A41.5% 42.3% N/A

Note: Consensus from S&P Global was unavailable due to access limits at the time of this analysis. We will update when available.

Revenue mix and cash flow KPIs

KPI ($USD Millions)Q2 FY24Q1 FY25Q2 FY25
Product Revenue$1,921.8 $2,197.4 $2,409.5
Service Revenue$564.9 $644.2 $667.4
Cash from Operations$622.2 $995.2 $849.5
Free Cash Flow$545.4 $934.8 $757.2
Capital Returns (Dividends+Buybacks)$634.7 $765.5 $876.9

Segment revenue

Segment ($USD Millions)Q2 FY24Q1 FY25Q2 FY25
Semiconductor Process Control$2,194.1 $2,575.2 $2,755.7
Specialty Semiconductor Process$150.1 $128.3 $160.4
PCB & Component Inspection$143.0 $138.0 $161.1
Total Reportable Segments$2,487.2 $2,841.5 $3,077.2

Guidance Changes

MetricPeriodPrevious GuidanceCurrent/ActualChange
Total RevenueQ2 FY25$2.95B ± $150M $3.08B At upper end of range
GAAP Gross MarginQ2 FY2560.0% ± 1.0% N/AN/A
Non-GAAP Gross MarginQ2 FY2561.5% ± 1.0% 61.7% (actual) Slightly above midpoint
GAAP Diluted EPSQ2 FY25$7.45 ± $0.60 $6.16 (impacted by $239.1M impairment) Below prior guidance due to impairment
Non-GAAP Diluted EPSQ2 FY25$7.75 ± $0.60 $8.20 Above range midpoint
Total RevenueQ3 FY25—$3.0B ± $150M New
GAAP Gross MarginQ3 FY25—60.6% ± 1.0% New
Non-GAAP Gross MarginQ3 FY25—62.0% ± 1.0% New
GAAP Diluted EPSQ3 FY25—$7.77 ± $0.60 New
Non-GAAP Diluted EPSQ3 FY25—$8.05 ± $0.60 New
Non-GAAP OpExQ3 FY25—$585M; +$15M q/q thereafter in CY25 New (spending trajectory)
Other Inc/Exp (non-GAAP)Q3 FY25—~$36M expense; similar through CY25 New
Tax RateQ3 FY25—~13.5% (to June); ~14% 2H CY25 (Pillar 2) New
Mix (Semi PC Systems)Q3 FY25—Foundry/Logic ~73%; Memory ~27% (DRAM ~75% of memory) New
DividendQ3 FY25—Declared $1.70 per share; payable Mar 4, 2025 Declared (regular)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY24, Q1 FY25)Current Period (Q2 FY25)Trend
AI/HPC and leading-edge ramps (N3/N2)Confidence in N2/N3 ramps; leader demand stronger than expected; advanced die sizes raise yield complexity WFE mid-single-digit growth in 2025; KLA to outperform; N2 tape-outs expected to outpace prior nodes per top customer Strengthening
Advanced packaging2024 packaging outlook raised to ~$500M; >60% process control mix CY25 packaging raised again to >$800M; customers pulling front-end class tools into packaging Strengthening
Export controls / ChinaAvoided speculation on new controls (Q1); China mix mid-30s in Dec quarter, ~30% in 2025 ~$500M ± $100M 2025 impact; RPO down ~$900M from de-bookings; China mix ~29% in 2025; services headwind contained in March then grows Headwind quantified; manageable
DRAM/HBM process control intensityExpect DRAM investment recovery led by HBM; intensity inching up >11% vs ~10% historically HBM raises intensity (bigger die, less redundancy); DRAM process control share up 100–150 bps; DRAM ~75% of memory mix in March Improving
Gross margin outlookMid ~61% for CY24; variability by mix 61.7% in Q2; ~62% ±50 bps for CY25; near-term 62% ±1 pt despite slightly lower revenue Stable to up
Services14% y/y growth pace, strong contract attach Services $667M (+18% y/y); China restrictions imply a one-time run-rate reduction then growth resumes; 2025 growth “high-single digit” Strong; tempered by China access
RPO/backlogRPO roughly flat/down ~$70M (Q4) RPO down ~$900M (half from de-bookings under new rules; half from higher shipments) Down from rules/shipments
NANDExpect modest 2025 off low base Small sequential uptick into March from very low levels Gradual improvement

Management Commentary

  • “The quarter revenue topped $3 billion for the first time. Diluted [non-GAAP] was $8.20… GAAP diluted EPS was $6.16.” – Rick Wallace, CEO .
  • “KLA advanced packaging revenue grew to approximately $500 million in calendar 2024 and is expected to exceed $800 million in calendar 2025.” – Rick Wallace .
  • “We expect the WFE market to grow by a mid-single-digit percentage in 2025… [and] are confident we will continue to deliver growth outperformance.” – Bren Higgins, CFO .
  • “We continue to estimate the impact on KLA's revenue in calendar 2025 from recent export controls in China to be approximately $500 million, plus or minus $100 million, with roughly 70%… affecting our systems business.” – Bren Higgins .

Q&A Highlights

  • Process control intensity at N2/HBM: higher intensity and product momentum (optical pattern inspection, reticle print-check) drive outperformance; DRAM/HBM intensity up ~100–150 bps vs historical .
  • China exposure normalization: China revenue mix expected ~29% in 2025 (~20% dollar decline y/y); services headwind absorbed largely in March quarter .
  • RPO/backlog: RPO down ~$900M QoQ, about half from de-bookings tied to Dec 2 regulations; remainder from higher shipments .
  • EPC/segments: EPC growth mid-single digits for 2025 as flat panel display exits; packaging-centric SPTS/ICOS growing; mix supports slightly higher consolidated margins .
  • NAND/DRAM: NAND improving from a very low base; advanced DRAM momentum strong with supply constraints on some critical products; leading-edge demand consistent with prior planning .

Estimates Context

  • S&P Global consensus for Q2 FY25 EPS and revenue was unavailable at the time of this analysis due to access limits; we therefore benchmarked results against company guidance only. Results landed at the upper end of revenue and near the upper end of non-GAAP EPS guidance, with GAAP EPS below prior guidance due to a non-cash impairment .

Key Takeaways for Investors

  • Leading-edge leverage intact: Rising N2/HPC/AI ramps and HBM complexity continue to push process control intensity higher; KLA is positioned to outgrow mid-single-digit WFE in 2025 .
  • Advanced packaging is a durable growth vector: Management raised CY25 outlook to >$800M as customers adopt front-end-class process control in packaging; expect multi-year tailwind .
  • Export controls are a quantifiable headwind but manageable: ~$500M ± $100M 2025 revenue impact and ~$900M RPO reduction are offset by share gains and intensity; licensing could be upside .
  • Margin durability supported by mix: Q2 non-GAAP GM 61.7%; CY25 ~62% ±50 bps despite China normalization and packaging mix; operating model targets 40–50% incremental margin leverage .
  • Services compounding from a high base: $667M in Q2 (+18% y/y); expect a one-time China run-rate reset in March then resumed growth; long-term growth trajectory remains attractive .
  • Near-term setup stable around ~$3B/quarter: Q3 revenue guide implies stability; watch mix (Foundry/Logic ~73%, Memory ~27%) and potential licensing mitigation .
  • Capital returns steady: $877M returned in Q2; regular dividend declared at $1.70 per share (payable Mar 4, 2025) .