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KLA CORP (KLAC)·Q3 2025 Earnings Summary

Executive Summary

  • KLAC delivered a clean beat: revenue $3.06B and non‑GAAP EPS $8.41, both above guidance midpoints, with non‑GAAP gross margin at 63% on favorable Process Control product mix .
  • Demand remained resilient at leading‑edge logic, HBM, and advanced packaging; management noted no changes to 2025 customer plans despite trade uncertainty, while announcing a dividend increase to $1.90 and a new $5B buyback authorization .
  • June‑quarter (Q4 FY25) guide: revenue $3.075B ±$150M, GAAP GM 61.7%±1pt (non‑GAAP 63.0%±1pt), non‑GAAP EPS $8.53±$0.78; management also raised full‑year calendar 2025 gross margin outlook to ~62.5%±50 bps despite ~100 bps per‑quarter tariff headwind .
  • Key stock drivers: AI infrastructure buildout supporting Process Control intensity; advanced packaging nearing #1 share; policy-driven tariff/export effects a manageable but tangible margin headwind; capital return acceleration (dividend +12%, $5B buyback) supports TSR .

What Went Well and What Went Wrong

What Went Well

  • AI and leading‑edge exposure drove a 30% YoY revenue increase; CEO: “strong demand in leading‑edge logic and high‑bandwidth memory… advanced packaging… strong contribution” .
  • Gross margin outperformed (63%) on stronger‑than‑modeled Process Control mix; opex came in ~$10M below midpoint as prototype material timing shifted .
  • Services resilience: $669M (+13% YoY), marking the 52nd consecutive quarter of YoY growth, despite export control impacts; management expects ~10% service growth in 2025 .

What Went Wrong

  • Tariffs/export controls: management now embeds ~100 bps quarterly GM headwind from global tariffs (notably in service parts logistics) and maintained a cautious stance on licenses; Investor Day postponed to early/mid‑2026 due to uncertainty .
  • China normalization: China was ~26% of March revenue; management still expects China to be ~~30% in 2025 and down ~15–20% YoY for the year, with ~$500M revenue impact from Dec. export controls (65–70% systems) .
  • PCB/Display: prior‑period impairments and continued PCB headwinds reduce EPC growth optics; exit of FPD systems is a mix tailwind but caps segment growth .

Financial Results

Quarterly Revenue and EPS (YoY and Seq trend)

MetricQ3 FY2024Q1 FY2025Q2 FY2025Q3 FY2025
Revenue ($B)$2.360 $2.842 $3.077 $3.063
GAAP Diluted EPS$4.43 $7.01 $6.16 $8.16
Non‑GAAP Diluted EPS$5.26 $7.33 $8.20 $8.41

Margins (Sequential comparison)

MetricQ2 FY2025Q3 FY2025
Non‑GAAP Gross Margin %61.7% 63.0%
Operating Margin %42.3% 44.2%

Segment Revenue (Q3 YoY)

Segment ($M)Q3 FY2024Q3 FY2025
Semiconductor Process Control2,096 2,739
Specialty Semiconductor Process131 157
PCB & Component Inspection133 169
Total Reportable Segments2,360 3,064

KPIs (Q3 FY2025)

KPIQ3 FY2025
Service Revenue$669M
Cash from Operations$1.072B
Free Cash Flow$990M
Capital Returns (Div + Buyback)$733M
Quarterly Dividend (new level)$1.90 per share (effective with May declaration)

Q3 vs. S&P Global Consensus

MetricActualConsensusResult
Revenue ($B)3.063 3.010*Beat
Non‑GAAP EPS ($)8.41 8.085*Beat
Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ4 FY2025 (June)N/A$3.075B ± $150M New
GAAP Gross Margin %Q4 FY2025N/A61.7% ± 1.0 pt New
Non‑GAAP Gross Margin %Q4 FY2025N/A63.0% ± 1.0 pt New
GAAP Diluted EPSQ4 FY2025N/A$8.28 ± $0.78 New
Non‑GAAP Diluted EPSQ4 FY2025N/A$8.53 ± $0.78 New
OI&E (net)Q4 FY2025N/A~$(35)M expense New
Effective Tax RateQ4 FY202513.5% (Q3 assumption) 13.5% (June); rising to ~14% in 2H CY25 (Pillar 2) Maintained (near‑term)/Raised (2H)
Mix (Semi PC Systems)Q4 FY2025N/AFoundry/Logic ~69%, Memory ~31% (DRAM ~76% of Memory) New
Calendar‑year Gross MarginCY2025~62% ±50 bps ~62.5% ±50 bps Raised
DividendOngoing$1.70/qtr$1.90/qtr starting May declaration Raised
Share Repurchase AuthorizationOngoing~$0.457B remaining on prior plan+$5B new authorization Increased

Earnings Call Themes & Trends

TopicPrevious Mentions (Q‑2 and Q‑1)Current Period (Q3)Trend
AI/Advanced ComputeQ1: Leading‑edge AI/HPC to drive sequential growth . Q2: WFE up mid‑single digits in 2025; PC intensity rising at N2/HBM; AP expected >$800M in CY25 .AI a “key catalyst”; strong demand at leading edge; AP revenue now expected to exceed ~$850M CY25; PC share at leading‑edge packaging on track for #1 .Strengthening
Advanced PackagingQ2: AP momentum; mix ~65–70% Process Control in AP; CoWoS/2.5D leading .Continued strong momentum; customers adapting front‑end solutions to back‑end; scaling benefits increasingly a GM tailwind .Positive mix/scale tailwind
ServicesQ2: 50th consecutive YoY growth; ~10% growth in 2025; export controls a headwind .$669M (+13% YoY); 52nd consecutive YoY growth; tariff exposure mainly through parts logistics under contracts .Resilient with policy headwinds
China/Macro/TradeQ2: ~$500M revenue impact from controls (65–70% systems); China % of revenue to normalize lower; cautious on licenses .China ~26% in March; tariffs add ~100 bps GM headwind per quarter; postponed Investor Day to 2026 due to uncertainty .Ongoing headwind/uncertainty
Node/Tech TransitionsQ2: N2 takeouts > N3/N5 first two years; KLA share higher at N2 vs N3 .High‑NA to increase inspection sensitivity/reticle checks; continued intensity uplift with scaling .Favorable for PC intensity
NAND/DRAMQ2: DRAM main driver; NAND limited, tech/upgrade‑led .Mix view unchanged: DRAM strongest driver; NAND modest from low base .Stable view

Management Commentary

  • CEO (strategy/positioning): “Our leadership in process control is a key enabler of today’s leading-edge AI investments… our capital return announcements reflect… confidence in the long-term value of KLA” .
  • CEO (market share/advanced packaging): “Process Control share… grew by nearly 250 bps over 5 years… on track to assume the leading position in 2025” in advanced wafer‑level packaging .
  • CFO (margins/mix): “Gross margin was 63%… product mix within Process Control was stronger than modeled… operating margin 44.2%” .
  • CFO (tariffs): “We expect global tariffs to have a roughly 100 bps headwind to gross margin per quarter… we will evaluate mitigation in operations and pricing” .
  • CFO (capital returns): Dividend raised to $1.90 (+12%); $5B new repurchase authorization, total $5.46B authorization .

Q&A Highlights

  • Tariffs/margin impact: ~100 bps GM headwind per quarter; service parts under contract create importer exposure; mitigation via network/process changes and pricing over time .
  • Advanced packaging/e‑beam: Customers increasingly run optical and e‑beam in concert at most challenging layers; KLA doubled e‑beam inspection revenues last year, gained ~700 bps share; capacity expanded to meet demand .
  • Mix and half‑on‑half stability: Management expects relatively stable semi PC systems half‑to‑half; DRAM to tick up; NAND limited/tech‑driven .
  • China exposure: Q1 China ~26% of revenue; 2025 China expected ~30% overall but down ~15–20% YoY; export controls impact ~$500M rev (65–70% systems) spread across the year .
  • N2 and High‑NA: N2 capacity additions expected to accelerate into 2026; High‑NA to increase inspection/reticle requirements, supporting PC intensity .

Estimates Context

  • Q3 beats: KLAC beat S&P Global consensus on both revenue ($3.063B vs $3.010B*) and non‑GAAP EPS ($8.41 vs $8.085*). Strength came from better Process Control mix and opex favorability; at the guided 13.5% tax rate, non‑GAAP EPS would have been $8.55 (actual tax ~15%) . Values retrieved from S&P Global.*
  • Q4 setup: Company midpoint revenue guidance ($3.075B) aligns with S&P consensus ($3.080B*); non‑GAAP EPS midpoint ($8.53) aligns with $8.553* consensus, with ~100 bps tariff headwind now embedded . Values retrieved from S&P Global.*

Key Takeaways for Investors

  • KLAC remains a high‑quality AI infrastructure derivative with outsized Process Control intensity at N2/HBM and growing advanced packaging exposure; market share and mix support structurally higher margins .
  • Margin algorithm improving: product resets and mix in Process Control plus scale in advanced packaging offset tariff drag; FY CY25 GM raised to ~62.5%±50 bps despite policy headwinds .
  • Services provides defensiveness and cash: 52 straight quarters of YoY growth; ~10% growth expected in 2025 despite export limitations, underpinning strong FCF .
  • Policy risk is active but managed: ~100 bps/quarter GM headwind and China normalization are in the model; management is pursuing operational/pricing mitigations and adjusted investor communications cadence .
  • Capital returns accelerating: dividend raised to $1.90 and $5B buyback authorization add to TSR, supported by $990M quarterly FCF .
  • Near‑term setup: Q4 guide essentially in line with Street; beats likely require continued favorable mix and/or faster AP/DRAM ramps, while tariffs/license timing are key watch items .

Additional detail, cross‑references and source tables

  • Full Q3 FY2025 8‑K/press release (Item 2.02) including financial statements and guidance .
  • Q3 earnings call prepared remarks (mix, margins, opex, guide) and Q&A (tariffs, China, AP, DRAM/NAND, High‑NA) .
  • Prior‑quarter (Q2 FY2025) press release and call for trend analysis and prior guidance baselines .
  • Prior‑quarter (Q1 FY2025) press release for trend context .
  • Dividend declaration confirming $1.90 payout (May 8, 2025) .

S&P Global estimates disclaimer: All consensus values denoted with an asterisk (*) are retrieved from S&P Global.