Q3 2025 Earnings Summary
- Innovative Inspection Technology: KLA’s sustained investment in its e-beam inspection platforms is paying off; the company has doubled its e-beam inspection revenues, demonstrating strong product differentiation and market share gains in advanced process control, which is vital for addressing the inspection challenges at leading-edge nodes.
- Advanced Packaging Growth: With a clear uptrend in its advanced packaging portfolio—advanced packaging revenue is now forecasted to exceed $850 million in calendar 2025—KLA is well positioned to capitalize on the increasing complexity and high-value applications driven by AI and premium mobile demand.
- Operational Resilience and Global Adaptability: KLA’s global manufacturing footprint and its proactive strategies to mitigate tariff impacts, including detailed logistics and contract-based service revenue, underscore the company’s ability to navigate macro uncertainties while maintaining steady revenue growth and margin stability.
- Tariff and Trade Regulation Uncertainty: KLA faces a 100 basis points headwind to gross margins from tariffs, creating uncertainty in cost management—especially for its contract-based service business where import-related costs could be harder to pass on.
- Exposure to China Risks and Export Controls: Significant reliance on the Chinese market introduces risk; export controls and loss of access to fabs have already pressured revenue, with guidance suggesting that China could see a 15–20% decline in business over the year.
- Underperformance in Service Growth: The service segment is expected to grow at only around 10%, below longer-term targets and historical mid-teens growth, highlighting potential struggles to sustain margin and offset operational headwinds amid regulatory and tariff pressures.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenues | +30% (from US$2,359,830k to US$3,063,029k) | Total revenues surged as a result of robust growth in product sales and broader market demand improvements, reflecting a rebound from Q3 2024 conditions where revenue was relatively lower. This increase indicates strong customer investments and market recovery in semiconductor inspection solutions. |
Net Income | +81% (from US$601,541k to US$1,088,416k) | Net income more than doubled due to the combined effect of significantly higher revenues and improved cost efficiencies, highlighting a sharp turnaround compared to Q3 2024. Enhanced margins and disciplined operational management contributed to this increase, signaling a strong profitability leap over the previous period. |
Product Revenues | +35% (from US$1,769,369k to US$2,393,821k) | Product revenues experienced a substantial boost driven by solid demand in the inspection portfolio and higher capital expenditures from customers, marking an impressive recovery relative to Q3 2024. This growth underscores the impact of technological innovations and customer investments in leading-edge semiconductor processes. |
Earnings Per Share | +84% (from US$4.46 to US$8.21) | The EPS improvement mirrors the net income growth and reflects enhanced operational efficiency and margin expansion, as the underlying business delivered stronger profitability relative to Q3 2024. This dramatic increase signals that the company’s earnings power has rebounded, benefiting from both revenue growth and better cost management. |
Gross Margin | Improved from 57.9% to ~61.6% | The gross margin improvement is attributed to a more favorable mix of high-margin products, cost efficiencies, and increased revenue volume, which offset higher cost pressures seen in Q3 2024. The enhanced margin suggests that operational improvements and strategic product focus have generated better profitability per unit sold. |
Operating Cash Flow | +20% (from US$892,615k to US$1,072,159k) | Operating cash flow increased as a result of higher net income, effective working capital management, and cost controls, reflecting improved cash generation relative to Q3 2024. This incremental rise signals that the company has been successful in converting its enhanced profitability into stronger cash flows. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total Revenue | Q2 2025 | no prior guidance | $3.75 billion, ±$150 million | no prior guidance |
Revenue Mix | Q2 2025 | no prior guidance | Foundry/Logic ~69%; Memory ~31% (DRAM 76%, NAND 24%) | no prior guidance |
Gross Margin | Q2 2025 | no prior guidance | 63%, ±1 percentage point | no prior guidance |
Global Tariffs Impact | Q2 2025 | no prior guidance | ~100 basis point headwind to gross margin | no prior guidance |
Other Income and Expense Net | Q2 2025 | no prior guidance | $35 million expense | no prior guidance |
Effective Tax Rate | Q2 2025 | no prior guidance | 13.5% (June), then ~14% in H2 | no prior guidance |
GAAP Diluted EPS | Q2 2025 | no prior guidance | $8.28, ±$0.78 | no prior guidance |
Non-GAAP Diluted EPS | Q2 2025 | no prior guidance | $8.53, ±$0.78 | no prior guidance |
Revenue | Q3 2025 | $3 billion, ±$150 million | no current guidance | no current guidance |
Non-GAAP Gross Margin | Q3 2025 | 62%, ±1 percentage point | no current guidance | no current guidance |
Non-GAAP Operating Expenses | Q3 2025 | $585 million | no current guidance | no current guidance |
Non-GAAP Other Income and Expense (Net) | Q3 2025 | $36 million expense | no current guidance | no current guidance |
Tax Rate | Q3 2025 | 13.5% (March), then ~14% | no current guidance | no current guidance |
GAAP Diluted EPS | Q3 2025 | $7.77, ±$0.60 | no current guidance | no current guidance |
Non-GAAP Diluted EPS | Q3 2025 | $8.05, ±$0.60 | no current guidance | no current guidance |
Fully Diluted Share Count | Q3 2025 | ~133.3 million shares | no current guidance | no current guidance |
Revenue Mix | Q3 2025 | Foundry/Logic 73%; Memory 27% (DRAM 75%, NAND 25%) | no current guidance | no current guidance |
Sequential Operating Expense Increases | Q3 2025 | $15 million per quarter | no current guidance | no current guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q3 2025 | $3.0B ± $150M | $3.06B (3,063,029 thousands) | Met |
Other Income/(Expense), Net | Q3 2025 | $36M expense | -$35.93M ((35,930) thousands)(i.e., $35.93M income) | Beat |
GAAP Diluted EPS | Q3 2025 | $7.77 ± $0.60(range: $7.17–$8.37) | $8.16 | Met |
Weighted-Average Shares (Diluted) | Q3 2025 | ~133.3M shares | 133.3M (133,303 thousands) | Met |
Tax Rate | Q3 2025 | 13.5% | ~13.9% (176,017 ÷ 1,264,433) | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Advanced Packaging Growth | Q4 2024: Raised revenue expectations from ~$400M to >$500M with mid‑60% growth, driven by market expansion and customer interest. Q2 2025: Forecast advanced packaging revenue to exceed ~$800M in 2025 with 60% growth, driven by technologies like 2.5D and emerging 3D SoIC. | Q3 2025: Emphasized significant growth with advanced packaging revenue expected to exceed ~$850M in 2025, highlighting demand driven by AI applications and improved competitive positioning in adapting front‑end solutions for back‑end applications. | Strengthening upward trend: Each period shows increasing revenue targets and evolving growth drivers, with Q3 2025 reflecting a more aggressive outlook fueled by AI and higher expected revenue. |
Innovative Inspection Technology | Q4 2024: Discussed early-stage e-beam inspection capabilities for high-resolution reticle inspection and its role in reticle quality management. Q2 2025: Highlighted strong momentum in both optical and e-beam inspection, emphasizing their interoperability and growing market share. | Q3 2025: Reported doubling of e-beam inspection revenues and further emphasized synergistic use with optical pattern inspection for addressing complex inspection challenges. | Deepening integration and performance: The focus has shifted from early-stage characterization in Q4 2024 to robust revenue gains and integrated technology success in Q3 2025. |
Leading‑Edge Process Control and Node Technologies | Q4 2024: Focused on advanced node deployments (e.g., high NA and 2‑nanometer conversations) and a strengthening market environment with steady improvement expected. Q2 2025: Emphasized increased process control intensity at the N2 node, driven by HBM and larger die sizes, supporting higher‑value wafer production. | Q3 2025: Provided detailed updates on market share gains in process control, including significant improvements in e‑beam inspection and an expanding role in advanced wafer‑level packaging and high‑volume manufacturing. | Consistent positive momentum: There is a continual focus on enhancing process control capabilities and adapting to more complex node requirements, with Q3 2025 showing deepened market penetration and broader applications. |
Global Trade Uncertainty and Export Control Risks (China Exposure) | Q4 2024: Highlighted regulatory compliance and a relatively stable, though cautious, outlook in China with monitoring of export controls. Q2 2025: Discussed export control impacts estimated at ~$500M and noted a decline in China revenue share (from ~41% to ~29%), along with challenges in licensing due to U.S. delays. | Q3 2025: Detailed the impact of global tariffs causing a 100‑basis point headwind on gross margins, reiterated export control risks affecting systems revenue, and mentioned postponing the Investor Day until a more stable period. | Increasing cost pressures and risk exposure: While concerns were monitored in previous periods, Q3 2025 reflects more pronounced challenges with trade uncertainty and tariffs, driving firms to adopt more aggressive mitigation strategies. |
Services Growth Underperformance and Customer Concentration Risk | Q4 2024: Services growth was strong (14% YoY) with no concerns raised about customer concentration. Q2 2025: Introduced challenges with high‑single digit growth for services, attributing underperformance to China export controls and cautiously noting customer concentration risks tied to key foundries. | Q3 2025: Emphasized the underperformance caused by loss of fabs in China, with overall services growth expected around 10%, and raised concerns about geographic concentration (especially heavy exposure to Taiwan). | Worsening sentiment: The narrative shifted from robust service growth in Q4 2024 to growing underperformance and heightened customer concentration risks by Q3 2025. |
Margin Performance and Profitability Outlook | Q4 2024: Reported robust gross margins around 62.5% (with strong EPS performance) and disciplined cost management; operating margins around 41%. Q2 2025: Margins projected in the 62% range with operating margins near 42‑42.3%, with clear expectations for incremental improvements as revenue grows. | Q3 2025: Achieved a gross margin of 63% (slightly exceeding guidance) and operating margin improved to 44.2%, even as the company navigated a 100‑basis point tariff headwind, supported by a high‑value product mix and cost management. | Stable with improvements despite external headwinds: While facing tariff pressures, overall profitability metrics have slightly improved, demonstrating effective cost management and product mix enhancements by Q3 2025. |
Revenue Guidance Uncertainty and Book‑to‑Bill Ratio Concerns | Q4 2024: Revealed a wider revenue guidance range (±$150M vs. ±$125M) due to higher overall revenues and noted a book‑to‑bill ratio just below 1% for the seventh quarter, with future improvement expected. Q2 2025: No specific discussion on these issues was provided. | Q3 2025: Addressed revenue guidance uncertainty arising from volatile global trade conditions and tariff pressures, but did not mention any book‑to‑bill ratio concerns. | Greater uncertainty introduced: Although book‑to‑bill ratio is not a focal point in Q3, revenue guidance has become more uncertain due to external trade factors compared to the more stable outlook in Q4 2024. |
Operational Resilience and Global Supply Chain Strategies | Q4 2024 & Q2 2025: These topics were not explicitly discussed in these periods. | Q3 2025: Introduced detailed discussion on leveraging a global footprint, enhancing operational flexibility, and exploring adjustments in supply chain strategies to mitigate tariff effects and global trade uncertainties. | New emergence: This is a newly highlighted focus in Q3 2025, indicating an increased emphasis on adapting operational and supply chain strategies in response to challenging global trade dynamics. |
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Margin Impact
Q: Are tariffs affecting systems margins?
A: Management noted a 100 basis point headwind on gross margins, primarily from service-related tariffs, which are being mitigated through a diversified global footprint and agile logistics. -
China Exposure
Q: How is China revenue trending this quarter?
A: China revenue was 26% in Q1 with expectations to approach 30% for the full year, though this comes with about a 15–20% year-over-year softness due to export controls. -
Services Outlook
Q: What is the outlook for services revenue?
A: Services are projected to grow around 10% for the year despite losses in fab access in China, reflecting a slightly below long-term target but overall steady performance. -
Revenue Guidance
Q: What are overall revenue expectations?
A: The company expects sequential revenue to remain stable, underpinned by investments in advanced logic, HBM, and advanced packaging, which together drive strong systems performance. -
Advanced Packaging & E-beam
Q: What’s the growth potential in advanced packaging?
A: Advanced packaging revenue is forecast to exceed $850 million this year, with e-beam inspection notably boosting market share by 700 basis points as customers increasingly adopt the high-performance platform. -
Gross Margin Bridge
Q: What drove sequential margin improvement?
A: Improvements were driven by a favorable product mix and robust cost management, with margins reaching 63% in March and anticipated to converge near 62.5% by year-end. -
RPO Disclosure Change
Q: Why adjust the RPO reporting practice?
A: The change aims to better reflect deferred revenue obligations and standardize disclosures across the industry, effective from the new fiscal year for enhanced comparability. -
U.S. Revenue Mix
Q: How is U.S. revenue performing regionally?
A: U.S. revenue remains modest and skewed away from Arizona, with significant business coming from regions like Taiwan, indicating a stable but concentrated domestic mix. -
N2 Investment Cycle
Q: What’s the outlook for wafer start investments?
A: Customers are expected to add about 40–50,000 wafer starts in the near term, with potential to double next year, signaling a robust investment cycle. -
High-Volume Manufacturing
Q: How is the HVM opportunity evolving?
A: There is a noticeable shift from R&D to production as fabs adopt tighter process control, positioning high-volume manufacturing as a growing opportunity amid complex leading-edge nodes.