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 Revenue | 30% increase (from US$2,359.83M to US$3,063.87M) | Strong revenue growth driven by robust demand in semiconductor process control and inspection solutions, supported by increased customer capital expenditures amid expanding investments in advanced semiconductor technologies. |
Semiconductor Process Control | 31% increase (from US$2,096.01M to US$2,738.82M) | Robust growth in this segment reflects heightened customer demand for advanced process control systems that support leading‐edge semiconductor manufacturing and capitalize on innovation in inspection technologies. |
China Revenue | 20% decline (from US$996.89M to US$792.88M) | Revenue decline is linked to market softening and external challenges such as geopolitical tensions and reduced capital investments, which continue to pressure the Chinese semiconductor market. |
Taiwan Revenue | 128% increase (from US$433.92M to US$988.47M) | Sharp revenue surge in Taiwan is driven by a significant uptick in capital spending for semiconductor inspection and process control, fueled by rapid technological innovation and strong growth in AI-related investments. |
Korea Revenue | 88% increase (from US$201.29M to US$378.55M) | Nearly doubling revenue in Korea can be attributed to a recovery in local demand and enhanced investments in process control technologies, underpinning a robust rebound in the semiconductor segment in the region. |
Net Income | 30% increase (from US$836,446K to US$1,088,416K) | Improved profitability results from increased revenues combined with better operating margins and strong segment performance, reflecting efficient cost management and a favorable revenue mix. |
Diluted EPS | 32% increase (from US$6.17 to US$8.16) | EPS improvement is a direct outcome of the higher net income and operational efficiency, demonstrating the company’s successful transition towards a more profitable revenue base. |
Net Cash Provided by Operating Activities | 18% increase (from US$909,978K to US$1,072,159K) | Enhanced operating cash flow is driven by higher net income and favorable working capital adjustments, along with positive non-cash factors contributing to improved liquidity. |
| 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 | $3.063B (3,063,029 thousands) | Met |
Non-GAAP Operating Expenses | Q3 2025 | ~$585M | $586.95M (R&D: 338,043 + SG&A: 248,905 = 586,948) | Met |
GAAP Diluted EPS | Q3 2025 | $7.77 ± $0.60 | $8.16 | Met |
Fully Diluted Share Count | Q3 2025 | ~133.3 million shares | 133.3 million (Weighted-average diluted shares) | 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.
Research analysts covering KLA.