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KLA CORP (KLAC)·Q4 2025 Earnings Summary

Executive Summary

  • KLA delivered a clean beat and strong finish to FY25: revenue $3.175B (+24% YoY) toward the top of guidance, non-GAAP EPS $9.38 above the high end, and record quarterly free cash flow of $1.065B . Versus S&P Global consensus, revenue was $3.175B vs $3.080B*, and non-GAAP EPS was $9.38 vs $8.55* (beats) .*
  • September-quarter (Q1 FY26) outlook is stable: revenue $3.15B ± $150M; non-GAAP gross margin 62% ± 100 bps; non-GAAP EPS $8.53 ± $0.77 . CFO reiterated 2025 gross margin framework of ~62.5% and expects KLA to outperform mid-single-digit WFE growth in 2025 .
  • Mix and secular drivers remain favorable: inspection strength tied to gate-all-around, HBM, and advanced packaging; advanced packaging CY25 revenue outlook raised to >$925M from $850M last quarter .
  • Watch items: 50–100 bps gross margin headwind from newly announced global tariffs (better than prior ~100 bps estimate), China exposure at ~30% of revenue, and RPO normalized to 8 months ($7.9B) as lead times compress .

What Went Well and What Went Wrong

What Went Well

  • Broad-based beat with strong profitability: revenue $3.175B, non-GAAP EPS $9.38, operating margin 44.2%, and record free cash flow $1.065B . CEO: “These results reflect the unique and compelling opportunity… for KLA’s continued role in enabling and supporting the AI infrastructure buildout” .
  • Secular tailwinds driving intensity and share: inspection inflecting across optical pattern inspection (gate-all-around), rising sampling rates, and advanced packaging momentum; reticle inspection poised for a record year in CY25 .
  • Services resilience and cash returns: service revenue reached ~$703M in June (+14% YoY), and total capital return in the quarter was $680M (repurchases $426M, dividends $254M) .

What Went Wrong

  • Tariff headwind: 50–100 bps gross margin impact expected during 2025 (mitigations underway), a new structural cost factor for the industry .
  • China trajectory: company modeling China down in 2025 with potential headwinds into 2026; China mix seen at ~30% for 2025 (higher in 2H vs 1H) .
  • Backlog normalization: RPO now 8 months ($7.9B), down as supply constraints ease and customers return to shorter lead times, reducing visibility versus peak periods .

Financial Results

Revenue and EPS vs prior periods

MetricQ4 FY2024Q3 FY2025Q4 FY2025
Revenue ($USD Billions)$2.569 $3.063 $3.175
GAAP Diluted EPS ($)$6.18 $8.16 $9.06
Non-GAAP Diluted EPS ($)$6.60 $8.41 $9.38

Actual vs S&P Global consensus (Q4 FY2025)

MetricConsensus*Actual
Revenue ($USD Billions)$3.080*$3.175
Non-GAAP EPS ($)$8.553*$9.38
# of EstimatesRev: 21*; EPS: 22*—

Values retrieved from S&P Global.*

Margins and profitability (current quarter)

  • Gross margin: 63.2% (slightly above midpoint of guidance) .
  • Operating margin: 44.2% .
  • Effective tax rate: 9.9% (below guidance due to discrete items) .

Segment revenue breakdown

Segment ($USD Millions)Q4 FY2024Q3 FY2025Q4 FY2025
Semiconductor Process Control$2,307.994 $2,738.817 $2,877.647
Specialty Semiconductor Process$121.268 $156.500 $141.866
PCB & Component Inspection$140.017 $168.552 $154.106
Total Reportable Segments$2,569.279 $3,063.869 $3,173.619

KPIs

KPI ($USD Millions)Q4 FY2024Q3 FY2025Q4 FY2025
Service Revenue$613.898 $669.208 $702.559
Cash from Operations$892.615 $1,072.159 $1,164.991
Free Cash Flow$831.870 $990.024 $1,064.583
Capital Returns (Dividends + Buybacks)$667.787 $732.519 $679.662

Additional operating metric: Remaining Performance Obligations (RPO) ~$7.9B (~8 months) as of Q4 FY25 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ1 FY2026n/a$3.15B ± $150M New
GAAP Gross MarginQ1 FY2026n/a60.7% ± 1.0% New
Non-GAAP Gross MarginQ1 FY2026n/a62.0% ± 1.0% New
GAAP Diluted EPSQ1 FY2026n/a$8.28 ± $0.77 New
Non-GAAP Diluted EPSQ1 FY2026n/a$8.53 ± $0.77 New
Operating ExpensesQ1 FY2026n/a≈$615M New
Other Income/Expense (net)Q1 FY2026n/a≈$33M expense New
Non-GAAP Tax RateQ1 FY2026 & CY25n/a13.5% New
Semi Mix (to semi customers)Q1 FY2026n/aFoundry/Logic ~75%, Memory ~25%; DRAM ~79% of memory New
Tariff GM HeadwindCY2025~100 bps (prior view) 50–100 bps Improved
Non-GAAP GM FrameworkCY2025n/a≈62.5% New
Advanced Packaging Systems RevenueCY2025~$850M (prior) >$925M Raised
Dividend (Quarterly)Ongoing$1.70 (prior) $1.90 declared Aug 7, 2025 Raised/maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current PeriodTrend
AI/Tech initiatives“Return to growth at leading edge” driven by AI/HPC; navigated export controls in Dec qtr (Q2) . No demand changes indicated for CY25 (Q3) .Center of AI infrastructure buildout; inspection/reticle intensity rising; advanced packaging outlook raised .Strengthening AI-driven intensity.
Supply chain/BacklogLead times normalizing; no demand changes (Q3) .RPO ~ $7.9B (~8 months) as supply constraints ease .Normalizing visibility.
Tariffs/MacroTariffs cited as risk in forward-looking statements (Q3) .50–100 bps GM headwind; mitigation via FTZs/process changes; framework ~62.5% GM CY25 .New structural headwind, mitigation underway.
Product performanceInspection led growth in 2024/early 2025 (street context via Q&A) .Inspection inflecting (optical pattern, advanced packaging); patterning softer near term but improving 2H; reticle inspection record year in 2025 .Inspection-led; patterning to improve.
Regional trends (China)Export controls impacted Q2; mix high in 2023–24 (Q2) .China ~30% of FY25, higher 2H vs 1H; likely down into 2026 .Stable mix; softer outlook.
Regulatory/LegalExport controls impact noted (Q2) .Tariffs now quantified; export controls continue as a backdrop .Ongoing headwinds.

Management Commentary

  • CEO Rick Wallace: “KLA’s leadership in process control has put the company in a unique position at the center of enabling success for our customers to build out infrastructure to support artificial intelligence.”
  • CFO Bren Higgins on growth drivers and WFE: “We are maintaining our original outlook for mid single digit growth in WFE from approximately $100 billion in 2024…we remain confident in our ability to outperform the overall WFE market in 2025.”
  • On tariffs: “Gross margin is forecasted to be 62% ± 1 ppt…reflecting…a 50 to 100 basis point impact from announced global tariffs…below our original estimate of roughly 100 basis point headwind.”
  • On 2026: “Early customer discussions are constructive on expectations for calendar year 2026 to be a growth year…we see opportunities for our business to continue to inflect.”
  • On backlog: “RPO will be somewhere around…$7.9 billion…now we’re seeing normalization of lead time…affecting the backlog level.”

Q&A Highlights

  • 2026 setup: Constructive customer dialogues; broader leading-edge participation and proliferation of designs; KLA’s WFE share approaching ~8% ex-packaging, with packaging a further tailwind .
  • Product mix: Inspection strength broad-based (optical pattern inspection tied to gate-all-around; high sampling rates); patterning softer due to lower litho attach but improving in 2H; reticle inspection to record in 2025 .
  • HBM intensity: DRAM EUV added ~100 bps to process control intensity; HBM adds another ~100 bps vs prior regimes due to larger die, lower redundancy, and high duty cycles .
  • China: China revenue mix ~30% for FY25, likely down in 2026 vs 2025 after elevated investment in 2023–2024 .
  • Margins/tariffs: GM framework ~62.5% for CY25; tariff headwind 50–100 bps with mitigation via FTZs and process redesign; December quarter memory uptick expected vs September .

Estimates Context

  • Q4 FY2025 vs S&P Global: revenue $3.175B vs $3.080B*; non-GAAP EPS $9.38 vs $8.553*; 21 revenue and 22 EPS estimates formed the consensus* .*
  • Implications: Beats on both lines alongside stable forward guide and raised advanced packaging outlook may prompt upward revisions in CY25/26 modeling for inspection and packaging intensity, tempered by tariff headwinds and China normalization .

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Clean print: KLA beat on revenue and non-GAAP EPS with record FCF and high-40s operating margin, indicating strong execution and cash conversion .
  • Durable seculars: AI/HPC, HBM, and advanced packaging are lifting process control intensity and share; advanced packaging CY25 outlook raised to >$925M from $850M .
  • Near-term stability: September guide implies steady revenue and ~62% non-GAAP GM; CY25 GM framework ~62.5% despite 50–100 bps tariff headwind (mitigation in flight) .
  • Mix watch: Foundry/logic ~75% and memory ~25% in September; DRAM ~79% of memory, with DRAM expected to strengthen in December quarter timing-wise .
  • China normalization: FY25 mix ~30% and likely down into 2026; offsets coming from leading-edge ramps and packaging .
  • Balance sheet/capital returns: $4.5B cash and $5.9B debt with investment-grade profile; dividend $1.90/quarter and new $5B repurchase authorization support EPS compounding .
  • Modeling cues: Use higher inspection/reticle intensity and packaging contributions in out-year models; keep 50–100 bps tariff GM headwind; tax at ~13.5%; OpEx ~$615M for September; OI&E ~$33M expense .