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    KLA (KLAC)

    Q4 2024 Earnings Summary

    Reported on Jan 6, 2025 (After Market Close)
    Pre-Earnings Price$755.77Last close (Jul 24, 2024)
    Post-Earnings Price$767.54Open (Jul 25, 2024)
    Price Change
    $11.77(+1.56%)

    What went well

    • KLA expects sequential revenue growth in the December quarter and continues to be incrementally more bullish about opportunities in 2025, driven by an improving industry environment and strong customer demand at the leading edge.
    • The company has increased its estimate of annualized revenue from advanced packaging solutions to more than $500 million, up from approximately $400 million three months prior, reflecting accelerated investment and significant growth in this market driven by AI and packaging shortages.
    • KLA is well-positioned for outperformance due to its strong presence in leading-edge foundry and logic investments, particularly as advanced technologies like N3 and N2 nodes ramp up, and as high-bandwidth memory (HBM) adoption increases process control intensity in DRAM manufacturing.

    What went wrong

    • Gross margin is forecasted to decrease to 61.5% in the September quarter, down from 62.5% in the previous quarter, due to weaker anticipated product mix.
    • Revenue guidance range widened to plus or minus $150 million, larger than usual, possibly indicating higher uncertainty in revenue projections.
    • Book-to-bill ratio has been below 1 for seven consecutive quarters, suggesting that orders have been consistently lower than shipments, which may impact future revenue growth.

    Q&A Summary

    1. Memory Growth Outlook
      Q: Thoughts on memory growth in 2025, DRAM vs. NAND?
      A: KLA expects memory growth to pick up in 2025, driven mainly by DRAM and HBM. Customers' financial performance is improving with significant price increases this year, translating into investment next year. NAND (flash) recovery is less certain, but overall, both DRAM and flash are expected to recover, led by DRAM.

    2. Memory Process Control Intensity
      Q: Where is memory process control intensity trending?
      A: Memory process control intensity has increased from historical 10% to over 11% today. With advancements like EUV adoption in DRAM and challenges in NAND bonding technology, KLA sees opportunities to increase intensity further in the coming years.

    3. Advanced Packaging Growth
      Q: Is the $500M advanced packaging forecast for full year?
      A: Yes, KLA expects $500 million in advanced packaging revenue for 2024, up from around $300 million last year—a mid-60% growth rate. About 60% is from process control, with the remaining 40% from specialty process and chemical process control. Strong demand is driven by AI and customers seeking front-end capabilities in packaging.

    4. Sequential Growth and 2025 Outlook
      Q: Do you anticipate sequential growth in December quarter?
      A: Yes, KLA expects sequential growth in the December quarter, continuing the trend throughout the year. The company is incrementally more bullish on opportunities into 2025, with a strengthened funnel supporting this outlook.

    5. China Revenue Outlook
      Q: Is China revenue expected to remain flat?
      A: China revenue is expected to be about flat in the second half compared to the first half. Business levels next year are anticipated to be consistent with this year, supported by the order funnel, backlog, and deposits.

    6. Gate-All-Around Impact
      Q: How does GAA affect process control intensity?
      A: Gate-All-Around technology creates new integration challenges, increasing metrology intensity and the need for voltage threshold control. KLA anticipates increased process control intensity, consistent with their 2026 plan, and is bullish on opportunities created by additional critical layers and scaling dynamics.

    7. Impact of High NA on Process Control
      Q: What's the impact of high NA on process control timing?
      A: High NA leads to smaller defects and new reticle qualification challenges. KLA doesn't see acceleration in high-volume manufacturing timing for high NA; if anything, there's potential for delay. Customers may extend existing technologies before moving to high NA.

    8. Revenue Guidance Range Widening
      Q: Why is the revenue guidance range wider?
      A: The wider guidance range is due to higher revenues, which necessitate adjusting the range. Larger systems can vary significantly in value, impacting overall numbers.

    9. Gross Margin Outlook
      Q: Is gross margin down slightly in September quarter?
      A: Gross margin variability is mainly due to product mix. While the June quarter outperformed, adjustments in the September quarter are expected. KLA anticipates gross margins in the mid 61% range this year, moving toward around 65% incremental gross margin into '25.

    10. Advanced Nodes Outlook
      Q: Does TSMC's 2nm outlook affect KLA's WFE share?
      A: Increased activity in reticle inspection due to more design starts, particularly as 2nm ramps into 2025 and 2026, supports KLA's goal to increase its share of WFE. Unexpected strength in M3 also contributes to the positive outlook. Larger die sizes in advanced AI chips drive more inspection needs.

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