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    KLAC
    Earnings call· Mar 2026(Q3 FY26)

    KLA Q3 FY26 earnings call KLAC

    Apr 29, 2026 Source

    Executive summary

    KLA Corporation Q3 FY26 — Strong Performance Driven by AI and Advanced Packaging

    KLA delivered strong Q3 FY26 results, driven by increased investment in leading-edge foundry/logic and high bandwidth memory, with AI serving as a core catalyst. The company raised its outlook for advanced packaging revenue and the overall wafer equipment market for 2026 and 2027, reflecting unprecedented demand visibility and strong customer engagement. KLA is focused on expanding capacity and support resources to meet this accelerating demand, while maintaining its disciplined capital allocation strategy.

    Highlights

    5

    • Revenue of $3.415 billion, up 4% sequentially and 11% year-over-year, exceeding guidance midpoint of $3.35 billion.

    • Non-GAAP diluted EPS of $9.40, above guidance midpoint, with GAAP diluted EPS of $9.12.

    • Advanced packaging process control product portfolio revenue expected to grow from $635 million in 2025 to approximately $1 billion in 2026, well above prior estimates.

    • Service business revenue of $775 million, up 16% year-over-year, providing predictable cash flow.

    • Total capital returned in the quarter was $875 million, comprising $626 million in share repurchases and $249 million in dividends.

    Concerns

    3

    • Operating expenses were higher than expected at $670 million due to prototype materials timing and other reserve adjustments.

    • DRAM chip costs for image processing computers are creating a persistent ~100 basis point negative impact on gross margin over the next several quarters.

    • Product mix for Q4 FY26 is modestly weaker than Q3 FY26, impacting gross margin guidance of 61.75% +/- 1%.

    Guidance & targets

    18
    CategoryTargetConfidence
    Long-term revenue growth CAGR
    13% to 17%
    high materiality
    High
    Long-term services revenue CAGR growth model
    approximately 13% to 15%
    medium materiality
    High
    Wafer equipment market size
    $215 billion, plus or minus $20 billion
    high materiality
    High
    Wafer equipment market outlook
    exceed $140 billion
    high materiality
    High
    Wafer equipment market YoY growth rate
    higher than our growth rate expectations for 2026
    high materiality
    High
    Company revenue
    $3.575 billion, plus or minus $200 million
    high materiality
    High
    Semiconductor process control systems business revenue growth
    over 20%
    high materiality
    High
    Company revenue growth
    high teen revenue growth year-over-year
    high materiality
    High
    Gross margin
    61.75% plus or minus 1 percentage point
    high materiality
    High
    Gross margin
    approximately 62%, plus or minus 50 basis points
    high materiality
    High
    Operating expenses
    approximately $665 million
    medium materiality
    High
    Operating expenses growth
    roughly $15 million sequentially
    medium materiality
    High
    Other income and expense net
    approximately $25 million expense
    low materiality
    High
    Other income and expense net
    approximately $25 million quarterly level
    low materiality
    High
    Planning tax rate
    14.5%
    medium materiality
    High
    Non-GAAP diluted EPS
    $9.87, plus or minus $1
    high materiality
    High
    GAAP diluted EPS
    $9.66, plus or minus $1
    high materiality
    High
    KLA 2030 revenue target
    $26 billion
    high materiality
    High

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    Service business
    Consistent long-term growth in service is a key aspect of KLA's business model and delivers predictable cash flow. Down sequentially due to timing of revenue recognition.
    		$775 million16%-1%—
    Foundry/Logic (Q4 FY26 forecast)
    Forecasted to increase in the June quarter.
    Share of semi process control systems revenue: ~82%
    		————
    Memory (Q4 FY26 forecast)
    Expected to account for the remaining share of semi process control systems revenue.
    Share of semi process control systems revenue: ~18%
    		————
    DRAM (Q4 FY26 forecast)
    Expected to account for the majority of memory revenue.
    Share of memory revenue: ~84%
    		————
    NAND (Q4 FY26 forecast)
    Expected to account for the remaining share of memory revenue.
    Share of memory revenue: ~16%
    		————
    Memory (2027 outlook)
    Driven by greenfield opportunities in DRAM and flash markets, with rising process control intensity.
    Share of overall spend: closer to 60% (vs logic/foundry)
    		—a few percent higher than this year——

    Operational metrics

    22
    Revenue
    $3.415 billionup 4% sequentially and 11% year-over-year
    Q3 FY26

    Driven by increased investment in leading-edge foundry/logic and high bandwidth memory.

    Non-GAAP diluted EPS
    $9.40
    Q3 FY26

    Reported on a non-GAAP basis.

    GAAP diluted EPS
    $9.12
    Q3 FY26

    Reported on a GAAP basis.

    Total capital returned
    $875 million
    Q3 FY26

    Part of the capital return strategy.

    Total capital returned (LTM)
    $3.2 billion
    LTM Q3 FY26

    Total capital returned over the past 12 months.

    Capital allocation target
    >90%
    Long-term

    Announced at Investor Day, reflecting increased allocation.

    Dividend increase
    17th consecutive
    Q3 FY26

    Reflects consistent capital return strategy.

    Share repurchase authorization
    $7 billion
    Incremental

    Announced at Investor Day, supporting long-term shareholder value creation.

    Gross margin
    62.2%45 basis points above the midpoint of guidance
    Q3 FY26

    Reported on a non-GAAP basis.

    Operating expenses
    $670 million
    Q3 FY26

    Reported on a non-GAAP basis.

    Operating margin
    42.6%
    Q3 FY26

    Reported on a non-GAAP basis.

    Other income expense net
    $9 million
    Q3 FY26

    Reported on a non-GAAP basis.

    Effective tax rate
    15.4%
    Q3 FY26

    Reported on a non-GAAP basis.

    Cash, cash equivalents and marketable securities
    $5 billion
    Q3 FY26 end

    Total cash, cash equivalents and marketable securities at quarter end.

    Debt
    $5.95 billion
    Q3 FY26 end

    Company has a flexible and attractive bond maturity profile supported by investment-grade ratings.

    Revenue CAGR
    16%
    Past 5 calendar years

    Revenue CAGR over the past 5 calendar years.

    Long-term incremental operating margin leverage
    40% to 50%
    Long-run

    Reflects the design of the business model.

    Fully diluted share count
    approximately 131.4 million shares
    Q4 FY26 guidance

    Used for EPS guidance calculations.

    KLA growth rate above market baseline
    6.5%
    Last 5 years

    KLA's growth rate above the market baseline over the last 5 years.

    KLA growth rate above market baseline (target)
    4.5%
    Long-term

    Part of the 2030 plan for meaningful CAGR upside.

    X-ray metrology market size
    $75 million to $100 million
    Today

    Most adoption has been in memory, with KLA holding approximately 60% share.

    X-ray metrology market potential
    $150 million
    Next few years

    Potential if adoption increases and more production opportunities become available, but challenges remain with productivity in volume production.

    Industry KPIs

    3
    MetricValueDetails
    Market share commentary14 percentage pointspercentage points
    Advanced packaging revenueapproximately $1 billionUSD
    Wfe industry spend outlook$140 billion plusUSD

    Risks & headwinds

    4
    Elevated DRAM chip costsnext several quarters

    ~100 basis point negative impact on gross margin

    Mitigation: Secured required supply to meet build plan requirements; view of elevated memory pricing persisting through at least calendar 2026 is unchanged.

    Product mix weaknessJune quarter

    modestly weaker than in the March quarter

    Tariff environmentCalendar Year 2026

    meaningful impact, currently at middle to higher end of 50-100 basis points impact

    Mitigation: Expected to come down to the lower end of the range as the year progresses due to operational actions.

    Supply chain constraintsH1 2026

    put some constraints on ability to scale in H1 2026

    Mitigation: Much better positioned to support ramp in H2 2026 and 2027; tremendous focus across the company to ensure capacity and support resources.

    Q&A highlights

    8

    Where in the portfolio and end markets is KLA seeing extended lead times and strong visibility into 2027, potentially 2028?

    Visibility is broad-based, driven by building backlogs and strong customer engagement for slot planning into 2027. Most demand is for leading-edge products, and customers are showing high urgency to secure capacity for new greenfield fab projects, indicating a 'massive buildup' in 2027.

    “the conversations I've had with customers in the last few months, there's a higher level of urgency around securing capacity for our customers that I can remember seeing.”

    asked by Christopher Muse · answered by Richard Wallace

    2 min read6 chapters

    Detailed Narrative

    01

    AI as a Core Driver and Market Leadership

    KLA continues to see AI as a core driver of its performance, enabling growing momentum. The company achieved the #1 position in process control for advanced wafer level packaging in 2025, driven by customer adoption and a 14 percentage point increase in market share. Overall, KLA's share of process control has grown by 360 basis points since 2021, significantly outpacing its nearest competitor.

    02

    Accelerating Wafer Equipment Market Outlook

    KLA's expectations for growth in the wafer equipment industry are accelerating for 2026 and 2027, with the 2026 market expected to exceed $140 billion. This is fueled by unprecedented🌐 demand visibility and strong customer engagement, particularly for new fab projects and leading-edge technologies. The company anticipates 2027 YoY growth to be higher than 2026, driven by broad-based spending across logic, memory, and advanced packaging.

    03

    Strategic Importance of Service Business

    The Service business continues to gain strategic importance, delivering predictable cash flow and anchoring KLA's capital return strategy. With systems becoming more technologically advanced and having longer service lifetimes, rising customer expectations for tool performance and availability create a strong, predictable long-term tailwind for overall revenue growth. The long-term model projects a 13% to 15% CAGR for services revenue.

    04

    Capital Allocation and Shareholder Value

    KLA maintains a comprehensive capital return strategy, prioritizing predictable and assertive capital deployment. The company recently announced a 17th consecutive increase in its quarterly dividend and an incremental $7 billion share repurchase authorization. KLA targets returning over 90% of free cash flow, which has grown at a 20% CAGR over the past five calendar years, exceeding the 16% revenue CAGR over the same period.

    05

    Process Control Intensity and Technology Inflection Points

    KLA is uniquely positioned to benefit from increasing process control intensity driven by faster product cycles, higher-value wafers, rising design complexity, and growing demand for advanced packaging. Each new chip design requires rigorous inspection, metrology, and yield optimization solutions. The company's product portfolio supports customer technology roadmaps and production efficiency, enabling leading-edge process development and optimizing yield in high-volume manufacturing.

    06

    China Market Dynamics and Regulatory Impact

    The impact of recent regulatory actions, such as the ban on Hua Hong, is considered immaterial to KLA's Q2 guidance and 2026 commentary. Overall spending in China is expected to remain relatively flat or slightly up, with its growth rate likely lower than the overall WFE market. KLA's business is primarily driven by leading-edge developments outside of China, aligning with its long-term strategy.

    AI-generated summary of the company’s earnings call. Not investment advice.