KLA (KLAC) Q4 FY26 earnings call: guidance and Q&A

How should we think about the trajectory for gross margins into '27 and '28, considering new supply, mix shift to tools, and passing on inflation?

Gross margin is benefiting from leverage but still faces a ~100bps headwind from memory pricing and tariffs, which is expected to continue into 2027 before normalizing. New products allow for cost structure changes and pricing adjustments. The company expects to operate within its 60-65% incremental gross margin model.

“We talked about 2026 overall gross margins likely being in the 62%, plus or minus. Clearly, if you look at the guidance we provided expectations for next quarter, we're going to be above that. So we feel pretty good from a trajectory point of view.”

asked by C.J. Muse · answered by Bren Higgins

How much of the improved CY26 and CY27 outlook is reflective of broadening dynamics within foundry and logic, such as Intel's 14A, Samsung's 2/3nm, and Rapidus?

These factors are certainly driving the improved outlook. The need for more advanced logic has led to a broadening of players beyond the market leader. This, combined with increased process control intensity in advanced logic and memory, sets up a strong environment for next year.

“There's no question, and we said this a while ago that the world needs more advanced logic. And so there was a desire by many customers to broaden the other players outside of the leader to supply that.”

asked by Harlan Sur · answered by Richard Wallace

What makes process control more difficult to replicate for domestic Chinese competitors compared to other tools, and how would competition evolve if import bans were lifted?

KLA's competitive advantage stems from the integration of process control technologies, deep customer engagement, and expertise at the leading edge. Process control is a high-mix, low-volume market requiring nuance, algorithms, and extensive applications engineering support (1,600-1,700 engineers), creating a strong competitive moat. KLA performs well where fair competition is allowed.

“Process control is tricky to get into because it's a very high mix, low volume market. So unlike litho, frankly, is much higher kind of similar tool, higher volume, process control, there's a lot of nuance.”

asked by Vivek Arya · answered by Richard Wallace

Why can't KLA raise prices to at least offset memory component costs, especially when competitors like ASML are raising prices?

Price increases are typically tied to increases in cost structure and the delivery of new capabilities that meet customer cost-of-ownership targets. It is difficult to change prices on existing orders. KLA is comfortable with its pricing strategy and engages with customers on value opportunities.

“It's pretty hard to go back to your customers after you've taken orders and start to change prices on those orders.”

asked by Timothy Arcuri · answered by Bren Higgins

How does KLA's 2030 model (WFE $215B, Semi $1.4T) hold up given the current WFE outlook and semiconductor market growth, which seems to be accelerating faster than initially projected?

The 2030 model was based on assumptions of high single-digit semi industry growth, continued capital intensity, and KLA gaining share. If the market requires more capital, KLA could exceed the model. It's too early to reset the 2030 model, but the company is confident in its ability to scale and execute its financial model consistent with prior targets.

“If you have a -- more capital required, then we would exceed the model that we laid out for 2030. I mean that's how that would work.”

asked by Stacy Rasgon · answered by Richard Wallace

Has there been any change to the competitive environment in process control, given some larger competitors have talked about gaining traction?

There has been no change to the competitive environment. KLA feels confident in its share position in critical markets and is seeing positive momentum in areas like e-beam and packaging. KLA remains a net share gainer, and competitors may not have a full view of the landscape when claiming share gains.

“No change. I mean, we -- if anything, we continue to feel really good about our share position in the critical markets we've been in.”

asked by Shane Brett · answered by Richard Wallace