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    KLAC
    Earnings call· Sep 2025(Q1 FY26)

    KLA CORP KLAC

    Oct 29, 2025 Source

    Executive summary

    KLA Q1 FY26 — Strong Performance Driven by AI and Advanced Packaging

    KLA delivered strong Q1 FY26 results, exceeding revenue and EPS guidance, driven by increasing process control intensity from AI infrastructure investments and significant momentum in advanced packaging. The company anticipates continued WFE growth in CY26, with a broader spending profile, despite an expected revenue impact from new China export controls. Management remains focused on supporting customers, investing in product roadmaps, and disciplined capital allocation.

    Highlights

    5

    • Revenue of $3.21 billion, above guidance midpoint of $3.15 billion.

    • Non-GAAP diluted EPS of $8.81, above guidance midpoint.

    • Advanced packaging related revenue expected to exceed $925 million in CY25, up approximately 70% year-over-year.

    • Service business grew to $745 million in the September quarter, up 6% sequentially and 16% year-over-year.

    • Record cash flow from operations of $1.16 billion and free cash flow of $1.07 billion in the September quarter.

    Concerns

    2

    • Revenue impact from extended export controls on China customers estimated at $300 million to $350 million for December quarter and CY26.

    • China revenue share expected to decline from 39% in September quarter to high 20s in December quarter and mid-20s in CY26.

    Guidance & targets

    22
    CategoryTargetConfidence
    Total revenue
    $3.225 billion, plus or minus $150 million
    high materiality
    High
    Foundry/logic revenue share (semiconductor customers)
    approximately 59%
    medium materiality
    High
    Memory revenue share (semiconductor customers)
    approximately 41%
    medium materiality
    High
    DRAM revenue share (within memory)
    about 78%
    medium materiality
    High
    NAND revenue share (within memory)
    22%
    medium materiality
    High
    Gross margin
    62%, plus or minus 1 percentage point
    high materiality
    High
    Operating expenses
    approximately $635 million
    medium materiality
    High
    Other income and expense net
    approximately $32 million expense
    low materiality
    High
    Effective tax rate
    14%
    low materiality
    High
    GAAP diluted EPS
    $8.46, plus or minus $0.78
    high materiality
    High
    Non-GAAP diluted EPS
    $8.70, plus or minus $0.78
    high materiality
    High
    Fully diluted share count
    approximately 132 million shares
    low materiality
    High
    WFE growth
    mid- to high single-digit growth
    high materiality
    High
    Advanced packaging market growth
    more than 20%
    high materiality
    High
    CY26 industry growth
    growth year for the industry with a broader spending profile
    high materiality
    High
    CY26 H1 revenue levels
    roughly flat to modestly up compared to the second half of calendar 2025
    high materiality
    Medium
    CY26 H2 revenue growth
    accelerating growth
    high materiality
    Medium
    Revenue impact from China export controls
    approximately $300 million to $350 million
    high materiality
    High
    Incremental non-GAAP operating margin leverage
    40% to 50%
    medium materiality
    High
    China revenue share
    mid-20s
    high materiality
    Medium
    Service growth
    12% to 14%
    medium materiality
    High
    Service growth
    in the same range (12% to 14%)
    medium materiality
    Medium

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    Services
    Consistency and resiliency are hallmarks of the KLA's service business.
    		$745 million16%6%—
    Foundry/Logic (semiconductor customers)
    Forecasted to be approximately 59% of Semi Process Control systems revenue to semiconductor customers in the December quarter, down from 74% in the prior quarter due to China normalization.
    Revenue share: 59% (Q2 FY26 forecast)
    		————
    Memory (semiconductor customers)
    Forecasted to be approximately 41% of Semi Process Control systems revenue to semiconductor customers in the December quarter, driven by DRAM uptick.
    Revenue share: 41% (Q2 FY26 forecast)
    		————
    DRAM (within Memory)
    Expected to be about 78% of memory revenue in the December quarter, driven by HBM and increased process control intensity.
    Revenue share: 78% (Q2 FY26 forecast)
    		————
    NAND (within Memory)
    Expected to be the remaining 22% of memory revenue in the December quarter.
    Revenue share: 22% (Q2 FY26 forecast)
    		————

    Operational metrics

    23
    Non-GAAP diluted EPS
    $8.81
    Q1 FY26

    Above the guidance midpoint.

    GAAP diluted EPS
    $8.47
    Q1 FY26

    Above the guidance midpoint.

    Non-GAAP gross margin
    62.5%50 bps above midpoint
    Q1 FY26

    Exceeded guidance.

    Non-GAAP operating expenses
    $618 million
    Q1 FY26

    Includes R&D and SG&A.

    R&D expenses
    $360 million
    Q1 FY26

    Component of non-GAAP operating expenses.

    SG&A expenses
    $258 million
    Q1 FY26

    Component of non-GAAP operating expenses.

    Non-GAAP operating margin
    43.2%
    Q1 FY26

    Reported for the September quarter.

    Other income and expense net
    $28 million expenseupside to guidance
    Q1 FY26

    Principally driven by a favorable mark-to-market adjustment on a strategic supplier investment.

    Effective tax rate
    14.1%
    Q1 FY26

    Reported for the September quarter.

    Net income
    $1.17 billion
    Q1 FY26

    Non-GAAP net income.

    GAAP net income
    $1.12 billion
    Q1 FY26

    Reported for the September quarter.

    Free cash flow margin (TTM)
    31%
    TTM

    Trailing twelve months free cash flow margin.

    Cash, cash equivalents and marketable securities
    $4.7 billion
    Q1 FY26

    Balance at quarter end.

    Total debt
    $5.9 billion
    Q1 FY26

    Balance at quarter end.

    Dividend per share (annualized)
    $7.60up 12%
    Annualized

    16th consecutive annual dividend increase.

    Share repurchase authorization
    $5 billion
    Ongoing

    New share repurchase authorization.

    Total capital return (quarter)
    $799 million
    Q1 FY26

    Total capital returned in the September quarter.

    Total capital return (TTM)
    $3.09 billion
    TTM

    Total capital returned over the past 12 months.

    Advanced packaging related revenue
    $925 millionup approximately 70% YoY
    CY25

    Expected to exceed this amount for calendar year 2025.

    Advanced packaging market size
    $11 billion
    CY25

    KLA internal estimates for the advanced packaging market size, growing faster than core WFE.

    China revenue share
    39%
    Q1 FY26

    Elevated in the September quarter.

    China revenue share
    high 20s
    Q2 FY26

    Expected for the December quarter.

    Lead times
    7 to 9 monthsnormalized
    Current

    Normalized lead times for KLA's products, consistent with order flow for CY26.

    Industry KPIs

    10
    MetricValueDetails
    Lead times7 to 9 monthsmonths
    Backlog order bookNot disclosed quarterly
    Ai data center revenue$925 millionUSD
    Services installed base$745 millionUSD
    Fab capacity utilizationHigher%
    Bookings net order intakeConsistent with lead times
    Wfe industry spend outlookmid- to high single-digit growth%
    Design wins socket pipelineBroadening investment
    Node platform ramp scheduleN2 ramp
    End market segment revenue mixFoundry/logic: 59%; Memory: 41% (DRAM 78%, NAND 22%)%

    Risks & headwinds

    3
    Revenue impact from China export controlsDecember quarter and calendar 2026

    $300 million to $350 million

    Mitigation: Company was able to move slots around and pull business forward for the December quarter, but it represents lost business over the long term.

    Tariff impact on gross marginconsistent quarter-to-quarter

    50 to 100 basis points

    Mitigation: Assessing ways to mitigate exposure, including optimizing operations, moving parts around the world, and reducing leakage/drawback scenarios.

    Potential for WFE market overheatingLonger term

    Not enough wafers will be available to achieve AI objectives in the timeframe implied by public announcements

    Mitigation: The industry's prudent approach to capacity addition means it's unlikely to overheat, as building new fabs takes longer than making investment announcements.

    What to watch in Q2 FY26

    4

    CY26 H1 revenue levels

    next quarter
    Currentroughly flat to modestly up compared to H2 CY25
    TargetConfirmation of flat to modestly up, or revision

    Why it matters

    This initial outlook for the first half of CY26 will provide crucial insight into the industry's recovery and KLA's near-term performance.

    While it is still too early to provide precise calendar 2026 revenue guidance, our view today is that first half revenue levels will be roughly flat to modestly up compared to the second half of calendar 2025, with accelerating growth in the second half of the calendar year.

    Q&A highlights

    6

    Has the magnitude or confidence level of the CY26 WFE growth outlook improved, given recent AI data center announcements and leading-edge design starts? Can you elaborate on the broader spending profile?

    The outlook for CY26 WFE growth is more about increased confidence and proximity to the period, rather than a significant strengthening of the magnitude. Customers are becoming more constructive on exact timing, with broadening investment in leading-edge foundry/logic and constructive trends in DRAM, especially HBM. Advanced packaging also has strong momentum. Management notes strong customer interest in securing slots, indicating high demand.

    “I don't know if it's really a strengthening outlook as much as it's just we're getting closer to it. Customers, particularly our long-standing customers and their lead time expectations, we're starting to get more constructive about exact timing.”

    asked by Harlan Sur · answered by Bren Higgins

    2 min read6 chapters

    Detailed Narrative

    01

    AI Infrastructure and Advanced Packaging Driving Growth

    KLA's strong September quarter results were significantly influenced by accelerating investment in AI infrastructure and the growing demand for advanced packaging. The company's process control leadership is expanding beyond traditional leading-edge R&D to address all WFE growth markets, including high-bandwidth memory and advanced packaging. This trend is fueled by increased design complexity, shorter product cycles, and higher-value wafers in the AI era, where process control is critical for accelerating time to results and optimizing yield.

    02

    Advanced Packaging as a New Meaningful Market

    Advanced packaging has emerged as a substantial market for KLA, with related revenue expected to exceed $925 million in calendar year 2025, representing approximately 70% year-over-year growth. This growth is driven by intensity gains and market share improvements as heterogeneous device integration becomes more complex. Management views this as a new served available market (SAM) that will augment KLA's revenue growth over the next several years, growing faster than core WFE.

    03

    Strong Cash Flow and Capital Returns

    The company reported record cash flow from operations of $1.16 billion and free cash flow of $1.07 billion in the September quarter. Over the past 12 months, free cash flow reached $3.9 billion, with a 31% margin. KLA returned $799 million to shareholders in the September quarter, comprising $545 million in share repurchases and $254 million in dividends, demonstrating a commitment to its comprehensive capital return strategy.

    04

    Outlook for WFE and CY26 Industry Growth

    KLA anticipates mid- to high single-digit WFE growth for calendar year 2025, a modest improvement from the prior quarter's outlook, driven by increased investment in leading-edge foundry/logic and memory for AI and premium mobile demand. Customer discussions suggest calendar year 2026 will be a growth year for the industry with a broader spending profile. KLA expects to outperform the WFE market in 2025 due to rising process control intensity and expanding market share opportunities.

    05

    Impact of China Export Controls

    New export controls from the U.S. government are expected to impact KLA's revenue by approximately $300 million to $350 million between the December quarter and the end of calendar year 2026. This impact is spread roughly evenly across the first and second half of CY26. China's revenue share, which was elevated at 39% in the September quarter, is expected to normalize📎 to the high 20s in the December quarter and further to the mid-20s in CY26.

    06

    DRAM and Leading-Edge Logic Dynamics

    The DRAM market is showing strong momentum, particularly due to high-bandwidth memory (HBM) requirements, which are driving increased process control intensity. The introduction of EUV and the need for higher reliability in HBM stacks are making DRAM more process control intensive. KLA is also seeing a broadening of investment at the leading edge, with more players engaging in advanced logic, leading to increased opportunities for process control spend, especially as new fabs are established in new geographies.

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