Detailed Narrative
Calendar 2024 Performance Highlights
KLA achieved record revenue of $10.85 billion in calendar 2024, marking a 12% growth year-over-year and demonstrating relative outperformance compared to the WFE market. The Process Control segment grew over 12%, indicating market share gains, while the Services business expanded by 15% to $2.5 billion. The company maintained strong profitability with gross and operating margins at 61% and 41%, respectively, and generated $3.4 billion in free cash flow, returning $2.9 billion to shareholders.
December Quarter Results and Industry Environment
For the December quarter, KLA's revenue exceeded $3 billion for the first time, and non-GAAP diluted EPS reached $8.20, both surpassing the midpoint of guidance despite the impact of new U.S. export controls. Management noted an improving industry environment driven by strong demand in leading-edge logic, high-bandwidth memory (HBM), and advanced packaging. These trends are fueled by increased investments in AI and high-performance computing, positioning KLA favorably for continued growth.
AI as a Key Catalyst and Enabler
AI is identified as a crucial catalyst and enabler for KLA's business, driving higher volume and value wafer demand, more complex designs, and accelerated product cycles. The company's experience in developing AI models for its inspection systems supports the theory that increased compute efficiency leads to greater AI adoption. KLA sees no immediate impact on advanced semiconductor demand from increased AI compute efficiency, as demand is elastic and growing.
Advanced Packaging Momentum
The advanced packaging portfolio continued its strong momentum, with revenue growing to approximately $500 million in calendar 2024 and projected to exceed $800 million in calendar 2025. This growth is driven by the increasing demand for more powerful systems-on-chips and complex heterogeneous chip integration, which elevates the value and need for process control in chip packaging. KLA's solutions, including inspection and metrology derivatives, are critical for managing yield risks in these advanced architectures.
WFE Market Outlook and KLA's Position
KLA expects the WFE market to grow by a mid-single-digit percentage in 2025, primarily fueled by investments in leading-edge Foundry/Logic and memory for AI and premium mobile. The company anticipates outperforming this market growth due to increased process control intensity at the leading edge, particularly at the 2-nanometer node and in HBM production. KLA's share of WFE at the N2 node is expected to be meaningfully greater than at N3, further contributing to its outperformance.
China Export Control Impact and Mitigation
The company estimates a revenue impact of approximately $500 million (plus or minus $100 million) in calendar 2025 from U.S. export controls in China, with about 70% affecting the systems business. While hopeful for licensing opportunities to mitigate some impact, KLA is taking a cautious view due to processing delays. China's revenue contribution is expected to decrease from 41% in CY24 to about 29% in CY25, leading to an overall ~20% decline in China business.
Process Control Intensity and Innovation
Process control intensity is increasing across the industry, particularly in advanced DRAM (HBM) due to larger die sizes, less redundancy, and more complex logic circuitry. KLA's new solutions, such as reticle verification on wafer (print check), are finding new defect problems and driving adoption even in prior nodes. This innovation, coupled with the challenges of scaling and the value of advanced devices, creates continued tailwinds for KLA's process control business.