KLA Corporation (NASDAQ:KLAC) Beats Expectations in Strong Q4, Guides For Strong Sales Next Quarter

Jabin Bastian /
2023/07/27 4:12 pm EDT

Maker of equipment for semiconductor manufacturing, KLA Corporation (NASDAQ:KLAC) beat analysts' expectations in Q4 FY2023, with revenue down 5.29% year on year to $2.36 billion. On top of that, next quarter's revenue guidance ($2.35 billion at the midpoint) was surprisingly good and 5.31% above what analysts were expecting. KLA Corporation made a GAAP profit of $684.7 million, down from its profit of $805.4 million in the same quarter last year.

Is now the time to buy KLA Corporation? Find out by accessing our full research report free of charge.

KLA Corporation (KLAC) Q4 FY2023 Highlights:

  • Revenue: $2.36 billion vs analyst estimates of $2.26 billion (4.19% beat)
  • EPS (non-GAAP): $5.40 vs analyst estimates of $4.86 (11.2% beat)
  • Revenue guidance for Q1 2024 is $2.35 billion at the midpoint, above analyst estimates of $2.23 billion
  • Free cash flow of $880.4 million, similar to the previous quarter
  • Inventory Days Outstanding: 272, up from 249 in the previous quarter
  • Gross Margin (GAAP): 59.1%, down from 60.6% in the same quarter last year

"KLA's June quarter results exceeded expectations, demonstrating the combination of the broad strength of our portfolio, focused operational execution and high-performing teams coming together to deliver against our financial objectives in what remains a challenging demand environment," said Rick Wallace, president and CEO, KLA Corporation.

Formed by the 1997 merger of the two leading semiconductor yield management companies, KLA Corporation (NASDAQ:KLAC) is the leading supplier of equipment used to measure and inspect semiconductor chips.

The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers and data storage. The growth of data and technologies like artificial intelligence, 5G networks and smart cars are also creating a next wave of growth for the industry. To keep up with ever changing customer needs requires new tools that can design, fabricate and test at ever smaller sizes and more complex architectures, and that is driving the demand for semiconductor capital manufacturing equipment.

Sales Growth

KLA Corporation's revenue growth over the last three years has been strong, averaging 22.4% annually. But as you can see below, its revenue declined from $2.49 billion in the same quarter last year to $2.36 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

KLA Corporation Total Revenue

Even though KLA Corporation surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 5.29% year on year.

KLA Corporation's revenue inverted from positive to negative year on year growth this quarter, which was unfortunate to see. Looking ahead to the next quarter, the company's management team forecasts a 13.7% year-on-year revenue decline. Analysts seem to agree that the poor performance will continue, as they are estimating revenue to decline over the next 12 months by 12.6%.

In volatile times like these, we look for robust businesses with strong pricing power. Overlooked by most investors, this company is one of the highest-quality software companies in the world, and its software products have been the gold standard in critical industries for decades. The result is an impressive business that's up an incredible 18,000%+ since its IPO. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

KLA Corporation Inventory Days Outstanding

This quarter, KLA Corporation's DIO came in at 272, which is 66 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from KLA Corporation's Q4 Results

Sporting a market capitalization of $62.8 billion, more than $3.24 billion in cash on hand, and positive free cash flow over the last 12 months, we believe that KLA Corporation is attractively positioned to invest in growth.

We were impressed by how significantly KLA Corporation blew past analysts' earnings expectations this quarter. We were also glad that next quarter's revenue guidance came in higher than Wall Street's expectations. On the other hand, its inventory levels materially increased and its gross margin shrunk. Overall, we think this was still a strong quarter that should satisfy shareholders. The stock is up 4.22% after reporting and currently trades at $503 per share.

KLA Corporation may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, and what's happened in the latest quarter. We cover this and more in our full company report, and it's free.

Looking for more investment opportunities? One way to find them is to watch for paradigm shifts, just like how every company in the world is slowly becoming a technology company and facing increasing cybersecurity risks. This company is leading the charge in cyber defense with its cloud-native cybersecurity solutions while generating best-in-class revenue growth and SaaS performance metrics. It should definitely be on your radar.

The author has no position in any of the stocks mentioned in this report.