Maker of equipment for semiconductor manufacturing, KLA Corporation (NASDAQ:KLAC) reported Q3 FY2022 results beating Wall St's expectations, with revenue up 26.8% year on year to $2.28 billion. On top of that, guidance for next quarter's revenue was surprisingly good, being $2.42 billion at the midpoint, 3.27% above what analysts were expecting. KLA Corporation made a GAAP profit of $730.6 million, improving on its profit of $567.1 million, in the same quarter last year.
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KLA Corporation (KLAC) Q3 FY2022 Highlights:
- Revenue: $2.28 billion vs analyst estimates of $2.2 billion (3.84% beat)
- EPS (non-GAAP): $5.13 vs analyst estimates of $4.82 (6.36% beat)
- Revenue guidance for Q4 2022 is $2.42 billion at the midpoint, above analyst estimates of $2.34 billion
- Free cash flow of $718.5 million, roughly flat from previous quarter
- Inventory Days Outstanding: 202, up from 183 previous quarter
- Gross Margin (GAAP): 61%, in line with same quarter last year
"Our March quarter results demonstrate strong execution across multiple areas of our business, delivering revenue, GAAP and non-GAAP earnings per share all above the midpoint of the guidance ranges for the quarter," commented Rick Wallace, president and chief executive officer of 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 25.7% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $1.8 billion to $2.28 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).
This was a decent quarter for KLA Corporation as revenues grew 26.8%, topping analyst estimates by 3.84%.
KLA Corporation believes the growth is set to continue, and is guiding for revenue to grow 25.9% YoY next quarter, and Wall St analysts are estimating growth 17.7% over the next twelve months.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business 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.
This quarter, KLA Corporation’s inventory days came in at 202, which is exactly around the five year average, showing that despite the recent increase there is no indication of an unusual inventory buildup at the moment.
Key Takeaways from KLA Corporation's Q3 Results
Sporting a market capitalization of $47.4 billion, more than $2.57 billion in cash and with positive free cash flow over the last twelve months, we're confident that KLA Corporation has the resources it needs to pursue a high growth business strategy.
We were impressed by how strongly KLA Corporation outperformed analysts’ earnings expectations this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. On the other hand, it was less good to see the inventory levels increase. Zooming out, we think this was still a decent quarter, showing the company is staying on target. But the market was likely expecting more and the company is down 1.49% on the results and currently trades at $328 per share.
Should you invest in KLA Corporation right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.