What Happened:
Shares of semiconductor manufacturing equipment maker KLA Corporation (NASDAQ:KLAC) fell 7.6% in the morning session after the company reported second-quarter results and provided revenue and EPS guidance for the next quarter, which fell short of Wall Street's expectations. In addition, its free cash flow missed. During the earnings call, management highlighted uncertainties in the resumption of growth in the WFE (Wafer Fab Equipment) business.
The company added, "Though there are signs of improvements in some end markets, this improvement is off low levels, impacting our customers' profitability and cash flow generation in the near term." However, KLAC expects the topline weakness to bottom in the March quarter, with anticipations of a return to sequential growth in the June quarter and continuing for the rest of the calendar year. As a result, the company expects WFE demand to be in the mid to high $8 billion range in 2024, roughly flat compared to the previous year. Overall, it was a weaker quarter, highlighting near-term topline headwind similar to some of the challenges called out by some of the semiconductor stocks that have reported this earnings season.
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What is the market telling us:
KLA Corporation's shares are quite volatile and over the last year have had 9 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 6 months ago, when the stock gained 5.4% on the news that the company reported second quarter earnings that beat analysts' revenue and earnings per share (EPS) expectations. Notably, EPS beat by an impressive 11%. On the other hand, its inventory levels materially increased, and its gross margin shrunk. Moving ahead, next quarter's revenue guidance came in higher than Wall Street's expectations. Overall, we think this was still a really good quarter that should please shareholders.
KLA Corporation is up 8.4% since the beginning of the year, and at $607.53 per share it is trading close to its 52-week high of $641.69 from January 2024. Investors who bought $1,000 worth of KLA Corporation's shares 5 years ago would now be looking at an investment worth $5,975.
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