KLAC solid beat - Record Gross Margins 64.6%
China biz tripled in 2017 & continues in 2018
Tax reform = more cash - What to do with it all?
View attachment 21071
KLA had revenues of $976M and EPS of $1.97 (would have been $1.83 without tax reform) versus street of $1.73 and $967M. This is a bigger beat than Lam which would have missed had it not been for tax changes. In the quarter KLA shipped $1.041B and finished up with a huge $1.9B in backlog. Like Lam, memory was very dominant at 71% of business which is expected to continue at similar rates. Guidance is for revs of $970M to $1.03B with shipments of $945M to $1.025B and EPS of $1.85 to $2.09 versus street of $998M and $1.80. Overall tax rate will fall from todays 20% to around 15%
Looking for a nicely up 2018...
KLA is talking about high single digit growth in 2018 versus the overall market which is pegged at mid single digit growth. This is more or less in line with Lam's low teens comment yesterday.
Given how far off in growth rates everyone was in 2017, making any kind of guess for 2018 at this stage will eventually prove embarrassing, so we think high single digits represents an appropriately conservative initial guide.
The company is looking for the first half of 2018 to look a lot like the second half of 2017, which we also feel is reasonable
China is a bigger driver for KLA than others...
A lot of Chinese companies want to get in on the chip business. They desperately need KLA to figure out their process and secret sauce and get them ramped up to make chips. Its all about getting to yield and KLA leads that charge.
KLA's China business tripled in 2017 and we would not be surprised to see very high growth in China in 2018 as China is just starting to scratch the surface in chip production. We think given KLA's positioning, they will have more benefit as China grows.
Backlog of $1.9B means no disappointments...
With almost two quarters worth of backlog its hard to imagine KLA missing shipment or revenue numbers. Only ASML has similar backlog protection. It means for very reliable business and planning. It is also testament to customers need for product and KLA's lock on the market that customers will wait up to 6 months.
Gross margins of 64.6%...
Gross margins continue as far and away the best in the industry. KLA couldn't get these huge margins if they didn't have a "lock" on their markets and their customers. Customers don't have a lot of really food alternatives and KLA can charge for it.
The Stock...
KLA shares sold off after hours much as we saw with LAM as investors digest the combination of slower growth but the upside of tax reform. We would not be surprised to see similar weakness on Friday as investors have to get their head around the fact that the industry can't grow forever at super high rates.
We would get very aggressive in buying if the stock got anywhere near $100 on a pullback. We also have the possibility that the group as a whole could rise given Intel's very bullish report. At this point it a coin toss. In any event we find KLA the most attractive of the group given its positioning and margins.
About Semiconductor Advisors LLC
Semiconductor Advisors provides this subscription based research newsletter, Semiwatch, about the semiconductor and semiconductor equipment industries. We also provide custom research and expert consulting services for both investors and industry participants on a wide range of topics from financial to technology and tactical to strategic projects. Please contact us for these services as well as for a subscription to Semiwatch
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China biz tripled in 2017 & continues in 2018
Tax reform = more cash - What to do with it all?
View attachment 21071
KLA had revenues of $976M and EPS of $1.97 (would have been $1.83 without tax reform) versus street of $1.73 and $967M. This is a bigger beat than Lam which would have missed had it not been for tax changes. In the quarter KLA shipped $1.041B and finished up with a huge $1.9B in backlog. Like Lam, memory was very dominant at 71% of business which is expected to continue at similar rates. Guidance is for revs of $970M to $1.03B with shipments of $945M to $1.025B and EPS of $1.85 to $2.09 versus street of $998M and $1.80. Overall tax rate will fall from todays 20% to around 15%
Looking for a nicely up 2018...
KLA is talking about high single digit growth in 2018 versus the overall market which is pegged at mid single digit growth. This is more or less in line with Lam's low teens comment yesterday.
Given how far off in growth rates everyone was in 2017, making any kind of guess for 2018 at this stage will eventually prove embarrassing, so we think high single digits represents an appropriately conservative initial guide.
The company is looking for the first half of 2018 to look a lot like the second half of 2017, which we also feel is reasonable
China is a bigger driver for KLA than others...
A lot of Chinese companies want to get in on the chip business. They desperately need KLA to figure out their process and secret sauce and get them ramped up to make chips. Its all about getting to yield and KLA leads that charge.
KLA's China business tripled in 2017 and we would not be surprised to see very high growth in China in 2018 as China is just starting to scratch the surface in chip production. We think given KLA's positioning, they will have more benefit as China grows.
Backlog of $1.9B means no disappointments...
With almost two quarters worth of backlog its hard to imagine KLA missing shipment or revenue numbers. Only ASML has similar backlog protection. It means for very reliable business and planning. It is also testament to customers need for product and KLA's lock on the market that customers will wait up to 6 months.
Gross margins of 64.6%...
Gross margins continue as far and away the best in the industry. KLA couldn't get these huge margins if they didn't have a "lock" on their markets and their customers. Customers don't have a lot of really food alternatives and KLA can charge for it.
The Stock...
KLA shares sold off after hours much as we saw with LAM as investors digest the combination of slower growth but the upside of tax reform. We would not be surprised to see similar weakness on Friday as investors have to get their head around the fact that the industry can't grow forever at super high rates.
We would get very aggressive in buying if the stock got anywhere near $100 on a pullback. We also have the possibility that the group as a whole could rise given Intel's very bullish report. At this point it a coin toss. In any event we find KLA the most attractive of the group given its positioning and margins.
About Semiconductor Advisors LLC
Semiconductor Advisors provides this subscription based research newsletter, Semiwatch, about the semiconductor and semiconductor equipment industries. We also provide custom research and expert consulting services for both investors and industry participants on a wide range of topics from financial to technology and tactical to strategic projects. Please contact us for these services as well as for a subscription to Semiwatch
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| valign="top" rowspan="1" colspan="1" align="left" style="color: rgb(0, 0, 0); font-family: Calibri, Helvetica, Arial, sans-serif; padding: 8px 15px 8px 16px; font-size: 11pt" | VISIT OUR WEBSITE
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