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Introduction & Market Context
KLA Corporation (NASDAQ:KLAC) reported strong fourth-quarter fiscal 2025 results on July 31, with revenue reaching $3.175 billion, representing 24% year-over-year growth. Despite the solid performance, KLA’s stock fell 7.89% in aftermarket trading to $852.01, suggesting investors may have been expecting even stronger results or were concerned about future guidance.
The semiconductor equipment manufacturer continues to benefit from AI-driven demand and its strong position in process control technologies, particularly in wafer inspection, which saw exceptional growth during the quarter.
Quarterly Performance Highlights
KLA delivered impressive financial results for the quarter ended June 30, 2025, exceeding expectations across multiple metrics. The company reported non-GAAP diluted earnings per share of $9.38, with GAAP EPS coming in at $9.06. Gross margin remained robust at 63.2%, while operating margin reached 44.2%, demonstrating KLA’s continued operational efficiency.
As shown in the following financial highlights from the presentation:
Free cash flow generation was particularly strong at $1.065 billion for the quarter, representing a 34% FCF margin and 86% FCF conversion. This robust cash generation continues to support KLA’s capital return program, with $426 million allocated to share buybacks and $254 million to dividends during the quarter.
Segment and Product Performance
KLA’s Semiconductor Process Control segment, which includes both systems and services, remained the dominant revenue driver at $2.879 billion, representing 91% of total revenue and growing 25% year-over-year. The Specialty Semiconductor Process and PCB and Component Inspection segments contributed 4% and 5% of revenue, respectively.
Within the Semiconductor Process Control segment, Foundry & Logic accounted for 69% of system revenue, with Memory making up the remaining 31%.
The following slide breaks down KLA’s revenue by reportable segments and end markets:
The standout performer in KLA’s product portfolio was the Wafer Inspection category, which surged 52% year-over-year and 18% quarter-over-quarter to $1.772 billion, accounting for 56% of total revenue. This exceptional growth highlights the increasing importance of advanced inspection technologies in cutting-edge semiconductor manufacturing processes.
In contrast, the Patterning segment experienced a decline of 16% year-over-year to $453 million. Services continued to show steady growth at 14% year-over-year, reaching $703 million and representing 22% of total revenue.
The following chart details KLA’s revenue breakdown by major product categories:
Geographic Distribution and Balance Sheet Strength
China emerged as KLA’s largest market in Q4 FY2025, accounting for 30% of revenue, followed closely by Taiwan at 27%. This significant exposure to China comes amid ongoing geopolitical tensions and trade restrictions, potentially representing both an opportunity and a risk for the company.
KLA maintained a strong investment-grade balance sheet with $4.495 billion in total cash and $5.884 billion in debt. The company holds investment-grade credit ratings from all major agencies (Moody’s:A2, S&P: A-, Fitch: A), reflecting its financial stability.
The following slide illustrates KLA’s balance sheet strength:
Capital Return Strategy
KLA continues to prioritize shareholder returns, maintaining its commitment to return more than 85% of free cash flow to shareholders through dividends and share repurchases. The company announced its 16th consecutive annual dividend increase, raising the quarterly dividend by 12% to $1.90 per share from $1.70.
Over the last twelve months, KLA returned $2.15 billion through share buybacks and $905 million through dividends. The company’s long-term dividend CAGR from 2006 to the next twelve months stands at approximately 15%, demonstrating consistent growth in shareholder returns.
The following chart illustrates KLA’s track record of returning capital to shareholders:
Forward Guidance
Looking ahead to the first quarter of fiscal 2026, KLA provided guidance that suggests continued strong performance but at a slightly moderated pace. The company expects revenue of $3.15 billion (±$150 million), non-GAAP gross margin of 62% (±1%), and non-GAAP diluted EPS of $8.53 (±$0.77).
The guidance assumes that Foundry/Logic will represent approximately 75% of Semiconductor Process Control revenue, with Memory accounting for the remaining 25%. This projection reflects the ongoing strength in the foundry and logic segments, driven by AI-related investments.
The following slide details KLA’s guidance for the upcoming quarter:
Conclusion
KLA’s Q4 fiscal 2025 results demonstrate the company’s continued execution in a dynamic semiconductor market. The exceptional growth in wafer inspection revenue highlights KLA’s strong position in critical process control technologies essential for advanced semiconductor manufacturing.
However, the significant stock decline in aftermarket trading suggests investors may have concerns about future growth prospects or margin sustainability, despite the strong quarterly performance. As the semiconductor industry continues to evolve with AI as a key driver, KLA’s ability to maintain its technological leadership and navigate geopolitical challenges, particularly in China, will be crucial for its long-term success.
Full presentation:
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