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KLA-Tencor rides on sustained foundry capex

31 Jan 2012

A resurgence in equipment spending by customers led to a huge increase in quarterly bookings for the company.

KLA-Tencor saw its quarterly gross bookings for the last three months of 2011 rise by a striking 95 percent compared to the previous three months, reaching $950 million and achieving the second highest quarterly bookings result in the company's history. Order activity was particularly strong in the final weeks of the period.

An upbeat CEO Rick Wallace, joking that his earlier statements on the company's visibility had clearly not been as good as he had thought, told analysts that the increase was attributable to "a resurgence in equipment spending among foundry and logic customers, the relative strength of process control as a percentage of the overall equipment investment, and customer acceptance of our latest generation products."

Revenue and earnings for the period, the second quarter of fiscal 2012 in the company's calendar, still slipped sequentially but remained in line with the company's prior expectations. Revenue dropped to $642 million from the $796 million that the company posted in the previous quarter, while GAAP net income also fell from $192 million to $111 million for the same periods.

The company's figures showed that 47 percent of the quarter's new orders were for wafer inspection products, up from 28 percent in the prior quarter. Reticle inspection accounted for 13 percent, down from 18 percent, while metrology orders rose from 14 percent to 22 percent. Solar, storage, LED and other non-semiconductor products fell from 9 percent to 3 percent.

Numbers given by CFO Mark Dentinger for KLA-Tencor's semiconductor systems indicated that 57 percent of new orders in Q2 were for foundry customers, a sector where demand stayed flat compared with Q1; logic customers accounted for 27 percent of orders, versus 22 percent in Q1; and memory orders were 16 percent in Q2, down from 21 percent in the prior quarter.

Pace of innovation
Wallace stated his belief that the demand for equipment in KLA-Tencor's served markets has not changed drastically during the current economic cycle, with levels of capital expenditure in foundries now being driven by the rapid consumer adoption of mobile platforms despite the persistent macro issues overhanging global economics.

"The pace of innovation at the leading edge continues unabated, as our customers are innovating across a wide variety of technical, architectural and process approaches to differentiate and gain a competitive advantage," he commented. "In this environment process control plays a critical role in enabling our customers' success in executing their growth strategies. This is being reflected in the higher adoption we're experiencing in our core markets and the strong relative growth exhibited by KLA-Tencor in calendar 2011."

Wallace said he expects the company to experience another strong year in 2012, while admitting that: "It's really anyone's bet how the industry is going to do. I think that recent announcements show capital expenditure to be heading upwards overall, and predominantly in areas that should support KLA-Tencor business. So we are well prepared to outperform the industry again in 2012."

• Shares in KLA-Tencor rose by around 2 percent in the period following the earnings release.

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