KLA Corporation (KLAC, Financial) reported strong Q1 results with significant beats in both revenue and earnings. Despite this, shares are down today as the semiconductor equipment supplier provided a wide-ranging Q2 outlook, a pattern seen in recent quarters. This mirrors its Q4 report from late July, which initially boosted the stock.
Why are KLAC shares dropping?
The overall market is a factor, as semiconductor stocks are experiencing a downturn, similar to last quarter. Initially, KLAC shares rose after the Q1 announcement, but specific concerns have since weighed on the stock.
- China, which typically contributes over 40% of KLAC's annual revenue, is facing economic challenges. This was anticipated as peers like ASML (ASML, Financial) and Lam Research (LRCX, Financial) have indicated a normalization in their China sales. KLAC expects its China-related revenue to decrease to around 30% going forward, presenting a potential headwind.
- Export controls remain a concern, adding uncertainty regarding sales in China. KLAC management has not yet clarified the impact, and this uncertainty is unsettling for the market.
- KLAC's outlook for CY25 remains unchanged, projecting continued growth in wafer fab equipment spending. While AI demand supports growth, the market may have expected more aggressive projections.
KLAC's Q1 report was robust, showing strong top and bottom-line performance and providing solid Q2 guidance. The company anticipates Q2 adjusted EPS of $7.15-8.35, a 25% year-over-year increase at the midpoint, and revenues of $2.8-3.1 billion, a 19% improvement at the midpoint. However, following ASML's recent cautionary FY25 outlook, investors remain uneasy about KLAC's near-term prospects, maintaining bearish sentiment.
