KLA-Tencor (KLAC)

Q2 2012 Earnings Call

January 26, 2012 5:00 pm ET

Executives

Mark P. Dentinger - Chief Financial Officer and Executive Vice President

Ed Lockwood -

Richard P. Wallace - Chief Executive Officer, President and Executive Director

Analysts

Stephen Chin - UBS Investment Bank, Research Division

Mehdi Hosseini - Susquehanna Financial Group, LLLP, Research Division

James Covello - Goldman Sachs Group Inc., Research Division

Wenge Yang - Citigroup Inc, Research Division

Olga Levinzon - Barclays Capital, Research Division

Satya Kumar - Crédit Suisse AG, Research Division

Mahesh Sanganeria - RBC Capital Markets, LLC, Research Division

Christopher Blansett - JP Morgan Chase & Co, Research Division

Mark Heller - CLSA Asia-Pacific Markets, Research Division

Krish Sankar - BofA Merrill Lynch, Research Division

Edwin Mok - Needham & Company, LLC, Research Division

Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division

Jagadish K. Iyer - Piper Jaffray Companies, Research Division

Raj Seth - Cowen and Company, LLC, Research Division

Weston Twigg - Pacific Crest Securities, Inc., Research Division

Vishal Shah - Deutsche Bank AG, Research Division

Presentation

Operator

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Good afternoon, my name is Sean, and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA-Tencor Second Quarter Fiscal Year 2012 Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Ed Lockwood with KLA-Tencor Investor Relations. Sir, you may begin your conference.

Ed Lockwood

Thank you, Sean. Good afternoon, everyone, and welcome to our conference call. Joining me on the call today are Rick Wallace, our President and Chief Executive Officer; and Mark Dentinger, Chief Financial Officer. We're here to discuss second quarter results for the period ended December 31, 2011. We released these results this afternoon at 1:15 p.m. Pacific Time. If you haven't seen the release, you can find it on our website at www.kla-tencor.com or call (408) 875-3600 to request a copy. A simulcast of this call will be accessible on demand, following its completion, on the Investor Relations section of our website. There, you'll also find a calendar of future investor events, presentations and conferences, as well as links to KLA-Tencor's SEC filings, including our annual report on Form 10-K for the year ended June 30, 2011, and our subsequently filed 10-Q reports. In those filings, you'll also find descriptions of risk factors that could impact our future results.

As you know, our future results are subject to risks. Any forward-looking statements, including those we make on this call today, are subject to those risks, and KLA-Tencor cannot guarantee those forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking results.

More information regarding factors that could cause those differences is contained in the filings we make with the SEC from time to time, including our fiscal year 2011 Form 10-K and our current reports on Form 8-K. We assume no obligation and do not intend to update these forward-looking statements. However, any updates we do provide will be broadly disseminated and available over the web.

With that, I'll turn the call over to Rick.

Richard P. Wallace

Thanks, Ed. Thank you all for joining our call today.

With KLA-Tencor's December quarter results, we're pleased to report a very strong finish to a calendar year 2011, which was a record for the company. We saw industry growth in process control, an affirmation of our market leadership. Those forces helped the company achieve annual revenue growth in 2011, that outpaced the overall equipment industry by a wide margin.

Revenue in calendar year 2011 grew 27% to $3.2 billion and non-GAAP earnings per share were $4.70, an increase of 46% in the year. We generated $940 million in operating cash flow in 2011, ending with just under $2.2 billion in cash on the balance sheet on December 31. We continued to be proactive in returning value to shareholders in 2011, increasing the level of our quarterly dividend payout to $0.35 per share and returning 50% of our total annual free cash flow to shareholders through dividend and share repurchase programs.

Looking at the summary results of the December quarter. Revenue and earnings in Q2 were both down sequentially as expected, finishing at the upper end of the range of guidance with revenue of $642 million and non-GAAP earnings of $0.72 per diluted share. The big story for December was the sharp increase in quarterly bookings driven by 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.

Gross bookings in Q2 were $950 million, an increase of 95% compared with September and the second highest quarterly bookings result in company history. Order activity was particularly strong in the final weeks of the quarter. The Q2 bookings profile featured the high level of demand for our next-generation technologies, with strength across all our major product lines, including record orders in metrology in the quarter.

In terms of the end market mix, foundry was 57% of new orders in December, focused on 28-nanometer ramps and capacity growth at 32 nanometer. Logic was 27% of Q2 orders with the majority of logic demand coming from a diversified chip manufacturer looking to increase their leading-edge logic capability. Memory was 16% of the total.

So clearly, a very strong result in December, capping a record calendar year for KLA-Tencor in 2011 in setting the stage for success in 2012. This performance showcases the strength of our market leadership and long-term strategic objectives and highlights industry adoption trends showing chip-makers relying increasingly on the latest inspection and measurement technologies to enable their competitive strategies at the leading edge.

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