KLA-Tencor Corp. ( KLAC)

Q4 2010 Earnings Call Transcript

January 27, 2011 05:00 pm

Executives

Ed Lockwood - Senior Director, IR

Richard P. Wallace - President and CEO

Mark P. Dentinger - EVP and CFO

Analysts

Stephen Chin - UBS

Peter Kim - Deutsche Bank Securities

Krish Sankar - Bank of America/Merrill Lynch

Satya Kumar - Credit Suisse

Raj Seth - Cowen and Company

Jagadish Iyer - Arete Research

Timothy Arcuri - Citigroup

C. J. Muse - Barclays Capital

Mahesh Sanganeria - RBC Capital Markets

Presentation

Operator

Good afternoon. My name is Shawn and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA-Tencor Second Quarter Fiscal 2011 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

I would now like to turn the call over to Mr. Ed Lockwood, Investor Relations. Please go ahead, sir.

Ed Lockwood

Thank you, Shawn. Good afternoon, everyone, and welcome to KLA-Tencor’s second quarter fiscal year 2011 earnings conference call. Joining me on our call today are Rick Wallace, our President and Chief Executive Officer and Mark Dentinger, our Chief Financial Officer.

We’re here today to discuss second quarter results for the period ended December 30, 2010. 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 Investors 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, 2010, and our subsequently filed 10-Q reports. In those filings, you’ll find descriptions of risk factors that could clearly 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 2010 Form 10-K, and our current reports on Form 8-K. We assume no obligation and do not intend to update those forward-looking statements. However, you can be reassured that any updates we do provide will be broadly disseminated and available over the web.

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

Rick Wallace

Thanks Ed, thank you all for joining on our call today. I’ll focus my commentary on summary highlights of our December quarter results. And then provide guidance for March. Then I’ll turn the call over to Mark for a more detailed review of the financials and will conclude with M&A.

KLA-Tencor ended calendar year 2010 with an outstanding December quarter. We delivered record shipments revenue and non-GAAP net income. And we began 2011 with good momentum as we head into the year. This achievement’s a result of the company’s technology and market leadership, our growth from adoption and new markets. It also demonstrates great execution by the KLA-Tencor team in meeting customer needs and driving operational excellence in a very healthy industry cycle environment.

Here are some highlights of the Q2 results, new bookings in the December quarter came in at $725 million. Shipments increased 22% to a record $828 million in Q2, over the past several years we have transitioned to manufacturing a multiple products to facilities in Singapore and Israel. And these operations continue to perform at a very high level and yield significant cost advantages.

Revenues grew 12% sequentially in December to a record $766 million significantly above the range of guidance. And excluding some one-time charges we achieved a new high in non-GAAP net income of 187 million or $1.10 per diluted share in Q2.

Finally, cash flow from operations was also very strong in Q2 coming into the $194 million and we ended the quarter with $1.6 billion in cash and investments. These results show clearly that our long term strategies are working. Our business model is showcasing its strong profit and cash generation ability.

Turning now into some specifics on the current demand picture, Q2 orders reflected another quarter of high demand from the foundries. The foundry booking is at 72% of total new orders in the December quarter. The foundries are investing at a very high level to advance their technology roadmaps, and to add capacity and to keep pace with the rapid growth at advanced tablet designs. Logic was 8% of bookings in December driven by the continued migration to 22 nanometers.

Recent commentary from our leading logic customers point to an anticipated significant increase in CapEx budget for calendar 2011 in order to further expand their global manufacturing capabilities.

Finally, bookings from memory customers were 20% of the total in the December quarter. While Q2 memory demand was below the recent trend lines due to some shifts in order timing, we expect memory orders to recover in the March quarter, driven by an increase in NAND flash investments.

Let my turn my focus to our view of what’s in store calendar 2011. Current external market estimates have semiconductors revenues forecasted to grow in the mid single-digits for calendar 2011 and with recently announced increase in some of our foundry and logic customers CapEx forecast for the year, semi cap equipment market fundamentals appear solid with a positive outlook for growth in the equipment spending in the year ahead.

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