KLA-Tencor Beats Estimates

But sales and profit drop from the year-ago quarter.
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Updated from 4:31 p.m. EDT

KLA-Tencor

(KLAC) - Get Report

on Thursday saw its sales and profit drop in its fiscal third quarter, but the results came in above Wall Street expectations.

The San Jose, Calif., semiconductor equipment maker earned $98 million, or 38 cents a share, in the three months ended March 31. A year ago, KLA posted $123 million in net income, or 61 cents a share.

Excluding stock-based compensation expenses, KLA said it earned 63 cents a share. That was above the average analyst EPS estimate of 56 cents.

Sales came in above expectations as well. The company recorded $518 million in quarterly revenue, while analysts polled by Thomson First Call were expecting $509.6 million.

In the year-ago period, KLA reported sales of $542 million.

Shares of KLA were off 0.3%, or 16 cents, to $49 in extended trading.

KLA said the market for its inspection and process control tools was healthy, as chipmakers move ahead with plans to manufacture chips using ever-tinier circuitry.

And the expanding uses for NAND flash memory chips in consumer electronics is prompting many chipmakers to boost their manufacturing capacity.

KLA executives said they now estimate that capital spending by chipmakers in 2006 will grow between 10% and 15%, up from the 5% to 10% increase they expected a few months ago.

"The outlook for 2006 is bright, and it continues to improve," said CEO Rick Wallace.

KLA said bookings in the current quarter were expected to be up 10% sequentially, plus or minus 10%.

The company projected second-quarter revenue to range between $560 million and $575 million, with EPS between 68 cents and 70 cents not including stock-option expenses.

On that basis, analysts expected the company to earn 65 cents a share on revenue of $551.2 million.

Equipment sales to third-party chip manufacturers, or foundries, continued to stagnate in the first quarter. Although many foundries are running at near-full capacity, they have been slow to bring on new capacity.

And KLA executives said they didn't expect the foundries to return to their historical proportion of the company's sales anytime soon.

Foundry orders represented 20% of KLA's total first-quarter orders.

Memory orders, including both NAND flash and DRAM, were the strongest part of the company's orders in the first quarter, accounting for 43% of overall orders.

And memory equipment could represent about 50% of total orders in the current quarter, said Wallace.

"NAND capacity just keeps coming," said Wallace.