Updated from Jan. 22

KLA-Tencor

(KLAC) - Get Report

said its per-share profit jumped by more than 50% in the second quarter of fiscal 2004, although revenue scarcely rose.

The chip-equipment vendor posted fiscal second-quarter revenue of $338.5 million, up 1% from last year's quarterly revenue of $334.9 million. The result surpassed Wall Street estimates for $326.4 million.

For a bonus, the company also topped expectations on guidance for sales and EPS in the quarter now under way.

Nevertheless, KLA-Tencor shares slipped in after-hours trading Thursday and were down 76 cents, or 1.2%, to $60.05 early Friday.

Net income rose 52% to $44.5 million, or 22 cents a share. Analysts had expected 19 cents.

On a sequential basis, gross margins improved to 54% from 51.1%, which helped push profit higher by 21% over the prior quarter.

"Rising chip demand, fueled by an improving global economy, coupled with high capacity-utilization rates due to years of industry underinvestment, is driving a strong upswing in capacity-related tool orders," said CEO Ken Schroeder.

KLA-Tencor makes tools used to sniff out defects in semiconductor manufacturing, an area that has seen strengthening demand as chipmakers have shifted to more intricate technologies.

The company said net bookings of $508 million in the December quarter marked a 50% increase from the prior quarter.

Management said the company believes it's "in the early phases of a sustainable upturn fueled by pent-up demand from an unprecedented three-year downturn."

Among the other factors that stand to help KLA, an executive said, the chip industry is starting to build fabs that can handle 300 millimeter-sized wafers (up from the current 200 millimeter standard); chipmakers are encountering problems producing chips with transistors only 90 nanometers apart; and they're investing in research and development for chips with linewidths at 65 nanometers and below.

For the March quarter, orders are targeted to grow by 15% or more. Revenue should be about $370 million to $380 million, and earnings should fall in the range of 27 cents to 29 cents.

Both estimates trump Wall Street expectations for $355.1 million in sales and 25 cents EPS.

CEO Ken Schroeder pointed out the consensus outlook for semiconductor capital-equipment sales growth has been rapidly changing. Back in October, analysts expected about 20% growth in 2004; today, growth is expected to be closer to 35% this year.