0000319201-25-000034
SEC filingKLA's Q1 FY26 revenue rose 13% YoY to $3.21B, driven by AI-led semiconductor demand, with gross margin expanding 170bps to 61.3%.
KLA Corporation reported total revenues of $3.21 billion for the first quarter of fiscal 2026, a 13% increase compared to $2.84 billion in the same period last year. The growth was primarily driven by product revenues, which rose 12% to $2.47 billion, fueled by investments in AI infrastructure, high-bandwidth memory DRAM, and strong adoption of advanced packaging solutions. Service revenues grew 16% to $0.74 billion, benefiting from an expanding installed base. Gross margin improved to 61.3% from 59.6% in the prior year, with favorable product mix contributing 1.8 percentage points and volume leverage adding 0.6 points, partially offset by other service and manufacturing costs including tariffs. Net income increased to $1.12 billion ($8.47 per diluted share) from $0.95 billion ($7.01 per diluted share). Research and development expenses rose 12% to $360 million, reflecting continued investment in innovation. SG&A expenses increased 7% to $269 million, mainly due to higher supplies and facilities costs.
Revenue by segment: Semiconductor Process Control (90% of total revenue) increased 13% to $2.90 billion, driven by strong demand for inspection and metrology products and higher service revenue. Specialty Semiconductor Process declined 7% to $0.12 billion due to customer pushouts, partially offset by service growth. PCB and Component Inspection surged 37% to $0.19 billion, led by AI-related advanced packaging products. Geographically, Taiwan revenue jumped 72% to $0.79 billion (24.7% of total) on leading-edge AI investments. China grew 6% to $1.27 billion, Japan increased 57% to $0.30 billion, while North America fell 41% to $0.30 billion due to lower foundry/logic shipments.
Management emphasized continued investment in R&D to maintain competitive advantage, particularly in AI-driven technologies like EUV and advanced packaging. Despite geopolitical headwinds such as export controls and tariffs, the company remains focused on returning cash to shareholders through dividends and share repurchases. No explicit forward guidance was provided, but the strong operating cash flow of $1.16 billion and liquidity of $4.68 billion support strategic priorities. The effective tax rate rose to 14.4% from 12.3% due to the OBBBA tax law change restoring full expensing of domestic R&D, which is expected to lower cash taxes going forward.
As of September 30, 2025, KLA held $1.95B in cash and equivalents and $2.74B in marketable securities, totaling $4.69B in short-term investment capacity. Total debt stood at $5.89B (all senior notes), with no borrowings under the $1.5B revolving credit facility. Shareholders' equity increased to $4.99B from $4.69B at June 30, 2025, driven by net income partially offset by buybacks and dividends. Inventory rose to $3.30B, up 2.7% sequentially.
KLA disclosed significant purchase commitments of approximately $2.50 billion as of September 30, 2025, a majority due within 12 months. These commitments primarily cover inventory, services, and asset purchases. Additionally, the company has $116.6M in Cash LTI future payment obligations and $94.8M in outstanding guarantees. The long-term virtual power purchase agreement (solar) did not have a material impact.
During Q1 FY2026, KLA repurchased 623k shares for $564.4M, leaving $4.47B authorized for future buybacks. Dividends totaled $252.6M ( $1.90 per share), up from $1.45 in the prior-year quarter. Capital expenditures were $95.9M (3.0% of sales). Debt remained unchanged at $5.95B principal, with no new issuances or repayments. The company also entered into a new $1.5B revolving credit facility in July 2025.
Segment revenue totaled $3.21B (excluding FX effects). Semiconductor Process Control led with $2.90B (90.3% of total) and a 45.1% operating margin. Specialty Semiconductor Process declined 6.7% to $119.8M, while PCB and Component Inspection surged 37.3% to $189.5M. Geographically, China accounted for 39.5% of revenue, Taiwan 24.7%, and North America 9.3%. Three customers each exceeded 10% of total revenue.
KLA's cash flow from operations (CFO) of $1.16B exceeded net income of $1.12B, indicating high cash conversion quality. The primary driver was strong net income, with non-cash items like depreciation ($97M) and stock-based compensation ($70M) adding back. Working capital was a net use of $128M, driven by inventory build ($96M) and accounts receivable increase ($13M), partially offset by other asset decreases.
Capital expenditures (capex) of $95.9M represented 8.3% of CFO, a moderate intensity. Free cash flow (CFO minus capex) was $1.07B, easily covering total capital returns of $799M (share repurchases $545M and dividends $254M) with a 1.3x coverage ratio.
Investing activities predominantly involved securities purchases and sales, net using $410M. Financing activities used $882M, including $545M in repurchases, $254M in dividends, and $81M tax withholding on RSUs.
Anomalies included a $12M unrealized foreign exchange loss and deferred tax benefit of $11M. Overall, the cash flow statement reflects solid operational performance and prudent capital allocation.