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SEC filingTotal revenues increased 11% YoY to $3.42B, driven by memory investments, while gross margin contracted 50bps to 61.1%.
In the third quarter of fiscal 2026, KLA Corporation reported total revenues of $3.42 billion, an 11% increase compared to $3.06 billion in the same quarter last year. The growth was primarily driven by higher product revenues from memory customers, particularly in DRAM and high-bandwidth memory, as well as steady foundry/logic investments. Service revenues also contributed strongly, rising 16% to $774.8 million, reflecting an expanding installed base of tools.
Gross profit increased to $2.09 billion, but gross margin declined 50 basis points to 61.1% from 61.6% in the prior year. The contraction was attributed to unfavorable product mix, higher tariff costs, and increased installation and warranty expenses, partially offset by lower inventory charges.
Operating income rose 8% to $1.41 billion, while operating margin decreased from 42.4% to 41.2% due to higher operating expenses. Net income grew 10% to $1.20 billion, and diluted earnings per share increased to $9.12 from $8.16.
KLA's Semiconductor Process Control segment, its largest, generated $3.08 billion in revenue, up 13% YoY. This growth was fueled by increased investments from memory customers, especially in DRAM and high-bandwidth memory, along with foundry/logic expansion and higher service revenues from a growing installed base.
The Specialty Semiconductor Process segment saw a 5% revenue increase to $164.0 million, primarily due to timing of shipments and service growth, though the decline in China volumes partially offset gains.
The PCB and Component Inspection segment posted a slight 1% revenue decline to $167.6 million, as the exit of the Display business was mostly offset by higher PCB product and service revenues.
Management expressed optimism about continued revenue growth in calendar year 2026, driven by AI adoption, advanced packaging demand, and investments in leading-edge nodes like 2-nanometer. However, they noted persistent headwinds from escalating DRAM chip costs for image computers, which are expected to temporarily pressure gross margins. Geopolitical risks, including tariffs and export controls, remain a concern, particularly regarding China revenues. The company maintains a strong liquidity position with $4.96 billion in cash and marketable securities and continues to return cash to shareholders through dividends and buybacks, with $626 million in repurchases and $249 million in dividends during the quarter.
As of March 31, 2026, KLA held $1.79B in cash and equivalents and $3.17B in marketable securities, totaling $4.96B in short-term liquidity. Total debt stood at $5.89B, with no outstanding borrowings under the $1.5B revolving credit facility. Shareholders' equity grew to $5.83B, supported by retained earnings of $3.19B. Inventory increased to $3.44B, with raw materials and work-in-process driving the rise.
KLA disclosed $4.83B in purchase commitments as of March 31, 2026, primarily for materials, services, and supplies, with the majority due within 12 months. Additionally, $114.6M is committed under the Cash LTI plan, vesting over 3-4 years. Contract liabilities (deferred revenue) totaled $1.45B, with $1.20B expected to be recognized within 12 months.
During the nine months ended March 31, 2026, KLA repurchased 1.5M shares for $1.73B, with $10.31B remaining under the buyback program after a $7.0B increase authorized in Q3. Dividends paid totaled $0.75B, with the quarterly dividend raised to $1.90, an 11.8% increase from the prior year. Capital expenditures were $0.29B, or 2.9% of revenue. Debt remained stable, with no new issuance or repayments.
Three reportable segments: Semiconductor Process Control (90.3% of total segment revenue) generated $3.08B revenue and $1.36B profit (44.2% margin); Specialty Semiconductor Process contributed $0.16B revenue and $23.4M profit (14.3% margin); PCB and Component Inspection contributed $0.17B revenue and $21.3M profit (12.7% margin). Revenue by geography was led by Taiwan (25.5%), China (24.3%), and Korea (19.9%).
Operating cash flow (CFO) of $3.2B slightly trailed net income of $3.5B, a normal pattern due to non-cash adjustments and working capital needs. Key non-cash items included $228M in stock-based compensation and $295M in depreciation. Working capital was a net use of cash, driven by a $254M increase in inventories and a $55M rise in accounts receivable, partially offset by a $65M increase in accounts payable. Deferred revenue declined sharply ($196M in system, $69M in service), reflecting revenue recognition.
Capex of $0.3B was modest relative to CFO, resulting in strong free cash flow generation. The company returned $2.5B to shareholders via $1.7B in buybacks and $0.8B in dividends, fully covered by CFO. Note the prior-year period included a $239M goodwill impairment, which did not recur. Overall, cash flow quality is healthy, with operating cash flows robustly supporting capital returns.