KLA Corporation (Nasdaq: KLAC) Stock Review Q4CY21
| RIGHT Analysis | Date | 04-04-2022 | Current Price: $360 | |
| Wisdom Global: KLAC: 4QCY21 result review | ||||
| USD Mn | 4QCY21 | YoY | QoQ | Remarks |
| Revenue | 2,354 | 42.6% | 13.0% | Wafer Inspection systems revenue grew 54% in CY2021, outpacing the WFE market which is estimated to have grown approximately 40%; |
| Gross profit | 1,446 | 47.4% | 13.8% | product mix offset by expected cost pressures within the supply chain; |
| EBITDA | 967 | 69.7% | 18.1% | positive operating leverage from lower growth in r&d expenses (15% YoY) and SGA (17% YoY) |
| Net profit | 803 | 75.7% | 21.1% | lower interest costs |
| GM | 61.4% | 20 bps | 200 bps | product mix improvements |
| EBITDA margin | 41.1% | 370 bps | 430 bps | lower growth in r&d expenses and SGA |
| NPM | 34.1% | 160 bps | 390 bps | lower interest costs |
| Major Segments Rev. (USD Mn) | 4QCY21 | YoY | % of Total | Remarks |
| Wafer Inspection (Systems Only) | 1,104 | 60.7% | 48.1% |  strong growth across Wafer Inspection portfolio, from Broadband Plasma, Laser Scanning, Unpatterned and Bare Wafer Inspection, Macro Inspection, and e-Beam; Macro Inspection, grew at ~1.5x WFE, driven by Automotive and other Specialty markets. |
| Patterning (Systems only) | 509 | 65.5% | 22.2% | In Foundry/Logic, simultaneous investments across multiple nodes and rising capital intensity continues to be a tailwind. In Memory, demand remains broad-based across multiple customers. |
| Specialty Semi Process Revenues (Systems Only) | 105 | 45.9% | 4.6% | EPC, KLA is diversifying our market leadership with a portfolio of solutions addressing fast-growing new markets in the electronics value chain, including RF, Specialty Semiconductor and Automotive, PCB, Advanced Packaging, and Display. |
| PCB, Display and Component Inspection Rev. (Systems Only) | 122 | 5.3% | 5.3% | demand drivers such as HighPerformance Computing (HPC), Artificial Intelligence (AI), growth in new automotive electronics, and strong growth in data centers and 5G communications markets |
| Services | 457 | 10.7% | 19.9% | driven by a growing installed base, increasing complexity of systems, tighter time-to-market requirements for customers, and market expansion at trailing edge nodes. KLA’s Services contract penetration rate is over 75% of overall Service revenue and growing. Growth at the higher end of 9-11% long-term expectations. |
| Outlook | ||||
| – KLA’s leadership in the Process Control market remains at an impressive level of greater than four times the market share of its nearest competitor as reported by Gartner Research in April of 2021. China continues to emerge as a major region for the manufacturing of logic and memory chips, adding to its role as the world’s largest consumer of ICs. Government initiatives are propelling China to expand its domestic manufacturing capacity. China is currently seen as an important long-term growth region for the semiconductor capital equipment sector. US is also considering the CHIP act which would incentivize domestic investments in Chip manufacturing. Demand remains broad-based across multiple customers, and expect another year of double-digit growth in 2022, mainly driven by NAND but followed closely by DRAM, which will pick up strength in the year. | ||||
| – Most of the greenfield projects announced by chip manufacturers in 2021, will see revenue generation for KLAC in 2023; none of those revenues are expected in 2022; so it seems the company does have visibility on topline growth through 2023 in spite of WFE spending slowdown (-5% YoY) expected in 2023. | ||||
| – KLA is the process control equipment leader in the WFE (Wafer Fab Equipment) market; its growth is highly correlated to the WFE market. WFE forms more than 90% of total fab equipment. Total Fab equipment spending for 2022 is expected to break the $100 billion mark reaching over US$ 107 B (+18% YoY). After 3 years of continuous growth rates, fab equipment spending for 2023 is expected to slow down to about $102 B or -5% YoY. Within Total fab equipment space, after robust growth in 2022, Foundry is expected to decrease in 2023 by -10% YoY, Memory is expected to decrease in 2022 by -5% but then increase slightly by 1% to 2% in 2023. | ||||
| – Export controls of semiconductor equipment to China if imposed by the US could hurt KLA and is a risk to the story. However, currently, the US focus on semiconductor equipment on China exports is only at the leading edge of semi manufacturing which doesn’t impact KLA much. | ||||
| – Expect 25% CAGR EPS between cy21-cy23. KLA continues to invest in R&D which totaled $1 billion in calendar 2021, double the level of five years ago and a 15% CAGR. mgmt doesn’t expect GMs to increase much more than 65% and they are pretty close to it now; | ||||
| – Based on the first two-quarters of their Fiscal 22, seems they will beat their fy22 annual eps guidance by a wide margin. They will likely increase their EPS guidance for the year in the coming quarterly calls. | ||||
| Valuation | ||||
| – KLAC’s TTM CFO yield is 5.4%; quite attractive for the type of growth opportunities in the short-mid term. At 23.6x TTM PE multiple & 15x CY23, the stock trades at a slight premium compared to its historical multiples which may be justified due to the extraordinary growth in WFE spending over the last few years. Moreover, we expect the company to increase FY22 guidance by 15% over the coming quarters. | ||||