Earnings Preview: KLA-Tencor

| About: KLA-Tencor Corporation (KLAC)

KLA-Tencor (NASDAQ:KLAC) is expected to report Q1 earnings Thursday Oct. 30 after market close, with a conference call scheduled for 5:00 pm ET.


The consensus estimate is 34c for EPS and $518.46M for revenue, according to First Call. The most recent guidance from the company came from its presentation on Sept. 4 at Citigroup's Annual Global Technology Conference, where management said trends and the environment have deteriorated since July. As a result, management said that Q1 bookings were tracking towards lower end of views. That sentiment was echoed a week later on Sept. 11 at the Deutsche Bank Securities Technology Conference, where management said visibility beyond one to two quarters is "difficult."

Analyst Views

Since those two conference presentations there have been a number of rating downgrades at various brokerage houses to a neutral stance, citing increased competition and valuation. Specifically, RBC Capital's downgrade to an Underperform rating on Oct. 2 was based on valuation and the firms belief that CY09 Wafer Fab Equipment spending will be down more than capex. RBC said, with KLAC shares up about 17% from its recent low of $17.8, it would recommend selling positions if the stock trades up after the earnings call on any hope of a bottom in the current quarter. RBC continues to expect orders / shipment / revenues to trend down for next 2 to 3 quarters for the industry. While a significant downward estimate revision is widely anticipated, RBC does not expect this to be last downward revision. It expects semi-cap stocks to trend lower with estimates and reach a bottom sometimes in the middle of next year.

Looking forward: RBC sees significant downside risk to its Q2 $466M and 19c estimates, and consensus of $471M and 25c. RBC also expects a significant downward revision to its FY09 estimates of $1791M and 85c following the earnings call. The firm said that even with a 15% to 20% headcount reduction expected sometimes next month, it cannot rule out the possibility of KLA printing a couple of below breakeven quarters in CY09. Additionally, based on comments from several semiconductor companies, RBC now expects CY09 capex to be down about 30% compared to our prior estimate of down 18%