Earnings Preview: KLA-Tencor

| About: KLA-Tencor Corporation (KLAC)

KLA-Tencor (NASDAQ:KLAC) is expected to report Q4 earnings after the market close on Thursday, July 23, with a conference call scheduled for 5:00 pm ET.


The consensus estimate is (15c) for EPS and $298.06M for revenue, according to First Call. KLA-Tencor recently provided an update on its June quarter results at its annual Semicon West Analyst Day. Management said Q4 orders came in +20% quarter-over-quarter, at the high-end of the flat to +20% guidance. Order growth is being driven by foundries more so than memory and it remains sanguine about a significant recovery in memory spending.

Revenue is expected to be at the low-end of the $270M-$310M guidance range but EPS will be toward the high-end of the (24c)-(8c) range due to better margins. KLA sees its September Q1 orders up quarter-over-quarter, better than normal seasonal trends of 10%-15%, driven by more technology buys from foundries. Management expects to outpace industry growth by 5% with the 19 new products the company will deliver in 2009 driving the growth.

Analyst Views

KLA shares lately have been the beneficiary of several rating upgrades on the Street, reflecting improving industry fundamentals, a better outlook for process control and cost cutting efforts. The contrarian view is RBC Capital, who raised its EPS estimates for CY10 from 54c to 83c on 350bps higher gross margin, but the firm maintained a below consensus CY10 revenue estimate of $1.6B. Consensus for FY10 is 12c on $1.42B in revenue. RBC maintained its Underperform rating, which is in-line with its sector view, based on sub-par growth in process control, the lack of green field fab projects, and risk to the margin model.

Moreover, RBC believes the stock discounts peak earnings power, which it feels is unlikely to materialize before 2012. RBC said that while the stock might overshoot $30 on order momentum, longer term oriented investors should trim position into any strength.