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Walking into KLA-Tencor's (NASDAQ:KLAC) annual shareholder meeting, I felt like I was entering a Mad Men set: everyone seemed crisp, professional, very white and very male. Out of the eleven upper management and/or board members seated in the first two rows, 100% were male, and only two were non-white. Having non-diverse upper management isn't as bad as having a city council member make misrepresentations to one of his own constituents (Hiya, Pete Constant!), but it's still undesirable. After all, a company that is global and non-diverse violates the Law of Diversity and hinders its own growth and reputation.

In a nutshell, KLAC provides highly specialized instruments that detect natural defects on man-made wafers and reticles. As semiconductor chips and wafers become smaller, they become more complex, and the manufacturing process requires increasingly specialized equipment to find defects. Put another way, KLAC engages in metrology--the science of measurement--for semiconductor companies like Intel (NASDAQ:INTC) and fab owners.

KLA-Tencor offered shareholders water and coffee only. CEO Richard Wallace handled most of the meeting and did an excellent job bestowing confidence. He said KLAC was not interested in commoditizing its products, but this goal required high R&D expenditures. In short, KLAC must innovate at a rapid pace to continue its superior position in the marketplace and to beat competitors such as Applied Materials (NASDAQ:AMAT) and Hitachi (HIT).

The CEO's Darwinistic attitude is good for KLAC because its "customers need to get [their products] to market quickly" in order to capitalize on high prices. Technology improves at such a rapid pace, consumer companies need to be able to rely on companies like KLAC to find chip defects quickly. When KLAC succeeds, companies can provide consumers with non-defective products and also effectively capitalize on the initial demand for highly-touted products.

CEO Wallace convincingly stated that KLAC doesn't believe its success is an entitlement. His intense yet dignified approach seems like an excellent fit for KLAC. Highlighting the sudden and severe depth of the recent recession, Wallace mentioned that he once felt he had "no visibility about when [demand] would come back." Now, however, he senses the worst is over.

I asked my usual question: what competitive advantage does KLAC have against its competitors? CEO Wallace said KLAC's products are more complex and therefore have "more capabilities" than competing products. At the same time, the high level of complexity makes KLAC's products "more expensive," so smaller companies might be able to target a specific area in KLAC's business and provide alternate low-cost solutions. I found the CEO's honesty refreshing. It's rare to see a CEO point out his company's advantages and disadvantages.

When I pointed out the company's lack of ethnic and gender diversity on its Board of Directors, the Chairman of the Board mentioned that KLAC had one South Asian male and one Asian male in upper management. (There are no women on KLAC's Board of Directors.) The CEO also pointed out that the Director of Communications was female. In an email sent to me after the meeting, the company stated that "KLA-Tencor has a geographically and ethnically diverse workforce--nearly 50% of our company is non-Caucasian...and 40% of our management team is non-Caucasian."

Other highlights: though KLAC has gone through some cost-cutting, "nothing significant was cut"; 80% of KLAC's sales are outside the United States; when the economy rebounds, KLAC believes it will be leaner and more profitable.

Disclosure: I own an insignificant number of shares of KLAC.

Source: Notes from KLA-Tencor's Annual Shareholder Meeting