Is KLA-Tencor Losing Foundry Market Share? Analysts Appear to Think So (KLAC)

Includes: KLAC, LRCX
by: SA Editors

KLA's call with analysts had some great discussion on KLA's apparent loss of market share with Taiwanese foundries. Full call transcript here; highlights below:

Q - Steve O’Rourke, Deutsche Bank

I think you had commented that Taiwan is still pretty weak. Can you help us understand from your perspective what’s going on with the foundries right now. I mean, TSMC this morning mentioned they were at 104% utilization. It seems like you should be seeing orders coming from this region.

A - Jeff Hall, CFO

It’s a great question, Steve. We had 30% of our bookings last quarter in foundry, but we said that that was below our historical average. And frankly in our March quarter we actually see it coming down from 30%. So they have been very cautious. The other factor with the foundries is we don’t have a lot of visibility because they don’t necessarily have a lot of visibility into their ordering pattern. And when they do order, they order big. So we are expecting sometime in 2006 that they are going to turn back on, but we are not modeling in the first quarter.

Q - Timm Schulze-Melander, Morgan Stanley

Congratulations on the quarter. I just want to come back, I think to this foundry question here. LAM research clearly driving for very strong bookings from the foundries and you guys do have longer lead times than them. So it does seem a bit strange and maybe this is kind of a hangover from Semicon Japan. But could one logical explanation not be that either you are seeing market share erosion at that customer base or maybe there is a delay in order placement lost they’re evaluating rival tools. How should we think about that? Thanks.

A - Rick Wallace, CEO

Yes, we model as we said at 25%. We don’t see any evidence of share erosion. In fact quite the opposite. The last several weeks and few months we have seen continued success as I mentioned of our 2800 product in Puma gaining acceptance. So I don’t think it’s that. I think that our forecasting window is, as John said, there are large orders that can come in, in and out of the quarter. So in terms of specifics, we may also be doing better in other regions. I’m not really sure how to address it. It’s not due to share loss. We will get the business when they spend the money.

A - John Kispert, President and COO

Timm, John Kispert. I think if you looked at just the raw dollars, we give you the percentages and the totals and you just do the math you’ll see that foundries have been increasing steadily for us for the last couple of quarters.

Q - Timm Schulze-Melander

Maybe I did the math wrong. I just sort of did it back of an envelope, it looks like it’s down about 4% sequentially at the midpoint of your guidance. Maybe I did the math wrong.

A - John Kispert

Yes. It’s up. It’s up, Timm. And I think if you just did the dollar values on that you’d see that it’s rising quarter on quarter the last couple of quarters. And we bottomed out and it’s more than double than it was two quarters ago.

Q - Timm Schulze-Melander

You said foundry was going to be what percentage of bookings in the March quarter?

A - Rick Wallace

About 25.

Q - Timm Schulze-Melander

And you said it was 30 in the prior quarter?

A - Rick Wallace


A - John Kispert

But the guidance was also higher.

A - Rick Wallace

The guidance was higher. That’s a flattish number.

Q - Timm Schulze-Melander

And when I do the math I get to about 147, plays about 154. Maybe we can follow-up offline.

A - John Kispert

My point is you just go back two quarters and you will see that it’s up much higher over the last two quarters. That’s all.

Q - David Duley, Merriman
I hate to beat the dead horse with the foundry, but I am just going to come back to an observation about the numbers. I think last quarter you mentioned that kind of the swing factor in your order rate, the 5% plus or minus 10% was the foundries and clearly foundry bookings did increase sequentially I think by my math about 51%. From 101 to 152 million. However, orders in Taiwan were down sequentially by 23%.

So it is a little — I guess we got the foundry bookings that we all thought, but I kind of thought the foundry bookings would be coming out of Taiwan. What is your observation as to when you think the Taiwanese bookings would start to increase, which I guess means we are trying to figure out when is TSMC going to place their orders with you and I think there’s a general thought out there that they’ve started to pass out orders to other players and it seems unusual that you don’t have them.

A - Jeff Hall

David, it’s the reason we give a range in our guidance, too. We are fully engaged with them. I feel real good about how we are positioned. Clearly in the foundry numbers that you guys got this quarter and in Taiwan numbers you got this quarter is a bunch of business from the largest foundries in Taiwan. And I expect us over, as Rick said over the next six months or so for it to get larger. The prediction of that I guess we are probably a little bit more reluctant to say which quarter it is. If it’s this quarter or the next.