AMAT, ASML, others underperform following KLA's light guidance


KLA-Tencor (KLAC -1.9%) guided on its FQ4 CC (transcript) for FQ1 revenue of $590M-$650M (-6% Y/Y at the midpoint) and EPS of $0.34-$0.54, well below a consensus of $740M and $0.88. Bookings are expected to drop to $600M-$800M from an FQ4 level of $898M (topped guidance of $625M-$825M).

Several chip equipment peers underperformed following the numbers on a weak day for stocks. AMAT -2.4%. ASML -2%. RTEC -3.5%. UCTT -3.2%. MTSN -2.3%. The group has had a good run this year on optimism about industry consolidation and a strong up-cycle.

Discussing its guidance, KLA observed delivery for major FQ4 orders for 14nm equipment from a foundry client (likely Samsung or Globalfoundries) isn't expected to start until FQ2. The company added it's generally cautious about 2014 foundry revenue.

But KLA expects revenue growth to resume in FQ2, and is optimistic about 2015 demand, as foundry clients (responsible for 68% of FQ4 orders) invest heavily to ramp 16nm and 14nm production. Samsung and Globalfoundries have big 14nm plans for 2015; TSMC is attempting to counter with its 16nm FinFET+ process.

FQ4 gross margin was 56%, missing KLA's guidance midpoint by 150 bps and contributing to an EPS miss. KLA blames product mix and higher-than-expected services costs. GM is expected to fall to 54%-55% in FQ1 due to lower revenue.

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