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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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