tapebrief
KLAC · Q4 2025

KLAC · Q1 2026 Earnings

Bullish

KLA Corporation

Reported October 29, 2025

30-second summary

KLA printed $3.21B in Q1 FY2026 revenue (+13% YoY, +1.1% QoQ) and $8.81 non-GAAP EPS, both above the prior-quarter guide midpoints of $3.15B and $8.53. The December quarter is guided to $3.225B ±$150M with non-GAAP EPS of $8.70 ±$0.78, and management took the opportunity to frame calendar 2026 as a growth year — first half "flat to modestly up" vs. 2H25, accelerating in 2H — while quantifying a new $300–350M China export-control headwind spread across both halves of CY2026. Advanced packaging is now guided to exceed $925M for CY2025 (+~70% YoY), with KLA's share of the $11B TAM approaching 6%.

Headline numbers

EPS

Q1 FY2026

$8.81

Revenue

Q1 FY2026

$3.21B

+13.0% YoY

Gross margin

Q1 FY2026

61.3%

Free cash flow

Q1 FY2026

$1.07B

Operating margin

Q1 FY2026

34.8%

Key financials

Q1 FY2026
MetricQ1 FY2026YoYQ4 FY2025QoQ
Revenue$3.21B+13.0%$3.17B+1.1%
EPS$8.81—$9.38-6.1%
Gross margin61.3%—62.0%-67bps
Operating margin34.8%—35.4%-58bps
Free cash flow$1.07B—$1.06B+0.2%

Guidance

Guidance is issued for both next quarter and the full year. Both may appear below.

Actuals vs prior guidance

MetricPeriodPrior guideActualΔResult
RevenueQ1 FY2026$3.15 billion +/- $150 million ($3.0B to $3.3B)$3.21 billion+$60M above guidance midpointBeat
Non-GAAP EPSQ1 FY2026$8.53 +/- $0.77 ($7.76 to $9.30)$8.81+$0.28 above guidance midpointBeat
GAAP EPSQ1 FY2026$8.28 +/- $0.77 ($7.51 to $9.05)$8.47+$0.19 above guidance midpointBeat
GAAP Gross MarginQ1 FY202660.7% +/- 1.0% (59.7% to 61.7%)61.3%+0.6 percentage points above guidance midpointBeat
Non-GAAP Gross MarginQ1 FY202662.0% +/- 1.0% (61.0% to 63.0%)61.3%in-line with guidance midpoint expectationMet

New guidance

MetricPeriodGuideYoY
RevenueQ2 FY2026$3.225 billion +/- $150 million ($3.075B to $3.375B)—
Non-GAAP EPSQ2 FY2026$8.70 +/- $0.78 ($7.92 to $9.48)—
GAAP EPSQ2 FY2026$8.46 +/- $0.78—
Non-GAAP Gross MarginQ2 FY202662.0% +/- 1.0% (61.0% to 63.0%)—
GAAP Gross MarginQ2 FY202660.8% +/- 1.0% (59.8% to 61.8%)—
Calendar 2026 Revenue OutlookFY 2026First half revenue levels roughly flat to modestly up compared to second half of calendar 2025, with accelerating growth in second half—

Segment performance

Q1 FY2026
SegmentQ1 FY2026YoY
Semiconductor Process Control$2.899B+12.6%
Specialty Semiconductor Process$0.12B-6.7%
PCB and Component Inspection$0.189B+37.4%
Product Revenue$2.465 billion—
Service Revenue$0.745 billion—

Profitability

Q1 FY2026
SegmentQ1 FY2026
Operating Cash Flow$1.162 billion
Free Cash Flow Margin33.2%

Other KPIs

Q1 FY2026
SegmentQ1 FY2026
Capital Returns$799.1 million

Management tone

Q4'24 customer optimization → Q1–Q3'25 AI/HBM intensity → Q4'25 "broadening" without quantification → Q1'26 explicit CY2026 growth framing with quantified packaging TAM.

Three quarters of "we don't need 125 [WFE] to make the plan" hedging has now resolved into a direct calendar-2026 growth statement. Last quarter management deflected on FY2026 framing; this quarter Rick opened with "customer discussions have become more constructive on expectations for calendar year 2026 to be a growth year for the industry with a broader spending profile than 2025." The hedge is gone — what replaced it is a shape ("first half flat to modestly up, accelerating in 2H") rather than a number, but the directional commitment is new.

Advanced packaging has crossed the threshold from supporting narrative to standalone served market. Last quarter's framing — "$925M revenue, +80% YoY, intensity at 5–6%" — was carried as a strong sub-segment. This quarter it was elevated to a quantified TAM: "What was once a rounding error in wafer fab equipment is now, according to KLA internal estimates, an approximately $11 billion market growing faster than core WFE." That is a discrete framing change — packaging is now sized as its own market with KLA share approaching 6%, not a feature inside WFE.

The China posture has tightened from qualitative ("down further in 2026") to a hard dollar number. Management put the export-control revenue impact on the December quarter and CY2026 at $300–350M, evenly split across CY2026 halves. Last quarter the China commentary was directional; this quarter it is bounded and absorbed into the CY2026 growth framing — a stronger signal of confidence than the prior quarter's open-ended caveat.

The AI/custom-silicon language sharpened materially. Q3 was "AI is a tailwind"; this quarter it is "the growing investment in custom silicon, particularly among hyperscalers developing their own custom chips, has led to a proliferation of unique device designs." The specificity matters — hyperscaler ASIC proliferation drives shorter cycles and yield pressure, which is the demand mechanism for process control.

Margin commentary turned slightly defensive at the edges. The Q2 non-GAAP gross-margin guide held at 62.0%, but management acknowledged 50–100bps of tariff drag is now running quarter-to-quarter and the December guide is 50bps below where mix would otherwise put it. Not a reversal — but the prior-quarter framing of tariffs being mitigated down is now stable rather than improving.

Recurring themes management leaned on this quarter:

Advanced packaging as new high-growth served market opportunityRising process control intensity across all segments and nodesAI infrastructure investment driving broader WFE growth and design complexityCustom silicon proliferation and hyperscaler demand creating yield/process control needsMarket share gains and outperformance vs. WFE growth ratesConstructive 2026 outlook with broader spending profile

Risks management surfaced:

U.S. export controls impacting China customer access (~$300-350M revenue impact in Dec quarter and CY2026)Geopolitical uncertainty affecting global business environmentExecution risks on product roadmaps and customer technology transitionsForeign exchange and tax rate volatility impacts

Q&A highlights

Harlan Sur · JP Morgan

Asked whether improved 2016 WFE growth outlook reflects strengthened magnitude of growth or just higher confidence level given 90 days of additional visibility and AI data center announcements. Also sought elaboration on broader spending profile in WFC and advanced packaging.

Management clarified it's getting closer to visibility rather than strengthening outlook. Customers becoming more constructive on timing. Leading edge foundry/logic and DRAM investments constructive. Flash growing. China expected to normalize. Advanced packaging has momentum in both intensity and share. Customers securing slots due to supply concerns.

Leading edge foundry logic constructiveDRAM investment positive with HPN process control intensityChina correction expectedAdvanced packaging momentum in intensity and share

Vivek Arya · Bank of America

Asked about foundry/logic revenue declining from 74% to 59% of sales sequentially, seeking to understand impact of China restrictions versus general China normalization and whether this is one-quarter lumpiness.

China was elevated at 39% in September, expected to normalize to 30%+ range per year-long guidance. December quarter: China declining, leading edge ticking up, DRAM upticking. Export control impact on December quarter immaterial due to slot flexibility. Long-term impact estimated at $300-350M through end of 2026.

China September at 39%, December expected high 20s, 2026 expected mid-20sExport control impact: $300-350M between now and end of 2026December quarter: leading edge up, DRAM up, China downLong-term China normalization to 30%+ annual range

CJ Muse · Cantor Fitzgerald

Asked about 50 bps gross margin guidance down and whether it's product mix. Also asked if 40-50% incremental operating margin target should be at higher end given potential double-digit WFE growth from high-margin silicon.

Margin guidance down 50 bps driven by product mix. Tariff impact approximately 50-100 bps consistent quarter-to-quarter. 62% gross margin guidance output relatively consistent. 40-50% incremental operating margin target sized based on revenue growth trajectory: mid-range for trendline growth, outperformance for above-trendline growth.

Gross margin guide: 62%, down 50 bps from mixTariff impact: 50-100 bps per quarter40-50% incremental operating margin targetIncremental margin tied to revenue growth relative to trend

Joe Quattrochi · Wells Fargo

Asked to quantify advanced packaging process control intensity (characterized as high teens) and trajectory over time, also seeking share information.

Management disagreed with high-teens characterization. KLA's advanced packaging share approaching 6% of $11B TAM (vs. 1% few years ago). Share of process control market 8%, slightly higher than advanced packaging intensity. Intensity has escalated due to HPC requirements. Expect growth to continue but slower than recent slope; likely to grow modestly faster than WFE long-term.

Advanced packaging KLA share: approaching 6% of $11B TAMKLA process control share: 8%Advanced packaging WFE intensity: not high teens, below front-endGrowth expected modestly faster than WFE but slower than recent pace

Tom O'Malley · Barclays

Asked if management agrees with ASML's statement that $100B AI spend equates to $8B WFE with most being memory-related, or if there are qualifications.

Management generally agrees with ASML's framework. Roughly 50% of $100B would be semiconductor-related with intensity reaching that run rate. Not necessarily 50-50 memory vs. logic. Including packaging, management sees closer to $10B opportunity, where KLA's process control participation is above average intensity given high-challenging elements (larger die, more valuable die, HBM, packaging).

$100B AI spend approximates $8-10B WFE equivalentRoughly 50% of $100B is semiconductor-relatedNot 50-50 split between memory and logicPackaging adds $2B+ to addressable market

Answers to last quarter's watch list

Q1 FY2026 gross margin vs. the 60.7% GAAP / 62.0% non-GAAP guide midpoints — GAAP printed at 61.3% (+60bps above midpoint, near the top of the band); non-GAAP at 61.3% (-70bps below the 62.0% midpoint, within band). The GAAP beat validates tariff mitigation; the non-GAAP soft landing reflects mix. Tariffs are running 50–100bps per quarter and stable.
Resolved positively
Advanced packaging trajectory toward the $925M CY2025 target — Management formally guided CY2025 advanced packaging to exceed $925M, +~70% YoY (previously +80% YoY in the prior quarter's framing — a slight moderation in growth rate but the dollar target was reaffirmed/raised by being framed as a floor). Separately, the served-market framing was upgraded to a quantified $11B TAM with KLA share approaching 6%.
Resolved positively
China revenue mix — September ran at 39%, December guided to high-20s, CY2026 expected mid-20s. Export controls quantified at $300–350M revenue impact spread across CY2026 halves. The deceleration confirmed, with a hard dollar bound now placed around it. Status: Resolved negatively (on absolute level) but de-risked through quantification.
Initial FY2026 framing — Management committed to CY2026 being a growth year with first half flat to modestly up vs. 2H25 and 2H acceleration. No numeric WFE assumption yet, but the directional commitment is firmer than last quarter's hedge. Status: Resolved positively (directionally; numeric WFE still pending).
Process-control intensity in product revenue mix — Product revenue was $2.47B vs. service $745M; PCB and Component Inspection +37% YoY signals packaging/substrate inspection demand. Management quantified KLA's process-control share at ~8% (vs. ~7.25% at last call), supporting the intensity-driven outperformance narrative.
Resolved positively

What to watch into next quarter

Whether the December guide of $3.225B prints near the top of the band given the "high-20s" China step-down already baked in — a beat above $3.3B would signal logic/DRAM strength absorbing the China decline faster than expected.

Non-GAAP gross margin landing vs. the 62.0% ±1.0% guide — the September print at 61.3% was at the low end; another quarter at or below 61.5% would suggest mix headwinds persist beyond a single quarter.

First numeric CY2026 WFE assumption — management committed to "growth" but deferred quantification. Look for the January call to put a numeric range on CY2026 WFE, or to explicitly defer to the analyst day.

Advanced packaging CY2025 finish vs. the >$925M floor — management lowered the growth descriptor from +80% YoY (last quarter) to +~70% YoY (this quarter). Watch whether the December and March quarters carry the implied run-rate to clear $925M or whether the floor gets revisited.

Whether the $300–350M CY2026 China export-control hit gets revised — this is a fresh number that management characterized as "evenly spread" across CY2026 halves. A revision in either direction on the next call materially reshapes the CY2026 growth math.

Foundry/logic process-control mix recovery from 59% — management framed this as mix-driven, not demand. A return toward the mid-60s in March would validate that read; a continuation near 59% would suggest leading-edge customer concentration is structurally shifting.

Sources

  1. KLA Corporation Q1 FY2026 earnings press release (SEC EDGAR, filed 2025-10-29): https://www.sec.gov/Archives/edgar/data/319201/000031920125000031/exhibit991earningsrelease0.htm
  2. KLA Corporation Q1 FY2026 earnings call transcript — prepared remarks and analyst Q&A (Rick Wallace, Brent Higgins; exchanges with JP Morgan, Bank of America, Cantor Fitzgerald, Wells Fargo, Barclays).

Get the next brief, free.

We publish analyst-grade earnings briefs the same day or morning after every call — headline numbers, segment KPIs, Q&A highlights, and tone analysis. Free during beta.

This is not investment advice.