KLA Corporation’s Q1 Performance Overshadowed by Persistent Concerns Over China and Near-Term Outlook
2min read KLA Corporation, a prominent player in the semiconductor equipment sector, reported solid Q1 results for fiscal year 2024. Despite the company's top and bottom-line beats and a respectable Q2 outlook, its shares have slipped as investor concerns continue to mount over near-term prospects and ongoing headwinds from the China market.
The company’s Q1 results come against a backdrop of broader semiconductor industry volatility, with a downturn in the market affecting performance across the board.
In the Q1 report, KLA posted adjusted earnings per share that surpassed expectations, along with revenue growth aligned with its forecasts. For Q2, the company projected adjusted EPS between $7.15 and $8.35, which represents a robust 25 percent year-over-year increase at the midpoint.
Likewise, revenue is expected to be in the range of $2.8 to $3.1 billion, pointing to an approximately 19 percent rise at the midpoint, in line with the company’s solid growth trajectory. However, despite these positive figures, shares fell due to uncertainties clouding the company’s medium-term outlook, particularly in China, which has long served as one of KLA’s largest markets.
Historically, China has accounted for more than 40 percent of KLA’s annual revenue, underscoring its importance to the company’s revenue stream. However, with economic conditions softening in the region, KLA now anticipates its revenue from China will drop to around 30 percent.
This expected decrease mirrors similar forecasts from other semiconductor industry leaders, such as ASML and Lam Research, which recently projected a normalization in China sales. While KLA has managed to perform well despite these anticipated shifts, a reduction in revenue from this critical market could dampen growth in the near term.
Adding to the challenges are export controls that pose an additional risk to KLA’s sales in China. Although KLA management acknowledged the impact of these controls, the lack of specific guidance on how they may alter future sales has left investors uneasy. In a sector where certainty is crucial, this ambiguity about how regulatory restrictions may influence KLA’s business with China remains a significant overhang.
While KLA did emphasize its role in AI-related growth, with strong demand supporting investments in high-bandwidth memory and advanced wafer technologies, the market appears to be looking for a clearer and more robust growth forecast from the company.
Investors may be interpreting the results as more modest than anticipated given the sector’s overall optimism surrounding AI-related expansion. Notably, KLA continues to project wafer fab equipment spending growth for calendar year 2025, consistent with prior expectations.
However, after ASML’s cautious FY25 guidance earlier this month, KLA’s outlook may not have fully alleviated investor concerns about sector-wide volatility.
In sum, while KLA Corporation posted another quarter of earnings outperformance and has forecasted steady growth in the immediate term, persistent worries about its exposure to China and broader market conditions continue to weigh on investor sentiment.
The company’s solid position in AI and wafer fab equipment investments will likely support its growth trajectory, yet the broader uncertainty around its China market exposure and export controls means that investor sentiment may remain muted in the near future.
