Benzinga  Sep 13  Comment 
  Credit Suisse raised the price target for KLA-Tencor Corp (NASDAQ: KLAC) from $82 to $85. KLA-Tencor shares closed at $70.62 on Monday. Wunderlich boosted the price target for Symantec Corporation (NASDAQ: SYMC) from $23 to $30....
Forbes  Aug 29  Comment 
In early trading on Monday, shares of KLA-Tencor (KLAC) topped the list of the day's best performing components of the S&P 500 index, trading up 2.2%.  Year to date, KLA-Tencor has lost about 0.5% of its value.
Forbes  Aug 11  Comment 
Legendary investor Warren Buffett advises to be fearful when others are greedy, and be greedy when others are fearful. One way we can try to measure the level of fear in a given stock is through a technical analysis indicator called the Relative...
Benzinga  Aug 11  Comment 
Nomura downgraded Lam Research Corporation (NASDAQ: LRCX) to Neutral as it awaits clarity on the acquisition of KLA-Tencor Corp (NASDAQ: KLAC), which would broaden Lam Research's end market exposure and increase margins, potentially resulting in...
Benzinga  Aug 11  Comment 
The following are the M&A deals, rumors and chatter circulating on Wall Street for Wednesday August 10, 2016:   Lam Research, KLA-Tencor Say Continue to Believe Deal is Pro-Competitive, Beneficial to Customers, Employees,...
Motley Fool  Aug 10  Comment 
The semiconductor equipment companies may have more trouble combining than previously thought.


With more than 50% market share, KLA-Tencor' (NASDAQ:KLAC) is the global leader of process diagnostics and control (PDC). KLA provides quality assurance tools in the form of testing equipment and software that can be used during various points in the semiconductor manufacturing process to increase yield and minimize defects. Semiconductor fabrication facilities (fabs) are more expensive than ever and chip design is becoming smaller and more complex. For these reasons, there is increased demand for PDC in order to increase production yield and minimize costly and time consuming defects.

Semiconductor demand has been elevated by the Commoditization of PCs, advanced chip design, and also increased demand from China. China is the world's largest emerging market and like most developing countries, China's rapid economic growth has created high demand for semiconductors and electronics. KLA's products are used by almost every major wafer and semiconductor manufacturer. Although KLA has maintained over 50% market share, the industry it competes in remains highly competitive. KLA faces competition from both established and new market entrants both of which could take valuable market share. This is an industry that relies heavily on improvement of product rather than lowering costs and competitors with greater resources could have an advantage.

Company Overview

KLA's products are used in semiconductor manufacturing, wafer manufacturing, and data storage. KLA helps manufacturers efficiently and effectively increase yield in the fabrication process through inspection and minimization of production defects. KLA is completely devoted to PDC and is the leading expert and innovator in this field.

KLA deals with metrology (measurement), inspection, and analysis of the production cycle. KLA provides its services in primarily two ways: software and equipment. KLA sells software that collects and interprets data from the production cycle in order to help maximize yield. KLA also sells process control equipment in which chips are sent through and inspected. Service and expertise from KLA engineers is also available at nearly every fab in the world. Several KLA products include:

  • Candela CS20: Automated wafer inspection system.
  • Archer XT+: Advanced optical metrology solution.
  • Viper 2435: Automated wafer and tool disposition.

Business Financials

In 2009, KLAC earned a total of $1.52 billion in total revenues. This was a significant decline from its 2008 total revenues of $2.52 billion. As a result, this had a severe negative impact for KLAC's net income. Between 2008 and 2009, KLAC's net income declined from a net profit of $359 million in 2008 to a net loss of $523 million in 2009.[1]

Trends and Forces

The Deeply Cyclical Semiconductor Industry

The semiconductor industry is subject to extreme volatility. Fluctuations in the global electronics market can cause a subsequent downturn or upturn in the semiconductor market. The demand and lifecycles of notable technologies such as the iPod/iPhone, next generation video game consoles, PDA's, and the newest computer systems can impact the quantity of semiconductors needed in a given year. In addition, semiconductor sales have shown about an 80% correlation with GDP growth trends, meaning a downturn in GDP growth could very likely be accompanied by a downturn in semiconductor sales.

The Complexity of Chip Design

KLA benefits hugely from the constant progression of chip design and, consequently, design complexity. Complex chip design has significantly increased the cost of building a fab (around $3 billion). The higher costs, in turn, forces semiconductor manufacturers to achieve higher production yields. This in turn benefits KLAC directly, because it increases the demand for KLAC's products. Similarly, manufacturing the chips has become more difficult and is more prone to errors. This too increases the need for PDC tools to minimize defects and wasted time.

2/3 of KLA Revenue Comes from Asia

About 66% of KLA revenues come from Asia due to the concentration of fabs there. Many semiconductor manufacturers are building fabs or outsourcing to fabs in parts of Asia, particularly Taiwan. Asia has lower overhead costs, and it is also convenient to be located near major electronics markets such as Japan and China. The large growth potential in China could be a major factor for semiconductor demand in years to come.


KLA commands over a 50% market share in PDC. KLA's sole focus and resources are for PDC. KLA has the largest PDC R&D budget and top tier expertise in the field. Some of KLA's largest competitors include:


  1. KLAC 10-K 2009 Item 6 Pg. 33
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