KLA posted record $3.66B quarterly revenue and raised 2026 wafer fab equipment (WFE) outlook to $150B, with advanced packaging revenue surging 70% YoY.
KLA Corporation delivered record results in its June quarter, posting revenue of $3.66 billion—up 15% year-over-year and surpassing guidance—as accelerating AI infrastructure investments drive unprecedented demand for advanced semiconductor packaging. The company raised its 2026 wafer equipment market forecast to approximately $150 billion, signaling mid-20% growth, and projects its advanced packaging revenue will reach $1.1 billion, representing over 70% year-over-year growth and roughly double the market's expansion rate.
Non-GAAP diluted EPS came in at $1.50 at the top end of guidance, while GAAP EPS reached $1.04. Gross margin hit 62.4%, supported by strong operational performance that generated an industry-leading incremental margin of 59%. Services revenue grew 17% year-over-year to $820 million, driven by high tool utilization and an expanding installed base, with 80% of service revenue derived from contracts that provide forward visibility.
CEO Rick Wallace framed the moment in stark terms: "The industry is in a period of accelerating investment driven by AI compute. Customer engagements remain robust, visibility continues to improve, and the wafer equipment market outlook continues to expand." The company now expects second-half revenue to be approximately 20% higher than the first half, positioning KLA for continued sequential growth into 2027.
Advanced packaging has emerged as an outsized growth engine, driven by CoWoS, hybrid bonding, and High Bandwidth Memory technologies that demand elevated inspection and metrology capabilities. Much of this demand leverages KLA's existing front-end portfolio with minimal incremental R&D investment. "It's been great to see, but even our folks who were right in the middle of it were surprised by the magnitude," Wallace said of the surge.
Gross margins faced persistent headwinds from memory component pricing, with CFO Bren Higgins quantifying roughly 100 basis points of pressure expected to continue through 2027. When pressed by analysts on pricing power relative to rising input costs, Higgins explained that price increases typically accompany new product introductions rather than existing orders. "It's pretty hard to go back to your customers after you've taken orders and start to change prices on those orders," he said. Management expressed confidence that gross margins will track within the 60–65% range, consistent with the company's long-term incremental model, with relief expected as new products enable cost structure adjustments and memory component pricing normalizes.
For the September quarter, KLA guided revenue of $4.0 billion ± $200 million, with gross margin expected at 62.5% ± 1 percentage point and non-GAAP EPS of $1.16 ± $0.10. Foundry and logic are projected to represent 73% of semiconductor process control systems revenue, with memory at 27%—dominated by DRAM at 90% as High Bandwidth Memory demand intensifies.
Looking beyond 2026, industry consensus points to wafer equipment spending of roughly $190 billion in 2027, translating to similar mid-20% growth. KLA is planning capacity for more bullish scenarios—up to 10–20% higher—by investing in long-lead-time components including optical systems with 12–24 month lead times. Management dismissed pullback concerns, with Wallace stating, "I have very few concerns about what's going to happen in 2027. It's pretty clear that the build-out continues." He cited customer demand signals for advanced compute and persistent memory shortages years from equilibrium, while the broadening of leading-edge logic investment—including Intel's pull-in of 14A production and Samsung's 2nm/3nm foundry wins—further strengthens visibility.
KLA remains structurally defensible in process control, where the company is approximately six times larger than its nearest rival. Wallace emphasized the competitive moat: "Process control is a very high-mix, low-volume market with a lot of nuance, algorithms, and deep customer engagement. Add to that the 1,600–1,700 applications engineers KLA has worldwide, and it's a pretty good competitive moat." The company gained share even during periods when some competitors could ship into China while KLA faced export restrictions.
The Orbotech-acquired specialty semiconductor and PCB inspection businesses, now classified within EPC, are also benefiting from high-performance computing trends, with combined growth expected to exceed 25% in 2026. Higgins noted the timing was surprising: "It turned on much faster than we thought," suggesting a structural uplift is possible as high-density substrates become critical to advanced packaging.
KLA's backlog, calculated as Remaining Performance Obligation, stood at approximately $12.5 billion at the end of June, providing visibility for the next 18 months. The company returned $876 million to shareholders in the quarter through buybacks and dividends, bringing the 12-month total to $3.3 billion. With $4.9 billion in cash and investment-grade ratings, KLA has ample capacity to invest in operations while rewarding shareholders as the semiconductor industry enters its most capital-intensive era.