KLA Corporation (KLAC) - Q2 FY2026 10-Q Summary
Business Context and Reporting Period
Company: KLA Corporation
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three and six months ended December 31, 2025 (Q2 Fiscal 2026)
Business Overview: KLA is a leading supplier of process control and yield management solutions for the semiconductor and electronics industries. The company operates through three segments: Semiconductor Process Control, Specialty Semiconductor Process, and PCB and Component Inspection.
Key Financial Metrics
| Metric (in millions) | Q2 2025 (3 Months) | Q2 2024 (3 Months) | YTD 2025 (6 Months) | YTD 2024 (6 Months) |
|---|---|---|---|---|
| Total Revenues | $3,297.1 | $3,076.9 | $6,506.8 | $5,918.4 |
| Gross Margin | 61.4% | 60.3% | 61.4% | 60.0% |
| Net Income | $1,145.7 | $824.5 | $2,266.7 | $1,770.4 |
| Diluted EPS | $8.68 | $6.16 | $17.15 | $13.17 |
| Operating Cash Flow (YTD) | $2,529.2 | $1,844.8 | ||
| Cash & Marketable Securities | $5,207.5 (as of Dec 31, 2025) | |||
| Long-Term Debt | $5,886.1 (as of Dec 31, 2025) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 7% year-over-year (YoY) in Q2 and 10% YoY for the six-month period. Growth was driven by an 18% increase in service revenue and a 4% increase in product revenue.
- Segment Performance:
- Semiconductor Process Control: Revenue increased 9% (Q2) and 11% (YTD), driven by memory customers (DRAM) and advanced packaging.
- Specialty Semiconductor Process: Revenue decreased 12% (Q2) and 10% (YTD) due to lower volumes, particularly in China.
- PCB and Component Inspection: Revenue decreased 6% (Q2) due to the exit of the Display business, though YTD revenue increased 14%.
- Profitability: Net income increased significantly compared to Q2 2024, which included a one-time goodwill and intangible asset impairment charge of $239.1 million. Gross margin expanded to 61.4% from 60.3% in the prior year quarter.
- Geographic Mix: Revenue from China decreased 9% in Q2 and 1% YTD due to U.S. export controls. Revenue from Korea increased 34% (Q2) and 31% (YTD), and North America increased 38% (Q2).
Guidance, Outlook, and Risks
- Outlook: Management expects continued revenue growth in calendar 2026 driven by AI, high-performance computing, and advanced packaging. However, escalating costs for DRAM chips used in image computers are expected to negatively impact gross margins in 2026.
- Capital Allocation: The company returned $547.8 million to shareholders via share repurchases and $249.7 million via dividends in Q2. The quarterly dividend was increased to $1.90 per share. $3.94 billion remains available under the stock repurchase program.
- Key Risks:
- Export Controls: Evolving U.S. Bureau of Industry and Security (BIS) rules continue to restrict sales to China, impacting revenue and backlog.
- Supply Chain: Shortages and price increases for specific DRAM chips and rare earth elements (due to Chinese export controls) pose risks to margins and production.
- Taxation: Changes in U.S. tax law (OBBBA) and global minimum tax (Pillar Two) adoption in jurisdictions like Israel and Singapore may impact the effective tax rate.
Investor Verification Checklist
- China Exposure: Verify the specific impact of new BIS "Affiliates Rule" and export license denials on the Semiconductor Process Control segment backlog.
- Margin Pressure: Confirm the magnitude of DRAM chip cost increases and their projected impact on FY2026 gross margins.
- Debt Structure: Review the maturity profile of the $5.95 billion in Senior Notes and the terms of the $1.5 billion Revolving Credit Facility.
- PCB Segment: Assess the long-term revenue trajectory of the PCB segment following the exit of the Display business.
- Tax Rate: Monitor the effective tax rate as the OBBBA provisions and Pillar Two rules take full effect in FY2026.