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KLA-Tencor's (KLAC) Q1 Earnings to Gain from Product Strength

KLA-Tencor Corporation KLAC is set to report first-quarter fiscal 2018 results on Oct 26.

Notably, the company has beaten the Zacks Consensus Estimates for earnings in all of the trailing four quarters, with an average surprise of 6.39%. Last quarter, the company delivered a positive earnings surprise of 3.14%.

Let’s find out what KLA has to offer investors in this quarter.

Expanding Product Portfolio to Drive Top Line

We expect KLA’s top-line growth to benefit from an expanding product portfolio. The company is well poised to gain from strong demand for more efficient manufacturing processes.

KLA-Tencor Corporation Price and EPS Surprise


KLA-Tencor Corporation Price and EPS Surprise | KLA-Tencor Corporation Quote

Moreover, the technical complexity of manufacturing semiconductors and increasingly challenging yield issues are anticipated to drive growth from in the company’s process control and yield management solutions.

We believe solid customer demand for products across the four end-markets — Wafer Inspection (50% of shipments), Service (21%), Non-semi (4%) and Patterning (25%) — is anticipated to drive order growth in the quarter.

For first-quarter fiscal 2018, KLA expects shipments of $945-$1.025 billion. Foundry and memory shipments are projected to be approximately 42% and 43% of the total shipments, respectively. NAND is anticipated to represent about half of the memory mix.

KLA forecasts revenues between $910 million and $970 million. The Zacks Consensus Estimate for revenues is currently pegged at $943 million.
Moreover, the Zacks Consensus Estimate for revenues for the Product segment is currently pegged at $740 million.

Services Growth & China: Key Factors

Services have become a key-growth driver in recent times. Last quarter, services revenues crossed $200 million for the first time in the company’s history. The growth was driven by expanded installed base and increasing demand for the upgrade and maintenance of legacy nodes.

The Zacks Consensus Estimate for revenues for the Service is currently pegged at $202 million.

Moreover, KLA management expects strong growth in China (18% of shipment in the fourth quarter) to continue in the soon-to-be reported quarter.

Why a Likely Positive Surprise?

Moreover, our proven model shows that KLA is likely to beat earnings due to the favorable combination of a Zacks Rank #1 (Strong Buy) and +1.48% Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Note that stocks with a Zacks Rank #1 or 2 (Buy) or 3 (Hold) has a significantly higher chance of beating earnings estimates. You can see the complete list of today’s Zacks #1 Rank stocks here.

Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

Stocks to Consider

Here are a few stocks which you may also consider, as our model shows that they too have the right combination of elements to post an earnings beat this quarter.

Applied Materials Inc AMAT has an Earnings ESP of +0.37% and sports a Zacks Rank #1.

NVIDIA Corporation NVDA, has an Earnings ESP of +1.06% and flaunts a Zacks Rank #1.

Kemet Corporation KEM, whas an Earnings ESP of +7.46% and sports a Zacks Rank #1.

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