KLAC • 10-K • FY 2022 • Positive

KLA's Record Year Driven by 33% Revenue Growth Despite Supply Chain Headwinds

August 05, 2022 • 1 min read

TL;DR

KLA delivered exceptional performance in FY2022 with revenue surging 33% to $9.2B and net income climbing 60% to $3.3B. Product revenue grew 39% YoY to $7.3B while service revenue increased 14% to $1.9B, demonstrating strong demand across segments. Gross margins expanded despite inflationary pressures, reaching 61% vs 60% prior year. The company faces near-term challenges from supply constraints and geopolitical tensions, but maintains strong market position in semiconductor process control with

Financial Performance Overview: Revenue reached record $9.2B, up 33% YoY driven by semiconductor process control strength. Gross margins expanded 100bps to 61% despite cost pressures. Operating income grew 48% to $3.65B as operating leverage improved 400bps to 39.6%. Free cash flow generation remained robust at $2.8B (30% of revenue) enabling continued shareholder returns and strategic investments. Sequential growth accelerated in H2, suggesting continued momentum into FY23.
Strategic Initiatives and Operational Changes: Management increased R&D investment by 19% to $1.1B to maintain technology leadership in core markets while expanding into adjacent opportunities. Supply chain investments including $187M in additional inventory helped mitigate disruption risks. The acquisition of EPC Group strengthened e-beam inspection capabilities. New manufacturing capacity in Singapore and Michigan positions the company for continued growth while diversifying geographic footprint.
Market Position and Competitive Dynamics: KLA maintained dominant >50% market share in process control, benefiting from increasing complexity in semiconductor manufacturing. Customer concentration remained high with top 3 customers representing 45% of revenue. Services penetration increased to 21% of revenue as installed base grew. New product introductions in optical inspection and metrology expanded addressable market. Chinese customer revenue grew despite trade tensions.
Operational Efficiency and Profitability: Operating leverage improved significantly with operating margins expanding 400bps to 39.6%. Productivity initiatives delivered $150M in cost savings. Inventory turns declined to 2.1x due to strategic buffer stock build. Factory utilization remained high at 85%+ despite supply challenges. Services gross margins reached record 65% demonstrating scalability of recurring revenue streams.
Growth Catalysts and Material Risks: Near-term growth supported by $3.2B backlog and semiconductor capacity expansion cycles. Medium-term opportunities in advanced packaging, specialty semiconductors, and automotive. Key risks include trade restrictions with China (25% of revenue), supply chain disruptions, and semiconductor cycle downturn. Geographic diversification and services growth help offset cyclicality. Management expects continued growth but moderating pace in FY23.

Revenue

$9.21B ( YoY) with Product $7.3B () and Services $1.9B ()

↑ +33%

Gross Margin

(+100bps YoY) driven by mix and efficiency

↑ 61.0%

Free Cash Flow

$2.8B ( of revenue, YoY)

↑ 30%

Operating Margin

(+400bps YoY) showing strong leverage

↑ 39.6%

Growth Indicators

$3.2B ( YoY)

↑ +45%

R&D Investment ↑$1.1B (+19% YoY)

Services Revenue ↑21% of total (+14% YoY)

Key Risks

China trade restrictions impacting 25% of revenue
Semiconductor cycle downturn potential in 2023
Supply chain constraints and cost inflation
High customer concentration with top 3 at 45%

Key Opportunities

Advanced packaging $1B+ TAM expansion
Services penetration increasing to 25%+ of revenue
Geographic diversification through new facilities
AI/ML applications expanding process control market

Bottom Line

KLA delivered exceptional FY22 performance while strengthening its competitive position and operational capabilities. Revenue growth of 33% and margin expansion demonstrate strong execution and robust end market demand. Strategic investments in R&D, manufacturing capacity, and supply chain resilience position the company well for continued growth. While near-term risks exist around trade tensions and semiconductor cycles, the growing importance of process control and expansion into adjacent markets provide sustainable growth drivers. Key metrics to watch include Chinese customer revenue, services penetration, and new product traction in advanced packaging markets.