KLA Corp (KLAC, Financial) recently updated its Q3 earnings forecast, now expecting EPS to range between $4.23 and $5.53, a decrease from the previously projected $4.66 to $5.86. This adjustment follows a period of recovery after the company's Q2 earnings report on January 26, which initially presented a lower guidance. Additionally, KLAC announced its decision to withdraw from the flat panel display sector.
The revised EPS guidance is particularly surprising given the context of Applied Materials' (AMAT, Financial) strong Q1 performance. AMAT not only surpassed EPS and revenue expectations but also provided optimistic Q2 forecasts. This contrast highlights KLAC's challenges in leveraging the booming AI sector, unlike its competitor.
AMAT's recent success has been partly attributed to the demand for high-bandwidth memory (HBM), crucial for AI data centers, despite broader macroeconomic challenges. KLAC, on the other hand, faces more significant impacts from reduced spending on wafer fabrication equipment, especially in the traditional NAND and DRAM markets.
However, KLAC's lowered EPS forecast is primarily due to its exit from the flat panel display business, which is expected to negatively affect non-GAAP EPS by $0.48 per share due to inventory write-offs. Despite this, KLAC maintains its Q3 revenue guidance of $2.175 to $2.425 billion, indicating that the reduced EPS outlook is not a result of decreased demand.
The company also emphasized that the flat panel display business represented only 1.4% of its total FY23 revenue and that its departure from this sector would not significantly impact profitability margins. This move is aimed at streamlining operations and concentrating on core market areas.
The key takeaway is that KLAC's adjustment in EPS guidance, tied to its exit from the flat panel display business, highlights ongoing challenges in the semiconductor equipment sector amidst fluctuating wafer fabrication equipment spending.
