SAN FRANCISCO—As expected, semiconductor equipment suppliers that posted quarterly results this week—including KLA-Tencor Corp., Novellus Systems Inc. and Teradyne Inc.—reported declines in sales and they expect more of the same in the fourth quarter. But they generally singled out investments by foundries in 32- and 28-nm process technologies as a pocket of strength.
Meanwhile, EDA vendor Cadence Design Systems Inc. reported a third quarter increase in sales and said it expects further increase in the fourth quarter. The relatively strong Cadence results—an anomaly in the semiconductor industry these days—may be partially attributed to accounting methods and licensing contracts, which generally cause EDA sales to be less volatile than those of semiconductor firms and capital equipment suppliers.
KLA (Milpitas, Calif.) reported sales of $796 million for the quarter ended Sept. 30, down 11 percent from the previous quarter but up 17 percent from the year-ago quarter. KLA reported a net income of $192 million, or $1.13 per diluted share, down 22 percent from the previous quarter but up 25 percent from the year-ago quarter.
KLA's third quarter sales exceeded consensus analysts' expectations of about $792 million, according to Yahoo Finance.
Rich Wallace, KLA's president and CEO, said in a conference call with analysts following the company's report that persistent economic weakness compounded normal cyclicality in the semiconductor industry, leading customers to scale back or delay planned capacity expansion. New orders for KLA declined 43 percent sequentially during the quarter to $486 million, Wallace said.
Wallace said KLA is seeing strong demand for tools for 28-nm process technology. Chip builders are investing to overcome challenges to yield at that node, he said. KLA is scrambling to meet demand for some of its leading-edge technology products from multiple foundries, he said. "Right now, it looks very good," Wallace said.
Foundries accounted for 57 percent of KLA's new orders during the quarter, and Wallace said the company expects growth in orders from foundries to continue during the current quarter. Foundry demand is being lead by market leaders ramping up their 28-nm process technology, Wallace said.
KLA said it expects sales for the current quarter to fall to between $600 million and $650 million, a steep decline of between 18 and 25 percent. The company said it expects bookings for the quarter to improve by between 25 percent and 45 percent. KLA said it expects revenue growth to improve in the calendar first quarter of 2012.
KLA's guidance came in well short of consensus analysts' expectations of about $710 million, according to Yahoo Finance.
Wallace said KLA is hopeful that memory suppliers will soon being to increase capacity investments. "We do see hope for memory, but we didn't see much action," Wallace said. It’s more talk and less action right now at this point in terms of investment."
Christopher Muse, an analyst with Barclays Capital, said he and fellow analysts were surprised by the magnitude of the increased foundry spending expected, but added that he has been expecting all along that foundry investment in 28- and 32-nm technologies would be a beacon of strong business in the downturn.
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