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KLA Enjoying Robust Capital Equipment Demand in 2021; Raising FVE to $315

Abhinav Davuluri, CFA Sector Strategist

Analyst Note

| Abhinav Davuluri, CFA |

KLA reported fiscal third-quarter results at the high end of management’s guidance, led by continued strength in the foundry and logic segments and improved memory spending. While memory sales for KLA were down in fiscal 2019 and 2020, we expect memory customers to ramp up spending over the course of 2021. KLA’s leading position in process diagnostic and control has served it well, as the firm is highly leveraged to the strategic R&D investments by customers for leading-edge process technologies across all chip types. Ongoing technology transitions and the implementation of EUV lithography at major foundries such as TSMC require advanced optical inspection tools from KLA. TSMC’s substantial increase for its 2021 capital expenditure budget ($30 billion from $17.2 billion in 2020) also supports the case for another double-digit growth year for KLA in 2021. We are raising our fair value estimate for wide-moat KLA to $315 per share from $290 as we incorporate a stronger growth outlook for 2021 and beyond. We view shares as modestly overvalued.

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Company Profile

Business Description

KLA designs and manufactures yield-management and process-monitoring diagnostic and control systems for the semiconductor industry. The systems are used to analyze the manufacturing process at various steps in a product's development. The firm's laser-scanning products are used for wafer qualification, process monitoring, and equipment monitoring. KLA also provides inspection tools and systems for optical metrology and e-beam metrology.

One Technology Drive
Milpitas, CA, 95035
T +1 408 875-3000
Sector Technology
Industry Semiconductor Equipment & Materials
Most Recent Earnings Mar 31, 2021
Fiscal Year End Jun 30, 2021
Stock Type Cyclical
Employees 10,600