Executive Summary
KLA Corporation delivered a strong QQ2 2025 performance anchored by resilient demand at the leading edge of semiconductor manufacturing and ongoing momentum in advanced packaging. Revenue of $3.08 billion topped guidance and grew meaningfully YoY, while non-GAAP Diluted EPS of $8.20 surpassed the midpoint of guidance. Gross margin reached 61.7% with an operating margin of 42.3%, supporting a robust free cash flow of $757 million for calendar 2024 and a solid balance sheet to fund future growth. Management underscored AI as a key catalyst, with AI-related compute efficiency expected to bolster adoption of KLA’s inspection and metrology platforms, particularly at leading-edge nodes and in high-value packaging ecosystems.
Looking ahead, KLA outlined a cautious but constructive 2025 trajectory. The company guided for Q3 (March quarter) revenue of about $3.0 billion +/- $150 million, with Foundry/Logic and Memory mix at roughly 73% and 27% respectively, and a non-GAAP gross margin of about 62% +/- 1 percentage point. Management highlighted an estimated $500 million +/- $100 million China export-control impact for 2025 (roughly 70% of which affects systems), with some upside from licensing opportunities but a base-case with meaningful headwinds. The longer-term view remains supportive: anticiapted WFE market growth in the mid-single digits for 2025, ongoing ramp of N2 and HBM/advanced packaging, and continued strong service growth. Investors should monitor: (1) China regulatory developments and licensing timelines, (2) progression of AI-enabled demand and packaging opportunities, (3) share gains at leading-edge nodes, and (4) the servicing business’s growth trajectory as fabs re-optimize capacity post-China access changes.
Overall, KLAC’s QQ2 outcomes reinforce its leadership in process control, its leverage to AI-driven semiconductor growth, and its capability to translate top-line momentum into meaningful free cash flow and capital returns, even as it navigates a meaningful China regulatory impact. The company appears well-positioned to outpace the broader WFE market in 2025, albeit with notable macro and policy risk overlays that require ongoing management attention.
Key Performance Indicators
QoQ: -12.83% | YoY:41.54%
QoQ: -12.34% | YoY:43.72%
Key Insights
Revenue: $3.08B in Q2 2025 (calendar 2024 December quarter), up from prior period; YoY growth 23.73% and QoQ growth 8.28% (per reported income metrics). Gross margin: 61.7%; Operating margin: 42.3%; Net income: $1.10–$1.10B (approx. $1.1B); Net income margin: ~26.8%; Non-GAAP EPS: $8.20; GAAP EPS: $6.16; Depreciation & amortization: $40.9M; Interest expense: $74.98M; Tax rate: 13.7%; Cash flow from operations: $849.5M; Free cash flow: $757.2M; Ending cash and equivalents/marketable securit...
Financial Highlights
Revenue: $3.08B in Q2 2025 (calendar 2024 December quarter), up from prior period; YoY growth 23.73% and QoQ growth 8.28% (per reported income metrics). Gross margin: 61.7%; Operating margin: 42.3%; Net income: $1.10–$1.10B (approx. $1.1B); Net income margin: ~26.8%; Non-GAAP EPS: $8.20; GAAP EPS: $6.16; Depreciation & amortization: $40.9M; Interest expense: $74.98M; Tax rate: 13.7%; Cash flow from operations: $849.5M; Free cash flow: $757.2M; Ending cash and equivalents/marketable securities: $3.84B; Total debt: $5.90B; Net debt: ~$4.23B; RPO declined by about $0.9B to reflect timing and orders; Service revenue in December quarter: $667M, up 4% sequential and 18% YoY; Advanced packaging revenue: ~$500M in calendar 2024, guided to exceed $800M in calendar 2025; Share repurchases: $650M in the quarter; Dividends: $227M in the quarter; China exposure represented roughly 41% of 2024 revenue and is expected to decline to the high 20s% to ~30% in 2025 for quarterly periods.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
3.08B |
23.73% |
8.28% |
| Gross Profit |
1.86B |
22.88% |
9.52% |
| Operating Income |
1.24B |
30.43% |
10.91% |
| Net Income |
824.53M |
41.54% |
-12.83% |
| EPS |
6.18 |
43.72% |
-12.34% |
Key Financial Ratios
operatingProfitMargin
40.4%
operatingCashFlowPerShare
$6.37
freeCashFlowPerShare
$5.68
dividendPayoutRatio
27.5%
Management Commentary
Key management takeaways from the earnings call:
- Strategy and market conditions: AI is a core growth catalyst and enabler for KLA’s platforms, with higher compute efficiency supporting AI adoption in inspection and metrology. 'AI is both an important driver and enabler of KLA's business' (Rick Wallace).
- Strength in leading edge and packaging: Advanced packaging momentum is accelerating, with packaging-related revenue rising to roughly $500M in calendar 2024 and forecast to exceed $800M in calendar 2025, up from prior guidance. This supports broader process control demand as heterogeneous integration grows.
- China/export controls risk: Management flagged the China export controls, estimating a revenue impact of about $500M +/- $100M in calendar 2025, with around 70% of the impact on systems. Licensing may mitigate some effects, but delays persist. ‘We continue to estimate the impact on KLA's revenue in calendar 2025 from recent export controls in China to be approximately $500 million, plus or minus $100 million’ (Bren Higgins).
- China exposure and regional mix: China revenue contribution is expected to ease from about 41% of 2024 revenue to roughly 29% +/- for 2025, with the quarterly China contribution likely in the high 20s% to around 30% depending on shipments. This implies a meaningful geographic shift in mix but not a material overhang on overall demand given the broadening AI/leading-edge ramp.
- Guidance and margin discipline: March quarter guidance implies $3.0B +/- $150M revenue with non-GAAP gross margin around 62% and Opex ~ $585M, signaling ongoing operating leverage as revenue grows. Tax rate in March is 13.5% with pillar 2 elevating to ~14% in H2. Management emphasizes a long-run target of 40-50% incremental non-GAAP operating margin leverage on revenue growth.
"AI is both an important driver and enabler of KLA's business."
— Richard Wallace
"for all those reasons, it looks like process control intensity, KLA share of market looks to increase in 2025 based on our assessment."
— Bren Higgins
Forward Guidance
Outlook and assumptions for calendar 2025 and the March quarter:
- March quarter revenue: $3.0B +/- $150M; year-over-year midpoint ~27% growth, reflecting continued strength at the leading edge and AI-driven demand, with Foundry/Logic ~73% of Semi Process Control and Memory ~27% (DRAM ~75% of memory, NAND ~25%).
- Gross margin: Non-GAAP gross margin guided at 62% +/- 1pp in the March quarter, up ~30bp sequentially due to favorable mix; calendar 2025 gross margin expected around 62% +/- 50bp.
- OpEx: Non-GAAP operating expenses around $585M in the March quarter with a plan to maintain the current expense trajectory; remainder of 2025 expected to see sequential OpEx increases of about $15M per quarter to fuel product development and scale.
- Tax: March quarter tax rate ~13.5%; pillar 2 tax rate around 14% in the second half of 2025; mid-year update anticipated.
- Ex-China exposure: China revenue headwind of approx. $500M +/- $100M in 2025, with roughly 70% affecting systems; licensing opportunities may mitigate some impact, but execution risk remains high.
- Demand drivers and mix: WFE market projected to grow in the mid-single digits in 2025 from the high $90B level in 2024; gains driven by leading-edge logic and memory demand (HBM, AI workload). The company expects faster growth relative to WFE due to higher process control intensity at leading-edge nodes and stronger advanced packaging support.
- Strategic focus: Continued outperformance driven by N2 node momentum, DRAM/HBM mix shifts, and strong packaging demand; ongoing share gains in optical inspection and reticle markets; service growth remains a long-term lever, albeit with near-term China-related headwinds.
- Key risks to monitor: Regulatory/licensing delays in China, potential weaknesses in non-leading-edge demand, and potential volatility in EUV-related DRAM adoption. The company maintains a constructive view that it will outpace the WFE market despite these headwinds.