KLA (NASDAQ:KLAC) reported December quarter 2025 results that management described as strong across revenue, profitability, cash generation, and capital returns, while also outlining an improving industry outlook for calendar 2026 and continued momentum tied to AI-driven semiconductor demand.
Full-year 2025 results and key drivers
CEO Rick Wallace said KLA delivered “relative growth outperformance” in 2025, supported by strong profitability and free cash flow. For calendar 2025, KLA reported revenue of $12.745 billion, up 17% year-over-year, which the company said was a record. Wallace added that KLA’s process control systems business outpaced broader industry growth “by several points.”
Wallace pointed to AI infrastructure demand as a core tailwind, citing growth vectors that include advanced logic, high bandwidth memory (HBM), and advanced packaging. He also said KLA is applying AI-driven analytics within its own solutions to help customers streamline chip manufacturing and accelerate time-to-yield.
December quarter performance
For the December quarter, KLA reported revenue of $3.3 billion, non-GAAP diluted EPS of $8.85, and GAAP diluted EPS of $8.68. Wallace said results reflected 17% year-over-year revenue growth, driven by investment in leading-edge foundry/logic and memory, including HBM and DRAM.
CFO Bren Higgins said revenue was above the guidance midpoint of $3.225 billion, while both GAAP and non-GAAP EPS exceeded the midpoints of their respective ranges. Non-GAAP gross margin was 62.6%, which Higgins attributed to stronger-than-modeled service performance and manufacturing efficiencies. Operating expenses totaled $653 million, including $384 million in R&D and $269 million in SG&A, with a non-GAAP operating margin of 42.8%. Other income/expense net was $32 million, and the effective tax rate was 15%.
KLA’s services business generated $786 million in revenue in the December quarter, up 6% sequentially and 18% year-over-year. Wallace said 2025 marked the 16th consecutive year of annual services revenue growth, with a compounded annual growth rate above 12% over that span.
Cash flow from operations was $1.37 billion, and free cash flow was a quarterly record $1.26 billion. KLA returned $797 million in the quarter, consisting of $548 million of share repurchases and $250 million in dividends. The company ended the quarter with $5.2 billion in total cash, cash equivalents, and marketable securities, and $5.9 billion of debt.
Advanced packaging and process control intensity
Wallace said KLA continued to grow in advanced packaging in the December quarter, describing increasing process control needs “in the chip package” as systems become more complex. He said calendar 2025 total systems revenue in advanced packaging was approximately $950 million, representing over 70% year-over-year growth.
Looking to 2026, management said it expects advanced packaging momentum to continue, with year-over-year percentage growth expectations in the mid- to high-teens. In Q&A, management discussed how definitions of “WFE” can differ across companies as advanced packaging becomes a larger, more widely included market component. The company’s framework for 2026 includes both a core WFE view and an advanced packaging component, which together management said aligns with an overall mid-$130 billion market range.
Executives also discussed rising process control intensity in memory, particularly DRAM tied to HBM. Wallace cited multiple factors, including higher device value, less tolerance for redundancy, more metallization layers, and increased use of advanced lithography, which in turn requires more inspection. He added that the ability to “bin” devices is more limited in high-performance compute use cases, driving tighter requirements and greater emphasis on rigorous inspection and metrology.
March quarter guidance and 2026 outlook
KLA guided for March quarter revenue of $3.35 billion ± $150 million and non-GAAP EPS of $9.08 ± $0.78 (GAAP EPS $8.85 ± $0.78). Gross margin is expected to be 61.75% ± 1 percentage point, with operating expenses projected at approximately $645 million. The company’s planning tax rate for calendar 2026 is 14.5%, and guidance assumes a fully diluted share count of about 131.7 million.
Higgins said the industry outlook for 2026 has strengthened in recent months, with KLA expecting the core WFE market to grow in the high single- to low double-digit percentage range to the low $120 billion range, up from roughly $110 billion in 2025. He said the advanced packaging component is expected to grow at a similar rate to approximately $12 billion, implying a total market forecast in the mid-$130 billion range.
Management said customer spending is expected to broaden across major end markets, and that KLA is seeing momentum reflected in backlog and the sales funnel. However, Higgins noted that first-half 2026 growth is constrained by supply limitations and customer lead times that have increased due to constraints, limiting first-half growth potential “across many of our products.” Executives cited long-lead components such as optics as a key constraint and also discussed customer facility readiness as a factor affecting equipment ramp timing, including in advanced packaging.
On margins, Higgins highlighted a headwind from “rapidly escalating” DRAM chip costs used in image processing computers shipped with KLA systems. KLA expects this to be transitory, but said current modeling suggests it could persist through 2026 and reduce gross margins by roughly 75–100 basis points for the calendar year. For calendar 2026 overall, KLA expects gross margin around 62% ± 50 basis points, while also reiterating confidence in a longer-term 63%+ gross margin model.
Topics raised in Q&A: China, supply constraints, and market mix
- China: Management said it expects China to be “flattish, maybe slightly positive” in 2026 after being “modestly negative” in 2025, with China representing a company revenue mix in the mid-20% to high-20% range. Management also referenced total China WFE in the mid- to high-$30 billion range in 2026, including restricted fabs.
- Supply constraints: Executives said the company is “virtually sold out” across most products in the first half, with decisions affecting first-half shipments made in mid-2025 given lead times. They emphasized that constraints are product-specific rather than tied to particular customers, and said many customer conversations are already focused on deliveries late in 2026 and into 2027.
- Foundry/logic vs. memory: Management said DRAM is expected to grow faster than foundry/logic, driven by HBM demand. In discussing market modeling, management referenced an industry view of foundry/logic WFE up roughly 10%–15% and DRAM up roughly 15%–20%, with NAND characterized as slower and harder to pin down.
KLA also reminded investors that it will host an Investor Day on March 12, where management indicated it plans to provide additional detail on longer-term opportunities, including process control intensity and market drivers.
About KLA (NASDAQ:KLAC)
KLA is a provider of process control and yield management solutions for the semiconductor and related microelectronics industries. The company designs and manufactures equipment, software and services used by chipmakers to analyze and control manufacturing processes, detect defects, measure critical dimensions and improve yield across wafer fabrication, photomask and packaging operations. KLA’s offerings are aimed at enabling production of advanced logic, memory, and specialty devices at progressively smaller technology nodes and more complex package structures.
Its product portfolio includes optical and e-beam inspection systems, metrology tools for critical dimension and film measurement, mask and reticle inspection platforms, as well as enterprise software and data analytics that aggregate process data and drive automated process control.
