KLA Corporation's Growth and Market Dynamics in Semiconductor Equipment at JPMorgan's 53rd Annual Technology Conference

Key Takeaways

TL;DR: KLA (KLAC) anticipates low DD growth in FY25 (+2025) fueled by leading-edge logic/foundry (2nm/HPC), HBM, and advanced packaging (+70% YoY growth). Process control intensity rises to ~8% of WFE, surpassing WFE’s mid-SD growth. Margin resilience (GM: 62.5%; OpEx leverage: 40-50%) despite 100bps tariff headwind. AI/ML integration enhances defect analytics; advanced packaging SAM expands.

1. WFE & Process Control Dynamics

• 2025 WFE market: Up mid-SD (to low-$100B) driven by 2nm logic nodes, HBM, and AI-driven HPC demand.
• Process control intensity rising: Now near 8% of WFE (vs. low-6% pre-2020) due to defect/yield challenges at leading-edge nodes.
• KLA’s outperformance: Process control growing ~2x WFE (low DD growth in FY25). Key drivers:
  • Optical inspection (Gen4/Gen5): Supply constraints eased, strong adoption.
  • E-beam inspection: Rev. doubled in C24; ~7% share gain (supports defect discovery for GAA architectures).

2. Advanced Packaging ($850M in FY25; +70% YoY)

• Growth driven by 2.5D/3D packaging, HBM integration, and hybrid bonding for AI/GPU chips.
• Expanding SAM: ~$10B market (vs. $3-4B in 2021). KLA’s exposure: process control (defect inspection) + specialty tools (chemical process).
• Key drivers: Rising complexity (3.5D), tighter designs (shrinking micro bumps), and high sampling to avoid costly rework.

3. Tariffs & Supply Chain

• Tariff impact: ~100bps GM headwind (worst case) from China/U.S. tariffs. Mitigation:
  • Leveraging U.S. manufacturing (California) for exports.
  • Service biz (~10% growth) structured as performance contracts (tariff-resilient).

4. AI/ML Integration & R&D

• GPU-based compute architecture reduces costs and enables AI-driven defect detection (improves signal/noise ratio).
  • Example: AI trains optical inspectors using e-beam defect data (extends hardware utility).
• R&D intensity steady at 12-13% (vs. high-teens historically).

5. Market Share & Key Opportunities

• Process control leadership: #1 in 5/6 subsegments (~90% share in optical inspection).