KLA Corporation CFO Bren Higgins Discusses Market Trends and Growth Opportunities at Bank of America Global Technology Conference 2025

Key Takeaways

TL;DR: KLA is strategically positioned amid robust leading-edge investments—esp. at the 2-nm node—and a differentiated, high-margin svc biz, while managing predictable demand in China and capturing significant oppt'y from advanced packaging. Key drivers and strategic shifts are set to support DD share gains and margin improvements over the coming years.

• Demand Environment & Leading-Edge Investment
  • CFO Bren Higgins highlighted a strong return of growth in leading-edge sectors, emphasizing higher investment intensity at the 2-nm node driven by complex designs, tighter design rules, and new architectures that require robust process control.
  • He noted that investments in high-performance compute and large-die challenges (e.g., going from 100 to 20 die per wafer) underscore the strategic value of KLA’s offerings.
  • Direct quote: “We have significant share momentum… our customers are committed, and advanced design rules continue to drive good process control.”
• Advanced Packaging & Process Control
  • Advanced packaging is growing meaningfully—from a $3-4B market a few years ago to roughly $9-10B today—with approx. 70% of a projected $850M oppt'y in 2025 coming from the process control segment.
  • The evolving heterogeneous integration, particularly for high-bandwidth memory and DRAM, is fostering a higher-value market and justifying premium pricing and differentiation.
• Service Business Model
  • KLA’s svc biz remains a key competitive driver, delivering high contract penetration (~75% of rev. from svcs) and capturing 100% of svc rev. over a tool’s lifetime—compared to 40-50% in the past.
  • The highly specialized and proprietary nature of KLA’s systems not only deters third-party cannibalization but also ensures tools maintain high uptime and performance, paving the way for low DD growth in 2025.
  • Quote: “Our tool lifetime is now in the high teens, and our svc rev. capturing up to 100% of the tool’s ASP underscores the captive nature of our biz.”
• China Exposure & Market Predictability
  • Exposure in China is expected to normalize from 40% in 2024 to roughly 30% in 2025, with a broadly fragmented customer base minimizing single-customer concentration risks.
  • Despite some supply-chain challenges and restricted access to fabs, the predictable nature of China-based rev. (w/ flexible slot planning and consistent customer commitments) supports stable near-term rev. guidance.
  • Bren explained that even if restrictions persist, China’s demand appears largely stable provided there’s no substantive shift in geopolitical dynamics.
• WFE Market Dynamics & Financial Guidance
  • KLA’s guidance for the June Q stands at approx. $3.075B, with expectations to maintain flatish performance in the back half of the year.
  • While most industry forecasts suggest mid-SD WFE growth, KLA’s exposure to both traditional WFE and the rapidly growing advanced packaging segment implies potential upside in overall served market oppt'y.
  • Operating metrics remain robust: GP margins have been adjusted upward from 62% to the mid-60s, and incremental OP margins are trending at 40%-50%—validating KLA’s share gains in a maturing market.
  • Bren expects future growth drivers to include increased design starts and risk reduction investments for next-gen nodes, which will continue to elevate process control intensity and overall WFE growth.

Overall, the discussion emphasized that KLA’s strategic positioning in high-tech process control, coupled with its strong svc biz and careful management of China exposure, underpins a compelling long-term growth story for investors.

Call Q&A

• Vivek Arya: How are you seeing the demand environment versus what you thought at the start of the year?
  • Bren Higgins: There has been noise, but we haven't seen much change. Customers are committed, esp. at the leading edge with investments at the 2-nm node. We're well-positioned, seeing higher levels of intensity and market share. Advanced packaging and high-bandwidth memory are driving biz, and our svc biz continues to grow despite some restrictions in China.
• Vivek Arya: Is the biz in China now predictable for the rest of the year?
  • Bren Higgins: We expect China to be about 30% of our biz in '25, down from over 40% in '24. The forecast looks fairly predictable, and we try to be flexible with demand scenarios.
• Vivek Arya: Is there any concentration of rev. in China to any single customer?
  • Bren Higgins: Not really. Process control investments are more continuous and not capacity-centric. We have a mix of historic and new customers, and infrastructure investment in China also drives biz for KLA.
• Vivek Arya: Who services the tools if a customer is restricted?
  • Bren Higgins: It's challenging when we don't have access to customers. Some third parties might try to replicate parts, but our svc biz is unique due to the complexity of our tools. Customers rely on KLA for performance and availability.
• Vivek Arya: What's different about your svcs biz that allows DD growth?
  • Bren Higgins: Our svcs don't include systems upgrades or 200-mm tools. Customers buy performance over time, not just break and fix. We commit to high availability and customize offerings to meet requirements. Our svc biz grows consistently due to these factors.
• Vivek Arya: Why is your WFE growth DD while the market is mid-SD?
  • Bren Higgins: We have more visibility into our biz. Advanced packaging is now a significant part of the market, contributing to growth. We'll provide updates as we move into the June Q.
• Vivek Arya: What does China's smaller part in the industry mean for long-term WFE intensity?
  • Bren Higgins: WFE intensity has risen since 2013-2014. We assume an efficient market with WFE growing slightly faster than semiconductor rev. Logic/foundry WFE grows faster, benefiting process control and KLA's growth.