KLA Posts Q2 Earnings Beat as Semiconductor Demand Remains Resilient

KLA Corporation (KLAC) delivered stronger-than-expected second-quarter results, with non-GAAP earnings reaching $8.85 per share, outperforming analyst consensus by 0.36%. Total revenues climbed to $3.3 billion, a 7.2% increase year-over-year that also exceeded expectations by 1.02%. The earnings per share metric expanded 7.9% compared to the same period last year, underscoring consistent operational progress. However, shares declined 7.7% in pre-market trading following the announcement, a common reaction when growth forecasts suggest moderating momentum ahead.

KLA’s Segment Performance: Semiconductors Lead the Way

The company’s Semiconductor Process Control division, which represents 91.1% of total revenues, generated $3 billion and grew 9% year-over-year alongside a 4% sequential uptick. Within this segment, Foundry & Logic customers accounted for approximately 60% of revenues, while Memory-related processes made up 40%. This balanced mix reflects KLA’s diversified exposure across major semiconductor manufacturing categories.

Specialty Semiconductor Process revenues totaled $140 million (4.3% of total), declining 12.4% annually but recovering 17% sequentially. PCB and Component Inspection revenues reached $152 million (4.6% of total), falling 6% year-over-year though dropping 20% on a quarter-over-quarter basis.

Product Mix and Revenue Composition

Product revenues accounted for 76.2% of total sales, rising 4.2% year-over-year to $2.51 billion. Service revenues, representing 23.8% of the total, accelerated 18% annually and 6% sequentially to $786 million, indicating strong recurring business momentum.

Among major product categories, Wafer Inspection and Patterning Systems drove substantial revenue contributions. Wafer Inspection generated $1.57 billion (48% of total revenues), advancing 1% year-over-year with a 2% sequential gain. Patterning revenues surged to $696 million (21% of total), marking a remarkable 31% year-over-year increase and a 4% sequential rise.

Geographically, China and Taiwan led contributions with 30% and 26% respectively. Korea accounted for 14%, North America for 12%, Japan for 7%, Europe for 5%, and other Asian regions for 6%.

Operating Efficiency and Financial Health

KLA maintained a non-GAAP gross margin of 62.6%, exceeding the midpoint guidance by 60 basis points. Research and development expenses rose 10.9% year-over-year to $383.9 million, representing 11.6% of revenues—a 40 basis point improvement. Selling, general and administrative expenses increased 4.8% annually to $279.9 million, or 8.5% of revenues.

The company’s second-quarter operating margin reached 42.8%, supported by disciplined cost management. Cash, cash equivalents, and marketable securities totaled $5.20 billion as of December 31, 2025, compared with $4.68 billion three months prior. Operating cash flow strengthened to $1.36 billion from $1.16 billion sequentially, while free cash flow reached $1.26 billion. During the quarter, KLA returned capital through $548 million in share repurchases and $250 million in dividends.

Forward Momentum: Q3 Outlook and Investment Rating

For third-quarter fiscal 2026, management projects revenues between $3.2 billion and $3.5 billion, with non-GAAP earnings expected to range from $8.30 to $9.86 per share. The company guides for a 60.75% to 62.75% non-GAAP gross margin, with operating expenses estimated near $645 million. These targets suggest sustained demand despite the near-term stock pullback.

KLA maintains a Zacks Rank #1 (Strong Buy) rating, reflecting analyst confidence in its competitive positioning within semiconductor capital equipment markets. Among comparable technology companies, Amkor Technology also holds a #1 ranking, while Arista Networks and Advanced Energy carry #2 (Buy) ratings. Arista shares have climbed 21.2% over the trailing six months ahead of fourth-quarter results on February 12. Advanced Energy gained 86.8% during the same window, with third-quarter results due February 10. Amkor surged 108.9% in the six-month period before reporting fourth-quarter earnings on February 9.