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KLA

KLAC · Nasdaq

Defect inspection now brings in half of revenue

Wafer Inspection grew 37.34% to $2.11B and now makes 51.04% of revenue, so leading-edge defect finding carries KLA's growth.

Q1 FY2027, the quarter to Sep 30, 2026 (KLA's fiscal 2027 ends in June 2027) · 10-Q filed Oct 29, 2026

Q1 FY2027 · revenue
$4.1B+28.9% on the year
Operating margin
—
Net income
$1.5B
Free cash flow, quarter
$1.3B

Largest source of revenue: Wafer Inspection, 51.0% of the total.

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Where KLA's money goes

Tap the picture to explore the flow: levels, scale, every line and its figures.
Key insights · Q1 FY2027
  1. 01

    Defect inspection now brings in half of revenue

    Wafer Inspection grew 37.34% to $2.11B and now makes 51.04% of revenue, so leading-edge defect finding carries KLA's growth.

    Why it matters

    Wafer Inspection revenue was $2.11B in the quarter, up 37.34% from a year earlier, against total revenue growth of 28.86%. Its share of revenue rose 3.15 points to 51.04%. Patterning, the other core product line, grew 29.22% to $862.5M and held its share at 20.85%. Both sit inside Semiconductor Process Control, which brought in 90.77% of segment revenues.1

    The filing attributes the growth to "higher demand from leading-edge customers in memory, advanced packaging, and foundry/logic technologies", and says leading-edge nodes are "increasing process complexity and process control intensity". It names EUV adoption in logic and DRAM, including high-bandwidth memory, as a long-term driver that is "expanding our served market".1

    AnalysisAnalysis: each new node adds process steps and shrinks features, so a chipmaker needs more inspection per wafer, not only more wafers. That ties KLA's growth more closely to how fast customers move to new nodes than to how many chips are sold in a given quarter.

    The flip side is a narrower base of growth. Services grew 14.21% and Specialty Semiconductor Process 13.35%, both well below the total, so the steadier lines lost share: services fell 2.64 points to 20.56% of revenue.1

  2. 02

    Research costs grew a third as fast as sales

    Revenue rose 28.86% while research rose 9.61%, so income before taxes grew 39.3% and reached 44.1% of revenue, up 3.3 points.

    Why it matters

    Research and development was $395.1M, up 9.61%, and selling, general and administrative $301.5M, up 12.07%, against revenue growth of 28.86%. Their shares of revenue fell 1.68 and 1.09 points, to 9.55% and 7.29%. Income before income taxes rose to $1.82B from $1.31B.1

    Most of the margin gain came below gross profit. Gross margin rose only 0.58 points, to 61.85%, while the two expense lines shrank by 1.68 and 1.09 points of revenue. The filing attributes the rise in research spending mainly to higher headcount and compensation, and the statements report no separate operating income line.1

    Net income grew a little slower, 38.14% to $1.55B, because the tax provision rose 46.2% to $275.5M. The effective rate was 15.1% against 14.4% a year earlier, which the filing attributes to the Undertaxed Profits Rule under the OECD's Pillar Two minimum tax.1

    The leverage runs both ways. In FY2024, annual revenue fell to $9.81B from $10.50B, and net income fell further, to $2.76B from $3.39B. The filing says the company must continue to make "substantial and focused investments" in research.1

  3. 03

    Capital spending doubled, and cash still matched profit

    Operating cash flow of $1.53B was 98.9% of net income while capital spending doubled, so the quarter funded its own expansion.

    Why it matters

    Capital expenditure was $194.8M, 4.71% of revenue, up from $95.9M a year earlier, as the company plans to "expand manufacturing capacity and increase production levels to meet customer demand". Free cash flow was still $1.34B, 32.3% of revenue.1

    The filing attributes the rise in operating cash flow mainly to higher customer collections driven by higher shipments, partly offset by larger payments to suppliers. Inventories and receivables both grew in the quarter and used cash, so the match with profit came despite a working capital build.1

    The quarter closes a gap from the last fiscal year. In FY2026, operating cash flow of $4.14B was 85.8% of net income of $4.83B, and free cash flow of $3.77B was 78.0% of it. In FY2025, operating cash flow of $4.08B roughly matched net income of $4.06B.1

    AnalysisAnalysis: the filing also says the company increased purchase commitments to secure key components. If inventory keeps building faster than shipments, cash conversion could slip back toward last year's level; if the build turns into deliveries and collections, it supports the cash behind buybacks and dividends.

Sources

  1. 1.KLA 10-Q for the period to 2026-09-30 (the filing), Oct 29, 2026, read Nov 2, 2026

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Business performance

Growth, profit and margin

Revenue went from $1.5B in FY2009 to $13.6B in FY2026, over 17 years.

  • Revenue$13.6B
  • Operating income—
  • Operating margin—
Period
Q1 FY2027
Revenue
$4.1B
Operating income
—
Operating margin
—
Net income
$1.5B
Free cash flow
$1.3B
Business performance

Does the profit turn into cash?

Q1 FY2027: free cash flow of $1.3B against net income of $1.5B in the quarter.

  • Operating cash flow$4.1B
  • Capital expenditure$375.9M
  • Free cash flow$3.8B
  • Net income$4.8B

Capital expenditure is drawn below the axis as cash out. Cash conversion is operating cash flow over net income, shown in the tooltip for years with a profit.

Financial data and sources

How the revenue mix has shifted

Each breakdown the filing reports, as shares of revenue, for every period it restates.

SEGMENT REPORTING AND GEOGRAPHIC INFORMATION - Revenue from External Customers by Products and Services (Details). The filing restates this breakdown for 1 period.

Click a member to isolate it across the years shown.

The figures

Margins, cash and growth for the period, each with what it was computed from.

Gross margin
61.9%
Source10-Q, Derived from Total revenues and Costs of revenues in the 10-Q filed 2026-10-29
Operating margin
Not reported
no operating income line is reported
Net margin
37.4%
Source10-Q, Derived from Net income and Total revenues in the 10-Q filed 2026-10-29
Free cash flow, quarter
$1.3B
Source10-Q, Derived from the prior period in the history in the 10-Q filed 2026-10-29
Free cash flow margin, quarter
32.3%
Source10-Q, Derived from the prior period in the history in the 10-Q filed 2026-10-29
Cash conversion, quarter
0.99x
Source10-Q, Derived from the prior period in the history in the 10-Q filed 2026-10-29
Capital spending, quarter
4.7%
Source10-Q, Derived from the prior period in the history in the 10-Q filed 2026-10-29
Revenue growth
+28.9%
From the record's own history, against the prior year.

Not reported, or not derivable

  • operating margin: no operating income line is reported

Where revenue comes from

Every breakdown the filing reports for the period, with each item's share.

Revenue streams

Wafer Inspection$2.1B51.0%
Patterning$862.5M20.9%
Services$850.5M20.6%
PCB and Component Inspection$167.5M4.1%
Specialty Semiconductor Process$113.6M2.7%
Other$30.7M0.7%

Source10-Q, us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax, as reported in the 10-Q filed 2026-10-29

Segments

Semiconductor Process Control$3.8B90.8%
PCB and Component Inspection$242.2M5.9%
Specialty Semiconductor Process$139.5M3.4%

Source10-Q, us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax, as reported in the 10-Q filed 2026-10-29

Geographic markets

North America$618.0M14.9%
Rest of Asia$218.2M5.3%
Europe and Israel$194.3M4.7%

These items do not sum to total revenue; the filing states them beside it. Source10-Q, us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax, as reported in the 10-Q filed 2026-10-29

ConsolidationItems

Total revenues for reportable segments$4.1B100.0%
Effects of changes in foreign currency exchange rates$123.0K0.0%

Source10-Q, us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax, as reported in the 10-Q filed 2026-10-29

What it costs

The cost lines beneath operating income, each as a share of revenue, then the operating result.

Costs are reported by function: what it cost to make what was sold, then the expenses of selling, developing and administering.

Cost lineQ1 FY2027Of revenueSource
Costs of revenues$1.6B38.1%Source10-Q, us-gaap:CostOfRevenue, as reported in the 10-Q filed 2026-10-29

Operating figures the company states

From the text of the filing rather than its statements, each with the sentence that states it.

Largest customer share of total revenues
21.0%
As of Sep 30, 2026
View source
In the three months ended September 30, 2026, two customers accounted for approximately 21 % and 13 % of total revenues each.
Second-largest customer share of total revenues
13.0%
As of Sep 30, 2026
View source
In the three months ended September 30, 2026, two customers accounted for approximately 21 % and 13 % of total revenues each.
Services share of total revenues
20.0%
As of Sep 30, 2026
View source
In addition, our services business has grown consistently year-over-year and accounted for approximately 20% of our total revenues in the first quarter of fiscal 2027.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, 10-Q filed Oct 29, 2026

The statements, as filed

The income statement, cash flow statement and balance sheet in the company's own order and words. Every line links to the filing.

Income statement15 lines, as presented in the 10-Q
LineQ1 FY2027A year earlierChangeOf revenueSource
Revenues:
Total revenues$4.14B$3.21B+29%100%Source10-Q, us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax, as reported in the 10-Q filed 2026-10-29
Product$3.29B$2.47B+33%79.4%Source10-Q, us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax [us-gaap:ProductMember], as reported in the 10-Q filed 2026-10-29
Service$850.5M$744.7M+14%20.6%Source10-Q, us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax [us-gaap:ServiceMember], as reported in the 10-Q filed 2026-10-29
Costs and expenses:
Costs of revenues$1.58B$1.24B+27%38.1%Source10-Q, us-gaap:CostOfRevenue, as reported in the 10-Q filed 2026-10-29
Research and development$395.1M$360.5M+9.6%9.6%Source10-Q, us-gaap:ResearchAndDevelopmentExpense, as reported in the 10-Q filed 2026-10-29
Selling, general and administrative$301.5M$269.0M+12%7.3%Source10-Q, us-gaap:SellingGeneralAndAdministrativeExpense, as reported in the 10-Q filed 2026-10-29
Interest expense$67.9M$71.1M-4.4%1.6%Source10-Q, us-gaap:InterestExpenseNonoperating, as reported in the 10-Q filed 2026-10-29
Other expense (income), net (shown as a deduction)($30.3M)$43.4M-30%0.7%Source10-Q, us-gaap:OtherNonoperatingIncomeExpense, as reported in the 10-Q filed 2026-10-29
Income Statement
Income before income taxes$1.82B$1.31B+39%44.1%Source10-Q, us-gaap:IncomeLossFromContinuingOperationsBeforeIncomeTaxesExtraordinaryItemsNoncontrollingInterest, as reported in the 10-Q filed 2026-10-29
Provision for income taxes$275.5M$188.4M+46%6.7%Source10-Q, us-gaap:IncomeTaxExpenseBenefit, as reported in the 10-Q filed 2026-10-29
Net income$1.55B$1.12B+38%37.4%Source10-Q, us-gaap:NetIncomeLoss, as reported in the 10-Q filed 2026-10-29
Net income per share
Basic (in dollars per share)$1$1+40%0.0%Source10-Q, us-gaap:EarningsPerShareBasic, as reported in the 10-Q filed 2026-10-29
Diluted (in dollars per share)$1$1+39%0.0%Source10-Q, us-gaap:EarningsPerShareDiluted, as reported in the 10-Q filed 2026-10-29
Weighted-average number of shares:
Basic (in shares)1,305,330,0001,317,567,000-0.9%Source10-Q, us-gaap:WeightedAverageNumberOfSharesOutstandingBasic, as reported in the 10-Q filed 2026-10-29
Diluted (in shares)1,311,064,0001,323,808,000-1.0%Source10-Q, us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding, as reported in the 10-Q filed 2026-10-29
Cash flow statement31 lines, as presented in the 10-Q

Year to date, as a quarterly filing reports it.

LineQ1 FY2027A year earlierChangeSource
Cash flows from operating activities:
Net income$1.55B$1.12B+38%Source10-Q, us-gaap:NetIncomeLoss, as reported in the 10-Q filed 2026-10-29
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization$97.4M$97.0M+0.4%Source10-Q, us-gaap:DepreciationDepletionAndAmortization, as reported in the 10-Q filed 2026-10-29
Unrealized foreign exchange (gain) loss and other (shown as a deduction)($6.9M)-$12.1MSource10-Q, us-gaap:ForeignCurrencyTransactionGainLossUnrealized, as reported in the 10-Q filed 2026-10-29
Stock-based compensation expense$84.1M$70.2M+20%Source10-Q, us-gaap:ShareBasedCompensation, as reported in the 10-Q filed 2026-10-29
Deferred income taxes-$27.1M-$10.6M+155%Source10-Q, us-gaap:DeferredIncomeTaxesAndTaxCredits, as reported in the 10-Q filed 2026-10-29
Changes in assets and liabilities:
Accounts receivable (shown as a deduction)($179.2M)$12.6M+1,325%Source10-Q, klac:IncreaseDecreaseInAccountsReceivableExcludingAcquisitionRelated, as reported in the 10-Q filed 2026-10-29
Inventories (shown as a deduction)($433.8M)$95.7M+353%Source10-Q, us-gaap:IncreaseDecreaseInInventories, as reported in the 10-Q filed 2026-10-29
Other assets (shown as a deduction)(-$176.9M)-$50.9M+247%Source10-Q, us-gaap:IncreaseDecreaseInOtherOperatingAssets, as reported in the 10-Q filed 2026-10-29
Accounts payable$116.7M-$23.7MSource10-Q, us-gaap:IncreaseDecreaseInAccountsPayable, as reported in the 10-Q filed 2026-10-29
Deferred system revenue-$89.9M$2.0MSource10-Q, klac:IncreaseDecreaseInContractWithCustomerLiabilitySystemRevenue, as reported in the 10-Q filed 2026-10-29
Deferred service revenue$22.6M-$5.0MSource10-Q, klac:IncreaseDecreaseInContractWithCustomerLiabilityServiceRevenue, as reported in the 10-Q filed 2026-10-29
Other liabilities$221.6M-$44.0MSource10-Q, us-gaap:IncreaseDecreaseInOtherOperatingLiabilities, as reported in the 10-Q filed 2026-10-29
Cash flows from operating activities:
Net cash provided by operating activities$1.53B$1.16B+32%Source10-Q, us-gaap:NetCashProvidedByUsedInOperatingActivities, as reported in the 10-Q filed 2026-10-29
Cash flows from investing activities:
Capital expenditures (shown as a deduction)($194.8M)$95.9M+103%Source10-Q, us-gaap:PaymentsToAcquirePropertyPlantAndEquipment, as reported in the 10-Q filed 2026-10-29
Proceeds from capital-related government assistance$435.0K$1.5M-72%Source10-Q, klac:ProceedsFromCapitalRelatedGovernmentAssistance, as reported in the 10-Q filed 2026-10-29
Purchases of available-for-sale and equity securities (shown as a deduction)($701.2M)$949.9M-26%Source10-Q, us-gaap:PaymentsToAcquireAvailableForSaleSecuritiesDebt, as reported in the 10-Q filed 2026-10-29
Proceeds from maturity and sale of available-for-sale securities$716.2M$632.8M+13%Source10-Q, us-gaap:ProceedsFromSaleAndMaturityOfAvailableForSaleSecurities, as reported in the 10-Q filed 2026-10-29
Purchases of trading securities (shown as a deduction)($36.8M)$156.9M-77%Source10-Q, us-gaap:PaymentsToAcquireTradingSecuritiesHeldforinvestment, as reported in the 10-Q filed 2026-10-29
Proceeds from sale of trading securities$38.2M$158.3M-76%Source10-Q, klac:ProceedsFromSaleOfTradingSecurities, as reported in the 10-Q filed 2026-10-29
Net cash used in investing activities-$177.9M-$410.0M-57%Source10-Q, us-gaap:NetCashProvidedByUsedInInvestingActivities, as reported in the 10-Q filed 2026-10-29
Cash flows from financing activities:
Payment of debt issuance costs (shown as a deduction)($0)$1.6MSource10-Q, us-gaap:PaymentsOfDebtIssuanceCosts, as reported in the 10-Q filed 2026-10-29
Common stock repurchases (shown as a deduction)($935.8M)$545.1M+72%Source10-Q, us-gaap:PaymentsForRepurchaseOfCommonStock, as reported in the 10-Q filed 2026-10-29
Payment of dividends to stockholders (shown as a deduction)($305.1M)$254.0M+20%Source10-Q, us-gaap:PaymentsOfDividendsCommonStock, as reported in the 10-Q filed 2026-10-29
Tax withholding payments related to vested and released restricted stock units (shown as a deduction)($238.7M)$81.1M+194%Source10-Q, us-gaap:PaymentsRelatedToTaxWithholdingForShareBasedCompensation, as reported in the 10-Q filed 2026-10-29
Net cash used in financing activities-$1.48B-$881.8M+68%Source10-Q, us-gaap:NetCashProvidedByUsedInFinancingActivities, as reported in the 10-Q filed 2026-10-29
Statement of Cash Flows
Effect of exchange rate changes on cash and cash equivalents$8.7M-$2.5MSource10-Q, us-gaap:EffectOfExchangeRateOnCashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents, as reported in the 10-Q filed 2026-10-29
Net decrease in cash and cash equivalents-$117.9M-$132.7M-11%Source10-Q, us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsPeriodIncreaseDecreaseIncludingExchangeRateEffect, as reported in the 10-Q filed 2026-10-29
Cash and cash equivalents at beginning of period$1.65BSource10-Q, us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents, as reported in the 10-Q filed 2026-10-29
Cash and cash equivalents at end of period$1.53B$1.95B-21%Source10-Q, us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents, as reported in the 10-Q filed 2026-10-29
Supplemental cash flow disclosures:
Income taxes paid, net$61.3M$119.0M-49%Source10-Q, us-gaap:IncomeTaxesPaidNet, as reported in the 10-Q filed 2026-10-29
Interest paid, net of capitalized interest$131.3M$131.5M-0.2%Source10-Q, us-gaap:InterestPaidNet, as reported in the 10-Q filed 2026-10-29
Balance sheet27 lines, as presented in the 10-Q
LineQ1 FY2027A year earlierChangeSource
Current assets:
Cash and cash equivalents$1.53BSource10-Q, us-gaap:CashAndCashEquivalentsAtCarryingValue, as reported in the 10-Q filed 2026-10-29
Marketable securities$3.21BSource10-Q, klac:DebtSecuritiesAvailableForSaleAndEquitySecuritiesFairValue, as reported in the 10-Q filed 2026-10-29
Accounts receivable, net$3.07BSource10-Q, us-gaap:AccountsReceivableNetCurrent, as reported in the 10-Q filed 2026-10-29
Inventories$4.09BSource10-Q, us-gaap:InventoryNet, as reported in the 10-Q filed 2026-10-29
Other current assets$669.7MSource10-Q, us-gaap:OtherAssetsCurrent, as reported in the 10-Q filed 2026-10-29
Total current assets$12.57BSource10-Q, us-gaap:AssetsCurrent, as reported in the 10-Q filed 2026-10-29
Assets
Land, property and equipment, net$1.54BSource10-Q, us-gaap:PropertyPlantAndEquipmentNet, as reported in the 10-Q filed 2026-10-29
Goodwill, net$1.79BSource10-Q, us-gaap:Goodwill, as reported in the 10-Q filed 2026-10-29
Deferred income taxes$1.05BSource10-Q, us-gaap:DeferredIncomeTaxAssetsNet, as reported in the 10-Q filed 2026-10-29
Purchased intangible assets, net$212.6MSource10-Q, us-gaap:IntangibleAssetsNetExcludingGoodwill, as reported in the 10-Q filed 2026-10-29
Other non-current assets$1.23BSource10-Q, us-gaap:OtherAssetsNoncurrent, as reported in the 10-Q filed 2026-10-29
Total assets$18.40BSource10-Q, us-gaap:Assets, as reported in the 10-Q filed 2026-10-29
Current liabilities:
Accounts payable$740.7MSource10-Q, us-gaap:AccountsPayableCurrent, as reported in the 10-Q filed 2026-10-29
Deferred system revenue$843.0MSource10-Q, klac:ContractWithCustomerLiabilityCurrentSystemRevenue, as reported in the 10-Q filed 2026-10-29
Deferred service revenue$634.2MSource10-Q, klac:ContractWithCustomerLiabilityCurrentServiceRevenue, as reported in the 10-Q filed 2026-10-29
Other current liabilities$2.34BSource10-Q, us-gaap:OtherLiabilitiesCurrent, as reported in the 10-Q filed 2026-10-29
Total current liabilities$4.56BSource10-Q, us-gaap:LiabilitiesCurrent, as reported in the 10-Q filed 2026-10-29
Liabilities and stockholders’ equity
Long-term debt$5.72BSource10-Q, us-gaap:LongTermDebt, as reported in the 10-Q filed 2026-10-29
Deferred tax liabilities$452.5MSource10-Q, us-gaap:DeferredIncomeTaxLiabilitiesNet, as reported in the 10-Q filed 2026-10-29
Deferred service revenue$230.6MSource10-Q, us-gaap:ContractWithCustomerLiabilityNoncurrent, as reported in the 10-Q filed 2026-10-29
Other non-current liabilities$919.9MSource10-Q, us-gaap:OtherLiabilitiesNoncurrent, as reported in the 10-Q filed 2026-10-29
Total liabilities$11.88BSource10-Q, us-gaap:Liabilities, as reported in the 10-Q filed 2026-10-29
Stockholders’ equity:
Common stock and capital in excess of par value$2.59BSource10-Q, us-gaap:CommonStocksIncludingAdditionalPaidInCapital, as reported in the 10-Q filed 2026-10-29
Retained earnings$4.00BSource10-Q, us-gaap:RetainedEarningsAccumulatedDeficit, as reported in the 10-Q filed 2026-10-29
Accumulated other comprehensive loss-$59.4MSource10-Q, us-gaap:AccumulatedOtherComprehensiveIncomeLossNetOfTax, as reported in the 10-Q filed 2026-10-29
Total stockholders’ equity$6.52B$4.99B+31%Source10-Q, us-gaap:StockholdersEquity, as reported in the 10-Q filed 2026-10-29
Liabilities and stockholders’ equity
Total liabilities and stockholders’ equity$18.40BSource10-Q, us-gaap:LiabilitiesAndStockholdersEquity, as reported in the 10-Q filed 2026-10-29

About this data

Source
KLA 10-Q, accession 0000319201-26-000034, filed Oct 29, 2026, read on Nov 2, 2026.
History
From the SEC's XBRL company facts, the value from the latest filing that stated each period.
Reading
Paragraphs marked Analysis are CXProWealth's reading; everything else is the filing's own numbers and words, or a cited source.
Version
methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02
Edge and risks

What holds KLA's model up, and what could bend it

Competitive edge

  • Harder chips need more inspection per wafer

    The filing ties demand to rising process control intensity at leading-edge nodes, where KLA's core segment brings in 90.77% of segment revenues.

    The detail

    The filing says leading-edge demand is "increasing process complexity and process control intensity", and that EUV adoption for logic and DRAM is "increasing process control requirements and expanding our served market". It adds that more complex packages for AI and HPC are driving growth in advanced packaging. Gross margin was 61.85%, up 0.58 points.1

    AnalysisAnalysis: an inspection tool is judged against the value of the wafers it saves, not against its own build cost. As features shrink, a missed defect costs the chipmaker more, which is the logic behind the filing's link between complexity and demand for its tools.

  • Installed tools turn into recurring service revenue

    Services of $850.5M grew 14.21% from mostly subscription-like contracts, a layer tied to installed tools rather than new orders.

    The detail

    The filing says service revenue is "generated largely from recurring 'subscription-like' contracts" and is "typically a function of the number of systems installed at our customers' sites and the utilization of those systems". Services were $850.5M, up from $744.7M a year earlier, about 20% of total revenues by the company's count, and it says the business "has grown consistently year-over-year".1

    AnalysisAnalysis: services lost share this quarter because product sales surged, not because service shrank. Every tool shipped now adds to the base that future contracts draw on, which is what gives the business a layer that moves less than customers' capital budgets.

  • Gross profit funds a large research budget

    Research spending of $395.1M took 15.4% of $2.56B gross profit, funding the lead the filing says success depends on.

    The detail

    The updated risk factor says success "will depend to a significant extent on our ability to innovate ahead of our competitors", and notes that collaborations with customers and suppliers are a key part of some research projects. Research and development was $395.1M, 9.55% of revenue, against gross profit of $2.56B.1

    AnalysisAnalysis: a high gross margin lets the company fund the next generation of tools and still report high profit. A rival with thinner margins would face a harder choice between the two, which helps a lead, once built, sustain itself.

What to watch

  • The largest customer's share rose to 21%

    Two customers accounted for about 21% and 13% of revenue, against 15% and 11% for the two largest a year earlier.

    The detail

    The filing names "a highly concentrated customer base" as a risk. In the quarter, two customers accounted for about 21% and 13% of total revenues; a year earlier the two largest were about 15% and 11%. Taiwan revenue fell from the prior quarter on "the timing of customer expansion", an example of one schedule moving a region.1

    AnalysisAnalysis: with more of the quarter resting on one or two expansion plans, a pause by a single customer would reach revenue faster than it would across a broad base.

  • China demand sits under evolving export rules

    The filing ties China growth to mature-node foundry and logic customers, where evolving US export rules affect what the company can sell.

    The detail

    The filing lists "evolving Bureau of Industry and Security" rules and their impact on its ability to sell products and services to certain customers in China, alongside tariffs and retaliatory trade measures. It says government regulations and tariffs "have impacted our results of operations and may continue to do so". China revenue grew on demand from foundry and logic customers "particularly at mature technology nodes".1

    AnalysisAnalysis: two things would have to stay true for this part of the base to hold: the rules keep mature-node tools and their service saleable, and Chinese mature-node capacity keeps expanding.

  • Operating leverage reverses when chipmakers pause spending

    Product revenue follows orders and delivery timing, and the fixed research costs that lifted margins this quarter could weigh on them in a downturn.

    The detail

    The filing says product revenue in any period depends on new orders and on manufacturing and installation cycles, and lists "the cyclicality of the industries in which we operate" as a risk. In FY2024, annual revenue fell to $9.81B from $10.50B and net income to $2.76B from $3.39B.1

    Supply adds a second pressure. The filing names limited-source suppliers, "the availability of rare earth elements" and "DRAM chip shortages", and says it has "increased our purchase commitments, in part to secure the supply of key components", which may change the timing and size of its costs and working capital needs.1

Sources

  1. 1.KLA 10-Q for the period to 2026-09-30 (the filing), Oct 29, 2026, read Nov 2, 2026
Go deeper

KLA, further in

Member research, then your own questions on ChatGPT.

What could change the outlook

What KLA's numbers depend on from here, read from the filing: the conditions behind this period's margins and growth, and where a change would show first.

  • What KLA's margins depend on if leading-edge spending slows

    Which part of this quarter's margin gain comes from volume, which reverses, which comes from mix and cost discipline, and what the service base adds when shipments fall.

  • Will this shipment wave come back as service revenue?

    Why services lost share in a strong quarter, what the growing installed base implies for future contracts, and which signals in the filing would show renewals holding up.

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Questions to start with
  • Why does KLA's Wafer Inspection revenue grow faster than its total revenue when chipmakers move to more advanced nodes?
  • How would KLA's pre-tax margin change if revenue fell while research and development spending stayed near this quarter's level?
  • What would a spending pause by KLA's largest customer, at about 21% of revenue, do to its quarterly results?

Business Lens describes KLA from its own filings with the SEC. It is not a view on its shares, a target, or advice to buy, sell or hold anything; figures are as filed and may be restated by the company later. The filing, the dates and the version are under the financial data above.