KLA-Tencor Posts Flat Revenue in Fiscal 1Q16
3Q15 Earnings: EMC, Texas Instruments, Lam Research, and KLA-Tencor
Fiscal 1Q16 updates
KLA-Tencor (KLAC) released its fiscal 1Q16 earnings ahead of its acquisition announcement with Lam Research (LRCX). We’ll study the acquisition details in the last part of this series.
On a YoY (year-over-year) basis, KLA-Tencor’s revenue was flat at $643 million, and its EPS (earnings per share) rose from $0.46 to $0.66 in fiscal 1Q16. This was better than analysts’ estimates of $625.5 million in revenue and $0.56 EPS. The company’s net income rose 46% YoY to $104.9 million, equating to a net margin of 16% for fiscal 1Q16.
Cash position
During fiscal 1Q16, KLA-Tencor generated about $194 million in cash from operations, higher than the $34.9 million it generated in fiscal 1Q15. As of September 30, 2015, the company’s cash reserves stood at $2.3 billion, compared to $2.9 billion one year before.
Why is KLA-Tencor merging with Lam?
In November 2014, KLA-Tencor announced a special cash dividend of approximately $2.8 billion in order to reduce its cash surplus while generating value to investors.
To fund this dividend payment, the company issued ~$2.5 billion of debt and took a $1.3 billion term loan, shooting up its long-term debt from $748 million as of September 30, 2014, to $3.2 billion as of September 30, 2015. This put the company in a leverage position.
The problem was further aggravated as overcapacity and low prices plagued the semiconductor market in 2015. The year 2015 has witnessed many consolidations such as NXP Semiconductors’s (NXPI) acquisition of Freescale and Avago Technologies’s (AVGO) acquisition of Broadcom, to name a few.
One reason KLA-Tencor might have agreed to be acquired by Lam Research is to re-capitalize its debt and thus generate positive results for its shareholders. In the next part of this series, we’ll see how will Lam Research’s acquisition of KLA-Tencor fares forKLA-Tencor’s shareholders.
To gain exposure in KLA-Tencor, you can invest in the PowerShares QQQ Trust, Series 1 ETF (QQQ). It has 0.20% exposure to the company’s stock.
Browse this series on Market Realist: