KLA-Tencor (KLAC) View Disappoints

[HenryTo]

Looks like the bear cycle for semiconductors still isn't over yet:
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KLA-Tencor View Disappoints

By Chris Kraeuter
TheStreet.com Staff Reporter
4/28/2005 8:16 PM EDT

Updated from 6:14 p.m. EDT
KLA-Tencor (KLAC:Nasdaq - commentary - research) soundly beat Wall Street's financial targets Thursday for its fiscal-third quarter but the equipment company's targets for the fourth quarter proved disappointing.

Shares recently fell 4.5% to $38.20 in the late-trading session after ending the regular session down 0.9% to $40.02.

"All in all, I'm not making many changes," says analyst Patrick Ho with Legg Mason Wood Walker. "The March quarter gains appear to be offsetting the June numbers."

Ho still expects a second-half rebound for the chip-equipment industry, and he says some of the problems with KLA's financial guidance relate to the timing of when orders are recognized as revenue. As evidence, Ho, who does not own KLA shares, cited weak orders during previous quarters but strong deferred revenue.

KLA reported third-quarter income of $123 million, or 61 cents a share, on sales of $542 million. During the same quarter last year, the company earned $66 million, or 33 cents a share, on sales of $390 million.

Analysts had expected earnings of 56 cents a share on sales of $528 million, on average, according to Thomson First call.

The San Jose, Calif.-based company ended the quarter with shipment and revenue backlog of nine months, flat with the second quarter. The company's orders, however, fell 12% sequentially to $420 million.

For the fourth quarter, KLA predicted earnings of 46 cents to 48 cents a share, sales between $480 million and $500 million and orders that could be down 10% to up 10%. Analysts had expected earnings of 53 cents a share and sales of $514 million.

Executives said foundry and memory customers have reduced the amounts they are willing to spend in just the past 30 days. "The number of orders hasn't changed, but the size has gotten smaller," said CFO John Kispert during a conference call. "People have not stopped, they are just doing it at a lower level."