KLA (NASDAQ:KLAC) is seeing stronger momentum across semiconductor equipment markets than it expected earlier in the year, with demand improving across leading-edge logic, memory and advanced packaging, Chief Financial Officer Bren Higgins said at J.P. Morgan’s 54th annual Global Technology, Media and Communications Conference.
In a discussion with Harlan Sur, J.P. Morgan’s head of U.S. semiconductor and semiconductor capital equipment research, Higgins said KLA now views wafer fab equipment spending as “$140 billion-plus” this year, with likely upside based on customer engagement and the industry’s reporting cycle.
“Certainly 2026 is setting up to be a very constructive year with increasing momentum in the industry and in our business,” Higgins said. He added that spending strength is broad-based, including leading-edge logic, memory and advanced packaging.
Wafer equipment outlook continues to improve
Higgins said KLA has seen increasing clarity around second-half demand, with customers working to align tool deliveries with fab ramp schedules. He said the stronger outlook is being driven more by firming schedules and customer urgency than by attempts to squeeze more from existing capacity.
“Everybody wants their tools sooner,” Higgins said, adding that customers have returned with revised plans that make previously agreed delivery timelines appear late.
KLA expects its second-half performance to improve as supply catches up with customer demand. Higgins said the second half could be in the “mid-to-high teens, maybe 20%” range above the first half. He said the company’s lead times are often tied to optical components used in its inspection tools, which he described as “high-performance microscopes.”
On end markets, Higgins said momentum is “across the board,” but memory is growing faster this year. KLA’s mix for the year is expected to be in the high-60% range for foundry and logic and the low-30% range for memory. He said the second half is likely to include a somewhat higher memory contribution, with DRAM potentially higher than logic in that period.
2027 visibility described as unusually strong
Higgins said KLA has unusually high visibility into 2027, citing new fab construction across logic, DRAM and flash. He said customers are focused on matching equipment deliveries to fab openings, which is translating into orders, backlog and pressure on lead times.
“I’ve been the CFO here since 2013, and I can’t recall this level of visibility into the next year in the early May timeframe,” Higgins said.
He said the company expects the 2027 wafer fab equipment growth rate to be higher than the 2026 growth rate, an outlook supported by greenfield fab activity, customer schedules and broad-based investment at the leading edge.
Advanced packaging demand accelerates
Advanced packaging remains one of the strongest growth areas for KLA. Higgins said KLA had thought in January that the packaging market might grow around 20%, but now believes it is growing in excess of 30%.
Within KLA’s semiconductor process control business, Higgins said advanced packaging is growing even faster, with a path to $1 billion in revenue, implying a growth rate in the high-50% range. He said KLA’s relevance in packaging has changed meaningfully since 2021 and 2022, when the company rarely discussed the segment.
Higgins said advanced packaging is increasingly requiring “front-end-like solutions” as line widths and spaces shrink and package integration becomes more complex, particularly for high-performance computing. He said KLA has gained share in logic-related packaging applications and is seeing more momentum in memory as bump dimensions shrink and customers move toward more advanced bonding techniques.
“The last thing a customer wants to do is go through all the integration that goes into integrating one of these very valuable devices, and it doesn’t function or doesn’t work,” Higgins said, explaining why sampling rates remain high in advanced packaging.
Process control intensity supported by AI and custom silicon
Sur asked about the resurgence of advanced ASIC and XPU designs at 3-nanometer and 2-nanometer nodes, particularly for cloud, hyperscaler and AI developers. Higgins said high design activity benefits KLA because it introduces change, which is difficult for semiconductor manufacturers to manage.
He said large, high-value die create unique demand for process control because yield and performance risks are greater. Higgins compared process control spending to insurance, saying customers are willing to spend more to protect higher-value products.
“Large die benefits KLA in a unique way,” Higgins said, adding that the size and value of chips matter more to process control than to process equipment companies.
KLA also reported continued market share gains. Higgins said third-party data showed the company gained about 80 basis points of process control share this year and is about 7.5 times larger than its nearest competitor. He said KLA has gained about 360 basis points since 2021.
Areas of strength include electron-beam inspection, reticle inspection, advanced packaging and optical inspection. Higgins said KLA has seen good adoption of single-beam and multi-beam e-beam systems and is using AI-based capabilities to improve optical inspection relevance. He also noted that export controls and market access issues in China remain areas where the company is challenged.
Services business remains a long-term growth driver
KLA’s services business grew 15% last year and 16% year-over-year in the March quarter, according to Sur. Higgins said service growth this year should be in line with KLA’s longer-term target of 13% to 15%.
Higgins described the services business as highly recurring, with 80% of revenue under contract and contract renewal rates above 90% to 95%. He said the lifetime of KLA tools has extended to more than 20 years, and service revenue over a tool’s life now exceeds 100% of the tool’s average selling price.
He said customers rely on KLA for tool availability and performance because process control tools are complex, have limited redundancy and generally operate at uptime levels above 90%.
At its recent Investor Day, KLA outlined a 2030 target model of $26 billion in revenue, plus or minus $2.5 billion, and earnings of $84 per share, plus or minus $8. Higgins said the company expects roughly 15% revenue growth against an industry backdrop of about 12%, supported by higher wafer equipment intensity, service growth and productivity improvements from AI.
About KLA (NASDAQ:KLAC)
KLA is a provider of process control and yield management solutions for the semiconductor and related microelectronics industries. The company designs and manufactures equipment, software and services used by chipmakers to analyze and control manufacturing processes, detect defects, measure critical dimensions and improve yield across wafer fabrication, photomask and packaging operations. KLA's offerings are aimed at enabling production of advanced logic, memory, and specialty devices at progressively smaller technology nodes and more complex package structures.
Its product portfolio includes optical and e-beam inspection systems, metrology tools for critical dimension and film measurement, mask and reticle inspection platforms, as well as enterprise software and data analytics that aggregate process data and drive automated process control.
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The article "KLA Flags Stronger Chip Equipment Demand, Rare 2027 Visibility at JPMorgan Conference" first appeared on MarketBeat.
