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KLA-Tencor (KLAC) Updates Q3 Guidance Post Orbotech Buyout

Zacks Equity Research

KLA-Tencor Corporation KLAC recently updated its guidance for the fiscal third quarter of 2019.

The revised guidance includes the contribution from Orbotech, which was acquired by the company on Feb. 20. The deal was valued at approximately $3.4 billion or $69.02 per share through a combination of cash and stock.

Orbotech is an Israeli firm that develops yield management and process-enabling solutions for electronic products.

The deal is in sync with the company’s strategy to strengthen business by expanding into adjacent markets. This will also allow KLA-Tenor to diversify its revenue base. The chip maker will now get an access to the fast-growing market for printed circuit boards and flat panel displays, worth $2.5 billion annually.

More on the Headlines

The company now expects fiscal third-quarter revenues in the range of $1.025-$1.115 billion versus its previous expectation of 880-$960 million. Orbotech is expected to contribute approximately $145-$155 million revenues for the stub period, following the completion of its acquisition.Analysts expect the company to post revenues of $1.04 billion.

KLA-Tenor now expects non-GAAP earnings in the range of $1.45-$1.79 per share (versus previous projection of $1.39-$1.71) and GAAP earnings within $0.94-$1.28 ($1.35-$1.67 expected earlier). Analysts expect the company to report earnings of $1.58 per share for the fiscal third quarter.

The deal will be immediately accretive to KLA-Tenor’s revenues and adjusted earnings. In addition, the companies expect to realize cost synergies of $50 million within two years following the closing of the deal.


KLA-Tencor offers complete yield-management solutions including hardware, software and services that help improve output, as well as reduce overall production costs. Cost reduction is of primary importance today, as increasing competition across all growing end markets leads to greater demand for lower-cost components. Since yield-management solutions improve manufacturing costs, demand for these products remains strong at any point in the business cycle.

We believe, Orbotech’s new products, services and solutions will diversify KLA-Tenor’s revenue base and drive long-term growth.

The company’s President and CEO, Rick Wallace said, “We are excited about the future for KLA. The new combination opens new opportunities to pursue our strategic objectives and create additional value for our customers, employees, and stockholders”.

KLA-Tencor Corporation Price and Consensus


KLA-Tencor Corporation Price and Consensus | KLA-Tencor Corporation Quote

Zacks Rank & Stocks to Consider

Currently, KLA-Tencor has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector include Expedia Group, Inc. EXPE, AMETEK, Inc. AME and Inphi Corporation IPHI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Expedia, AMETEK and Inphi is projected to be 13.4%, 9.6% and 18.5%, respectively.

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