KLA Corporation
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ITEM 1.BUSINESS
The Company
KLA Corporation and its majority-owned subsidiaries (“KLA” or the “Company,” and also referred to as “we,” “our,” “us” or similar references) are suppliers of industry-leading equipment and services that enable innovation throughout the electronics industry. We provide advanced process control and process-enabling solutions for manufacturing wafers, reticles/masks, chemicals/materials, integrated circuits (“ICs” or “chips”), packaged ICs and printed circuit boards (“PCBs”), as well as comprehensive support and services across our installed base. Our suite of advanced products, coupled with our unique process control software and services, allows us to deliver solutions that help our customers achieve their technology advancement and high-volume production goals by improving yields while reducing waste, risks and costs. This improves our customers’ overall profitability and return on investment. Our services business, which accounted for approximately 23% of our total revenues in fiscal 2026, provides maintenance and other services to maximize uptime, productivity and tool life for our customers.
KLA was formed as KLA-Tencor Corporation in April 1997 through the merger of KLA Instruments Corporation and Tencor Instruments, two long-time leaders in the semiconductor capital equipment industry that began operations in 1975 and 1976, respectively. We are organized into three reportable segments: Semiconductor Process Control, Specialty Semiconductor Process and PCB and Component Inspection.
Within the Semiconductor Process Control segment, our comprehensive portfolio of inspection, metrology and software products, as well as related services, help IC, wafer, reticle/mask and chemical/materials manufacturers achieve target yields throughout the entire fabrication process, from R&D to final volume production. These products and services are designed to provide comprehensive solutions to help customers accelerate development and production ramp cycles, achieve higher and more stable product yields and improve their overall profitability.
Within the Specialty Semiconductor Process segment, we develop and sell advanced vacuum deposition and etching process tools, which are used by a broad range of specialty semiconductor customers, including manufacturers of microelectromechanical systems (“MEMS”), radio frequency (“RF”) communication semiconductors, and power semiconductors for automotive and industrial applications.
Within the PCB and Component Inspection segment, we enable electronic device manufacturers to inspect, test and measure PCBs, IC substrates and packaged ICs to verify their quality, pattern the desired electronic circuitry on the relevant substrate and perform three-dimensional shaping of metalized circuits on multiple surfaces.
Additional information about KLA is available at www.kla.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act are available free of charge on our website as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Information on our website is not part of this Annual Report on Form 10-K or our other filings with the SEC. Additionally, these filings may be obtained through the SEC’s website (www.sec.gov), which contains reports, proxy and information statements and other information regarding issuers that file electronically.
Investors and others should note that we may announce material financial information to investors using our investor relations website (ir.kla.com), which includes our SEC filings, press releases, public earnings calls and conference webcasts. The investor relations website is used to communicate with the public about us and our products, services and other matters.
Industry
Our core focus is enabling technological advances and improving manufacturing yields in the semiconductor industry. Semiconductors, or ICs, are fabricated on silicon wafers through a highly sophisticated sequence of process steps, including deposition of film layers, patterning, material removal, heat treatment, and measurement and inspection. The most advanced chip designs repeat these steps hundreds of times before the wafer is cut into individual chips, packaged and tested.
Our business depends upon the capital expenditures of semiconductor, semiconductor-related and electronic device manufacturers, which are driven by current and anticipated market demand for ICs and the products that use them. While we do not consider our business to be seasonal, it has historically been cyclical with respect to these manufacturers’ capital equipment procurement practices and is affected by their investment patterns across global markets, industry downturns, broader economic conditions, customer consolidation, and political and regulatory change. The continuing evolution of semiconductors toward smaller geometries and more complex multi-level circuitry, requiring new substrate and film materials, new transistor architectures, advanced multi-patterning optical and extreme ultraviolet (“EUV”) lithography, and advanced packaging, has
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significantly increased both the performance and cost requirements of the capital equipment used to manufacture these devices, with construction of an advanced IC fabrication facility today costing well above $10 billion. In this environment, accelerating the yield ramp and reaching high-volume production ahead of competitors are critical to manufacturers’ revenue and profitability, and chipmakers increasingly demand higher productivity and returns from their equipment, positioning the process control and yield management solution we provide as an essential enabler of their success.
The semiconductor industry continues to experience market expansion and diversification. High-performance computing (“HPC”) and data centers, supported by increasing adoption of AI, are contributing to industry growth and these trends are expected to continue to influence industry investment during fiscal year 2027. AI-related demand is driving innovation and investment at the leading edge and we believe our portfolio of products is uniquely positioned to support leading-edge semiconductor manufacturing and ongoing AI infrastructure buildout. Our semiconductor customers generally operate in one or both of the major semiconductor device manufacturing markets: memory and foundry/logic. End-market demand drivers expected to benefit KLA over the long term include adoption of EUV in high-volume manufacturing (“HVM”) for logic and DRAM memory, including high-bandwidth memory, which drives new process control requirements and growth in key markets for KLA. Demand for advanced semiconductor technologies, particularly at the 2-nanometer node, where investment levels and process control intensity are increasing, continues to support AI-related investments. Increasing complexity and value of semiconductor packages, particularly for AI and HPC applications, is also driving significant growth in our advanced packaging business. The digitization of industries, including 5G markets, advances in healthcare and industrial applications, and the increasing adoption of electric vehicles and intelligence in automobiles, also supports leading-edge design node technology investments and capacity expansions.
Research and Development
The markets for semiconductor and electronics technologies are characterized by rapid technological development and product innovation. These innovations are inherently complex and require long development cycles and appropriate professional staffing. We make significant investments in product R&D for the timely development of new products and enhancements necessary to maintain our competitive position. Accordingly, we devote a significant portion of our human and financial resources to R&D programs and seek to maintain close relationships with customers to remain responsive to their needs.
Our key R&D activities during the fiscal year ended June 30, 2026 involved the development of process control and process-enabling solutions for front end semiconductors and advanced packaging. Our primary R&D centers are located in the U.S., United Kingdom (“U.K.”), India, China, Singapore and Israel. For information regarding our R&D expenses during the last three fiscal years, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.
The strength of our competitive positions in many of our existing markets is primarily due to our leading technology, which is the result of our continuing significant investments in product R&D. Even during down cycles in the semiconductor industry, we have remained committed to significant engineering efforts toward both product improvement and new product development to enhance our competitive position.
Customers
We count among our largest customers the leading semiconductor, semiconductor-related and electronic device manufacturers in Asia, the U.S. and Europe. Our future performance depends, in part, on our ability to continue to compete successfully in Asia, one of the largest markets for our equipment. Our business depends on capital expenditures from these manufacturers which, in turn, depend on many factors including general economic conditions, anticipated market demand, evolving government regulations and capacity constraints. Our ability to compete in this region depends on the continuation of favorable trading relationships between countries in the region and the U.S., and our continuing ability to maintain satisfactory relationships with leading semiconductor companies in the region.
For the fiscal years ended June 30, 2026, 2025 and 2024, the following customers each accounted for more than 10% of total revenues, primarily in the Semiconductor Process Control segment:
| Year Ended June 30, | ||||||||||||||
| 2026 | 2025 | 2024 | ||||||||||||
| Taiwan Semiconductor Manufacturing Company Limited | Taiwan Semiconductor Manufacturing Company Limited | Taiwan Semiconductor Manufacturing Company Limited | ||||||||||||
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Sales, Service and Marketing
Our sales, service and marketing efforts aim to build deep long-term relationships with our customers. We focus on providing comprehensive resources for the full breadth of process control, process-enabling and yield management solutions for manufacturing and testing wafers and reticles, a wide variety of ICs, PCBs, IC substrates and packaging as well as general materials research. Our revenues are derived primarily from product sales and related service contracts, mostly through our direct sales force.
We believe that the size and location of our field sales, service engineering, applications engineering, and marketing organizations represent a competitive advantage in our served markets. We have direct sales forces in Asia, the U.S. and Europe. We maintain an export compliance program designed to meet the requirements of Commerce, and the U.S. Department of State and the trade regulations of the international jurisdictions in which we operate.
In addition to sales and service offices in the U.S., we conduct sales, marketing and services out of subsidiaries or branches in major semiconductor manufacturing regions around the world to support our global customer base. We believe sales outside the U.S. will continue to be a significant percentage of our total revenues. International revenues accounted for approximately 87% of our total revenues in the fiscal year ended June 30, 2026 and 89% of our total revenues in both of the fiscal years ended June 30, 2025 and 2024. Additional information regarding our revenues from foreign operations for our last three fiscal years can be found in Note 17 “Segment Reporting and Geographic Information” to our Consolidated Financial Statements.
Products and Services
KLA develops industry-leading process control and yield management solutions and services that enable innovation throughout the semiconductor and related electronics industries. We provide advanced process control and process-enabling solutions for manufacturing wafers, reticles, ICs, packaging, PCBs and IC substrates.
The Semiconductor Process Control segment offers a comprehensive portfolio of inspection, metrology, chemistry process control and software products and related services, which support the semiconductor ecosystem from R&D to final volume production. For IC manufacturing, our systems support the production of all chip types including advanced logic, DRAM, 3D NAND, power devices, MEMS, legacy design node chips and more. Our substrate manufacturing systems support the production of a broad range of wafer types and sizes including silicon, prime silicon on insulator, sapphire, glass, wide bandgap substrates (e.g., silicon carbide, gallium nitride) and more. Our reticle systems support quality control during the manufacturing of optical and EUV reticle types. We also make products that support chemical/materials quality control, and process tool development and qualification. Our products and services for chip, wafer, reticle, packaging, solar, hard disk drive, original equipment manufacturer and chemical/materials manufacturing are designed to provide comprehensive solutions that help our customers accelerate development and production ramp cycles, achieve higher and more stable product yields and improve their overall profitability. The Semiconductor Process Control segment offers a variety of solutions and products, including:
| Segment | Technologies | Products | ||||||
| Semiconductor Process Control | ||||||||
Chip Manufacturing: Defect Inspection and Review Inspection and review tools are used to identify, locate, characterize, review, and analyze defects on various surfaces of patterned and unpatterned wafers. | 39xx Series, R9xx Series, 29xx Series, C30x Series, eSixx™ Series, eSVx00™ Series, Voyager® Series, 8 Series, Puma™ Series, Micro-SR™, CIRCL™ Series, Castor™, Surfscan® Series, eDRX™ Series, eDR7xxx™ Series. | |||||||
Chip Manufacturing: Metrology Metrology systems are used to measure pattern dimensions, film thickness(es), film stress, layer-to-layer alignment, pattern placement, surface topography and electro-optical properties for wafers. | Archer™ Series, ATL™ Series, Axion® Series, SpectraShape™ Series, eM™ Series, SpectraFilm™ Series, Aleris® Series, PWG™ Series, Therma-Probe® Series, OmniMap® RS-xxx Series, MicroSense® product family, CAPRES product family. | |||||||
Chip Manufacturing: Chemistry Process Control Chemical process control equipment qualifies incoming supplies, manages tool inputs, adjusts chamber/bath conditions and monitors process waste. | ||||||||
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Financial statements
data from SEC XBRL filings. Values are as-reported; restatements supersede originals. Values reported in .
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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related notes included in Item 8 “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. This discussion contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including but not limited to those discussed in Part I Item 1A “Risk Factors” and elsewhere in this Annual Report on Form 10-K (see “Special Note Regarding Forward-Looking Statements”). Discussions and analysis of fiscal year 2025 as compared against fiscal year 2024 have been omitted and can be found in Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2025, filed with the SEC.
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EXECUTIVE SUMMARY
We are a leading supplier of process control and yield management solutions and services for the semiconductor and related electronics industries. Our broad portfolio of inspection and metrology products, along with related services, software and other offerings, supports R&D and manufacturing of ICs, wafers and reticles. Our products, services and expertise enable our customers to measure, detect, analyze and resolve critical nanometer-scale product defects, helping them to address manufacturing challenges and achieve higher yields at lower cost.
We also offer advanced technology solutions across a range of adjacent markets, including PCBs, advanced packaging, specialty semiconductors (such as LEDs, power devices and compound semiconductors), data storage and general materials research. In addition, our services business has grown consistently year over year and accounted for approximately 23% of our total revenues in fiscal 2026. Our services revenue, which is generated largely from recurring “subscription-like” contracts, provides maintenance and other services to maximize uptime, productivity and tool life for our customers, supported in part by continued demand from legacy semiconductor markets.
We are organized into three reportable segments, as follows:
•Semiconductor Process Control: a comprehensive portfolio of inspection, metrology and data analytics products, as well as related service offerings that help IC manufacturers achieve target yields throughout the semiconductor fabrication process, from R&D through volume production.
•Specialty Semiconductor Process: advanced vacuum deposition and etching process tools used by a broad range of specialty semiconductor customers.
•PCB and Component Inspection: a range of inspection, testing and measurement, and direct imaging for patterning products used by manufacturers of PCBs, advanced packaging, MEMS and other electronic components.
The semiconductor industry continues to experience market expansion and diversification. HPC and data centers, supported by increasing adoption of AI, are contributing to industry growth and these trends are expected to continue to influence industry investment into fiscal year 2027. AI represents a key technology inflection point driving innovation and demand at the leading edge, and our portfolio of products is well positioned to support leading-edge demand and the ongoing AI infrastructure buildout. Our semiconductor customers generally operate in one or both major semiconductor device manufacturing markets: memory and foundry/logic. Long-term demand drivers include continued adoption of EUV in HVM for logic and DRAM (including high-bandwidth memory), which are increasing process control requirements and expanding our served market. Demand for advanced semiconductor technologies, particularly at leading-edge nodes such as 2-nanometer, is increasing process complexity and process control intensity, which in turn is driving incremental demand for our solutions. Increasing complexity and value of semiconductor packages, particularly for AI and HPC applications, is also driving significant growth in our advanced packaging business. Broader industry trends, including digitization, communication improvements, healthcare innovation, industrial applications, and increasing semiconductor content in automobiles and intelligent systems, are supporting continued investment in legacy and mature-node capacity, where long product lifecycles and expanding end-market demand require ongoing manufacturing investments.
While we continue to invest in technological innovation, demand for our products may be affected by the timing of customer adoption decisions and changes in delivery schedules, which can result in variability in our operating results. In addition, geopolitical factors, including government regulations and tariffs, have impacted our results of operations and may continue to do so. We have also increased our purchase commitments, in part to secure the supply of key components, which may affect the timing and magnitude of our costs and working capital requirements. Despite these dynamics, we delivered higher revenue and net income in fiscal year 2026 compared to fiscal year 2025, driven by increased sales volume and disciplined cost management. Looking ahead to fiscal year 2027, we expect continued revenue growth as customer engagement and demand signals continue to strengthen.
We are continuously assessing the aggregate potential impact of government regulations, tariffs and other geopolitical risks on our financial results and operations. See Part I Item 1A “Risk Factors” for more information regarding how such actions by the U.S. government or another country could significantly impact our ability to provide our products and services to existing and potential customers, especially in China, and adversely affect our business, financial condition and results of operations.
On June 11, 2026, the Company effected a ten-for-one stock split of its common stock and a proportional increase in the number of authorized shares of common stock. Share and per share information throughout this Annual Report on Form 10-K have been retroactively adjusted to reflect the stock split.
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The following table sets forth some of our key consolidated financial information for each of our last three fiscal years:
| Year Ended June 30, | |||||||||||||||||
| (Dollar amounts in thousands, except diluted net income per share) | 2026 | 2025 | 2024 | ||||||||||||||
| Total revenues | $ | 13,579,476 | $ | 12,156,162 | $ | 9,812,247 | |||||||||||
| Costs of revenues | $ | 5,255,060 | $ | 4,751,867 | $ | 3,928,073 | |||||||||||
| Gross margin | 61.3 | % | 60.9 | % | 60.0 | % | |||||||||||
| Net income | $ | 4,830,771 | $ | 4,061,643 | $ | 2,761,896 | |||||||||||
| Diluted net income per share | $ | 3.66 | $ | 3.04 | $ | 2.03 | |||||||||||
We continue to focus on returning cash to our investors, making $2.29 billion in share repurchases and paying $1.06 billion in dividends in the year ended June 30, 2026. Our Board of Directors has authorized a program that permits us to repurchase our common stock, including an increase in the authorized repurchase amount of $7.00 billion in the third quarter of fiscal 2026. As of June 30, 2026, we had $9.74 billion of repurchase authority remaining. We also announced an increase in the dividend level in the third quarter of fiscal 2026 to $0.230 per share per quarter, which was our 17th consecutive annual dividend increase. Refer to the “Liquidity and Capital Resources” section below for more information on our strong cash flow generation and strategy of returning excess cash to our stockholders.
CRITICAL ACCOUNTING ESTIMATES
A critical accounting estimate is defined as one that has a material impact on our financial condition and results of operations and requires us to make difficult, complex or subjective judgments, often as a result of the need to make estimates about matters that are inherently uncertain. Where applicable, we base these estimates and assumptions on historical experience and evaluate them on an ongoing basis to ensure that they remain reasonable under current conditions. Actual results could differ from those estimates. We believe that the following critical accounting policies reflect more significant judgments and estimates used in the preparation of our consolidated financial statements regarding critical accounting estimates. See Note 1 “Description of Business and Summary of Significant Accounting Policies” to our Consolidated Financial Statements for additional information regarding our accounting policies.
Revenue Recognition. We recognize revenue from sales at a point in time when we have satisfied our performance obligation by transferring control of the goods or services to the customer. The transaction price for our contracts with customers is allocated among the identified performance obligations and consists of both fixed and variable consideration provided it is probable that a significant reversal of revenue will not occur when the uncertainty related to variable consideration is resolved. Fixed consideration includes amounts to be contractually billed to the customer while variable consideration includes estimates for discounts and credits for future usage.
Management uses judgment in identifying performance obligations, determining the stand-alone selling price (“SSP”) for each distinct performance obligation and allocating consideration from an arrangement to the individual performance obligations based on the SSP. We estimate the SSP of products and services based on observable transactions when the products and services are sold on a stand-alone basis and those prices fall within a reasonable range. We typically have established SSP ranges for individual products and services due to the stratification of these products by customers and circumstances. In instances where the SSP is not directly observable, we determine the SSP using information that includes market conditions, entity-specific factors including discounting strategies, information about the customer or class of customer that is reasonably available and other observable inputs. While changes in the allocation of SSP between performance obligations will not affect the amount of total revenue recognized for a particular contract, any material changes could impact the timing of revenue recognition, which could have a material effect on our financial position and results of operations. Additionally, management also uses judgments to evaluate whether or not the customer has obtained control of the product and considers several indicators in evaluating whether or not control has transferred to the customer, which could also impact the timing of revenue recognition, and could have a material effect on our financial position and results of operations. Although our products are generally not sold with a right of return, we may provide other credits or sales incentives, which are accounted for either as variable consideration or a material right, depending on the specific terms and conditions of the arrangement. These credits and incentives are estimated at contract inception and updated at the end of each reporting period if and when additional information becomes available.
Inventory Valuation. Inventories are stated at the lower of cost or net realizable value using standard costs that approximate actual costs on a first-in, first-out basis. The carrying value of inventory is reduced for estimated obsolescence equal to the difference between its cost and the estimated net realizable value based on assumptions about future demand for meeting our product manufacturing plans and our customers’ support requirements. The estimate of net realizable value of inventory is impacted by assumptions regarding general semiconductor market conditions, manufacturing schedules,
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technology changes, new product introductions and possible alternative uses, and requires us to use significant judgment that may include uncertain elements. Actual demand may differ from forecasted demand, and such differences may have a material effect on recorded inventory values. If in any period we anticipate an adverse change in assumptions such as future demand or market conditions to be less favorable than our previous estimates, additional inventory write-downs may be required and would be reflected in cost of revenues, resulting in a negative impact to our gross margin in that period. The potential negative impact based on future demand is not practically quantifiable. On the other hand, if in any period we are able to sell inventories that had been written down in a previous period to a level below the ultimate realized selling price, related revenue would be recorded with a lower or no offsetting charge to cost of revenues resulting in a net benefit to our gross margin in that period. A decrease in the future average selling prices would not have a material impact on the estimated net realizable value of finished goods and work in process inventories.
Goodwill and Long-Lived Assets Impairment. We assess goodwill for impairment annually as well as whenever events or changes in circumstances indicate that the carrying value of a reporting unit may not be recoverable. Events or changes in circumstances that could affect the likelihood that we will be required to recognize an impairment charge for goodwill include, but are not limited to, declines in our stock price or market capitalization, declines in our market share and declines in revenues or profits at our reporting units. If the fair value of a reporting unit is less than its carrying value, a goodwill impairment charge is recorded for the difference.
We determine the fair value of a reporting unit using the income approach or market approach, or a combination of both. If multiple valuation methodologies are used, the results are judgmentally weighted. The income approach is estimated through discounted cash flow analysis. The estimated fair value of a reporting unit is computed by adding the present value of the estimated annual discounted cash flows over a discrete projection period to the residual value of the business at the end of the projection period. This valuation technique requires us to use significant estimates and assumptions, including long-term growth rates, discount rates and other inputs. The estimated growth rates for the projection period are based on our internal forecasts of anticipated future performance of the business. The residual value is estimated using a perpetual nominal growth rate, which is based on projected long-range inflation and long-term industry projections. The discount rates are calculated as the weighted average cost of capital of comparable peer companies, adjusted for company-specific risk. The market approach estimates the fair value of a reporting unit by utilizing the market comparable method, which uses revenue and earnings multiples from comparable companies.
We performed the required annual goodwill impairment testing for all reportable segments as of December 31, 2025, and concluded that goodwill was not impaired. As a result of our qualitative assessment, we determined that it was not necessary to perform the quantitative assessment.
During the second quarter of fiscal 2025, we noted a continued deterioration of the long-term forecast for our PCB business, which is part of our PCB and Component Inspection reportable segment. We also completed an internal reorganization affecting the composition of reporting units within our Specialty Semiconductor Process and PCB and Component Inspection reportable segments. These two events triggered goodwill and purchased intangible assets impairment tests, which resulted in a $230.4 million pre-reorganization goodwill impairment charge in the PCB and Component Inspection reportable segment. The quantitative assessment performed, which utilized a combination of the income and market approaches described above, was particularly sensitive to changes in the underlying estimates and assumptions. For example, if these estimates and assumptions were adjusted to the extent the fair value of the reporting unit was calculated to be 10% lower, we would have incurred an additional approximately $50 million impairment charge.
Long-lived assets, including both tangible and purchased intangible assets, are tested for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Events or changes in circumstances that could affect the likelihood that we will be required to recognize an impairment charge for long-lived assets primarily include declines in our operating cash flows from the use of these assets.
For finite-lived purchased intangible assets, we determine whether the assets are recoverable based on the forecasted undiscounted future cash flows that are expected to be generated by the lowest-level associated asset grouping. If the undiscounted cash flows used in the recoverability test are less than the assets’ carrying value, we recognize an impairment loss for the amount that the carrying value exceeds the fair value.
We determine the fair value of purchased intangible assets using the income approach, primarily by applying the relief-from-royalty or multi-period excess-earnings methods. In connection with the continued deterioration of the long-term forecast for our PCB businesses noted above, we recorded impairment losses related to purchased intangible assets of $8.7 million during the second quarter of fiscal 2025.
There can be no assurance that the estimates and assumptions used in our fair value calculations will prove to be an accurate prediction of the future. If our assumptions are not realized, or if there are future changes in any of the assumptions
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due to a change in economic conditions or otherwise, it is possible that a further impairment charge may need to be recorded in the future.
See Note 6 “Goodwill and Purchased Intangible Assets” in the Notes to our Consolidated Financial Statements for additional information.
Income Taxes. The calculation of our effective tax rate involves significant judgment in the application of complex tax laws among various tax jurisdictions worldwide; identifying uncertain tax positions; and estimating the amount of deferred tax assets that will be realized in the future. We believe that our tax positions and judgments are reasonable, but actual results may differ. If one or more taxing authorities were to successfully overturn our tax positions, it could have a material adverse effect on our effective tax rate, results of operations, or cash flows.
Unrecognized tax benefits are recorded for uncertain tax positions on the largest amount that is more than 50% likely of being realized upon ultimate settlement. Evaluation of tax positions, their technical merits, and measurements using cumulative probability are inherently subjective estimates since they require our assessment of the probability of future outcomes. We recorded unrecognized tax benefits of $257.8 million and $258.6 million for the years ended June 30, 2026 and June 30, 2025, respectively. We reevaluate these uncertain tax positions on a quarterly basis based on certain factors including, but not limited to, changes in facts or circumstances; changes in tax law; audit settlements; new audit activities; and changes in accounting standards. Any changes to these factors can result in a material change to tax expense.
Our calculations of deferred tax assets and liabilities are based on estimates and judgments related to uncertainties in the application of complex tax laws and projections of future taxable income. The guidance requires that deferred tax assets be reduced by a valuation allowance if we determine it is more likely than not that a portion of the deferred tax asset will not be realized in the foreseeable future. We have determined that a valuation allowance is necessary against a portion of the deferred tax assets, but we anticipate that our future taxable income will be sufficient to recover the remainder of our deferred tax assets. We recorded tax valuation allowances of $356.6 million and $310.6 million as of June 30, 2026 and June 30, 2025, respectively, primarily related to California credit carry-forwards. Based on the enacted income apportionment rules in California, our future California income tax liability will not be sufficient to fully utilize the credit carry-forwards. We assess on a quarterly basis whether there should be a change to the valuation allowance for some portion or all of the deferred tax assets. If there is a change in our ability to recover our deferred tax assets that are not subject to a valuation allowance, we will be required to record an additional valuation allowance against such deferred tax assets which may materially increase our tax expense. If there is a change in our ability to utilize the California credit carry-forwards, we will be required to reduce our valuation allowance against such deferred tax assets which may materially decrease our tax expense.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, including those recently adopted and the expected dates of adoption as well as estimated effects, if any, on our Consolidated Financial Statements of those not yet adopted, see Note 1 “Description of Business and Summary of Significant Accounting Policies” to our Consolidated Financial Statements.
RESULTS OF OPERATIONS
Revenues and Gross Margin
| Year Ended June 30, | |||||||||||||||||||||||||||||||||||||||
| (Dollar amounts in thousands) | 2026 | 2025 | 2024 | FY26 vs. FY25 | FY25 vs. FY24 | ||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||
| Product | $ | 10,453,537 | $ | 9,472,854 | $ | 7,482,679 | $ | 980,683 | 10 | % | $ | 1,990,175 | 27 | % | |||||||||||||||||||||||||
| Service | 3,125,939 | 2,683,308 | 2,329,568 | 442,631 | 16 | % | 353,740 | 15 | % | ||||||||||||||||||||||||||||||
| Total revenues | $ | 13,579,476 | $ | 12,156,162 | $ | 9,812,247 | $ | 1,423,314 | 12 | % | $ | 2,343,915 | 24 | % | |||||||||||||||||||||||||
| Costs of revenues | $ | 5,255,060 | $ | 4,751,867 | $ | 3,928,073 | $ | 503,193 | 11 | % | $ | 823,794 | 21 | % | |||||||||||||||||||||||||
| Gross margin | 61.3% | 60.9% | 60.0% | 0.4% | 0.9% | ||||||||||||||||||||||||||||||||||
Our business is affected by the concentration of our customer base and our customers’ capital equipment procurement schedules as a result of their investment plans. Our product revenues in any particular period are impacted by the amount of new orders we receive during that period and, depending upon the duration of manufacturing and installation cycles, in the preceding periods. Revenue is also impacted by average customer pricing, customer revenue deferrals associated with volume purchase agreements, the effect of fluctuations in foreign currency exchange rates, increased trade restrictions as discussed in the “Executive Summary” section above and the availability of government incentives for semiconductor capital investments. Service revenues are generated from product maintenance and support services, as well as billable time and material service
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calls made to our customers. The amount of our service revenues is typically a function of the number of systems installed at our customers’ sites and the utilization of those systems, but it is also impacted by other factors, such as our rate of service contract renewals, the types of systems being serviced and fluctuations in foreign currency exchange rates. A significant portion of our revenues continues to be generated in Asia, where a substantial portion of the world’s semiconductor manufacturing capacity is located, and we expect that trend to continue.
The 12% increase in total revenues in the fiscal year ended June 30, 2026 compared to the prior fiscal year was primarily driven by higher product revenues resulting from increased leading-edge customer investments in foundry/logic, memory and advanced packaging technologies, supported by strong demand associated with AI and HPC applications. Revenue growth also benefited from higher service revenues, which increased 16% due to growth in our installed base of tools.
Revenues by segment(1)
| Year Ended June 30, | |||||||||||||||||||||||||||||||||||||||
| (Dollar amounts in thousands) | 2026 | 2025 | 2024 | FY26 vs. FY25 | FY25 vs. FY24 | ||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||
| Semiconductor Process Control | $ | 12,244,733 | $ | 10,947,359 | $ | 8,733,556 | $ | 1,297,374 | 12 | % | $ | 2,213,803 | 25 | % | |||||||||||||||||||||||||
| Specialty Semiconductor Process | 584,064 | 587,107 | 528,701 | (3,043) | (1) | % | 58,406 | 11 | % | ||||||||||||||||||||||||||||||
| PCB and Component Inspection | 750,415 | 621,721 | 552,491 | 128,694 | 21 | % | 69,230 | 13 | % | ||||||||||||||||||||||||||||||
| Total segment revenues | $ | 13,579,212 | $ | 12,156,187 | $ | 9,814,748 | $ | 1,423,025 | 12 | % | $ | 2,341,439 | 24 | % | |||||||||||||||||||||||||
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(1)Segment revenues exclude corporate allocations and the effects of changes in foreign currency exchange rates. For additional details, refer to Note 17 “Segment Reporting and Geographic Information” to our Consolidated Financial Statements.
Revenue from our Semiconductor Process Control segment increased 12% in fiscal 2026 compared to fiscal 2025, primarily due to increased revenue from foundry/logic and memory customers, driven by continued leading-edge investment supporting AI and HPC applications. Revenue growth also benefited from strong customer adoption of our advanced packaging products and higher service revenue attributable to growth in the installed base of tools.
Revenue from our Specialty Semiconductor Process segment decreased slightly by 1% in fiscal 2026 compared to fiscal 2025, primarily due to lower customer investments and reduced product sales in China, mostly offset by higher service revenues resulting from growth in the installed base of tools.
Revenue from our PCB and Component Inspection segment increased 21% in fiscal 2026 compared to fiscal 2025, primarily driven by increased demand from customers investing in advanced packaging technologies, higher revenue from our PCB business, and increased service revenue attributable to growth in the installed base of tools. The increase was partially offset by the absence of revenue from our Display business following our exit from this business in the prior year.
Below is supplementary revenue information by major product categories for the indicated periods:
| Year Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollar amounts in thousands) | 2026 | 2025 | 2024 | FY26 vs. FY25 | FY25 vs. FY24 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Wafer Inspection | $ | 6,630,813 | 49 | % | $ | 6,198,815 | 51 | % | $ | 4,333,296 | 44 | % | $ | 431,998 | 7 | % | $ | 1,865,519 | 43 | % | |||||||||||||||||||||||||||||||||||||
| Patterning | 2,706,763 | 20 | % | 2,196,347 | 18 | % | 2,054,442 | 21 | % | 510,416 | 23 | % | 141,905 | 7 | % | ||||||||||||||||||||||||||||||||||||||||||
| Specialty Semiconductor Process | 502,519 | 4 | % | 517,201 | 4 | % | 470,565 | 5 | % | (14,682) | (3) | % | 46,636 | 10 | % | ||||||||||||||||||||||||||||||||||||||||||
| PCB and Component Inspection | 460,320 | 3 | % | 355,891 | 3 | % | 291,161 | 3 | % | 104,429 | 29 | % | 64,730 | 22 | % | ||||||||||||||||||||||||||||||||||||||||||
| Services | 3,125,939 | 23 | % | 2,683,308 | 22 | % | 2,329,568 | 24 | % | 442,631 | 16 | % | 353,740 | 15 | % | ||||||||||||||||||||||||||||||||||||||||||
| Other | 153,122 | 1 | % | 204,600 | 2 | % | 333,215 | 3 | % | (51,478) | (25) | % | (128,615) | (39) | % | ||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 13,579,476 | 100 | % | $ | 12,156,162 | 100 | % | $ | 9,812,247 | 100 | % | $ | 1,423,314 | 12 | % | $ | 2,343,915 | 24 | % | |||||||||||||||||||||||||||||||||||||
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The following customer accounted for more than 10% of our total revenues, primarily in our Semiconductor Process Control segment, for the indicated periods:
| Year Ended June 30, | ||||||||||||||
| 2026 | 2025 | 2024 | ||||||||||||
| Taiwan Semiconductor Manufacturing Company Limited | Taiwan Semiconductor Manufacturing Company Limited | Taiwan Semiconductor Manufacturing Company Limited | ||||||||||||
Revenues by region
Revenues by region, based on ship-to location, for the periods indicated were as follows:
| Year Ended June 30, | |||||||||||||||||||||||||||||||||||
| (Dollar amounts in thousands) | 2026 | 2025 | 2024 | ||||||||||||||||||||||||||||||||
| China | $ | 4,048,358 | 29.8 | % | $ | 4,042,567 | 33.3 | % | $ | 4,196,727 | 42.8 | % | |||||||||||||||||||||||
| Taiwan | 3,643,742 | 26.8 | % | 3,205,392 | 26.4 | % | 1,738,065 | 17.7 | % | ||||||||||||||||||||||||||
| Korea | 1,833,836 | 13.5 | % | 1,452,826 | 11.9 | % | 906,924 | 9.2 | % | ||||||||||||||||||||||||||
| North America | 1,757,337 | 13.0 | % | 1,362,311 | 11.2 | % | 1,070,791 | 10.9 | % | ||||||||||||||||||||||||||
| Japan | 915,111 | 6.7 | % | 1,133,002 | 9.3 | % | 963,203 | 9.8 | % | ||||||||||||||||||||||||||
| Europe and Israel | 726,693 | 5.4 | % | 574,197 | 4.7 | % | 540,263 | 5.6 | % | ||||||||||||||||||||||||||
| Rest of Asia | 654,399 | 4.8 | % | 385,867 | 3.2 | % | 396,274 | 4.0 | % | ||||||||||||||||||||||||||
| Total | $ | 13,579,476 | 100.0 | % | $ | 12,156,162 | 100.0 | % | $ | 9,812,247 | 100.0 | % | |||||||||||||||||||||||
Revenue in China was comparable to the prior fiscal year, as continued investments in legacy-node technologies by domestic semiconductor companies were largely offset by export control restrictions affecting certain advanced technology transactions.
Revenue in Taiwan increased 13.7% compared with the prior fiscal year, primarily due to increased leading-edge customer investments in foundry/logic, memory and advanced packaging technologies, supported by strong demand associated with AI and HPC applications.
Revenue in Korea increased 26.2% compared with the prior fiscal year, due to increased investments by memory customers, including investments supporting high-bandwidth memory and advanced DRAM technology roadmaps.
Revenue in North America increased 29.0% compared with the prior fiscal year, primarily due to increased leading-edge customer investments in foundry/logic and memory technologies, supported by strong demand associated with AI and HPC applications.
Each of the remaining regions accounted for less than 10% of revenue in all periods presented.
Gross margin
Our gross margin fluctuates with revenue levels and product mix and is affected by variations in costs related to manufacturing and servicing our products, including our ability to scale our operations efficiently and effectively in response to prevailing business conditions.
The following table summarizes the major factors that contributed to the changes in gross margin:
| Gross Margin | |||||
| Fiscal Year Ended June 30, 2025 | 60.9 | % | |||
| Revenue volume of products and services | 0.5 | % | |||
| Mix of products and services sold | (0.2) | % | |||
| Manufacturing labor, overhead and efficiencies | 0.2 | % | |||
| Other service and manufacturing costs | (0.1) | % | |||
| Fiscal Year Ended June 30, 2026 | 61.3 | % | |||
Changes in gross margin from revenue volume of products and services reflect our ability to leverage existing infrastructure to generate higher revenues. Changes in gross margin from the mix of products and services sold reflect the impact of changes within the composition of product and service offerings. Changes in gross margin from manufacturing labor,
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overhead and efficiencies reflect our ability to manage costs and drive productivity as we scale our manufacturing activity to respond to customer requirements and amortization of intangible assets. Changes in gross margin from other service and manufacturing costs include the impact of tariffs, customer support costs, including the efficiencies with which we deliver services to our customers, and the effectiveness with which we manage our production plans and inventory risk. Other service and manufacturing costs included higher installation and warranty costs and increased costs due to tariffs, partially offset by lower inventory-related charges in fiscal year 2026 compared to fiscal year 2025.
Research and Development
| Year Ended June 30, | |||||||||||||||||||||||||||||||||||||||
| (Dollar amounts in thousands) | 2026 | 2025 | 2024 | FY26 vs. FY25 | FY25 vs. FY24 | ||||||||||||||||||||||||||||||||||
| R&D expenses | $ | 1,532,118 | $ | 1,360,334 | $ | 1,278,981 | $ | 171,784 | 13 | % | $ | 81,353 | 6 | % | |||||||||||||||||||||||||
| R&D expenses as a percentage of total revenues | 11 | % | 11 | % | 13 | % | — | % | (2) | ||||||||||||||||||||||||||||||
Recent insider activity
| Date | Insider | Role | Action | Shares | Price | Value |
|---|---|---|---|---|---|---|
| 2026-08-13 | Lorig Brian | EVP, KLA Global Services | Sell | -59,586 | $208.13 | -$12,401,634 |
| 2026-08-12 | Higgins Bren D. | EVP & Chief Financial Officer | Sell | -31,500 | $209.87 | -$6,610,905 |
| 2026-08-11 | WALLACE RICHARD P | President and CEO | Sell | -87,568 | $198.95 | -$17,421,654 |
| 2026-08-11 | Khan Ahmad A. | President, Semi. Prod. & Cust. | Sell | -33,180 | $198.95 | -$6,601,161 |
| 2026-08-10 | Wilkinson Mary Beth | EVP, CLO and Secretary | Sell | -1,661 | $204.56 | -$339,774 |
| 2026-08-10 | Kirloskar Virendra A | SVP & Chief Accounting Officer | Sell | -529 | $204.56 | -$108,212 |
| 2026-08-07 | Kirloskar Virendra A | SVP & Chief Accounting Officer | Sell | -2,405 | $197.57 | -$475,156 |
| 2026-08-07 | Wilkinson Mary Beth | EVP, CLO and Secretary | Sell | -21,831 | $197.57 | -$4,313,151 |
| 2026-08-05 | Wilkinson Mary Beth | EVP, CLO and Secretary | Sell | -13,802 | $195.50 | -$2,698,291 |
| 2026-08-05 | Kirloskar Virendra A | SVP & Chief Accounting Officer | Sell | -4,504 | $195.50 | -$880,532 |
| 2026-08-04 | Kirloskar Virendra A | SVP & Chief Accounting Officer | Sell | -1,565 | $191.59 | -$299,838 |
| 2026-08-04 | Wilkinson Mary Beth | EVP, CLO and Secretary | Sell | -4,295 | $191.59 | -$822,879 |
| 2026-07-02 | Kirloskar Virendra A | SVP & Chief Accounting Officer | Sell | -196 | $265.69 | -$52,075 |
| 2026-07-02 | Higgins Bren D. | EVP & Chief Financial Officer | Sell | -27,701 | $265.69 | -$7,359,879 |
| 2026-07-01 | Wilkinson Mary Beth | EVP, CLO and Secretary | Sell | -14,392 | $285.30 | -$4,106,038 |
Source: SEC Form 4 filings.
Next expected filings
- ~2026-10-30 10-Q expected by 2026-11-10 (in 47 days)
- ~2027-01-29 10-Q expected by 2027-02-09 (in 138 days)
- ~2027-04-29 10-Q expected by 2027-05-10 (in 228 days)
- ~2027-08-05 10-K expected by 2027-08-29 (in 326 days)
Predicted from historical filing cadence; not an SEC commitment.
Recent SEC filings
- 2026-08-06 8-K Other Events; Financial Statements and Exhibits
- 2026-08-06 10-K Annual Report
- 2026-07-28 8-K Earnings Release; Financial Statements and Exhibits
- 2026-05-07 8-K Other Events; Financial Statements and Exhibits
- 2026-04-30 10-Q Quarterly Report
- 2026-04-29 8-K Earnings Release; Financial Statements and Exhibits
- 2026-03-12 8-K Regulation FD Disclosure; Other Events
- 2026-02-05 8-K Other Events; Financial Statements and Exhibits
- 2026-01-30 10-Q Quarterly Report
- 2026-01-29 8-K Earnings Release; Financial Statements and Exhibits
- 2025-11-07 8-K Bylaws/Articles Amended; Shareholder Vote Results; Other Events; Financial Statements and Exhibits
- 2025-10-31 10-Q Quarterly Report
- 2025-10-29 8-K Earnings Release; Financial Statements and Exhibits
- 2025-08-08 10-K Annual Report
- 2025-08-07 8-K Officer/Director Change; Other Events; Financial Statements and Exhibits