KLA-Tencor CorporationKLAC

Morningstar Rating

Stock Research and Analysis

by Andy Ng

KLA-Tencor occupies a sweet spot in the chip-equipment industry because of its dominant position in the process diagnostic and control market.

Chipmakers use PDC tools to measure and detect defects during semiconductor production and to identify and Read more

Bulls Say

KLA is the leader in a highly profitable segment. PDC tools lower production costs and maximize productivity for chipmakers, making them a crucial part of the semiconductor manufacturing process.

KLA has the most extensive data and knowledge base in the PDC market, which it has gained through years of industry leadership, making it difficult for competitors to catch up.

By focusing on PDC, KLA has the broadest portfolio of tools in the market.

As KLA's installed base continues to expand, the income stream from its service business will continue to grow.

KLA remains at the forefront of PDC technology, and its strong financial position allows it to spend large sums on R&D (roughly $370 million in fiscal 2009) to maintain its technological lead. The firm's goal is to stay two technological generations ahead of the semiconductor industry and at least one generation in front of competitors. Read more

Bears Say

Competitors like Applied Materials and Hitachi have been trying for years to wrestle away KLA's leading market share in PDC.

KLA is exposed to the highly volatile and deeply cyclical semiconductor industry.

KLA must maintain its technological edge through constant innovation in emerging areas. Failure to do so would harm its industry-leading position.

Stock-option grants have historically been generous. Past option backdating occurred at the firm. Read more

Strategy

KLA aims to maintain its technological lead in order to continue its dominance of the PDC market by spending heavily on research and development and through strategic acquisitions. By focusing on emerging Read more

Management

CEO Rick Wallace took the helm in January 2006; he was previously president and COO. Wallace joined KLA in 1988 and has successfully headed several major divisions during his tenure, including the reticle and photomask inspection division and the wafer Read more

Profile

KLA-Tencor designs and manufactures yield-management and process-monitoring systems for the semiconductor industry. The systems are used to analyze the manufacturing process Read more

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