KLA Looking to Repurpose Products, Expecting Revenue Hit From Chip Controls

Semiconductor company KLA is expecting the U.S.’s new export controls on China (see 2210070049) to hurt its revenue and is looking at moving its products to customers not subject to the restrictions, CEO Rick Wallace said during an Oct. 26 earnings call. The company is preparing for up to a $900 million revenue hit in 2023, but Wallace also stressed the company is uncertain how much its operations will be affected until it receives more guidance from the Commerce Department.

Wallace said the company’s “system and service revenue will be adversely impacted,” especially as KLA is “unable to provide systems and support to certain customers for certain end uses.” The company is “assessing the broader implications and engaging collaboratively with the U.S. government to provide the necessary information about our products and services to fully determine the impact on our business operations moving forward,” Wallace said.

KLA estimated the new controls will have a “combined gross direct impact on our revenue” of about $600 millionto $900 million in 2023, CFO Bren Higgins said. He stressed those numbers are before “any potential system reallocation for products where supply is meaningfully below current demand.” KLA expects it will be able to “reallocate certain tools to other customers” that aren’t subject to the new restrictions, Higgins said.

But he said it’s “too early to tell” what percentage of its affected products it will be able to redirect to other customers. “As we move forward, there are certain products that we will be able to repurpose fairly easily and there are other ones that might be a little bit more difficult,” Higgins said. “We’ll have to see … what is truly kind of out and what isn’t as we start to work our way through and engage with customers and get a clearer picture from the government.”

Wallace stressed that KLA was “not surprised” by the new controls, adding the company has “been working with the government officials as they've implemented this.” He said some of KLA’s customers are assessing the “long-term viability” of doing business with a nexus to China. “Ultimately, from our standpoint, frankly, it doesn't matter that much, because if they choose not to invest there, what they're doing is investing to support demand," Wallace said, "and they'll move that investment to where they can do it."