KLA makes the tools that chip factories use to find and measure microscopic defects during manufacturing. When a chip factory builds a new chip, it runs through hundreds of steps. At each step, something tiny can go wrong. KLA's machines, with names like the Puma inspection system and the Archer metrology system, catch those problems early before an entire batch of chips is ruined. Customers pay for the machines themselves, and then they pay again for ongoing service contracts that keep those machines running. That service business made up about 22% of KLA's total revenue in fiscal 2025. The company sells into one of the most demanding industries on earth, where a single chip factory can cost more than $10 billion to build, and every fraction of a percent of extra yield is worth real money to the customer. The diagram below traces where the money goes.
Five years of financial data tell a clear story about how this business behaves. Revenue grew from $6.9 billion in fiscal 2021 to $10.5 billion in fiscal 2023, then dipped to $9.8 billion in fiscal 2024 as chip industry spending cooled and post-pandemic supply chain disruptions faded. Then came fiscal 2025: revenue jumped to $12.2 billion, the highest in the company's history. The driver was demand from leading-edge chip factories, especially those building chips for artificial intelligence. Taiwan Semiconductor Manufacturing Company was the single largest customer in all three of the most recent fiscal years, and Samsung Electronics joined that top-tier group in fiscal 2025.
What makes this business structurally interesting is how consistently it converts revenue into cash. Free cash flow, which is the money left over after running the business and maintaining equipment, ran at $2.0 billion in 2021, climbed to $3.3 billion in 2023, and reached $3.7 billion in 2025. Gross margin, the share of each dollar of revenue left after making and delivering the product, has stayed in a tight band between roughly 60% and 61% across all five years, even as revenue swung up and down. That kind of stability is unusual in a cyclical industry.
KLA returned a large portion of that cash to shareholders. In fiscal 2025 alone, the company made $2.15 billion in share repurchases and paid $904.6 million in dividends. It also raised its dividend for the 16th consecutive year, to $1.90 per share per quarter. Net debt, which is total debt minus cash on hand, stood at $3.8 billion at the end of fiscal 2025, down from $4.7 billion at the end of fiscal 2024. The direction is improving, but the debt load is still meaningful.
Not every part of KLA is thriving equally. The company took a $239.1 million write-down in fiscal 2025 on its PCB and Component Inspection business, after concluding that the long-term outlook for that segment had deteriorated. A similar write-down of $289.5 million hit the same area in fiscal 2024. KLA also exited its Display business entirely in early 2024. These write-downs did not destroy the overall financial picture because the Semiconductor Process Control segment, which generated $10.9 billion of the company's $12.2 billion in total fiscal 2025 revenue, kept growing strongly.
The risks facing KLA are specific and documented, not just general economic uncertainty. The most immediate is the company's exposure to China. Chinese customers accounted for 33% of total revenue in fiscal 2025, down from 43% in fiscal 2024. The U.S. government has added Chinese companies to a restricted list, which prevents KLA from shipping certain products to those customers without special government approval. If those restrictions expand, KLA could be forced to return customer deposits and lose orders it has already booked.
Beyond China, there are other concrete risks. New U.S. tariffs on aluminum, copper, and steel have raised KLA's manufacturing costs. Other countries have responded with their own tariffs on U.S. goods, which could reduce demand. KLA has concentrated most of its California operations into a single facility in Milpitas, and it carries no earthquake insurance there. The company also runs significant operations in Israel, where military conflicts have caused missile strikes and disrupted shipping. Some KLA employees in Israel have been called to military reserve duty. Finally, the company faces ongoing cyberattacks from state-sponsored groups targeting its products and customer data.
The backlog, which represents orders received but not yet shipped, fell from $9.83 billion at the end of fiscal 2024 to $7.86 billion at the end of fiscal 2025. KLA says this happened because its suppliers improved their own capacity, allowing KLA to ship products faster. Lead times returned to normal after years of pandemic-era delays. KLA expects to recognize 71% to 76% of the remaining backlog as revenue in the next 12 months. A shrinking backlog is not automatically a bad sign when it is caused by faster delivery rather than fewer orders, but it is something to watch.