KLA makes the machines that check whether computer chips are being built correctly. When a chipmaker lays down hundreds of microscopic layers on a silicon wafer, tiny defects can ruin an entire batch. KLA's inspection and measurement tools catch those problems early, saving its customers enormous amounts of wasted time and material. The company earns most of its money when chipmakers place large orders for new equipment, and it earns a steady additional slice from service contracts on machines already installed at customer factories. Those two streams together reached $12.2 billion in revenue in fiscal year 2025. The diagram below traces where the money goes.
How KLA Makes Money
flowchart LR
A["Semiconductor Makers' Capital Spending"] --> B["Product Sales
12.2B revenue"]
B --> C["Wafer Inspection
6.2B"]
B --> D["Services Revenue
2.7B, 22% of total"]
B --> E["Patterning & Process Tools
2.7B"]
D --> F["Service Contracts Extend System Life"]
F --> D
C --> G["R&D Investment in Process Control"]
E --> G
G --> H["New Products for Advancing Nodes"]
H --> A
D --> I["Operating Cash Flow
4.1B"]
C --> I
E --> I
I --> J["Reinvestment & Returns to Shareholders"]
J --> G
Five years of data tell a clear story about KLA's financial health. Revenue climbed from $6.9 billion in fiscal 2021 to $10.5 billion in fiscal 2023, dipped to $9.8 billion in fiscal 2024 as chipmakers briefly pulled back on spending, then jumped to $12.2 billion in fiscal 2025. That is not a straight line up, but the overall direction is strongly upward.
KLA Annual Revenue (fiscal years 2021 to 2025)
Revenue in billions of dollars. The fiscal 2024 dip reflects a cyclical pause in chipmaker spending, not a structural break.
What makes this trajectory impressive is how consistent the profit margins have been across that entire swing. Gross margin, the share of each revenue dollar left after paying to build and service the products, has stayed remarkably stable across all five years, never falling below 59.8% and never rising above 61.1%. That consistency suggests KLA has real pricing power even when the market cools.
60.9%
Gross margin in fiscal 2025, up from 60.0% in fiscal 2024, and barely changed from 59.9% in fiscal 2021
Cash generation has followed revenue upward. Free cash flow, the money left after paying for the equipment and investment needed to run the business, grew from $2.0 billion in fiscal 2021 to $3.7 billion in fiscal 2025. KLA used a large portion of that cash to return money to shareholders, making $2.15 billion in share repurchases and paying $904.6 million in dividends in fiscal 2025 alone. The company has now raised its dividend for 16 consecutive years. Net debt, the amount owed after subtracting cash on hand, has actually fallen from $5.1 billion in fiscal 2022 to $3.8 billion in fiscal 2025, even while all that cash was being returned to shareholders.
$3.7B
Free cash flow in fiscal 2025, nearly double the $2.0 billion generated in fiscal 2021
Why chipmaker spending cycles matter so much
Chipmakers do not buy new factory equipment at a steady pace. They tend to spend heavily when demand for chips is rising, then cut back sharply when the market slows. KLA has explicitly said its business has historically been cyclical in this way. That means revenue can fall significantly in a single year, as it did between fiscal 2023 and fiscal 2024, even when the long-term trend is upward.
The service business provides some cushion against those swings. Service revenue, generated from maintenance contracts on machines already in the field, grew 15% in fiscal 2025 and has increased every quarter on a year-over-year basis. Because it comes from a growing installed base of machines that customers depend on, it is steadier than equipment sales. In fiscal 2025, service accounted for 22% of total revenue.
2022
crisis
U.S. export controls begin reshaping KLA's China business
Starting in 2022 and tightening further in 2023 and 2024 to 2025, the U.S. government introduced a series of rules restricting what semiconductor equipment KLA can sell to Chinese customers without a special license. China represented 33% of KLA's revenue in fiscal 2025, down from 43% in fiscal 2024. KLA has already had to return customer deposits and reduce its backlog because of these restrictions. The rules are still evolving, and further tightening remains a live possibility.
The China situation is the most immediate documented threat, but it is not the only one. KLA's filing names several other specific risks worth understanding.
What a concentrated customer base means for risk
KLA counts Taiwan Semiconductor Manufacturing Company and Samsung Electronics among customers that each accounted for more than 10% of total revenue in recent fiscal years. When a company relies on very few large customers for a large share of its income, a decision by even one of those customers to reduce orders or switch suppliers can have an outsized effect on total revenue.
Beyond customer concentration, KLA's supply chain carries documented vulnerabilities. In February 2023, a ransomware attack on one of KLA's suppliers delayed component shipments and pushed back product deliveries to customers. KLA depends on some parts that can only be sourced from a single supplier, meaning one disruption can halt production with no easy workaround. KLA also runs significant manufacturing in Israel, and the filing directly names armed conflict, missile strikes, and Red Sea shipping disruptions as risks that could interrupt operations and force employees into military service. Separately, U.S. tariffs introduced in 2025 on aluminum, copper, and steel have increased manufacturing costs, and further tariff actions from ongoing government investigations could push costs higher still.
33%
Share of KLA's fiscal 2025 revenue coming from China, a market now subject to tightening U.S. export controls
KLA's backlog fell from $9.83 billion at the end of fiscal 2024 to $7.86 billion at the end of fiscal 2025. The company says this reflects suppliers catching up on capacity after the pandemic era, not a drop in underlying demand, but backlog is one of the most watched leading indicators for this type of business.
What process control intensity means for KLA's growth case
As chip designs become more complex, manufacturers need to inspect and measure more steps in the production process. This is called rising process control intensity. If each new generation of chips requires more of KLA's tools per factory, KLA's revenue can grow even without chipmakers building more factories. The shift to 2-nanometer chips and AI-related advanced packaging are both described in KLA's filing as examples of this dynamic.
The Bet
KLA's revenue model assumes that chipmakers will keep needing more inspection and measurement tools per chip generation, not fewer. The shift to smaller, more complex designs like 2-nanometer chips and the growth of AI-driven advanced packaging are supposed to keep driving that demand higher. If chip architectures stabilize, if chipmakers find ways to reduce the number of inspection steps, or if a prolonged downturn causes customers to slash capital spending across multiple years, the engine that has driven KLA from $6.9 billion to $12.2 billion in revenue over five years would slow significantly. The service business provides a partial buffer, but it is not large enough on its own to sustain the current financial trajectory.
Open question
KLA sits at the intersection of two forces pulling in opposite directions. The global push to build more advanced chips, driven by AI and the race for processing power, keeps pulling demand for KLA's tools higher. But U.S. export controls are steadily shrinking KLA's ability to serve China, its single largest revenue region at 33% of fiscal 2025 sales, and the rules keep tightening. Can growth from advanced chip investment in Taiwan, Korea, and the United States fully replace whatever business KLA continues to lose in China, or is the export control ceiling low enough to cap the growth story even as chip complexity rises everywhere else?
[1]
KLA Corporation 10-K, fiscal year ended June 30, 2025, Item 1 (Business Description)
[2]
KLA Corporation 10-K, fiscal year ended June 30, 2025, Item 7 (MD&A)
[3]
XBRL financial data: revenue, gross margin, operating cash flow, free cash flow, net debt, fiscal years 2021 to 2025
Compiled · 10-K · FY2025
