Simon Clements and Chris Foster explain why KLA Corporation has recently been added to the team’s GF Sustainable Future US Growth Fund following a sell-off over the summer.
Simon Clements: We have historically found most of our ideas in the semiconductor industry outside of the US, so the US fund has typically had less exposure within this sector. This is frustrating as the sector has generally performed well given the excitement around AI. However, the sell-off in the sector over the summer provided us with the opportunity to add a name we have been tracking for some time into the US fund. The company is called KLA Corporation. Chris, why don't you give us a brief summary?
Chris Foster: Thanks, Simon. KLA Corporation is a US listed company with a market capitalization of around $110 billion. The company is the market leader in process control tools, which analyse the data in the manufacturing process in order to identify defects.
When you consider the end products for semiconductors, such as cars and industrial equipment, defective products can have serious safety consequences. It is therefore critical that these are identified before they make it into production. KLA is therefore exposed to our theme of Better monitoring of supply chains. Defective products also come with additional resource usage and cost since they are typically scrapped.
KLA also plays a significant role therefore in reducing the waste in the manufacturing process, as their tools enable customers to reduce the number of defects, improving yields. This is especially important during technology transitions in the industry, such as the move towards Gate-All-Around architecture in leading edge chips that Ed will explain when discussing our holding in ASM. Due to their strong market position, KLA earns industry leading gross margins and high returns on invested capital. The stock fell some 15 % during the broader sell-off in the summer, and we took the opportunity to add it to the portfolio.
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