Feb. 11, 2011 (Business Wire) -- Fitch Ratings has affirmed the following ratings for KLA-Tencor Corp. (KLA-Tencor) (Nasdaq: KLAC):
--Issuer Default Rating (IDR) at 'BBB';
--Senior Unsecured Debt at 'BBB'.
Fitch's actions affect approximately $750 million of total debt. The Rating Outlook is Stable.
The Rating Outlook incorporates KLA-Tencor's strong operating performance within the context of a sharp rebound in semiconductor capital spending, particularly by foundry customers. Revenues in the latest 12 months ended Dec. 31, 2010 have grown 81% after declining 35% and 24% in calendar 2009 and 2008, respectively. Fitch believes end market demand will remain solid over at least the near term, supported by recent upward revisions of customers' capital spending forecasts, including foundry, logic, and NAND flash memory makers. Fitch estimates this demand environment positions KLA-Tencor to grow revenues more than 60% and approach a record $3 billion for fiscal year 2011.
Given substantial operating leverage, Fitch anticipates KLA-Tencor's operating profit should more than double and exceed $1 billion, further strengthening credit protections measures. Credit protection measures should remain cyclical and Fitch estimates total leverage (total debt/operating EBITDA) will range from 0.5x-3x with interest coverage (operating EBITDA to gross interest expense) of 5x-20x through a semiconductor equipment cycle. Fitch anticipates free cash flow (cash from operations less capital expenditures and common dividends) will exceed $400 million in fiscal 2011, driven by strong funds flow from operations (FFO). Over the longer term, Fitch expects annual free cash flow to range from $250 million to $500 million through a normalized cycle. The ratings incorporate Fitch's expectation that the company could use free cash flow to fund a combination of share repurchases and acquisitions.
The ratings for KLA-Tencor continue to be supported by:
--The company's technology leadership resulting in strong market share positions in the process control market for semiconductors and expectations for a growing mix of less volatile services revenues;
--Fitch's belief that the company will maintain conservative financial policies, underpinned by a net cash position over the intermediate term; and
--Secular long-term growth trends, including increased technological complexity, shortened life cycles for semiconductor products (Moore's Law) and semiconductor makers' increased usage of foundry partners.