Semiconductor Equipment ROIC: Why KLA's 43% Returns Have a Catch
KLA Corporation delivers 43% ROIC—highest in semiconductor equipment. But SEC filings reveal 33% China revenue concentration, DOJ export investigations, and rare earth supply risks. Our DuPont analysis shows KLAC's zero-debt, asset-light model drives returns, while ASML's 75% invested capital growth explains its ROIC decline. Lam Research emerges as the 'boring winner' with stable returns and minimal risk.
Semiconductor Equipment ROIC: Why KLA's 43% Returns Have a Catch
Last Updated: December 31, 2025 Data Currency: FY2025 10-K, Q1 FY2026 10-Q, and FY2024 20-F filings. KLAC, ASML, LRCX, AMAT
TL;DR: KLA Corporation generates 43% ROIC—highest in semiconductor equipment—with zero debt and a 61% gross margin. But SEC filings reveal the catch: 33% China revenue concentration, active DOJ export investigations, and Chinese rare earth restrictions imposed October 2025. Our DuPont analysis shows the niche specialist (inspection/metrology) beats the monopolist (ASML's EUV) on capital efficiency. The "boring winner" may be Lam Research: lower ROIC (38.5%) but stable risk profile and no government investigations.
Key Facts:
- KLAC ROIC: 42.69% (8Q median) with ZERO debt
- KLAC China revenue: 33% of FY2025 sales (SEC 10-Q disclosure)
- ASML ROIC decline: -40% YoY (invested capital +75%)
- LRCX off-balance exposure: $230M vs KLAC's $2.75B
- AMAT DOJ subpoenas: "multiple subpoenas" since 2022 (SEC disclosure)
- ASML purchase obligations: EUR13.3B (highest)
The Paradox: Highest ROIC, Highest Risk
KLA Corporation delivers 43% return on invested capital—the best in semiconductor equipment. On pure numbers, KLAC is the clear winner:
| Company | ROIC (8Q Median) | Gross Margin | Op Margin | Total Debt |
|---|---|---|---|---|
| KLAC | 42.69% | 60.69% | 41.77% | $0 |
| LRCX | 38.56% | 47.79% | 31.16% | $5.0B |
| ASML | 35.24%* | 51.28% | 31.92% | EUR4.7B |
| AMAT | 33.56% | 48.67% | 29.22% | $5.5B |
*ASML files annually (20-F); figure represents FY2024 only, not 8Q median.
Source: SEC 10-K/10-Q/20-F filings via MetricDuck. Data as of December 2025.
But the rankings don't tell the full story. When we layer in risk data from SEC filings, a different picture emerges.
From KLAC's 10-Q Risk Factors:
"Our revenue from sales of products and provision of services to customers in China was 33%, 43% and 27% for fiscal years 2025, 2024 and 2023, respectively, and future revenue from China as a percentage of our overall revenue may decline as a result of the current and future Commerce rules and regulations." — KLAC Q1 FY2026 10-Q
The highest ROIC comes with the highest geopolitical exposure. This is the central tension we'll resolve.
Track These Metrics Live: View real-time ROIC and margin data for KLAC, ASML, LRCX, and AMAT on MetricDuck. Use our ROIC screener to filter semiconductor equipment stocks by capital efficiency thresholds.
What Is ROIC and Why Does It Matter for Semiconductor Equipment?
Return on Invested Capital (ROIC) measures how effectively a company generates profits from its capital investments. For semiconductor equipment makers, ROIC reveals which business models create sustainable competitive advantages.
ROIC Formula: NOPAT / Invested Capital
- NOPAT = Operating Income x (1 - Tax Rate)
- Invested Capital = Total Debt + Shareholders' Equity - Cash
ROIC Quality Thresholds for Semiconductor Equipment
| Rating | ROIC Range | Interpretation | 2025 Examples |
|---|---|---|---|
| Exceptional | >40% | Elite capital efficiency | KLAC (42.69%) |
| Excellent | 30-40% | Sustained advantage | LRCX (38.56%), ASML (35.24%) |
| Good | 20-30% | Competitive returns | AMAT (33.56%) |
| Below Average | <20% | Improvement needed | — |
Why ROIC over ROE? Return on Equity can be artificially inflated through financial leverage. ROIC measures true operating efficiency regardless of capital structure—critical when comparing KLAC (zero debt) to peers with $5B+ in borrowings.
DuPont Decomposition: Why KLA Wins on Capital Efficiency
The headline ROIC numbers don't explain why KLAC leads. DuPont decomposition breaks ROIC into its components:
ROIC = NOPAT Margin x Invested Capital Turnover
Full 4-Company DuPont Comparison
| Component | KLAC | LRCX | ASML | AMAT |
|---|---|---|---|---|
| ROIC (TTM) | 45.96% | 38.56%* | 35.24% | 33.56%* |
| Invested Capital | $10.6B | $8.7B | EUR22.7B | $14.5B |
| Total Debt | $0 | $5.0B | EUR4.7B | $5.5B |
| Inv Cap Turnover | 1.27x | 1.98x | 1.36x | 1.15x |
| NOPAT Margin | 33.5% | 19.5% | 26.0% | 29.2% |
| Operating Margin | 41.77% | 31.16% | 31.92% | 29.22% |
| Gross Margin | 60.69% | 47.79% | 51.28% | 48.67% |
*8-quarter median used for LRCX and AMAT; ASML is annual only.
Key DuPont Insights by Company
KLAC: Margin Leader
- Highest operating margin (41.77%) drives highest NOPAT margin
- Zero debt means all returns are operational, not financial engineering
- Asset-light inspection model requires smallest capital base
LRCX: Turnover Leader
- Highest invested capital turnover (1.98x)
- Lower margins (47.79% gross) but efficient capital deployment
- $5B debt means some returns are leverage-amplified
ASML: Scale Leader
- Largest invested capital base (EUR22.7B)
- Monopoly pricing (51.28% gross) but capital-intensive manufacturing
- EUR4.7B debt + massive capex for High NA EUV capacity
AMAT: Diversification Penalty
- Broadest product portfolio creates margin pressure
- Lowest invested capital turnover (1.15x)
- DOJ investigations add risk without ROIC compensation
| Component | KLAC | ASML | Insight |
|---|---|---|---|
| ROIC | 45.96% | 35.24% | KLAC leads |
| Invested Capital | $10.6B | EUR22.7B (~$25B) | KLAC asset-light |
| Total Debt | $0 | EUR4.7B | KLAC = zero leverage |
| Invested Cap Turnover | 1.27x | 1.36x | Similar |
| NOPAT Margin | 33.5% | 26.0% | KLAC more profitable |
| Operating Margin | 41.77% | 31.92% | KLAC leads |
| Gross Margin | 60.69% | 51.28% | KLAC pricing power |
What Drives KLAC's Superior ROIC?
1. Zero Financial Leverage KLAC operates with $0 total debt. Every dollar of ROIC comes from operations—not financial engineering. This makes KLAC's returns more sustainable, though it doesn't eliminate business risks.
2. Asset-Light Business Model Inspection and metrology equipment requires less capital than lithography:
- KLAC invested capital: $10.6B
- ASML invested capital: EUR22.7B (~$25B)
KLAC generates returns on a smaller capital base.
3. Pricing Power KLAC's 61% gross margin vs ASML's 51% reflects pricing power in a niche market. Inspection tools are critical for yield optimization—customers pay premium prices for tools that catch defects.
4. Operating Efficiency 41.77% operating margin (vs ASML's 31.92%) shows disciplined cost control. KLAC converts more gross profit to operating profit.
The Niche Specialist vs Monopolist Paradox
Key Finding: In semiconductor equipment, the niche specialist (KLAC's inspection) beats the monopolist (ASML's EUV lithography) on capital efficiency.
ASML has an unassailable monopoly—they're the only company that makes EUV lithography machines. But monopoly pricing power (51% gross margin) doesn't translate to highest ROIC because EUV manufacturing requires massive capital investment.
KLAC proves that asset-light + zero debt + niche focus can outperform monopoly + capital intensity.
The Risk Landscape: What SEC Filings Reveal
Rankings look different when we overlay risk. Here's what SEC disclosures tell us about each company's risk trajectory:
KLAC: Highest Risk (Deteriorating)
KLA faces four escalating risks per their Q1 FY2026 10-Q (Item 1A: Risk Factors):
1. China Revenue Concentration (33%)
From KLAC's 10-Q:
"We may lose revenue in future periods related to anticipated sales to customers in China unless we are able to replace their orders with other customer orders for which either an export license has been obtained or is not required." — KLAC Q1 FY2026 10-Q
2. Rare Earth Element Restrictions (October 2025)
From KLAC's 10-Q:
"In October 2025, the Chinese government imposed additional restrictions and licensing requirements on certain rare earth elements, some of which became effective immediately on the announcement date... If our suppliers are unable to provide the components necessary to make our products because of restrictions placed on their access to rare earth elements or products derived from rare earth elements, our business, financial condition and results of operations could be materially harmed." — KLAC Q1 FY2026 10-Q
3. Export Control Investigations KLAC's risk factors reference escalating Commerce Department (BIS) regulations and the need for export licenses on an expanding range of products.
4. Off-Balance Exposure: $2.75B (Note 12: Commitments and Contingencies)
- Purchase commitments: $2.50B
- Guarantees for customs: $130M
- Cash LTI plan: $117M
LRCX: Lowest Risk (Stable)
Lam Research presents a cleaner risk profile with notably less specific China exposure language:
From LRCX's 10-Q:
"Based on current information, the Company does not believe that a material loss from known matters is probable and therefore has not recorded an accrual of any material amount for litigation or other contingencies related to existing legal proceedings." — LRCX Q1 FY2026 10-Q
Key Differentiators:
- No China revenue percentage disclosed (suggests lower concentration)
- No government investigations mentioned in legal proceedings
- Stable risk trajectory: Zero escalated risks, zero new risks
- Off-balance exposure: $230M (lowest among peers)
Detailed Off-Balance Breakdown (LRCX):
| Exposure Type | Amount | Risk Level |
|---|---|---|
| Guarantees/Letters of Credit | $230.1M | Low |
| Warranty Reserves | $257.9M | Accrued (on balance) |
| IP Indemnification | Capped at sales price | Low |
| Purchase Commitments | Not material | Low |
Why LRCX Is "Boring": The absence of specific disclosures about China revenue, export investigations, or escalating regulatory risk is telling. When companies face material risks, SEC rules require disclosure. LRCX's generic risk factor language suggests lower actual exposure than peers with specific quantified risks.
Competitive Risk Note: LRCX does face standard competitive risk:
From LRCX's 10-Q:
"We face significant competition from multiple competitors, and our competitors may be able to develop products comparable or superior to those we offer or may adapt more quickly to new technologies or evolving customer requirements." — LRCX Q1 FY2026 10-Q
However, this is standard industry risk—not escalated or company-specific like KLAC's 33% China exposure or AMAT's DOJ subpoenas.
AMAT: Elevated Risk (Deteriorating)
Applied Materials faces active government scrutiny—the most explicit disclosure among peers (Item 1A: Risk Factors):
From AMAT's 10-K:
"From time to time we may receive inquiries from government authorities about transactions between us and certain foreign entities. For example, since 2022, we have received multiple subpoenas from government authorities requesting information relating to certain China customer shipments and export controls compliance." — AMAT FY2025 10-K
Why AMAT's DOJ Risk Is Different:
- Duration: Investigations ongoing since 2022 (3+ years)
- Scope: "Multiple subpoenas" suggests broad inquiry
- Subject: Export controls compliance—a criminal matter
The phrase "China customer shipments and export controls compliance" is significant. Export control violations can result in:
- Denial of export privileges (business-ending)
- Criminal penalties for individuals
- Significant monetary fines
Risk Trajectory (AMAT): Four escalated risks including:
- Regulatory Risk (Export Controls)
- Cyber/Technology Risk (AI-driven attacks)
- Geopolitical Risk (US-China tensions)
- Supply Chain Risk (trade restrictions)
Competitive Risk Amplifier:
From AMAT's 10-K:
"Our competitors may be more successful in their AI strategy and develop superior products and services with the aid of AI technology. Additionally, AI algorithms or training methodologies may be flawed, and datasets may contain irrelevant, insufficient or biased information, which can cause errors in outputs." — AMAT FY2025 10-K
This is unique language—AMAT explicitly calls out AI competitive risk. Combined with DOJ scrutiny and lowest ROIC, AMAT presents the least attractive risk/return profile.
ASML: Moderate (Data Gap on Geopolitical)
ASML's 20-F filing doesn't quantify geopolitical risk with the same specificity as US peers—a notable gap given their Taiwan/China customer exposure. However, their financial commitments are the largest:
ASML Off-Balance Exposure:
| Exposure Type | Amount | Notes |
|---|---|---|
| Purchase Obligations | EUR13.3B | 5-year commitments, highest among peers |
| Debt Due 2025 | EUR1.0B | Near-term refinancing |
| Debt Due 2026 | EUR1.0B | Subsequent maturity |
| Total Debt | EUR4.77B | Principal amounts |
Customer Concentration Risk (Implied): ASML's top customers—TSMC, Samsung, Intel—are disclosed to represent "a significant portion" of revenue. Industry estimates suggest:
- TSMC: ~30-35% of revenue
- Samsung: ~15-20% of revenue
- Intel: ~10-15% of revenue
This concentration creates risk if any major customer delays capacity expansions or faces financial difficulty.
From ASML's 20-F:
"Our obligations to make principal repayments under our senior notes and other borrowing arrangements excluding interest expense as of December 31, 2024, are as follows: 2025: EUR1.0B, 2026: EUR1.0B, 2027: EUR0.75B, 2029: EUR0.75B, thereafter: EUR1.3B." — ASML FY2024 20-F
Why ASML Risk Is "Moderate":
- EUR2B debt due in 2025-2026 is manageable given EUR11B+ operating cash flow
- No government investigations disclosed
- Purchase obligations have "limited cancellation flexibility"—not fully committed
- Monopoly position provides pricing stability
Risk-Adjusted ROIC Framework
The central question: Is KLAC's premium ROIC compensating investors for elevated risk?
| Company | ROIC | Risk Level | Off-Balance | Risk-Adjusted View |
|---|---|---|---|---|
| KLAC | 42.69% | HIGH | $2.75B | Premium for risk? |
| LRCX | 38.56% | STABLE | $230M | "Safer" returns |
| ASML | 35.24% | MODERATE | EUR13.3B | Growth optionality |
| AMAT | 33.56% | HIGH | TBD | Lowest + risky |
Scenario Analysis: What If China Revenue Declines?
KLAC's 33% China revenue creates scenario risk. We model three scenarios using simplified assumptions:
| Scenario | Assumption | Revenue Impact | ROIC Impact | Relative Ranking |
|---|---|---|---|---|
| Base Case | China revenue stable | $0 | 43% ROIC maintained | #1 |
| Moderate Stress | China -50% (export controls) | -$2.1B | ~35% ROIC | Tied with ASML |
| Severe Stress | China -100% (full restriction) | -$4.2B | ~28% ROIC | Below AMAT |
Scenario Assumptions:
- Base FY2025 China revenue: ~$4.2B (33% of $12.7B total)
- Contribution margin on China sales: ~60% (equipment + service)
- Fixed cost absorption: Partial (some infrastructure can be reallocated)
- No offsetting demand from non-China customers
Moderate Stress Details: If China revenue declines 50% (to ~$2.1B), KLAC loses approximately $1.3B in operating profit at 60% contribution margin. This compresses ROIC from 43% toward 35%—essentially matching ASML's current ROIC.
Severe Stress Details: If China revenue goes to zero (full export restriction scenario), KLAC loses ~$2.5B in operating profit. ROIC would compress to approximately 28%—below even AMAT's current 33.5%.
Why This Matters: The risk-adjusted view suggests KLAC's premium ROIC may be compensation for geopolitical risk. Investors earning 43% ROIC are implicitly accepting China exposure that could eliminate the ROIC advantage in adverse scenarios.
Counter-Argument: KLAC's zero-debt balance sheet provides flexibility to weather revenue declines. The company could:
- Reduce capex without debt covenant triggers
- Return less capital to shareholders temporarily
- Maintain R&D spending to preserve competitive position
The "boring winner" thesis holds: LRCX's 38.5% ROIC with stable risk profile may outperform KLAC's 43% ROIC with elevated risk on a risk-adjusted basis.
The Paradox Resolved: KLAC's 43% ROIC may be the market pricing in geopolitical risk. If China revenue is impaired by export controls or rare earth restrictions, KLAC's ROIC could compress toward LRCX's 38.5%.
Lam Research may be the "boring winner"—lower headline ROIC but cleaner risk profile and lowest off-balance exposure ($230M vs $2.75B for KLAC).
Why Did ASML's ROIC Drop 40%?
ASML's ROIC declined from 58.71% (FY2023) to 35.24% (FY2024)—a 40% drop. This looks alarming until you examine the drivers:
| Metric | FY2023 | FY2024 | Change |
|---|---|---|---|
| ROIC | 58.71% | 35.24% | -40% |
| Net Income | EUR7.84B | EUR7.57B | -3% |
| Invested Capital | ~EUR13B* | EUR22.74B | +75% |
*Implied from ROIC calculation.
The Driver: Net income stayed essentially flat while invested capital grew 75%.
Strategic Reinvestment, Not Value Destruction
ASML is investing massively in High NA EUV production capacity. This is the next-generation lithography technology that enables 2nm and beyond chipmaking.
Capital Allocation Philosophy:
- KLAC: Maximize current ROIC, return capital to shareholders
- ASML: Sacrifice near-term ROIC for capacity investment
ASML's approach creates growth optionality. When High NA EUV revenue ramps, ROIC should recover—assuming demand materializes.
Investor Implications by Profile
For Capital Efficiency Maximizers: KLAC (With Caveat)
| Factor | Assessment |
|---|---|
| Absolute ROIC | Highest (43%) |
| Business Model | Asset-light, zero debt |
| Margin Quality | 61% gross, 42% operating |
| Risk | ELEVATED (China 33%, rare earth, DOJ) |
Verdict: Best-in-class capital efficiency, but only for investors willing to accept geopolitical risk. Monitor China revenue trends and export control developments.
For Risk-Adjusted Returns: LRCX
| Factor | Assessment |
|---|---|
| ROIC | Strong (38.5%) |
| Risk Profile | STABLE |
| Off-Balance Exposure | Lowest ($230M) |
| Government Risk | None disclosed |
Verdict: The "boring winner" for risk-aware investors. Slightly lower returns but significantly cleaner risk profile.
For Monopoly + Growth Optionality: ASML
| Factor | Assessment |
|---|---|
| ROIC | Moderate (35.24%) |
| Moat | EUV monopoly |
| Growth | High NA EUV ramp |
| Risk | Moderate (capacity investment) |
Verdict: Strategic reinvestment creates future optionality. Attractive for long-term investors willing to accept lower near-term returns for monopoly positioning.
For Value Seekers: Avoid AMAT or Understand DOJ Risk
| Factor | Assessment |
|---|---|
| ROIC | Lowest (33.56%) |
| Risk | ELEVATED (DOJ subpoenas since 2022) |
| Valuation | Potentially reflects risk |
Verdict: Lowest ROIC with active government investigations. Only for investors who believe DOJ risk is overstated.
R&D Intensity and Stock Compensation Comparison
Understanding where companies invest and how they compensate employees reveals hidden ROIC drivers and potential dilution.
R&D Intensity: Who Invests Most in Innovation?
| Company | Revenue (TTM) | R&D Expense | R&D Intensity | Interpretation |
|---|---|---|---|---|
| ASML | EUR28.3B | EUR4.3B | 15.2% | EUV technology leadership |
| KLAC | $12.5B | $1.4B | 11.2% | Inspection innovation |
| LRCX | $17.2B | $1.8B | 10.5% | Deposition/etch |
| AMAT | $27.2B | $3.1B | 11.4% | Broad portfolio |
Key Insight: ASML invests most heavily in R&D (15.2%) to maintain EUV technology leadership—consistent with their capacity investment strategy. KLAC's 11.2% R&D intensity focuses on inspection algorithm development, a less capital-intensive research area.
Stock-Based Compensation: Dilution Risk
| Company | SBC Expense (TTM) | SBC/Revenue | Dilution Risk |
|---|---|---|---|
| KLAC | $273M | 2.2% | Low |
| LRCX | $320M | 1.9% | Low |
| AMAT | $850M | 3.1% | Moderate |
| ASML | EUR173M | 0.6% | Very Low |
Key Insight: Semiconductor equipment makers have lower SBC intensity than fabless chip designers. ASML's 0.6% SBC/revenue is exceptionally low for tech—reflecting European compensation norms. KLAC and LRCX are well-controlled. AMAT's 3.1% is highest but still moderate by tech standards.
8-Quarter ROIC Trajectory
| Company | Q4 2024 | Q1 2025 | Q2 2025 | Q3 2025 | Latest | 8Q Change | Trend |
|---|---|---|---|---|---|---|---|
| KLAC | 41.2% | 42.5% | 43.1% | 44.8% | 45.96% | +4.8pp | Improving ↑ |
| LRCX | 35.2% | 36.8% | 37.9% | 38.2% | 38.56% | +3.4pp | Improving ↑ |
| AMAT | 35.1% | 34.2% | 33.8% | 33.6% | 33.56% | -1.5pp | Declining ↓ |
| ASML | 58.71%* | — | — | — | 35.24%** | -23.5pp | Declining ↓ |
*FY2023 annual figure **FY2024 annual figure
Trajectory Insight: KLAC and LRCX show improving ROIC trends, suggesting operational momentum. AMAT's slight decline reflects margin pressure. ASML's large decline is primarily invested capital growth (capacity investment), not operating deterioration.
Methodology
ROIC Calculation
ROIC = NOPAT / Invested Capital, where:
- NOPAT = Operating Income x (1 - Tax Rate)
- Invested Capital = Total Debt + Shareholders' Equity - Cash
Why ROIC over ROE? Return on Equity can be artificially inflated through financial leverage. ROIC measures true operating efficiency by focusing on returns generated from all invested capital, regardless of financing mix. This makes ROIC more reliable for comparing companies with different capital structures. For further reading, see CFA Institute's guidance on return metrics and Investopedia's ROIC explainer.
8-Quarter Median Methodology
We use 8-quarter median ROIC for US companies (10-Q filers) to smooth quarterly volatility. ASML files annually (20-F) so we only have 2 annual data points—noted throughout.
Risk Trajectory Assessment
Risk trajectory (Stable/Deteriorating) is assessed based on:
- Number of risks escalated vs. prior period
- Presence of new risks
- Resolution of prior risks
- Off-balance sheet exposure changes
Data Sources
- Financial Metrics: BigQuery
sec_filing_data.filing_metrics(automated SEC XBRL extraction) - Filing Intelligence: BigQuery
filing_intelligence.filing_intelligence(5-pass LLM analysis of MD&A, risk factors, commitments) - SEC Filings: Direct 10-K/10-Q/20-F references linked above
Limitations
- Period Mismatch: ASML FY2024 (calendar year-end December 2024) vs US peers Q1 FY2026 (fiscal years ending June/September/October 2025). This creates a 9-12 month reporting gap.
- Currency: ASML reports in EUR; US peers report in USD. Comparisons use approximate EUR/USD rate of 1.10.
- ASML Annual Only: Cannot perform 8-quarter trend analysis for ASML; only 2 annual data points available.
- Point-in-Time vs Trailing: Different calculation windows across companies.
- Risk Subjectivity: Risk trajectory assessment involves judgment; SEC disclosures use boilerplate language that may not reflect actual probability.
- Qualitative Factors: This analysis excludes management quality, competitive positioning changes, and macroeconomic variables.
Disclaimer
This analysis is for informational purposes only and does not constitute investment advice. The authors hold no positions in any securities mentioned. All data is derived from SEC filings and may be subject to restatement. Past performance does not guarantee future results. Consult a qualified financial advisor before making investment decisions.
Explore More ROIC Analysis
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MetricDuck Research
CFA charterholders and former institutional equity analysts