UPDATE 3-Mobile chip battle helps KLA - Tencor
* Quarterly revenues $841 million
* Adjusted EPS $1.27
* Stock down after hours
SAN FRANCISCO, April 26 (Reuters) - KLA-Tencor Corp forecast higher-than-expected revenue and said a battle to supply chips for smartphones and tablets was fueling demand for its precision manufacturing equipment.
A scramble by top chipmaker Intel Corp to stake out territory in the mobile market is being met by leading contract manufacturer TSMC Co Ltd and its customers' adoption of more challenging process technologies.
"Both of them are aiming for the mobility market and the result is a drive to come out with more powerful processing at lower power," Chief Executive Rick Wallace said in an interview.
KLA-Tencor's results reinforced expectations of steady gear sales after top equipment maker ASML Holding NV said last week that demand was being driven by the need for more chips used in mobile devices.
A delay, since resolved, in a large order limited KLA-Tencor's bookings in the quarter to $833 million, on the low end of its previous guidance, executives told analysts on a conference call.
That helped dull earlier gains by the shares of KLA-Tencor, which provides systems that monitor and analyze chip production, but Pacific Crest analyst Weston Twigg was upbeat.
"Overall it was solid," he said. "Good guidance above consensus, orders back up again and a strong outlook. There's not a whole lot to pick on."
On Thursday, TSMC said it would increase capital spending by up to some 16 percent this year to meet demand for chips made using its 28 nanometer process technologies.
That drove up shares of KLA-Tencor and other gearmakers.
Following economic uncertainty last year, spending by foundry and logic chipmakers on chip gear has risen as they implement new technology. But analysts expect spending from makers of NAND flash memory chips to remain soft due to oversupply.
TSMC's spending increase came partly as a response to unexpectedly strong demand from customers for high-end chips made using its new cutting-edge 28 nanometer process.
Major TSMC-customer Qualcomm Inc this month said it could not get enough 28 nm chips, echoing comments from Nvidia Corp in February. Qualcomm and Nvidia both design chips for high-end smartphones.
Wallace said contract manufacturers such as TSMC, which rapidly switch production between chips for different customers, need KLA-Tencor's test equipment much more than Intel, which changes its production less often.
"You've got to get it right, you can't tune it over time. So the adoption of our equipment is higher in those environments," Wallace said.
Other big players in mobile chips are also spending more.
Samsung Electronics Co Ltd said in late January it would spend $13.3 billion on its semiconductor business this year and rival UMC forecast increasing orders and proclaimed an end to an inventory adjustment that has dogged the industry.
U.S. chipmaker Intel said last week its sales would accelerate in the second half of the year with a powerful new PC processor and warned that costs associated with ramping up new production lines would hurt gross margins more than expected.
The long-time technology bellwether's new Medfield processor has been adopted for a handful of phones this year.
KLA-Tencor said quarterly revenue was $841 million, compared with $834 million in the year-ago quarter.
For the current quarter it expects bookings, an indicator of future revenue, to be between $840 million and $900 million.
Analysts were expecting third-quarter revenue of $802 million, according to Thomson Reuters I/B/E/S.
It said revenue in the current quarter would be in a range of $840 million to $900 million. Analysts had expected current-quarter revenue of $848 million.
Third-quarter net income was $205 million, or $1.21 a share, versus $210 million, or $1.22 a share in the same period last year. Adjusted earnings per share were $1.27.
The Milpitas, California company's shares dipped 0.4 percent in extended trading after closing 3.6 percent higher at $55.11.
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