Bren D. Higgins
Chief Financial Officer at KLA
Thanks. As Rick has detailed, we delivered strong December quarter and calendar '22 results that demonstrated consistent execution by the global KLA team. While supply chain challenges remain and impact on certain products, we continue to demonstrate resourcefulness and the ability to adapt to meet customer requirements. Quarterly revenue was $2.98 billion, $184 million above the midpoint of guidance and just above the guided range of $2.65 billion to $2.95 billion. Revenue outperformance in the December quarter was driven primarily by KLA's broadband plasma optical pattern wafer inspection and mask inspection systems, resulting from favorable mitigation of identified supply chain risks as we move through the quarter.
Non-GAAP diluted EPS was $7.38 above the midpoint of the guided range of $6.30 to $7.70. GAAP diluted EPS was also above the midpoint of guidance at $6.89. Non-GAAP gross margin was 61% and just below the guidance range of 61.5% to 63.5% due to the impact of increasing non-cash inventory reserves taken in the quarter as we adjusted our factory output expectations and supply chain commitments to the current outlook, which has weakened at an accelerated pace over the past several months. These reserves were primarily taken against high-volume products and are consistent with shifting customer delivery dates and resulting backlog adjustments in the quarter.
Given the diversification of end demand across technology nodes, the extendability of our product platforms and the expectations for growth in our service business, it is likely that we will realize a benefit from releasing these reserves over time when industry growth resumes. We estimate that these adjustments had a roughly 200-basis-point impact on GAAP and non-GAAP gross margin compared to what would have been assessed in a normalized industry environment. This impact was offset somewhat by higher business volume and by a strong product mix realized in the quarter.
Non-GAAP operating expenses were $555 million, slightly above our estimated $550 million for the quarter. Total non-GAAP operating expenses comprised $332 million in R&D and $223 million in SG&A. Non-GAAP operating margin was strong at 42.4%. Quarterly non-GAAP net income was $1.05 billion. GAAP net income was $979 million. Cash flow from operations was $688 million and free cash flow was $595 million. Breakdown of revenue by reportable segments and end markets and major products and regions can be found within the shareholder letter and slides.
Switching to the balance sheet, KLA ended the quarter with $2.9 billion in total cash, cash equivalents and marketable securities, debt of $6.1 billion, a reduction of $200 million in the quarter and a flexible and attractive bond maturity profile supported by strong investment-grade ratings from all three agencies. Over the last 12 months, KLA has returned $5.2 billion to shareholders including $4.5 billion in share repurchases and $689 million in dividends paid.
Looking ahead to calendar '23, we expect industry spending to slow with the continued expectation for CY23 WFE demand to be down approximately 20% a year, down from approximately $94 billion to $95 billion in CY22 due to an increasing global macroeconomic concern highlighted by our customers in most end markets and widely reported customer capex expectations. This WFE estimate reflects our current tops-down assessment of industry demand as follows. In memory, we expect WFE investment to decline by more than the market with DRAM down more than NAND as memory customers respond to lower consumer demand by cutting production and factory utilizations to bring device supply in line with demand.
We expect foundry logic to decline less than the overall market with leading-edge investment declining less than legacy. KLA's unique broad portfolio differentiation and primary value proposition are focused on enabling technology transitions, which our customers continue to invest in regardless of the business environment. While capacity plans can change, technology roadmap investment tends to be more resilient and aligns with KLA's highest value product offerings, where we continue to have supply chain constraints inhibiting our ability to add the additional volumes to meet current demand. This demand adds additional confidence in our business expectations as customers align shipment slots with roadmap requirements.
In this industry environment, we will continue to focus on meeting customer requirements; maintaining a high level of investment in R&D to advance our product roadmaps and KLA's market leadership and align our operating structure with top line expectations, which we expect to be in line or better on a relative basis while delivering strong relative financial performance.
Our March quarter guidance is as follows. Revenue of $2.35 billion, plus or minus $150 million, foundry logic is forecasted to be approximately 85%, and memory is expected to be around 15% of semi-PC systems revenue. Within memory, DRAM is expected to be about 71% of the segment mix and NAND 29%. We forecast non-GAAP gross margin to be in a range of 60.5% to 62.5% as product and segment mix and lower volumes dilute gross margins versus the '22 baseline in the quarter.
Based on current market demand assessments, we do not expect incremental inventory reserve requirements to be a factor in the quarter. For calendar '23, based on our current industry outlook and the impact on overall volume, segment contribution and product mix within the semiconductor process control group, we are modeling gross margins to be greater than 60% with variability quarter-to-quarter attributable to product mix fluctuations.
Operating expenses will decline in the March quarter to approximately $545 million. For calendar '23, KLA will continue to balance investments in technology, headcount and infrastructure to support our long-term growth objectives while managing the business against the expectation of a softening near-term outlook. As a result, we expect quarterly operating expense levels to decline as we move through the balance of the year.
Other model assumptions for the March quarter include other income and expense net of approximately $62 million and an effective tax rate of approximately 13.5%. Based on our current assessment of geographic revenue and profit expectations, you should continue to use 13.5% as the tax finding rate for calendar '23. Finally, GAAP diluted EPS is expected to be in the range of $4.06 to $5.46, and non-GAAP diluted EPS in a range of $4.52 to $5.92. EPS guidance is based on a fully diluted share count of approximately 139 million shares.
In conclusion, though calendar 2023 will be a year of contraction after three strong years of growth, we remain confident that the secular trends outlined in our Investor Day last June are driving long-term semiconductor industry demand and investments in WFE are durable and compelling. Broad-based customer demand across multiple production nodes, increasingly strategic role semiconductors are playing in influencing national industrial policy, a robust design environment at the leading edge and growing semiconductor content across technology nodes remains important trends. These are long-term secular growth drivers for the industry as technology investment in node transitions reflect the value that semiconductors in our industry have in lowering costs for our customers and enabling a broader application universe for semiconductor-based technology across multiple end markets.
For KLA, we have a strong historical track record of delivering relative outperformance across industry cycles. To be competitive over the long run, our customers must continue to invest in product roadmaps irrespective of market conditions. Furthermore, KLA services has continued to grow consistently over multiple decades due to the critical nature of KLA products to improve yield learning and driving fab productivity.
Our operational execution coupled with the power of our portfolio strategy positions us to continue to deliver sustainable relative performance over the next several years. We will continue to maintain our R&D investment in our product development roadmaps to enable market share expansion, support customers' technology roadmaps and multiyear fab investment plans.
This provides an element of stability that shores up our confidence in the demand outlook for the future. These factors, combined with the KLA operating model that guides our execution, positions us well as we execute our strategic objectives. These objectives fuel our growth, consistent operational excellence and differentiation across the diverse product and services offering. They are also the foundation of our sustained technology leadership, consistent industry-leading financial performance, and growing capital returns to shareholders.
With that, I'll turn the call back over to Kevin to begin the Q&A. Kevin?
