KLA-Tencor Corporation KLAC reported third-quarter 2016 earnings of $1.15 cents a share, topping the Zacks Consensus Estimate of $1.00 cents by 15.0%. KLA has agreed to be acquired by Lam Research (LRCX) in a cash and stock deal worth $5.08 billion. The acquisition is expected to be accretive to earnings and cash flow in the first twelve months following the closure. The companies expect to realize $250 million in annual ongoing pre-tax cost synergies within 1.5-2 years and $600 million by 2020. The merger of these two companies creates an equipment powerhouse with a huge range of products, customer breadth and scale. The increased integration and efficiency of operations could also help the combined entity drive further extension of Moore’s Law. Shareholders of both companies approved the merger in Feb 2016. A quick look at the numbers- Revenues KLA reported revenues of $712.4 million, flat sequentially and down 3.5% year over year. Products generated 74% of total revenue, up 14.6% sequentially and 4.7% year over year. Services revenue comprised the remaining 26%, down 0.4% sequentially and up 4.9% year over year. Wafer Inspection was the biggest contributor to revenue with a 45% share (up 16.8% sequentially and 3.2% year over year); followed by Global Services & Support with 27% (down 7.2% sequentially but up 2.0% year over year); Patterning was next with 23% (down 20.1% sequentially and 21.4% year over year); and Other 4% (up 75.1% and 21.4% year over year) The biggest contributor by geography was North America, which accounted for 23% of revenue. This was followed by Taiwan (21%), Japan (20%), Korea (12%), China 10%, Other Asia 9% and and Europe & Israel 5%. Margins KLA’s gross margin expanded 99 basis points (bps) sequentially and 460 bps year over year to 61.6%. Operating expenses of $199.0 million were down 2.5% sequentially, 8.9% from a year ago. The operating margin expanded 180 bps sequentially and 624 bps from last year to 33.7%. The pro forma net income was $179.3 million, or 25.2% of sales compared to $161.8 million, or 22.8% in the December 2015 quarter and $137.4 million, or 18.6% in the March quarter of last year. Including one-time restructuring and acquisition-related charges as well as merger-related cost on a tax-adjusted basis, the GAAP net income was $175.8 million ($1.12 a share) compared to $152.2 million ($0.98 a share) in the previous quarter and $131.6 million ($0.81 a share) in the year-ago quarter. Balance Sheet KLA ended with a cash and short term investments balance of $2.24 billion, down $115.0 million from the previous quarter. During the quarter, the company generated $111.5 million of cash from operations, spending $9.0 million on capital expenses and $82.1 million on dividends. The company didn’t repurchase any shares. Recommendation While uncertainties about the timing of capital equipment purchases remain for the leading provider of process control equipment, its acquisition by Lam Research is a positive for investors. Particularly because of the expected increase in be 3D NAND deployments this year and Lam’s strength in the area, which can lead to synergies. FinFET transition at foundries also remains a positive. KLA shares currently carry a Zacks Rank #3 (Hold). Better technology stocks to invest in instead are Silicon Motion SIMO, which has a Zacks Rank #1 (Buy) or Taiwan Semiconductor TSM, Mellanox MLNX and Advanced Micro Devices AMD, which carry a Zacks Rank #2 (Buy).Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report ADV MICRO DEV (AMD): Free Stock Analysis Report SILICON MOTION (SIMO): Free Stock Analysis Report MELLANOX TECH (MLNX): Free Stock Analysis Report KLA-TENCOR CORP (KLAC): Free Stock Analysis Report TAIWAN SEMI-ADR (TSM): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research