KLA (KLAC) 8-K KLA-TENCOR REPORTS 2nd QUARTER OF FISCAL 2006 EARNINGS PER SHARE OF $0.38

EXHIBIT 99.1

Company Contacts:	Jeff Hall
	Chief Financial Officer
	(408) 875-6800
	jeff.hall@kla-tencor.com
	Cary Halsted (Investment Community)
	Vice President, Investor Relations
	(408) 875-2406
	cary.halsted@kla-tencor.com
	Uma Subramaniam (Media)
	Director, Corporate Communications
	(408) 875-5473
	uma.subramaniam @kla-tencor.com

FOR IMMEDIATE RELEASE

KLA-TENCOR REPORTS 2nd QUARTER OF FISCAL 2006 EARNINGS PER SHARE OF $0.38

($0.50 EXCLUDING EQUITY BASED COMPENSATION) ON REVENUE OF $488 MILLION

SAN JOSE, Calif., Jan. 26, 2006—KLA-Tencor Corporation (NASDAQ: KLAC) today announced operating results for its second quarter of fiscal 2006, ended December 31, 2005. The company reported net income of $77 million and earnings per diluted share of $0.38 on revenues of $488 million compared to net income of $77 million or $0.38 per diluted share on revenue of $484 million in the first quarter of fiscal 2006, and net income of $122 million or $0.61 per diluted share on revenue of $533 million in the second quarter of fiscal 2005. The results for the fiscal 2006 quarters include the impact from adoption of SFAS 123 (R) “Stock Based Compensation”. The company recorded after-tax equity-based compensation expenses of $25 million during the second quarter of fiscal 2006 and $24 million during the first quarter of fiscal 2006, in its costs and operating expenses. Excluding the impact of equity-based compensation, net income would have been $102 million or $0.50 per diluted share in the second quarter of fiscal 2006 and $101 million or $0.50 per diluted share for the first quarter of fiscal 2006.

“We continue to work closely with our customers to help them maximize their yield faster in the face of formidable technology and economic challenges,” stated Rick Wallace, chief executive officer of KLA-Tencor. “Demand for our solutions remains strong as semiconductor manufacturers count on us as a trusted partner that can help them realize greater profitability through faster product introduction cycles, accelerated transistor innovation and enhanced manufacturing efficiency.”

KLA-Tencor reported ending the quarter with approximately nine months of product-related shipment and revenue backlog. On a geographic basis, Korea, China and Singapore were 32 percent of orders, above

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KLA-TENCOR REPORTS RESULTS FOR Q1/FISCAL YEAR 2006
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their combined historical average of 20 percent; Japan was 21 percent of orders, higher than its historical average of 20 percent; Taiwan was 18 percent of orders, lower than its historical average of 20 percent; U.S. was 17 percent of orders, lower than its historical average of 25 percent; and Europe was 12 percent of orders, lower than its historical average of 15 percent.

KLA-Tencor’s financial position remained strong with cash, cash equivalents and marketable securities of $2.2 billion and no long term debt. Inventory increased by $16 million to $412 million compared to the prior quarter as a result of higher build plans to support increased customer demand. Accounts receivable increased by $65 million to $372 million compared to the prior quarter as a result of higher revenue in Japan.

Forward Looking Statements:Statements in this press release regarding the benefit to customers of KLA-Tencor’s products, demand for KLA-Tencor’s products and its future financial performance are forward-looking statements, and are subject to the Safe Harbor provisions created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current information and expectations, and involve a number of risks and uncertainties. Actual results may differ materially from those projected in such statements due to various factors, including but not limited to: the demand for semiconductors and new and enhanced product offerings by competitors, cancellation of orders by customers and changing customer demands. For other factors that may cause actual results to differ materially from those projected, please refer to the company’s Form 10-K, Forms 10-Q and other filings with the Securities and Exchange Commission. Actual results could differ materially from those anticipated in forward-looking statements in this release as a result of certain factors, including those set forth in the risk factors described in the company’s SEC filings.

For comparison purposes, the company makes reference to certain net income and earnings per share results that were consistent with GAAP when presented in prior quarters, but are now inconsistent with GAAP due to changes in accounting standards. These results were reached by excluding non-cash, equity-based compensation expenses. We reference those results to allow a better comparison of results in the current period to those in prior periods. Our reference to these results from prior periods should be considered in addition to results that are prepared under current accounting standards but should not be considered a substitute for results that are presented as consistent with GAAP.

About KLA-Tencor:KLA-Tencor is the world leader in yield management and process control solutions for semiconductor manufacturing and related industries. Headquartered in San Jose, Calif., the company has sales and service offices around the world. An S&P 500 company, KLA-Tencor was named one of the Best Managed Companies in America for 2005 byForbes Magazineand is the only company in the semiconductor industry to receive the accolade for this year. KLA-Tencor is traded on the Nasdaq National Market under the symbol KLAC. Additional information about the company is available on the Internet at http://www.kla-tencor.com

KLA-Tencor Corporation
CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS

	December 31,		June 30,
	2005		2005
(In thousands)
ASSETS
Cash and marketable securities	$	2,227,230	$	2,195,186
Accounts receivable, net		371,873		333,218
Inventories		411,796		358,339
Land, property and equipment, net		387,839		385,222
Other assets		765,798		714,407
Total assets	$	4,164,536	$	3,986,372
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	79,142	$	67,717
Deferred system profit		163,967		209,899
Unearned revenue		74,701		80,122
Other current liabilities		541,911		574,124
Total current liabilities		859,721		931,862
Minority interest in subsidiary		8,831		9,253
Stockholders’ equity:
Common stock and capital in excess of par value		1,098,263		943,322
Retained earnings		2,189,515		2,083,638
Accumulated other comprehensive income		8,206		18,297
Total stockholders’ equity		3,295,984		3,045,257
Total liabilities and stockholders’ equity	$	4,164,536	$	3,986,372

KLA-Tencor Corporation
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS

	Three months ended				Six months ended
	December 31,				December 31,
	2005		2004		2005		2004
(In thousands, except per share data)
Revenues:
Product	$	401,720	$	454,945	$	801,670	$	897,241
Service		86,250		77,908		170,160		154,385
Total revenues		487,970		532,853		971,830		1,051,626
Costs and operating expenses:
Costs of revenues*		217,103		217,735		431,323		433,204
Engineering, research and development*		98,327		87,161		195,078		164,308
Selling, general and administrative*		96,025		72,449		188,076		141,639
Total costs and operating expenses		411,455		377,345		814,477		739,151
Income from operations		76,515		155,508		157,353		312,475
Interest income and other, net		16,685		7,777		31,461		14,762
Income before income taxes and minority interest		93,200		163,285		188,814		327,237
Provision for income taxes*		17,806		42,443		37,487		89,990
Income before minority interest		75,394		120,842		151,327		237,247
Minority interest		1,255		1,235		2,000		1,235
Net income	$	76,649	$	122,077	$	153,327	$	238,482
Net income per share:
Basic	$	0.39	$	0.62	$	0.78	$	1.22
Diluted	$	0.38	$	0.61	$	0.76	$	1.19
Weighted average number of shares:
Basic		198,236		195,681		197,824		195,976
Diluted		203,345		200,946		203,043		200,477

*includes the following amounts related to equity awards (in thousands):

	Three months ended December 31,						Six months ended December 31,
	2005			2004			2005			2004
Costs of revenues	$	6,612		$	—		$	13,423		$	—
Engineering, research and development		12,023			498			23,033			498
Selling, general and administrative		17,619			621			34,626			621
Provision for income taxes		(10,442	)		(414	)		(21,098	)		(414	)
Total	$	25,812		$	705		$	49,984		$	705