Onto Innovation Inc. Q4 FY2025 earnings call

• Ended 2025 with record revenue of $267 million, orders from 2.5D packaging for AI devices more than doubling, gross and operating margins improved, and cash generation of $95 million.
• Industry surge in AI investments projected to drive up cycle in semiconductor capital equipment spending, with NVIDIA forecasting global AI infrastructure growth at 40% CAGR over 5 years and hyperscalers' CapEx forecasted to exceed $600 billion in 2026.
• Announced a volume purchase agreement from an HBM customer covering Dragonfly 2D and 3D bump metrology demand through 2027, valued at over $240 million.
• Advanced packaging business grew over 25% sequentially, with support for 4 customer evaluations of next-generation inspection systems and additional purchase orders from advanced packaging customers.
• JetStep systems and Firefly process control being adopted for large panel packaging and glass/panel fan-out applications, with orders received for these systems.
• Surface charge metrology technology acquired from Semilab received first orders for emerging market need.
• Advanced nodes revenue more than doubled in 2025, with Atlas G6 being adopted for new critical applications in gate-all-around and HBM4 DRAM, and films metrology and integrated metrology achieving record revenue in 2025.

Advanced packaging grew over 25% sequentially in Q4, driven by demand for Dragonfly inspection and Iris films metrology. Revenue from advanced packaging was approximately $145 million in Q4, representing slightly more than half of total revenue. For full year 2025, advanced packaging and specialty devices totaled $504 million. Advanced nodes revenue more than doubled in 2025 to $308 million, driven by growth in both DRAM and logic. In Q4, advanced nodes revenue grew sequentially by slightly over 30% to $72 million. Power semiconductor revenue was strong in Q4 but expected to decline seasonally in Q1 2026, with a projected 10% decline in 2026 based on weakening EV demand and slowing infrastructure spending. Semilab is expected to experience a similar decrease from original planning as it pivots to longer-term market opportunities.

• First quarter revenue expected to be in range of $275 million to $285 million, with Q2 revenue expected to surpass $300 million, resulting in 12% to 14% core growth in first half of 2026 compared to second half of 2025.
• Expect higher revenue in second half of 2026 over first half of 2026.
• Expect continued margin expansion each quarter in 2026, with Q1 gross margin expected to improve by approximately 50 basis points from Q4 levels.
• Q1 operating expenses expected to approximate $80 million, with operating margins expected to improve to approximately 25.5% to 26.5%.
• Earnings per share for Q1 expected to be in range of $1.26 to $1.36 per share, assuming estimated tax rate of approximately 16% and about 49.9 million shares outstanding.

• Supply chain strain due to rapid increase in orders and customers pulling things in, putting a strain on suppliers, especially in precision optics.
• Uncertainty in timing of factory ramp and meeting demand in advanced nodes.
• Seasonal decline in power semiconductor revenue expected in Q1 2026 due to weakening EV demand and slowing infrastructure spending.
• Difficulty in separating and accurately tracking AI packaging and other segments as the market expands and more customers enter the supply chain.

Q: Can you talk about what you see for the market outlook for the year, specifically on packaging and WFE?

A: Advanced packaging expected to grow over 30% this year. WFE is harder to track as advanced packaging is only starting to be added to some WFE numbers and there are construction costs involved, but there is broad-based demand and expansions across various players.

Q: Can you talk about the backlog and capacity in terms of growth?

A: Historically set up to serve a $2 billion run rate, extended factories have improved capacity, but supply chain strain exists with suppliers due to rapid orders and customer pulls.

Q: Can you talk about the contour of advanced packaging growth through the year and programmatic wins?

A: Advanced packaging revenue expected to be relatively stable throughout the year, with G5 adoption potentially adding upside in the second half but conservative approach taken for 30% growth estimate.

Q: Can you talk about visibility in the back half of the year for advanced nodes?

A: Broad strokes of expansion, but timing is uncertain with customer discussions around ramping and demand, expecting at least performance in 10% to 20% range for advanced nodes.

Q: Can you talk about the $240 million VPA for HBM and additional VPAs?

A: Expect additional VPAs, with the mentioned VPA being a 2-year agreement with acceleration of demand, starting to see 50-50 range.

Q: Can you discuss G5 qualification discussions, timing, pricing, etc.?

A: Tones from customers are positive, progressing either ahead or as expected, with accelerated evaluations ending in first half of the year and potential ramps in second half.

Q: Can you give color on narrowly defined AI packaging and panel business?

A: Difficult to separate as market has expanded, 30% growth in advanced packaging is mostly tied to AI, and panel business is seeing increased engagement with customers and resumption of orders with positive trends.

Q: Can you give color on litho business and its expectations for the year?

A: Not breaking out litho business yet, but industry is seeing increased engagement, utilizations picking up, and customers resuming orders with positive trends for 2027 and beyond.

Q: Can you discuss growth rates of CoWoS inspection and HBM inspection segments in 2026?

A: Relatively similar, with potential upside from Dragonfly G5 adoption, but currently relatively similar.

Q: Can you remind us of Semilab contributions for 2026 and organic growth outperforming WFE growth?

A: Semilab expected to contribute low $100 million to $110 million in 2026, with power semi potentially challenged, but advanced packaging expected to grow over 30% and advanced nodes mid-teens, outperforming WFE growth expectations.

Q: Can you talk about the VPA, including front-end vs back-end and toggle/optionality?

A: VPA has options, primarily current products qualified for aggressive ramp, with upgrade options offered but primarily G3s now.

Q: Can you talk about new products and applications like 3DI and critical films contributing to growth rates?

A: New products like HSIR and Atlas G6 are early penetrations, contributing to growth, with expansion into new applications and growth opportunities into 2027.

Q: Can you talk about FinFET spending vs gate-all-around in advanced nodes and future tailwinds?

A: Business driven by gate-all-around nodes, with strongest demand and nearly all demand in gate-all-around, with more gate-all-around spending in 2027 expected to be a tailwind.