Onto Innovation Inc. (ONTO) Q4 2025 Earnings Call Transcript
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Overview
The earnings call indicates strong revenue growth driven by advanced packaging and nodes, with positive impacts from the Semilab acquisition. Despite some supply chain challenges, the company is set up for significant growth, particularly in advanced packaging. The Q&A highlights a positive outlook for advanced packaging and AI demand, although management was vague on certain details. Overall, the strong financial performance and optimistic guidance suggest a positive stock price movement in the short term.
Key Financial Performance
Revenue for Q4 2025 $267 million, a 22% increase from Q3. Reasons for the increase include strong demand in advanced packaging and specialty devices, particularly in 2.5D packaging business, which doubled compared to Q3.
Full-year revenue for 2025 $1.005 billion, a record for Onto Innovation. This was driven by growth in advanced packaging, specialty devices, and advanced nodes.
Gross margin for Q4 2025 54.6%, an improvement of about 50 basis points from Q3. The improvement was attributed to operational efficiencies and increased revenue.
Operating margin for Q4 2025 25.2%, an increase of 410 basis points from Q3. This was due to higher revenue and better cost management.
Cash generation for Q4 2025 $95 million, a record for the company. This was attributed to strong operational performance and efficient cash management.
Advanced packaging and specialty devices revenue for Q4 2025 Approximately $145 million, representing slightly more than half of total revenue. This was driven by a doubling of sales in the 2.5D packaging business compared to Q3.
Advanced nodes revenue for 2025 $308 million, more than doubling from the previous year. Growth was driven by strong positions in DRAM and logic, with pilot line sales for a new gate-all-around customer contributing to Q4 growth.
Semilab acquisition impact Approximately $9 million of revenue in Q4 2025. The acquisition also contributed to operational synergies and expanded market opportunities.
Cash tax savings from the One Big Beautiful Bill Tax Act $19 million in 2025 and an additional estimated $14 million in 2026. This was due to accelerated expensing of certain R&D costs.
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Operating Highlights
Dragonfly 2D and 3D bump metrology: Volume purchase agreement valued at over $240 million, including over $60 million in systems for 3D bump metrology, extending through 2027.
Next-generation inspection systems: Supporting 4 customer evaluations with positive preliminary feedback on optical performance and throughput.
JetStep systems: Orders received for large panel packaging facility, supporting high-volume applications.
Firefly process control: Adopted for glass and panel fan-out applications, improving yields through process metrology.
Surface charge metrology: First orders received to address residual charge issues in large-format heterogeneous packaging.
Advanced packaging: Revenue grew over 25% sequentially in Q4 2025, with expected growth of over 30% in 2026.
Advanced nodes: Revenue more than doubled in 2025 to $308 million, driven by OCD technology and adoption of Atlas G6 for gate-all-around and HBM4 DRAM.
Power semiconductors: Revenue strong in Q4 2025 but expected to decline by 10% in 2026 due to weakening EV demand and slowing infrastructure spending.
Revenue: Record revenue of $267 million in Q4 2025, with full-year revenue reaching $1.005 billion.
Margins: Gross margin improved to 54.6% in Q4 2025, with operating margin at 25.2%.
Backlog: Nearly doubled over the last 3 months to approximately 2 quarters.
Semilab acquisition: Completed in November 2025 for $445 million in cash and 641,771 shares of common stock.
AI-driven growth: Surge in AI investments expected to drive semiconductor capital equipment spending, with NVIDIA forecasting 40% CAGR for global AI infrastructure over 5 years.
Customer agreements: Volume purchase agreement with HBM customer for Dragonfly metrology through 2027, valued at $240 million.
Operational discipline: Focus on offshoring, scalability, and profitability, along with disciplined forecasting and spending controls.
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Risk or Challenges
Power Semiconductor Revenue Decline: Expected to decline around 10% in 2026 due to weakening demand for EVs and slowing infrastructure spending.
Semilab Revenue Decrease: Likely to experience a decrease from original planning as the company pivots from opportunistic sales to longer-term market opportunities.
Tightening Capacity and Lead Times: Working closely with customers and suppliers to manage tightening capacity and gradual extension of lead times, which could impact operations.
Residual Charge on Die: Concerns about residual charge on die causing yield issues when connected to another die in large-format heterogeneous packaging.
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Guidance & Outlook
AI Infrastructure Growth: NVIDIA forecasts global AI infrastructure to grow at a 40% CAGR over the next 5 years.
Capital Expenditures by Hyperscalers: Forecasted to exceed $600 billion in 2026.
WFE Growth: Analysts project strong WFE growth in the range of 10% to 20% in 2026, depending on cleanroom space availability.
Volume Purchase Agreement: Onto Innovation secured a $240 million agreement with an HBM customer for Dragonfly 2D and 3D bump metrology demand through 2027.
Advanced Packaging Revenue: Expected to grow over 30% in 2026, setting a new revenue record for this market.
Power Semiconductor Revenue: Expected to decline around 10% in 2026 due to weakening EV demand and slowing infrastructure spending.
Advanced Nodes Revenue: Expected growth in 2026 driven by adoption of Atlas G6 for gate-all-around and HBM4 DRAM applications.
Integrated Metrology Expansion: Expanding to include 2 logic customers for leading-edge processes expected to ramp in 2026.
Q1 2026 Revenue: Expected to be in the range of $275 million to $285 million.
Q2 2026 Revenue: Expected to exceed $300 million, representing 12% to 14% core growth in the first half of 2026 compared to the second half of 2025.
Backlog: Nearly doubled over the last 3 months to approximately 2 quarters, supporting strong growth expectations.
Gross Margin Improvement: Expected to improve by approximately 50 basis points in Q1 2026 compared to Q4 2025.
Operating Margins: Expected to improve to approximately 25.5% to 26.5% in Q1 2026.
Earnings Per Share (Q1 2026): Expected to be in the range of $1.26 to $1.36 per share.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is the market outlook for the year, particularly in advanced packaging and WFE?
A:The company expects advanced packaging to grow over 30% this year. WFE is harder to track due to varying factors like construction costs and the inclusion of advanced packaging in some WFE numbers. Broad-based demand and expansions are observed across IDMs, OSATs, and other players.
Q:What does the backlog look like, and what is the company's capacity for growth?
A:The company is set up to serve a $2 billion run rate, which has improved with extended factories. Capacity is not a major issue, but supply chain constraints, especially in precision optics, are a challenge. The company is working closely with suppliers and customers to meet demand.
Q:What are the expectations for 30% year-on-year advanced packaging growth and notable programmatic wins?
A:Advanced packaging revenue is expected to remain stable throughout the year. The adoption of G5 could add upside in the second half. The company has taken a conservative approach, not heavily factoring in G5 adoption.
Q:What is the visibility for advanced nodes in the back half of the year?
A:Advanced nodes are expanding, with customer discussions focused on meeting demand. Timing is uncertain, but the company expects growth in the range of 10% to 20%, with better insight expected as BPAs are solidified.
Q:What is the significance of the $240 million VPA for HBM, and are additional VPAs expected?
A:The $240 million VPA extends into two years, with a 50-50 split in demand. Additional VPAs are expected as discussions with other customers are ongoing.
Q:What is the update on the G5 Dragonfly platform and customer discussions?
A:Customer discussions are positive, with evaluations expected to end in the first half of the year and ramps starting in the second half. Specific customer details were not disclosed.
Q:What is the expected growth for AI packaging and the litho business?
A:The company no longer separates AI packaging due to market expansion. The 30% growth in advanced packaging is largely tied to AI demand. The litho business is seeing increased engagement and orders, with expectations for growth into 2027.
Q:What are the growth rates for CoWoS and HBM inspection businesses in 2026?
A:The growth rates for CoWoS and HBM inspection businesses are expected to be relatively similar, with potential upside from the Dragonfly G5.
Q:What is the base level for advanced packaging growth, and what segments are included?
A:The base level for advanced packaging growth is $500 million for 2025. The 30% growth includes CoWoS, HBM inspection, OSATs, and panel.
Q:What are the expectations for Semilab contributions in 2026 and organic growth excluding Semilab?
A:Semilab is expected to contribute $100 million to $110 million in 2026, with challenges in the power semi market. Organic growth is expected to outperform WFE growth of 20%.
Q:What is the composition of the VPA and its options for Dragonfly G5?
A:The VPA primarily includes Dragonfly G3 products, with options for upgrades to G5. The current products are qualified for the customer's aggressive ramp.
Q:What is the contribution of new products like 3DI and critical films to growth?
A:New products contribute about 10% to the business this year, with expectations for significant growth into 2027 as they open new applications and expand the company's SAM.
Q:What is the impact of FinFET and gate-all-around spending on advanced nodes?
A:The company's business is driven by gate-all-around nodes, which account for nearly all the demand. FinFET spending has less impact on the company's revenue.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on customer discussions for the G5 Dragonfly platform, citing confidentiality. They also did not break out the litho business revenue, stating it might be addressed later in the year. Additionally, they provided limited clarity on the exact growth contributions of new products like 3DI and critical films for this year.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI device
AI investment
Act cash
Act expensing
Dragonfly
Firefly
JetStep
OCD
Onto
Semilab
Tax Act
acquisition
addition
agreement
backlog
basis point
capital
charge
copy release
core
demand
die
example
facility
fact
factory
fan
format
gate
industry
infrastructure
momentum
order packaging
packaging node
packaging specialty
panel level
planning
purchase
record level
sale
saving
semiconductor
shot
solution
support
throughput
ONTO Transcript
Onto Innovation Inc. (ONTO) Q4 2025 Earnings Call Transcript
Positive2-19
The earnings call indicates strong revenue growth driven by advanced packaging and nodes, with positive impacts from the Semilab acquisition. Despite some supply chain challenges, the company is set up for significant growth, particularly in advanced packaging. The Q&A highlights a positive outlook for advanced packaging and AI demand, although management was vague on certain details. Overall, the strong financial performance and optimistic guidance suggest a positive stock price movement in the short term.
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Onto Innovation Inc. (ONTO) Q3 2025 Earnings Call Transcript
Positive11-6
The earnings call summary indicates strong potential for revenue growth driven by AI packaging and advanced nodes, especially in Q4 2025. The acquisition of Semilab is expected to boost earnings and margins, while the region-for-region strategy aims to reduce costs. Although there are temporary margin pressures, guidance suggests recovery and growth. The Q&A section confirms positive trends in AI packaging and advanced nodes, with expected revenue contributions from new technologies. Overall, the positive guidance and strategic initiatives suggest a positive stock price movement.
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