Core Insights - Onto Innovation Inc. has launched the Atlas G6 optical critical dimension (OCD) metrology system, designed for next-generation GAA transistors and high-bandwidth memory (HBM) applications, enhancing precision in process control [1][9] - The semiconductor industry is experiencing tighter dimensions, with manufacturers facing up to 30% reductions each cycle, necessitating precise measurements for GAA and smaller DRAM cell blocks [2] - The Atlas G6 features smaller spot sizes and improved signal-to-noise performance, crucial for measuring shrinking geometries directly on devices without compromising data quality [3] Product Development - The Atlas G6 incorporates an extra data channel and integrates with Onto's Ai Diffract OCD analysis software, utilizing machine learning algorithms to enhance recipe robustness and reduce time to solutions [4] - Onto's Dragonfly 3Di platform continues to be a key growth driver, with over 20 systems shipped in the second quarter, addressing sub-surface defect inspection needs in advanced semiconductor and AI packaging technologies [7] Market Performance - Second-quarter memory revenues remained strong, particularly in NAND, while DRAM revenues stayed near record highs; Onto secured over $20 million in new orders for Atlas OCD and Iris films, with most revenues expected in Q4 [6][9] - The company faces challenges from U.S.-China trade tensions, with tariffs expected to add $2-$3 million in costs, impacting gross margins, which are guided at 53-55% [8] Customer Base and Risks - Onto serves various markets, including Bare Wafer and Image Sensors, with unique capabilities for detecting yield-killing voids in hybrid bonding applications [5] - The company has a high concentration risk, with the top three customers accounting for 52% of its projected 2024 revenues [8]

Financial Data and Key Metrics Changes - Onto Innovation reported revenue of $253.6 million for Q2 2025, representing a 5% year-over-year increase [14] - Gross margin for Q2 was 54.5%, which would have been approximately 55% excluding $1.1 million in tariff-related expenses [15][17] - Operating margin was 25.9%, near the high end of the expected range, attributed to productivity gains in R&D and operations [15] - Earnings per share for the quarter was $1.25, impacted by unfavorable foreign exchange losses and an increase in the effective tax rate to 16% [16] Business Line Data and Key Metrics Changes - Advanced nodes revenue was $89 million, accounting for 35% of Q2 revenue [16] - Specialty devices and advanced packaging revenue reached $117 million, representing 46% of total revenue [16] - Software and services revenue was $48 million, or 19% of total revenue [16] Market Data and Key Metrics Changes - The company expects a rebound in revenue in the fourth quarter, consistent with levels reported in the first two quarters of 2025 [11][13] - Demand for AI packaging is anticipated to drive a significant increase in revenue, with expectations of at least a 50% quarter-over-quarter increase in Q4 [10] - Advanced node spending is expected to pause in Q3 but is projected to increase in Q4, with advanced nodes revenue expected to nearly double compared to 2024 [12][18] Company Strategy and Development Direction - Onto Innovation announced a strategic agreement to acquire product lines from Semi Lab International, expected to close pending regulatory approvals [4][6] - The acquisition is projected to add over $130 million in annual revenue and be immediately accretive to gross and operating margins [6] - The company is focusing on expanding its portfolio in inspection and metrology systems to address new challenges in advanced nodes and packaging [5][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a revenue rebound in Q4, driven by strong customer demand and increased spending in AI packaging [11][13] - The company is taking a prudent approach to manage operating costs while ensuring R&D capabilities are not significantly impacted [21] - The ramp-up of a regional manufacturing strategy is expected to enhance operational resilience and mitigate tariff-related exposure [20][24] Other Important Information - Cash from operations was $58 million, representing a 95% cash conversion of non-GAAP net income for the quarter [17] - The company ended the quarter with approximately $895 million in cash and investments, an increase of $44 million from Q1 [17] - Anticipated tariff expenses for Q3 and Q4 are expected to be around $2 million to $3 million each quarter [19] Q&A Session Summary Question: Follow-up on Next Gen Dragonfly and customer milestones - Management confirmed significant milestones achieved with a key customer and ongoing reliability testing before shipping high-quality products [28][30] Question: Factors influencing Q4 revenue range - The revenue range for Q4 is primarily driven by customer demand rather than specific programs, with strong demand for AI packaging tools noted [33][34] Question: Next Gen Dragonfly shipping timeline and growth potential - Tools are on track to be shipped this year, with expectations for strong growth driven by various applications [37][40] Question: Subsurface defect inspection demand - Demand for subsurface defect inspection is coming from multiple customers across various applications, not limited to one customer [46][48] Question: Importance of Next Gen Dragonfly platform - The platform is considered crucial for defending existing positions in high-performance metrology, with significant advancements over previous technologies [50] Question: Semi Lab acquisition and growth expectations - The acquisition is expected to provide above-average growth opportunities, with synergies to be discussed post-closing [80][82]