Onto Innovation(ONTO) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported record revenue of $267 million for Q4 2025, representing a 22% increase from Q3 2025 [12] - Gross margin improved by approximately 50 basis points to 54.6% from Q3, while operating margins increased to 25.2%, up 410 basis points from the previous quarter [12] - For the full year 2025, total revenue reached $1,005 million, also a record for the company [12] Business Line Data and Key Metrics Changes - Advanced packaging and specialty devices generated approximately $145 million in Q4, accounting for slightly more than half of total revenue, with sales from the 2.5D packaging business doubling compared to Q3 [13] - Advanced nodes revenue more than doubled in 2025 to $308 million, driven by growth in both DRAM and logic, which together represent about 75% of the total [14] - Advanced packaging revenue is expected to grow over 30% in 2026, while power semiconductor revenue is anticipated to decline around 10% due to weakening demand for EVs [9][14] Market Data and Key Metrics Changes - The semiconductor capital equipment spending is projected to experience a powerful upcycle driven by AI investments, with NVIDIA forecasting a 40% CAGR for global AI infrastructure over the next five years [3] - Analysts project strong wafer fab equipment (WFE) growth in the range of 10%-20% in 2026, contingent on the availability of new clean room space [4] - The company has secured a volume purchase agreement valued at over $240 million from a customer covering metrology demand through 2027 [4] Company Strategy and Development Direction - The company is focused on expanding its technology portfolio to meet the surging demand for AI, with a strong emphasis on advanced packaging and advanced nodes [4][18] - The integration of Semilab is expected to enhance operational efficiency and contribute to revenue growth, despite anticipated challenges in the power semiconductor market [14][61] - The company aims to improve gross and operating margins consistently throughout 2026, leveraging increased production from extended factories [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning to outperform in 2026, citing a doubling of backlog over the last three months and strong customer demand [18] - The operational discipline and strategic investments are expected to create meaningful shareholder value, with a focus on managing supply chain challenges [18] - Management anticipates continued growth in advanced packaging and advanced nodes, with revenue expected to exceed $300 million in Q2 2026 [11][15] Other Important Information - The company adopted the One Big Beautiful Bill Tax Act, resulting in cash tax savings of $19 million in 2025 and an estimated $14 million in 2026 [14] - The company is transitioning to a calendar quarter and fiscal year-end of March 31, June 30, September 30, and December 31 [16] Q&A Session Summary Question: Market outlook for the year - Management expects advanced packaging to grow over 30% this year, with broad-based demand across various manufacturers [21] Question: Backlog and capacity for growth - The company is set up to serve a $2 billion run rate, with no significant capacity issues anticipated, although supply chain strains are being managed [24] Question: Expectations for advanced packaging growth - Advanced packaging revenue is expected to be stable throughout the year, with potential upside from the adoption of G5 technology [30] Question: Visibility in advanced nodes for the second half of the year - Advanced nodes are expected to grow in the mid-teens, with ongoing discussions around volume purchase agreements providing better insight into growth [33] Question: Contribution of Semilab to revenue - Semilab contributed approximately $9 million in Q4, with expectations for low hundreds to 110 million in revenue for 2026 [61] Question: Growth rates for CoWoS and HBM inspection businesses - Both segments are expected to grow at similar rates, with complexities in CoWoS potentially leading to higher capital intensity [51]