Onto Innovation(US:ONTO)2023-11-10 04:16Financial Data and Key Metrics Changes - The company reported third-quarter revenue of $207 million, a 19% decline year-over-year but a 10% increase compared to the second quarter [28] - Operating income was $50 million, representing 24% of revenue, up from 21% in the second quarter [35] - Net income for the third quarter was $48 million, or 23% of revenue, compared to 20% in the second quarter [35] Business Line Data and Key Metrics Changes - Advanced nodes revenue was $26 million, accounting for 13% of total revenue, reflecting a significant decline [28] - Specialty devices and advanced packaging achieved record revenue of $135 million, increasing 20% over the second quarter and representing 65% of total revenue [28] - Software and services revenue reached $46 million, a 13% increase over the second quarter, contributing 22% to total revenue [54] Market Data and Key Metrics Changes - The advanced nodes market is experiencing weakness, with a 30% decline in revenue for the third quarter [20] - Demand for high bandwidth memory (HBM) is surging, with expectations for a 50% growth in the dragonfly G3 product line in the fourth quarter [22] - The company noted that its exposure to the Chinese market is lower than peers, with only 15% of revenue coming from China compared to 40%-50% for others [75] Company Strategy and Development Direction - The company is focusing on the AI semiconductor market, which is expected to grow significantly, with AI-related semiconductors projected to reach $300 billion to $500 billion by 2030 [51] - Advanced packaging technologies are seen as critical for the AI era, with the company emphasizing the importance of 3D and 2.5D packaging [38] - The company is targeting a gross margin of 54% as a baseline goal, with ongoing cost reduction initiatives expected to yield $25 million in savings over the next two years [57] Management's Comments on Operating Environment and Future Outlook - Management expects fourth-quarter revenue to be flat compared to the third quarter, with improvements in gross and operating margins despite a less favorable product mix [22] - The company anticipates that AI device volumes will drive revenue growth in the first half of 2024, independent of a recovery in advanced nodes [43] - Management acknowledged challenges in production capacity and supply chain issues but expressed optimism about future demand and operational improvements [90] Other Important Information - The company added over $110 million in new orders in the last 2.5 months, primarily for high bandwidth memory and process control for 2.5D packaging [38] - Inventory levels decreased to $346 million, down $6 million from the previous quarter, as the company actively manages inventory [55] - The company has $32 million remaining under its existing share repurchase authorization [40] Q&A Session Summary Question: What is the outlook for panel lithography shipments? - Management indicated that $30 million of planned lithography shipments in 2023 will move into 2024 due to production issues [42] Question: How is the company addressing the production capacity challenges? - Management noted that they are working to improve internal capacity and expect to reach full capacity by mid-next year [90] Question: What is the company's exposure to the Chinese market? - The company stated that its exposure to China is lower than peers, with only 15% of revenue coming from that region [75] Question: What are the expectations for advanced nodes recovery? - Management does not anticipate a recovery in advanced nodes in the near term but expects growth in other areas, particularly related to AI [43] Question: Can you clarify the recent order sizes and delivery timelines? - Management confirmed that the company has received over $210 million in orders for delivery between the second half of 2023 and the first half of 2024 [81]