Onto Innovation(ONTO) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported second quarter revenue of $191 million, down 26% year-over-year and below the guidance range of $195 million to $203 million due to shipment timing issues [23][21] - Earnings per share (EPS) for the second quarter was $0.79, within the guidance range of $0.75 to $0.90 [16] - Gross margin for the second quarter was 53%, exceeding the guidance range of 50% to 52% [17] - Operating income was $41 million, representing 21% of revenue, compared to 29% from the prior year [26] - Cash and short-term investments at the end of the second quarter totaled $610 million, an increase of $62 million from the start of the year [19] Business Line Data and Key Metrics Changes - Revenue from specialty and advanced packaging customers grew over 20% from the prior quarter, while revenue from power device customers increased over 35% [10] - Advanced nodes revenue declined 43% in the quarter, with revenue from this segment at $38 million, representing 20% of total revenue [16][14] - Specialty device and advanced packaging revenue accounted for 69% of total revenue, while software and services contributed 21% [24] Market Data and Key Metrics Changes - The company expects strong demand for its products supporting power semiconductor customers to remain at record levels [34] - Advanced nodes are expected to reach a bottom in the third quarter, primarily driven by declines in DRAM manufacturers [35][45] - The company anticipates a recovery in the second half of next year as customers begin to launch new products [35] Company Strategy and Development Direction - The company plans to expand its metrology portfolio with new products designed for compound semiconductor manufacturing [11] - There is a focus on optimizing the supply chain and manufacturing sites while maintaining strategic R&D priorities [22] - The company aims to address an estimated 80% of process control steps in the high-growth market by 2030 [12] Management's Comments on Operating Environment and Future Outlook - Management noted weak demand from advanced nodes customers but highlighted strong demand for power semiconductors and inspection systems [9][34] - The company expects third quarter revenue to be between $205 million and $225 million, with gross margins between 50% and 51% [21] - Management expressed optimism for a potential recovery in the advanced nodes market in the second half of next year [35] Other Important Information - The company ended the quarter with inventory at $352 million, an increase of $14 million, but projects a decline in inventory levels by year-end [27] - There were no share repurchases executed during the quarter, with $32 million remaining under the existing authorization [28] Q&A Session Summary Question: Outlook on heterogeneous integration and high bandwidth memory - Management indicated a rapid increase in demand for high bandwidth memory, with significant drivers from companies like Nvidia [41][43] Question: Clarification on advanced nodes bottoming - Management clarified that the bottoming is primarily driven by DRAM, while advanced logic has been more stable [45] Question: Expectations for memory and foundry logic declines in 2023 - Memory is expected to decline approximately 40%, while foundry logic may decline around 20% [70] Question: Revenue opportunity from CoWoS and HBM - Management estimated a 60/40 split in revenue opportunity between heterogeneous integration and high bandwidth memory [75] Question: Impact of optimization programs on gross margin - Management stated that benefits from optimization programs are expected to be more pronounced in 2024 and 2025, with a target gross margin of 53% to 54% for the full year [57][56]