Q1 2025 Onto Innovation Inc Earnings Call
Good day and welcome to the onto innovation first quarter earnings release Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Sidney Ho. Please go ahead.
Operator: Good day and welcome to the Onto Innovation First Quarter Earnings Release Conference. Today's conference is being recorded.
Operator: At this time, I would like to turn the conference over to. Thank you, Rachel, and good afternoon, everyone. Onto Innovation issued its 2025 first quarter financial results this afternoon, shortly after the market closed. If you did not receive a copy of the release, please refer to the company's website where a copy of the release is posted.
Sidney Ho: Thank you Rachel and good afternoon, everyone onto innovation issued its 2025 first quarter financial results. This afternoon. Shortly after the market close if you did not receive a copy of the release please.
Sidney Ho: Please refer to the company's website, where a copy of the release is posted.
Operator: Joining us on the call today are Michael Plisinski, Chief Executive Officer, and Mark Slicer, Chief Financial Officer. I'd like to remind you that the statements made by management on this call will contain forward-looking statements within the meaning of the Federal Securities Law. Those statements are subject to a range of changes, risks, and uncertainties that can cause actual results to vary materially. For more information regarding the risk factors that may impact Onto Innovation's results, I would encourage you to review our earnings release and our SEC filings. Onto Innovation does not undertake the obligation to update these forward-looking statements in light of new information or future events.
Speaker Change: Joining us on the call today are Mike Copa Cookie, Chief Executive Officer, and Mark <unk>, Chief Financial Officer.
Speaker Change: I'd like to remind you that the statements made by management on this call will contain forward looking statements within the meaning of the federal Securities law.
Speaker Change: Those statements are subject to a range of other changes risks and uncertainties that can cause actual results to vary materially for more information regarding the risk factors that may impact onto in the patient's results I would encourage you to review our earnings release and SEC filings onto innovation does not undertake any obligation to update these.
Speaker Change: Forward looking statements in light of new information or future events.
Operator: Today's discussion of the financial results will be presented on a non-GAAP financial basis unless otherwise specified. As a reminder, a detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings release.
Speaker Change: Today's discussion of our financial results will be presented on a non-GAAP financial basis, unless otherwise specified.
Speaker Change: As a reminder, a detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings release.
Michael Plisinski: Let me turn the call over to our CEO, Mike Plisinski. Thank you, Sidney. Good afternoon, everyone, and thank you for joining us on our call today. Onto Innovation set another revenue record for the quarter, delivering $267 million in revenue. This growth was driven by expansions in both the advanced nodes and packaging to support growth of AI compute engines and increasing investments in cloud and enterprise servers, both seemingly undampened by market concerns over tariffs. However, the announced tariffs by the Trump administration are impacting Onto Innovation somewhat uniquely because nearly all of our products are manufactured in the United States.
Mike: Let me turn the call over to our CEO likelihood ski Mike.
Mike: Thank you Sydney and good afternoon, everyone and thank you for joining us on our call today.
Onto innovation set another revenue record for the quarter delivering $267 million in revenue. This growth was driven by expansions in both the advanced nodes and packaging to support growth of AI compute engines, and increasing investments in cloud and enterprise servers, well seemingly I'm dampened by market concerns over tariffs.
Mike: However, the announced tariffs by the Trump administration are impacting onto innovation somewhat uniquely because nearly all of our products are manufactured in the United States naturally this negatively impacts our incoming costs due to the Trump administration's tariff policies as well as the cost to export our tools from the <unk>.
Michael Plisinski: Naturally, this negatively impacts our incoming costs due to the Trump administration's tariff policies, as well as the cost to export our tools from the potential of retaliatory tariffs imposed by other countries.
Mike: Central of retaliatory tariffs imposed by other countries.
Michael Plisinski: In response, we're accelerating existing strategic programs to improve business continuity and resiliency by installing manufacturing capability in Asia. Due to the incredible cooperation between our team and Asian manufacturing partners, we expect shipments to begin in the second half of 2025 and to have roughly half our product volume capable of being shipped out of these new facilities by early 2026. We expect to realize margin improvements from this effort in the second half of 2026. Once completed, we'll be significantly more competitive while providing greater levels of certainty to our global customers.
Mike: In response, we are accelerating existing strategic programs to improve business continuity and resiliency by installing manufacturing capability in Asia.
Mike: Due to the incredible cooperation between our team and Asian manufacturing partners, we expect shipments to begin in the second half of 2025 and to have roughly half our product volume capable of being shipped out of these new facilities by early 'twenty 'twenty six we expect to realize margin improvements.
Mike: From this effort in the second half of 2026.
Mike: Once complete it will be significantly more competitive while providing greater levels of certainty to our global customers.
Michael Plisinski: Now, let's review our first quarter business highlights, starting with the advanced nodes. Our metrology business is benefiting from increased process control capital intensity of gate all around and memory, as well as the performance and cost of ownership advantages that our optical metrology suite is delivering to our customers. This has led to record quarters for our newest products, Iris Films Metrology and Impulse5 Integrated Metrology. While Atlas OCD metrology nearly surpassed the quarterly record set in Q1 of 2022 before we were impacted by U.S. trade policy with China.
Mike: Now, let's review, our first quarter business highlights starting with the advanced nodes and metrology business is benefiting from increased process control capital intensity of gate, all around and memory as well as the performance and cost of ownership advantages that our optical metrology suite is delivering to our customers.
Mike: This has led to record quarters for our newest products Iris films metrology and impulse five integrated metrology, well Atlas OCD metrology nearly surpassed the quarterly record set in Q1 of 2022 before we were impacted by U S trade policy with China.
Mike: As we anticipated revenue from our specialty devices and advanced packaging markets declined from the record fourth quarter recently, a leader in two and a half the packaging for a commented that the long term outlook has.
Michael Plisinski: As we anticipated, revenue from our specialty device and advanced packaging markets declined from the record fourth quarter. Recently, a leader in 2.5D packaging for AI commented that the long-term outlook of AI has improved as new AI models are expected to lower barriers to entry and drive greater adoption of compute engines. Similarly, HBM device makers are preparing for higher memory content as well as the transition to HBM4 next year. These expanding markets are also driving new tool requirements including greater precision, sensitivity, and throughput in order to produce devices with higher yields and lower costs. In response to these new requirements, during the last two quarters, we doubled the performance of our inspection tools, but this did not address 100 percent of the new needs.
Mike: Has improved as new AI models are expected to lower barriers to entry and drive greater adoption of compute engines. Similarly, H B M device makers are preparing for higher memory content as well as the transition to <unk> P. M. For next year. These expanding markets are also driving new tool requirement.
Mike: Including greater precision sensitivity and throughput in order to produce devices with higher yields and lower costs.
Mike: In response to these new requirements during the last two quarters, we doubled the performance of our inspection tools, but this did not address 100% of the new needs. So together with our customer we began accelerating an existing program for a new inspection platform capable of providing significantly better.
Michael Plisinski: So together with our customer, we began accelerating an existing program for a new inspection platform capable of providing significantly better sensitivity and higher performance. Wafer Demos will start this quarter and we expect to ship evaluation units later this year.
Mike: Sensitivity and higher performance wafer demos demos will start this quarter and we expect to ship the valuation units later this year.
Michael Plisinski: Though disappointing in the short term, in the long term, we believe this new technology may also open up opportunities in the front-end macro inspection market where it has not previously competed.
Mike: So disappointing in the short term and the long term. We believe this new technology May also open up opportunities in the front end macro inspection market. We have not previously competed.
Michael Plisinski: Now, turning from 2D interconnects to 3D interconnects, we're making steady progress moving through the rigorous process qualification of our 3Di technology. In the first quarter, 3Di bump metrology was selected by two more OSATs for applications where better throughput and repeatability was required. We also shipped additional evaluation units to two leading memory manufacturers in the quarter. Besides bump metrology, the other challenge in future 3D packaging is void detection for hybrid bonding applications. Our EchoScan system, which is a unique technology being developed for detection of yield-killing voids and bonding interconnects without the need to immerse samples in liquid, has demonstrated capability at a Tier 1 customer site on R&D test samples.
Mike: Now turning from two D. Interconnects to three D. Interconnects were making steady progress moving through the rigorous process qualification of our three D. I technology in the first quarter three D. I bump metrology was selected by to Morrow sets for applications, where better throughput and repeatability was required we also shipped.
Mike: Additional evaluation units to two leading memory manufacturers in the quarter.
Mike: Besides bump metrology the other challenge in future three D. Packaging is avoid detection for hybrid bonding applications. Our echo scan system, which is a unique technology being developed for detection of yield, killing voids and bonding interconnects without the need to immerse samples and liquid has demonstrated capability at a T.
Mike: One customer site and R&D test samples.
Mike: We are now starting tests on test samples, where theyre on production test samples where variation materials in multiple layers layers will further stress. The technology currently no. Other technology can find voids in these structures that this resolution, which we believe will be critical for yield control in <unk>.
Michael Plisinski: We are now starting tests on production test samples where variation materials and multiple layers will further stress the technology. Currently, no other technology can find voids in these structures at this resolution, which we believe will be critical for yield control and HVM of hybrid bonding devices. Further along the adoption curve, we have delivered many of our subsurface defect inspection tools to reduce sources of yield loss from cracks and voids in packaging for 2.5D and emerging hybrid bonding applications. We're also adding customers outside of packaging to support similar needs in MEMS and power applications.
Mike: H P M of hybrid bonding devices.
Mike: Further along the adoption curve, we have delivered many of our sub surface defect inspection tools to reduce sources of yield loss from cracks and voids in packaging for two and a half D and emerging hybrid bonding applications.
We're also adding customers outside of packaging to support similar needs in Mems and power applications.
Mark Slicer: And now I'll turn the call over to Mark to review our financial highlights and provide second quarter guidance. Thanks, Mike, and good afternoon, everyone. As Mike highlighted, we had another record performance by the Onto team kicking off the year with $267 million in revenue, achieving the midpoint for revenue and at the high end of our EPS guidance range for Q1. First quarter revenue increased 17% versus the prior year, with first quarter EPS increasing 28% versus the prior year. We achieved a record operating cash flow of $92 million due to the continued discipline in all elements of working capital management.
Mike: And now I'll turn the call over to Marc to review, our financial highlights and provide second quarter guidance.
Marc: Thanks, Mike and good afternoon, everyone.
Marc: As Mike highlighted we had another record performance by the onto team kicking off the year with 267 million in revenue achieving the midpoint for revenue and at the high end of our EPS guidance range for Q1.
Marc: First quarter revenue increased 17% versus the prior year with first quarter, EPS, increasing 28% versus the prior year, we achieved a record operating cash flow of $92 million due to the continued discipline in all of the elements of working capital management.
Mark Slicer: Looking at the quarterly revenue by markets, advanced nodes, which had revenue of $93 million, increased 96% over Q4 and represents 35% of revenue. Specialty devices and advanced packaging decreased 24% from Q4, with quarterly revenue of $129 million, and represents 48% of revenue. Software and services, with revenue of $44 million, decreased 5% compared to Q4, representing 17% of revenue. We achieved 55% gross margin for the first quarter in line with our guidance range of 54% to 56% while improving slightly above 50 basis points over Q4. First quarter operating expenses were $70 million, just below the midpoint of our Q1 guidance range of $69 to $72 million.
Marc: Looking at the quarterly revenue by markets advance nodes, which had revenue of 93 million increased 96% over Q4 and represents 35% of revenue.
Marc: Specialty devices and advanced packaging deep.
Marc: Decreased 24% from Q4 with quarterly revenue of $129 million and represents 48% of revenue.
Marc: Software and services with revenue of $44 million decreased 5% compared to Q4, representing 17% of revenue.
We achieved 55% gross margin for the first quarter in line with our guidance range of 54% to 56%, while improving slightly above 50 basis points over Q4.
Marc: First quarter operating expenses were $70 million just below the midpoint of our Q1 guidance range of $69 million to $72 million.
Mark Slicer: Our operating income of $76 million is 29% of revenue for the first quarter. Now moving to the balance sheet, we ended the first quarter with cash and short-term investments of $851 million. Cash remained relatively flat to Q4 as we executed $75 million of shared buybacks within the quarter under our existing $200 million authorization. We achieved operating cash flow of $92 million, or 35% of revenue, and free cash flow of $84 million, or 31% of revenue. Converting 100% of our operating income into cash. Inventory ended the quarter at $293 million, up $6 million versus Q4. This increase was primarily due to accelerating targeted inventory receipts within the quarter to minimize potential impact, tariff impact.
Marc: Our operating income of $76 million was 29% of revenue for the first quarter.
Marc: Moving to the balance sheet, we ended the first quarter with cash and short term investments of 851 million.
Marc: Cash remained relatively flat to Q4, as we executed $75 million of share buybacks within the quarter under our existing $200 million authorization.
Marc: We achieved operating cash flow of 92 million or 35% of revenue and free cash flow of $84 million or 31% of revenue.
Marc: Inverting, 100% of our operating income into cash.
Marc: Inventory ended the quarter at $293 million up 6 million versus Q4.
Marc: This increase was primarily due to accelerating targeted inventory receipts within the quarter to minimize potential impact tariff impacts.
Mark Slicer: We continue to expect inventory to stay relatively flat for the second quarter and expect to maintain inventory levels at 1.6 to 1.8 turns for 2025.
Marc: We continue to expect inventory to stay relatively flat for the second quarter and expect to maintain inventory levels at $1 six to one eight turns for 2020 five.
Marc: Now turning to our outlook for the second quarter. We currently expect our revenue for the second quarter to be between 240 and $260 million.
Mark Slicer: Now turning to our outlook for the second quarter, we currently expect our revenue for the second quarter to be between $240 million and $260 million. We expect gross margins will be 54 to 56 percent, which includes our current assessment of up to 75 basis points of headwind due to inbound tariffs if we are unable to offset within the quarter. We are actively working to mitigate the tariffs through our supply chain activity or optimization of our strategy to locate manufacturing close to our customers. If successful, we would execute to the high end of our guidance range for gross margin in line with our stated objective of 50 basis point improvement quarter over quarter.
Marc: We we expect gross margins will be 54% to 56%, which includes our current assessment of up to 75 basis points of headwind due to inbound tariffs. If we were unable to offset within the quarter. We are actively working to mitigate the tariffs through our supply chain activity or optimization of our strategy to low.
Marc: Kate manufacturing close to our customers.
Marc: If successful we would execute to the high end of our guidance range for gross margin in line with our stated objective of the 50 basis point improvement quarter over quarter.
Mark Slicer: For operating expenses, we expect to be between $72 to $75 million as our annual compensation elements occur within the second quarter each year. For the full year, we expect our effective tax rate to be between 14 to 16 percent. We expect our diluted share count for the second quarter to be approximately 49.3 million shares. Based upon these assumptions, we anticipate our non-GAAP earnings for the second quarter to be between $1.21 to $1.35 per share.
Marc: For operating expenses, we expect to be between $72 million to $75 million as our annual compensation elements occur within the second quarter each year.
Marc: For the full year, we expect our effective tax rate to be between 14% to 16%.
Marc: We expect our diluted share count for the second quarter to be approximately $49 3 million shares.
Marc: Based upon these assumptions, we anticipate our non-GAAP earnings for the second quarter to be between $1 21 to $1 35 per share.
Michael Plisinski: And with that, I will turn it back to Mike for additional insights into Q2 and further commentary on 2025. Mike? Thank you, Mark. For the second quarter, we anticipate revenue from the advanced node customers to decline moderately due to customers' timing of gate all-around investment. which we expect to resume in the second half of the year. We expect NAND and DRAM spending to remain steady. This reflects our strong market position, not only in OCD, but also in films and integrated metrology. In fact, by the end of the second quarter, we expect revenue from each of these product families will have already exceeded the full year revenue from 2024.
Speaker Change: And with that I will turn it back to Mike for additional insights into Q2 and further commentary on 2025, Mike.
Speaker Change: For the second quarter, we anticipate revenue from the advanced node customers to decline moderately due to customers' timing of gate all around investments, which we expect to resume in the second half of half of the year, we expect NAND and DRAM spending to remain steady.
Speaker Change: This reflects our strong market position not only in OCD, but also in films and integrated metrology and in fact by the second court by the end of the second quarter. We expect revenue from each of these product families will have already exceeded the full year revenue from 'twenty to 'twenty four.
Speaker Change: And the specialty devices and advanced packaging markets.
Michael Plisinski: In the specialty device and advanced packaging market. We believe revenue will decline slightly, and as we discussed earlier in AI packaging, our customers are under tremendous pressure to improve factory yield and cycle times, necessitating higher throughputs and more sensitive 2D inspections. We've significantly improved the productivity of our tools, but despite these improvements, some applications were not addressed by our platform. However, they will be targeted by our next generation platform, which as mentioned has the added benefit of potentially opening new opportunities in the front end. As our customers' expansion plans and tool allocations have become clearer in the last quarter, we have some clarity into the second half of the year, which we lacked previously.
Speaker Change: We believe revenue will decline slightly and as we discussed earlier and AI packaging, our customers are under tremendous pressure to improve factory.
Speaker Change: Yield and cycle times, necessitating higher throughput and more sensitive to the inspections, we've significantly improved the productivity of our tools, but despite these improvements some applications were not addressed by our platform. However, they will be targeted by our next generation platform, which as mentioned has the added benefit of potentially opening new opportunities.
Speaker Change: Attunity is in the front end.
Speaker Change: As our customers expansion plans and tool allocations have become clear in the last quarter, we have some clarity into the second half of the year, which we lacked previously.
Michael Plisinski: For advanced nodes, we remain confident in broad-based expansions, although we anticipate a meaningful pause in Q3 from memory, making Q3 a low point for the year. We will take full advantage of this pause to allow our team to focus on the successful manufacturing ramp in Asia, as previously described. We expect revenue growth to resume in the fourth quarter.
Speaker Change: For advanced nodes, we remain confident in broad based expansion, although we anticipate a meaningful pause in Q3 for memory, making Q3, a low point for the year, we will take full advantage of this pause to allow our team to focus on the successful manufacturing ramp in Asia as previously described.
Speaker Change: We expect revenue growth to resume in the fourth quarter.
Michael Plisinski: Now, looking beyond 2025, advances in AI and AI applications at the edge through lighter advanced models could lead to an entirely new wave of smarter, more integrated mobile devices and cloud applications, fundamentally changing how we interface with our environment. Investments in AI servers and cloud infrastructure, including new memory and gate all-around transistors will play a crucial role in this transformation. We expect our new product innovations for 2D inspection, 3D metrology, and optical metrology will be critical to enabling these new devices.
Speaker Change: Now looking beyond 2025 advances in AI and AI applications at the edge to lighter advanced models could lead to an entirely new wave of smarter more integrated mobile devices and cloud applications fundamentally changing how we interface with our environment.
Speaker Change: Investments in AI servers, and cloud infrastructure, including new memory and gate all around transistors will play a crucial role in this transformation.
Speaker Change: We expect our new product innovations for <unk> inspection three D metrology in optical metrology will be critical to enabling these new devices.
Michael Plisinski: And that concludes our prepared remarks.
Speaker Change: That concludes our prepared remarks, Rachel please open the call for questions from our covering analysts.
Operator: Rachel, please open the call for questions from our covering analysts. Thank you. If you are dialed in via the telephone and would like to ask a questionÖ Please signal by pressing star 1 on your telephone keypad.
Speaker Change: Yes.
Speaker Change: Thank you if you have dialed in via the telephone and would like to ask a question. Please signal by pressing star one on your telephone keypad.
Operator: If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to recharge. Once again, please press star 1 to ask a question.
Speaker Change: If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Speaker Change: Again, Please press star one to ask a question please.
Operator: Please limit yourself to one question and one follow-up in order to give everyone an opportunity to participate.
Speaker Change: Please limit yourself to one question and one follow up in order to give everyone an opportunity.
Unidentified Moderator: And we will take our first question from Craig Ellis with B Riley Securities.
Craig Ellis: And we will take our first question from Craig Ellis with B. Reilly. Yeah, thanks for taking the question. Mike, I wanted to follow up and just go deeper into some of the comments that you had on high bandwidth memory. So, I think three months ago, you talked about the potential for there to be some digestion occurring in that area. Can you talk about how things have played out in the last three months? And then it seems like there's a couple of things you talked about, a product-related item, and then where does that impact the business, and how does that impact relative to the digestion you expected to occur?
Craig Ellis: Yeah. Thanks for taking the question, Mike I wanted to follow up and just go deeper into some of the comments that you have on high bandwidth memory. So I think three months ago, you talked about the potential for there to be some digestion occurring in that area.
Craig Ellis: Can you talk about how things have played out in the last three months and then it seems like there's a couple of things happening you talked about.
Craig Ellis: Product related item, and then where where does that impact your business and how does that impact relative to the digestion do you expect it to occur. Thank you.
Michael Plisinski: So for HBM, we haven't seen any significant changes from our views shared in the last two calls, really, so we still see the investment in. And That we expected continuing to happen, the product adoptions continuing to occur, including we're trying to make progress with the adoption of the 3DI technology, and that was what we mentioned is shipping additional evaluation units to memory customers. The product, forget how you termed it, but the product gap that we were talking about in the call is primarily tied to 2.5D packaging, and that is, as we described, an area of sensitivity requirements that the customers needed.
Craig Ellis: Mhm so.
Craig Ellis: So for each film we haven't seen any significant changes from our views shared in the last two calls really so we still see the investment.
Craig Ellis: We expected continuing to happen in the product adoptions continuing to occur, including we're trying to make progress with the adoption of the three D. I technology and that was what we mentioned is shipping additional evaluation units to two memory customers.
Craig Ellis: The product forget how you termed it but the product a gap or that we were talking about in the call. It's primarily tied to two and a half D packaging.
Craig Ellis: And that that is as we described in area of sensitivity requirements that the customers needed. We worked very hard with them over the last several quarters to close gaps we closed many but not all and the next generation platform should be.
Michael Plisinski: We worked very hard with them over the last several quarters to close gaps. We closed many but not all, and the next generation platform should be able to close all.
Craig Ellis: Able to close.
Craig Ellis: Yeah.
Speaker Change: Got it and so the second follow up question is on the commentary for the second half of the year. So it sounds like you're expecting advance nodes to perform well in and you've got a memory.
Craig Ellis: Got it.
Michael Plisinski: And so, the second and follow-up question is on the commentary for the second half of the year. So, it sounds like you're expecting advanced nodes to perform well and you've got a memory pause, but broader growth after that. Can you talk more specifically about what you expect in advanced packaging and specialty in the second half of the year? Thank you. Yeah, so for advanced packaging, you remember, we had some very, very tough comps compared to last year. So we talked about, you know, when gate all around is doubling for us, that was essentially flat. So, and I don't want to repeat all of the, because I know we covered in the last few calls.
Speaker Change: Cause a broader growth after that can you talk more specifically about what you expect in advanced packaging packaging and specialty.
Speaker Change: Second half of the year. Thank you.
Speaker Change: Yeah. So for advanced packaging you remember we had some very very tough comps compared to last year. So we've talked about you know when gate all around us doubling for us that was essentially flat.
Speaker Change: And I don't want to repeat all of the cause I know we covered in the last few calls H B M. We had the different story with the with the large investments from one of the.
Michael Plisinski: HBM, we had the different story with the, with the large investments from one of the And we had a couple of memory manufacturers that didn't get qualified, so that was another difficult comp. So that's still in play, but the additional... The second variable that I spoke about in the past was the allocations of the tool slots. And so that has a negative impact on us in the short term, and that's where we're seeing some degradation in the AI packaging, primarily on the 2.5D side.
Speaker Change: <unk> memory manufacturers that didn't get qualified so that was another difficult comp.
Speaker Change: Now so so that's still.
Speaker Change: You know in play but the additional.
Speaker Change: Variable that I spoke about in the past was the the allocations of the tool slots and so that has a negative impact on us in the short term and that's why we're seeing some degradation in the.
Speaker Change: Packaging, primarily on the two and a half day side.
Speaker Change: Yeah.
Speaker Change: Thank you.
Brian: Okay, we'll move to our next question from Brian. Hi there. Good evening. Thanks for letting us ask a few questions.
Unidentified Moderator: We will move to our next question from Brian Chin with Stifel.
Speaker Change: Yeah.
Brian Chin: Either get a good a good evening, thanks for letting us ask a few questions.
Brian: Maybe firstly, Mike, can you quantify the impact in Q2 and maybe even for the year in terms of the reciprocal tariffs and maybe the reluctance or the impact that's having on shipments of some equipment from the U.S. into places like China? Can you maybe quantify that for Q2 and maybe even for the year? That's my first question. So reciprocal tariffs, I assume you're going to, because Trump's been referring to things as reciprocal tariffs, but I believe you mean true reciprocal tariffs where as a result of the US tariffs, Other countries are responding with tariffs on their own.
Speaker Change: Maybe firstly.
Speaker Change: Mike can you quantify the impact in Q2, and maybe even for the year in terms of the reciprocal tariffs and maybe the reluctance or the impact that's having on <unk>.
Speaker Change: Shipments from some equipment from the U S and this places like China.
Speaker Change: Can you maybe quantify that for <unk> and maybe even for the year. That's my first question. Thanks.
Speaker Change: So reciprocal tariffs I assume youre going to cause trumps been referring to things as reciprocal tariffs, but I believe you mean true reciprocal tariffs were as a result of the U.
Speaker Change: U S tariffs.
Speaker Change: Other countries are responding with tariffs and their own assuming that's the question we're not seeing any impact at this time, China had announced some of these tariffs, but then made exceptions for some of the semiconductor equipment. We do think there's a possibility for Europe you.
Michael Plisinski: Assuming that's the question, we're not seeing any impact at this time. China had announced some of these tariffs, but then made exceptions for some of the semiconductor equipment. We do think there's a possibility for Europe, EU, potentially to do something similar, so this So right now, we're not expecting any impact, but we'll be better prepared for any kind of impact as we move this manufacturing strategic initiative we have forward and accelerate it.
Speaker Change: Really to to do something similar so this.
Speaker Change: So so right now we're not expecting any impact.
Speaker Change: But we'll be better prepared for any kind of impact as we move this manufacturing strategic initiative, we have forward and accelerate it.
Speaker Change: Oh, Okay got it and then maybe it's sort of misunderstood it during some of the prepared remarks.
Michael Plisinski: Okay, got it. And maybe I sort of misunderstood it during some of the prepared remarks. Second question, a really, I mean, a very strong advanced nodes revenue print in Q1, you know, bigger than I think even the second half combined in that business. Granted, last year is still kind of a double trough year for you guys for the year. But can you go more into sort of... What drove that big sequential uptick? Obviously, there's some strength and gale around two nanometer, I'm sure, but Talking about memory being a bit of a weaker spot in Q3, did something pull forward?
Speaker Change: Second question.
Speaker Change: Yeah, really I mean, it's a very strong advance nodes revenue print in Q1.
Speaker Change: No bigger than I think even in the second half combined in that business granted last year, it's still kind of a double a trough year for you guys for the year, but.
Speaker Change: Can you go more into sort of.
Speaker Change: What drove that big sequential uptick obviously, there's some strength in Gail around two nanometer I'm sure but.
Speaker Change: And talking about memory being a bit of a weaker spot in Q3, that's something pull forward was there like an acceleration by customers. Maybe if you could just provide some more color around that.
Michael Plisinski: Was there like an acceleration by customers? Maybe if you could just provide some more color around that. I'm not sure if anything pulled forward necessarily, but we did see very strong investments in the first half. So, part of our Q1 results and part of our Q1 guide is fairly strong, and that's what we mentioned on the call, very strong memory. So, memory stays steady first half, gait all around comes down a little bit in our guide from the second quarter for the second quarter, but that was as planned, and then comes back in the second half, where in the third quarter, we see memory coming down after significant ramps, and that's not an unusual pattern.
Speaker Change: I'm not sure if anything pulled forward necessarily but we did see a very strong investments in in the first half. So part of our Q1 results and part of our Q1 guide is fairly strong and that's what we mentioned on the call very strong.
Speaker Change: Memory, so memory stays steady first half gate all around comes down a little bit in our guide from the second quarter for the second quarter, but that was as planned and then comes back in the second half where in the set in the third quarter, we see memory coming down after significant ramps and that's not an unusual.
Speaker Change: Pattern.
Michael Plisinski: You know, for memory.
Speaker Change: For memory.
Speaker Change: Thank you.
Matthew: We will take our next question from Matthew. Hey, guys, thanks for taking the question. I'd like to start on the new 2.5D tool.
Speaker Change: Take our next question from Matthew Prisco with Cantor Fitzgerald.
Speaker Change: Hey, guys. Thanks for taking the question I'd like to start on the new two five D tool.
Michael Plisinski: Just kind of, how do they think about the performance gains generation over generation, how this new tool is expected to stand up versus the competition, and how we should think about that ramp and accelerating the design to actually getting that into fabs and running with it. Great question. Well, of course, we're a little biased, but we think that this is a fundamentally ground up new tool. And it's been in the works for a while, so for years, as we saw these needs coming. But with the rapid acceleration starting in 23, and then seeing the evolving requirements through 24, we needed to pull this in.
Speaker Change: I really think about the performance gains generation over generation, how does the tool is expected to stand up versus the competition and how we should think about that ramp and accelerating the design to actually getting that into fabs and running wafers.
Speaker Change: Great question.
Speaker Change: Well of course, we had a little biased, but we think that this is a fundamentally ground up new tool and it's been in the works for a while so for years.
Speaker Change: As you.
Speaker Change: You know as we saw these needs coming but with a rapid acceleration starting in 'twenty three and then seeing the the evolving requirements through 'twenty four we needed to pull this thing and that became very very apparent.
Michael Plisinski: And that became very, very apparent late last year. So working with the customers, that's what we've been doing. And obviously, we don't intend to build tools to be second place, so we believe it'll compare very favorably. We understand there's obviously, against this particular competitor, they have a wealth of. technology and inspection, but we also have a wealth of technology and advanced packaging. And so we're closing the gaps in some of our 2D inspection while we can still leverage our platform and understanding of how the packaging market behaves and from a cost and performance sensitivity point of view.
Speaker Change: Late last year, so working with the customers that's what we've been we've been doing and Oh.
Speaker Change: We don't.
Speaker Change: I intend to build tools to be second place. So we believe it'll compare very favorably we understand there's obviously.
Speaker Change: Against this this particular competitor they have a wealth of Av.
Speaker Change: Technology and inspection, but we also have a wealth of technology and advanced packaging and so we're closing the gaps in some of our two D inspection, while we can still leverage our platform and understanding of how the packaging market.
Speaker Change: So from a cost and performance sensitivity point of view.
Speaker Change: So we expect this will go very well I think you also asked about the ability to deliver a we've already actually so part of the the variables that we're talking about is we had potentially upgrade proposals for existing platform. So we've already been testing some of the optics and optical.
Michael Plisinski: So we expect this will go very well.
Michael Plisinski: I think you also asked about the ability to deliver. We've already actually, so part of the variables that we were talking about is we had potentially upgrade proposals for existing platform. So we've already been testing some of the optics and optical capabilities. Now we're putting it all, so that's already happened. The customers chose not to take upgrades. They wanted the full tool and they wanted us to pull that in for the performance advantages the full tool would give. We're very confident in being able to deliver those tools in the second half for evaluation units and I would expect to be able to ramp fairly quickly after that.
Speaker Change: Abilities now we're putting it all took so that's already happened the customers chose not to take upgrades. They wanted the full tool and they wanted us to pull that in for the performance.
Speaker Change: <unk> advantages the full tool give we're very confident in being able to deliver those tools in the second half for evaluation units and I would expect to be able to ramp fairly quickly after that.
Speaker Change: That's helpful. Thanks, and then I guess staying on new tools. Your three D. I told the Irish <unk> systems were just kind of love any further color you can offer on early customer feedback and traction and kind of the expected adoption ramp there $4 25, and maybe into 'twenty six.
Matthew: Thanks.
Michael Plisinski: And then, I guess, staying on new tools, your 3Di tool, the Iris G2C. We just kind of love any further color you can offer on early customer feedback and traction, kind of the expected adoption ramp there, both through 25 and maybe into 25. So, we still are engaged with several customers on the IRIS-G2.
Speaker Change: Thanks.
Speaker Change: Yep, So we still are engaged.
Speaker Change: With several customers on the Iris G to the we are seeing some challenges with our let's say long term stability. So there are some some areas. The R&D teams are working through but overall the platform the capability the measurement performance that all looks.
Michael Plisinski: We are seeing some challenges with, let's say, long-term stability. So, there are some areas that the R&D teams are working through, but overall, the platform, the capability, the measurement performance, it all looks positive. Customers remain very engaged, and so we're just blasting through the normal challenges of developing and releasing a new product.
Speaker Change: <unk> looks positive customers remain very engaged and so where we're just blossomed through the normal.
Speaker Change: <unk> of developing and releasing a new product.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Thank you.
Michael Plisinski: Thank you.
Charles Sheawith: We will take our next question from Charles Sheawith. Hi. Hey, good afternoon, Mike.
Speaker Change: We'll take our next question from Charles <unk> with Needham.
Speaker Change: Hi.
Speaker Change: Hey, good afternoon, Mike.
Michael Plisinski: Well, there's a lot to unpack, but I want to ask you a clarification question first. When you say Q3 is low watermark, do you mean advanced net revenue or total revenue? Total revenue, good clarification. Yeah, so if that were the case, when I think about the progression, right, the Q2 has a little bit dip, Q3 a little bit dip, Q4 coming back up. You probably have to walk away from your commitment to outperform WFE this year. Is that the case? It depends on what WFE ends up being. But certainly we're, you know, we're looking probably more like market perform.
Speaker Change: There's a lot to unpack, but.
Speaker Change: Wanted to ask you a clarity patient questions first when you say Q3 is the low watermark do you mean, a vast and no revenue or total revenue.
Speaker Change: Our total revenue good clarification.
Speaker Change: Yeah. So if that wasn't the case why do I think about the progression right that Q2 has a little bit of Q3, a little bit there.
Speaker Change: Q Q4 coming back cop.
Speaker Change: Yeah.
Speaker Change: Feels like.
Speaker Change: You are probably have to walk away from your commitment to outperform <unk> this year.
Speaker Change: Is that the case.
Speaker Change: It depends on what WSB ends up being.
Speaker Change: But certainly we're you know, we're looking probably more like market perform.
Speaker Change:
Speaker Change: But again it depends on what WSB ends up being.
Michael Plisinski: But again, it depends on what WFE ends up being.
Speaker Change: Yeah.
Unidentified Moderator: Thank you we'll take our next question from David Duley with Steelhead Securities.
David Duley: We will take our next question from David Duley with Steelhead Studios. Just for clarification, and I'm sorry, as far as… The Q2 guidance is down sequentially. Which pieces of the business are down sequentially in the Q2 guidance? And as a clarification, the two-and-a-half D inspection tool, that's your – You're basically referring to your COAS inspection tool, correct? Uh, yes, correct. The, from the, sorry, I was looking, from a guidance perspective, it's primarily the advanced nodes is down a little bit. So down, I think we said. What did we say? Meaningfully. And then we have the specialty and devices really impacted mostly by lithography.
Unidentified Moderator: Yeah, just for clarification and I'm sorry.
Unidentified Moderator: As far as the.
Speaker Change: Q2 guidance is down sequentially, which pieces of the business are down sequentially in the Q2 guidance and as a clarification the two and a half day inspection tool. That's your that's what.
Unidentified Moderator: You basically referring to your co off inspection tool correct.
Unidentified Moderator: Ah yes.
Unidentified Moderator: Correct.
Speaker Change: The problem that got sorry, I was looking at the from a guidance perspective, it's primarily the advanced nodes is down.
Unidentified Moderator: A little bit.
Speaker Change: So down I think we said.
Speaker Change: What does it say meaningfully and then we have the specialty and devices.
Speaker Change: Really impacted mostly by lithography.
Speaker Change: More or less flat, but then impacted potentially by lithography shipments.
Michael Plisinski: More or less flat, but then impacted potentially by lithography shift.
Speaker Change: Okay, and then as far as.
Michael Plisinski: Okay, and then, as far as, I guess, let's just ask that question, could you give us an update on lithography and what you're seeing? I know there's a lot of movement going on in the COAS packaging space, and there's a lot more volume there, both with TSMC and the OSATs, so maybe give us an update as to what you're seeing. Thanks. Yeah, we're seeing a tremendous amount of interest in wide-field, high-resolution optics, a tremendous amount of interest in panel packaging, and in glass. So, for sure, the... areas of research and of development and of the next generation of packaging, the HRP, our HR stepper, seems well positioned for, and we're running quite a few demos, again, through our new PACE application, Center of Excellence.
Speaker Change: I guess, let's just asked that question could you give us an update on lithography and what Youre seeing I know, there's a lot of movement going on in the co op packaging space and Theres a lot more volume there both with TSMC and the Ocs, So maybe give us an update as to what you're seeing thanks.
Speaker Change: Yeah, we're seeing a tremendous amount of interest in wide field high resolution optics, a tremendous amount of interest in panel packaging.
Speaker Change: And then glass so for sure the <unk>.
Speaker Change: Areas of research and of development in the next generation of of packaging. The HRP, our HR, a stepper seems well positioned for and were running quite a few demos.
Speaker Change: Again through our new pace application center of excellence so.
Operator: But that's still in R&D form, it's still forming, so we're talking two years out for some of these applications to start hitting volume. Again, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad.
Speaker Change: But that's still in the R&D forms its still forming you know so we're talking two years out for for some of these applications to start hitting volume.
Speaker Change: Thank you.
Unidentified Moderator: Again, if you would like to ask a question.
Unidentified Moderator: Star one on your telephone keypad.
Speaker Change: Well take our next question from Edward Yang with Oppenheimer.
Edward Yang: And we will take our next question from Edward Yang with Oppenheimer. Hi, Mike. Thanks for the time. Could we delve a little bit deeper into your comments about, again, 2.5D packaging? You said some applications were not addressed by a platform. Was that a case of, you know, was your equipment not performing up to spec, or did the specs change? That's another good question. No, the equipment, obviously, it was performing up to spec, and then we even essentially doubled its performance, but it still wasn't enough to meet the new requirements. So the requirements from the customers were evolving quickly as they were ramping very quickly over the last 18 months.
Edward Yang: Hi, Mike Thanks for the time.
Edward Yang: Could we delve a little bit deeper into your comments about again, two and a half D. Packaging you said some applications were not addressed by our platform was that a case of you know was your equipment not performing up to spec or did the specs change.
Edward Yang: [laughter] that's another good question.
Edward Yang: No. They they equipment, obviously it was performing up to spec and then we even essentially doubled its performance, but it still wasn't enough to meet the new new requirements. So the requirements from the customers. We're evolving quickly as they were ramping very.
Edward Yang: Very quickly over the last 18 months. They were also working with their customers and saying requirements changed. So this this.
Michael Plisinski: They were also working with their customers and seeing requirements change. Hmm, you know, was an acceleration of You know, learning that, you know, the team, we just, we just fell a little short of with the existing platform.
Edward Yang: You know it was an acceleration of Av.
Speaker Change: Learning that the team we just we just fell a little short of what the existing platform.
Speaker Change: Okay, and I think you mentioned that this might open up some friend don't fret front end opportunities as well so it sounds like it's almost like a new platform and you know, perhaps such a market share opportunity for you.
Michael Plisinski: Okay, and I think you mentioned that this might open up some front-end opportunities as well, so this sounds like it's almost like a new platform, and perhaps it's a market share opportunity for you. Is there any risk on the other side that, you know, someone else might... Oh, so the yes. So from the the inspection side for two and a half D, there is an alternative that the customers selected. And, and I think that You know, one of our very, very large competitors. The opportunity, though, is you're exactly right. The opportunity now is that this new platform is significantly more capable than the macro inspection platform we had before.
Speaker Change: Is there any risk on the other side that you know someone else might take.
Speaker Change: Take this opportunity and take some share or I, just want to understand better the puts and takes.
Speaker Change: Oh, so the yes, so from the the inspection side for two and a half D. There is an alternative that the customers selected and and I think thats.
Speaker Change: You know one of our very very large competitors.
Speaker Change: The opportunity, though is you're exactly right. The opportunity is now is that this new platform is significantly more capable than the macro inspection platform. We had before so there's two positives. If you look beyond the short term impact the two positives are one day.
Michael Plisinski: So there's two positives. If you look beyond the short-term impact, the two positives are, one, there's another level of ASP that we can charge now, because now we're putting together a performance platform that is well into the submicron capability point of view. So this not only helps us close the gap with the existing packaging opportunities, but we also now have an opportunity to go after the front end. inspection markets where previously our platform wasn't geared for, wasn't designed for, and now we can go after that. So the size of that market is almost equivalent to the size of the packaging market.
Speaker Change: Asp's, there's there's another level of ASP that we can charge now because now we're putting together performance platform that is well into the sub micron capability point of view. So this not only helps us close the gap with the existing packaging opportunities, but we also now have in that opportunity.
Speaker Change: Go after the front end inspection.
Speaker Change: Inspection markets, where previously our platform wasn't geared for <unk>.
Speaker Change: Isn't designed for and now we can go after that.
Speaker Change: So that that the size of that market is almost equivalent to the size of the packaging market.
Michael Plisinski: So for us, you know, it's a significant new opportunity.
Speaker Change: So for US it's a you know it's a significant new opportunity.
Speaker Change: Thank you we'll take our next question from Blayne Curtis with Jefferies.
Blayne: We will take our next question from Blayne.
Michael Plisinski: Hey, good afternoon. Thanks for letting me ask the question. Maybe just to start, I just want to level set. There's some big moving pieces here. For the March quarter and advanced nodes, I guess that was more growth than I was looking for. Can you talk about that, maybe the split between logic and memory? And I just want a little bit more clarity as to what drove the near double.
Blayne Curtis: Hey, good afternoon. Thanks for letting me ask the question, maybe just to start I just want to level set theres. Some big moving pieces here for the March quarter, and advanced nodes I guess that was more growth than I was looking for could you talk about that maybe the split between logic and memory and I'm, just someone a little bit more clarity as to what drove the near doubling.
Speaker Change: Yeah.
Michael Plisinski: Well, I think it's a couple of things. Of course, the customers expanded, so we saw DRAM, NAND, and Logic expansion, but as we mentioned before, our entitlement in these markets has expanded as we've added not just OCD, which we've always had, but also then slotted in and got designed in on the Iris films, and then also had some share gain opportunities with the integrated metrology. So the combination of which means that as customers, let's say at 100,000 wafer start or 10,000 wafer starts, we're just seeing more of that wallet share. Got you.
Speaker Change: Well I think it's it's a couple of things of course, the customers expanded so we saw you know DRAM NAND and logic expansion, but it is as we mentioned before our entitlement in these markets has expanded as we've added not just those C D, which we've always had but also then slow.
Speaker Change: Got it in and got designed in on the Iris films and then also had some you know.
Speaker Change: Share gain opportunities with the integrated metrology.
Speaker Change: So the combination of which means that as customers, let's say at 100000 wafer start or 10000 wafer starts are we're just seeing more of that wallet share.
Speaker Change: Got you.
Michael Plisinski: And then maybe kind of a second part related is. Yeah, I think I've heard you previously talk about the outlook for that business. Maybe it could be 250 or 300 for the year. Obviously, you know, you did 93 in Q1. I'm just trying to ask maybe a couple of ways just to understand the size of this pause. So I don't know if you want to kind of quantify how large that would be there in advanced nodes or overall, or, you know, is that still the right range for that product or are you trending to the higher end of that range?
Speaker Change: And then maybe kind of a second part related is.
Speaker Change: I think I've heard you previously talked about the outlook for that business, maybe it could be $2 50 or 300 for the year. Obviously you did 93 in Q1 I'm just trying to ask maybe a couple of ways to understand the size of this pause. So I don't know if you want to kind of quantify how large that would be either in advanced nodes or.
Speaker Change: Overall or is that still the right range for that product or are you trending to the higher end of that range I think I've heard you previously gave.
Michael Plisinski: I think I've heard you. Yeah, we would be definitely at the higher end of that range. Or barring any macroeconomic changes, you know, what we see now, we would be at the higher end of that range.
Speaker Change: Yeah, we would be definitely at the higher end of that range.
Thank you very much.
Speaker Change: Or, barring any macroeconomic changes, you know, what we see now we would be at the higher end of that range.
Charles: Okay, we'll take our next question from Charles. Yeah, thanks for taking my follow-up. I think my line kind of dropped before I can ask a question. So, Mike, let's say compare with 90 days ago, right? I think 90 days ago, the expectation back then was probably flat, to up every quarter through the end of the year, but it looks like there is a little bit of choppiness in the middle part of the year compared with the expectation 90 days ago. Based on what I'm hearing on the call, it looks like most of the downside relative to 90 days ago seems to be related to 2.5D.
Speaker Change: Thank you. We will take our next question from Charles Shee with Needham.
Yeah, thanks for taking my follow-up.
Speaker Change: Every quarter through the end of the year, but it looks like there's a little bit of a...
Speaker Change: Chopinist in the middle part of the year compared with the expectation 90 days ago. Based on what I'm hearing on the call looks like the most of the downside relative to 90 days ago seems to be related to 2.5 D. Everything else was kind of performing or trending in line with what you were expecting while despite some...
Michael Plisinski: Everything else is kind of performing or trending in line with what you were expecting, well, despite some choppiness, let's say, in memory, right? But is that the right way to look at where you are today versus 90 days ago? And any additional thoughts on where the lower than expectation, the source of that disappointment may have come from? Thank you. Yeah, no, that's exactly the way to look at it. And that's the variables when, you know, 90 days ago when, you know, being pressed for trying to give guidance or an outlook, it was difficult because we had so many variables.
Speaker Change: The further than expectation, the source of that disappointment may have come from. Thank you.
Speaker Change: Yeah, no, that's exactly the way to look at it. And that's the variables when, you know, 90 days ago, when, you know, being pressed for trying to give guidance or an outlook, it was difficult because we had so many variables.
Michael Plisinski: We could have seen more increase. We could have seen less. You know, we weren't sure where the customer was going to go. We doubled the performance of the tool. Was that enough? We weren't really sure at the time. Again, now it's a little bit more clear. So that is essentially the only change to the forecast. To the Outlook. Got it. Maybe the, I think HBM side, you already kind of guided this year, probably going to be a lower year compared with the last year. So fair to say 2.5D is the same trend this year. Yes, for us now, yes, but, yes.
Speaker Change: We could have seen more increase. We could have seen less. We weren't sure where the customer was going to go. We doubled the performance of the tool. Was that enough? We weren't really sure at the time. Now it's a little bit more clear.
So that is essentially the only change to the podcast.
To the Outlook. Okay.
Speaker Change: God, maybe I think HBM's already kind of guided this year, probably going to be a lower year compared with the last year. So fair to say 2.5D is the same trend this year.
Yes for us now, yes, but yes.
Speaker Change: Thank you. This does conclude today's question and answer session. I would now like to turn the call back to Sidney Ho for any additional or closing remarks.
Operator: And that does conclude today's question and answer session.
Operator: I would now like to turn the call back. Thanks, Rachel. We will be participating in a number of investor conferences throughout this quarter. We look forward to seeing many of you there. A replay of the call today will be available on our website at approximately 7.30 Eastern Time this evening. We would like to thank you for your continued interest in Onto Innovation.
Sidney Ho: Thanks, Rachel. We will be participating in a number of investor conferences throughout this quarter. We look forward to seeing many of you there.
Sidney Ho: A replay of the call today will be available on our website at approximately 7.30 Eastern Time this evening. We would like to thank you for your continued interest on To Innovation. Rachel, please conclude the call.
Operator: Rachel, please conclude.
Operator: This does conclude today's call. Thank you for your participation. www.ontario.ca
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Sidney Ho: This does conclude today's call. Thank you for your participation. You may now disconnect.