Onto Innovation Earnings Call Flags Strong Growth Path

Onto Innovation ((ONTO)) has held its Q1 earnings call. Read on for the main highlights of the call.

Onto Innovation’s latest earnings call struck an upbeat tone as management highlighted a clean beat on Q1 guidance, expanding margins and a confident multi‑year growth outlook. Executives acknowledged cost and supply‑chain headwinds plus accounting noise from a large strategic investment, but insisted robust demand in advanced packaging and leading‑edge nodes should more than offset these pressures.

Revenue Beat and Ambitious Growth Targets

Onto reported Q1 revenue of $292 million, up nearly 10% sequentially and above the high end of guidance, underscoring solid demand across core markets. Looking ahead, management guided Q2 revenue to $320–$330 million and reiterated a bold 2026 target of more than 30% year‑over‑year growth and total sales above $1.3 billion.

Margin Expansion Underpins EPS Strength

Profitability moved higher, with gross margin rising 110 basis points to 55.7% and operating margin improving 150 basis points to 26.7%, driving diluted EPS to $1.42, up 13% versus Q4. For Q2, the company forecast gross margin of 56.0%–56.5%, operating margin up to 28.6% and EPS around $1.69, aiming to exit Q4 above a 30% operating margin.

Rigaku Stake Targets AI‑Driven X‑Ray Upside

Onto unveiled a roughly $710 million move to buy 27% of Rigaku, a bet on AI‑enabled X‑ray metrology that is expected to close in 2026 and deliver high‑margin software revenue. Management pointed to near‑100% margin AI Diffract licensing on Rigaku systems, incremental Atlas G6 hardware pull‑through and annual dividends, while warning that fair‑value accounting will add volatility to other income.

Dragonfly G5 Starts Commercial Ramp

The Dragonfly G5 inspection platform has been qualified at a major 2.5D logic customer, with several systems already shipped in Q1 and more slated through Q4. With a pipeline spanning over 15 applications across more than 10 customers, management framed Dragonfly as a multi‑quarter ramp that should become a material revenue and profit contributor heading into 2027.

Advanced Packaging and Nodes Drive Structural Growth

Specialty device and advanced packaging revenue hit about $160 million in Q1, with advanced packaging making up roughly two‑thirds and projected to grow more than 50% in 2026. Advanced node revenue was around $80 million, about 60% from memory, and is expected to expand roughly 25% next year, supported by Atlas G6, through‑silicon‑via metrology, JetStep wins and strong 3DI order activity.

Record Backlog and Expanding Market Footprint

Management highlighted a record backlog alongside accelerating adoption of new tools and a broader customer base, including entries into silicon photonics and panel‑level packaging. They see their served markets expanding meaningfully and expect second‑half 2026 revenue to rise at least 15% sequentially, fueled by customer capacity adds and new technology ramps.

Cost Inflation and Investment Needs Pressure Margins

Despite the margin‑expansion story, the company flagged rising material costs, particularly on memory‑linked inputs, along with higher fuel and shipping expenses. Onto also plans stepped‑up R&D and service investments to support growth, which could create intermittent pressure even as the overall margin trajectory remains upward in management’s view.

Cash Use and Earnings Volatility from Rigaku Deal

Funding the Rigaku stake primarily with cash will reduce interest income and change the profile of non‑operating results, since the position will be marked to fair value each quarter. Executives acknowledged that software attach rates and the timing of AI Diffract licensing revenue are still uncertain, suggesting that the financial benefits of the deal will ramp over time rather than immediately.

Supply Chain Tightening but No Disruptions Yet

Onto noted that lead times are beginning to stretch and that it has consolidated its supplier base, moves that could heighten future supply‑chain risk as volumes climb. However, management said there have been no disruptions to customer shipments so far and emphasized proactive planning to safeguard deliveries amid the ramp.

New Products’ Margin Boost Still Mostly Ahead

While the Dragonfly G5 platform is designed to carry better margins than earlier generations, the company cautioned that initial unit volumes are still modest. As a result, the margin uplift from these new products should be limited in the first half of 2026 and become more visible in 2027 as deployments scale.

Hybrid Optical/X‑Ray: Promising but Longer‑Dated

Management framed hybrid optical/X‑ray metrology as a multi‑year opportunity, with earlier revenue coming from AI Diffract software before full hybrid hardware gains traction. Broader high‑volume adoption will depend on the pace of customer evaluations and the rollout of Rigaku’s tool roadmap, making the ultimate timing of this revenue stream uncertain.

Guidance Signals Confidence in Accelerating Growth

Onto’s guidance points to Q2 revenue between $320 million and $330 million, rising margins and non‑GAAP EPS near $1.69, all well above the year‑ago period. For 2026, management reiterated revenue above $1.3 billion, more than 50% growth in advanced packaging, about 25% growth at advanced nodes, at least 15% second‑half acceleration and steady gross‑margin gains leading to operating margins above 30% by year‑end.

Onto Innovation’s call painted the picture of a company leaning into secular semiconductor growth while managing near‑term volatility from costs, supply chains and a large strategic investment. With record backlog, strong product ramps and ambitious margin goals, the story now hinges on execution in advanced packaging and AI‑driven metrology to justify the bullish longer‑term outlook.