Onto Innovation Signals Robust Growth in Earnings Call

Onto Innovation ((ONTO)) has held its Q4 earnings call. Read on for the main highlights of the call.

Onto Innovation’s latest earnings call showcased a decidedly upbeat tone, with management emphasizing record revenue, surging cash generation, and improving margins alongside a swelling backlog and bullish near-term outlook. While executives acknowledged pockets of risk in power semiconductors, supply chains, and product ramp timing, they framed these as manageable headwinds against a much stronger growth backdrop.

Record Revenue Underscores Growth Trajectory

Onto posted record Q4 revenue of $267 million, up 22% sequentially from Q3, capping a milestone year. Full-year 2025 revenue broke the billion-dollar mark at $1.005 billion, reinforcing the company’s positioning as a key beneficiary of advanced semiconductor manufacturing and packaging trends.

Cash Generation Hits New Highs

The company delivered record Q4 cash generation of $95 million, translating to roughly 150% cash conversion of non-GAAP net income. That level of cash efficiency gives Onto additional flexibility for investment, integration of recent acquisitions, and potential shareholder-friendly capital allocation going forward.

Margins Continue Their Upward March

Profitability metrics moved sharply higher, with Q4 gross margin improving about 50 basis points sequentially to 54.6%. Operating margin jumped roughly 410 basis points to 25.2%, and management expects another 50 basis-point gross margin lift and operating margins of about 25.5%–26.5% in Q1 as scale and mix continue to improve.

EPS Strength Backed by Solid Outlook

Adjusted diluted EPS for Q4 came in at $1.26, reflecting both higher volumes and better margins. For Q1, management guided EPS in a range of $1.26 to $1.36, assuming a tax rate near 16% and about 49.9 million shares, underscoring confidence that earnings power will at least hold, and likely improve, as revenue steps up.

Multi-Year VPA Locks In Dragonfly Demand

A standout highlight was a volume purchase agreement worth more than $240 million for Dragonfly 2D and 3D bump metrology extending through 2027. More than $60 million of that is earmarked for 3D bump metrology systems, giving Onto strong multi-year visibility into one of its most strategic product lines.

Advanced Packaging Becomes a Growth Engine

Advanced packaging posted more than 25% sequential growth in the quarter, reflecting growing demand tied to heterogeneous integration and high-performance computing. The company reported about $504 million in 2025 revenue from advanced packaging and specialty devices, and expects advanced packaging alone to grow more than 30% in 2026.

Advanced Nodes Revenue More Than Doubles

Revenue from advanced nodes surged to $308 million in 2025, more than doubling year over year, with Q4 alone at $72 million and up just over 30% sequentially. New tools such as the Atlas G6 are gaining traction for gate-all-around and HBM4 DRAM applications, positioning Onto for continued share in leading-edge logic and memory.

Films and Integrated Metrology Set Records

The films metrology and integrated metrology businesses delivered record revenue in 2025, highlighting the breadth of Onto’s portfolio beyond traditional inspection. Integrated metrology expanded to include two logic customers on leading-edge processes that are expected to ramp in 2026, offering a new leg of high-margin growth.

New Orders Reinforce Product Momentum

Onto reported fresh orders for JetStep and eight Firefly systems to support a new large panel packaging facility, underscoring strength in panel-level packaging. It also booked its first surface charge metrology orders from the Semilab acquisition along with multiple purchase orders for 3Di metrology and panel-level process development tools.

Backlog Surge Boosts Revenue Visibility

The backlog nearly doubled over the past three months to a record level covering roughly two quarters of shipments, providing a strong near-term revenue cushion. With Q1 revenue guided to $275 million–$285 million and Q2 expected to surpass $300 million, management implied core growth of 12%–14% in the first half of 2026 versus the back half of 2025.

Semilab Acquisition Expands Platform

Onto closed its Semilab acquisition on November 17, paying $445 million in cash plus issuing 641,771 shares. Semilab added about $9 million in Q4 revenue and is expected to contribute in the low $100 million–$110 million range in 2026, subject to market conditions, broadening Onto’s reach in metrology and materials characterization.

Power Semiconductor Segment Faces Pressure

Despite a solid Q4, management flagged that power semiconductor revenue will face a seasonal drop in Q1 and is expected to decline about 10% for 2026. The softness, tied to weakening EV demand and slower infrastructure spending, will also affect Semilab’s power-related business and partially offset growth in more advanced segments.

Semilab Outlook Turns More Cautious

While Semilab’s 2026 revenue was initially projected in the low $100 million–$110 million band, management now sees more risk specifically in the power semiconductor segment. As a result, the strategy is shifting from opportunistic power-semi sales toward longer-term opportunities where Semilab’s technology can be better leveraged across multiple nodes and applications.

Supply Chain Strain and Lead-Time Risk

Rapid order growth is pressuring the supply chain, particularly around precision optics and other constrained components, leading to lengthening lead times. Onto is working closely with suppliers and customers to balance demand and capacity, yet the company acknowledged that continued strength could keep the supply environment tight.

Advanced Nodes Ramps Create Timing Uncertainty

Management underscored robust demand for advanced nodes but highlighted uncertainty around the timing and magnitude of factory ramps. The company is modeling mid-teens growth in advanced nodes revenue, roughly within a 10%–20% wafer fab equipment range, with upside depending on closing additional VPAs and the pace of customer expansions.

New Inspection Platforms in Early Qualification

Next-generation systems such as Dragonfly G5 are seeing positive initial feedback from customers, reinforcing confidence in the product roadmap. However, these tools remain in early-stage qualification, and management is taking a conservative approach to forecasting adoption and mix between existing G3 platforms and the newer G5.

Extended Factories in Ramp Phase

Onto is scaling extended factories to support a significantly higher throughput, targeting roughly a $2 billion revenue run-rate capacity over time. Management sees this as a transition period operationally, during which processes and output must catch up to demand, but does not view long-term capacity as a constraint.

Geographic Mix Brings Concentration Risk

Less than 3% of Onto’s 2025 revenue came from China, limiting direct exposure to that market’s regulatory and demand volatility. Yet this also implies heavier dependence on a smaller set of non-China customers and large VPAs, introducing concentration risk if any major customer slows spending or shifts suppliers.

Guidance Points to Broad-Based Expansion

Looking ahead, Onto guided Q1 revenue between $275 million and $285 million and expects Q2 to top $300 million, implying 12%–14% core growth in the first half of 2026 versus the second half of 2025. Management forecasts continued quarterly margin expansion in 2026, with Q1 gross margin about 50 basis points above Q4’s 54.6%, operating margins of roughly 25.5%–26.5%, and EPS projected at $1.26–$1.36, supported by strong backlog, rising advanced packaging demand, and mid-teens advanced node growth even as power semiconductors soften.

Onto Innovation’s earnings call painted the picture of a company riding multiple secular tailwinds while managing a set of clearly defined risks. With record revenue, strong cash generation, expanding margins, and growing exposure to advanced packaging and leading-edge nodes, management’s confident guidance suggests investors may see further upside if execution remains tight and supply chain and segment-specific headwinds stay contained.