Onto Innovation ((ONTO)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Onto Innovation’s recent earnings call reflected a robust performance in the third quarter, with the company meeting or exceeding revenue and growth expectations. The sentiment was predominantly positive, highlighting significant advancements in advanced packaging and nodes, alongside strong cash generation. However, challenges such as tariff impacts and NAND revenue weakness were noted, as well as delays in the Semilab acquisition. Despite these hurdles, the overall outlook remains optimistic.
Revenue and Growth Exceed Expectations
Onto Innovation reported third-quarter revenue of $218.2 million, slightly surpassing the midpoint of its guidance range. The company anticipates a revenue growth of approximately 18% at the midpoint of its Q4 guidance range, driven by robust demand in advanced packaging. This growth trajectory underscores the company’s strong market position and strategic execution.
Advanced Packaging and Nodes Achievements
The company made significant strides in advanced packaging and nodes, with its 3Di technology successfully qualified at two high-bandwidth memory customers. Additionally, the next-generation Dragonfly system is set to launch soon, with initial shipments expected in the near term. Revenue from advanced nodes is projected to double from $148.5 million in 2024 to about $300 million in 2025, marking a substantial growth opportunity.
Strong Cash Generation
Onto Innovation demonstrated robust cash generation, with cash from operations increasing sequentially to $83 million from $58 million in Q2. This represents a cash conversion of approximately 185% of non-GAAP net income, highlighting the company’s efficient financial management and operational strength.
Successful Offshoring and Integration Efforts
The company successfully shipped over 30% of its tools from extended factories in Asia during Q3, with plans to increase this to over 60% by Q1 2026. Onto Innovation is also preparing for the close and successful integration of the Semilab acquisition, which is expected to enhance its operational capabilities.
Tariff Impact on Gross Margin
Tariffs continue to pose challenges, impacting the gross margin by approximately 1 percentage point in Q3 2025. The company anticipates a 50 basis point impact in Q4, reflecting ongoing cost pressures from tariffs.
NAND Revenue Weakness
While DRAM and logic spending are on the rise, NAND revenue remains weak, indicating persistent challenges in this segment. This highlights the need for strategic adjustments to address the softness in NAND demand.
Acquisition Delays and Adjustments
The Semilab acquisition faced delays due to a second request letter from the Department of Justice, resulting in an amendment to exclude a small product line. This adjustment decreased the total transaction value by about $50 million from the original terms, but the acquisition is still expected to close soon.
Forward-Looking Guidance
Onto Innovation’s guidance projects a revenue growth of approximately 18% at the midpoint for Q4, driven by strong demand in 2.5D packaging. Revenue is expected to nearly double from Q3 levels, with sequential growth anticipated in the first half of 2026 and more substantial growth in the second half. The company expects Q4 revenue to be between $250 million to $265 million, with operating margins rebounding to a range of 24% to 26%. Gross margins are projected to improve by 50 basis points sequentially, despite ongoing tariff impacts. The acquisition of Semilab is expected to be accretive to both revenue and earnings in 2026, reflecting confidence in strategic initiatives and market trends, particularly in AI and advanced packaging sectors.
In summary, Onto Innovation’s earnings call showcased a strong performance in Q3, with positive sentiment driven by revenue growth and advancements in technology. Despite challenges such as tariffs and NAND revenue weakness, the company’s strategic initiatives and forward-looking guidance suggest a promising outlook. The anticipated growth in advanced packaging and nodes, coupled with successful offshoring efforts, positions Onto Innovation well for future success.