Veeco Instruments Signals Turnaround with Bullish 2026 Guide

Veeco Instruments Inc ((VECO)) has held its Q4 earnings call. Read on for the main highlights of the call.

Veeco Instruments’ latest earnings call struck a cautiously optimistic tone as management balanced a 7% revenue decline in 2025 against record semiconductor sales, surging backlog, and a notably bullish 2026 outlook. Executives emphasized that growing demand tied to AI and high‑performance computing is already visible in orders, suggesting that current headwinds may be temporary rather than structural.

Record Semiconductor Revenue and Mixed 2025 Results

Veeco reported 2025 revenue of $664 million, down 7% year over year, as pockets of weakness offset core strength. Semiconductor revenue, however, hit a record $477 million, up 2% and now 72% of total sales, supporting a 41% non‑GAAP gross margin, $84 million in operating income, $80 million in net income, and diluted EPS of $1.33.

Backlog Surge Underpins 2026 Growth Visibility

Order backlog ended 2025 at $555 million, up $145 million or 35% from the prior year, giving Veeco strong visibility into future revenue. Management indicated that this backlog will support growth weighted toward the second half of 2026, effectively pre‑booking a large portion of next year’s production.

Ambitious 2026 Guide Signals Confidence

For full‑year 2026, Veeco guided revenue to $740–$800 million, with a midpoint of $770 million implying roughly 16% growth versus 2025. The company expects non‑GAAP gross margin of 41–43% and diluted EPS of $1.50–$1.85, signaling expectations for both top‑line acceleration and margin expansion as newer products scale.

Product Wins Highlight LSA, IBD, Propel and Lumina

Management highlighted multiple strategic product wins, including an LSA evaluation system shipped to a second Tier 1 DRAM customer and extended IBD300 evaluations into 2026. New orders for the Propel 300mm GaN‑on‑silicon platform and Lumina+ arsenide phosphide systems are expected to convert into revenue primarily in the back half of 2026 and beyond.

Advanced Packaging Revenue Doubles on AI Demand

Advanced packaging revenue jumped to $150 million in 2025, doubling from $75 million in 2024 as customers ramped wet processing and lithography tools tied to AI and heterogeneous integration. This fast‑growing business is becoming a more important demand driver, even as its lower margin profile temporarily weighs on the consolidated gross margin.

Solid Balance Sheet and Cash Generation

Veeco exited 2025 with $390 million in cash and short‑term investments, up $21 million sequentially, giving the company ample financial flexibility. Operating cash flow reached $69 million for the year against capital expenditures of $16 million, underscoring disciplined investment alongside ongoing product development.

Positioned for AI and High‑Performance Computing Upside

The company underscored its exposure to secular trends in AI and high‑performance computing, citing a projected annealing market of $1.3 billion by 2029. It also sees IBD/EUV and pellicle opportunities reaching about $500 million and advanced packaging at $650 million, with Veeco’s existing production LSA wins at three Tier 1 logic customers and EUV leadership as key competitive anchors.

Axcelis Merger Clears Shareholders, Awaits China Approval

Shareholders approved Veeco’s all‑stock merger with Axcelis on February 6, 2026, marking a major strategic milestone. Completion remains contingent on final regulatory clearance, with China still the primary outstanding approval and a potential source of timing uncertainty for closing.

Revenue Contraction in 2025 Masks Underlying Shifts

Despite strong semiconductor performance, overall 2025 revenue declined 7% to $664 million, reflecting uneven demand across businesses. Management framed this as a transition year, with the downturn in certain segments offset by building momentum in AI‑linked and advanced packaging markets that are expected to lead the next growth phase.

Compound Semiconductor and Data Storage Weakness

Compound semiconductor revenue was $60 million, representing 9% of total sales and declining from the prior year, while data storage revenue fell to $39 million or 6% of revenue. These softer segments weighed on the top line in 2025, though Veeco expects both areas to rebound meaningfully in 2026.

Margin Pressure from Product Mix and Tariffs

Fourth‑quarter non‑GAAP gross margin landed around 38%, and Q1 2026 is guided to 37–38% as product mix shifts toward lower‑margin advanced packaging and evaluation system signoffs. Tariffs also trimmed roughly 100 basis points from gross margin in the second half of 2025, and management is assuming a slightly tougher tariff environment heading into 2026.

China Exposure and Regulatory Uncertainty

Veeco highlighted complex dynamics in China, noting that two LSA shipments faced customs review in January before being resolved and that China revenue declined year over year to 27% of total sales. The outstanding Chinese regulatory approval for the Axcelis merger remains a key wildcard, introducing both geopolitical and execution risk into the company’s growth plans.

Inventory Build and Rising Equity Compensation

Inventory rose to $275 million, up $12 million sequentially, which could pressure working capital should shipment timing slip. Equity compensation expense reached $37 million for the year, representing a notable slice of operating costs that investors will likely monitor as Veeco scales.

Scientific and Other Segment Set to Decline

After a strong 2025 fueled by large quantum computing orders, management expects the “scientific and other” segment to fall about one‑third to roughly $60 million in 2026. This pullback means that more of next year’s growth will need to come from core semiconductor, compound semiconductor, data storage, and advanced packaging markets.

Guidance Points to H2‑Weighted Recovery in 2026

For Q1 2026, Veeco guided revenue to $150–$170 million, gross margin to 37–38%, operating expenses to $48–$50 million, and diluted EPS of $0.14–$0.24, implying a muted start to the year. For 2026 as a whole, management expects 16% revenue growth to about $770 million at the midpoint, improving margins with a targeted 45% exit gross margin in the second half as higher‑margin new products ramp and demand broadens.

Veeco’s earnings call painted a picture of a company navigating near‑term pockets of weakness while leaning into powerful semiconductor and AI trends that are already visible in its backlog and product pipeline. For investors, the key takeaway is that 2025 looks like a reset year setting the stage for a potentially stronger and more profitable 2026, albeit with ongoing execution and geopolitical risks to watch.