Onto Innovation’s AI Packaging Orders Double, Backlog Nears $2B

Date of Call: Feb 19, 2026

Financials Results

• Revenue: $267 million, up 22% sequentially; full year record of $1.005 billion
• EPS: $1.26 adjusted diluted earnings per share
• Gross Margin: 54.6%, improved by about 50 basis points sequentially
• Operating Margin: 25.2%, an increase of 410 basis points from the third quarter

Guidance:

• Q1 revenue expected to be $275M to $285M.
• Q2 revenue expected to exceed $300M.
• Advanced packaging revenue expected to grow over 30% in 2026.
• Power semiconductor revenue expected to decline around 10% in 2026.
• Semilab revenue expected to be low $100M to $110M in 2026.
• Expect higher revenue in second half of 2026 vs. first half.
• Expect continued gross and operating margin expansion each quarter in 2026.
• Q1 gross margin expected to improve to ~50 bps above Q4 levels.
• Q1 operating margin expected to be 25.5% to 26.5%.
• Q1 EPS expected to be $1.26 to $1.36.

Business Commentary:

Record Revenue and Growth:

• Onto Innovation reported record revenue of $267 million for Q4 2025, representing a 22% increase from Q3 and a 100.5% increase from Q4 2024. Full-year revenue finished at $1.005 billion.
• The growth was driven by strong demand for 2.5D packaging for AI devices, with orders more than doubling in the quarter, and the adoption of new technologies like the Atlas G6.

Advanced Packaging Expansion:

• The company's advanced packaging business grew over 25% sequentially in Q4, driven by demand for Dragonfly inspection and Iris films metrology.
• This expansion is attributed to the increasing need for AI device fabrication and the adoption of new inspection systems by customers in 2.5D packaging and high-bandwidth memory applications.

Volume Purchase Agreement and Customer Confidence:

• Onto Innovation announced a volume purchase agreement valued at over $240 million from one of its HBM customers, covering demand through 2027.
• This reflects the company's expanding technology portfolio and its ability to meet the growing demand for AI, with customers extending their forecasts into 2027.

Strong Financial Metrics:

• The company achieved record gross margin of 54.6% and operating margin of 25.2% in Q4, with adjusted diluted earnings per share of $1.26.
• Financial improvements were due to efficient operations, increased revenue, and the strategic use of tax regulations to accelerate R&D cost expensing.

Outlook and Market Positioning:

• Onto Innovation expects Q1 2026 revenue to be in the range of $275 million to $285 million, with Q2 revenue surpassing $300 million, projecting a 12% to 14% core growth.
• The positive outlook is supported by a strong backlog, customer confidence, and the strategic acquisition of Semilab to address emerging market needs.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated 'We ended 2025 on a high note' and 'We set a record for cash generation of $95 million'. He noted 'great momentum', 'positive dynamics', 'record revenue', 'orders from 2.5D packaging for AI devices more than doubling', 'backlog has nearly doubled', and 'visibility for 2026 has dramatically improved'. He expressed confidence: 'This gives me great confidence that Onto Innovation is well positioned to outperform in 2026 and beyond.'

Q&A:

• Question from Ezra Weener (Jefferies LLC): Can you talk about what you see for the market outlook for the year? You've had some peers talk about packaging up to 40% growth, but there's been a pretty large range. Can you talk about what you're seeing for the year?
  Response: We expect our advanced packaging business to grow over 30% this year.

• Question from Ezra Weener (Jefferies LLC): And then for WFE as well, sorry.
  Response: WFE growth is broad-based across IDMs, OSATs, and new players like in panel-level packaging; hard to track but demand is strong.

• Question from Ezra Weener (Jefferies LLC): In terms of follow-up, you talked about expanding lead times and increasing visibility. Can you talk about what that backlog looks like? And in the best case scenario, what your capacity is in terms of growth?
  Response: Capacity is set up to serve a $2B run rate; suppliers are the constraint, not internal capacity, as orders increase rapidly.

• Question from Craig Ellis (B. Riley Securities, Inc.): Mike, congratulations on the good execution in the quarter. I wanted to follow up on the view for 30% year-on-year advanced packaging growth. Can you just talk about some of the expectations you have around the contour of that growth through the year? And then in addition to that, just some of the more notable programmatic wins that may be included or that would be additive to that if they were secured later this year.
  Response: Advanced packaging revenue is expected to be relatively stable between first and second half. Adoption of G5 could add upside, but the 30%+ growth forecast is conservative.

• Question from Craig Ellis (B. Riley Securities, Inc.): And then the follow-up question is related to advanced nodes. So we're being specific with upside on advanced packaging. We're not being specific yet on advanced nodes. Can you talk about from nice $300 million second quarter number, what visibility you do have in the back half of the year in advanced nodes? And what are you expecting to kind of affirm over the next couple of quarters to lock in advanced nodes this year?
  Response: Advanced nodes growth is expected in the 10-20% range, likely around 15%, with timing dependent on factory openings and BPA solidification; customer discussions are positive.

• Question from Edward Yang (Oppenheimer & Co. Inc.): I just want to focus on this $240 million VPA that you mentioned for HBM. I'm just a little shocked, I guess, in a good way. In order to just properly size this, again, it seems like a big number because from what I would gather, your total AI packaging revenue for 2025 is around that $240 million, but that includes the 3 HBM customers and the big foundry customers as well. So is that the right way to think about it in that you have one customer coming in with the equivalent of what you made from 4 customers in 2025 and the timing of -- and the cadence of how you would recognize that VPA? And would you expect additional VPAs from the other customers as well?
  Response: Yes, additional VPAs are expected with other customers; this particular agreement is for 2026-2027, with demand accelerating towards a 50-50 split between years.

• Question from Edward Yang (Oppenheimer & Co. Inc.): And you touched on this a little bit, but G5, your new high-resolution Dragonfly platform, can you discuss or update us in the tone of the conversations that you're having with that big foundry customer, the qualification discussions, better sense on timing, pricing and et cetera? Any color?
  Response: Tones with customers are positive; qualification progress is on or ahead of schedule, with accelerated evaluations ending in first half and ramps expected in second half of 2026.

• Question from Yu Shi (Needham & Company, LLC): Mike, I think previously, when you talked about packaging, you're more talking -- I mean, on a more narrowly defined part of your packaging business being the AI packaging, 20% more opportunity in '26 versus '25. This time, you're talking about overall packaging 30% higher than last year. I wonder if you can give some color on the narrowly defined AI packaging. What's the expected number for this year?
  Response: The 30%+ growth for advanced packaging is largely tied to AI demand, as the market has expanded and separations are difficult; many OSATs and new players are now involved.

• Question from Yu Shi (Needham & Company, LLC): Maybe the follow-up since you actually mentioned about panel. It has been a while since I think [indiscernible] being mentioned on earnings calls and glad to hear that and hope to hear that more often going forward. So it sounds like the litho business has -- maybe have turned the corner. It sounds like that's what's happening. And can you give a little bit of color what's happening right now? And is there some competitive displacement going on?
  Response: Litho/panel business is seeing increased engagement and orders resuming; utilization is picking up and supply-demand is expected to tighten in 2027, but it's not yet broken out separately.

• Question from David Duley (Steelhead Securities LLC): I was wondering, when you look at your CoWoS inspection business and your HBM inspection business, maybe you could help us understand what your relative guess is for the growth rates of the 2 segments are in 2026?
  Response: Growth rates for CoWoS and HBM inspection are relatively similar; adoption of G5 could shift the mix towards CoWoS, but both are currently seeing similar demand.

• Question from David Duley (Steelhead Securities LLC): Okay. And then just as a clarification, I think Charles was referring to it on his previous question. The whole -- I think you mentioned the advanced packaging business was $504 million for the year. Is that the base level that you think is going to grow 30% or higher in 2026? Or is it just part of that number?
  Response: The $504M advanced packaging & specialty devices figure for 2025 is the base; the 30%+ growth forecast applies to the entire advanced packaging business for 2026.

• Question from Vedvati Shrotre (Evercore ISI Institutional Equities): The first one I had was, could you remind us like where the Semilab contributions come in for like 2026, like what your expectations are for revenue there? And then excluding that contribution, like in terms of organic growth, do you expect to outperform that WFE growth of 20%?
  Response: Semilab revenue was ~$9M in Q4; 2026 expectation is low $100M-$110M, but power semi may be challenged. Organic growth is expected to outperform the 10-20% WFE range, with advanced packaging at 30%+ and advanced nodes mid-teens.

• Question from Brian Chin (Stifel, Nicolaus & Company, Incorporated): Maybe circling back to the VPA that you announced. I guess is there a reason maybe it's just a timing thing in terms of the timing of back end versus front-end investments, but is there a reason it doesn't include both front and back end? And maybe what kind of toggle or optionality exists within the VPA to ship Gen 5 as opposed to Gen 3? Or is the expectation that most of this will be Gen 3?
  Response: The HBM VPA is primarily for current Dragonfly G3 products; it includes upgrade options but is focused on the qualified products for the customer's aggressive ramp.

• Question from Brian Chin (Stifel, Nicolaus & Company, Incorporated): Got it. And then Mike, maybe I didn't hear a lot of discussion of some of the new products and applications, 3DI, critical films. Those are probably also tailwinds for you in advanced nodes and maybe elsewhere. But maybe ballpark, how much do you see that contributing to the growth rates on an annual basis this year?
  Response: New products like HSIR and Atlas G6 are early penetrations, contributing maybe 10% of business or less in 2026, but growing into 2027 and expanding the SAM.

• Question from Brian Chin (Stifel, Nicolaus & Company, Incorporated): Got it. Maybe to sneak in just one quick last one. There's been discussion that there's a fair bit of FinFET spending mixing in with kind of gate-all-around this year, maybe off of more than one customer. Just how are you thinking about that in terms of your revenue this year versus last year in advanced nodes, foundry logic? And do you view maybe more gate-all-around spending in '27 as kind of more of a tailwind for your business?
  Response: Demand is nearly all driven by gate-all-around nodes, which are more complex and challenging; FinFET attach rate was lower at 5nm and above.

Contradiction Point 1

Advanced Packaging Growth Outlook and Timing

Contradiction on the expected quarterly growth progression for advanced packaging in 2026.

What are your thoughts on the earnings report? - Craig Ellis (B. Riley Securities, Inc.)

2025Q4: Expects advanced packaging revenue to be relatively stable between the first and second half of 2026. - Michael Plisinski(CEO)

What is the expected trajectory of the 30% advanced packaging growth this year, and what are the key contributing factors or potential upside? - Craig Ellis (B. Riley Securities)

20251107-2025 Q3: The first half of 2026 will see sequential growth compared to the second half of 2025... more significant growth in the second half... The first half of 2026 will be sequentially stronger than the second half of 2025. - Michael Plisinski(CEO)

Contradiction Point 2

Growth Outlook for the CoWoS Inspection Segment

Contradiction on the expected growth rate for the core HBM/CoWoS inspection business in 2026.

What are your key financial priorities for the next quarter? - David Duley (Steelhead Securities LLC)

2025Q4: The growth rates for CoWoS and HBM inspection are relatively similar. - Michael Plisinski(CEO)

What are the expected growth rates for CoWoS inspection and HBM inspection in 2026? - David Duley (Steelhead Securities)

20251107-2025 Q3: Growth outlook for core HBM inspection is positive... The key takeaway is that Onto's tools demonstrate unique capabilities for next-generation devices, which should have an outsized positive impact as those devices ramp in higher volume in the second half of 2026. - Michael Plisinski(CEO)

Contradiction Point 3

Growth Outlook and Stability for Advanced Packaging

The expected growth pattern for advanced packaging revenue shifts from being stronger in the second half to being relatively stable.

What are your key takeaways from the earnings report? - Craig Ellis (B. Riley Securities, Inc.)

2025Q4: Expects advanced packaging revenue to be relatively stable between the first and second half of 2026. - Michael Plisinski(CEO)

What is the trajectory of the 30% advanced packaging growth this year, and what are the key drivers? - Craig Ellis (B. Riley Securities)

2025Q3: Growth is expected in the first half of 2026 with more significant growth in the second half. - Michael Plisinski(CEO)

Contradiction Point 4

Linearity and Drivers of Sequential Growth

The primary driver of sequential growth shifts from broad AI packaging demand to being more tied to customer expansions and new products.

What are your thoughts on the recent market trends? - David Duley (Steelhead Securities LLC)

2025Q4: The growth rates for CoWoS and HBM inspection are relatively similar. The potential for upside could shift the balance if Onto gains more applications... - Michael Plisinski(CEO)

What are the 2026 growth rate expectations for CoWoS and HBM inspection segments? - Ezra Weener (Jefferies)

2025Q3: Growth from AI packaging and strong Dragonfly system demand drives the Q3 to Q4 sequential increase. - Michael Plisinski(CEO) & Brian Roberts(CFO)

Contradiction Point 5

Contribution and Timeline for New Products (3Di)

The expected revenue contribution from the 3Di product in 2026 is downplayed in the Q4 call compared to the more specific guidance provided in Q3.

Brian Chin (Stifel, Nicolaus & Company, Incorporated)? - Brian Chin (Stifel, Nicolaus & Company, Incorporated)

2025Q4: New products like HSIR and Atlas G6 are in early penetration stages, contributing maybe 10% or less of business in 2026. - Michael Plisinski(CEO)

What is the expected contribution of new products (e.g., 3DI, critical films) to 2026 growth, and how are you allocating spending between FinFET and gate-all-around this year? - Matthew Prisco (Cantor Fitzgerald)

2025Q3: Revenue contribution is expected to be incremental, in the range of tens of millions of dollars in 2026, with a bigger impact in 2027. - Michael Plisinski(CEO)