Onto Innovation (ONTO) Q3 Earnings call transcript Oct 31, 2024

In the third quarter of 2024, Onto Innovation reported robust financial results, showcasing the company's growth and strategic maneuvers. The company's revenue reached a new record of $252 million, driven by strong performance in its inspection business, which is on track to nearly double inspection revenue for the year. This achievement underscores Onto Innovation's position as a key player in the semiconductor industry, particularly in the areas of advanced packaging and specialty devices.

During the earnings call, Onto Innovation's management team, led by CEO Michael Plisinski and CFO Mark Slicer, provided insights into the company's strategic initiatives and financial outlook. The call highlighted several key themes and trends that are shaping Onto Innovation's growth trajectory.

Growth Opportunities and Strategic Acquisitions

One of the most notable themes that emerged from the call was Onto Innovation's strategic acquisitions and their impact on the company's growth. The acquisition of Lumina Instruments, a small company with rich background in laser-based inspection technologies, and the lithography business from Kulicke and Soffa are expected to bolster Onto Innovation's portfolio and contribute to its growth. These strategic moves align with the company's focus on expanding its capabilities in advanced packaging and lithography, which are critical areas for the semiconductor industry.

The integration of Lumina Instruments' patented technology is particularly noteworthy, as it will enable Onto Innovation to simultaneously scan top, bottom, and subsurface defects in silicon carbide and gallium nitride applications. This new capability is expected to expand Onto Innovation's SAM by $250 million annually in the next 3 years, underscoring the company's commitment to innovation and market differentiation.

Financial Highlights and Outlook

Onto Innovation's financial performance was another highlight of the call. The company achieved a record cash generation from operations of $67 million, reflecting its strong operational efficiency and financial health. This achievement, coupled with a record operating cash flow of 27%, underscores Onto Innovation's financial strength and its ability to invest in strategic initiatives and growth opportunities.

Looking ahead, Onto Innovation is optimistic about its growth prospects. The company expects to continue its strong performance in specialty devices and advanced packaging, driven by the growth in AI packaging and the expected recovery in advanced nodes. The company also expects to see increases in volume for logic packaging and capital intensity for process control, driven by the need for higher process yields and the transition to larger wafer sizes. These trends are expected to support Onto Innovation's growth in the coming quarters.

Key Challenges and Investor Concerns

Despite the positive outlook, Onto Innovation's earnings call also highlighted some challenges and investor concerns. One of the most pressing issues is the over $10 million JetStep lithography pushouts due to customers' capacity needs. This delay, which was customer-driven, could impact Onto Innovation's revenue and growth prospects in the short term. However, the company remains confident that it will be able to recover from this setback and maintain its growth momentum.

Another concern raised by investors was the visibility into HBM capacity additions and the potential impact on Onto Innovation's HBM business. While the company expects to see an increase in HBM capacity, it also acknowledged that there may be muted growth in the HBM market due to capacity constraints and market conservatism. This uncertainty could impact Onto Innovation's revenue and growth prospects in the coming quarters.

Conclusion

In conclusion, Onto Innovation's third-quarter earnings call provided valuable insights into the company's financial performance and strategic initiatives. The company's strong financial performance, strategic acquisitions, and optimistic outlook for the future are key takeaways from the call. However, the challenges and investor concerns, particularly around capacity constraints and market conservatism, highlight the need for Onto Innovation to navigate these challenges effectively to maintain its growth momentum. Overall, Onto Innovation's earnings call underscores the company's position as a key player in the semiconductor industry and its commitment to driving innovation and growth in the face of market challenges.