Veeco's Earnings Call Contradictions: Advanced Packaging Ramp Timing and Gross Margin Outlook Clash

Date of Call: Aug 5, 2026

Financials Results

• Revenue: $193 million, up 20% from the prior quarter
• EPS: $0.33 per diluted share
• Gross Margin: 39.5%

Guidance:

• Q3 2026 revenue expected to be between $200M and $220M.
• Q3 2026 gross margin expected to be between 41% and 47%.
• Q3 2026 OPEX expected to be between $53M and $58M.
• Q3 2026 diluted EPS expected to be between $0.29 and $0.34.
• Full year 2026 revenue expected to be between $780M and $810M.
• Full year 2026 gross margin expected to be between 40% and 42%.
• Full year 2026 OPEX expected to be between $215M and $225M.
• Full year 2026 diluted EPS expected to be between $1.36 and $1.61.
• Expect semiconductor revenue to grow by more than 10% for full year 2026 compared to prior full year.
• Expect compound semiconductor revenue to be approximately double for full year 2026 versus full year 2025.
• Expect data storage revenue to double year-over-year in 2026.

Business Commentary:

Strong Quarterly Performance:

• VECO reported revenue of $193 million for the second quarter, with non-GAAP operating income of $23 million and non-GAAP diluted EPS of 33 cents.
• The strong performance was driven by increased demand for advanced packaging and silicon photonics, particularly in AI infrastructure and high-performance computing.

Order Momentum and Backlog:

• The company secured $200 million in advanced packaging orders for 2027, strengthening visibility into future revenue.
• This increase in orders is attributed to robust customer engagement and expanding adoption of AI-driven technologies, leading to a significant backlog.

Manufacturing Expansion and Investment:

• VECO is making deliberate investments ahead of revenue to expand manufacturing capacity, targeting a more than double increase in advanced packaging capacity.
• These investments are necessary to meet the surging demand anticipated from AI infrastructure and high-performance computing sectors.

Growth in Semiconductor Revenue:

• Semiconductor revenue for the second quarter was $131 million, representing 68% of total revenue, with a 20% increase from the prior quarter.
• Growth was primarily driven by sales to leading memory, foundry, and logic customers, benefiting from AI and high-performance computing applications.

Increased Visibility and Customer Forecasts:

• The company noted increased visibility into 2027, with customers providing forecasts extending well into the future.
• This enhanced visibility is attributed to strong customer engagement and the alignment of VECO's growth opportunities with the accelerating AI infrastructure investments.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated 'VECO delivered another strong quarter, exceeding expectations and continuing to build momentum across the business.' He highlighted 'strong quarterly performance,' 'accelerated order momentum,' and that the company is 'well positioned to capitalize on AI investments.' The tone was confident regarding growth opportunities and the merger progress.

Q&A:

• Question from Dennis (Needham & Company, LLC): The 2026 EPS outlook was lowered, and from what looks like gross margin mix and higher OPEX. Could we assume that the gross margin in advanced packaging? And in terms of the OPEX increase, can you tell us more about the impact from the $200 million order for what kind of investments you'll be making there?
  Response: The $200M advanced packaging order is for 2027 delivery, not impacting 2026 margins. The OPEX increase and gross margin impact (~75 bps) are due to investments to expand manufacturing capacity (internal and outsourced) to support future growth in advanced packaging and silicon photonics.

• Question from Dennis (Needham & Company, LLC): Could you give an update on when the advanced packaging systems will begin shipping, and maybe give a recap profile for the revenue ramp, and if there were any changes from prior expectations?
  Response: The advanced packaging systems are expected to start ramping at the end of Q4 2026, with the majority of shipments and revenue occurring in 2027, specifically ramping up in Q1 and Q2 2027.

• Question from Dennis (Needham & Company, LLC): I think you mentioned that customers are providing Outlooks well into the future. How far would you say, on average, they're giving you visibility right now, and has this visibility increased over the last three months?
  Response: Visibility has increased, with customers now sharing forecasts into 2027 and even some long-range forecasts beyond that, which is stronger than historically typical at this point in the year.

Contradiction Point 1

OPEX and Gross Margin Impact Details

Specificity of investment types and their financial impact differs between answers.

Dennis (Needham & Company, LLC) - Dennis (Needham & Company, LLC)

2026Q2: The lowered outlook and higher OPEX are due to deliberate investments to expand manufacturing capacity... These investments include: expanding internal manufacturing capacity on the East Coast, setting up contract manufacturing partnerships in Southeast Asia (with one-time setup costs), and hiring and training additional personnel for tool building and installation. The impact is an approximate $10 million increase in operating expenses and a ~75 basis point impact on full-year 2026 gross margin. - John Kiernan(CEO)

"Given the lowered 2026 EPS outlook due to gross margin mix and higher OPEX, can you confirm if the gross margin impact is from advanced packaging and provide details on the OPEX increase, including the $200 million order and types of investments being made?" - Dennis Spidylen (Needham & Company, LLC)

2026Q2: The margin and OpEx impacts stem from investments being made ahead of increased business in Advanced Packaging and Silicon Photonics. These include: 1) Expanding manufacturing capacity through internal production on the East Coast and strategic outsourcing partnerships in Southeast Asia. 2) Incurring one-time setup costs to activate contract manufacturers and hire/train personnel for tool building and installation. For 2026, this results in an approximate $10 million increase in operating expenses and a 75 basis point impact on gross margin for the full year. - John Kiernan(CEO)

Contradiction Point 2

Revenue Ramp Timeline

The timeline for the revenue ramp of key business segments appears inconsistent.

Dennis (Needham & Company, LLC) - Dennis (Needham & Company, LLC)

2026Q2: The ramp for these orders (optical networking, data storage, and advanced packaging) is expected to begin slightly in late Q4 2026 but will accelerate significantly in Q1 and Q2 2027, with the majority of revenue hitting in 2027. - John Kiernan(CEO)

Can you provide a recap and profile of the revenue ramp for optical networking orders, data storage-related revenue, and advanced packaging systems, including any changes from prior expectations? - Dennis Spidylen (Needham & Company, LLC)

2026Q2: The ramp is beginning in late Q4 2026, accelerating in Q1 2027, and will be more fully up to speed in Q2 2027. The majority of the revenue from the Silicon Photonics and Advanced Packaging ramps is projected for 2027. - Bill Miller(CFO)

Contradiction Point 3

Timing of Revenue Ramp for the Large Advanced Packaging Order

Contradiction on when the significant revenue from the $200 million+ order will begin to hit.

Dennis (Needham & Company, LLC) - Dennis (Needham & Company, LLC)

2026Q2: The ramp for these orders (including advanced packaging) is expected to begin slightly in late Q4 2026 but will accelerate significantly in Q1 and Q2 2027. - John Kiernan(CEO)

Could you provide a recap of the revenue ramp for optical networking orders, data storage revenue, and advanced packaging systems, including any changes from prior expectations? - Denis Pyatchanin (Needham & Company)

2026Q1: Shipping will start in the third quarter (Q3) of 2026, with the most significant ramp beginning in Q1 2027. - John Kiernan(CEO)

Contradiction Point 4

Visibility into Future Business

Contradiction on the level of customer visibility the company currently has into future periods.

Dennis (Needham & Company, LLC) - Dennis (Needham & Company, LLC)

2026Q2: Currently, midway through 2026, the company has much stronger visibility into 2027 than historically. Some customers are even sharing long-range forecasts beyond 2027. - John Kiernan(CEO)

How far, on average, are customers providing visibility, and has this visibility increased over the last three months given the industry upcycle? - Gus Richard (Northland Capital Markets)

2026Q1: The primary lever is the semiconductor business... Other markets like data storage and compound semiconductors also have potential upside. - John Kiernan(CEO)

Contradiction Point 5

Gross Margin Outlook

Contradiction on gross margin progression and target for 2026.

Dennis (Needham & Company, LLC) - Dennis (Needham & Company, LLC)

2026Q2: The lowered outlook and higher OPEX are due to deliberate investments... The impact is an approximate $10 million increase in operating expenses and a ~75 basis point impact on full-year 2026 gross margin. - John Kiernan(CFO)

Was the gross margin impact from advanced packaging, and could you detail the OPEX increase, including the $200 million order and investment types? - Denis Pyatchanin (Needham)

20260226-2025 Q4: Margins are expected to accelerate throughout 2026, particularly in the second half... The target is to reach a 45% gross margin by the end of the second half of 2026. - John Kiernan(CFO)