Onto Innovation Inc.

What they do

The company designs, builds and supports optical metrology and macro-defect inspection tools for patterned and unpatterned wafers, plus lithography systems for wafer and panel substrates and process-control analytics software. Customers are silicon wafer manufacturers, IC fabricators and advanced packaging houses, with additional sales into LED, VCSEL, MEMS, CMOS image sensor, SiC/GaN power, RF filter and data storage markets. It reports as one business segment.

Revenue drivers

• Advanced Nodes — Tools used to measure sub-10nm transistor features as customers bring up 3nm and 2nm nodes; this line grew 50% sequentially in Q2 2026 to a quarterly record.
• Specialty Devices and Advanced Packaging — Inspection, metrology and packaging lithography for 2.5D logic, high-bandwidth memory and silicon photonics; reached an all-time high in Q2 2026.
• Analytical process-control software — Standalone, group and factory-wide advanced process control software sold alongside tools for yield and productivity improvement.
• Acquired Semilab USA product lines — FAaST, CnCV and MBIR products added in Q4 2025 for inline wafer contamination monitoring, materials characterization and surface charge metrology; the acquisition contributed to fiscal 2025 revenue growth.

Recent performance

Q2 2026 revenue was a record $343.1 million, up 35.3% year-over-year from $253.6 million and up nearly 18% sequentially. GAAP gross margin was 53.4% versus 48.2% a year earlier, and non-GAAP gross margin was 57.0%. GAAP net income was $60.1 million, or $1.21 diluted EPS, versus $33.9 million and $0.69 a year ago; non-GAAP net income was $96.0 million, or $1.93 per share. First-half 2026 revenue was $635.1 million, up 22.1% from $520.2 million, with GAAP net income of $93.9 million. Cash from operations was approximately $62 million in the quarter, and cash and short-term investments ended at $1.88 billion.

Strategy

Management is targeting technology inflections for next-generation AI and high-performance compute devices. The company closed the Semilab USA acquisition in Q4 2025 and is integrating it. A Rigaku Transaction is referenced in forward-looking statements as pending. Onto has also implemented a new enterprise resource planning system and continued share repurchases ($75.0 million in fiscal 2025). Fiscal 2025 gross margin was compressed by excess and obsolete inventory write-downs, restructuring tied to infrastructure transition, and contract manufacturing set-up costs.

Risks

• Supply chain and component availability — The company states that failure to manage its supply chain, or increases in material, labor, supplier and logistics costs, could lower margins or cause lost sales.
• Customer concentration — The 10-K risk summary states that Onto's largest customers account for a significant portion of revenue.
• Export controls on China sales — U.S. export regulations on semiconductor technology sold in China resulted in lower China net sales in fiscal 2025 than in prior years, and licensing outcomes remain uncertain.
• Acquisition integration and ERP transition — Onto must integrate Semilab USA, complete the pending Rigaku Transaction and run a recently implemented ERP system, each of which carries execution risk.

Outlook

For Q3 2026 ending September 30, 2026, management guides revenue of $380 million to $400 million, GAAP gross margin of 57.3% to 57.8%, GAAP operating margin of 21.4% to 22.4% and GAAP diluted EPS of $1.54 to $1.70. Backlog exceeded $1 billion for the first time in company history. The CEO said visibility is strong, customers are maintaining multi-year investment plans, and demand trends are expected to extend into 2027.