Onto Innovation (ONTO) Q1 FY26 earnings call: guidance and Q&A

How does the Dragonfly G5 pipeline provide visibility for growth through 2H FY26, and what is the outlook for 2027?

The company is seeing pull-ins for G5 shipments across all quarters of 2026, indicating steady growth. For 2027, stronger demand is expected from existing customers as production expands, and a strong pipeline of application studies in existing and new markets implies significant expansion.

“we've shipped several systems in Q1, will be shipping more into Q2 and even more in Q3 and Q4. So we see a steady growth in demand for the G5 throughout all 4 quarters.”

asked by Craig Ellis · answered by Michael Plisinski

What are the end-use drivers for the significant increase in advanced nodes growth, and how should linearity be considered through 2H FY26?

The primary driver is the Atlas OCD metrology, particularly its smaller spot sizes for on-die measurements to improve yield. Progress in integrated metrology with larger customers and growth in Iris films tools also contribute. The company expects exciting news for critical films in late 2026 and into 2027.

“the biggest driver is, of course, the Atlas OCD metrology and some of the latest capabilities we're providing customers is with smaller spot.”

asked by Craig Ellis · answered by Michael Plisinski

Are customers pulling in demand from 2027 into 2026, and how does this affect the 2027 outlook?

The company is broadly seeing pull-ins, but these are not at the expense of 2027 numbers. The pull-ins are driven by new fabs coming online or share gains, and 2027 continues to look much stronger than 2026.

“Broadly speaking, we are seeing pull-ins, but not at the expense of the 2027 numbers. So it's really more of a broader rising of the tide.”

asked by Ezra Weener · answered by Michael Plisinski

How much is the Dragonfly G5 actually impacting gross margin, given it was seen as a margin improvement story?

The G5 is expected to improve margins due to its newness and value proposition. However, significant margin improvement won't be seen in 1H FY26 due to low relative volume. A more substantial impact is anticipated in 2027 when G5 constitutes a higher percentage of overall inspection revenue. Gross margins are expected to improve throughout 2026.

“You're not going to see the margin improvement in the initial first half of the year because the relative volume is low as we continue to ramp it throughout the second half of throughout this year.”

asked by Ezra Weener · answered by Michael Plisinski

Can you provide more detail on why the 2.5D logic customer preferred the new Dragonfly G5 platform, and what are the expectations for share recapture or broader application expansion?

The win was driven by the G5's higher resolution (below 200nm), new optics, camera, staging, and die-to-die algorithms, which were superior in head-to-head competition. The tool is designed for several generations ahead, offering the best cost of ownership and flexibility. The company expects share shifts back to them and new opportunities within the account that couldn't be served previously.

“Again, driven by the higher resolution and the compelling value that the flexibility of the Dragonfly delivered to the customer. I think you also asked what the -- why the win. Again, we've been in this market for a long time. Packaging is very different than the front end. Our tool is designed for packaging. What we needed to do is deliver on the high resolution piece. We've done that. We are seeing things now below 200 nanometers, where historically, 800 nanometers might have been about the limit.”

asked by Edward Yang · answered by Michael Plisinski

Can you rank order the most exciting growth opportunities for 2027 (Atlas G6, Dragonfly, 3DI, Iris, JetStep, X-ray) and confirm the ability to outgrow WFE next year?

Dragonfly G5 has the highest growth potential and share gain opportunities, expanding into nearly $1 billion in new markets. Atlas G6 is progressing well with gate-all-around customers, and surface charge metrology (SDI) is a growing area, especially for chiplet architectures. Panel-level products (JetStep, Firefly) are also gaining traction. The company expects to outgrow WFE in 2027.

“I think the highest growth and the highest contributions to growth or potential share gain opportunities will definitely come from the Dragonfly G5. I think it's expanding into or has the potential to expand into nearly $1 billion in new markets.”

asked by Edward Yang · answered by Michael Plisinski

What are the primary drivers for the improved advanced packaging outlook, and what is the current contribution of Dragonfly G5?

Dragonfly G5's contribution is currently relatively small (less than 10%, possibly 5%) but is ramping dramatically, nearly doubling each quarter. Overall advanced packaging growth is projected to be over 50%. HBM and 2.5D Logic are expected to have similar growth outlooks.

“So for all the growth we talked about how much of it is G5, it's still relatively small. So call it, less than 10%, maybe even 5%.”

asked by Matthew Prisco · answered by Michael Plisinski

How should we think about the revenue ramp from the Rigaku collaboration, particularly software licensing, and the timing and magnitude of the combined optical X-ray tool opportunity?

Software licensing revenue is expected to grow in 2026 and further in 2027, dependent on Rigaku's CD X-ray tool pipeline. Hybrid metrology solutions are a longer-term opportunity, starting with R&D and targeting high-volume manufacturing in a couple of years. Financially, the income from licensing and dividends (approx. $7M/year) is expected to offset the foregone interest income from the investment within a year of closing.

“Within a year of the close of the transaction, we would expect that the income generated from these 3 sources will offset any foregone interest income on cash used in the deal.”

asked by Matthew Prisco · answered by Brian Roberts

Can you provide more detail on the expected licensing revenue economics from the Rigaku partnership, perhaps on a per-tool basis?

The company declined to break down per-tool economics but reiterated that the combined income from licensing revenue and dividends (approximately $7 million or more per year) is expected to offset the foregone interest income from the investment. It was emphasized that this is a strategic initiative for long-term growth (3-6 years out) rather than a game-changer for 2026 revenue.

“Overall, that is not game-changing for on to innovation, from a revenue perspective this year. The whole point is this is a strategic initiative that expands our opportunities significantly as we look out 3, 4, 5, 6 years ahead.”

asked by Charles Shi · answered by Michael Plisinski

How is the company positioned for hybrid bonding inspection/metrology, and is there potential overlap or competition between Onto's EcoScan and Rigaku's X-ray solutions?

Acknowledged a potential overlap in packaging for X-ray inspection with EcoScan. Optical systems like EcoScan are expected to be faster, while X-ray provides precision and penetration depth. They can coexist, with one serving as inspection and the other as high-end review. Other areas like films and CD are complementary. X-ray's penetration depth is critical for 3D processes and can extend OCD technology.

“I think, Charles, you're very well informed. You picked about the only overlap that exists and we don't know a lot about what that is about. But there is a potential overlap in packaging for X-ray inspection.”

asked by Charles Shi · answered by Michael Plisinski