Are there any slow end markets, and what is the situation with lithography and domestic Chinese customers?

The fastest-growing segments are leading-edge foundry logic, HBM, and advanced packaging, which are etch and removal intensive. Flattish areas include non-TAP and etch segments and trailing node foundry logic. China's WFE share is normalizing to the low 20s, down from 35% to 40% previously, indicating a return to a more normal business situation rather than an outlier. “The flattish area we see is probably non-TAP and etch segment overall. And the surprisingly, the trailing node foundry logic, also not going down. They're more like flattish. China, as we discussed before, it was a kind of building inventory sitting stock situation in '24 and '25, therefore, they really kind of become a bigger portion of worldwide WFE at 35 to 40, now we're seeing their back to no more in the low 20s, the portion of the worldwide WFE.”

How does UCT handle customer requests for tools and allocate/grow capacity in a competitive environment?

Customers are providing long-term forecasts, which aids UCT's planning and provides confidence for expansion. UCT's current capacity can support a $3 billion annual run rate (compared to the current $2 billion-$2.2 billion run rate), and its brick-and-mortar capacity can reach $4 billion with minimal capital investment and a 6-9 month build time, positioning the company well to meet increased demand. “We really have capacity to really run at $3 billion run rate per year. The current run rate is still $2 billion, $2.2 billion. So we have the runway to really kind of address additional demand and our brick-and-mortar capacity can handle up to $4 billion. So by minimal capital investment, we can have 6 to 9 months to build that capacity so we can really reach the $4 billion run rate.”

What is the percentage of sales from domestic China business for the March quarter, and how is it expected to trend?

Domestic China business accounts for less than 5% of UCT's overall revenue, a range that is expected to be maintained. Management sees growth opportunities as domestic Chinese WFE customers increase their share within the China WFE market. “As we previously discussed, the percentage of our China business -- domestic China business is less than 5% of our overall revenue. We maintain that kind of range.”

UCTT

Ultra Clean Holdings (UCTT) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Information Technology· Apr 28, 2026

Source: earnings call transcript

Executive summary

Ultra Clean Holdings Q1 FY26 — Strong Start with AI-Driven WFE Momentum

Ultra Clean Holdings delivered a strong Q1 FY26, exceeding guidance driven by solid execution and increasing momentum in the semiconductor landscape, particularly from AI-driven computing. The company is strategically positioning for a multiyear upturn with its UCT 3.0 strategy, focusing on ramp readiness, MPX, and digital transformation, while also strengthening its balance sheet. The CFO announced her retirement, with a successor search underway.

Highlights

Total revenue of $533.7 million exceeded the midpoint of guidance, up from $506.6 million in Q4 FY25.
Non-GAAP EPS of $0.31 surpassed the midpoint of guidance, up from $0.24 in Q4 FY25.
Total gross margin improved to 16.5% in Q1 FY26, up from 16.1% in Q4 FY25.
Reduced annual cash interest expense by approximately $30 million by repaying term loan B.
Refinanced and upsized revolving credit facility from $150 million to $250 million, reducing interest margin by 75 basis points.

Concerns

Operating cash flow was negative $33.3 million in Q1 FY26, down from positive $8.1 million in Q4 FY25, driven by higher working capital for inventory build.
Services segment operating margin decreased to 11.5% in Q1 FY26, compared to 12.4% in Q4 FY25.
Domestic China business remains less than 5% of overall revenue.

Guidance & targets

Category	Target	Timeline	Confidence
Total Revenue	$565 million to $605 million high materiality	Q2 · FY26	High
Non-GAAP EPS	$0.44 to $0.60 high materiality	Q2 · FY26	High
WFE Outlook	$140 billion to $145 billion high materiality	FY26	High
WFE Outlook Growth	15% and above high materiality	FY27	Medium
Tax Rate	low 20% range medium materiality	FY26	High
Service Revenue Growth	double-digit growth medium materiality	FY26	High
Service Revenue as % of Total Revenue	10% to 12% low materiality	Ongoing	Medium
Revenue Growth Q2 to H2	similar range of growth high materiality	H2 FY26	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Products Product gross margin was 14.6% in Q1 FY26 compared to 14.1% in Q4 FY25. Margin from products divisions was 4.2% compared to 3.9% in the prior quarter. Prior quarter revenue: $442.4 millionPrior quarter margin: 3.9%	$465.7 million	—	—	4.2%
Services Services gross margin was 30% in Q1 FY26 compared to 29.7% in Q4 FY25. Margin from services was 11.5% compared to 12.4% in the prior quarter. Prior quarter revenue: $64.2 millionPrior quarter margin: 12.4%	$68 million	—	—	11.5%
Total Company Total revenue came in at $533.7 million compared to $506.6 million in the prior quarter. Total gross margin for the first quarter was 16.5% compared to 16.1% last quarter. Total operating margin for the quarter came in at 5.1% compared to 4.9% last quarter. Prior quarter revenue: $506.6 millionPrior quarter gross margin: 16.1%Current quarter gross margin: 16.5%Prior quarter operating margin: 4.9%	$533.7 million	—	—	5.1% (Operating Margin)

Deals & partnerships

Convertible Senior Notes holders Offering of 0 coupon convertible senior notes $600 million

Priced a $600 million offering of 0 coupon convertible senior notes in February.

Lenders Refinancing and upsizing of revolving credit facility from $150 million to $250 million extended to 2031

Subsequent to quarter end, refinanced and upsized revolving credit facility from $150 million to $250 million, reduced interest margin by 75 basis points and extended maturity to 2031.

Risks & headwinds

Operating cash flow negative due to working capital build Q1 FY26

Negative $33.3 million in Q1 FY26, compared to positive $8.1 million in Q4 FY25

Mitigation:Building inventory to meet near-term demand and support future growth.

Dynamic near-term environment Near-term

Variability across customer spending, potential supply chain constraints, and geopolitics

Mitigation:Disciplined execution, trusted partnership with key customers, strong ramp readiness, and a global footprint enabling speed, agility, and scale.

Gross margin fluctuations Quarter-to-quarter

Influenced by fluctuations in volume, mix, manufacturing region, material, and transportation costs

Mitigation:Maintaining strong focus on operational efficiency, cost discipline, and margin improvement.

What to watch in Q2 FY26

Revenue growth trajectory

Second half of FY26

Current Q1 FY26 revenue $533.7M; Q2 FY26 guidance $565M-$605M (close to double-digit QoQ growth)

Target Similar range of growth (close to double-digit QoQ) for H2 FY26

Why it matters

Indicates sustained momentum in the AI-driven semiconductor upturn and validates management's confidence in a multiyear cycle.

As you can see that in our forecast, we're seeing close to double-digit growth quarter-over-quarter from Q1 to Q2. We expect similar range of growth going forward and for the second half.

Find out whether UCTT delivers this. Inve re-checks your case every morning.

Q&A highlights

What is the current WFE outlook, and how does resolving the memory bottleneck impact foundry unit output?

Management stated that customers are quoting WFE outlook of $140 billion to $145 billion for 2026, representing 18% to 20% year-over-year growth, with similar momentum of 15% and above for 2027. The memory bottleneck, which previously constrained capacity, is being resolved by major memory customers investing in greenfield factories and upgrades, unlocking capacity for new leading-edge foundry logic factory launches.

“We see really from our customers, they're quoting $140 billion to $145 billion in 2026. So that's depending on where you see the '25 number end up with, it's 18% to 20% of year-over-year growth. And we see the similar momentum. The customers are talking about 15% and above for the 2027.”

asked by Yu Shi · answered by James Xiao

2 min read 5 chapters

Detailed narrative

AI-Driven Market Momentum

The rapid expansion of AI infrastructure is fueling increased investment across the semiconductor ecosystem. Hyperscalers and cloud providers are expected to deploy significant data center capacity, spending around $600 billion in 2026, which is sharply driving demand. This investment is accelerating fab capacity for AI memory, leading-edge foundry logic, and advanced packaging, all critical enablers of AI workloads.

Device complexity is increasing, driving higher process and equipment intensity, particularly in deposition and removal, sustaining the WFE cycle and expanding UCT's opportunities.

UCT 3.0 Strategy Execution

Ultra Clean Holdings is actively executing its UCT 3.0 growth strategy, which focuses on ramp readiness, MPX (new product introduction, development, and transition), and digital transformation. These initiatives aim to accelerate time to market, improve operational efficiency, and enhance scalability.

The company is investing in regionalized centers of excellence in the U.S., Asia, and Europe to co-innovate with customers, aligning with their global engineering footprint and enabling faster ramps to high-volume production. Digital transformation efforts are upgrading systems and data infrastructure with AI-compatible solutions to improve visibility and productivity.

Capacity and Operating Leverage

UCT's global footprint currently supports approximately $3 billion in revenue and has the capacity to scale up to $4 billion with modest incremental capital investment. This expansion could be achieved within 6 to 9 months. This significant runway allows UCT to address additional demand and is expected to drive stronger operating leverage, improved profitability, and margin expansion through enhanced utilization and more efficient operations as volumes ramp.

Balance Sheet Strengthening and Cost Reduction

The company strategically strengthened its balance sheet by pricing a $600 million offering of 0 coupon convertible senior notes in February. A portion of these proceeds was used to fully repay its term loan B, resulting in an annual cash interest expense reduction of approximately $30 million.

Subsequent to quarter-end, UCT refinanced and upsized its revolving credit facility from $150 million to $250 million, reducing the interest margin by 75 basis points and extending maturity to 2031. These actions are expected to reduce the weighted average borrowing rate from around 6.2% to approximately 1.4%.

CFO Transition

Sheri Savage announced her decision to retire from UCT after 17 years of service. She will remain fully engaged until a successor is found, with a search looking both internally and externally, to ensure a smooth transition. She expressed pride in the company's achievements and confidence in its future growth.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.