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    Nova Ltd (NVMI)

    NVMI Q1 2025: Tariffs shave 30-50bps off Q2 margin, guidance intact

    Reported on May 8, 2025 (Before Market Open)
    Pre-Earnings Price$200.72Last close (May 7, 2025)
    Post-Earnings Price$186.53Open (May 8, 2025)
    Price Change
    $-14.19(-7.07%)
    • Robust Gate-All-Around Demand: Executives highlighted strong initial ramp in the gate-all-around segment, expecting early pilot investments to transition into high-volume manufacturing and leading to accelerated growth in the coming years.
    • Resilient Profitability with Stable Margins: Despite tariff pressures, management expects gross margins to remain within their target range, underscoring the firm's pricing power and strong product mix.
    • Expanding Advanced Packaging and Service Growth: The Q&A noted double-digit growth in advanced packaging and an expected 10%–15% year-over-year increase in services, suggesting a diversified revenue stream and potential for further margin expansion.
    • Tariff-Induced Margin Pressure: Gross margins are expected to decline by 30 to 50 basis points due to tariffs impacting imported components and service spare parts, which could compress profitability if sustained.
    • Flat or Declining China Revenue: The company expects its China business to remain nominally flat or slightly decline, potentially reducing its revenue mix and growth in a key region.
    • Second-Half Uncertainty: Limited full-year guidance and cautious tone regarding market dynamics and order visibility, especially amid geopolitical and tariff uncertainties, may lead to uneven performance in the latter half.
    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    Revenue

    Q1 2025

    Expected to be between $205 million and $215 million

    no guidance

    no current guidance

    GAAP Earnings Per Diluted Share

    Q1 2025

    Expected to range from $1.75 to $1.91

    no guidance

    no current guidance

    Non-GAAP Earnings Per Diluted Share

    Q1 2025

    Expected to range from $2.00 to $2.16

    no guidance

    no current guidance

    Gross Margin (GAAP)

    Q1 2025

    Approximately 57%

    no guidance

    no current guidance

    Gross Margin (Non-GAAP)

    Q1 2025

    Approximately 59%

    no guidance

    no current guidance

    Operating Expenses (GAAP)

    Q1 2025

    Expected to increase to approximately $60 million

    no guidance

    no current guidance

    Operating Expenses (Non-GAAP)

    Q1 2025

    Expected to increase to approximately $54 million

    no guidance

    no current guidance

    Financial Income

    Q1 2025

    Expected to remain similar to that of Q4 2024 on a non-GAAP basis

    no guidance

    no current guidance

    Effective Tax Rate

    Q1 2025

    Expected to be approximately 15%

    no guidance

    no current guidance

    TopicPrevious MentionsCurrent PeriodTrend

    Gate-All-Around Technology

    Q2 2024–Q4 2024 calls described a robust opportunity with early strong demand, record revenue contributions, and consistent guidance toward a $500 million revenue target by 2026.

    In Q1 2025, executives highlighted robust early demand with pilot line ramps, new platform shipments, and record sales in integrated metrology. They also flagged potential second‐half adjustments due to market conditions.

    Recurring focus with evolving sentiment: The overall enthusiasm remains, but there is a nuance in Q1 2025 with increased caution regarding adoption delays and revenue achievement challenges.

    Advanced Packaging

    In Q2–Q4 2024, advanced packaging was repeatedly noted as a steady growth driver with market share gains, double-digit revenue growth forecasts, and strong adoption of chemical and dimensional metrology solutions – sometimes boosted by the Sentronics acquisition discussions.

    In Q1 2025, advanced packaging maintained its momentum with strong double-digit growth forecasts, significant cross‐selling (especially via HBM, contributing about one‑third of the revenue in this segment), and continued expansion in advanced packaging markets.

    Consistent and positive: The theme continues with robust market performance and increasing revenue weight, reinforcing its strategic importance.

    China Market Exposure & Geopolitical/Trade Risks

    Q2 2024 mentioned a high revenue share from China (around 36–39%) with expectations of a slight shift as advanced nodes gain traction. Q3 2024 focused on steady demand in China without explicit geopolitical risk commentary.

    Q1 2025 now notes that China’s nominal revenue is expected to remain flat or decline slightly and a lower revenue share is anticipated. Additionally, tariff impacts (30–50 basis points on gross margins) are now explicitly acknowledged along with cautious monitoring of evolving trade dynamics.

    Increased caution: While China remains important, there is a shift toward highlighting geopolitical/trade risks and tariff-related pressures compared to earlier calls.

    Gross Margin & Profitability

    Q2 2024 showed robust margins (59% GAAP; 61% non-GAAP) with expectations of gradual normalization, Q3 2024 reported steady margins and strong operating performance without tariff pressures, and Q4 2024 reinforced healthy margins and operating performance within target ranges.

    In Q1 2025, margins remain resilient (57% GAAP; 59.6% non‑GAAP) with high operating margins; however, explicit mention is made of potential tariff pressures (30–50 basis points in Q2) and expectations of margin normalization in coming quarters.

    Mixed sentiment remains: Resilience continues but there is a new layer of caution with explicit tariff concerns and anticipations of slight margin normalization.

    Memory Market Dynamics

    Previous calls in Q2–Q4 2024 were bullish on AI-driven demand (especially for high-bandwidth memory and DRAM) with commentary on strong adoption, though some noted memory’s shrinking revenue share relative to logic and advanced packaging.

    In Q1 2025, Nova remains bullish on AI-driven demand for DRAM and HBM, emphasizing strong market prospects. However, there is clearer acknowledgement of declining revenue share risks in memory as logic revenues soar, with a cautious note on 3D NAND revenue translation.

    Bullish but nuanced: While demand driven by AI remains a key strength, there is increasing focus on memory’s relative revenue contribution challenges versus other segments.

    Wafer Fab Equipment (WFE) Growth Trends

    Q2 2024 reported revenue growth well above WFE expectations; Q3 2024 noted a revised consensus (from mid-teens to high single digits) but maintained an outperformance ratio of about 1.5x; Q4 2024 anticipated mid-single-digit WFE growth with outperformance through market position.

    In Q1 2025, while Nova expressed confidence in outperformance compared to overall WFE growth, there is also caution about potential slowdowns and difficult visibility in the latter half due to shifting market conditions.

    Emerging caution: Consistent outperformance is expected, but there is a new emphasis on monitoring potential slowdowns in WFE, reflecting increased market vigilance.

    Strategic Acquisitions & Capacity Expansion Initiatives

    Q2 2024 mentioned capacity expansion investments across Israel, Germany, and the U.S. as part of a long-term $1 billion plan. Q3 2024 noted a strong cash position enabling future M&A, and Q4 2024 offered detailed discussions on the Sentronics acquisition and its impact.

    In Q1 2025, updates include the integration of the Sentronics acquisition (completed with a detailed cost breakdown) and the launch of a new facility in Germany that doubles capacity in the Chemical Metrology division, underscoring continued strategic positioning.

    Consistent and critical: The theme remains central to future positioning, with Q1 2025 providing tangible updates on acquisition integration and capacity expansion.

    Service Revenue Growth & Diversification

    Q2 2024 and Q4 2024 noted healthy service revenue growth (around 19% YoY) with diversification through a broad portfolio, though service remained a supporting element in those periods. Q3 2024 did not discuss service revenue.

    In Q1 2025, service revenues are a newly emerging focus with record growth of more than 30% YoY and emphasis on expanding into additional revenue streams. The diversified geographical footprint further supports this expansion.

    New emphasis: While consistent growth was present before, Q1 2025 marks a stronger, more strategic push into service revenue diversification as a key part of the business model.

    Market Uncertainty & Order Visibility

    There was no explicit discussion of market uncertainty or order visibility concerns in Q2–Q4 2024; prior calls focused on strong performance and robust order books.

    Q1 2025 introduced new concerns regarding market uncertainty and order visibility, particularly for the latter half of the year, citing macroeconomic and geopolitical challenges as factors prompting cautious guidance.

    New emerging risk: This topic is newly introduced in Q1 2025, reflecting growing caution in guidance amid broader economic and geopolitical uncertainties.

    1. Gross Margin
      Q: What drove Q2 gross margins lower?
      A: Management explained that tariffs reduced margins by about 30–50 basis points along with some product mix effects, yet they remain confident of achieving a 57–60% full-year margin range.

    2. Tariff & Service
      Q: Did tariffs affect revenue or services growth?
      A: They noted that while tariffs impacted margins, there was no measurable revenue hit, and their services business is on track to grow 10–15% year-over-year.

    3. Gate-All-Around
      Q: What is the status of the gate-all-around ramp?
      A: Management stated they see a strong ramp in the first half with early pilot investments setting the stage for higher volumes later this year and beyond.

    4. Advanced Packaging
      Q: What drives advanced packaging cross sales?
      A: They highlighted that double-digit growth is being fueled by cross-selling integrated metrology and chemical solutions across both logic and memory segments.

    5. HBM Growth
      Q: How is HBM performing in advanced packaging?
      A: Management mentioned that HBM accounts for about one-third of advanced packaging revenues, showing robust growth alongside other advanced node investments.

    6. NAND Outlook
      Q: Will increased NAND CapEx boost sales?
      A: They expect NAND to pick up as more manufacturers ramp up their CapEx, contributing more significantly by the year's end, although immediate revenues remain modest.

    7. China Outlook
      Q: What is the China outlook for H2?
      A: The outlook is for nominally flat or slightly declining revenue in China, reflecting a shift towards advanced nodes and a lower revenue share in that region despite a healthy backlog.

    8. Tariff Details
      Q: Which components are most tariff-impacted?
      A: The impact is mainly on the imported BOM parts and spare parts shipments, though overall the effect remains modest.

    9. Tariff Geography
      Q: Is the U.S. most affected by tariffs?
      A: Partly—the tariffs affect both U.S.-bound components and spare parts shipped across territories, contributing collectively to the margin drag.

    10. Target Model
      Q: Will you re-evaluate the target model range?
      A: They indicated ongoing investments in R&D and sales, noting that while operating expenses are rising, the current strong margin performance supports a gradual adjustment of their target model.

    11. Order Timing
      Q: Are customers shifting orders due to tariffs?
      A: Management observed no significant order delays or accelerations in response to tariffs, indicating stable customer behavior.

    12. Backlog Margin
      Q: What is the margin profile of the backlog?
      A: They confirmed that the backlog maintains a mix very similar to the margins currently reported.

    13. Outlook Comparison
      Q: How does the full-year outlook compare to peers?
      A: While expressing some caution, management believes their robust backlog and pipeline set them apart, even as market conditions remain uncertain compared to peers.