Q4 2024 Earnings Summary
- Onto Innovation expects to significantly outperform the industry's wafer fab equipment (WFE) growth rate of 5% in 2025, anticipating growth well above 5%, driven by alignment with secular growth drivers.
- The company achieved a remarkable 180% year-over-year growth in AI packaging revenue in 2024, surpassing the initial target of 160%, and anticipates continued strong demand in AI packaging, particularly in High Bandwidth Memory (HBM) and 2.5D Logic packaging.
- Onto Innovation is experiencing increased demand in advanced nodes, including gate-all-around technology and a meaningful uptick in 3D NAND, with memory revenue nearly doubling over the prior quarter, positioning the company for further growth and margin expansion in 2025.
- Increased R&D Expenses May Pressure Margins: Onto Innovation saw a large increase in R&D expenses and expects incremental increases in 2025. This is due to higher innovation requirements from customers, as stated by the executives: "I don't think that there's going to be a significant increase in 2025, but of course, there's incremental increase."
- Uncertainties Around Tariffs May Impact AI Packaging Markets: The CEO expressed concerns regarding the impact of tariffs on the AI packaging market, mentioning that "there's concerns or, let's say, questions around tariffs and chip tariffs and what that's going to do to the markets. And so I think that's handicap that I'm not willing to place bets on."
- Advanced Node Revenue May Not Return to Prior Peak Levels in 2025: When asked about the potential for advanced node revenue to reach prior peak levels, the CEO responded, "We're approaching it. So we're—I don't think we're quite going to get to the prior peak levels, but we're definitely getting within shooting range."
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
AI packaging | Mentioned every quarter as a major growth driver and strategic focus, with revenue growing strongly due to 2.5D logic and HBM demand. | Revenue grew by 180% over 2023, largest market in Q4 driven by 2.5D logic packaging and continued HBM strength; seen as a multi-year growth driver with ongoing investment in new technologies. | Consistently positive, with accelerated growth and high potential for 2025. |
High-Bandwidth Memory | Significant contributor in Q1 to Q3, though capacity additions remained cautious; strong demand tied to AI processors. | Pickup in HBM demand after a brief decline in Q4, with clearer order allocations among suppliers; HBM inspection tool revenue more than doubled in 2024. | Continues upward, cyclical but overall bullish as AI accelerates. |
Gate-all-around | Steady focus in Q1 to Q3 with multiple volume purchase agreements and rising adoption of Atlas OCD and Iris for advanced logic. | Key growth area for advanced nodes, expected to help approach near-peak levels in 2025. | Ongoing momentum, long-term driver for advanced logic nodes. |
Memory revenue / 3D NAND | Gradual improvement each quarter; cautious optimism tied to technology transitions (e.g., high-stack NAND). | Anticipates increased NAND orders for high-stack 3D NAND; DRAM also expected to grow strongly in early 2025. | Improving sentiment, with stronger 2025 outlook. |
Power semiconductors | Capacity expansions in Q2 and Q3 drove near-record revenue; yield improvement has been the main focus. | Another record in Q4; revenue grew 10% in 2024 and is expected to exceed that record in 2025 despite a Q1 seasonal dip. | Sustained bullishness, electrification trends support growth. |
Panel packaging | Discussed in Q1 to Q3 as an emerging market with glass substrates, moderate adoption pace. | Firefly adopted by two leading panel manufacturers for glass and IC substrates; panel market interest is growing but still early. | Gradual adoption, new customers and potential cross-selling. |
Competition in China | Briefly noted in Q2 as local competitors focusing on lower-end tools; limited overall impact. | No mention for Q4 2024. | No recent updates, remains a minor concern at the lower end. |
Lithography shipment delays | Only specifically addressed in Q3, when a $10M JetStep delay occurred due to customer-driven rescheduling. | No mention of new delays in Q4. | Resolved or not repeated, minimal Q4 discussion. |
R&D expense impact on margins | Q1 to Q3 showed steady OpEx increases for R&D, yet margins continued improving due to higher-value product mix. | Larger R&D investments in Q4 but expected to be manageable in 2025 without a significant margin hit. | Slight rise in R&D but margins remain on an upward trend. |
Tariffs and chip tariffs uncertainty | No mention in Q1 to Q3 [no data]. | Expressed concerns about potential chip tariffs, acknowledging uncertainty and not making firm predictions. | New mention, uncertain impact going forward. |
WFE growth outperformance | Indirectly referenced in Q2 and Q3; confidence in beating average wafer fab equipment growth projections. | Expecting to perform well above the ~5% industry growth forecast in 2025. | Increased confidence, continuing to outpace broader WFE. |
Advanced node revenue trajectory | Saw consistent gains from Q1 through Q3, spurred by GAA logic and memory investments. | Advanced node revenue up 12% over Q3, at 18% of total Q4 revenue; further growth expected in Q1 2025. | Steady increases with positive outlook into next year. |
Gross margin expansion | Improved each quarter from Q1 (52%) to Q3 (55%), aided by product mix and efficiencies. | Maintained 55% in Q4 and targets ~50 bps quarterly improvement into 2025. | Continual improvement, supported by higher-value markets. |
Customer capital expenditure shifts | Q1/Q2 pointed to CapEx cuts in some areas but ongoing spend for leading-edge nodes; Q3 saw a $10M delay in lithography shipments. | TSMC advanced packaging CapEx doubling into 2025, which front-loads process control investments and benefits Onto. | More front-loaded spending in advanced packaging, favorable to Onto. |
Dragonfly system demand | Strong from Q1 to Q3, driven by AI packaging, with repeated revenue records and expanded 3D inspection uses. | No mention for Q4 2024. | Remained robust through Q3, no further Q4 commentary. |
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Revenue Growth Expectations
Q: How will Onto's revenue growth compare to industry in 2025?
A: We expect to outperform industry WFE growth, which is projected at 5% year-on-year. Based on our position and alignment with secular growth drivers, we anticipate growing well above 5%. -
Gross Margin Outlook
Q: What's the outlook for gross margin expansion in 2025?
A: Our goal is quarter-over-quarter improvement, propelled by a favorable mix from advanced nodes and ongoing cost reductions. We're aiming to move beyond the 55% baseline, targeting 50 basis points or more of improvement each quarter. -
HBM Demand and Capacity
Q: How is HBM demand evolving, and what's the growth potential in 2025?
A: We see increased demand for HBM, with customers expanding capacity in mid to second half of the year. In 2024, about 30,000 wafer starts per month were added, but only half was required by the market. Now, capacity is doubling to meet demand, implying an addition of 115,000 or more wafer starts in 2025. -
Process Control Intensity
Q: Is process control intensity for HBM increasing or declining?
A: Process control intensity is increasing as stacking more dies raises yield loss risks, especially with 12-high die stacks and transitions to HBM4. Shrinking interconnect complexity makes interfaces more critical, presenting new challenges that our EchoScan and 3DI products address. -
AI Packaging Revenue Growth
Q: How did AI packaging revenue perform, and what's the outlook?
A: AI packaging revenue grew by 180% over 2023, exceeding our earlier estimate of over 160%. We anticipate continued growth, with customer demand for inspection and metrology needs, particularly in the mid to second half of 2025. -
NAND Market Growth
Q: What's the outlook for the NAND market in 2025?
A: We're seeing meaningful increases in NAND, which was a bit of a surprise. At least two primary customers are ramping to support high-stack 3D NAND applications, driving upside in the 3D NAND market. -
New Products Contribution
Q: What is the expected contribution of new products in 2025?
A: We expect incremental revenues from new products. The PRIMASCAN is projected to contribute at least $20 million in 2025. Additional revenue may come from shipments of EchoScan and other tools. While not huge now, these qualifications establish positions for larger ramps expected in 2026. -
Market Share Goals in AI Packaging
Q: What are your market share targets for incremental SAM in AI packaging?
A: We aim to grow our share. For EchoScan, we target a very high share since it's one of the only technologies capable of measuring voids 1 micron below in atmosphere without additional yield loss. For 3D bump, any share gain is positive, with greater entitlement as technology becomes smaller and denser. -
Impact of TSMC's CapEx Increase
Q: How does TSMC's doubling of advanced packaging CapEx in 2025 impact Onto?
A: Doubling capacity leads to increased process control investment, which is front-loaded to qualify equipment and monitor processes. We expect this for CoWoS advanced packaging, with process control capital intensity increasing. New applications being qualified could further improve our trajectory. -
R&D Expenses
Q: Will the increase in R&D expenses continue into 2025?
A: We will continue investing in our portfolio to meet customers' demands for innovation. While there may be an incremental increase, we don't anticipate a significant rise in R&D expenses in 2025.