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VI

VEECO INSTRUMENTS INC (VECO)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 revenue of $165.9M and non-GAAP EPS of $0.36 came in above guidance midpoints; GAAP EPS was $0.17 as gross margin moderated to 40.8% GAAP (41.9% non-GAAP). Management highlighted strong AI/HPC-driven demand across LSA, EUV IBD, and advanced packaging; non-GAAP operating income was $23.1M .
  • Versus Wall Street consensus, Veeco delivered a beat: revenue $165.9M vs $160.5M*; EPS $0.36 vs $0.2801*; strength came from mix and execution that lifted non-GAAP gross margin to ~42% at the top end of guidance .
  • Q4 2025 guidance: revenue $155–$175M, non-GAAP EPS $0.16–$0.32; non-GAAP gross margin guided down to 37–39% on discounted evaluation acceptances and a higher advanced packaging mix; OpEx ~$48M .
  • Strategic catalysts: pending all-stock merger with Axcelis aims to expand SAM >$5B pro forma and leverage complementary portfolios; management did not take merger questions on the call but emphasized cross-sell and R&D scale benefits .
  • Operational highlights: multiple orders for wet processing and lithography (advanced packaging, silicon photonics), a Propel 300-mm GaN MOCVD order for a leading power IDM, and multi-tool Lumina orders for InP lasers supporting data center optical transceivers .

What Went Well and What Went Wrong

What Went Well

  • Non-GAAP performance exceeded midpoints: non-GAAP EPS $0.36 and non-GAAP operating income $23.1M, with non-GAAP gross margin ~42% at the high end of guidance; “continued operational discipline” and strong execution called out by management .
  • Strategic wins across product lines and markets: orders for wet processing and lithography systems for advanced packaging and silicon photonics; an anchor Propel 300-mm GaN-on-Si order; multiple Lumina tools designated production tools of record in InP lasers for datacom .
  • CEO underscored traction in MOCVD: “won multiple orders for our 300mm Gallium Nitride single wafer and Arsenide Phosphide batch systems,” linking growth to AI/HPC momentum .

What Went Wrong

  • Year-over-year revenue and profitability declined: revenue down to $165.9M from $184.8M; GAAP net income fell to $10.6M from $22.0M; GAAP diluted EPS $0.17 vs $0.36 YoY; gross margin contracted YoY (GAAP 40.8% vs 42.9%) .
  • Q4 margin outlook softer: non-GAAP gross margin guided to 37–39% due to evaluation discounts and higher advanced packaging contribution; EPS guide below Q3 non-GAAP result ($0.16–$0.32 vs $0.36) .
  • Segment headwinds: compound semiconductor revenue down QoQ ($11M, 7% of revenue), and data storage remained low ($10M, 6%); China exposure rose to 28% in Q3 (from 17% in Q2), adding potential geopolitical and export risk considerations .

Financial Results

P&L and Margins vs Prior Periods

MetricQ3 2024Q2 2025Q3 2025
Revenue ($USD Millions)$184.8 $166.1 $165.9
GAAP Diluted EPS ($)$0.36 $0.20 $0.17
Non-GAAP Diluted EPS ($)$0.46 $0.36 $0.36
Gross Margin % (GAAP)42.9% 41.4% 40.8%
Gross Margin % (Non-GAAP)43.8% 42.6% 41.9%
Operating Income ($USD Millions, GAAP)$24.3 $12.4 $10.6
Operating Income ($USD Millions, Non-GAAP)$31.0 $23.1 $23.1

Q3 2025 Actual vs Wall Street Consensus (S&P Global)

MetricQ3 2025 ActualQ3 2025 ConsensusSurprise
Revenue ($USD Millions)$165.881 $160.488*Beat
EPS (Primary, $)$0.36 $0.2801*Beat

Values with asterisk retrieved from S&P Global.

Segment Breakdown (Revenue)

Segment ($USD Millions)Q3 2024Q2 2025Q3 2025
Semiconductor$124 $124 $118
Compound Semiconductor$16 $14 $11
Data Storage$33 $12 $10
Scientific & Other$12 $16 $27
Total$185 $166 $166

Regional Breakdown (Revenue)

Region ($USD Millions)Q3 2024Q2 2025Q3 2025
APAC (ex-China)$61 $98 $82
China$55 $27 $46
USA$59 $22 $27
EMEA & ROW$10 $18 $12
Total$185 $166 $166

KPIs and Balance Sheet Highlights

KPIQ2 2025Q3 2025
Cash & Short-Term Investments ($M)$355 $369
Accounts Receivable ($M)$107 $116
Inventories ($M)$259 $263
Accounts Payable ($M)$50 $44
Long-Term Debt ($M)$225 $226
Cash Flow from Operations ($M)$9 $16
Capital Expenditures ($M)$3 $3
DSO (days)58 63
DIO (days)237 239
DPO (days)46 41

Non-GAAP reconciliation drivers: share-based comp $9.1M, amortization $0.8M, merger-related expenses $2.6M, non-cash interest $0.3M, and non-GAAP tax adjustment (-$1.7M), yielding non-GAAP net income $21.8M and non-GAAP operating income $23.1M .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)Q4 2025$150–$170 $155–$175 Raised midpoint (160→165)
Gross Margin % (Non-GAAP)Q4 202540–42% 37–39% Lowered (eval discounts, packaging mix)
Operating Expenses ($M, Non-GAAP)Q4 2025$48–$49 ~$48 Maintained
Net Income ($M, Non-GAAP)Q4 2025$12–$21 $10–$19 Lowered
Diluted EPS (Non-GAAP, $)Q4 2025$0.20–$0.35 $0.16–$0.32 Lowered
Interest (expense)/income ($M)Q4 2025N/A(~$1) (income) assumption in reconciliation New detail
Tax rateQ4 2025~12% actual in Q3 Not specifiedN/A

Note: “Previous Guidance” column is shown relative to Q3 2025 guidance ranges to provide context on trajectory.

Earnings Call Themes & Trends

TopicQ1 2025Q2 2025Q3 2025Trend
AI/HPC demandAdvanced packaging growth; LSA for GAA/HBM; Intel EPIC supplier award Strong semi quarter; EUV mask blanks; advanced packaging systems Sustained AI/HPC pull; LSA production tool of record; wet processing orders Strengthening
Gate-All-Around (GAA) & HBMLSA system orders and shipments LSA for GAA/HBM LSA production tool of record; eval sign-offs Continuing adoption
EUV IBD (mask blanks, pellicles)Positioning; evaluations ramp EUV mask blanks shipments Pellicle expansion; DRAM evals for IBD 300 Expanding use cases
Nanosecond Annealing (NSA)Introduced; evaluations planned Pipeline building Evaluations at two logic customers; memory interest Early traction
Advanced PackagingWet processing and lithography wins Orders and shipments; revenue growth Multiple orders from specialist foundry; stronger mix in Q4 Growth, margin-mix impact
Regional trends (China/APAC/US/EMEA)China 71/APAC 60/US 24/EMEA 12 ($M) APAC 98/China 27/US 22/EMEA 18 ($M) APAC 82/China 46/US 27/EMEA 12 ($M) China rising QoQ
Regulatory/legalExport/trade risks referenced in safe harbor Trade/export license risks Continued trade policy risks; merger proxy/solicitation notices Persistent backdrop
R&D executionKey wins, process qualifications Ongoing programs enabling inflections R&D scale emphasized with Axcelis; NSA/IBD roadmaps Scaling
Merger with AxcelisNot applicableAnnounced post-period (Oct 1) context in Q3 materials SAM >$5B; cash >$900M combined; no Q&A on deal Strategic inflection

Management Commentary

  • CEO: “Veeco’s strong financial results this quarter reflect continued momentum in the semiconductor market driven by AI and High-Performance Computing… We have won multiple orders for our 300mm Gallium Nitride single wafer and Arsenide Phosphide batch systems.”
  • CFO: “Gross margin totaled approximately 42% at the top end of our guidance… Operating expenses totaled approximately $46M… Net income came in at approximately $22M. Diluted EPS was $0.36.”
  • Strategy with Axcelis: “Over $5 billion SAM on pro-forma 2024 basis… Complementary product portfolio… Strength across the globe penetrating Tier 1 customers more effectively… Enhanced R&D scale.”

Q&A Highlights

  • GaN adoption in data centers: A leading power IDM is moving to pilot production in 2026 and HVM in 2027 at 300 mm; efficiency of power conversion is driving GaN adoption in data centers .
  • Q4 gross margin decline: Driven by discounted evaluation sign-offs (LSA, compound semi micro-LED eval) and higher advanced packaging mix with margins below company average .
  • Advanced packaging trajectory: Business doubled in 2025; visibility for 2026 is limited given shorter backlog/lead times, though multiple programs and demos are sustaining position .
  • Data storage orders: First orders in Q3 for ion beam and wet processing; negotiating further in Q4, with shipments mainly in 2H26; orders came from multiple customers .
  • NSA adoption: Evaluations at two advanced logic customers progressing; memory customers also interested due to thin-layer anneal; plan to ship multiple NSA tools in 2026 to logic/memory .

Estimates Context

  • Q3 2025 results vs consensus: Revenue beat ($165.9M vs $160.5M*), EPS beat ($0.36 vs $0.2801*). Estimates likely need upward revision for Q3 actuals already reported, but forward adjustments may skew lower on Q4 margin guide .
  • Q4 2025 consensus vs guidance: Revenue consensus $166.2M* sits well within company’s $155–$175M; EPS consensus $0.2658* within $0.16–$0.32—risk is to the lower half given expected gross margin compression and evaluation discounts .

Values with asterisk retrieved from S&P Global.

Key Takeaways for Investors

  • Q3 delivered a clean beat vs consensus on both revenue and EPS; non-GAAP margins at the high end of guidance underscore solid execution and mix management .
  • Near-term headwind: Q4 margin compression from eval pricing and advanced packaging mix suggests lower EPS vs Q3 despite revenue range comparable to Q3 guidance; position for potential estimate drift lower into Q4 .
  • Medium-term growth drivers intact: AI/HPC investments in GAA, HBM, EUV, and advanced packaging continue to pull Veeco’s portfolio forward; NSA and IBD 300 evaluations could unlock incremental SAM in 2026+ .
  • Compound semi inflection building for 2026: Propel 300-mm GaN and Lumina Plus orders position Veeco for GaN power, photonics, and space-grade solar growth in 2H26 .
  • Data storage recovery slope: New ion beam and wet processing orders and ongoing service utilization point to revenue growth in 2H26; monitor order cadence and customer capex plans .
  • Merger optionality: Axcelis combination could expand SAM, cross-sell opportunities, and R&D scale; clarity will evolve with S-4 and proxy materials; near-term stock narrative will track regulatory and shareholder approvals .
  • Trading lens: Expect near-term volatility around Q4 margin guide and eval timing; use pullbacks to add if you underwrite NSA/IBD wins and 2026 advanced packaging normalization with margin recovery as mix shifts back to higher-margin tools .

Appendix: Additional Context and Data Points

  • Q3 GAAP to non-GAAP reconciliation details: Share-based comp $9.1M; amortization $0.8M; merger-related expenses $2.6M; non-cash interest $0.3M; tax adjustment (-$1.7M) .
  • Regional mix shift: China revenue increased to 28% in Q3 from 17% in Q2; APAC ex-China decreased QoQ; USA and EMEA remained smaller contributors .
  • Conference call posture: Management declined to address Axcelis transaction questions, directing investors to future proxy materials .