Onto Innovation Reports In-Line Q1 FY2026 Results, Sees Strong Q2 Guidance

Onto Innovation reported Q1 FY2026 revenue of $291.9 million, matching the street estimate of $292.0 million. EPS came in at $1.42, also in line with the street estimate. While the quarter's results were in-line, the company's guidance for Q2 FY2026 suggests a significant uptick in performance. CFO Brian Roberts stated, "We previously announced on April 16, our Q2 revenue expectation of $320 million to $330 million, representing, at the midpoint, a 10% increase to previous analyst expectations and 28% year-over-year growth." This guidance implies a sequential revenue increase of 9.4% to 13.0%, reflecting strong demand across multiple segments.

The company's gross margin for Q1 FY2026 was 50.1%, up from 46.4% in Q4 FY2025. Brian Roberts highlighted, "Despite increasing headwinds around certain material input costs, such as memory and higher fuel and shipping charges, we demonstrated solid margin performance as gross margin improved sequentially by 110 basis points to 55.7% and operating margin increased by 150 basis points to 26.7%." The company expects Q2 gross margins to range from 56.0% to 56.5%, indicating continued margin expansion.

Revenue in Q1 FY2026 was driven by strong performance in both advanced nodes and specialty devices. Brian Roberts noted, "Revenue of $292 million increased nearly 10% sequentially on strength primarily across our advanced nodes business, highlighted by adoption of the Atlas G6 and our inspection products, including the initial commercial shipments of the Dragonfly G5." Advanced nodes revenue was approximately $80 million, with 60% attributed to memory, primarily DRAM, and the remainder to logic. Specialty device and advanced packaging revenue was approximately $160 million, with 2/3 of this amount coming from advanced packaging.

The company's advanced nodes business is expected to grow by approximately 25% in 2026, ahead of the average WFE growth expectations in the low 20s.

Onto Innovation announced a deepening of its strategic partnership with Rigaku, a move that is expected to generate significant incremental revenue. Brian Roberts explained, "On April 20, we announced the deepening of our strategic partnership with Rigaku, including the purchase of a 27% stake in the company from Carlyle Group for approximately $710 million." The integration of Rigaku's X-ray tools with Onto Innovation's Ai Diffract software is expected to generate incremental licensing revenue at nearly 100% margin. Additionally, Rigaku is expected to continue paying dividends to shareholders, equating to approximately $7 million or more per year based on the expected ownership stake.

The company also secured a new application win for TSV metrology using its Atlas system, with initial shipments expected to commence in the second half of the year.

Onto Innovation's guidance for Q2 FY2026 indicates a strong outlook for the remainder of the year. Brian Roberts stated, "We currently expect Q2 gross margin in the range of 56% to 56.5%, operating expenses of $90 million to $92 million, operating margin in the range of 28% to 28.6% and earnings of approximately $1.69 per share at the midpoint." The company expects revenue to accelerate in the second half of the year, with growth of at least 15% over the first half of 2026. This translates to 2026 revenue greater than $1.3 billion.

Michael Plisinski added, "So we see a steady growth in demand for the G5 throughout all 4 quarters. I think it's expanding into or has the potential to expand into nearly $1 billion in new markets. And if I think about 2.5D logic or HBM, they're very similar in growth outlook for us, similar to what they were in '24 when everything is ramping."

The strong performance and outlook for Onto Innovation have positive implications for its key customers, including TSMC, Intel, and Samsung. TSMC and Intel, in particular, are likely to benefit from the company's advanced metrology and inspection solutions for their respective advanced logic and GAA nanosheet processes. Michael Plisinski noted, "Panel level packaging, I don't think we've come off of the $200 million or so that we've said over the several years. So if you look at potential interest income of the investment that we made and then you subtract out roughly $7 million for dividends, then the residual is what we'd expect to see from license revenue and from profits from potential hybrid metrology sales."

Full call-over-call delivery metrics are in the tone history.

In the context of its peers, Onto Innovation's Q1 FY2026 performance and guidance stand out. The company's gross margin of 50.1% is competitive with peers such as KLA (KLAC) at 61.1% and Novellus (NVMI) at 57.7%. However, Onto Innovation's revenue growth of 9.5% YoY is slightly below the industry average, with KLA reporting 11.5% and Novellus 10.3%. Despite this, the company's strong Q2 guidance and strategic partnerships position it well for continued growth.

The tone of Onto Innovation's Q1 FY2026 earnings call was positive and confident, with a sentiment score of 0.47, a guidance tone of 0.54, and a prepared sentiment of 0.80. These metrics represent improvements over the previous quarter, with sentiment up 0.05, guidance tone up 0.08, and prepared sentiment up 0.06. The company's uncertainty score decreased by 18.5, and QA evasiveness decreased by 27.4, indicating a more transparent and straightforward call.

Michael Plisinski's comments on the call reflected this positive tone, stating, "This surge in demand across both front-end and advanced packaging resulted in first quarter revenue above our original guidance range and is expected to continue with the heightened outlook for the second quarter revenue, which at the midpoint represents a 20% increase year-over-year." The company's confidence in its strategic partnerships and new application wins further reinforces the positive sentiment.

Onto Innovation's Q1 FY2026 results, while in-line with street estimates, set the stage for a strong Q2 and the remainder of the year. The company's guidance for Q2 FY2026, driven by strong demand in advanced nodes and specialty devices, indicates significant growth. Strategic partnerships, such as the deepening relationship with Rigaku, and new application wins further solidify the company's competitive position. The positive tone of the earnings call and the company's transparent communication underscore its confidence in achieving its growth objectives.