Onto Innovation Q1 2025 Earnings Report

Onto Innovation EPS Results

• Actual EPS: $1.51
• Consensus EPS: $1.47
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: $1.18

Onto Innovation Revenue Results

• Actual Revenue: $267.00 million
• Expected Revenue: $267.03 million
• Beat/Miss: Missed by -$33.00 thousand
• YoY Revenue Growth: +16.50%

Onto Innovation Announcement Details

• Quarter: Q1 2025
• Date: 5/8/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 4:30PM ET

Onto Innovation (NYSE:ONTO) engages in the design, development, manufacture, and support of process control tools that performs optical metrology. The company offers lithography systems and process control analytical software. It also offers process and yield management solutions, and device packaging and test facilities through standalone systems for optical metrology, macro-defect inspection, packaging lithography, and transparent and opaque thin film measurements. In addition, the company provides process control software portfolio that includes solutions for standalone tools, groups of tools, and enterprise-or factory-wide suites. Further, it engages in systems software, spare parts, and other services, as well as offers software licensing services. The company's products are used in semiconductor and advanced packaging device manufacturers; silicon wafer; light emitting diode; vertical-cavity surface-emitting laser; micro-electromechanical system; CMOS image sensor; power device; analog device; RF filter; data storage; and various industrial and scientific applications. Onto Innovation Inc. was founded in 1940 and is headquartered in Wilmington, Massachusetts.

Onto Innovation Q1 2025 Earnings Call Transcript

Key Takeaways

• Onto Innovation achieved a record Q1 revenue of $267 M, up 17% YoY, with EPS growing 28% and operating cash flow reaching $92 M.
• Company is mitigating the impact of U.S. tariffs driving higher costs by accelerating Asian manufacturing, with shipments from new facilities starting in H2 2025 and ~50% volume capacity by early 2026.
• Advanced-node metrology products outperformed, with Iris Films and Impulse 5 setting records and Atlas OCD nearly matching its Q1’22 high due to strong demand in AI compute and memory nodes.
• In response to evolving requirements in 2.5D/AI packaging, Onto is fast-tracking a next-generation inspection platform offering higher sensitivity and throughput, with wafer demos in Q2 and evaluation units slated for later this year.
• Q2 guidance calls for $240–260 M revenue, 54–56% gross margin (including up to 75 bps tariff headwind) and EPS of $1.21–1.35, while anticipating a Q3 low point from a temporary memory spending pause before a H2 rebound.

Presentation

[Operator]

Good day, and welcome to the Onto Innovation First Quarter Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Sidney Ho. Please go ahead.

[Sidney Ho, Vice President of Investor Relations at Onto Innovation]

Thank you, Rachel, and good afternoon, everyone. Onto Innovation issued its twenty twenty five first quarter financial results this afternoon shortly after the market closed. If you did not receive a copy of the release, please refer to the company's website where a copy of the release is posted. Joining us on the call today are Michael Placinski, Chief Executive Officer and Mark Slice, Chief Financial Officer. I'd like to remind you that the statements made by management on this call will contain forward looking statements within the meaning of the federal securities laws.

[Sidney Ho, Vice President of Investor Relations at Onto Innovation]

Those statements are subject to a range of changes, risks and uncertainties that can cause actual results to vary materially. For more information regarding the risk factors that may impact Onto Innovation's results, I would encourage you to review our earnings release and our SEC filings. Onto Innovation does not undertake the obligation to update these forward looking statements in light of new information or future events. Today's discussion of our financial results will be presented on a non GAAP financial basis, unless otherwise specified. As a reminder, a detailed reconciliation between GAAP and non GAAP results can be found in today's earnings release.

[Sidney Ho, Vice President of Investor Relations at Onto Innovation]

Let me turn the call over to our CEO, Mike Lisinski. Mike?

[Michael Plisinski, Director & CEO at Onto Innovation]

Thank you, Sydney. Good afternoon, everyone, and thank you for joining us on our call today. Onto Innovation set another revenue record for the quarter, delivering $267,000,000 in revenue. This growth was driven by expansions in both the advanced nodes and packaging to support growth of AI compute engines and increasing investments in cloud and enterprise servers, both seemingly undamped by market concerns over tariffs. However, the announced tariffs by the Trump administration are impacting Onto Innovation somewhat uniquely because nearly all of our products are manufactured in The United States.

[Michael Plisinski, Director & CEO at Onto Innovation]

Naturally, this negatively impacts our incoming costs due to the Trump administration's tariff policies, as well as the cost to export our tools from the potential of retaliatory tariffs imposed by other countries. In response, we're accelerating existing strategic programs to improve business continuity and resiliency by installing manufacturing capability in Asia. Due to the incredible cooperation between our team and Asian manufacturing partners, we expect shipments to begin in the second half of twenty twenty five and to have roughly half our product volume capable of being shipped out of these new facilities by early twenty twenty six. We expect to realize margin improvements from this effort in the second half of twenty twenty six. Once completed, we'll be significantly more competitive while providing greater levels of certainty to our global customers.

[Michael Plisinski, Director & CEO at Onto Innovation]

Now let's review our first quarter business highlights, starting with the advanced nodes. Our metrology business is benefiting from increased process control capital intensity of gate all around and memory as well as the performance and cost of ownership advantages that our optical metrology suite is delivering to our customers. This has led to record quarters for our newest products, Iris Films metrology and Impulse five integrated metrology, while Atlas OCD metrology nearly surpassed the quarterly record set in Q1 of twenty twenty two before we were impacted by U. S. Trade policy with China.

[Michael Plisinski, Director & CEO at Onto Innovation]

As we anticipated, revenue from our specialty device and advanced packaging markets declined from the record fourth quarter. Recently, a leader in 2.5 deep packaging for AI commented that the long term outlook of AI has improved as new AI models are expected to lower barriers to entry and drive greater adoption of compute engines. Similarly, HBM device makers are preparing for higher memory content as well as the transition to HBM4 next year. These expanding markets are also driving new tool requirements, including greater precision, sensitivity and throughput in order to produce devices with higher yields and lower costs. In response to these new requirements, during the last two quarters, we doubled the performance of our inspection tools, but this did not address 100% of the new needs.

[Michael Plisinski, Director & CEO at Onto Innovation]

So together with our customer, we began accelerating an existing program for a new inspection platform capable of providing significantly better sensitivity and higher performance. Wafer demos will start this quarter and we expect to ship evaluation units later this year. Though disappointing in the short term, in the long term, we believe this new technology may also open up opportunities in the front end macro inspection market we have not previously competed. Now turning from two d interconnects to three d interconnects, we're making steady progress moving through the rigorous process qualification of our 3DI technology. In the first quarter, 3DI Bump Metrology was selected by two more OSATs for applications where better throughput and repeatability was required.

[Michael Plisinski, Director & CEO at Onto Innovation]

We also shipped additional evaluation units to two leading memory manufacturers in the quarter. Besides bump metrology, the other challenge in future three d packaging is void detection for hybrid bonding applications. Our Echoscan system, which is a unique technology being developed for detection of yield killing voids and bonding interconnects without the need to immerse samples in liquid, has demonstrated capability at a Tier one customer site on R and D test samples. We are now starting tests on production test samples where variation materials and multiple layers will further stress the technology. Currently, no other technology can find voids in these structures at this resolution, which we believe will be critical for yield control in HVM of hybrid bonding devices.

[Michael Plisinski, Director & CEO at Onto Innovation]

Further along the adoption curve, we have delivered many of our subsurface defect inspection tools to reduce sources of yield loss from cracks and voids in packaging for 2.5D and emerging hybrid bonding applications. We're also adding customers outside of packaging to support similar needs in MEMS and power applications. And now I'll turn the call over to Mark to review our financial highlights and provide second quarter guidance.

[Mark Slicer, Chief Financial Officer at Onto Innovation]

Thanks, Mike, and good afternoon, everyone. As Mike highlighted, we had another record performance by the Onto team kicking off the year with $267,000,000 in revenue, achieving the midpoint for revenue and at the high end of our EPS guidance range for Q1. First quarter revenue increased 17% versus the prior year, with first quarter EPS increasing 28% versus the prior year. We achieved a record operating cash flow of $92,000,000 due to the continued discipline in all elements of working capital management. Looking at the quarterly revenue by markets, Advanced Nodes, which had revenue of $93,000,000 increased 96% over Q4 and represents 35% of revenue.

[Mark Slicer, Chief Financial Officer at Onto Innovation]

Specialty devices and advanced packaging decreased 24% from Q4 with quarterly revenue of $129,000,000 and represents 48% of revenue. Software and services with revenue of $44,000,000 decreased 5% compared to Q4, representing 17% of revenue. We achieved 55% gross margin for the first quarter, in line with our guidance range of 54% to 56%, while improving slightly above 50 basis points over Q4. First quarter operating expenses were $70,000,000 just below the midpoint of our Q1 guidance range of 69,000,000 to $72,000,000 Our operating income of $76,000,000 was 29% of revenue for the first quarter. Now moving to the balance sheet, we ended the first quarter with cash and short term investments of $851,000,000 Cash remained relatively flat to Q4 as we executed $75,000,000 of share buybacks within the quarter under our existing $200,000,000 authorization.

[Mark Slicer, Chief Financial Officer at Onto Innovation]

We achieved operating cash flow of $92,000,000 or 35% of revenue and free cash flow of $84,000,000 or 31% of revenue, converting 100% of our operating income into cash. Inventory ended the quarter at $293,000,000 up $6,000,000 versus Q4. This increase was primarily due to accelerating targeted inventory receipts within the quarter to minimize potential impact tariff impacts. We continue to expect inventory to stay relatively flat for the second quarter and expect to maintain inventory levels at 1.6 to 1.8 turns for 2025. Now turning to our outlook for the second quarter, we currently expect our revenue for the second quarter to be between $240,000,000 and $260,000,000 We expect gross margins will be 54% to 56%, which includes our current assessment of up to 75 basis points of headwind due to inbound tariffs if we are unable to offset within the quarter.

[Mark Slicer, Chief Financial Officer at Onto Innovation]

We are actively working to mitigate the tariffs through our supply chain activity or optimization of our strategy to locate manufacturing close to our customers. If successful, we would execute to the high end of our guidance range for gross margin, in line with our stated objective of 50 basis point improvement quarter over quarter. For operating expenses, we expect to be between 72,000,000 to 75,000,000 as our annual compensation elements occur within the second quarter each year. For the full year, we expect our effective tax rate to be between 14% to 16%. We expect our diluted share count for the second quarter to be approximately 49,300,000.0 shares.

[Mark Slicer, Chief Financial Officer at Onto Innovation]

Based upon these assumptions, we anticipate our non GAAP earnings for the second quarter to be between $1.21 to $1.35 per share. And with that, I will turn it

[Mark Slicer, Chief Financial Officer at Onto Innovation]

back to Mike for additional insights into Q2 and further commentary on 2025. Mike?

[Michael Plisinski, Director & CEO at Onto Innovation]

Thank you, Mark. For the second quarter, we anticipate revenue from the advanced node customers to decline moderately due to customers' timing of gate all around investments, which we expect to resume in the second half of the year. We expect NAND and DRAM spending to remain steady.

[Michael Plisinski, Director & CEO at Onto Innovation]

This reflects our strong market position not only in OCD, but also in films and integrated metrology. And in fact, by the end of the second quarter, we expect revenue from each of these product families will have already exceeded the full year revenue from 2024. In the specialty device and advanced packaging markets, we believe revenue to the will decline slightly. And as we discussed earlier in AI packaging, our customers are under tremendous pressure to improve factory yield and cycle times, necessitating higher throughputs and more sensitive two d inspections. We've significantly improved the productivity of our tools, but despite these improvements, some applications were not addressed by our platform.

[Michael Plisinski, Director & CEO at Onto Innovation]

However, they will be targeted by our next generation platform, which, as mentioned, has the added benefit of potentially opening new opportunities in the front end. As our customers' expansion plans and tool allocations have become clear in the last quarter, we have some clarity into the second half of the year, which we lacked previously. For advanced nodes, we remain confident in broad based expansions, although we anticipate a meaningful pause in Q3 from memory, making Q3 a low point for the year. We will take full advantage of this pause to allow our team to focus on the successful manufacturing ramp in Asia, as previously described. We expect revenue growth to resume in the fourth quarter.

[Michael Plisinski, Director & CEO at Onto Innovation]

Now looking beyond 2025, advances in AI and AI applications at the edge through lighter advanced models could lead to an entirely new wave of smarter, more integrated mobile devices and cloud applications, fundamentally changing how we interface with our environment. Investments in AI servers and cloud infrastructure, including new memory and gate all around transistors, will play a crucial role in this transformation, We expect our new product innovations for two d inspection, three d metrology and optical metrology will be critical to enabling these new devices. And that concludes our prepared remarks. Rachel, please open the call for questions from our covering analysts.

[Operator]

Thank If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a question. Please limit yourself to one question and one follow-up in order to give everyone an opportunity. And we will take our first question from Craig Ellis with B. Riley Securities.

[Craig Ellis, Director of Research at B Riley Financial]

Yeah, thanks for taking the question. Mike, I wanted to follow-up and just go deeper into some of the comments that you had on high bandwidth memory. So I think three months ago, you talked about the potential for there to be some digestion occurring in that area. Can you talk about how things have played out in the last three months? And then it seems like there's a couple of things happening.

[Craig Ellis, Director of Research at B Riley Financial]

You talked about a product related item and then where does that impact the business and how does that impact relative to the digestion you expected to occur? Thank you.

[Michael Plisinski, Director & CEO at Onto Innovation]

So for HBM, we haven't seen any significant changes from our views shared in the last two calls, really. So we still see the investments that we expected continuing to happen, the product adoptions continuing to occur, including we're trying to make progress with the adoption of the three d eye technology. And that was what we mentioned as shipping additional evaluation units to memory customers. The product, forget how you termed it, but the product gap that we were talking about in the call is primarily tied to two and a half depackaging. And that is, as we described, an area of sensitivity requirements that the customers needed.

[Michael Plisinski, Director & CEO at Onto Innovation]

We worked very hard with them over the last several quarters to close gaps. We closed many, but not all. And the next generation platform should be able to close all.

[Craig Ellis, Director of Research at B Riley Financial]

Got it. And so the second and follow-up question is on the commentary for the second half of the year. So it sounds like you're expecting advanced nodes to perform well and you've got a memory pause but broader growth after that. Can you talk more specifically about what you expect in advanced packaging and specialty in the second half of the year? Thank you.

[Michael Plisinski, Director & CEO at Onto Innovation]

Yeah. So for advanced packaging, you remember we had some very, very tough comps compared to last year. So we talked about when gate all around is doubling for us, that was essentially flat. And I don't want to repeat all of the, because I know we covered it in the last few calls. HBM, we had the different story with large investments from one of the memory manufacturers that didn't get qualified, so that was another difficult comp.

[Michael Plisinski, Director & CEO at Onto Innovation]

Now, so that's still, you know, in play, but the additional variable that I spoke about in the past was the allocations of the tool slots. And so that has a negative impact on us in the short term, and that's where we're seeing some degradation in the AI packaging, primarily on the two and a half D side.

[Operator]

Thank you. And we will move to our next question from Brian Chin with Stifel.

[Brian Chin, Analyst at Stifel Financial]

Hi there. Good evening. Thanks for letting us ask a few questions. Maybe firstly, Mike, can you quantify the impact in Q2 and maybe even for the year in terms of the reciprocal tariffs and maybe the reluctance or the impact that's having on shipments from some equipment from The U. S.

[Brian Chin, Analyst at Stifel Financial]

And just places like China? Can you maybe quantify that for 2Q and maybe even for the year? That's my first question. Thanks.

[Michael Plisinski, Director & CEO at Onto Innovation]

So reciprocal tariffs, I assume you're going to because Trump's been referring to things reciprocal tariffs, but I believe you mean true reciprocal tariffs where as a result of The US tariffs, other countries are responding with tariffs in their own. Assuming that's the question, we're not seeing any impact at this time. China had announced some of these tariffs, but then made exceptions for some of the semiconductor equipment. We do think there's a possibility for Europe, EU potentially to do something similar. So right now we're not expecting any impact, but we'll be better prepared for any kind of impact as we move this manufacturing strategic initiative we have forward and accelerate it.

[Brian Chin, Analyst at Stifel Financial]

Okay, got it. And maybe I sort of misunderstood it during some of the prepared remarks. Second question, a really I mean, a very strong Advanced Nodes revenue print in Q1, bigger than I think even the second half combined in that business. Granted last year is still kind of a double trough year for you guys for the year. But can you go more into sort of what drove that big sequential uptick?

[Brian Chin, Analyst at Stifel Financial]

Obviously, there's some strength in Gale around two nanometer, I'm sure. But talking about memory being a bit of a weaker spot in Q3, did something pull forward? Was there like an acceleration by customers? Maybe if you could just provide some more color around that.

[Michael Plisinski, Director & CEO at Onto Innovation]

I'm not sure if anything pulled forward necessarily, but we did see very strong investments in the first half. So part of our Q1 results and part of our Q1 guide is fairly strong and that's what we mentioned on the call, very strong memory. So memory stays steady first half. Gate all around comes down a little bit in our guide from the second quarter for the second quarter, but that was as planned, and then comes back in the second half. Where in third quarter we see memory coming down after significant ramps.

[Michael Plisinski, Director & CEO at Onto Innovation]

And that's not an unusual pattern for memory.

[Operator]

Thank you. We will take our next question from Matthew Prisco with Cantor Fitzgerald.

[Matthew Prisco, Director at Cantor Fitzgerald]

Hey guys, thanks for taking the question. I'd like to start on the new 2.5D tool. Just kind of how do I think about the performance gains generation over generation, how this new tool is expected stand up versus the competition? How we should think about that ramp in accelerating the design to actually getting that into fabs and running wafers? Thanks.

[Michael Plisinski, Director & CEO at Onto Innovation]

Great question. Well, of course we're a little biased, but we think this is a fundamentally ground up new tool, and it's been in the works for a while, so for years, as we saw these needs coming. But with the rapid acceleration starting in 2023 and then seeing the evolving requirements through 2024, we needed to pull this in and that became very, very apparent late last year. So working with the customers, that is what we have been doing. And obviously we don't intend to build tools to be second place, so we believe it will compare very favorably.

[Michael Plisinski, Director & CEO at Onto Innovation]

We understand there's obviously, against this particular competitor, they have a wealth of technology in inspection, but we also have a wealth of technology in advanced packaging. And so we're closing the gaps in some of our two d inspection, while we can still leverage our platform and understanding of how the packaging market behaves from a cost and performance sensitivity point of view. So we expect this will go very well. I think you also asked about the ability to deliver. We've already actually, so part of the variables that we were talking about is we had potentially upgrade proposals for existing platform.

[Michael Plisinski, Director & CEO at Onto Innovation]

So we've already been testing some of the optics and optical capabilities. Now we're putting it all, so that's already happened. The customers chose not to take upgrades, they wanted the full tool and they wanted us to pull that in for the performance advantages the full tool would give. We're very confident in being able to deliver those tools in the second half for evaluation units and I would expect to be able to ramp fairly quickly after that.

[Matthew Prisco, Director at Cantor Fitzgerald]

That's helpful, thanks. And then, I guess staying on new tools, your three d eye tool, the Iris G2 systems, which kind of love any further color you can offer on early customer feedback and traction and kind of the expected adoption ramp there, both through '25 and maybe into 2026? Thanks.

[Michael Plisinski, Director & CEO at Onto Innovation]

Yep, so we still are engaged with several customers on the Iris G2. We are seeing some challenges with, let's say, long term stability. So there are some areas that the R and D teams are working through, but overall the platform, the capability, the measurement performance, it all looks positive. Customers remain very engaged, and so we're just blasting through the normal challenges of developing and releasing a new product.

[Operator]

Thank you. We will take our next question from Charles Hsu with Needham.

[Charles Shi, Managing Director - Senior Analyst at Needham & Company]

Hi. Hey, good afternoon, Mike. Well, there's a lot to unpack, but I want to ask you a clarification question first. When you say Q3 is low watermark, do you mean advanced net revenue or total revenue?

[Michael Plisinski, Director & CEO at Onto Innovation]

Total revenue. Good clarification.

[Charles Shi, Managing Director - Senior Analyst at Needham & Company]

Yeah. So if that were the case, when I think about the progression, right, the q two has a little bit there, q three a little bit there, q q four coming back up. Feels like you you are probably have to walk away from your commitment to outperform WFE this year. Is that the case?

[Michael Plisinski, Director & CEO at Onto Innovation]

It depends on what WFE ends up being. But certainly we're, you know, we're looking probably more like market perform, But again, it depends on what WFE ends up being.

[Operator]

Thank you. We will take our next question from David Duley with Steelhead Securities.

[David Duley, Managing Principal at Steelhead Securities]

Yes. Just for clarifications, and I'm sorry, as far as the Q2 guidance is down sequentially, which pieces of the business are down sequentially in the Q2 guidance? And as a clarification, the 2.5 D inspection tool, that's your co that's you're basically referring to your co auth inspection tool. Correct?

[Michael Plisinski, Director & CEO at Onto Innovation]

Yes. Correct. From a guidance perspective, it's primarily the advanced nodes is down a little bit. So down, I think we said, what did we say, meaningfully. And then we have the specialty and devices really impacted mostly by lithography.

[Michael Plisinski, Director & CEO at Onto Innovation]

More or less flat, but then impacted potentially by lithography shipments.

[David Duley, Managing Principal at Steelhead Securities]

Okay. And then as far as, I guess, let's just ask that question. Could you give us an update on lithography and what you're seeing? I know there's a lot of movement going on in the co op packaging space and there's a lot more volume there both with TSMC and the OSATs. So maybe give us an update as to what you're seeing.

[David Duley, Managing Principal at Steelhead Securities]

Thanks.

[Michael Plisinski, Director & CEO at Onto Innovation]

Yeah, we're seeing a tremendous amount of interest in wide field high resolution optics, tremendous amount of interest in panel packaging, and in glass. So for sure, the areas of research and of development and of the next generation of packaging, the HRP, our HR stepper seems well positioned for and we're running quite a few demos, again, through our new PACE application center of excellence. But that's still in the R and D form. It's still forming, you know, so we're talking two years out for some of these applications to start hitting volume.

[Operator]

Thank you. We will take our next question from Edward Yang with Oppenheimer.

[Edward Yang, Stock Analyst at Oppenheimer & Co. Inc.]

Hi, Mike. Thanks for the time. Could we delve a little bit deeper into your comments about, again, 2.5D packaging? You said some applications were not addressed by our platform. Was that a case of was your equipment not performing up to spec or did the specs change?

[Michael Plisinski, Director & CEO at Onto Innovation]

That's another good question. No, the equipment obviously it was performing up to spec and then we even essentially doubled its performance, but it still wasn't enough to meet the new requirements. So the requirements from the customers were evolving quickly as they were ramping very quickly over the last eighteen months. They were also working with their customers and seeing requirements change. So this this, you know, was an acceleration of of, you know, learning that, you know, the team we just we just fell a little short of with the existing platform.

[Edward Yang, Stock Analyst at Oppenheimer & Co. Inc.]

Okay. And I think you mentioned that this might open up some friend on front front end opportunities as well. So this sounds like it's almost like a new platform and perhaps it's a market share opportunity for you. Is there any risk on the other side that someone else might take this opportunity and take some share, or I just want to understand better the puts and takes.

[Michael Plisinski, Director & CEO at Onto Innovation]

Yes, so from the inspection side for two and a half D, there is an alternative that the customers selected, and I think that's one of our very, very large competitors. The opportunity though is, you're exactly right, the opportunity now is that this new platform is significantly more capable than the macro inspection platform we had before. So there's two positives. If you look beyond the short term impact, the two positives are: one, the ASPs, there's another level of ASP that we can charge now, because now we're putting together a performance platform that is well into the sub micron capability point of view. So this not only helps us close the gap with the existing packaging opportunities, but we also now have an opportunity to go after the front end inspection markets where previously our platform wasn't geared for, wasn't designed for, and now we can go after that.

[Michael Plisinski, Director & CEO at Onto Innovation]

So the size of that market is almost equivalent to the size of the packaging market. So for us, it's a significant new opportunity.

[Operator]

Thank you. We will take our next question from Blayne Curtis with Jefferies.

[Blayne Curtis, Managing Director at Jefferies Financial Group]

Hey, good afternoon. Thanks for letting me ask questions. Maybe just to start, I just want to level set there's some big moving pieces here for the March in advanced nodes. I guess that was more growth than I was looking for. Can you talk about that, maybe the split between logic and memory?

[Blayne Curtis, Managing Director at Jefferies Financial Group]

And I just want a little bit more clarity as to what drove the near doubling.

[Michael Plisinski, Director & CEO at Onto Innovation]

Well, I think it's a couple of things. Of course, the customers expanded. So we saw DRAM, NAND, and logic expansion, but as we mentioned before, our entitlement in these markets has expanded as we've added not just OCD, which we've always had, but also then slotted in and got designed in on the Iris films, and then also had some share gain opportunities with the integrated metrology. So the combination of which means that as customers, let's say at 100,000 wafer starts or 10,000 wafer starts, we're just seeing more of that wallet share.

[Blayne Curtis, Managing Director at Jefferies Financial Group]

Got you. And then maybe kind of a second part related is, I think I've heard you previously talk about the outlook for that business, maybe it could be $250,000,000 or 300,000,000 for the year. Obviously, you did 93,000,000 in Q1. Just trying to ask maybe a couple of ways just to understand the size of this pause. So I don't know if you want to kind of quantify how large that would be there in advanced nodes or overall.

[Blayne Curtis, Managing Director at Jefferies Financial Group]

Or is that still the right range for that product? Or are you trending to the higher end of that range? Think I've heard you previously give.

[Michael Plisinski, Director & CEO at Onto Innovation]

Yeah. We would be definitely at the higher end of that range. Or barring any macroeconomic changes, what we see now, we would be at the higher end of that range.

[Operator]

Thank you. We will take our next question from Charles Hsu with Needham.

[Charles Shi, Managing Director - Senior Analyst at Needham & Company]

Yes, thanks for taking my follow-up. I think my line kind of dropped before I can ask a question. So, Mike, let's say compare with ninety days ago, right? I think ninety days ago, the expectation back then was probably flat to up every quarter through the end of the year, but it looks like there is a little bit of choppiness in the middle part of the year compared with the expectation ninety days ago. Based on what I'm hearing on the call, looks like most of the downside relative to ninety days ago seems to be related to 2.5D.

[Charles Shi, Managing Director - Senior Analyst at Needham & Company]

Everything else is kind of performing or trending in line with what you were expecting, well, despite some choppiness, let's say, in memory, right? But is that the right way to look at where you are today versus ninety days ago? And any additional thoughts on where lower than expectation, the source of that disappointment may have come from? Thank you.

[Michael Plisinski, Director & CEO at Onto Innovation]

Yeah, no, that's exactly the way to look at it. And that's the variables when ninety days ago when being pressed for trying to give guidance or an outlook, it was difficult because we had so many variables. We could have seen more increase, we could have seen less, you know, we weren't sure where the customer was going to go, we doubled the performance of the tool, was that enough? We weren't really sure at the time. Again, now it's a little bit more clear.

[Michael Plisinski, Director & CEO at Onto Innovation]

So that is essentially the only change to the forecast, to the outlook.

[Charles Shi, Managing Director - Senior Analyst at Needham & Company]

Got it. Maybe it's I think HBM side, you already kind of guided this year probably is going to be a lower year compared with the last year. Correct. Fair to say 2.5D is the same trend this year?

[Michael Plisinski, Director & CEO at Onto Innovation]

Yes. For us now, yes. But yes.

[Operator]

Thank you. This does conclude today's question and answer session. I would now like to turn the call back to Sydney Ho for any additional or closing remarks.

[Sidney Ho, Vice President of Investor Relations at Onto Innovation]

Thanks, Rachel. We will be participating in a number of investor conferences throughout this quarter. We look forward to seeing many of you there. A replay of the call today will be available on our website at approximately 07:30 Eastern Time this evening. We'd like to thank you for your continued interest Onto Innovation.

[Sidney Ho, Vice President of Investor Relations at Onto Innovation]

Rachel, please conclude the call.

[Operator]

This does conclude today's call. Thank you for your participation. You may now disconnect.

Participants

Executives

• Sidney Ho, Vice President of Investor Relations
• Michael Plisinski, Director & CEO
• Mark Slicer, Chief Financial Officer

Analysts

• Craig Ellis, Director of Research at B Riley Financial
• Brian Chin, Analyst at Stifel Financial
• Matthew Prisco, Director at Cantor Fitzgerald
• Charles Shi, Managing Director - Senior Analyst at Needham & Company
• David Duley, Managing Principal at Steelhead Securities
• Edward Yang, Stock Analyst at Oppenheimer & Co. Inc.
• Blayne Curtis, Managing Director at Jefferies Financial Group