Onto Innovation(ONTO) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved a significant milestone by surpassing $1 billion in revenue for the year, with a revenue growth of 32%, well above the market estimate of 9% for wafer fab equipment in 2022 [4][11][29] - Fourth quarter revenue was reported at$ 253 million, up 12% year-over-year, and $3 million above the midpoint of guidance [29][52] - Operating income for the full year reached$ 302 million, with net income of $275 million, marking a 43% increase in earnings [11][23] - Gross margins for the fourth quarter were 54%, consistent with previous guidance, despite inflationary pressures on raw materials and labor [30][52] Business Line Data and Key Metrics Changes - Revenue from specialty devices and advanced packaging grew 15% year-over-year, achieving$ 125.4 million, representing 49% of total revenue [51] - Advanced nodes revenue was $85.3 million, growing 16% year-over-year, accounting for 34% of total revenue [51] - Software and services revenue slightly declined by 1% year-over-year to$ 42.6 million, representing 17% of total revenue [51] Market Data and Key Metrics Changes - The company expects a decline in specialty and advanced packaging by mid to upper teens in Q1 2023, with advanced nodes revenue anticipated to drop by approximately 30% due to reduced memory spending and restrictions in China [16][56] - The overall wafer fab equipment spending estimates are down 20% for 2023, with some analysts forecasting a 30% decline when excluding front-end and lithography spending [35][56] Company Strategy and Development Direction - The company plans to reduce annual spending by $25 million to$ 30 million, focusing on operational efficiencies and strategic investments in R&D [15][56] - The company aims to optimize inventory levels, targeting a return to the mid $200 million range in 2023 [53] - The long-term outlook for chip growth remains strong, with estimates suggesting a market size of$ 1 trillion by 2030 [57] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to outperform despite a weakening environment, citing a backlog that supports revenue doubling in lithography and growth in power and compound semiconductor customers [17][18] - The company anticipates a slow start to 2023 but expects improvements in margins and operational efficiencies as the year progresses [15][56] - Management noted that while factory expansions are slowing, customer engagement remains strong for developing new technologies [10] Other Important Information - The company repurchased over 1 million shares year-to-date, returning $65.2 million to shareholders under a$ 100 million authorization [14] - Cash and short-term investments totaled $548 million, with operating cash flow of$ 137 million for the year, down from 2021 levels due to increased inventory management [13] Q&A Session Summary Question: What is the expected revenue decline for 2023? - Management indicated a revenue decline of 18% to 22% year-over-year, with expectations of stabilization in Q2 [60][75] Question: How are cost savings being achieved? - Cost savings are expected to be approximately $16 million in operating expenses and$ 11 million in cost of goods sold, with a focus on operational efficiencies [41][62] Question: What is the outlook for memory spending? - Management suggested that memory spending may resume at the earliest in late 2023 or into 2024, primarily in R&D rather than production [104] Question: How does the company view the compound semiconductor market? - The company sees significant growth potential in the compound semiconductor market, with expectations of double-digit growth rates in the coming years [90][123] Question: What is the company's capital allocation strategy? - The company is open to share buybacks and M&A opportunities, maintaining a healthy balance sheet while seeking growth avenues [120]