Veeco Instruments Inc. (VECO) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed outlook. While Q3 revenue and EPS exceeded guidance, and operational discipline was highlighted, there are concerns with declining semiconductor and compound semiconductor revenues. The Q&A reveals uncertainty in advanced packaging visibility and lower Q4 gross margin guidance. However, there are positive signs like GaN adoption in data centers and expected margin improvements in 2026. Given the market cap and these mixed signals, a neutral stock price movement (-2% to 2%) is anticipated over the next two weeks.
Key Financial Performance
Third quarter revenue $166 million, exceeding the midpoint of prior guidance of $160 million. This reflects sustained investment in leading-edge semiconductor technologies, particularly in AI and high-performance computing.
Non-GAAP operating income $23 million. This reflects continued operational discipline and strong execution across the business.
Non-GAAP diluted earnings per share $0.36, above the prior guidance midpoint of $0.28. This was driven by operational discipline and strong execution.
Semiconductor business revenue $118 million, a decline of 5% quarter-over-quarter, representing 71% of total revenue. Performance was driven by LSA, IBD EUV for mask blanks, and advanced packaging wet processing systems.
Compound semiconductor market revenue $11 million, down from the prior quarter, totaling 7% of revenue.
Data storage revenue $10 million, totaling 6% of revenue.
Scientific and other revenue $27 million, totaling 16% of revenue, driven by an increase in optical deposition systems.
Gross margin 42%, at the top end of guidance. Favorably impacted by higher volume and improved product mix.
Operating expenses $46 million, below the previously guided range.
Income tax expense $3 million, resulting in an effective tax rate of approximately 12%.
Net income $22 million.
Cash and short-term investments $369 million, a sequential increase of $14 million.
Accounts receivable $116 million, an increase of $10 million.
Inventory $263 million, an increase of $4 million.
Accounts payable $44 million, a decrease of $6 million.
Customer deposits $36 million, remained relatively flat.
Cash flow from operations $16 million.
CapEx $3 million during the quarter.
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Operating Highlights
Laser spike annealing (LSA): Production tool of record for all leading logic customers and one Tier 1 DRAM customer. Plans to ship an LSA evaluation system to a second Tier 1 DRAM customer in Q4 2025.
Nanosecond annealing system: Expands capabilities to the nanosecond regime. Evaluations progressing at 2 advanced logic customers for low thermal budget applications. Additional NSA evaluation systems to be shipped in 2026.
IBD EUV systems: Market leader for deposition of defect-free films. Expanding EUV-related business to EUV pellicles for high transparency membranes.
IBD300 system: Being evaluated by 2 DRAM customers. Differentiates with superior thin film properties for device scaling, performance, and power consumption.
Advanced packaging systems: Orders increased quarter-over-quarter. Multiple orders from a leading foundry for wet processing and lithography systems supporting AI, automotive, aerospace, defense, and communications.
Merger with Axcelis Technologies: All-stock transaction to create a leading semiconductor equipment company. Combined served available market (SAM) projected at over $5 billion for 2024.
Regional revenue shifts: Revenue from China increased to 28% (from 17% in Q2). Asia Pacific (excluding China) decreased to 49% (from 59%). U.S. revenue at 16%, EMEA at 7%.
Q3 2025 financial performance: Revenue of $166 million, exceeding guidance midpoint. Non-GAAP operating income of $23 million and diluted EPS of $0.36.
Q4 2025 outlook: Revenue expected between $155 million and $175 million. Gross margin to decline to 37%-39% due to product mix.
Cash and investments: Ended Q3 with $369 million in cash and short-term investments, a $14 million sequential increase.
Growth synergies from Axcelis merger: Expansion of SAM, broader product portfolio, increased R&D scale, and enhanced regional leverage. Combined cash of over $900 million to drive shareholder returns.
Future SAM projections: Annealing SAM projected at $1.3 billion by 2029. Ion beam deposition SAM at $500 million by 2029. Advanced packaging SAM at $650 million by 2029.
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Risk or Challenges
Regulatory Approvals for Axcelis Merger: The completion of the merger with Axcelis is contingent on obtaining stockholder and various regulatory approvals, which could delay or jeopardize the transaction.
Product Mix Impact on Margins: Q4 gross margins are expected to decline due to a shift in product mix, including discounted evaluation tool acceptances and a higher proportion of revenue from advanced packaging systems.
Revenue Decline in Compound Semiconductor Market: The compound semiconductor market experienced a down year in 2025, with revenue growth opportunities delayed until 2026.
Data Storage Market Weakness: System revenue in the data storage market declined in 2025 due to a lack of new system capacity additions by customers.
Inventory and Accounts Receivable Increases: Inventory increased by $4 million and accounts receivable by $10 million, which could indicate potential inefficiencies or slower cash conversion cycles.
Geopolitical Risks in China: Revenue from China increased to 28%, but reliance on this region could expose the company to geopolitical and regulatory risks.
Advanced Packaging Systems Revenue Dependency: A greater proportion of revenue is expected from advanced packaging systems, which may be subject to market demand fluctuations.
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Guidance & Outlook
Revenue Expectations: Q4 2025 revenue is expected between $155 million and $175 million. Growth in the semiconductor market is anticipated for 2025 compared to 2024, driven by demand in gate-all-around and advanced packaging. Continued momentum for products is expected into 2026, driven by leading-edge investments for AI and high-performance computing.
Gross Margin Projections: Q4 2025 gross margin is expected to range between 37% and 39%, representing a decline from prior periods due to a shift in product mix, including discounted evaluation tool acceptances and a greater proportion of revenue from advanced packaging systems.
Capital Expenditures: CapEx totaled $3 million during Q3 2025. No specific forward-looking CapEx guidance provided.
Market Trends and Business Segment Performance: Growth synergies from the Axcelis merger are expected, including an expanded served available market (SAM) of over $5 billion on a pro forma 2024 basis. SAM projections for annealing, ion beam deposition, and advanced packaging are $1.3 billion, $500 million, and $650 million respectively by 2029. Growth in the compound semiconductor market is expected in 2026, driven by GaN Power, photonics, and solar. Data storage revenue growth is anticipated in 2026, supported by recent orders for ion beam and wet processing equipment. Scientific and other markets are expected to deliver growth in 2025, supported by ongoing investment in advanced scientific innovation.
Strategic Plans and Product Launches: The merger with Axcelis is expected to create a leading semiconductor equipment company with a broader product portfolio, increased R&D scale, and enhanced channel reach. New product evaluations and shipments are planned, including LSA evaluation systems to Tier 1 DRAM customers in Q4 2025 and NSA evaluation systems during 2026. Recent orders for Propel 300-millimeter GaN-on-Silicon MOCVD systems and Lumina+ platforms are expected to drive growth in 2026.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Is there new adoption in the 300-millimeter GaN order activity for auto, industrial, and data center markets?
A:Yes, Veeco has had a successful evaluation with a leading power IDM for over a year, resulting in a follow-on multi-chamber order for a pilot line tool, likely for data center applications. Pilot production is expected in 2026, with ramping to HBM in 2027.
Q:Why is GaN being adopted in data centers?
A:GaN is being adopted due to its efficiency in power conversion, which addresses the limiting issue of power efficiency in data centers.
Q:Why is the gross margin guidance lower for Q4 compared to Q3?
A:The gross margin guidance for Q4 is lower (37%-39%) compared to Q3 (42%) due to product mix. This includes evaluation sign-offs at favorable pricing and increased business in advanced packaging, which has lower gross margins than the company average.
Q:What is the expected trajectory of the advanced packaging business in 2026?
A:The advanced packaging business doubled this year, but Veeco does not have full visibility for 2026 due to shorter backlog and lead times. They are working on projects like Under Bump Metal etch, photoresist removal, and hybrid bonding to sustain their position.
Q:What are the ordering patterns for HDD customer utilization, and is there visible demand for the second half of 2026?
A:Orders for ion beam and wet processing equipment were received in Q3, with negotiations ongoing in Q4. These orders are expected to be shipped in the second half of next year due to lead times of about a year.
Q:What drove the strength in the scientific segment this quarter?
A:The strength was driven by optical deposition tools and general industrial applications, with some content for Chinese customers.
Q:Is NSA adoption possible for memory customers?
A:Yes, memory customers are interested in NSA adoption due to its ability to anneal very thin layers, which is conducive to material modification and 3D stacking in memory applications. Multiple NSA tools are planned for shipment in 2026 to a mix of logic and memory customers.
Q:What is the update on thin metal films with IBD evaluations?
A:Progress is being made in introducing ion beam deposition (IBD) technology to front-end semiconductor manufacturing. Two tools are in DRAM, with potential for evaluations in logic in the future.
Q:Does the backlog indicate margin improvement in the future?
A:Yes, Veeco expects margin improvement in 2026 over 2025 due to visibility in data storage orders and new product orders for MOCVD in the compound semiconductor market.
Q:Were the data storage orders for IBD and wet processing from one customer or multiple customers?
A:The orders were from multiple customers.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the trajectory of the advanced packaging business in 2026, citing shorter backlog and lead times as reasons for the lack of full-year visibility.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI computing
DRAM customer
EUV lithography
EUV system
IBD EUV
NA
RD
SAM
Tier DRAM
Veeco
afternoon
approval
beam deposition
benefit
completion
consumption packaging
deposition technology
device
end market
evaluation system
expansion
film
logic
memory
merger
order
packaging processing
pellicle
power consumption
resistance
road map
transaction Axcelis
VECO Transcript
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Veeco Instruments Inc. (VECO) Q3 2025 Earnings Call Transcript
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The earnings call presents a mixed outlook. While Q3 revenue and EPS exceeded guidance, and operational discipline was highlighted, there are concerns with declining semiconductor and compound semiconductor revenues. The Q&A reveals uncertainty in advanced packaging visibility and lower Q4 gross margin guidance. However, there are positive signs like GaN adoption in data centers and expected margin improvements in 2026. Given the market cap and these mixed signals, a neutral stock price movement (-2% to 2%) is anticipated over the next two weeks.
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VECO Slides
VECO Report
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