Onto Innovation (ONTO) Q1 2026: Dragonfly G5 Pipeline Drives 50% Advanced Packaging Growth Outlook
Onto Innovation’s Q1 results highlight a step-change in advanced packaging demand, propelled by Dragonfly G5 adoption and a broadening customer base. The company’s strategic partnership and 27% stake in Regaku unlock new hybrid metrology opportunities, positioning ONTO for long-term leadership in process control. Management raised its full-year revenue growth forecast to over 30%, with margin expansion set to accelerate into 2027.
Summary
- Dragonfly G5 Ramp: Rapid customer pull-ins and a deep application pipeline set up sustained advanced packaging gains.
- Hybrid Metrology Expansion: Regaku partnership and AI-driven software licensing create new high-margin revenue streams.
- Margin Trajectory: Operational discipline and product mix improvements support a path to 30%+ operating margin by year-end.
Business Overview
Onto Innovation provides process control and metrology solutions for the semiconductor industry, enabling manufacturers to monitor and optimize critical steps in chip fabrication and packaging. Its business is organized across advanced packaging (inspection and metrology tools for chip assembly), advanced nodes (logic and memory process control), and software and services. The company’s revenue comes from tool sales, software licensing, and services, with advanced packaging and advanced nodes as primary growth engines.
Performance Analysis
Q1 revenue exceeded guidance, driven by surging demand in advanced packaging and advanced nodes. The quarter saw nearly 10% sequential revenue growth, with advanced packaging contributing roughly two-thirds of the specialty device and AP segment’s $160 million, while advanced nodes delivered approximately $80 million, 60% of which was memory-focused. The company’s inspection products, notably the Dragonfly G5, began commercial shipments, and the Atlas G6 platform gained traction in logic and memory applications.
Gross margin improved by 110 basis points to 55.7%, and operating margin expanded to 26.7%, reflecting the benefits of ONTO’s extended factory model and product mix shift. Despite headwinds from material, fuel, and shipping costs, margin expansion was achieved through operational discipline and new product leverage. The Dragonfly G5, though still a small contributor, is expected to meaningfully impact margin as volumes ramp through 2026 and into 2027.
- Advanced Packaging Outpaces: Q1 advanced packaging revenue is set to grow over 50% for the year, with Dragonfly G5 ramping each quarter and a strong pipeline across 10+ customers and 15+ applications.
- Advanced Nodes Acceleration: Advanced nodes business is now forecast to grow 25% in 2026, outpacing wafer fab equipment (WFE) industry growth, led by Atlas G6 adoption and new TSV metrology wins.
- Margin Expansion Signals: Q2 guidance calls for further gross and operating margin improvement, with management targeting >30% operating margin by Q4.
Backlog visibility, customer pull-ins, and operational scalability are converging to support sustained top- and bottom-line momentum into the second half and beyond.
Executive Commentary
"Momentum should continue into the second half of the year with rising customer expansions enhanced by accelerating new product adoption, and a growing backlog, all indicating more than 15% sequential revenue growth in the second half of the year. In total, we expect revenue growth of more than 30% in 2026."
Michael Plosinski, Chief Executive Officer
"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%."
Brian Roberts, Chief Financial Officer
Strategic Positioning
1. Dragonfly G5: Market Expansion Catalyst
Dragonfly G5, ONTO’s next-generation inspection platform, is seeing accelerated adoption with customer pull-ins and a pipeline spanning over 10 customers and 15 applications. The system’s improved sensitivity, throughput, and multi-sensor flexibility enable ONTO to win share in both existing and new markets, while supporting advanced packaging transitions such as shrinking interconnects and panel-level packaging. Management expects G5 to drive both revenue and margin expansion, especially as it becomes a larger share of inspection revenue in 2027.
2. Regaku Partnership: Hybrid Metrology and AI Leverage
ONTO’s 27% investment in Regaku and strategic collaboration unlocks hybrid optical-X-ray metrology capabilities. The partnership enables ONTO to license its AI diffract software to Regaku’s X-ray tools, generating near-100% margin software revenue and opening new application domains. The collaboration also positions ONTO to co-develop production-ready hybrid metrology solutions for future process nodes, with additional upside from Regaku dividends and incremental tool sales.
3. Advanced Nodes: Outgrowing Industry Cycles
Atlas G6’s expanded adoption in logic and memory, along with new TSV metrology wins, underpins ONTO’s expectation to outgrow the WFE market in 2026 and 2027. The company is leveraging smaller spot size metrology, integrated measurement, and films analysis to deepen customer engagement and penetrate new applications, while early signs of NAND recovery add incremental tailwinds.
4. Operational Scale and Supply Chain Management
ONTO’s extended factory model and supply chain pruning have enabled the company to manage component lead times and inflationary pressures without missing customer commitments. This operational resilience is supporting margin expansion and de-risking the revenue ramp, even as certain material and logistics costs rise.
5. Product Portfolio Breadth: Multiple Growth Vectors
Beyond Dragonfly and Atlas, ONTO highlighted growth from 3DI (3D interconnect metrology), JetStep (panel-level packaging), and surface charge metrology for chiplet architectures. The company’s ability to address both legacy and emerging process control challenges positions it for share gains as semiconductor complexity rises.
Key Considerations
This quarter marks a strategic inflection for ONTO, with execution across multiple product and market vectors converging to drive outsized growth. Investors should weigh both the breadth and durability of these drivers as the cycle matures.
Key Considerations:
- Pipeline Breadth: Dragonfly G5 is now being evaluated for over 15 applications across a broadening customer set, reducing historical customer concentration risk.
- Hybrid Metrology Upside: The Regaku partnership creates a new high-margin software licensing stream and positions ONTO for future hybrid tool sales, but the revenue ramp is dependent on Regaku’s X-ray tool pipeline and customer adoption cycles.
- Margin Leverage: Product mix shift toward Dragonfly G5 and Atlas G6, combined with operational scale, supports a path to 30%+ operating margin, though near-term gains are weighted to the second half and 2027.
- Supply Chain Management: While lead times are extending, ONTO’s supply chain adjustments and extended factories have so far prevented any disruption to tool shipments or customer commitments.
- Industry Cycle Read-Through: ONTO’s outlook implies continued strength in AI compute, advanced packaging, and leading-edge nodes, with upside potential if NAND and panel-level packaging inflect faster than expected.
Risks
Key risks include potential delays in customer adoption of new platforms, execution risk in scaling Dragonfly G5 production, and dependence on Regaku’s X-ray tool sales for hybrid metrology revenue. Inflationary pressures on material and logistics costs could weigh on margins if not offset by operational efficiencies. Macro or industry slowdowns, particularly in AI and advanced packaging, would directly impact ONTO’s growth trajectory. The company’s aggressive growth targets also raise the bar for execution and supply chain management as volumes ramp.
Forward Outlook
For Q2 2026, Onto Innovation guided to:
- Revenue of $320 to $330 million
- Gross margin of 56 to 56.5 percent
- Operating margin of 28 to 28.6 percent
- Earnings per share of approximately $1.69 at the midpoint
For full-year 2026, management raised guidance to:
- Revenue growth of 30%+, exceeding $1.3 billion
- Operating margin exiting Q4 above 30%
Management emphasized:
- Margin expansion each quarter, with product mix and operational scale as key drivers
- Backlog and customer pull-ins provide visibility for sustained growth into 2027
Takeaways
ONTO’s Q1 results and guidance reflect a company executing on multiple high-growth vectors, with advanced packaging and hybrid metrology as central to its long-term strategy.
- Advanced Packaging Surge: Dragonfly G5 is ramping faster than expected, with customer pull-ins and a broadening application base supporting 50%+ segment growth.
- Hybrid Metrology Optionality: The Regaku partnership is strategically significant, providing both near-term software licensing upside and long-term co-development leverage.
- Margin Expansion Path: Operational discipline and product mix improvements are translating into sequential margin gains, with a clear path to 30%+ operating margin as new platforms scale.
Conclusion
Onto Innovation’s Q1 marks a pivotal quarter, with advanced packaging, hybrid metrology, and operational leverage converging to drive robust growth and margin expansion. The company’s execution and strategic positioning provide visibility into above-market growth through 2026 and into 2027.
Industry Read-Through
ONTO’s results and commentary reinforce the sustained strength in AI-driven semiconductor demand, advanced packaging, and the rising complexity of process control. The Dragonfly G5’s rapid adoption and hybrid metrology roadmap underscore the industry shift toward more integrated, high-precision inspection solutions. Suppliers with broad process control portfolios and strong software leverage are best positioned to capture incremental value as chip architectures become more heterogeneous and customer needs diversify. The Regaku partnership also signals growing industry appetite for cross-domain collaborations to solve next-generation manufacturing challenges, with implications for both equipment and materials suppliers.