Investment Idea: Onto Innovation Inc. (ONTO)
Onto Innovation Inc. (ONTO) - Investment Idea
1. Executive Summary
Onto Innovation is a compelling investment opportunity within the semiconductor process control equipment market, poised to benefit from the increasing complexity of advanced packaging and growing demand for its diverse suite of solutions. We believe ONTO's strong position in macro defect inspection, optical metrology, and process control software, particularly within advanced packaging, positions it for continued revenue and earnings growth.
2. Investment Thesis (Bull Case)
- Advanced Packaging Tailwinds: ONTO is a key enabler of advanced packaging, which is experiencing significant growth driven by the need for higher performance and lower power consumption in computing, AI, and mobile devices. The company's solutions in packaging lithography and macro-defect inspection are critical for yield management in this complex process.
- Diversified Revenue Streams: ONTO's diversified product portfolio, encompassing standalone inspection systems, lithography solutions, probe card test, and process control software, reduces reliance on any single customer or end market. This allows for more consistent performance, particularly across the cyclical nature of the semiconductor industry. Specifically, their ability to provide solutions "from standalone tools, groups of tools, and enterprise- or factory-wide suites" adds stickiness with customers and drives recurring revenue from software and services.
- Strong Market Position: As a leading player in macro defect inspection and 2D/3D optical metrology, ONTO enjoys a strong reputation and established customer relationships with major semiconductor and advanced packaging manufacturers. This provides a competitive advantage in securing new business and expanding its installed base.
- Process Control Software Growth: ONTO's investment in its process control software portfolio represents a significant opportunity for growth and margin expansion. As manufacturing processes become more complex, the need for sophisticated software solutions to optimize yield and performance will continue to increase, creating a valuable recurring revenue stream.