Veeco Instruments Inc. (VECO) Earnings

Management highlights

- Core Quarterly Performance * VECO delivered strong Q2 2026 results that exceeded both the prior guidance range and street expectations, with total revenue of $193 million, non-GAAP operating income of $23 million, and non-GAAP diluted EPS of 33 cents. * Order momentum accelerated across all major end markets, with $200 million in advanced packaging orders for wet processing and lithography systems secured in Q2, strengthening revenue visibility into 2027. - Strategic Positioning in AI-driven Semiconductor Growth * Management notes the semiconductor industry is at an inflection point, where AI infrastructure investments are accelerating demand for enabling wafer fabrication equipment (WFE) technologies, and VECO is positioned to capture multi-year growth across high performance computing, advanced packaging, silicon photonics, and memory segments. * Total served available market (SAM) for VECO's core product lines is projected to reach ~$3.3 billion by 2030: $1.3 billion for annealing platforms, $500 million for ion beam deposition, $700 million for silicon photonics, $550 million for other photonics, and $250 million for GaN power. - Segment-Specific Operational Milestones * Advanced Packaging: Demand remains robust driven by AI-accelerated heterogeneous integration adoption, with significant 2027 backlog already in place. Management projects this segment will approach $1 billion SAM by 2030, and the company is expanding manufacturing capacity in-house and via outsourced partners in Southeast Asia to meet growing demand. * Advanced Logic/Foundry: VECO remains the production tool of record at all three Tier 1 customers for its laser spike annealing (LSA) system. The next-generation nanosecond annealing (NSA) system has now secured evaluation engagements with all three Tier 1 Logic customers, with one Tier 1 customer completing evaluation and placing a follow-on order for shipment in H2 2026. * Memory: AI-driven demand for DRAM and NAND is creating new growth opportunities for VECO's annealing technology. The company is the production tool of record at a Tier 1 high bandwidth memory manufacturer accelerating 2026 investments, with evaluation programs ongoing at additional leading DRAM and NAND customers. VECO delivered record annealing product revenue in Q2 2026. * EUV: VECO is a leader in ion beam deposition for EUV mask blanks, and has expanded into EUV pellicle applications, securing ongoing production business at a Tier 1 foundry as the industry moves toward high NA lithography. * Compound Semiconductor & Silicon Photonics: Secular AI-driven growth in optical connectivity and power efficiency is driving adoption. A leading global photonics customer selected VECO's Lumina Plus MOCVD system for indium phosphide laser manufacturing; VECO holds differentiated market leading positions across multiple steps of indium phosphide laser manufacturing (epitaxy, wet processing, facet coating), with a total long-term opportunity of at least $2 billion projected. * GaN Power: The Propel 300 platform is advancing toward production at a leading power IDM, following a prior pilot line order, and VECO is a member of the IMEC 300mm GaN power consortium. - Merger with Excellus Update * All required shareholder approvals and regulatory clearances have been secured, except for China antitrust approval. The merger remains on track to close in H2 2026, and integration planning is proceeding on schedule.

Guidance

- Q3 2026 guidance: Revenue is expected between $200 million and $220 million; gross margin between 41% and 42%; operating expenses between $57 million and $58 million; diluted EPS between 35 cents and 49 cents. - Full year 2026 guidance was upwardly revised from prior levels, with total revenue now expected between $780 million and $810 million; gross margin between 40% and 42%; operating expenses between $215 million and $225 million; non-GAAP diluted EPS between $1.36 and $1.61. - For 2026, pre-revenue investments in capacity expansion will add $10 million in incremental operating expenses and reduce full-year gross margin by approximately 75 basis points. - Full year 2026 semiconductor revenue is expected to grow more than 10% year-over-year; compound semiconductor revenue is expected to approximately double year-over-year 2025; data storage revenue is expected to double year-over-year 2025. - In 2027, management expects revenue growth to meaningfully accelerate, driven by backlog in advanced packaging, silicon photonics, and data storage. The company plans to more than double production capacity for advanced packaging and silicon photonics in 2027 to meet growing demand.

Segment performance

VECO's total Q2 2026 revenue was $193 million. The performance of each product segment is as follows: 1. Semiconductor: Revenue of $131 million, up 20% quarter-over-quarter, accounting for 68% of total revenue. Growth was driven by laser processing systems for leading-edge foundry logic and memory customers, and wet processing systems for advanced packaging. 2. Compound Semiconductor: Revenue of $21 million, up 9% quarter-over-quarter, accounting for 11% of total revenue. Growth is primarily driven by aluminum MOCVD and SPECTRE IBD systems for silicon photonics applications. 3. Data Storage: Revenue of $22 million, up 117% quarter-over-quarter, accounting for 11% of total revenue. Demand is supported by customer investments in next-generation storage technologies and capacity expansion. 4. Scientific and Other: Revenue remained flat quarter-over-quarter at $20 million, accounting for 10% of total revenue. By region: U.S. revenue contributed 31% of total revenue (up from prior quarter); Asia-Pacific excluding China contributed 36% (down from prior quarter); China contributed 25% (up from prior quarter); EMEA and the rest of the world contributed 8%.

Risks & headwinds

The call did not discuss specific new operational risks or failures beyond the general statement that forward-looking statements are subject to inherent uncertainties that could cause actual results to differ materially from expectations, with detailed risks outlined in VECO's SEC filings. The only open process uncertainty is the pending China antitrust approval for the proposed merger with Excellus.

Analyst Q&A

• Q: 2026 revenue guidance was raised but EPS guidance was lowered due to gross margin pressure and higher operating expenses. Is the gross margin impact from the $200 million advanced packaging order, and what drives the operating expense increase? /

  A: The $200 million advanced packaging order is mostly for delivery in 2027, so it does not impact 2026 gross margins. The downward pressure on 2026 margins and higher OpEx come from pre-revenue investments to double capacity for advanced packaging and silicon photonics. Investments include expanding internal U.S. manufacturing capacity, onboarding new contract manufacturing partners in Southeast Asia, and hiring and training additional personnel, with $10 million in incremental 2026 operating expenses and a 75 basis point full-year gross margin impact.

• Q: What is the revenue ramp timeline for new programs in optical networking, data storage, and advanced packaging, and is this different from prior expectations? /

  A: The majority of revenue from these new programs will begin ramping in early 2027. A small portion may start shipping in the end of Q4 2026, with full ramp expected by Q2 2027 for both silicon photonics and advanced packaging, which matches prior expectations.

• Q: How far out is customer visibility currently, and has visibility increased recently? /

  A: Customer visibility has increased significantly compared to historical levels. At the midpoint of 2026, VECO already has strong visibility into 2027, and many customers are now sharing long-term forecasts extending beyond 2027 that they would not typically disclose this far in advance.