Veeco projects $1.3B annealing market by 2029 as Axcelis merger aims to expand growth opportunities

Earnings Call Insights: Veeco Instruments Inc. (VECO) Q3 2025

MANAGEMENT VIEW

* CEO William Miller reported, "Third quarter revenue was $166 million, exceeding the midpoint of our prior guidance of $160 million, and non-GAAP operating income was $23 million. Non-GAAP diluted earnings per share was $0.36, above the prior guidance midpoint of $0.28, reflecting continued operational discipline and strong execution across the business." Miller emphasized the pending merger with Axcelis Technologies, stating, "On October 1, we announced that we entered into a definitive agreement to combine with Axcelis Technologies in an all-stock transaction to create a leading semiconductor equipment company serving complementary, diversified and expanding end markets." He outlined synergies, including combined served available market above $5 billion on a pro forma 2024 basis, broader product portfolio, and increased R&D scale. Miller also highlighted, "With over $900 million in combined cash, we expect the combined company to benefit from a strong operating profile and the financial foundation to drive returns to shareholders."
* Miller detailed product milestones, noting Veeco is the "production tool of record for laser spike annealing for all leading logic customers and one Tier 1 DRAM customer" and expects to "grow our penetration in leading DRAM by shipping an LSA evaluation system to a second Tier 1 DRAM customer in the fourth quarter of this year." He also reported expansion into advanced packaging and EUV-related business, with multiple orders for wet processing and lithography systems from a leading foundry.
* CFO John Kiernan stated, "Revenue came in at $166 million, above the midpoint of our guidance, in line with the previous quarter. Our semiconductor business reported $118 million, a decline of 5% quarter-over-quarter and 71% of total revenue." Kiernan attributed gross margin of approximately 42% to "higher volume and improved product mix." He added, "Cash and short-term investments of $369 million, a sequential increase of $14 million."

OUTLOOK

* Q4 revenue is expected between $155 million and $175 million. Gross margin for Q4 is expected to range between 37% and 39%, with the reduction primarily due to "a shift in product mix with several discounted evaluation tool acceptances and a greater proportion of revenue from advanced packaging systems," according to Kiernan.
* Operating expenses for Q4 are projected at approximately $48 million, net income between $10 million and $19 million, and diluted EPS between $0.16 and $0.32 on approximately 62 million shares.
* Miller projected, "In annealing, we project our SAM to be approximately $1.3 billion by 2029 as devices continue to shrink and shallower anneals are required." For ion beam deposition technology, "we project our SAM to be approximately $500 million in 2029," and for advanced packaging, "SAM growth to be approximately $650 million by 2029."

FINANCIAL RESULTS

* Semiconductor revenue was $118 million, representing 71% of total revenue and reflecting a 5% sequential decline. Compound semiconductor market revenue was $11 million, down from the prior quarter, while data storage revenue was $10 million. Scientific and other revenue increased to $27 million, driven by optical deposition systems.
* Asia Pacific region (excluding China) accounted for 49% of revenue, a decrease from 59% in the prior quarter. China revenue increased to 28% from 17% in Q2. U.S. revenue was 16% and EMEA was 7%.
* Gross margin reached 42%, at the top end of guidance. Net income was $22 million and diluted EPS was $0.36 on 61 million shares. Cash flow from operations totaled $16 million, CapEx was $3 million.

Q&A

* David Duley, Steelhead Securities: Asked about 300-millimeter GaN order activity and adoption in end markets. CEO Miller responded that recent orders followed a successful evaluation with a leading power IDM and highlighted the efficiency benefits of GaN in data centers for power conversion.
* Duley inquired about gross margin guidance. CFO Kiernan explained, "We have guided for Q4 a less favorable gross margin in 37% to 39% range, which is lower than we have been experiencing. And we did indicate... a driver being product mix there." He elaborated on evaluation tool pricing and advanced packaging mix.
* Denis Pyatchanin, Needham: Asked about HDD customer utilization and ordering patterns. CEO Miller noted lead times near a year, with orders for ion beam and wet processing equipment received in Q3 and more expected in Q4 for shipment in the second half of next year. Pyatchanin queried scientific segment strength, to which Kiernan cited both Chinese customers and general industrial demand.
* Pyatchanin also asked about NSA adoption for memory customers. Miller said, "They're actually interested in adopting it... our NSA can anneal only very thin layer. So it's very conducive to material modification and 3D stacking, which is happening in memory applications."
* Mark Miller, Benchmark: Asked about thin metal films with IBD evals. Miller reported progress and strong customer engagement, with two tools in DRAM and future potential in logic.
* Mark Miller also asked about margin outlook. Kiernan said margin improvement is possible in 2026 over 2025, citing growing visibility into data storage and compound semiconductor orders.

SENTIMENT ANALYSIS

* Analyst sentiment was neutral to slightly positive, focusing on order activity, margin outlook, and adoption trends. Questions were persistent but not confrontational.
* Management maintained a confident tone, especially during prepared remarks. Miller said, "We're confident in the path ahead, and we'll continue to update you as the process moves forward." Responses in Q&A were direct and informative, without defensiveness or hesitation.
* Compared to the previous quarter, both analyst and management sentiment remained steady. Analyst questions shifted toward order timing and margin sustainability, while management confidence was reinforced by the pending Axcelis merger and new product wins.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for Q4 revenue and EPS range is similar to the previous quarter, but gross margin guidance is lower due to product mix changes. Management highlighted the impact of discounted evaluation tool acceptances and advanced packaging revenue.
* Strategic focus shifted with the Axcelis merger announcement, which was not present in the prior quarter. Product penetration into DRAM and advanced packaging continued to be key themes.
* Analysts continued to focus on regional revenue shifts, order timing, and margin trends, but the pending merger added a new dimension to their inquiries.
* Management's confidence in growth drivers remained strong, with increased emphasis on merger synergies and new order wins in compound semiconductors and data storage.

RISKS AND CONCERNS

* Management identified gross margin pressure from "a shift in product mix with several discounted evaluation tool acceptances and a greater proportion of revenue from advanced packaging systems."
* Order timing and visibility in segments like advanced packaging and data storage were discussed as variable, with Miller noting short backlog and lead times for advanced packaging.
* No new regulatory or supply chain risks were highlighted; merger-related questions were not addressed per policy.

FINAL TAKEAWAY

The third quarter highlighted Veeco's strong operational discipline, continued product advancements, and the strategic significance of the pending Axcelis merger, which is expected to drive market expansion and broaden the product portfolio. Management projects robust growth in annealing, ion beam deposition, and advanced packaging markets through 2029, while acknowledging near-term margin pressure from product mix shifts. The company expects to capitalize on multiple order wins and expanding customer engagement, positioning itself for continued growth as device complexity and demand for AI and high-performance computing accelerate.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/veco/earnings/transcripts]

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