A. O. Smith Demand and Backlog Signals Impacting 2026 Outlook

Key factors influencing Onto Innovation’s Q1 2026 guidance change

Onto Innovation’s Q1 2026 “guidance change” (i.e., the movement from its original expectations to what it ultimately delivered) was primarily driven by stronger-than-expected demand and execution across advanced packaging and related process technologies, plus improving margins despite cost headwinds.

1) Demand strength for AI compute-driven advanced-node and advanced-packaging technologies

Management stated that 2026 started “strong” and that Q1 results exceeded the high end of the first quarter guidance range across all key financial metrics including revenue, gross margin, operating margin, and EPS. ¹
They attributed the outperformance to momentum building in support of strong demand for AI compute, with the surge showing up in both front end and advanced packaging. ²
Specifically, Q1 revenue was $292 million, increasing nearly 10% sequentially, with strength “primarily” in advanced nodes tied to adoption of Atlas G6 and inspection products, including initial commercial shipments of Dragonfly G5. ¹

2) Advanced packaging ramp—especially Dragonfly G5 qualification and shipments

A major incremental driver was successful customer qualification and ramp of the Dragonfly G5 platform:

• Onto said it exceeded expectations while advancing leadership in advanced packaging, including successful qualification of Dragonfly G5 at multiple key customers. ³
• In operational detail, management indicated that Dragonfly G5 shipments were ramping through the year: Q1 shipped “a handful of tools,” Q2 and Q3 “continues to nearly double each quarter,” and growth was described as steady into later quarters as well. ⁴
• They also explained that customers are requesting “pull-ins” (i.e., advancing/accelerating orders) for G5 shipments, with shipping in Q1, more in Q2, and even more in Q3 and Q4, and “steady growth” throughout all four quarters. ⁵

These factors collectively support why Q1 revenue came in above the original guidance range. ¹²³⁵

3) Positive momentum in advanced nodes (Atlas G6 and related metrology wins)

Onto’s guidance strength wasn’t limited to packaging; it also benefited from advanced-node progress:

• They highlighted Atlas G6 adoption as a contributor to Q1 strength. ¹
• They further stated that they now expected advanced nodes business to grow ~25% in 2026, based on broad logic and DRAM traction plus early signs of recovery in NAND. ⁶
• In response to investor questions, management tied advanced node competitiveness to improvements such as smaller spot sizes and the ability to measure in-die (improving process information and yield) for gate-all-around logic nodes. ⁵

This advanced-node demand helped pull total revenue above the original Q1 guidance. ¹²⁶

4) Margin performance despite cost headwinds (improving gross and operating margins)

Even with “increasing headwinds” for certain material input costs (notably memory, plus higher fuel and shipping charges), the company still improved profitability:

• Gross margin improved by 110 bps to 55.7%, and operating margin increased by 150 bps to 26.7% sequentially. ¹
• Management also said operational discipline and scalability supported margin expansion. ³

So guidance was not only exceeded on revenue; it was exceeded on margins and EPS as well. ¹³

5) Operating leverage and execution support (including extended factory benefits)

Management connected margin/outperformance partly to operational changes:

• They noted performance “reflects benefits recognized primarily from our move to extended factories.” ¹ This operational scalability is consistent with why operating margin increased even while facing certain input cost pressures. ¹

6) Visibility and near-term demand expectations reinforced by demand outlook for Q2 (not the Q1 change itself, but supportive context)

While the question is about the Q1 guidance change, management linked the Q1 “beat” to continued demand and expected growth into Q2 and beyond:

• They said Q1 revenue was above the original guidance range and they expected momentum to continue, including a Q2 midpoint 20% year-over-year increase. ²
• They also emphasized that customer expansions were supported by “accelerating new product adoption” and “a growing backlog,” implying ongoing revenue acceleration. ²

This helps explain why the guidance change could be sustained rather than a one-quarter anomaly. ²

7) Why Rigaku collaboration matters for forward results (but not the immediate Q1 “beat”)

Rigaku-related factors were discussed mainly as a forward-looking driver:

• On April 20, Onto announced a strategic partnership involving purchase of a 27% stake for approximately $710 million, expected to close in 2026 and funded primarily with cash on hand. ¹
• Management described expected benefits including incremental licensing revenue from integrated X-ray + AI Diffract software at “nearly a 100% margin,” additional tool sales (Atlas G6), and dividends (about $7 million or more per year). ⁷ However, these are presented in the context of longer-term ramp (H2/2026 and beyond) and do not appear as the primary explanation for the Q1 guidance exceedance itself, which was attributed more directly to AI compute demand, advanced nodes, and Dragonfly G5 ramp/shipments. ¹²⁵⁷

---

Bottom line

Onto Innovation’s Q1 2026 guidance change (culminating in results exceeding the high end of its guidance range) was driven mainly by:

1. stronger AI compute-related demand showing up in advanced packaging and advanced nodes, ¹²
2. Dragonfly G5 qualification and shipment ramp plus customer order pull-ins, ³⁵
3. continued Atlas G6 adoption and advanced-node traction, ¹⁵⁶ and
4. better-than-expected profitability supported by extended-factory benefits and operating discipline despite input cost headwinds. ¹³

These combined factors explain the broad beat across revenue, gross margin, operating margin, and EPS for Q1 2026. ¹