Onto Innovation Inc. (ONTO) Q1 2020 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the Onto Innovation First Quarter Earnings Conference Call. At this time, all participants are on a listen-only mode. Later, there will be a question-and-answer session. [Operator Instructions] Thank you. I would like to turn the conference over to your speakers today, Mr. Michael Sheaffer. Please go ahead, sir.

Thank you, Angela, and good afternoon everyone. Onto Innovation issued its 2020 first quarter financial results this afternoon shortly after the market closed. If you have not received a copy of the release, please refer to the Company's website at www.ontoinnovation.com, where a copy of the release is posted. Joining us on the call today are Michael Plisinski, Chief Executive Officer; and Steven Roth, Chief Financial Officer. As is always the case, I need to remind you of the safe harbor regulations, any matters today that are not historical facts, particularly comments regarding the Company's future plans, objectives, forecasts and expected performance consist of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such estimates, whether expressed or implied, are being made based on currently available information and the Company's best judgment at this time. Within these are a wide range of assumptions that the Company believes to be reasonable. However, it must be recognized that these statements are subject to a range of uncertainties that can cause the actual results to vary materially. Thus, the Company cautions that these statements are no guarantee of future performance. Risk factors that may impact Onto Innovation's results are currently described in Onto Innovation Form 10-K report for the year ended December 2019 as well as other filings with the SEC. Onto Innovation does not update forward-looking statements and expressly disclaims any obligation to do so. Today's discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. A detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings release. I will go ahead and turn the call over to Mike Plisinski. Mike?

Thank you, Mike. Good afternoon everyone and welcome to Onto Innovation first quarter earnings call. I'll begin our call with an update on COVID-19 and its impact on our business. Then I'll cover the highlights for the first quarter, followed by Steve's financial review and finally our outlook for the second quarter. So, let's begin. At Onto Innovation, our battle with COVID-19 started in January with the lockdowns in Wuhan China. Since that time, we've implemented increasingly more comprehensive safety policies for our staff and suppliers to reduce the impact of the virus on our business. As a result of these proactive steps, we kept our global staff safe and met our customer commitments in the quarter. In addition, we expedited a few systems, roughly $3 million in revenue from the second quarter. These systems were pulled forward at the request of customers concerned with future supply chain disruptions impacting their rent plans. In total, we ended the quarter with nearly $140 million in revenue, which was at the high-end of our guidance range and represented 16% growth over the reported prior quarter. Over half of our quarterly revenue came from 5 of the top 7 capital spenders in our industry and lifting Atlas metrology revenue growth by double digits over the prior quarter. Demand for our process control solutions for 5G applications also surged in the quarter, resulting in double digit growth for both inspection and metal metrology systems. In addition to supporting the strong demand for our products, while overcoming challenges posed by the COVID pandemic, we also accelerated our integration tasks. In April, we implemented another $6 million in annualized integration synergies, which we expect to be fully realized by the end of the third quarter. In total, we expect to end this year with over $20 million of annualized cost synergies. We also took advantage of our strong balance sheet to purchase back 34 million of stock in the first quarter, and an additional 18 million in April for a total of 1.9 million shares at an average price of $27.50 per share. Our healthy balance sheet with no debt and most importantly, our proven ability to generate cash through cycles leave us confident will navigate through the sea of challenges, ready to take advantage of the opportunities that lie ahead. Now, I'll provide some color on our first quarter results. As a reminder, we'll be reporting our results in three categories. The first category is advanced semiconductor nodes, which comprises of front-end sales for DRAM, NAND and logic including foundry. The second category is specialty devices and advanced packaging, which also includes the products in our nascent silicon way for manufacturing market. And our third category is software and services. For clarity, we'll be reporting quarterly changes based on the adjusting results in Q4 of 2019 that included all of the pre-merger October revenue from the former Nanometrics. So, let's begin with advanced notes. Revenue from advanced notes grew 14% sequentially, driven primarily by our Atlas metrology platform. Revenue originated from logic customers at the 7 nanometer and below design nodes and leading edge manufacturers DRAM and 3D NAND memory, underscoring the growing footprint and applications for the Atlas metrology. Leading our growth in the quarter, a leading manufacturer of DRAM selected Onto Innovation's suite of metrology systems for OCD, metal and integrated applications to ramp a new DRAM facility at 10 nanometer design rules. To-date, our Atlas metrology systems have been selected to measure the most critical layers and structures that every sub 10 nanometer factory around the globe. The Atlas platform is winning these selections based on the performance of our exclusive broadband ellipsometry augmented with our broadband reflectometer. The complex integration of these two instruments provides the comprehensive data required to model the most complicated structures at productivity levels designed to exceed the requirements for high volume manufacturing. It's this combination of data richness and productivity that enables customers to measure the most advanced structures in production today. We see our technology leadership continuing as we as we engage with multiple R&D teams developing processes at 5 nanometer and below. Our merger creates further opportunities to extend our leadership by leveraging machine learning algorithms and technology from across the Company to rapidly process inherent data richness of our systems and increase the time to value. Driving our specialty and advanced packaging segments was another exciting secular trend for Onto Innovation the transition to high speed high bandwidth 5G communications. These products are enabled by an ecosystem of device manufacturers from advanced logic and 3D NAND to specialty devices for power and bandwidth filtering. Also critical to the ecosystem are the packaging technologies required to integrate all of these devices into smaller high performing form factors. Onto Innovation is providing process control solutions across this ecosystem through our Dragonfly inspection and Discover software technologies. The value of this unique combination resulted in the surgeon orders for inspection business, which grew by 22% in the quarter. Offsetting some of these gains was a slowdown from our silicon wafer manufacturers. After a strong fourth quarter, we saw declines primarily in our FTIR materials composition products, as well as NovusEdge systems. We see this pause continuing into the next quarter to until planned EUV installations get caught up from the impact of the COVID-19 pandemic. Wrapping up the specialty and advanced packaging segment, panel lithography continues to attract investment. After delivering a second tool to an existing customer in the fourth quarter, we received a conditional order from our seventh panel customer in the first quarter. This new panel customer is in the top five of semiconductor capital spenders. Like others, they see panel level packaging as a key part of their packaging technology roadmap. This tool will be delivered in the first half of next year with now seven customers ranging from top tier IDMs to progressive OSATs we see the potential applications for panel level packaging continuing to expand. The market is still in the early stages and we expect to see volumes ramping in 2021. With regards to our program for Gen 6 display lithography, we've productively terminated our relationship with our partner in China. As part of the termination we're transferring the top lithography talent to the Onto Innovation team in China. The reaction from our customers has been positive and we intend to reengage with them directly on projects as they slowly returned to work. Rounding out the quarter, our services team did an outstanding job managing through the uncertainty of the pandemic. By leveraging our newly combined capabilities, we were able to maintain a high level of support while preserving the safety of our staff around the globe, including our team located in Wuhan and other locations that were directly impacted by the pandemic as early as January. In fact, our service organization recorded a record level of revenue for the quarter, an increase of 12% over the previous quarter. The pandemic has accelerated much of our merger-related cross-training and need diagnostic initiatives, which will further enhance our ability to serve customers and drive additional growth through value-added services. Now, I'd like to turn the call over to Steve for a review of financial results for the quarter. Steve?

Thanks Mike. Before I begin my remarks as Mike noted, the finance results present here will be on non-GAAP basis except where are noted. And that the non-GAAP presentation of the new merged company no longer excludes stock-based compensation. Also, this is the first full quarter of the financial results of the merged company. In the fourth quarter, our financial results represented the operations of Rudolph for the full fourth quarter, but only the results are former Nanometrics since the closing of the merger on October 26. I recognize that this partial period results may comparability somewhat difficult, and I'll try to bridge those differences for you. As Mike mentioned, our first quarter revenue was $139.9 million above the midpoint of our guidance. For the fourth quarter of 2019, we reported revenue of $120.6 million, which excluded 10 million of Nanometrics' October shipments and $1.7 million at deferred revenue that would have been in our results if we had closed the merger at the beginning of the quarter. Therefore, the full fourth quarter of the combined company would have been approximately $132.3 million. Based on those adjusted numbers, our Q1 results represent a 6% increase over the prior quarter. Breaking the revenue down by market, revenue from advanced nodes accounted for 44% of revenue, strength mainly in memory. Specialty devices and advanced packaging customers accounted for 35% of revenue, and the remaining 21% of revenue came from our software and services business. We had two customers in the quarter, both top five capital proven spenders that represent a greater than 10% of sales. As we've discussed, one of the benefits of the merged company is the broad and diverse customer base with over 150 customers from silicon wafer manufacturers all the way to advanced manufacturing customers. Turning to gross margin, first quarter gross margin was 52%, driven by strength in both the Atlas III and Dragonfly product lines. This compares to gross margin 51% reported in the 2019 fourth quarter, also impacting margins with lower inventory reserves in the first quarter. As we look forward to Q2, we continue to keep product mix as the primary driver of gross margin and currently anticipate margins to be in the range of 50% to 52%. Before I move onto a discussion about operating expenses, I wanted to provide an update on our progress with the merger synergies. As a reminder, we targeted $20 million in cost synergies that we believe we could execute on by the end of 2020. Those synergies were primarily around business rationalization, streamlining, corporate overheads and eliminating duplicative public company costs. To-date, we have now exceeded that target, implementing $21.4 million in synergies with an additional $3.2 million in supply chain synergies identified to be removed by the end of the year. Now, let's move to operating expenses. First quarter operating expenses were $49.6 million at the low end of guidance. The impact of the synergies I just mentioned and the lower overall spending from reduced travel expenses as a result of COVID-19 were the primary drivers for the lower operating expense. The 2019 fourth quarter, we reported $40.7 million in operating expenses, and those results excluded $8.7 million a fourth quarter Nanometrics expenses prior to closing. As I stated on our last call, historically operating expenses increased quarter-over-quarter from Q4 to Q1 every year. During the first quarter we perform our annual compensation reviews and equity grants, bonus plans and payroll taxes all reset for the year. However, our accelerated synergies and cost savings offset those increases. In the second quarter, we expect to see the full impact of the operating synergies for the operating expense synergies we implemented in Q1 and a partial impact of the synergies implemented beginning of Q2. Our currently forecasting our Q2 operating expenses to be in the range of 47.5 to 48.5 million, historically the operating expenses of the two companies, combined companies was about 52 million quarterly. So, we can already see the benefits of the merger synergies approximately $4 million next quarter. Net income for the first quarter was 19.7 million or $0.39 per share and at the higher end of our guidance. In 2018, fourth quarter we reported $0.41 per share; however, the share count used in that calculation was 43 million shares outstanding through the merger being closed in the middle of the quarter. In the first quarter, the share count was approximately 50.6 million shares, and using that share count, the fourth quarter net income would result in about $0.35 per share. Now turning to cash and investments which are on a GAAP basis, we ended the quarter with cash and a cash position of 219 million. During the quarter as Mike mentioned, we executed on the repurchase of 33.6 million of our stock under previously authorized repurchase program totaling 1.3 million shares. We also generate 8.9 million in cash from operations in the quarter; however, that amount was significantly reduced by the timing of shipments in the quarter. Slowdown in our supply chain and the moving to a split operation due to COVID-19 resulted in a majority of our shipments going out last month of the quarter affected our ability to collect a portion of our quarterly sales within the quarter. Historically, both Nanometrics and Rudolph were strong cash flow generating companies and combined were even stronger. We currently model our cash breakeven to be between 65 million and 75 million and quarterly revenue depending on product mix. That is also based on our current expense structure. So, we are confident that with our cash position and our ability to generate cash, we're in a strong position to navigate through the current challenges and maintain our ability to invest in our roadmaps and other revenue opportunities as they materialize from our R&D innovations. Now, I'd like to turn the call back over to Mike. Mike?

Thank you, Steve. The impact of the pandemic adds new level of uncertainty that is difficult to quantify, both in the chance of occurrence of an outbreak and its impact to operations. As I mentioned earlier, we have implemented a variety of protocols to maintain the safety of our staff and reduce the risk to our business. Likewise, we're working very closely with our suppliers to share best practices we've developed to reduce their risk. We intend to maintain these protocols throughout the quarter independent of the eventual loosening of government restrictions. Our guidance assumes these steps will continue to prove effective, and as a result, our operations will continue to function. Obviously, if our procedures fail to prevent or contain an outbreak in one of our factories or our suppliers unexpected, unexpectedly miss deliveries, then we could be negatively impacted beyond our guidance range. So, let's discuss what we see for demand. Much like the first quarter, we see markets continuing to benefit from investments in 5G. In March, analysts in Asia reported that Chinese smartphone shipments rose to 21 million units down year-over-year, but up 200% percent over the prior month. Apple smartphones in China improved significantly more than expected in March, increasing 20% year-over-year and 400% over the prior month. Looking beyond China, Qualcomm recently reported that 30% of the phones sold in March were 5G enabled, and 71% of the new phone launches in March supported 5G. So, most of this initial 5G product demand is coming from Chinese and other Asian handset manufacturers. As mentioned earlier, these customers are supported by a global ecosystem of manufacturers, which we support. We believe our strong position across the 5G ecosystem will contribute to another sequential quarter of double-digit growth for our inspection platforms. For advanced nodes, we see more cautious spending plans versus the expectations at the start of the year. Those secular trends remained strong. Our customers are ascertaining how much demand is inventory builds versus real growth, and how the next several quarters will impact demand as we begin to emerge from the current COVID crises. So, after a surge in the first quarter, which included the aggressive ramp of a DRAM customer in Asia, we see a decline in DRAM process control spending in the second quarter. We see logic spending also declining with NAND investments remaining relatively stable. In summary, we expect to see revenue from advanced nodes in the range between the fourth and first quarters with balanced demand from logic, DRAM and NAND customers. So, with continued growth from 5G and a pause in the growth from advanced nodes, we estimate revenue in the second quarter to be approximately $134 million, with upside of 3% and a downside of 5%, reflecting the greater market uncertainty and risk to suppliers, but still assuming we maintain operations as mentioned earlier. After adjusting for the polling of $3 million from the second to the first quarter, we are essentially flat, sequentially. It's worth noting that in aggregate at the second quarter guidance of $134 million our first half year-over-year comparison is forecasted to be up approximately 6.5%, on an adjusted pro forma basis. We expect earnings in the range of $0.29 to $0.41 per share, only partially benefiting from the integration synergies we've implemented. As devastating this pandemic is on the global economy, it's encouraging to recognize the important role technology is playing in the fight against the pandemic and its impact on the world economies. Technology is enabling many businesses and schools to continue to operate in a work-from-home environment. Mobile devices such as wearables and smartphones are being used to help track the potential spread of virus, so more targeted policies of containment can be applied. High performance compute engines are leveraging the massive volumes of data being collected around the globe to speed the development of treatments and eventual vaccines. More broadly, silicon content is enhancing nearly every aspect of our lives from how we work, communicate, drive, shop and what we expect from healthcare systems. Advances in semiconductor device technology from 5 nanometer processors and 128 layer DRAM to 2.5 and 3D packaging technologies are enabling these macro trends. As reflected in our quarter, Onto Innovation is broadly the leaders across the spectrum of technology innovators. We're in a golden era of process control, where the complexity of leading edge devices in sub 10 manometer nodes is increasing simultaneously with demands for more complex heterogeneous packages and denser die level interconnects. This is creating demand for more sophisticated process control solutions across the semiconductor value chain from bare wafers to final package devices. The Onto Innovation team is meeting that demand with growing positions in leading edge design node specialty devices such as 5G and all technologies for advanced packaging. We'll continue to use our strong balance sheet and disciplined financial model to fuel the innovation our customers are depending on and which we are well-positioned to provide. And with that, we'll open the lines for questions from our covering analysts. Angela?

[Operator Instructions] And our first question is from the line of Quinn Bolton with Needham. Please go ahead.

Hey guys. Thanks on the first quarter results in a challenging environment. I wanted to start off with the advanced nodes specifically the Atlas. It sounds like you said the 14% growth was driven mostly by DRAM, but wondering if you also saw foundry strength and then have a have a follow up?

Hi, Quinn, it's Steven Roth. So, yes, we had very strong DRAM growth in the quarter overall, but we also had a fairly strong foundry in the fourth quarter. So while there wasn't an increase over quarter over quarter, I would say, I mean, it was it was it was flat quarter over quarter, but still very good portion of the overall business in both quarters.

So flat off a pretty high base in Q4.

Yes.

And then, a second question you guys didn't mention the Commerce Department actions, tightening the export controls around military use and military end users in China. Just wondering over the past week, if you've had a chance to look at those new regulations that come effective at the end of June and whether that might have any impact on the business specifically, will it require you to get new licenses to ship to customers in China? Thank you.

Yes, so we've been working with council in Washington, D.C. as well as our own council of course here to try and understand the dynamics in play there. We do fall under some of those restrictions. Our products are impacted, but the level of impact is still -- there's a lot of uncertainty there. So, we're still trying to work through that and we would expect to have a better understanding within the next week or so.

Can I just follow-up on that? Do you think if you fall under, then that means you may be required to get a license under that interpretation?

Either a license or there's other, if you make a memory chip in the memory chip is used in a toy or military device, the customer may or may not be actually selling to the military. So, we have to understand is can the customers certify that they're building these for consumer devices and making that an option as well?

Great. Thank you, Mike.

It's really not totally clear at this point.

Okay, thank you.

And you next question is from the line of Patrick Ho with Stifel. Please go ahead, sir.

Thank you very much and glad to hear everyone is well. Maybe Mike or Steve, in terms of the gross margin profile, it was pretty strong given a lot of the disruptions that occurred during the quarter. Maybe from just the COVID-19 perspective, how much I guess balancing that you have to do? Or how much of an impact did that issue cause on the gross margin line for the March quarter? And how much of an impact you think it'll have in the June quarter?

Hi, Patrick, it's Steve. So, as you can see in the prepared remarks, we were able to pretty much, the team really stepped up and we put in our processes in place and things like split shifts and things like that. So, we were able to just continue to execute on the existing orders we had. Mike mentioned that we pulled in a couple of tools that customer requested. The product mix was what we had planned, maybe before this kind of all happened. So, I would say from the costs affecting the gross margin line. Most of that stuff was coming from the obviously the tool, price, prices everything were all similar to what we would expect in a normal environment. Obviously, a little bit of the above the line costs maybe have been reduced from a travel perspective for service guys and stuff is things really slow down towards the end of the quarter. But we still got to get these tools in place and we obviously have a lot of people that are in the field trying to put -- obviously, you're doing that without travel. So, we're doing our installations in the countries at which those are there. So, I would say, there really was no effect, really very minimal effect on Q1, and the mobile operating under and really don't that impacting Q2 that's why we're kind of sitting in where we are.

Great, that's really helpful Steve. And maybe as a follow-up for you in terms of the inventory on your end, obviously your customers and their end user customers are building some inventory level and things that I've heard is the entire food chain at some levels, building buffer inventory, given the uncertainty that's out there. Your inventory levels look relatively healthy. So, for this very disruptive environment, can you talk about how you're ensuring that you'll have the necessary supplies and inventory given the uncertainty in the marketplace?

Yes, so, I mean, obviously it's up there, right up there with the number one thing we're looking at is obviously the delivery of material. I mean, obviously, we have fairly decent build cycles. So, we obviously ordered this stuff in well advance to the quarter, that would get your time we've monitored that there have been a couple of places where we things got disrupted especially out of Malaysia earlier in Q2, but we've been pretty much while there's still a couple of things we're monitoring. We've been getting commitments from our suppliers and delivery dates for the material. So, it's a risk of course, but because you don't know what can happen next. But I would say right now we're seeing, on the impact from a Q2 standpoint, we see the stuff coming in to make sure we can hit the numbers that were given out.

And your next question is from the line of Tom Diffely with D.A. Davidson. Please go ahead.

This is actually Fraco on for Tom today. I was hoping to get your view on semiconductor units for the year. You obviously talked about 5G driving unit growth in the first half, but would that be enough to kind of drive growth for the entire year if impact slowed down?

I think there's a combination. It's not just 5G, but there is also a lot of data center demands, a lot of PC refresh cycles that we're seeing. And as people start to adjust to this work from home environment, people start to drive more social media and sort of remote engagement tools that are based up in the cloud and data centers. So, the question is really, how much of the demand has been accumulating and will be resolved over the second next two quarters, versus how much will continue as consumers start to come back hopefully in the next several quarters. And I think on -- so that's one thing on the demand side, which you asked, but I think it's also important to note that a lot of our customers are investing in the next technology ramps, which so far, short of a push out here or there and only, maybe part of their ramp being pushed out. They've all been very confident in moving forward with their ramps. So, that's also a positive from the industry perspective.

Okay. Now, that's helpful. Thank you. And then one question on the Gen 6 tool, you terminated your relationship with your China partner. How do we expect that will change sort of the timing of the roll out for that?

Well, as you know, we've achieved all the technical milestones that we had targeted, and let's say the next big milestone was the customer engagement and locking in a customer for that tool. So, the struggles we were having with our partner, was sort of inhibiting that progress. So, now we're in the process of re-engaging. But as you know, there's a lot of travel restrictions, people who aren't meeting that customers and one of the hot zones or at least a couple of the customers there. So, we'll have more clarity as we reengage and get more direct feedback. But we are encouraged that, the feedback we've gotten from the accounts has been very positive and there are projects that they've been looking at for that Gen 6 tool.

And your next question is from the line of Craig Ellis with B. Riley FBR. Please go ahead.

Hey guys, this is Carlin Lynch [ph] on for Craig. Thanks for taking my question. I guess I want to start on the synergy front. Obviously great job there and you identified some additional synergies beyond the one that you had started with. As you look out even farther, just kind of from a high level perspective, do you see further kind of synergy harvesting as you look into the back half of the year and maybe calendar '21? Or is this kind of...

I think the additional synergies we see are more in the product rationalization and some of the supply chain rationalization that we see, that we see the ability to execute on. So, those will be more ongoing sort of business processes that we bring together. I wouldn't say that, those are projects that we'll be investing in and then coming through. So, there are more synergies. There are also more revenue synergies that we're identifying. I mentioned a few of them as the e-diagnostics and some of the software that we're employing to help to improve the service organization and add value-added services there. So, I think there's more that we're uncovering and we expect more in 2021.

Got it. Got it. Okay. And then I guess just kind of generally, obviously, the whole situation is pretty unclear right now with COVID-19 and travel restrictions. But if you think about kind of half on half linearity, through the year, do we start to get some of those revenue synergies that you talked about, which could drive half on half growth or is that kind of still pretty up in the air at this point?

I think it's early for the revenue synergies to drive half on half revenue growth. I think we might be able to see some revenue, but it will be still very relatively small, and then growing and building into the following year. But as far as half over half, if the customers continue to execute to the plans that they've discussed, we would see enough customer demand to drive half over half growth. I think there's a lot of certainty that as everybody is trying to understand the impact of a global recession and pandemic. And is it a U or L shaped curve, but yes, so far, that's, that's what we're seeing.

So just to be clear, you guys haven't seen any like early signs of demand disruption in the back half of the year?

We have, this was the year that was forecasted. We had some peers coming out 20% growth and things like this. We didn't see that much growth, but we did see some growth. And we have seen some reduction of that growth, but still growth. So over 2019 and you can see even our first half is still 6.5% is at the midpoint of our guidance or at the Q2 guidance level. So we if we continue to if the customers execute, we do see the demand, potentially driving additional growth in the second half.

[Operator Instructions] And your next question is from the line of David Duley with Steelhead, please go ahead.

Yes, a couple of questions from me. Could you help us understand what your current lead times are for the Atlas product and the inspection products? And have you seen those lead times to extend or contract or whatever they done over the last quarter?

The lead times so far haven't changed dramatically. We've had some supply chain issues that we've worked through that move things around, but those were specific vendors that we had to work through some issues with. But overall, the lead times haven't changed dramatically. What we've tried to do is drive more discipline with the customers and cooperate with the customers to get orders in a little sooner, so we can be more specific and make sure that they have the parts or the unique configurations that they care about, as we have to -- we can't carry as much inventory and all the different options in the supply chain can't react the way the way it would have in the past. So, that's how we've been dealing with, maintaining, more or less maintaining the lead times.

And what roughly are they then? How many weeks?

I would say 8 to 16 anywhere between 2 and 4 months.

And could you elaborate a little bit more on the DRAM win that you talked about? I'm sorry. I didn't quite write everything down right, didn't hear everything you mentioned about what products were associated with that when and perhaps help us understand. Did you take market share from somebody? And why would why did you win the business?

On the DRAM side, we won the business because of the capability of the tools. I can't speak if we've gained extra share or not. We had a position within this account. We were pleased by the magnitude of the adoption of our products across not just the Atlas product line, but also our integrated metrology product line and the MetaPULSE as well. So I didn't see or get a measure of what the competitors may have gotten. I know we achieved what we expected to achieve. And yes, so it's hard to say whether we gain share or not. But we for sure, we're pleased with the level of adoption the customer had for our products and technologies.

And then final thing for me, could you just talk about the segments in the June quarter I think you mentioned the front end semiconductor business, if you could just talk about each segment and what you would expect it to do going into the second quarter and why?

So, we mentioned the advanced nodes would be between the first and the second between the levels of the first and fourth quarters. So, declining a little bit as some of the customers are delaying some expansions or pushing out after some growth in Q1 and as rebalance. So balance between DRAM NAND and logic, almost equally. And growth from 5G we see continuing for driving the specialty and advanced packaging, primarily the inspection business. So, that's where that's what we see. And then the services and software remain relatively flat at these high levels, near record levels.

Sorry, I just want to put one more in there. I know it's early on, but based on your backlog and your commentary, it seems like you would expect Q3 revenues to be flattish? Or what sort of scenarios are you kind of considering at this point given all the cards that you can look at now?

Q3, if all the customers continue with their plans, Q3 should be relatively strong, but there's a lot of uncertainty -- relatively so flat to up, but there's a lot of uncertainty right now. Customers are looking to understand what's the impact of that COVID pandemic, they are looking to understand the impacts of supply chain not just on us. We can build tools, but if they -- if a process equipment suppliers can deliver. Now, there's no need for additional process control. So, there's a lot of uncertainty that customers are working through right now, as they think about what they're doing for Q3.

And your final question is from the line of Mark Miller with Benchmark. Please go ahead.

Just want to try to get your impression of the decline that you're speculating in the DRAM and logic? One interpretation could be that because of the virus that there was a lot of purchases of laptop computers during the quarter and that was kind of spiked up. Another concern is that people were stockpiling chips, which are internal interpretation, the slowdown to either those theories work or do you have another believe?

Well, that's what the customers are trying to ascertain. So, we've heard commentary from customers that they're not sure. I think TSMC actually said this publicly. They're not sure how much of the demand they're seeing is built up versus sustainable demand. So, built up of inventories versus not, and I think that'll take a few months to play out. And then on the DRAM or advanced memory side, I think it's a similar situation where you've got data centers expanding. I think we've seen some commentary from some of the larger data center service providers that they were constrained, and they wanted to spend more capital but they couldn't because of supply chain receiving equipment. So, that implies that there's pretty strong demand out there still, and that we're not seeing an inventory problem. So I think, there's two different there's competing views and we need a few months to see how that really plays out. For us, we're prepared for either way. As I mentioned, we accelerated some synergy, so we're prepared if things stay at this level to have healthy bottom line. So, we can continue to invest, continue to accelerate our roadmaps, and at the same time, we're prepared within the manufacturing organization to be able to ramp when the demand returns.

And I'm showing no further questions at this time. I would now like to turn the conference back to Michael Sheaffer for closing remarks.

Thank you, Angela, and thank you all for your support, and a special thank you to the dedicated Onto Innovation team for overcoming many challenges in this quarter, I also want to thank our suppliers and our customers for their support and cooperation during these challenging times. And Angela, that completes our call.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and having a wonderful day. You may all disconnect.