Onto Innovation’s Strategic Drift: Losing OCD Share to KLA
Introduction
I’ve written numerous articles on Onto Innovation (ONTO) and all but the first was positive. The more I analyzed the company, the more I realized that management strategy has been to drill 12, 1-inch holes rather than 1, 12-inch hole. Onto has drilled everywhere but not deep enough anywhere.
In 2019, Rudolph merged with metrology/inspection company Nanometrics and formed ONTO, attempting to support its faltering business. In fact, I discussed it in depth in a June 27, 2019 Seeking Alpha article entitled “Nanometrics And Rudolph: A Merger For Survival.”
Over the past year, that lack of focus has meant share loss in inspection, weak returns on diversification, and poor investor trust—a vicious cycle that explains the 56% collapse, as shown in Chart 1.
Onto Innovation was formed through the merger of Nanometrics and Rudolph Technologies, inheriting a diverse set of product lines in optical metrology, macro defect inspection, lithography, and later packaging. Over time, the company added a lithography stepper business and invested heavily in panel-level packaging, hoping to diversify its portfolio and position itself across the semiconductor manufacturing chain. On paper, such breadth was meant to insulate Onto from cyclicality. In practice, it has left the company with too many shallow strengths and no single area of deep dominance.
This weakness has become increasingly visible in the past year. Onto’s stock has fallen by more than 50 percent from its peak, while competitors like KLA (KLAC) and Nova (NVMI) have held firm. At the center of this decline is Onto’s Optical Critical Dimension (OCD) business, more accurately described in industry terminology as non-metal thin film metrology. This segment, once Onto’s backbone, has been losing share to KLA. Even as packaging tools show strong growth, the company’s inability to defend its front-end metrology position has overshadowed those gains.
The following analysis explains why Onto is losing OCD share, how its diversification has diluted focus, and what investors should take away from its strategic drift.
The Stakes of Non-Metal Thin Film Metrology
Non-metal thin film metrology, commonly known as OCD, measures linewidths, profiles, and film thicknesses on dielectric and resist stacks. At advanced logic nodes, where gate-all-around transistors and extreme ultraviolet lithography dominate, these measurements are no longer simple. Scatterometry must resolve multiple stacked nanosheets, asymmetric sidewalls, and stochastic film variations in multilayer environments.
Historically, an OCD tool could function as a standalone system. At 2 nm, that is no longer the case. Fabs now require OCD to be embedded in a closed loop with overlay metrology, e-beam inspection, and computational lithography software. This integration shortens recipe convergence, improves yield, and reduces the risk of misalignment in costly high-volume manufacturing. The vendors who can supply the loop as a whole are increasingly favored.
This change in expectations has placed Onto at a structural disadvantage, as its portfolio is narrower than KLA’s.
Why Onto Is Losing Share to KLA
Three interrelated dynamics explain Onto’s erosion in non-metal thin film metrology.
First, KLA controls the closed-loop stack. Its Archer and SpectraShape OCD platforms are part of a broader suite that includes overlay metrology, patterned and unpatterned wafer inspection, and e-beam review. This allows fabs to purchase a comprehensive solution rather than piecing together tools from multiple suppliers. Onto, despite the technical capability of its Atlas V scatterometry systems, does not sell overlay or e-beam systems, leaving it with only part of the solution.
Second, KLA’s decades of accumulated recipe libraries make it the default choice for leading-edge ramps. Each new node builds on existing data, reducing the time needed for recipe development and increasing confidence in accuracy. Onto, by comparison, lacks the same depth of historical modeling. This makes it harder to displace KLA in first-tool positions. Instead, Onto is often brought in as a second vendor for diversification, which caps its share.
Third, fabs tend to standardize on a vendor during node ramps. Once a foundry chooses KLA for its GAA production, that decision locks in for the lifetime of the node. Onto therefore finds itself squeezed out of new high-volume placements, regardless of tool competitiveness. While Onto has shifted resources toward packaging metrology, that does little to recover lost ground in the front-end where the largest revenue pools remain.
Diversification and Its Costs
Onto’s diversification strategy is not inherently flawed. The lithography stepper business continues to provide revenue in legacy markets, and the company’s Dragonfly 3Di packaging platform has become a key enabler of 2.5D and fan-out packaging for AI accelerators. Advanced packaging is one of the fastest growing parts of the semiconductor value chain, and Onto has a credible leadership position there.
The problem is one of timing. As GAA and EUV raised the technical bar for non-metal thin film metrology, Onto shifted R&D mindshare to packaging. This created a perception problem in the marketplace: Onto is increasingly seen as a packaging company rather than a metrology company. Packaging revenues are growing, but from a much smaller base. In the near term, they cannot replace the revenue lost as OCD share declines.
Market Share Dynamics in Non-Metal Thin Film
Table 1 shows estimated vendor market shares in non-metal thin film metrology from 2021 through 2024. This table is important because it quantifies how KLA has entrenched its dominance, how Nova has built a steady secondary position, and how Onto has slipped into the single digits. Investors can see directly how Onto’s market position has weakened, despite having technical innovations in its toolset. Data for this table comes from my report Metrology, Inspection, and Process Control in VLSI Manufacturing, available at The Information Network.