Ultra Clean (NASDAQ:UCTT) executives told investors the company is positioning for what management described as a structural expansion in wafer fab equipment (WFE) spending, even as fourth-quarter results showed modest sequential declines in revenue and profitability. The company reported fourth-quarter 2025 revenue of $506.6 million and guided first-quarter 2026 revenue to a range of $505 million to $545 million, with executives repeatedly emphasizing a second-half-weighted demand ramp.
Management frames an “AI inflection” and multi-year WFE upturn
Chief Executive Officer James Xiao, in his first solo earnings call as CEO, said the industry is “no longer preparing for a semiconductor recovery” but is entering a longer-lived expansion driven by AI infrastructure and what he called “Physical AI” demand. Xiao cited industry projections suggesting semiconductor revenue could reach $1 trillion annually by 2027, “possibly earlier,” and argued that the cycle differs from prior upturns due to shifting demand toward AI infrastructure, autonomous driving, and other AI-driven applications.
Capacity, utilization, and “UCT 3.0” strategy
Xiao said “ramp readiness” is the company’s top priority and characterized Ultra Clean’s capacity position as a competitive advantage. Management said facility optimization efforts have left the company with capacity to support approximately $3 billion in revenue today, with global utilization averaging about 65%.
Executives reiterated that reaching a $4 billion annual run-rate target would require only “modest incremental clean room investment,” with the more important constraint being workforce readiness and execution. Xiao said the company is increasing the share of its capacity in Asia, noting that about 50% of current capacity is in Asia with plans to increase to 60% to align with customers’ manufacturing footprints. In Q&A, Xiao added that the company expects Asian factories to fill “very soon” as utilization rises.
As part of what he called “UCT 3.0,” Xiao highlighted initiatives to accelerate the design-to-production cycle, expand participation in leading-edge new product introductions, and strengthen technology integration with customers. He also discussed an expanded “NPX strategy”—covering new product introduction, development, and transition—along with digital transformation efforts to upgrade systems and data infrastructure with “AI-compatible solutions” aimed at improving visibility, shortening cycle times, and boosting productivity.
Fourth-quarter results: revenue slightly lower; margins pressured by mix
Chief Financial Officer Sheri Savage reviewed results on a non-GAAP basis. Total revenue in the fourth quarter was $506.6 million, compared with $510 million in the prior quarter. Product revenue was $442.4 million versus $445 million, and services revenue was $64.2 million versus $65 million.
Gross margin declined to 16.1% from 17.0% in the prior quarter. Product gross margin was 14.1% (down from 15.1%), while services gross margin was 29.7% (down from 30.0%). Savage said the fourth-quarter margin was impacted by a shift in product mix and noted that margins continue to vary with volume, mix, manufacturing region and related tariffs, and material and transportation costs.
Operating expenses were $56.6 million, down from $57.7 million in the third quarter, and represented 11.2% of revenue. Operating margin was 4.9%, compared with 5.7% in the prior quarter. Fourth-quarter EPS was $0.22 on net income of $10 million, versus $0.28 on net income of $12.9 million in the prior quarter, based on 45.8 million shares outstanding. The fourth-quarter tax rate was 21%, and Savage said the company expects a tax rate in the low 20% range for 2026.
For the full year 2025, revenue was $2.1 billion, which Savage said was roughly flat with 2024. Full-year gross margin was 16.5%, down from 17.5% in the prior year, and operating margin was 5.3%, down from 6.9%. Full-year EPS was $1.05 on net income of $47.7 million, compared with $1.44 on net income of $55.2 million in 2024.
Guidance and outlook: second-half ramp expected
For the first quarter of 2026, management projected revenue of $505 million to $545 million and EPS of $0.18 to $0.34. In the Q&A, executives described expectations for a “step function” increase in the second half of 2026.
Asked about WFE growth assumptions, Xiao said the company’s view had increased from earlier discussions and that it now expects WFE to grow 15% to 20% year over year. He also said Ultra Clean anticipates a meaningful pickup later in the year, describing a “big bump” from the middle of 2026 into the second half.
On profitability, Brian Harding (who answered margin questions during Q&A) said first-quarter gross margin is expected to be roughly in line with the fourth quarter, “maybe slightly up,” with sequential improvement through the year as volumes increase.
China exposure, services growth, and memory commentary
Responding to a question about China, Xiao said that based on what the company is hearing from customers, WFE in China is expected to be “flattish” in 2026, and Ultra Clean’s forecast for China OEMs is also “flattish.” He said China represents less than 7% of the company’s overall revenue.
On the services business, management indicated expectations for double-digit growth in 2026, while noting it would be weighted to the second half. In particular, the company said it expects to be positioned for a U.S. foundry logic ramp as customers increase factory activity.
Xiao also offered a bullish view on memory, saying some end customers have suggested shortages could persist until 2028 and that major memory manufacturers are investing in greenfield projects while also converting existing fabs. He said high-bandwidth memory can consume DRAM factory nameplate capacity, potentially requiring more WFE investment, and cited ongoing NAND technology upgrades to higher layer counts as another multi-year driver.
About Ultra Clean (NASDAQ:UCTT)
Ultra Clean Holdings, Inc is a global supplier of critical consumables and process tools for the semiconductor manufacturing industry. The company specializes in precision parts cleaning, chemical–mechanical planarization (CMP) slurries, surface conditioning pads, and specialty components used in wafer fabrication and advanced packaging. Ultra Clean also provides assembly and test hardware, tooling, and automated modules designed to support complex front-end and back-end processes in semiconductor fabs.
Ultra Clean’s product portfolio encompasses a range of cleaning systems and consumables aimed at particle and film removal, as well as CMP slurries and pads that are engineered for uniform material removal and planarization.
