Ichor (ICHR) Q2 Revenue Jumps 18%

Ichor (ICHR 3.92%) designs and manufactures fluid delivery subsystems for semiconductor capital equipment makers. On August 4, 2025, it reported results for the second quarter of fiscal 2025. GAAP revenue topped expectations at $240.3 million in Q2 FY2025, but non-GAAP earnings per share fell well short, reaching just $0.03 compared to the $0.14 analyst estimate. Margin pressure, operational inefficiencies, and restructuring weighed on profitability. The quarter saw strong top-line performance, but significant cost issues and negative cash flow created headwinds for the company’s broader growth ambitions.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Business Overview and Key Focus Areas

The core of Ichor’s business is precision fluid delivery, which is critical for semiconductor manufacturing equipment. Its main customers, such as Lam Research, Applied Materials, and ASML, require exact gas and liquid subsystem assemblies used in advanced chip fabrication tools. Ichor has built strong partnerships in this sector supported by engineering expertise across mechanical, chemical, and software fields.

Recent priority areas for Ichor have centered on expanding proprietary product content and operational flexibility. The company seeks to transition more of its gas panel components -- such as precision valves, fittings, and substrates -- to internal manufacturing. This shift targets future margin expansion and more direct supply control. Success in this area rests on product qualification with major customers and advancing manufacturing scale at new and existing facilities.

Quarter in Detail: Revenue Beat, Earnings Miss, and Operational Setbacks

In Q2 FY2025, Ichor exceeded GAAP revenue expectations. The main driver was steady demand from its core semiconductor customers and continued shipments in its etch and deposition businesses. Segment performance benefited from ongoing investments at leading foundries and memory makers. However, not all business lines contributed evenly, with non-semiconductor and lithography-related revenue staying soft. This softness stemmed in part from Ichor’s strategic exit from its refurbishment operation in Scotland, which had previously contributed about $10 million in annual revenue on a full-year basis.

Profitability for the period came under noticeable pressure. Despite higher revenue, GAAP gross margin slipped versus the prior year, declining from 12.6% in Q2 FY2024 to 11.3% in Q2 FY2025. Key causes included slow progress on internalizing production of proprietary components and continued reliance on external suppliers during Q1 FY2025. CEO Jeff Andreson explained, “found it challenging to fully understand why our increasing momentum in integrating internally sourced components has not resulted in more meaningful improvements to our gross margin profile.” Extra shutdown, severance, and restructuring expenses added to the drag on earnings. Direct costs tied to the Scotland shutdown reached $4.3 million in Q2 FY2025, partially offset by non-GAAP add-backs, while additional workforce reductions spanned global operations.

From a cash flow perspective, there was a sharp swing from positive to negative free cash flow on a GAAP basis in Q2 FY2025 versus Q2 FY2024. The company reported $(14.8) million in free cash flow in Q2 FY2025, as it stepped up capital spending, particularly for new machining capacity in Malaysia. At the end of Q2 FY2025, GAAP cash and equivalents stood at $92.2 million, down from $109.3 million at the end of Q1 FY2025. Operational difficulties aligning internal supply with customer demand during Q1 FY2025 led to unplanned purchases from external sources, reducing expected cost savings and further weighing on profit margins.

Ichor’s operational strategy during the period focused on adapting manufacturing and supply chain resources to manage tariff exposure and customer timelines. The company cited continued work to bring internal gas panel component supply online for its top four customers, a key step toward long-term margin goals. However, the pace of transition was behind expectations, with management stating full internalization and related margin upside should become more visible for the second half of the year -- though those ambitions have been scaled back from earlier hopes. Management did not announce or change any dividend for the period.

Forward Outlook and What to Watch

For the third quarter of 2025, management expects revenue between $225 million and $245 million, with a midpoint just below the current quarter’s level—the Q3 2025 revenue guidance midpoint of $235 million versus Q2 2025 actual revenue of $240.3 million, both on a GAAP basis. Guidance for non-GAAP earnings per share is $0.06 to $0.18 in Q3 FY2025, with the midpoint implying a recovery from recent lows. While company leadership expects sequential improvement in gross margins—targeting 15% to 16% for the second half of FY2025 -- it has backed away from forecasts of achieving full-year gross margin levels above prior years in FY2025.

Management points to ongoing uncertainties, especially related to tariffs on steel and broader industry demand volatility. Some manufacturing in Malaysia and Mexico helps reduce the impact of certain tariffs, but cost unpredictability remains. Citing shorter visibility into customer plans for the second half, investors should watch for updates on the pace of proprietary component adoption, cost management from restructuring efforts, and further changes in customer demand or macro policies impacting semiconductor equipment spending.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.