FORMFACTOR INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Strategic Developments: The company announced acquiring 20% of FICT Limited, a supplier of complex multi-layer organic substrates, and entered into technology partnership and share purchase agreements with Advantest Corporation, building on prior collaborations.
• Segment Details:
  • DRAM probe-card: Record Q4 revenue with DDR5 demand and sequential HBM growth. The first quarter is expected to see a reduction in non-HBM probe cards due to export controls. The transition to HBM4 designs will drive growth in the middle of 2025.
  • Foundry and Logic probe-card: Q4 revenues were lower than prior quarters, with no 10% customer. The first quarter is expected to be similar to Q4, with weak end markets like client PCs and mobile handsets.
  • System segment: Sequential revenue increase in Q4, driven by quantum computing and high-performance compute. Co-package optics is expected to ramp in volume later in 2025 and 2026.
• Initiatives: The company refreshed its DRAM product roadmap, expanded and diversified its Foundry and Logic market position, including new customer qualifications.

Segment Performance

• Probe-card segment:
  • Q4 2024: Revenues were $150.3 million, down from Q3 due to lower Foundry and Logic and Flash revenues, but DRAM revenue reached a record $63.3 million. For fiscal 2024, probe-card segment revenues totaled $626 million, up from $498 million in fiscal 2023. Foundry and Logic revenues in Q4 2024 were $83 million, a 22.5% decrease from Q3. DRAM revenues in Q4 2024 were a record $63.3 million, up 5.2% from Q3. HBM revenues in Q4 2024 were $32 million, up from $29 million in Q3; fiscal 2024 HBM revenues totaled $126 million, a nearly $100 million increase from fiscal 2023. Flash revenues in Q4 2024 were $3.7 million, down from Q3.
  • System segment: Q4 2024 revenues were $39.2 million, $3.4 million higher than Q3, comprising 20.7% of total company revenues. For fiscal 2024, system segment revenues were $137.6 million, down from fiscal 2023 due to the sale of the FRT business.

Guidance

• Q1 2025 Outlook: The company expects Q1 2025 revenues of $170 million ± $5 million, a non-GAAP gross margin of 38% ± 150 basis points, and non-GAAP EPS of $0.19 ± $0.04.
• Fiscal 2025: The company expects similar capital expenditure levels as fiscal 2024. It anticipates an overall increase in demand for its products as 2025 progresses, driven by the HBM4 transition, PC recovery, and new customer qualifications.

Risks

• Export Controls: Restrictions on shipping probe cards for advanced node DRAM designs to China limit the company's ability to serve customers in the region.
• Market Volatility: Weak demand in high unit volume markets such as client PCs and mobile handsets impacts Foundry and Logic probe-card revenue.

Question and Answer

Q: Charles Shi asks about non-HBM DRAM probe cards and the impact of China demand.

A: Mike Slessor explains that the sequential decline in non-HBM DRAM in Q1 is due to export controls to China, with HBM being the highlight in the DRAM probe card business.

Q: Craig Ellis asks about volume impacting the business.

A: Mike Slessor explains that probe card demand is driven by new design releases and volume ramping, with weak PC and mobile markets affecting volume.

Q: Brian Chin asks about the recovery of the Foundry Logic business.

A: Mike Slessor expects the Foundry Logic business to return with a PC refresh and new customer qualifications.

Q: David Duley asks about the HBM outlook and hyperscalers.

A: Mike Slessor talks about the HBM4 ramp in the middle of 2025 and hyperscalers' custom ASICs as a new growth area.

Q: Tom Diffely asks about the impact of Foundry Logic being smaller on gross margin.

A: Shai Shahar mentions the company is working on a lower-cost DRAM architecture and targeting a higher market share in Foundry Logic to improve margins.

Q: Christian Schwab asks about HBM growth.

A: Mike Slessor expects HBM to grow faster in 2025 due to the move from HBM3 to HBM4 and higher test intensity.