FORMFACTOR INC Q1 FY2025 earnings call

Key Points

• First quarter revenue and profitability were lower due to reduced demand for DRAM probe cards and systems. Second quarter expected double-digit sequential revenue growth driven by hyperscalers' generative AI investments, HBM probe cards, and foundry/logic probe cards.
• Tariffs impact revenue and gross margin; no indication of tariff-related pull-ins. Manufacturing ~80% in US, facing cost impacts from tariffs on imports and exports to China.
• DRAM probe cards saw Q1 revenue reduction due to export controls, but Q2 expected to return to record levels with HBM growth. Foundry logic probe cards saw Q1 demand comparable to Q4, with acquisition of FICT Limited for multilayer organic substrates.
• Systems segment expected moderate sequential growth driven by quantum computing and co-package optics (CPO). Completed acquisition of FICT Limited to solidify access to multilayer organic substrates.

Probe card segment revenues were $136.5 million in Q1, a decrease of $13.8 million or 9.2% from Q4. The decrease was driven by lower DRAM and Flash revenues, partially offset by higher foundry and logic revenues. Foundry and Logic revenues in Q1 were $85 million, a $2 million or 2.4% increase from Q4, accounting for 49.8% of total company revenues. DRAM revenues were $48.9 million in Q1, $14.4 million or 22.8% lower than Q4, decreasing to 28.5% of total quarterly revenues. System segment revenues were $34.8 million in Q1, a $4.4 million decrease from Q4 and comprised 20.3% of total company revenues, down from 20.7% in Q4.

Second Quarter Outlook

• Expect revenue of $190 million plus or minus $5 million, with increase in all major markets. Non-GAAP gross margin expected to be 40% plus or minus 150 basis points. Operating expenses expected to be $52 million plus or minus $2 million. Non-GAAP EPS expected to be $0.30 plus or minus $0.04. Includes mid-single-digit million revenue reduction and 1 percentage point gross margin reduction due to tariffs.

Risks

• Uncertainty from trade restrictions, tariffs on imports/exports affecting revenue and gross margin. Geopolitical risks, including US-China trade restrictions impacting China revenue.

Q: Tariff impact quantification A: Shai mentioned mid-single-digit million revenue reduction and 1 percentage point gross margin impact from tariffs, due to imports of subcomponents from Japan/Germany.

Q: DRAM business mix and gross margin A: Q2 DRAM growth from HBM, non-HBM flat. Gross margin improvement needs better mix and internal programs.

Q: CPO impact on probe cards A: CPO is early in production, with electrical and optical test components, and potential for probe card demand as production ramps.

Q: Tariffs worst-case scenario A: Too early to speculate, dynamic and uncertain situation.

Q: HBM fab opening impact A: New fab with additional capacity drives incremental probe card demand, timing takes 2-3 quarters.