FORMFACTOR INC Q2 FY2025 earnings call

• Business is driven by 2 dominant themes: advanced packaging and generative AI. • Probe Cards segment saw higher-than-anticipated growth in DRAM probe card business, with HBM driving sequential growth in Q2 and expected continued growth in Q3. Foundry and logic probe card market had stronger second quarter demand with seasonal ramps, but expected moderate reduction in Q3. • Systems segment experienced slight sequential revenue reduction in Q2 due to pushouts, but expects sequential growth and improved product mix in Q3 driven by advanced technologies like CPO and quantum computing. • Made strategic investments: minority equity investment in FICT and purchase of a manufacturing facility in Farmers Branch, Texas.

Probe Cards segment in the second quarter had revenues of $162.1 million. Foundry and logic revenues were $100 million, accounting for 50.8% of total company revenues. DRAM revenues were $57.1 million, making up 29.1% of total quarterly revenues. Systems segment in the second quarter had revenues of $33.7 million, comprising 17.2% of total company revenues. Probe Cards segment gross margin was 38.3% in Q2, an increase from Q1. Systems segment gross margin was 39.4% in Q2, a decrease from Q1.

• Expect Q3 revenue comparable to Q2, with slightly higher gross margin and operating profit. • Q3 revenues expected around $200 million plus or minus $5 million. • Non-GAAP gross margin expected at 40% plus or minus 150 basis points, with tariffs potentially adding 1 to 2 percentage points headwind. • Committed to target financial model of 47% gross margin on $850 million of annual revenue.

• Tariffs could impact gross margins, with potential increase in tariffs on August 1 or other rules imposing additional headwinds. • Potential supply chain disruptions. • Regulatory changes, including tariffs and export controls, could affect business performance.

Q: How much residual customer or HBM4 product cost is still embedded in the third quarter gross margin guide?

A: There is no additional ramp-up cost assumed in Q3 for this HBM customer or others.

Q: Thoughts on third quarter trends and impact on gross margins?

A: Business is driven by advanced packaging and generative AI. Focus on growing foundry and logic market share, with DRAM expected to grow driven by HBM strength and systems levered by CPO and quantum computing. This continues to be a challenging product mix for gross margins.

Q: Impact of new Texas facility on P&L?

A: The Farmers Branch facility is in a lower-cost region, but impact on P&L will be seen as the facility ramps up, with updates provided as progress is made.

Q: HBM customer ramp-up cost issue?

A: Resolved the specific issue associated with one HBM design in Q2, and with all 3 major HBM manufacturers now at volume, no more like this expected.

Q: Hyperscaler and GPU customers in second half?

A: Making progress in qualifying for GPU testing, with expectation of generating revenue from hyperscaler custom ASIC in the second half. On GPU front, rapidly catching up and moving into volume pilot production.

Q: Tariffs and supply chain diversification?

A: Working closely with vendors on supply chain mitigation, but tariffs have a negative impact on gross margin under different scenarios.

Q: Silicon photonics ramps?

A: Multiple systems in pilot production for CPO, preparing for high-volume production in 2026 as silicon photonics is a key part of reducing data center energy consumption