FORMFACTOR INC Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Revenue and Margin Performance: Fourth-quarter revenue, gross margin, and earnings per share all exceeded expectations, with record quarterly and annual revenue. Focus on improving gross margins with rapid actions leading to 290 basis points sequential increase in Q4 and forecasted 100+ basis points in Q1.
• Market Positions: Leading in HBM, DRAM, network switches, foundry, and logic; making progress in GPUs and custom ASICs.
• Operational Actions: Reducing workforce, improving manufacturing yields, innovating to reduce manufacturing spending, reducing cycle times; acquisition of Keystone Photonics strengthened optical test capabilities.
• Future Plans: Farmers Branch site expected to come online later this year, providing increased capacity with lower cost; Analyst Day on May 11 to share next target financial model.

Segment Performance

• DRAM Probe Cards: Fourth-quarter saw sequential growth to a new record, driven by non-HBM DRAM applications like DDR4 and DDR5. First-quarter expected to be an all-time record on HBM strength, with contributions from HBM3E and early HBM4 ramp. Revenue contribution from DRAM probe cards is significant, especially with HBM growth.
• Foundry and Logic Probe Card: Fourth-quarter demand was comparable to third quarter; first-quarter expected increased demand, particularly from data center applications like network switches.
• System Segment: Fourth-quarter had sequential revenue increase driven by customer investment in co-package optics and quantum computing. First-quarter expected seasonal reduction in co-package optics demand, but acquisition of Keystone Photonics strengthened optical test capabilities.

Guidance

• Q1 2026 revenue expected to be $225 million plus or minus $5 million.
• Non-GAAP gross margins expected to be 45% plus or minus 150 basis points.
• Non-GAAP operating expenses for Q1 expected to be $62 million plus or minus $2 million.
• Non-GAAP earnings per fully diluted share for Q1 expected to be $0.45 plus or minus $0.04.

Risks

• Supply chain disruptions.
• Macroeconomic and geopolitical conditions.
• Regulatory changes including tariffs and export controls.
• Volatility in product demand.

Question and Answer

Q: Strong gross margin performance, what's the big change?

A: Actions like reducing workforce, improving yields and cycle times drove faster than expected margin improvement.

Q: Memory side growth, how linked to industry dynamics?

A: Robust demand environment, ATE manufacturers' forecasts support continued memory DRAM growth.

Q: Foundry logic market this year?

A: Expected growth with share gain opportunities from networking, GPU qualification, but challenges from traditional end markets.

Q: HBM revenue and mix?

A: Q1 HBM revenue skewed to largest customer, mix between HBM and DDR dynamic based on customer choices.

Q: GPU qualification and custom ASIC?

A: Making progress in GPU qualification, expecting revenue in second half; custom ASIC has multimillion-dollar design wins and growing opportunity.