FORMFACTOR INC Q3 FY2026 earnings call

• Broad-Based Growth: Revenue, gross margin, and EPS exceeded the high end of outlooks, continuing a theme of strong performance across high-performance compute and advanced packaging.
• Farmer’s Branch Ramp: The new 300,000 sq ft facility in Texas is now online, with assembly and test qualified and the first production unit shipped. This is the top priority for 2027 to unlock capacity.
• Strategic Partnerships: Formalized collaboration with Teradyne ($300M investment) and Advantest to accelerate next-gen semiconductor applications like HBM and CPO, reinforcing an open ecosystem.
• Photonics Leadership: Keystone Photonics integration is driving growth in CPO, Near Package Optics (NPO), and pluggable devices, leveraging FormFactor's decade-long first-mover advantage.
• Operational Efficiency: Improved cycle times, yields, and labor performance have raised the non-GAAP gross margin baseline to ~53%, reducing reliance on favorable product mix.

Revenue reached $280.5 million, up 9% sequentially and ~40% year-over-year. The Foundry and Logic segment grew 10% sequentially, driven by broad-based strength in PCs, mobile, data center CPUs, and new GPU/ASIC designs. DRAM probe card revenue remained essentially flat at record levels from Q2, with a mix shift from HBM to DDR5 due to customer pricing strategies. The System segment achieved a record $59.5 million, up 23% sequentially, led by accelerating demand for Triton systems in co-package optics (CPO) applications.

• Q4 2026 Revenue: Approximately $285 million, plus or minus $10 million.
• Q4 2026 Non-GAAP Gross Margin: Approximately 54%, plus or minus 150 basis points.
• Q4 2026 Non-GAAP Operating Expenses: Approximately $69 million, plus or minus $2 million.
• Q4 2026 Non-GAAP EPS: 95 cents, plus or minus 9 cents.
• Full Year 2026 Outlook: On track to exceed $1 billion in revenue, approaching the long-term target model of $1.6 billion revenue and $5 EPS.
• 2027 Capacity: Expect Farmers Branch to reach approximately $400 million in annual probe card revenue capability by the end of 2027.

• Supply Chain and Tariffs: Potential disruptions in supply chain and impacts of regulatory changes, including tariffs and export controls, though recent tariff refunds provided a one-time boost.
• Manufacturing Ramp Risks: New factory ramps typically involve temporary inefficiencies; however, management expects these to be offset by volume and efficiency gains.
• Demand Volatility: Uncertainty in demand for products, particularly shifts between HBM and DDR5 in the DRAM market, which affects product mix but not total revenue significantly.
• Execution Risk: Ability to develop, produce, and sell products at scale while maintaining quality standards during the aggressive ramp of Farmers Branch.

Q: How does the HBM 'despec' (fewer dies per stack) impact FormFactor's business? / A: Management sees no significant headwinds. While HBM revenue dropped slightly due to mix shifts rather than volume declines, the company remains differentiated in final stack tests. The roadmap continues toward higher speeds (HBM4E/HBM5), where FormFactor’s high-speed test technology provides a competitive edge.

Q: What are the primary drivers of Foundry and Logic growth, and how is TSMC exposure evolving? / A: Growth is driven by CPUs for agentic AI use cases, benefiting both x86 and ARM architectures. TSMC remains a >10% customer, with the business diversifying from historical mobile processors to high-performance compute and custom ASICs, reflecting the company’s broader strategy.

Q: Can Triton system demand grow another 3-4x given current capacity constraints in probe cards? / A: Yes, Triton faces fewer capacity constraints because it relies more on external subcomponents and assembly rather than vertical integration. Management does not expect capacity to limit Triton’s growth, which is expected to continue expanding into NPO and pluggable markets.

Q: What is the expected linearity and timing of the Farmers Branch ramp in 2027? / A: The ramp is expected to be roughly linear throughout 2027, starting near zero and reaching $400 million in annual capability by year-end. Capacity is currently the limiting factor for growth, making this the company’s top priority.

Q: Is the improvement in DRAM gross margins driven by price increases or cost reductions? / A: The improvement is primarily driven by structural cost reductions in manufacturing (labor, yields, efficiency) rather than price increases. FormFactor operates on value-based pricing, and the margin gain reflects improved operational execution rather than commodity pricing power.