- Revenue: $197.5 million, a 17% sequential increase and a 26.7% year-over-year increase.
- Non-GAAP Gross Margin: 45.3%, 0.3 percentage points above the midpoint of the outlook range.
- Probe-Card Segment Revenue: $167 million, a 22% increase from the first quarter.
- Systems Segment Revenue: $30.7 million, a $1.3 million decrease from the first quarter.
- Foundry and Logic Revenue: $104 million, a 19.5% increase from the first quarter.
- DRAM Revenue: $58 million, a 26.5% increase from the first quarter.
- HBM Revenue: Over $43 million, nearly doubling from $22 million in Q1.
- Flash Revenue: $5.1 million, a $1.1 million increase from the first quarter.
- GAAP Gross Margin: 44%, up from 37.2% in Q1.
- Non-GAAP Operating Income: $28.5 million, a 120% increase from $13 million in the first quarter.
- Non-GAAP Net Income: $27.3 million, or $0.35 per fully diluted share, nearly doubling from $14.3 million or $0.18 per share in Q1.
- Free Cash Flow: $14.2 million, down from $19.7 million in Q1.
- Capital Expenditures: $8.4 million, down from $13.4 million in Q1.
- Total Cash and Investments: $366 million, an increase of $8 million from Q1.
- Stock Buyback: $2.9 million used in Q2, with $53.5 million remaining under the authorization.
- Q3 Revenue Outlook: $200 million plus or minus $5 million.
- Q3 Non-GAAP Gross Margin Outlook: 43% plus or minus 150 basis points.
- Q3 Non-GAAP EPS Outlook: $0.31 plus or minus $0.04.
Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- FormFactor Inc (FORM, Financial) exceeded the midpoint of its revenue, non-GAAP gross margin, and non-GAAP EPS outlook for Q2 2024.
- DRAM probe-card revenue reached record levels, with high-bandwidth memory (HBM) revenue doubling for the third consecutive quarter.
- The company's diversification strategy across foundry and logic, DRAM, and Flash probe-cards, along with Systems segment products, provides stable results and growth.
- FormFactor Inc (FORM) is well-positioned in expanding areas like high-bandwidth memory, DRAM probe-cards, and co-packaged silicon photonics.
- Non-GAAP operating income for Q2 more than doubled to $28.5 million from $13 million in Q1, demonstrating strong leverage in the operating model.
Negative Points
- FormFactor Inc (FORM) expects a shift in DRAM product mix with a reduction in HBM shipments in Q3, which could impact revenue.
- The company operates with lead times of less than a quarter, limiting its visibility into future demand.
- Non-GAAP gross margin for Q3 is expected to decrease due to a less favorable product mix, with higher DRAM revenue and lower HBM revenue.
- GAAP operating expenses increased to $69.4 million in Q2 from $61.7 million in Q1, impacting overall profitability.
- The geopolitical and regulatory environment, including US-China trade restrictions, poses ongoing risks to the company's operations and supply chain.
Q & A Highlights
Q: Can you provide more details on the expected reacceleration of high-bandwidth memory (HBM) growth after the third quarter digestion period?
A: Michael Slessor, President, Chief Executive Officer, Director: We doubled HBM revenue to 75% of our DRAM revenue in Q2. This growth is driven by hyperscaler investments in generative AI, which in turn drives our DRAM customers to increase their HBM capacity. Although we have limited direct visibility beyond Q3, conversations with customers and ongoing investments suggest that the Q3 pause is a temporary digestion phase, with growth expected to resume in one to two quarters.
Q: Are you seeing any signs of digestion in the foundry and logic segment similar to what was noted for DRAM?
A: Michael Slessor, President, Chief Executive Officer, Director: We expect foundry and logic demand in Q3 to be similar to Q2, driven by advanced packaging technologies like Foveros and co-los. Despite muted end markets like PCs, the increased test intensity and complexity from advanced packaging are maintaining solid demand for probe cards.
Q: Is the growth in DDR5 probe cards indicative of a broader DRAM market recovery?
A: Michael Slessor, President, Chief Executive Officer, Director: The significant step-up in DDR5 probe card demand in Q3 is encouraging and comparable to previous cyclical highs. While it's too early to definitively say if this marks the start of a broader DRAM upturn, the improving DRAM spot pricing and customer narratives suggest a potential recovery.
Q: What is driving the mid-year strength in the foundry and logic segment?
A: Michael Slessor, President, Chief Executive Officer, Director: The mid-year strength is driven by the seasonal ramp of new mobile application processor designs and stronger demand for client PC and server microprocessor designs. This trend is expected to continue into Q3 with a similar customer and product mix.
Q: How do you see the competitive landscape evolving for HBM probe cards as other DRAM manufacturers ramp up their production?
A: Michael Slessor, President, Chief Executive Officer, Director: Currently, we are over-indexed to the leader in HBM market share, but we expect the share to balance out as other DRAM manufacturers gain traction with HBM4. The transition to HBM4, with its increased speed requirements and stacking complexity, presents a significant opportunity for us.
Q: What impact will the shift from HBM to DDR5 have on gross margins in Q3?
A: Shai Shahar, Chief Financial Officer: The shift from HBM to DDR5 within DRAM will result in a less favorable product mix, contributing to a decrease in non-GAAP gross margins in Q3. The overall increase in DRAM revenue as a percentage of total revenue also impacts margins.
Q: Can you provide more details on the progress with qualifications of MEMS-based probe cards for GPU tests?
A: Michael Slessor, President, Chief Executive Officer, Director: We are in the qualification process for MEMS-based probe cards required for advanced packaging of GPUs at the world's largest foundry. While our major competitor has the initial business, we are focused on qualifying and competing for this strategic opportunity in 2024.
Q: What is the outlook for the adoption of co-packaged optics in data centers, and how significant could this market be?
A: Michael Slessor, President, Chief Executive Officer, Director: We are in the early stages of pilot production for co-packaged optics, which has the potential to significantly reduce power consumption in data centers. We expect the adoption curve to begin in late 2025 into 2026, providing a new growth vector for our systems and probe-card businesses.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
