FormFactor, Inc. (FORM) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals mixed signals: while there is strong revenue growth and optimistic guidance, challenges like negative free cash flow, tariff impacts, and margin pressures persist. The Q&A highlights management's focus on long-term growth in AI and semiconductor sectors, but also exposes uncertainties in market trends and gross margins. The market cap suggests moderate volatility, leading to a neutral prediction for stock price movement.
Key Financial Performance
Q2 2025 Revenue $195.8 million, a 14.3% increase from Q1 2025 but a 0.8% decrease year-over-year from Q2 2024. The sequential increase was driven by higher revenues in all markets, especially in probe cards for foundry, logic, and DRAM.
Probe Cards Segment Revenue $162.1 million in Q2 2025, an 18.7% increase from Q1 2025. Foundry and logic revenues were $100 million, up 16.7% sequentially, while DRAM revenues were $57.1 million, up 16.8% sequentially. HBM revenues within DRAM increased by $7.4 million to $37 million.
Systems Segment Revenue $33.7 million in Q2 2025, a $1.1 million decrease from Q1 2025. The decline was attributed to pushouts in shipments, though these systems have since been shipped.
Non-GAAP Gross Margin 38.5% in Q2 2025, down from 39.2% in Q1 2025 and at the low end of the outlook range. The decline was due to lower systems revenues, higher manufacturing costs, and ramp-up costs for an HBM DRAM customer.
GAAP Operating Expenses $60.6 million in Q2 2025, down from $61.3 million in Q1 2025. Non-GAAP operating expenses were $52.5 million, up $2.3 million from Q1 2025 due to higher compensation, labor costs, and expenses from the new manufacturing facility.
Non-GAAP Operating Income $22.8 million in Q2 2025, a 35.2% increase from $16.9 million in Q1 2025. The increase was driven by higher revenues, partially offset by lower gross margins and increased operating expenses.
Non-GAAP Net Income $21.2 million in Q2 2025, or $0.27 per fully diluted share, up from $18 million or $0.23 per share in Q1 2025. The increase was due to higher revenues and operating income.
Free Cash Flow Negative $47.1 million in Q2 2025, compared to positive $6.3 million in Q1 2025. The decline was primarily due to a $55 million purchase of the Farmers Branch manufacturing facility.
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Operating Highlights
Probe Cards: Sequential growth in DRAM probe cards driven by HBM. FormFactor is now shipping to all three major HBM manufacturers, diversifying its demand profile. Foundry and logic probe cards saw seasonal ramps in mobile application processors and PC microprocessors.
Systems Segment: Sequential reduction in Q2 revenue due to pushouts, but expected growth in Q3 driven by advanced technologies like co-packaged optics and quantum computing.
HBM Market: FormFactor strengthened its leadership in HBM probe cards, with bit growth accelerating and diversified demand across three major manufacturers.
Foundry and Logic Market: Seasonal demand for mobile application processors and PC microprocessors contributed to sequential growth in Q2, though a moderate reduction is expected in Q3.
Manufacturing Expansion: Acquired a manufacturing facility in Farmers Branch, Texas, to expand capacity and reduce costs. The facility benefits from lower operating costs and financial incentives.
Operational Challenges: Gross margin impacted by product mix shift, operational cost increases, and tariffs. Steps are being taken to address these issues, including new product development and operational improvements.
Strategic Investments: Made a minority equity investment in FICT, a supplier of multilayer organic substrates, and acquired a manufacturing facility to enhance competitiveness and profitability.
Advanced Packaging and AI: Focused on advanced packaging and generative AI as key growth drivers, leveraging innovations like DRAM chiplet stacking and co-packaged optics.
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Risk or Challenges
Gross Margin Underperformance: The company has faced gross margin underperformance due to an unfavorable product mix shift towards historically lower-margin markets like DRAM, operational cost increases, and headwinds from tariffs.
Tariffs and Regulatory Changes: Tariffs and potential increases in tariffs have negatively impacted gross margins and could further reduce profitability if tariffs increase.
Operational Costs: Higher manufacturing costs, including ramp-up costs for specific customer requirements, have increased operational expenses and impacted profitability.
HBM Demand Volatility: Quarter-to-quarter volatility in HBM demand due to concentrated output in a small number of designs with short lead times creates unpredictability in revenue.
Systems Segment Revenue Decline: The Systems segment experienced a sequential revenue decline due to pushouts, impacting overall revenue and gross margins.
Increased Tax Rate: The passage of the One Big Beautiful Bill (OBBB) has increased the effective tax rate, raising income tax expenses and impacting net income.
High Capital Expenditures: The purchase of the Farmers Branch manufacturing facility and related investments have significantly increased capital expenditures, reducing free cash flow.
Seasonal Demand Fluctuations: Seasonal reductions in demand for foundry and logic probe cards are expected, which could impact revenue in the third quarter.
Customer-Specific Ramp-Up Costs: Additional ramp-up costs to meet unique performance requirements for an HBM4 design have increased operational expenses.
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Guidance & Outlook
Revenue Expectations: In Q3 2025, FormFactor expects revenues of $200 million, plus or minus $5 million, with increases in systems and DRAM, including HBM, and a decrease in foundry and logic.
Gross Margin Projections: Non-GAAP gross margin for Q3 2025 is expected to be 40%, plus or minus 150 basis points. This includes a 1 to 1.5 percentage point reduction due to tariffs, which could increase to 1.5 to 2 percentage points if tariffs rise.
Capital Expenditures: Annual CapEx for 2025 has been increased to $110 million to $130 million, up from the previous range of $35 million to $45 million, primarily due to investments in the Farmers Branch manufacturing facility.
Tax Rate Projections: The effective tax rate for Q3 2025 is expected to be approximately 31%, including a one-time catch-up for income taxes for the first and second quarters. The annual effective tax rate is projected to be in the range of 19% to 23%.
Systems Segment Growth: Sequential growth and an improved product mix are expected in the Systems segment for Q3 2025, driven by shipments that were pushed out from Q2.
HBM and DRAM Growth: Continued growth in both HBM and DRAM overall is expected in Q3 2025, with FormFactor shipping in volume to all three major HBM manufacturers.
Foundry and Logic Market: A moderate reduction in demand is expected in the foundry and logic probe card market for Q3 2025 due to seasonal factors.
Advanced Technologies: High-volume production for co-packaged optics (CPO) is anticipated in the first half of 2026, with pilot production systems already in place. Quantum computing advancements are ongoing, with high-volume production expected in a few years.
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Shareholder Return Plan
Share Repurchase Program: During the second quarter, we used $2.4 million to repurchase shares. At quarter end, $72.6 million remained available for future purchases under the $75 million 2-year buyback program that was approved and announced in April 2025. Our capital allocation strategy has not changed, and our share repurchase program goal is to offset dilution from stock-based compensation.
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Key Q&A
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. The issue with the customer was resolved in the third quarter.
Q:Do you think the trend of higher sequential DRAM systems and lower sequential logic/foundry could persist in the 4Q as well?
A:Management did not provide guidance for Q4 but noted that the business and industry are driven by advanced packaging and generative AI. They are focusing on growing the foundry and logic business in areas like GPUs, hyperscalers, and custom ASICs. DRAM growth is expected to continue, driven by HBM strength, but the product mix remains challenging for gross margins.
Q:Do you see better wafer test intensity and margin potential out of HBM4 products?
A:HBM4 has more challenging test requirements, offering opportunities for higher ASPs for high-speed cards. The crossover between HBM3 and HBM4 is expected in the latter part of 2025.
Q:Are there any headwinds from tariffs or competitor pricing affecting the third quarter gross margin guide?
A:The 40% gross margin guide assumes 1 to 1.5 percentage points headwinds from tariffs, which could increase to 2 percentage points if new rules are imposed. There are no significant changes in competitor pricing.
Q:How does the company plan to bridge the gross margin gap to reach the target model?
A:The company plans to bridge the gap through volume growth, operating cost reductions, and initiatives to grow foundry and logic market share, such as GPU qualifications and addressing hyperscaler custom AI business.
Q:What is the impact of the new facility in Texas on the P&L and long-term margins?
A:The facility is expected to lower costs due to its location in a lower-cost region and potential state and local incentives. Updates on its impact will be provided as progress is made.
Q:Will there be start-up costs for the third high-bandwidth memory customer?
A:No additional start-up costs are expected for the third HBM customer. The issue with one customer in Q2 was specific to a single design and has been resolved.
Q:How has the market share evolved with the second HBM customer compared to the leader?
A:The company has a strong share position with the #1 customer but sees significant share opportunity with the second customer. Execution and capacity improvements are needed to capture this opportunity.
Q:What is the revenue trend for the microprocessor customer undergoing restructuring?
A:There has been no significant change in the relationship, but revenue volatility reflects changes in programs, priorities, and demand. The company aims to diversify its customer base to mitigate such impacts.
Q:What is the outlook for hyperscaler and GPU customers in the second half of the calendar year?
A:The company expects growth in these areas, with progress in qualifying for GPU testing and contributions from hyperscaler custom ASICs. However, quarter-to-quarter volatility is expected.
Q:Why is the company bringing on additional capacity in Texas despite a flat revenue outlook?
A:The facility is a long-term investment to support expected growth in the semiconductor industry and increased test intensity in markets like HBM. It was an opportunistic purchase to secure future capacity.
Q:What is the status of silicon photonics and co-packaged optics pilot production?
A:Multiple systems are in pilot production, with a focus on hardening the technology for high-volume production by 2026. This technology is seen as critical for reducing data center energy consumption.
Q:What is the impact of tariffs on gross margins, and how is the company addressing it?
A:Tariffs have a significant impact, with 1.5 percentage points headwind in Q3. The company is evaluating supply chain changes and drawback options to mitigate the impact.
Q:Review of Unclear Management Responses
A:Management avoided providing direct guidance for Q4 revenue and gross margins, using vague language about trends and focusing on long-term strategies instead of specific details.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CPO
Capital
Craig
Farmers Branch
HBM demand
IQ
LLC Research
Research Division
advancement
capability
chiplet
chiplets
competitiveness
competitor
demand market
demand profile
foundry
incentive
innovation
investment FICT
lead time
logic
manufacturing facility
market level
market share
package
path
point FormFactor
process
processor
purchase
purpose
quality
quarter
segment market
shift
step
tariff
tool
variety
volatility
FORM Transcript
FormFactor, Inc. (FORM) Q1 2026 Earnings Call Transcript
Positive5-4
The earnings call summary suggests positive sentiment with projections of revenue growth, gross margin expansion, and strategic partnerships. The Q&A section reveals operational improvements, strategic focus on CPO, and optimism for future growth despite some constraints. The Farmers Branch expansion and Advantest partnership add further potential. Overall, the company's strong financial performance and optimistic guidance, along with strategic initiatives, indicate a positive stock price movement.
FormFactor, Inc. (FORM) Q4 2025 Earnings Call Transcript
Positive2-4
The earnings call summary indicates strong financial performance, optimistic guidance, and strategic investments in growth areas like AI and data centers. Despite tariff headwinds, the company is focused on sustainable cost improvements and capacity expansion. Management's confidence in meeting demand and the potential for market share gains in the DRAM and AI markets further support a positive outlook. Given the company's market cap and the positive catalysts, a stock price increase of 2% to 8% is expected over the next two weeks.
FormFactor, Inc. (FORM) Q3 2025 Earnings Call Transcript
Positive10-29
The earnings call summary and Q&A indicate a positive outlook. Strong growth is expected in HBM and DRAM, with significant revenue contributions from custom ASICs and networking silicon. Gross margins are improving, and the Farmers Branch facility will enhance future margins. Despite some uncertainties, such as the impact of CPU and GPU ramps, the overall sentiment is optimistic. The market cap suggests a moderate reaction, leading to a likely positive stock price movement in the next two weeks.
FormFactor, Inc. (FORM) Q2 2025 Earnings Call Transcript
Unknown7-30
The earnings call reveals mixed signals: while there is strong revenue growth and optimistic guidance, challenges like negative free cash flow, tariff impacts, and margin pressures persist. The Q&A highlights management's focus on long-term growth in AI and semiconductor sectors, but also exposes uncertainties in market trends and gross margins. The market cap suggests moderate volatility, leading to a neutral prediction for stock price movement.
FORM Slides
FORM Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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Why do some answers appear as “Unclear” or “Inaudible”?
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
