• Revenue: $207.9 million, an all-time company record, 5.3% increase from Q2, 21.2% year-over-year increase.
• Non-GAAP Gross Margin: 42.2%, 0.8 percentage points below the midpoint of the range.
• Probe Card Segment Revenue: $172.2 million, 3.2% increase from Q2.
• Systems Segment Revenue: $35.7 million, $5.1 million increase from Q2, 17.2% of total company revenues.
• Foundry and Logic Revenue: $107 million, 3.7% increase from Q2.
• DRAM Revenue: $60.2 million, 3.7% increase from Q2.
• HBM Revenue: Declined from $43 million in Q2 to $29 million in Q3.
• Flash Revenue: $4.5 million, down $0.5 million from Q2.
• GAAP Gross Margin: 40.7%, compared to 44% in Q2.
• Non-GAAP Operating Expenses: $59.3 million, 28.5% of revenues.
• Non-GAAP Net Income: $27.2 million, $0.35 per fully diluted share.
• Free Cash Flow: $20 million, compared to $14.2 million in Q2.
• Capital Expenditures: $8.9 million in Q3.
• Stock Buyback: $16.9 million used in Q3, $36.6 million remaining under authorization.
• Q4 Revenue Outlook: $190 million, plus or minus $5 million.
• Q4 Non-GAAP Gross Margin Outlook: 41%, plus or minus 150 basis points.
• Q4 Non-GAAP EPS Outlook: $0.29, plus or minus $0.04.

• Warning! GuruFocus has detected 5 Warning Signs with FORM.

Release Date: October 30, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• FormFactor Inc (NASDAQ:FORM) achieved an all-time record revenue in the third quarter, driven by growth in both segments.
• DRAM probe-card revenue set a third consecutive quarterly record, highlighting the company's strong market position.
• The company's diversification strategy across Foundry and Logic, DRAM, and Flash probe cards is providing stable results and exposure to industry growth trends like generative AI.
• FormFactor Inc (NASDAQ:FORM) is seeing strong demand for DDR5 and high-bandwidth memory (HBM), which is expected to continue into the fourth quarter.
• The company is making progress in qualifying new customers and expanding its market position in high-performance compute GPU applications, reducing dependence on mobile and client PC markets.

Negative Points

• Gross margins in the third and fourth quarters are below the target model due to a challenging product mix, particularly the DRAM-rich mix.
• The foundry and logic probe-card demand is expected to decrease in the fourth quarter, impacting overall revenue.
• Unexpected quality-related costs in the systems segment affected gross margins in the third quarter.
• The geopolitical environment, particularly US-China trade restrictions, poses risks to FormFactor Inc (NASDAQ:FORM)'s business operations.
• The company faces potential fluctuations in demand due to macroeconomic conditions and customer-specific factors, leading to uncertainties in future revenue projections.

Q & A Highlights

Q: Have you started seeing weakness in your large US customer, and how do you reconcile their weakness with expected revenues in 2025? A: Mike Slessor, CEO: We are seeing weakness in the foundry and logic market, particularly in client PC and mobile handset sectors. Our visibility into 2025 is limited, but we are focusing on diversifying our Foundry and Logic business to include AI-driven applications like GPUs to mitigate this weakness.

Q: Is HBM expected to grow after the digestion period in September, and what caused this digestion? A: Mike Slessor, CEO: Yes, HBM is expected to grow sequentially in Q4. The digestion was anticipated after strong Q2 results. Growth is driven by resumed spending from the leading HBM provider and increased activity from another DRAM customer.

Q: How does the transition to HBM4 affect probe card demand, and can probe card TAM grow despite tester TAM being flat to down? A: Mike Slessor, CEO: Probe cards are consumables specific to each chip design, so transitions like HBM3 to HBM4 drive demand for new probe cards. The increase in test intensity and complexity with HBM4 supports TAM growth for probe cards, even if tester TAM is flat.

Q: Can you provide insights into the increase in revenue from China in Q3? A: Mike Slessor, CEO: The increase was primarily in DRAM and likely represents a last-time buy from a leading DRAM customer in China. We do not view this as sustainable due to geopolitical issues and expect domestic China revenue to decrease over time.

Q: What are the expectations for HBM revenue growth in 2025, considering the transition to higher stack counts and increased DRAM bit growth? A: Mike Slessor, CEO: We expect HBM revenue to grow in 2025, driven by increased capacity and transitions from HBM3 to 3E to 4. The growth is contingent on continued hyperscaler AI spending, which drives GPU demand and HBM attachment.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.