FormFactor, Inc. (FORM) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Revenue Q4 '25 revenues of $215.2 million, a year-over-year increase. Reasons for the increase include improved gross margins, operational effectiveness, and higher demand in key markets like DRAM and Foundry & Logic.
Gross Margins Q4 '25 GAAP gross margins were 42.2%, up 240 basis points from Q3. Non-GAAP gross margins were 43.9%, up 290 basis points from Q3. Reasons for the improvement include operational effectiveness, reduced cycle times, higher yields, and cost reductions.
Net Income Q4 '25 GAAP net income was $23.2 million, up from $15.7 million in Q3. Non-GAAP net income was $36.6 million, up from $25.7 million in Q3. Reasons for the increase include higher revenues and improved gross margins.
Earnings Per Share (EPS) Q4 '25 GAAP EPS was $0.29, up from $0.20 in Q3. Non-GAAP EPS was $0.46, up from $0.33 in Q3. Reasons for the increase include higher revenues and improved gross margins.
Free Cash Flow Q4 '25 free cash flow was $34.7 million, up from $19.7 million in Q3. Reasons for the increase include improved net income, higher revenues, and efficient use of working capital.
Operating Cash Flow Q4 '25 operating cash flow was $46 million, up from $27 million in Q3. Reasons for the increase include improved net income and higher revenues.
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Operating Highlights
HBM4 and HBM5 Probe Cards: FormFactor is advancing its SmartMatrix architecture to meet the specifications for HBM5 and beyond, ensuring high parallelism productivity and high-speed test capability. This is producing market share gains at all three major HBM manufacturers.
GPU Probe Cards: Ongoing production qualification in leading-edge GPU applications is expected to enable FormFactor to compete for volume orders later this year.
Custom ASIC XPU: FormFactor is growing its custom ASIC XPU business, supported by a multimillion-dollar mid-2025 design win and deeper engagements with hyperscalers and their ASIC design partners.
Data Center Applications: Significant shift towards data center applications like network switches is driving growth in Foundry and Logic demand.
Co-Packaged Optics (CPO): FormFactor strengthened its leadership in CPO test with the acquisition of Keystone Photonics, enhancing optical test capabilities for photonic devices.
Gross Margin Improvements: Achieved a cumulative improvement of 540 basis points in gross margins over two quarters, with further improvements expected in Q1 2026.
Farmers Branch Expansion: New manufacturing site expected to come online later in 2026, providing increased capacity at structurally lower costs.
Operational Effectiveness: Implemented measures like workforce reallocation, improved manufacturing yields, reduced cycle times, and innovation to reduce manufacturing spending.
Market Diversification: FormFactor is diversifying its customer base, reducing reliance on historical drivers like client PC and mobile, and focusing on high-performance compute applications.
Strategic Acquisitions: Acquired Keystone Photonics to enhance capabilities in optical and electrical probe technologies, aligning with growth in CPO and data center markets.
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Risk or Challenges
Supply Chain Disruptions: Potential disruptions in the supply chain were explicitly mentioned as a risk factor, which could impact the company's ability to meet demand and maintain operational efficiency.
Regulatory Changes: The impacts of regulatory changes, including tariffs and changes in export controls, were highlighted as potential risks that could affect the company's financial performance and operational strategies.
Customer Concentration: The company's revenue from HBM applications is currently skewed towards its largest customer, which poses a risk if there are changes in this customer's demand or market share.
Product Mix and Volume Shifts: Shifts in product mix and volumes were noted as inevitable and could impact gross margins, despite operational improvements.
Farmers Branch Expansion Costs: The ramp-up of the Farmers Branch site involves significant capital expenditures and preproduction operating expenses, which could strain financial resources and impact short-term profitability.
Economic and Geopolitical Conditions: Future macroeconomic and geopolitical conditions were mentioned as uncertainties that could adversely affect the company's performance.
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Guidance & Outlook
Revenue and Gross Margin Projections: The company expects sequentially higher revenue and non-GAAP gross margin in Q1 2026. Revenue is projected at $225 million, plus or minus $5 million, with non-GAAP gross margins of 45%, plus or minus 150 basis points.
Gross Margin Expansion: Gross margins are expected to improve by 110 basis points in Q1 2026, driven by operational effectiveness, reduced cycle times, and higher manufacturing yields. Structural improvements are expected to drive durable gross margin expansion throughout 2026.
Farmers Branch Expansion: The Farmers Branch site is expected to come online later in 2026, providing increased capacity at a structurally lower cost. The ramp is expected to continue through 2027, contributing to further revenue growth and gross margin expansion.
HBM Market Growth: The company anticipates record DRAM revenue in Q1 2026, driven by HBM3E demand and the early stages of the HBM4 ramp. Increased test intensity and complexity for HBM4 and HBM5 are expected to drive higher Probe Card spending and market share gains.
Foundry and Logic Market Growth: Increased demand in Foundry and Logic is expected in Q1 2026, driven by data center applications like network switches rather than traditional drivers like client PC and mobile. The company is also progressing in GPU and custom ASIC markets, with volume orders for GPU probe cards expected later in 2026.
Co-Packaged Optics (CPO) Growth: CPO remains a growth focus, supported by the acquisition of Keystone Photonics. This acquisition enhances optical test capabilities, positioning the company for leadership in energy-efficient optical data transmission for future data centers.
Capital Expenditures: Capital expenditures related to the Farmers Branch facility are expected to be between $140 million and $170 million in 2026. Preproduction operating expenses for the site are projected at $20 million to $25 million for the year.
Target Financial Model: The company plans to share its next target financial model at an Analyst Day in May 2026, focusing on market opportunities, strategic priorities, and operational improvements.
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Shareholder Return Plan
share repurchase program: During the fourth quarter, we did not repurchase any shares. At quarter end, authorization of $70.9 million remains available for future repurchases under the $75 million 2-year buyback program that was approved and announced in April 2025. We remain committed to our share repurchase program as a tool to offset dilution from the stock-based compensation program over the 2-year period of the program. However, in the short term, we are prioritizing our deployment of cash to accelerate the ramp of our new manufacturing site in Farmers Branch.
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Key Q&A
Q:What has driven the faster-than-expected improvement in gross margins to 43.9%?
A:The improvement is attributed to workforce reductions early in Q4, improvements in cycle times and yields, and better output processes. However, the company expects slower progress in 2026 but remains on track to hit target gross margins.
Q:How does FormFactor view the memory market dynamics, particularly with HBM4 and DRAM growth?
A:FormFactor sees strong tailwinds from HBM4 transition, supplier build plans, robust pricing, and tester market growth. The company is investing aggressively to expand capacity and capture market share, expecting robust demand for memory DRAM.
Q:Can FormFactor exceed its $900 million annual run rate before Farmers Branch comes online?
A:The company believes it can execute at a $225 million quarterly run rate due to improvements in cycle times and yields. However, further capacity increases may be incremental and slower.
Q:What are the key inflections for HBM5 from a test or probe card perspective?
A:Key inflections include increased layer heights, hybrid bonding techniques, and higher speeds for individual I/O and stack throughput. FormFactor is leveraging its expertise in probing on copper to address these challenges.
Q:What is the magnitude and timing of market share gains at the top 3 DRAM OEMs?
A:FormFactor has a strong share at its #1 customer and is working to increase share at the other two DRAM manufacturers. While exact gains are uncertain, the company sees significant opportunities due to its technical differentiation.
Q:How confident is FormFactor in meeting customer demand if it exceeds $225 million per quarter before Farmers Branch is operational?
A:The company is confident in its ability to meet demand through incremental improvements in cycle times and yields. Farmers Branch remains on schedule to come online by the end of the year.
Q:Were there any one-off factors contributing to the Q4 gross margin surge?
A:About two-thirds of the improvement was due to cost initiatives like better cycle times and yields, while the rest was volume-related. The company is focused on sustainable cost improvements for long-term gains.
Q:What is driving the Q1 revenue growth, and how is it distributed between DRAM and Foundry/Logic?
A:Probe Card revenue is expected to grow by more than $10 million, with equal contributions from DRAM and Foundry/Logic. DRAM growth is driven by HBM, while Foundry/Logic benefits from data center and networking demand.
Q:How constrained are FormFactor's competitors in advanced Probe Card capacity?
A:Competitors are also adding capacity, but FormFactor is focused on its own aggressive capacity expansion, including the Farmers Branch facility.
Q:What is the size and growth potential of the AI-related Probe Card TAM?
A:The TAM for AI-related Probe Cards, including GPUs, custom ASICs, and networking, is estimated to be hundreds of millions of dollars in 2025, with significant growth expected in 2026 and beyond.
Q:What is the revenue contribution from HBM Probe Cards, and how does it compare to DDR designs?
A:HBM revenue is expected to grow to the low $50 million range in Q1, driven by HBM growth. The mix between HBM and DDR is dynamic and depends on customer wafer start decisions.
Q:How does FormFactor view Foundry and Logic market growth in 2026?
A:The company expects growth in Foundry and Logic, driven by high-performance compute and share gains. It has shifted focus to areas like GPUs and networking, reducing reliance on traditional markets like PCs and smartphones.
Q:What is the impact of tariffs on gross margins, and what mitigation strategies are in place?
A:Tariffs create a 200 basis point headwind, reducing the target gross margin from 47% to 45%. The company is pursuing tariff drawbacks to reclaim costs, but benefits may take several quarters to materialize.
Q:What is the status of GPU and custom ASIC qualifications, and their revenue potential?
A:Custom ASICs have already generated multimillion-dollar revenue, and GPU qualifications are progressing, with revenue expected in the second half of the year. The GPU opportunity is estimated at $50 million or more annually.
Q:Can pricing drive gross margin expansion given increased test complexity?
A:While pricing can contribute to gross margin expansion, the company focuses on long-term cost improvements as the primary driver. Incremental value delivery may allow for some pricing benefits.
Q:What is the test intensity increase from HBM3 to HBM4, and expectations for HBM5?
A:Test intensity increases by approximately 20-25% with each HBM generation due to factors like higher stack heights and increased complexity.
Q:What is FormFactor's market share with the other two HBM manufacturers?
A:FormFactor has a low incumbent share with the other two HBM manufacturers but sees significant opportunities to grow share due to its technical differentiation.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the magnitude of market share gains at the top 3 DRAM OEMs, the exact capacity increase potential beyond $225 million per quarter, and the precise size of the custom ASIC TAM. Additionally, they did not quantify the impact of pricing on gross margins or provide a detailed breakdown of HBM versus DDR revenue mix.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ASIC
Analyst Day
DDR
Farmers Branch
FormFactor model
Foundry Logic
HBM stack
HBM strength
Keystone probe
SmartMatrix architecture
area HBM
custom
die chiplets
focus
foundation
increase margin
intersection packaging
margin expansion
market demand
network switch
opportunity test
output increase
pace
packaging compute
parallelism productivity
photon electron
probe technology
productivity speed
record
share gain
speed test
stack HBM
test capability
FORM Transcript
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.
Earnings call transcript: FormFactor’s Q1 2025 results miss EPS forecasts
Unknown4-30
The earnings call presents a mixed outlook. Financial performance shows a slight revenue increase YoY, but a decline QoQ, with reduced gross margins and operating income. The Q&A highlights tariff-related uncertainties and dynamic market conditions, but also positive developments in customer relations and product demand. Share repurchase plans are a positive indicator, but the overall mixed signals lead to a neutral prediction. The market cap suggests moderate sensitivity to these factors, supporting a neutral stock price movement prediction.
FORM Slides
FORM Report
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