Formfactor ((FORM)) has held its Q1 earnings call. Read on for the main highlights of the call.
The recent earnings call for FormFactor reflected a mixed sentiment, with optimism for future growth tempered by current challenges. The company is poised for expansion in key areas such as HBM probe cards and through strategic acquisitions, yet faces hurdles from revenue declines, tariff impacts, and reduced profitability metrics. The overall sentiment is one of cautious optimism, as positive future outlooks are overshadowed by operational and geopolitical challenges.
Anticipated Double-Digit Sequential Revenue Growth
FormFactor is projecting a double-digit sequential revenue growth in the second quarter. This optimistic forecast is largely driven by hyperscalers’ investments in generative AI and a surge in demand for high bandwidth memory (HBM) DRAM probe cards. The company is banking on these technological advancements to fuel its growth trajectory.
Strength in HBM Probe Card Demand
The demand for HBM probe cards is at a record high, with FormFactor expecting significant revenue from DRAM probe cards in the second quarter. This growth is primarily attributed to shipments for existing HBM3e and new HBM4 designs, highlighting the company’s strong position in this niche market.
Successful Acquisition to Enhance Product Capability
In collaboration with MBK Partners, FormFactor successfully acquired FICT Limited. This acquisition is a strategic move to enhance the company’s product capabilities, particularly in accessing multilayer organic substrates technology essential for advanced foundry and logic probe cards.
Systems Segment Growth Driven by Innovation
Innovation is at the heart of FormFactor’s growth strategy, particularly in the Systems segment, which is expected to see moderate sequential growth. The company is focusing on cutting-edge areas like quantum computing and co-package optics using silicon photonics to drive this growth.
Completion of Share Buyback Program
FormFactor has completed its two-year $75 million share repurchase program ahead of schedule. In a show of confidence, the Board has approved a new two-year $75 million program, reflecting the company’s commitment to returning value to shareholders.
First Quarter Revenue Decline
The first quarter saw a 9.6% decline in revenues from the previous quarter. This decrease was driven by a 9.2% reduction in the Probe card segment and a $4.4 million drop in the System segment revenues, highlighting the challenges the company faces in maintaining its revenue streams.
Tariff Impact on Revenue and Costs
Tariffs have had a notable impact on FormFactor’s financials, with an anticipated mid-single-digit million-dollar reduction in second-quarter revenues and a one percentage point reduction in gross margins. These tariffs particularly affect imports from Japan and Germany, posing a significant challenge to the company’s cost structure.
Challenges in China Due to Tariffs and Export Controls
FormFactor is facing difficulties in the Chinese market due to recent tariff increases and U.S. export controls. These geopolitical factors have reduced revenue from China, impacting shipments of probe cards for advanced DRAM designs.
Decreased Gross Margin and Operating Income
The company reported a decrease in non-GAAP gross margin to 39.2% from 40.2% in the previous quarter, alongside a 19.2% drop in non-GAAP operating income. These declines are attributed to lower revenues and gross margins, reflecting the financial pressures FormFactor is currently under.
Decreased Free Cash Flow
FormFactor’s free cash flow decreased significantly to $6.3 million from $28.8 million in the previous quarter. This decline is due to lower operating cash flows and higher capital expenditures, underscoring the financial challenges the company is navigating.
Forward-Looking Guidance
Looking ahead, FormFactor has provided guidance for Q2 2025, anticipating double-digit sequential revenue growth driven by increased demand across all major markets and segments. CEO Mike Slessor emphasized the growth in demand for HBM DRAM probe cards and co-package optics test systems, fueled by hyperscalers investing in generative AI. The company expects corresponding increases in gross margin and earnings per share, despite potential impacts from tariffs.
In summary, FormFactor’s earnings call presented a mixed outlook, with promising growth prospects in key technological areas and strategic acquisitions. However, the company must navigate significant challenges, including revenue declines and geopolitical factors affecting its financial performance. Investors will be keenly watching how FormFactor balances these elements to achieve its growth objectives.