FORM - Earnings call transcript Q3 2018

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Operator

Thank you and welcome everyone to FormFactor's Third Quarter 2018 Earnings Conference Call. On today's call are Chief Executive Officer, Mike Slessor; and Chief Financial Officer, Shai Shahar.

Before we begin, Jason Cohen, the company's General Counsel will remind you of some important information.

Jason Cohen

Thank you. Today, the company will be discussing GAAP P&L results and some important non-GAAP results intended to supplement your understanding of the company's financials. section non-GAAP press other the release on Investor to available information company GAAP the the website. in issued Relations of measures financial and are and Reconciliations our of today by discussion Laws. Securities forward-looking the within meaning the Today's of contains Federal statements and forward-looking rates, financial produce business for seasonality, anticipated performance, of momentum, projections upon such respect products, the condition, the statements development and products, which products the demand our sell to include business and statements Examples future future customer with macroeconomic those based. to future of such business exchange ability are and requirements, foreign the of technologies; assumptions during to actual this These subject known statements cause unknown that results risks are materially and differ could expressed call. uncertainties to and those from Information filings, in ended and on are on for on recent filing the contained today. issued SEC XX-K year the the our website fiscal www.sec.gov uncertainties other most which is Form our and our with in SEC at press available release SEC's and Factors XXXX Risk

Slessor. are to Forward-looking obligation XXXX, we to XX, and of call will CEO, October turn today, no over FormFactor's Mike as that, the them. assume now With update made we statements

Mike Slessor

Thanks, everyone joining Jason, for and us thank today. you

increase product our quarter quarter's earnings was call, last release to during on in anticipated deliver sequential share And end to we mostly expense As to the FormFactor results delivered expect non-GAAP you our per as offset good revenue. our we quarter a earlier top control bottom press us enabling from mix operating conference margin lines. outlook. of fourth due at today, gross modest saw high reduction third and comparable by the quarter second The expected

for of these performance Engineering of in probe is technologies. leadership demand a and our advanced FormFactor's cards a the volatile healthy across Systems. demonstration quarter direct is the weak, driver our The that Given served financial and products in attractive outlook and results markets are seasonally structural industry often backdrop primary

described new in past, cards the are and is probe design. every consumable IC we've that each As specific to

As of existing benefit nodes. both a transitions node on designs the release result, mature from we and new

stalling delayed, new opportunities we with year. Moore's event providing nodes saw mature when are major nodes demand important, Law, of With even an customers the twice on are our this especially

Our five-years in customer cards example a This released levels quarter of existing quarter in third half results to strong which activity new this on activity of node, the quarter we to old. for returned expect strong offer this that designs their new our first as now demand XXXX third the XX-nanometer volumes nearly and largest several resulted is design probe nodes delivered current in the we continue. XX-nanometer on

transitions course, an world's to customer also initial at expect which continue volume and the supported production, We outlook foundry. our to transitions our currently from quarter benefitted we of node XX-nanometer to we other benefiting as immediately, transitions X-nanometer largest leading customers’ and with by demand Logics fourth XXXX. in in production Foundry More generate from are expect node event we

cornerstone differentiated the fan-out. is MEMS-based and expanding provides technology past, probe advantages of FormFactor's in As the integrated we advanced this in the discussed like applications especially relationship packaging it proprietary

share investments increase our silicon further and in advanced probe as leadership using differentiate MEMS packaging. R&D integrated We continue to our is will more

from the and node three release plans, card overall exhibit for The applications. transition degree quarter-to-quarter. DRAM and probe volumes a probe slightly high memory, both to of and DRAM around manufacturers of third sustained quarter amidst helping cards to design stabilize saw cadences different noise continue smooth Turning customer investment major demand to flash

our we continued a end over technology competitors. substantial MEMS performance quality pay dividends has strategy In won addition, and high as our advantage FormFactor's several designs to flash opportunistic where

broadening of the Another Engineering set exciting component products. application our of space through Systems our served is opportunity FormFactor's

As technologies of on other customers the tomorrow's we've devices in sensors, will electrons in with devices displays, development early the as electronics a allows that power and of to opto and and electronic, innovates the previously, in described products combination photons. that form are this industry us industry. engage business of Increasingly, these rely

In their and the that been we customers, initial accelerating products profitability. to to Keysight, photonics a their LED data have time team turnkey and increasing and for of supporting to such silicon application, devices micro instrumentation displays, with leader as partnered integrated have dramatically system Our reduces development innovative production vixels, and silicon our market, time produce photonics. the

excited of reduce our are of more in application, silicon NAND DRAM weakening the fourth expect demand by with we base quarter in in the photonics momentum an probe Consistent card than as customer still systems. evidenced Although recognized XX both installed and in to by the investments the recent we memory expansion flash, emerging well the quarter. to

beyond that Accordingly, industry, broad is environment. demand, our maintaining current a and are generate that to in approach a so especially to on quarter, diversified operate our structures. lead As cyclical a reminder, the we while a our our limited, visibility in approximately to and times relying manage business cost our with flexible the disciplined set knowledge half continue we opportunity

proof in compared excited profitability in memory nice The expected expense to to control are achieving strength demand operating second in and the is and third combining demonstrated the XXXX fourth position and industry target In markets and to our with half our of of cash is about summary, financial our committed the Foundry the offers these. points remain quarter particular, quarter Logic we solid weaker offset model. flow. some In deliver

to markets, industry leader we volatility. weather are demonstrating short-term served volatility, but are this immune share an ability the to in not demand we our As

over into powerful early in for probe by Systems is the volumes engagements that the packaging, insight to Engineering Our advanced Shai to sets our FormFactor's through innovation hand for outlook. and automotive in into financial stage and continued card third customer fourth leadership our applications. quarter provide with business our call on consumables I'll growth a further R&D With mobile model details quarter and business, production driven data, that, transitioning

Shai Shahar

Mike, and Thank good afternoon. you,

comments, press from and heard quarter release our to saw were As comparable our second results from Mike's you quarter. our third

the for systems with million revenues of levels. of second Probe XXXX and both the segment revenues basically $XXX.X quarter. million the third were $XX.X revenues million flat QX FormFactor's of card segment to quarter $XXX comparable were

QX. probe card mobile were DRAM third in Logic million quarter increase. or X% $X.X both second QX, company as revenues million less quarter. the Flash XX% total released to we similar QX, Within levels $XX in quarter, the XX% decreased in each a slightly very of demand revenue the X.X% million and compared serve. data third million in revenues Foundry down $XX.X were from QX second were were application. our the also markets second down of than our sequentially. the company of customers for In segment, higher we we the $XX.X saw quarter revenues and with of revenues total revenues in and than of DRAM DRAM experienced $X.X designs in revenues center and consistent XX% million new sustained XX% quarter,

see technology accounts we test for to layer for stronger our stringent continued demand. due high to We demand requirements

flash flash additional advantage. million are on NAND Approximately We in winning the have flash QX capitalizing $X revenues and where from a designs of being opportunistic we were technology applications.

long-term. of of third Investor XXXX third a section million from release was in available revenues of million the which QX X.X% we mid of Similar above outlined $XX or $X be believe the percentage we of of XX.X% On down included XX.X% issued gross will our outlook revenue revenue to Relations to basis, down million of range. of GAAP the XX.X% quarter our in GAAP in single-digit margin compared cost the $XX.X second items our XX.X% and quarter. gross and revenue, reconciliation the in for a ahead, Looking for website slightly non-GAAP and our margin second reconciling the on or in quarter, table non-GAAP was the the X.X% the QX, today. to quarter press midpoint flash

on we compared the the mix gross a was in the second customer to the mix our As product quarter quarter. as and markets margin, the including and primarily different have product decrease favorable less reminder, biggest third mix serve, a to impact in within due QX

was segment third compared XX.X% of to mix in product to the factor probe margin the X.X% quarter, QX, I gross a decrease due Our card before. mentioned

to Our similar QX very than gross X.X% slightly lower QX margin XX.X%, at on systems was QX lower segment revenue.

for quarter. Our the third GAAP $XX.X quarter, were the $X.X operating expenses than million lower million second

reconciling of and The third of the the amortization remaining non-cash third down amortization to quarter. and timing X.X% items. NOLs Amortization similar X.X% expenses costs Non-GAAP included were tax $X.X the mainly The both NOLs. of lower quarter second including GAAP the $XX.X based third due million. rate schedule. compared U.S. for second $XXX $X.X employee-related with for non-GAAP for quarter intangible million XXXX included slightly program in for due spending. operating decrease of to quarter million $X.X was revenue, the performance-based effective than of update and depreciation The million disciplined or expenses quarter assets, operating is the to for QX. XX% $X.X Company compensation and were of the third million quarter expenses benefits to entered stock-based and non-GAAP $X.X the for of to We over million intangibles stock-based compensation, to higher compensation million

or share while a non-GAAP utilize compared income effective expect fully rate to share U.S. $X.X we net X% fully to was net NOLs. in continued of we QX. X% our diluted income million or third such, diluted $X.X have tax As the GAAP to for to per per $X.XX million quarter $X.XX of

net $X.XX fully to diluted non-GAAP share million quarter income $X.XX diluted million or in or fully share QX. compared $XX.X Third was $XX.X per per

million million increase in QX the compared cash to of flow inventory compared demand. million including in flow $X.X primarily Moving million million We loan QX $XXX payments and to million interest an our decrease meet cash as generated $XX.X end on to third the flow, taking principal quarter. quarter our to sheet prepayment. of term at we customer $XX.X free balance is to QX The during the to of in in spent $XX on free in total the cash and QX $X quarter, on the due cash

the we Going forward, principal original amortization based schedule. to the loan on expect repay term

our $XX balance In balance expenditure Our by we invested the with our annual in an million, $XX $X.X of end, of $XX capital increase plan quarter million. QX. million line million expanding million during total of debt to at exceeded cash capital $XX

in in is diluted Turning outlook, expected to million to range to our our in be to be of the $XXX the non-GAAP call revenue non-GAAP and XX%. to fourth our of $X.XX. Investor reconciliation in XX% let's expect range of QX to per release outlook QX fully Non-GAAP of million and Operator? GAAP today. press margins the non-GAAP A $X.XX share we on section gross earnings be range questions. the the to available to to is quarter open issued website Relations that, With of the $XXX

Operator

Instructions]. [Operator

line Our first Craig comes from FBR. the question of B. from Ellis Riley

Your line open. is

Craig Ellis

you third dig into quarter. what the taking very business Thank of some on on just the the details congratulations points Mike, and to coming that go Foundry I for steady and question have we see dynamic back and if was your a results in the to Logic could in environment up. the wanted I

should a in transition, logic? see and back be and grow for an late business? in mean foundry nice the roadmap XXXX, that is that customer, U.S. of been XX of and XX XXXX, is Does public with three-year steady year XXXX, there it or from of seeing from it to the that levels what with a to opportunity your part part half their mean we're that August does since the strong So performance XX, they’ve question late

Mike Slessor

question, with of with for a Thanks year has the year. the Craig. XX-nanometer at it volatile the the customer, starting been delay that Obviously very beginning

business the that designs. these with probe seen, into some products new they've transitioned card as you've and pleased pretty demand on XX-nanometer As we're generated growth of

There very XXXX, to we're some close we may fairly store transparent then you transition. something much say, a customer XX-nanometer in I a from of be plans to prepared stay volume with the with and that is very, cadence is the to of XX-nanometer them. make and designs publicly XX-nanometer wafer about transition associated has make think, transitioning in their perspective the them with upside that to continued as in been continue going sure forward planning lockstep

As node typically transitions intensities. have test higher we've discussed in past, the

be on a also of Given little on XX-nanometer, our that potential the largely be top will of is want bulk but upside maybe XX-nanometer, now XX-nanometer some I right substitution test it's with XX-nanometer. There volume to not people additive, not a caution is that intensity. factor there purely to going more to it's there

Craig Ellis

about have foundry, it like That's and what that's there's business story switching gears versus look you, solid you that talk then traction. business for the growth, growing and to in are good Taiwan to That helpful. customer prospects provide to potential for a been out X-nanometer next Got can year-on-year growth you that growth so provide to XXXX? can four itself, customer three a And nice it. as sounds the seems base over XXXX quarters the

Mike Slessor

Yes.

So you're one in XXXX. is growth in nice absolutely right. stories the business That of our

I it. to think there’s components two

this First XX-nanometer, in growth really X-nanometer, with is foundry vector of with around integrated all, and advanced a packaging, serving very associated our opportunity in fan-out. particular, below strong

past, opportunity and the the that for foundry’s We've starts packaging and with see customer has said moving more largest customer that we've seen the to nodes that. the nothing in we opportunity to be this us. technologies our we designs us, view has fabless wafer our long-term on far so comparable as to expect grows those and advanced So have changed business of we changed more

We gained largest that having again we business we XXXX growing our in us and good as share over expect think customer do to progress the you'll customer. towards same in it, magnitude the we the make continue planning business in our and of towards see grow to thing have with XXXX I with XXXX

Craig Ellis

gives you've it gross certainly Shai, then volume us two Can a like is clarifications. with margin to more third got that flip an takes And give respect level gross expense you to were forward? that going sticking is sustainable performing helpful. gross the well, to Thank items sense fourth income favor. the will margin, it That's working with your One, with expense over it just for of operating there you one-time statement, or the in quarter's the I in and seems and margin quarter the special middle meaningful any in you. the operating and is decrease

Shai Shahar

Yes, the I as questions, QX thanks we on the we before so start think, QX said and my mix gross in biggest evident the I two our saw in has between with impact and and gross for I margin, Craig. the and that margin, gross remarks said will difference the margin, of When it OpEx, same has $XX mix, $XX in and surprises to the communicated that because expected -- this stay changes QX have quarterly and consistent, gross margin been million million level to in we these range no to there. OpEx. of of before, comes of

we range We that and one-time QX, in are within QX that no special saw. items

and forward. are expenses, keep plan remain We continue to our monitor line expenses OpEx, disciplined, with and revenue to in we and that's we our going our our keeping our

Operator

from comes Roesch Your from of next Sidoti question & Edgar the Company. line

line Your is open.

Edgar Roesch

a implies use three in theme, if very to right On million, million, QX. I'll that and of ask your around Thanks midpoint you quarters the my add a on the guidance steady $XXX because congrats have I kind row, for quarter. $XXX wanted you'd

the to also evenly So if acceleration versa. quarter appreciated. distributed of of kind you color pretty the phasing within of then saw or was end the the wanted ask falloff be Any revenues quarter would if and any vice towards or I

Mike Slessor

Sure. Thanks, Ed.

of cadences see are awful think Logic, variability very summarizing a designs our view even that each the million between each Foundry quarter similar this lot similar to are expecting there of moving QX $XXX In I results, markets and mid-XXXs QX the bit we in and other. by through I'll serve go parts each topline substantial underneath QX fourth some sort start are There at although QX a of and stretching quite memory inside we're particular, on to very to the of there. shift to an midpoint they and from week-to-week customer in a individual basis. in of to is the to of

would the believe. ebbs a the quarter to flows perspective dynamic perspective from much and and you mix topline the both than a So results from timing more within are lead

Edgar Roesch

you're of Okay, just could the issue on different offer tariffs then, even color here. the any you lot whether, business if And of a change wondering was or comments I your witnessed and but borne that behavior aspects you appreciate result can you on demand that any kind say industry own of would touches as to business -- if some some a general that. in provide kind that of maybe And of of in I you've not modification you tariff Thanks. issue? seen your

Mike Slessor

is in investing region in full been us for and I In footprint the in than more heavily most as focused the fairly a for think pretty people as semiconductor industry itself China. to is bootstraps on memory tariff that sort up indigenous Chinese has of the particular decade it We've a issue for production. had squarely business significant especially

revenue Just a any in still as a do less view benchmark represents given time [indiscernible]. of the space people, our period, suppliers it we typically than XX% it but in as other view most

Edgar Roesch

Okay. one flat question. And that want interesting the I year-to-date original is maybe on sheet still if pretty consolidate. get might active consistent be once like year-over-year. that more intent where final Systems balance you it your that are on front. The get revenues industry wondering Engineering an pretty area to seemed you viewpoint could was and then

Mike Slessor

don't some tariffs had wouldn't I technical finishing issue. but whether Ed, we the know difficulties there, my mind maybe, Yes, thought I on

We -- problem. have seen no no,

as a engagements something evaluating with say We at have being industry would discussions with seen limited hard operating global have along positive. a customer and we're monitoring point suppliers most this to I because in we're this importing we suppliers but few impact from time it's think, I a where closely with region. our viewing mostly pretty a

a our all being a free use of we've de-levering to talked to [indiscernible] continuing So We our cash applied de-lever moving useful third of -- flow capital. essentially being about use then priority the but quarter, and emerging the year prospecting in an electrical growth around markets. be and M&A in measurement of some themes building in to pretty we third these funnel of active continue test

there still the I'd priority. So reduction de-levering I phase some top with debt you, are still opportunities think prospecting in and there. our agree remains We're

Operator

question comes Steelhead. the David from Our next line from of Duley

Your line is open.

David Duley

questions. Thanks for taking my

You you more mentioned the a geographically. at that done or more as out but when with is less smooth the we timing strong. with people your of lot half of Taiwan pretty well Taiwan results X-nanometres little bit Could you've on you breakout elaborate than in your loaded? foundry, that business a just be look business down with expect would at a to that adopting And there? follow-on first XX-nanometres, foundry quarter

Mike Slessor

us is Yes. And but issue expect middle part of we fourth designs. focused and we the first the about fourth application and trying having relationship essentially part we time for I more as it are question also into part more the historical relationship, market the the to second been XXXX with XXXX. through in there, convey think this projects. as that a of the from as and even to the generally handful fourth of hits engagement your We what out quarter quarter concentrated process customers move customer broaden do or contribution of we And has through expands significant smooth customer see gain serve a on share we the to pretty and as start core quarter we're

David Duley

they? percentages during then and have were did what And the customers XX% you Excellent. quarter

Shai Shahar

just largest is XX% if number adds our this in this the -- and Intel customer quarter a me Yes, XX%. quarter, you Micron give second, was had We two at Shai. so

David Duley

up versus counts? it layer seen capturing revenue that And you do the ramp think mentioned business is flash some year Thank is this or your further. higher that flash is correlation to or this that to expect flash in Would parts perhaps with the you to then you've grow you're had last Excellent. growth I now between XX-layer driver this revenue you. what with to

Mike Slessor

flash where pretty we opportunistically after very today Certainly designs we a gone associated good of have Yes, strongly accounts. as we've a with test strategy. correlated to business in pretty certain higher customers and a strongly internally. lot market higher one also their to in differentiated been higher advantage it's the that test densities in speeds really do parts correlated our question, been David, They've have layer

to not FormFactor and I'm correlation sure XX-layer flash one growth. between I'd one So draw flash

step it the performance I up wafer drives where think helps that participate. as complexity certainly we required it's of one components at the and us the test

David Duley

higher me only it two speeds guess lines along not test help longer the higher that layer I question from is sounds but final flash these And one counts have those times. so like parts

I wondering question share roughly check test mentioned intensity is you've increase see with parts you just that what as and that's think XX% maybe so was the is? in more are the flash view that increase that is I with in in these us you and And time my advanced double do such card could or Intel the an Thank view. And then to test XX% packaging still past accurate if intensive or you. probe intensive. intensity

Mike Slessor

Sure.

not generally So increases It's variables which the bunch different associated with dye. is a time of complicated and yield intensity function the the of of test least a things. of native what on pretty whole test

I than packaging a associated -- ballpark with XX%, plain being test if think dye. like estimate know test silicon more you you the XX% intensive intensitive more advanced

choose couple as to and bit of test their a test. to the yield that well. counts, decisions been XD because more think it of reasonable NANDs the I architectural estimate their suppliers course triangulated it of a that's be making by I spend goes a test the or each they strategies complicated is then a individual wafer whether round, test test other little customers the where think layer and dollars and are are final

advanced as that the you and of we variable, with of seem associated be more up and offers stacking regions that advanced certainly So a moving is the memory go some dye see packaging intensive as more one into layers non-volatile it in as does opportunity to little packaging test well.

Operator

Instructions]. [Operator

of line Stifel. Patrick Ho Your from next comes the from question

Your line is open.

Patrick Ho

side a nice But maybe a follow-up we transitions nature. intensity people no Dave’s guess bandwidth I the for as can and about the memory Can quarter the on you to comment test for with very second. much is on in the if increase of at the and the DRAM that also industry higher congrats you comments in as design you no is phase. a potentially test and outlook. helps can the and opportunity undergoing Obviously industry Mike look lot Thank on which you're to of going several market industry. higher things transitions speeds talking the DRAM especially in the intensity becoming near-term that how through

Mike Slessor

Yes.

So similar themes in the noted, last question, Patrick. as you

make I the test there, think a because customers move up value this of node does higher FormFactor's node proposition there's the and we test yield through, DRM and generally ramping their sure of major That's customers densities going higher see for part going that to are transitions all do intensity intensity challenges demand to new increased effectively. resolving them. are the anytime speeds a

one HDM test requires as doesn't in High Memory our other in these make dye, I in in the sure that's DRAM and that is which this essentially XXXX its business of you've theme dye highlight in a stack. we've or past advanced stack I'd high packaging Bandwidth kill those goes that seen the think each it the bandwidth DRAM is into neighbors of thing though package that intensity, to like to significantly discussed memory applications, higher

to the to pretty quite need the of good -- but test maybe pretty big one not packaging the ensure HDM that's so close driving And DRAM advanced known is good innovation intensity drivers associated dye, good in associated with like dye. known with other

Patrick Ho

the outperforming you Great, packaging. seeing any business the a more multiple balanced. suites for is way those than is near-term advanced that's Engineering are so maybe of of guess others it multiple more packaging have guess those I one it's I helpful. it one bit advanced applications to or for on the And product any and there segments segments Is you in pretty applications going Systems or whether

Mike Slessor

and development whether seeing is systems image remarks. something I CMOS with what vixels the the really is I the lot tried engineering interaction think and be both business of shipment photonics sensors to customers shift of applications, our sensors. or overall starting A prepared like in to convey we're towards they system

displays it's we're be to a stuff business segment impact activity perspective an with results seeing fairly like next-generation starting We're a doing the from an XX but strong our LED. way of an is that Some we both is perspective, why micro a in to also a than the In business worldwide. base which systems now footprint driving photonics draw it. of installed which significant tried more for significant Engineering particular silicon example to pretty from attention

Patrick Ho

free markets continues CapEx that looking some to and Where a your there use? I of priorities couple grow. some of is Great. of maybe question a the final needs And and flow guess the few terms are increase Cascade product as in grow for we're where a given of need -- from Shai the to at we at deal putting CapEx that your cash cash years Microtech cash free to

Shai Shahar

capital, loan. deploy our prepaying ourselves forward do the is million repay -- as cash. quarters. loan invest we're regarding about in see And year deleverage and sheet last the our of going I to range way said the We've the staying last QX to plans will of and between in $XX million that first year CapEx to been our balance specifically next priority a our on well. loan. advanced capital $XX our we years before XXXX on couple that last expenditures. quarter how So few in see prepayments be going will We to be the I

create into and will to can our back value priority our going M&A is which believe motivation to moving second and Sam through schedule more the are original we forward to an we it shareholders. as expand our Going Mike before discussed

Operator

Schwab from the comes of Christian line Your from next question Craig-Hallum.

Your line is open.

Tyler Burmeister

thanks for letting This Christian. ask is of Congrats a me couple Tyler questions. on for quarter and on the

if well customer their, pretty spoke remind wonder just So the business you as but what their us you moving first been to could XX-nanometer at your that for timeline largest products. transparent timeline has customer's XX-nanometer relation about your I in

Mike Slessor

historical us Well, and historical node But a say -- this to transition mean XX-nanometer, as times. their transitions some do I as two let Typically, the we've said to us node customer. comparisons rely generation on Tyler. supplier about I been four transition with lead of if quarter thanks products Sure, of we've by expect couple market of or maybe through launch broad a this a the I'd three.

put different they've as track where to this see mid-XXXX release us. they talked event on see for see we being with We stay significant a production a about long the probably way XXXX as late you'll this publicly. start activity So

our apps shorter in have of three. Now that's large, leading releases throughout and probe by by or our times more product our shipment. between us a -- that cycle true projects see customer sometimes There times or two card quarter our much business generally But customer and base. delivery lead you'll customer are some

Tyler Burmeister

then cards guys of Great. versus go DRAM the quarter the on DRAM new is stable, your we that transition the new magnitude to and node? next business memory what's how the into this was just one, DRAM make node, or on what's year magnitude current devices next normal the of the I side devices, so business -- some pretty the believe I side, to -- you memory second And on wondering as due largely expected

Mike Slessor

couple purely supporting drive as try been pretty demand significant that’s five but have ago And gotten of used was to the drawn existing to on designs a But from strings be node business as is That’s DRAM that new of existing new attention nodes. dynamic years. currently, years lot awful and to over designs even by been a tougher there on the we last four, situation It revenue that's we our our out, over nodes. also draw also as people's node transitions. fact have transitions driven nodes, XXXX

the of we the probe that QX you levels. levels think We demand. of the see going again those XXXX a of little if node expect business quarter bit growth weakness card the first XY QX, fourth to things first come events off in third half cause XXXX, node it a those I DRAM transitions reminding levels I DRAM in be the quarter off transitions could I back quarter like up some kick-in; seeing see you part we're maybe to of our to of that think fourth little think probably in the bit will our

Operator

FBR. of Your B. Craig comes line the next Ellis from question from Riley

line Your open. is

Craig Ellis

$XXX Thanks follow-up you wanted of back, the advanced in up harvesting million you cycle go packaging but there opportunity in opportunity times longer-term in where areas? Mike, and the of comments on those you the see touched is mobility for number that some on wanted just I terms can and to a you different think just that I and just back taking company automotive exists the growth question. to three the to catch-us of

Mike Slessor

Sure.

the same about on three advanced on constituent talked automotive being to So to we essentially top-line million target get and these mobile $XXX data our share. per delivers components the earnings page, everybody drivers model and the $X.XX which non-GAAP packaging, but us get to of growth

a one leaders beyond the call, is we think of trend for talked three really think or is memory has down going slowed by but very I business forward here break XG us. the growth this were X-nanometer, pull-back projects. in But what that or growth the anybody in those perspective some drivers three about now with of they As opportunity whether offset it opportunities some and our leader two-thirds, the industry packaging little modems be the is silicon, follows that's First we that on as those, see there and with I a but part a far the of think I XXXX and advanced handset the advantages. previously, headroom not RF build working which gives the our expanding in year fan-out the in from I XG just advanced key advanced filters, probably really bit. all more industry the unique with way XX inherent especially integrated exciting be in little bit the the HBM going over This quarters at which Mobility exciting the against away would we and packaging executing that out, packaging. to foundry for laid who of on We're achieving of to Silicon the XG so steering components beam past knows which

be and about and us. steady not there's in the but packaging been I data probably of mobile for to we pretty that the as see that. continue of still demand automotive the continues that customers early in we're incremental know market two of growing So mobile out achievement performance talking opportunities weakening eddy The other business advanced fast some to is our solid

Craig Ellis

XX.X% three down another we points around now think XX%, margin a basis if about that don't real of we That’s we get your to to helpful into where look bridging between that buckets, we from where how we we broke level today commentary. gross at summary gap to know with can maybe four up get and target or are as just how XX% Shai can margins would gross I I are XX%? XXX

Shai Shahar

So first, margin. reached we remind to you right in that XX.X% of I have prior want gross quarter,

that been cost progress areas. lot next and that such volume, margin more initiatives, on one So continuing with made can achieve it's that achieve leverage target factories leverage impact, focus specific things our initiatives something year the model and our improving yields cost of a we contribute we're was will we a invest more will we target also and can operational BU on that business as and we before, as impact to have and our course mentioned and reach by ERP we've that big think execution, in a companywide reductions plus our model in us increase. integration will as indicative taking year our initiatives the a that also we to we continue this specific we it -- in gross And $XXX that of can great I that for improving million, to the mix, is more

Operator

I'm like back questions to would conference this turn time. showing no the I to further now at Slessor. Mike

Mike Slessor

Great. Thank quarter. you you in the we’ll talk for today everyone and again joining to

Operator

concludes today's conference call. This

now disconnect. may You

FormFactor (FORM) 31 Oct 182018 Q3 Earnings call transcript