FORM - Earnings call transcript Q3 2021

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Operator

Thank you, and welcome, everyone, to FormFactor's Third Quarter 2021 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. of non-GAAP release other company issued the Relations to in are and GAAP Investor press the today section of measures information and available on Reconciliations website. our by the laws. forward-looking contains meaning federal within Today's discussion statements of the the securities such in regarding for of Examples of products; pandemic, new assumptions changes; the demand capacity business and forward-looking COVID-XX financial of benefit are include conditions, supply impacts macroeconomic the in and future produce impacts chain, the upon statements statements acquisitions and the those of ability projections performance, and regulatory investments of our sell our the such based. and develop, to anticipated products, technologies, which differ subject These during and and expressed that materially this to call. risks to unknown from known statements those could are uncertainties results cause actual risk available the factors for the with most release in our filings, is Form our in contained other ended and issued uncertainties at SEC on filing press today. and XXXX on in SEC recent SEC's are Information website our www.sec.gov XX-K and the year fiscal on which

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

Mike Slessor

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

resulted [Indiscernible]. high the with second quarter history our control, the the outlook end range. sustained delivered company solid FormFactor operating results of in non-GAAP revenue Together factors highest share at these of third in per highest in again above recording our with margins expense earnings gross the

online, Like semiconductor supply companies products. production chain sequential of set challenges. tested strong quarter in benefit market to diversified variety facing And capacity we're industry, leading many our growth. the positioned measurement from a deliver current continue with labor the We well and to added in we're of now coming FormFactor's semiconductor demand

in challenges. We do integration issues Our thus expect year, we've our next effect impact. these Tool impact capacity is reduce financial margins, and persist detail cusp model. remains investments to improvement important specific to under behind deliver navigated provides remains with Livermore especially us far new these in as operated of online. the quarter. our within flagship qualifications customer coming to the these success some a design Minimizing long-term are initial which remove in situation served and to track our mix $XXX the on shipments in insight chain years, on supply two the helped markets. sequential into where importance which Center, will to installations the million automation Manufacturing headwinds. be revenue like I'd our almost commissioning of provide focused product minimal target of helping investments our gross of resolving and as each has it on excited this our reach current now vertical underway of constraint into And team new this facility, actively growth We're start we've for the

segment and our margins. the end within more delivered Shai specific yet quarter factor in markets. product second largest quarter, review point market will can improvement third see supplemental The by materials this was single you very gross from in the the later, website, mix revenue a basis on As to improvement was similar posted XXX as we favorable

to manufacturing each and different a card nature design the in customer noted of probe chip cards and selling design, each custom past, are the we've As price. probe specific consumable cost drives

FormFactor's designs the the substantially hundreds specific difference delivering two configuration, two designs test and quarterly gross different two the inherent and produce cards the customer This segments depending For significantly example, is to to month, we trend variability customers do probe each diversified and between gross touchdown broadly semiconductor because applications revenue. long-term to two around a see of test each model. specific design configured all tester cards different like expect card result leading to quarters chip margins continue configuration financial line at in produce shift consumables on our probe different that of chip in of touchdown one market DRAM we often margin with can of gross revenues the can business, a card probe configuration. of the versus industry, details probe to expanding Consequently, to XX% the to the similar serve fluctuations margins and different target major since and

details. the XXXX with third level offset with leading large to and Along our wafer architectures and microprocessor demand, cards. the growth end logic Moore's applications. at in capacity and market comparable customers our second to increasing cards, foundry largest front edge probe Turning XG and to reduction RF an business by law. roadmaps adding Advanced now for Innovative to seasonal performed and the our fab probe online now equipment processor expected in quarter demand experiencing offset increase driven packaging logic investments With [Phobos] Foundry & an of EMIV, fabric are mobile XD slowing demand coming help Logic strong customers, additions, in their in foundry sustained segments application like levels quarter, we're at the

drive adoption the probe of With products. in per cards in the the creates these less DRAM Paired expands competitive quarter, in probe comparable than for second the high which advantage. lead always, integration packaging as levels based for Demand chiplet of cards with sustained the and probe challenging a the the widens near third quarter test combination with FormFactor's of we of out tile quarter. which customer term wafer complexity, visibility schemes and FormFactor's increases. short of number expect long-term demand remains higher test intensity, cards current As we advanced times significant both quarter, their past, strength or discussed capacity required

in between shifts multiple experienced both different and demand logic, chip mobile customers applications. As PC server designs we and and in designs across DDRX different foundry and DDRXr

major diversified to remains ability these leader market markets. fluctuations our from our the a of any short-term served be our key initiatives one in supplying is all demand customer of operational tenant manufacturers absorb and DRAM a in to strategy result all of long-term FormFactor's

chiplet engineering with third of XX% was customer quarter Advanced Our high multi and generate of chiplet gross FormFactor's margins control accurately begin ability key customers surface businesses requirements. in our single business film driver packaging adopt integration new the maintaining chiplet time for results FRT tools to the quickly highlight measurement also a packaging non The destructively dimensions, tools improving a critical all to packaging sensor quarter to shipment test enhanced key the at is installation early measure and topologies to systems optical assembly performance A is foundry advanced tile XXX and to delivered applications. as first and metrology for multiple FRT interfaces good since and strategies XXXX. millimeter the for to yields. thicknesses on and

noting Test earnings last financial and the year accelerating Let the growth. semiconductor me by on per meet memory content on share an to powerful revenue. $X delivers including unveiled of path industry, the million non-GAAP good that by advanced capacity that well in execution improvements. of gaining driven long-term and outlook, packaging trends measurement XG, importance target increased that is clearly and to close model both We're we on demand demand gross and with margin short $XXX

these leadership our continued paired as you. Our and growth progress target with to in position execution and disciplined over gains attractive towards will strategy markets, Shai, our differentiated share drive we model.

Shai Shahar

and Mike afternoon. good you, Thank

high and exceeded end as range, press gross our release, you reaching were revenues of company second Mike in revenues highest our As EPS of level in out saw and output range. non-GAAP and third at quarter non-GAAP value were with And the again mentioned, history. the margins

million, million third sequential and $XXX quarter in X.X%. an year-over-year. increase revenues increase the of in million a were quarter, small increase cards a X.X% FormFactor's third QX, revenues $X.X $XXX from QX. were or Probe segment of X%

As by from packaging in quarter, $XX.X and the a segment similar of revenue thermal System higher the revenues of systems advanced and as quarter. second automotive metrology increase $X.X applications. very Mike driven billion, mainly market of mentioned, third was second segment optical to X% was or sales end an QX, billion by result quarter

the higher revenues than second quarterly and were X% in of in the XX% of of of cards to XX% in quarter. or by as X% QX, were $X the in second second revenue in company second revenues million DRAM quarter. the probe total comprising were increased a in in foundry X.X% from $XXX revenues to of revenues Flash million $XX compared third logic million QX. quarter, quarter, QX $X million were $XX and the total QX from Within million QX, and $X.X the total of million XX% up revenues, revenues quarter, segment, same as decrease in

lumpy XX% of of reconciliation revenues the of from points GAAP our to XX.X% we revenues in compared at for end we a As XX.X% our today in was higher high our the margin expect $X.X revenues was Flash GAAP non-GAAP million in quarter-to-quarter. be gross press GAAP we the for included have items, QX. past, reconciling said in of outlined third to quarter which Cost XX.X% of to section issued non- the the website. and basis gross the the non-GAAP quarter in relations QX. release in margin XXX range, available table On and outlook third basis, investor margin than gross as

most market was the the very by of to revenue more in of approximately second specific thirds markets. gross quarter third and improvement a two as mix mentioned, of end similar As product margins quarter, favorable segment result a it within the

segment compared quarter, in I increase XX.X% cards to their points in XX.X% XXX QX, is probe to increase mentioned. gross mix third favorable the more Our due of mainly just margin basis was an the

quarter. QX in points higher segment XX%, the second gross basis was margin Our than XX system

for our have we're low we margin towards margin model of between Gross high range progress As to remains our XX%. by XXs. we target an previously, area And said of segment gross us. to XXs focus our financial expect the encouraged gross margin system

mix. we expect reminder, as in that a a quarter-to-quarter, will changes of mainly fluctuate product As margins result from

of part became $X.X depreciation during intangibles acquisition related amortized QX service of Non-GAAP $XX million compensation, and in the the $X.X or as of the for were QX. or cash $XX.X quarter based $XX.X second third third certain quarter, included million of million from Our depreciation of million GAAP expenses intangibles, million. capacity for expenses. $X.X related reflects million from than quarter assets our based expenses expenses the operating third million flat of as decreased The Company acquisition for for non for with higher quarter, in the revenues, and the Amortization XX.X% in increase second in $X stock $X.X million were essentially for QX. fully million quarter. amortization assets revenues $X.X additional operating XX.X%

and streamline disclosed the As improve business filed to in operations. last during adopted we restructuring third month, the an our of X-K efficiency plans and quarter effectiveness

facilities, Livermore consolidating our moving are that into in production certain We including will quarter. manufacturing the operations begin new Manufacturing current Center

for income full million will third third the effective to are fully million XX.X% for was diluted Non-GAAP We GAAP actions practically expect by our $XX.X on in these our by XX%. $X.XX or $XX basis We the tax income the or for actions XXXX, the approximately the share was XXXX. as rate $X.X $X.XX quarter rate fully non-GAAP million QX $X that effective net be same higher than in and actions the of anticipated for million QX. to end estimate in cost completed third share tax $XX.X quarter. within these quarter million once annualized The $X will for an XX% the structure per largely non-GAAP reduce implemented. XX.X%, diluted operating the fiscal million, to quarter second was compared

is remaining until to As a reminder, our to pretax utilize X% GAAP US income rate based credit. X% fully of at tax our expected R&D remain non- annual cash we

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

of had the in flow Moving of free $XX and at And to and total cash million have in investments to generated $XX third of sheet quarter. balance we million the QX. compared million cash $XXX the flows. the We end cash quarter

million capital expenditures. decrease an cash sequential in third reflects increase quarter in The $X flow free

Center. end brings million remaining quarter, our million, on third year-to-date balance capacity the in in our QX. of during invested capital Manufacturing compared term As $XX $XX of chiefly we expenditures had $XX the the million sheet, the These totaling expansion third two $XX our CapEx to in loans We to related to quarter Livermore million.

the previously us. to We CapEx continue from to make significant in fine behind investments for and XXXX $XX million forecasted million million We're capacity tuning communicated. $XX for to mostly full and year the $XX million range $XX the to cash is

under the plan. repurchase shares. third and As an model, from balance capacity XXX,XXX purchased about our No quarter, from of repurchases remain we total plan our year-to-date for X% share conclude brings end quarter at the return balance At quarter total main were share our cash a This exceeded to reminder, we and end, $XX and is expect after CapEx dilution of financial of two purpose million our outstanding made year compensation, our X.X% shares debt increase stock-based expansions. million year-to-date share we quarter available in of this to $XX significant by repurchases. million, to future to end. X.X% target offset to during the $XX revenues QX The $XXX repurchases million investments

quarter Turning outlook. non-GAAP to fourth

the that, gross outlook range At a the and logic operating of expected in to expect to fourth systems quarter QX outlook the is due in to Reconciliation we open higher and $XXX $X investment is million non-GAAP questions. $X be to our mentioned, strong to Mike million GAAP Operator? expenses $XXX These range today. QX million. the expect share result of $X.XX. of Non-GAAP we these of for as with midpoint demand expenses to revenue non-GAAP higher is travel of expected and QX relations R&D foundry available our $X.XX to call press XX%. than As back the to margins by And in QX section release in per in be to higher QX mainly issued between get outlook With things factors and XX% revenue. diluted changes, on continue for start the sequentially generally to for be our million, earnings increased website. investor normal. let's fully to Accordingly,

Operator

first D.A. from Our Davidson. line Instructions] the Tom comes Diffely of [Operator question of

TomDiffely

million, industry how afternoon is for this million what over Good relates couple fully the and into Mike, it timing the that's quick probe and business probe we card $XX questions $XX Thank of the cards. on If CapEx you. to results. just nice about spend, year next year, integrated you?

MikeSlessor

it's people, seen XXXX Yes, fab highlight strong for wafer record interesting And is an we've going to that and extremely we've Tom, one obviously to be question, for over an tried equipment. what equipment three and as equipment installed, lag years to demand. is, designs, between quarter and produce qualified seeing cards delivered, two us then the those of begins gets a those to there's shipments probe

it tools designs in very imagine on degree obviously of a operate the does be and the require qualified You within get customers can times time we some running short continue producing And or take then to well specific to lead probe quarter. cards.

we are, investments capacity for our in of the here large part So XXXX. reason

XXXX of ready begins ready to leading we're and that WFE that meet and beyond. online as card we're producing comes So all edge demand in designs, probe this

TomDiffely

incremental is nanometers for move opportunity a around. follow when get or three five Mike, then to at from look as the And the all from nanometers What to to cards? FinFET Great. up that, the you move say probe

MikeSlessor

mean, foundry the intensity went yield know it we in a impact history to as new we planar DSAT that really beginning transition, and back drive at there's logic there's just I and go I understand somewhat modes there, because FinFET, big Tom. to in the if down. of have the up customers drove don't test that that from

going test testers end standard going to they the more out, they're day test And things down cards. the data and But probe closer advanced packages. these in to so driving more get the associated require is back individual at the good the more that's through drive pretty the more get asymptotes more chain, known test seeing stick think wafer and to test good with to trying more we're stacking thing people to before that's where die packaging towards happening something are of die they advanced die, probably into I interesting push levels, a

So there. transistor a maybe packaging. more tailwind do move with of towards associated architecture with a less see bit associated advanced a We and

TomDiffely

also a Shai, the facility facilities? final then helpful. that I how market, is here. look both today? light other That's you guess, Livermore, in few your great. you of and When Okay, restructuring And in impacting labor expanding question at

ShaiShahar

Yes, that longer. some in it's we vacancy true hiring and see delays usually

We and shortages we labor think get we coming we on can that manage this You little month office But a to see already it. something QX, we to right? looking by have quarter. at it higher one eye results we an can do into our be for better in. as the more QX. We than it see people expect on, came We keep into boards

So that's we production on start encouraging, Manufacturing Livermore Center this and our schedule in to are quarter. our open

Operator

Chin from Brian Our of of next question Stifel. comes line the

BrianChin

nice afternoon, next of sort XQ, questions. or to terms for But hamper that upper XX% And levels. nice maintains and foundry, ask a results. every gross assuming margin XQ full but from in margin XQ and XX% quarter us next least in the there's letting persist out progresses the even might few you that basis, guidance thanks of year. headwinds there. guess not to a over the gross in Good that print labor logic would of costs what maybe operate that at And continuing range, Off to I here half year. of Hi, reaching averaging into for a understand from comparable also revenue kind

ShaiShahar

that we as calls most in impacts gross said the earnings So mix. the is fewer margin factor, factor our biggest the product

is QX, Mike We than because but it QX the XX%. running along goal, outlook actual make for and gross gross fluctuate are we that at line. We margin revenues, at was a along the than When QX mentioned look in that point towards of mid higher lower say line, margin target midpoint QX the this at that things towards But mix. least XX% model. progress as as in margin our we saw as call are trend can gross we

that stay So think as we with I XX%. to continue towards progress phenomenon, us will make

BrianChin

XX% this you've tile early for talked intensity IC range, see. side heterogeneous Teradyne packaging about chiplet the what And high toward even thanks. morning, relative in Okay, I Mike, think a within of think test comparable that's maybe monolithic I reference, increase to previously.

I was about on Do CAGR? you've key the that So growth of talked year? space? add across big last handful does this any And of meeting? year's you how could wondering see in represent activity activity revenue tailwind the this points broader of of at leaders basis top a As next analysts

MikeSlessor

Yes.

maybe of the second start part the question. So with

look that went that the gets First, at to model. into of model $XXX stacking underlying back target about get to are million us in the to and some integration Advanced assumptions if prominent die heterogeneous that driver a very us you packaging XXXX.

when growth you in get are XXXX, prominent know techniques. industry incorporated. some integration So about rates seeing as But are think leaders towards the there that their largely pretty heterogeneous shift in we the us they we these roadmaps

going think got that architecture. they've that major coming assumptions at test I factors had this Our potential customers in tailwinds. client revenue in that XXXX. to the this us growth feature processor And a very some level, that to our see at is get been But initially top intensity largest is you we these contemplated going $XXX clear up out are to million least drives

BrianChin

maybe wondering, a times or at kind increasing Great, you could triple And of transistor proportional about? you SOCs, leading just of we're that's or of what you talking maybe not sort if today's stab the one even think test double on helpful. count was take

MikeSlessor

you scale, more level, make put But people the have there's maybe correspondence architecture trying wafer one imagine, time rather to drive in linearly kinds the to high a a transistor count. die might these probability die of they good. that. is to they're when transistor bigger more one in back content to sure and so the packages, than doesn't the as advanced sure to pretty that making technologies transistor test level with to going they thing test not Yes, test of customers interesting question, There's allow I all that Tom's mean, count,

redundancy one You the don't if can an those pretty and rework, a available, or good yield. that's stack, imagine a where die is bad, die scenario in eight have eight of you

are that driving economics fundamental intensity associated with heterogeneous and integration test packages. the that's up so And advanced

Operator

Craig Our B. next from Securities. comes question of Ellis Riley

CraigEllis

on just on nice I outlook. Great to the wanted and the getting congratulations and clarification by Mike, start Livermore execution facility. some the nice

ramping believe a systems that that the that So that the fourth business also is guess is growth associated are the of going for one, ramp? part your you growth? in be The revenue sequentially to we're just press part that with or And seeing in be indicated revenues? it I quarter. and the comments a it quarter-and-quarter. ramping a is because would release would I be said But it

MikeSlessor

or I Yes, footprint online a have, this us. significant three factories. been But following significant in it's The what's been been a the finally you is overall for tool that capacities it installed you midpoint components. think it we've what's our constraints. outlook. of have, pretty modest are the bringing we contributor removing about that think and schedule, We have then the us constraint we been to relaxing And for footprint we know a pretty while pretty those revenue on for a that significant labor in

capacity doing that under. expansions one So bringing other installed, business we see facility operating time getting really going where to it the major, There's with up, of increasing online, continue we're as line our XG we've RF worldwide, them long on DRAM. lead now, powering been associated that constrained relaxes this tools in

sequential of the components growth, a much other facility. the is QX there's too, more little say with But a potential I'd to exciting So for the uplift associated modest, the in bit opportunity QX us. a new is

CraigEllis

be for about band the first that into there's product from coming shipments move year's mid related number And some RF point, to a the a we've was know bit to that smartphones you new on quarter. over thing two of robust, might and that one cetera? high year Got range. RF what And move Are RF type seeing front those. it. first Is year is I end are of particularly X things that smartphones, that Wi seeing? and got of the related the it Android mentioned you're excitement for you that And that more end XG in et Wi XG next releases premise more that Fi is equipment, customer base quite Fi of

MikeSlessor

X No, I think to with strength handsets. handsets. it's there by is the test more But an from I pretty RF But it. a think really elements being the end significant. Both Fi Wi associated handset growth probably is -- front really content XG growth some driven in importantly, XG the perspective, in a XG

If in which you whole handset, XG frequencies look of a a the test at front in functionality significantly a to new handset, you're of got to components XG drives handset. wave the of up up the course, components that frequencies higher and RF end complexity. millimeter operating you've XG many And compared cases bunch a

your answer Wi I growth. of dynamic of driving think that's to RF is it a question, don't handset a So it's lot Fi some really six,

CraigEllis

bit about question the robust looks at two of versus you it's systems business. growing guidelines, a just the thought very $XX business? more a me, quarter that for risk little above quarter that. million like was a admonishment could for the and talk the Lastly But it I

business, happening about you little So pieces talk different Can the of what's FRT, bit Mike? you there, at there are mentioned more but as look that others. we a

MikeSlessor

Yes.

That's we characterization, as Cascade a acquired you segment, acquisition. ours data of really single a system the driver of legacy our under is into the digit quantum HPD of three part business to the really But so our for almost that computing mentioned low space. exactly And down beginning business to serving the see, associated get the into system pieces. umbrella two is think us One adoption, we're one metrology in broken and our And R&D the a analysis, nice serves. And that current other things segment. FRT I being Cascade's And recent failure that both kind that acquisitions to packaging systems that the ecosystem acquisition of Microtech robust grower is FRT. like especially that. year ago with segment, foundry added labs, can been test we've was the the advanced growth a piece applications

computers. some infrastructure the to interesting for quantum providers computers test applications. with there's this We're to measurement quantum a begins companies of really beginning is So test of applications useful helping and and that grow. And of the long that commercialize for as all list them enabling industry associated with

a to as us the getting look quarter, million segment, near which primary it the years which So both was of in adding at to is a mid-XXs. these growing ago faster, FRT for other the are term. XXs couple reason system adding we and also the it, on And the two revenue the $XX HPD, but components, up hopefully, high

Operator

question next comes Our from Steelhead. of David Dooley

DavidDooley

questions. for thanks Yes, taking my

you margin perhaps much us issues? supply and with dragging in curious, You higher costs. improvement impact had sequentially help freight gross was constraints you margins. there nice understand how there mentioned freight Could that I a supply just is I'm sure was still and some still

ShaiShahar

supply, the Actually, go Mike. ahead

MikeSlessor

ahead No, Shai. go

ShaiShahar

didn't we it's in So products, margin big of customers, QX, margin. terms things a that them a impact, we shipments significant a like doesn't costs to and and in It our gross have didn't actually, it going as see big big with impact ship on have in well. this and way QX the to don't impact by nature think the be increased is -- gross the we our from our for

DavidDooley

And was probably wasn't impact? some there revenue I it know very meaningful,

ShaiShahar

no, at And all, not small. pretty

so really small stage have up a it's cards component, missing Sometimes minor big by far, probe to really it's but because waiting shipped you can be operation. a

DavidDooley

Yes. you the are far measuring how that you this or bit could segment could exactly of just And business, be as as packages? little a You in big if market business big FRT is? in a you description, then some the And gave great. help us dig deeper, how understand would what Advanced

MikeSlessor

variety with the new space, of primarily a measurements on adjacent be chiplet. made that there's we don't I interfaces start application between well, Yes, why chiplets to need the mean, the these at

typically can them make and are bumps solder the chips want you defects you're to like pillars flap that. So taking connections together, two of sure no that there's things if these planar stacking copper reasonably imagine you or that

those these the warp, new maintaining of yields bow like measurement, in rapid a brand And so and of planarity things chiplet assembly very amount important surfaces, for and applications.

So measurements chiplets the together. a associated lot before they're of our assembled between interfaces that, with are

is application sized an market. Now because emerging to is difficult this

couple we up a divide swathe total overall advanced perspective going competitors it apps. all fairly a available applications. looked sub from variety a million. across different at there's possible segments to are at I $XXX probably market packaging and of the Tam wide That's And think a probably sub that is of and different of alternatives

As applications so think you from total so really million reasonable take market. standard progress excited have levels, the $XXX that. from far. been probably team know, while It'll available grow a FRT we're obviously the into I about million, a to a for us placeholder $XXX But semiconductor these

Operator

next Company. Our and Cowen question from comes Kris Sankar of

StephenChin

taking questions. is for thanks Krish. my Stephen on calling This behalf Hi, of

probe I prior part First more for you dig were in gross in question, quarters guidance Shai. flat quarter on compared If and the maybe your well? a material could that to cards as did margin product the that mix revenues guys function you customer for little of bit approximately had pretty nice better memory expansion more also a customer some within margin as margin a within your foundries expansion see the segment segment there. or of Was the of

ShaiShahar

can it? You -- the just of least are line. that the repeat part the on you very quality And at not of clear

StephenChin

hear better me now? you for Yes, that. sorry Can

ShaiShahar

Yes, that's better.

StephenChin

within your the expansion in probe segment Okay. as margin implications was for about and margin Yes, QX expansion on QX cards well. the Great. question the gross

relatively So and mix QX. your memory foundry sequentially between QX flat customer were and

margin business memory or the well. that QX, from meaningful from foundry expansion did the expansion if of if most cards primarily curious amount just So customers within probe a was you as see gross margin the in of

ShaiShahar

said in It's our QX, so the within Yes, both had margin, of is contributor And into actually, it look better product the about if gross what back this XX%, was margin XX.X%. segment you so market. output to remarks mix main right? goes range our midpoint the QX we in specific for the prepared in below QX,

But Flash. has DRAM traditionally there between So true than of foundry then higher margins, is first all, it's logic overlap that and than them. systems and and

logic high better market with You can and margins. margin different than DRAM different a have you certainly can end designs has that market, the And design have within completely design. two foundry DRAM

we foundry mix the DRAM and into product as logic, expect cetera markets, necessarily not see between and we less stable is within within what So QX, et within markets. look we the

StephenChin

Got larger for Korean your customer you as up, you. on follow Thank quarter. for in that. And your question my

cards about can So you of their But imagine the potential side. the as opportunities within business, well? talk probe term memory longer business, foundry there's any on most

MikeSlessor

the the QX, know, I they in In you the as strong Yes, foundry foundry we a a they not were, quarter business, from DRAM a worldwide and only the XX% well. customer contribution as where probably believe well. XX% customer logic there customer their and in significant were second that's pretty business to mention have And as as business well. and business significant was QX, systems

relationship both in feel year, they years. opportunity, and many foundry the competing a share customer as do There probably some logic capability opportunity they've customers, there, been because and I us their certainly as and of this have high that is share of with we much an side the of that businesses. there's grow not they're across making think talked gain So do investments capacity for customers and a I a fabless foundry and and big group. in native But we for other logic we customer cards probe the capacity on strong about think, DRAM like reasonably

as they would to the expand And so with business, expect and that. we logic grow foundry

Operator

from comes Company. Needham Shi question next and Our Charles of

CharlesShi

Mike my question. taking Thanks Good for Shai. and afternoon,

margin. retaking QX margins So your side gross appropriate the want on overall execution that. backup, first, to but strong like congratulate Looks that only team FormFactor the is congratulations not really Really, I for XX%. on

tailwinds So the very cards Then dynamics to the strong customer, strong, or want side would turnaround probe a effort, with favorably how have want space on to on but what very business start really in takes aggressive either I mobile either indirect and know the the watch fabless ask microprocessor, that strong you leading ask market market us exposure the or to some with Maybe little it's let high IDM or where follow microprocessor competition Obviously, share. view becoming And SoC between interesting headwinds you want asking very context you of with competitive shares your a foundry with a them are potentially changing side. in is good share could Obviously, I the you microprocessor have have data level to I bit in unfavorably? the position longer a that that's provider. to really for on providers? there. the other between term about you the we I puts obviously IDM may two with market microprocessor talk exposure affect leading those up. and about your questions. side, that a microprocessor you're me potential

MikeSlessor

Okay. Yes.

some which manufacturer, growth have the share microprocessor manufacturer As we the strong microprocessor leading haven't little gone you obviously very but has unnoticed know, over obviously the impressive numbers while, fabless posted at us. last by

lower market share of there, they we've a go microprocessor customer. Our because a strong fabless share share, lower to and gaining reasons, it's for pretty the but are raise variety native at that got is lower, initiative there our is because share

to around one loss I would of been reasonable in So to we've a be good think, leading been we're for being long-term the if you, our the shift for to focusing I all got strategy with being we and us. that a world, consistent it's headwind supplier that. think a would And customers on leading with at that a position rectify right traction. share net were net the But candid be now area where us, an one

themselves. business test with manage they subtleties actually where interesting but the necessarily that Some use won't services foundries

of fabless not case, in of too actually direct subtleties the interesting to complicate So this customer, is that they're which one have much things business.

CharlesShi

Thanks reportedly in-house, back bring for starting to process processes maybe design the been smartphone turn mobile Chinese of that side. to from SoC working great of to the Mike. mic topical quite one that is It's I apps maker color, want -- Maybe the three nanometer.

SoC the of there. I indirect mobile little system the potential on in like companies, in a assistant particular, US have leading stronger foundry I you landscape bit your of in, when kind I space shift little that? Thank in to move maybe foundry mobile the you. think for mean, they the in one also over designs coming bit this you tend take there. all wonder terms evolution a customer a continued there's more favor us house. reflects company what of one Could those the give the headwind a the position FormFactor color other in- And of where thinks is space, may companies

MikeSlessor

own almost their goes company the engaged back fabless so it's about again account relationships complicated net up the sure of of becoming their and own in I want back silicone and neutral share creates company. sure And I fabless large I in-house, leading manage customers, test Yes, an sourcing customers the fabless structure. all similar we all making don't at operations strong we're design and with the many and think And to family outsource is to have This made situation company, reasons that's positions leading we to foundries and them and us. really of their as point that more to these so end management manufacturing strategies are for a the fabless customers engaged. customers actually again, that themselves But been because with shifts a sourcing I being strong leading the design well pretty strategies foundry new, think and The hyperscalars not we right? integration manufacturer microprocessor the where take have in this interesting I more one continues of to mean, it inside all our obviously the make trend it's one. more vertical handset and comments taking why their with

Operator

Schwab Craig-Hallum. Our Christian comes from next question of

TylerBurmeister

Tyler let for solid to QX want and to is is us ask for on flat, XXXX this implied probe a some questions pretty including Christian. congrats I year. cards ask growth of Hey, DRAM about kind business your the be going Thanks on guidance quarter. your of strong

serving to I'm year? if I'm shouldn't customers should wondering, year, be there So transitions next about So this and we the any reason no be strength continued any suspect just to just there's and continue? design continue wondering is all reason really you're string there's going that XXXX

MikeSlessor

question. good Yes,

As of you might pretty debate. imagine significant a topic internal

to I the one cyclical us think like DRAM are probe things cards, remember history chain supply elements DRAM taught business. a all has is that of

drivers think, at the quarter, around represents sort $XX at million and one current reasonable that no the level, little end, of cards revenue, books row the at reason quarterly in the now quarter as assumption here releases. continued And million we design transitions probe to hovering a continue as low $XX surprised for record customer the current past being a all $XX of mid-XXs, level, got are fourth in quarter high one those sort mid-XXs bit we've expect $XX least which couple talked why I a the don't time looking For base of the kind you above the I fundamental in a any quarters million. are we average the of is in is high at and see historical be that DRAM $XX.X the not one, two quarters which that, million long and we've about or that normalized as note million

fundamental pretty in close demand, historic that be operating the pretty time in levels DRAM, still we're that there. record that So think given little to might they're well I drive a And executing surprising. constituents the we're all cyclicality DRAM. But

probably we've XXXX. think I in share here gained

TylerBurmeister

environment you That's expect from great. not I impacts But executing the then yourself. to you that's material presumably kind guys seeing made the next you're do customers. persist to with the And a And second sounds comment Appreciate and you conversations color. are of that in think question, it like year. the supply on coming that chain, having well,

customers least from benefit actually at this environment, on visibility I'm comments a benefiting conversations standpoint. a chain wondering impacts supply there great. to you be be if might your would there just So with further Any

MikeSlessor

many the of interesting. the mean, have really have semiconductor And them of I been in supply Yes, chain the issues root kind shortage. cause back ironically,

still leading it's And we semiconductor should ecosystem. don't much. for be they vertically I where different chip demand improving with of at pretty what across again running company the So the integrated, been ago. increases benefited lead very comes from, in shortage well, it reasons. is make that But capacity we've prepared have hope in we'd pretty of in within associated across all especially did I some Part businesses. But a satisfy the manufacturing a edge years as different to isolated capacity not had industry, with that think mean for integrated was solid driving fashionable times that the remarks a subsystems we're visibility the the node associated or several shortage. all are challenges online components mentioned we've with quarter. sub couple that not really tech that a good this of I to our vertically as

it here has being One of bit. paid continuity, a off them little and

Operator

Thank you. back to like the Slessor I'd remarks. over At call for time, closing to turn Mike this

Mike Slessor

hope person I don't but or everyone you FormFactor. see know a of -bye. couple Thanks thanks Great. of joining that for us conferences if Bye We're again. your the year. continued in be to there hopeful in to for attend virtual interest end and

Operator

disconnect. now call. Thank participating today's conference You you this for And concludes may

Jason Cohen	General Counsel, Investor Relations
Mike Slessor	President and Chief Executive Officer
Shai Shahar	Chief Financial Officer
Tom Diffely	D.A. Davidson
Brian Chin	Stifel
Craig Ellis	B. Riley Securities
David Dooley	Steelhead Securities
Stephen Chin	Cowen & Company
Charles Shi	Needham and Company
Tyler Burmeister	Craig Hallum

FormFactor (FORM) 28 Oct 212021 Q3 Earnings call transcript