FormFactor Q2 Earnings Call Highlights

Key Points

• Record second-quarter performance: FormFactor reported revenue of $258.2 million, up 14% sequentially, with non-GAAP gross margin of 53.3% and non-GAAP EPS of $0.82. The company also surpassed a $1 billion annualized revenue run rate and generated $52.6 million in free cash flow.
• AI-related demand is driving growth: DRAM revenue reached a record, with HBM contributing roughly two-thirds of DRAM sales, while foundry and logic demand benefited from data-center CPUs, networking and hyperscaler custom ASICs. Co-packaged optics adoption is accelerating, prompting the company to raise its 2026 revenue expectations above $20 million.
• Positive third-quarter outlook and expansion plans: FormFactor expects third-quarter revenue of $270 million, plus or minus $10 million, non-GAAP gross margin of 54% and EPS of $0.86, plus or minus $0.09. Its Farmers Branch, Texas, facility remains on track to ramp at the end of 2026, supporting future capacity and margin expansion.

FormFactor NASDAQ: FORM reported record second-quarter revenue, gross profit and earnings per share, as demand for semiconductor test products increased across high-bandwidth memory, data-center computing and co-packaged optics.

Chief Executive Officer Mike Slessor said the company surpassed a $1 billion annualized revenue run rate and exceeded 50% gross margin during the quarter, marking progress toward the long-term target model introduced in May. That model calls for revenue of $1.6 billion, non-GAAP gross margin of 55% and non-GAAP earnings per share above $5 by 2030.

“FormFactor's second quarter revenue, gross profit, and earnings per share set all-time records,” Slessor said. He added that the company expects further sequential increases in both revenue and profitability in the third quarter.

Second-Quarter Results

Revenue for the second quarter was $258.2 million, up $32.1 million, or about 14%, from the first quarter and $18.2 million above the midpoint of the company’s outlook range. Chief Financial Officer Aric McKinnis said the result represented FormFactor’s third consecutive quarterly revenue record.

GAAP gross margin was 50.7%, compared with 38.4% in the first quarter. The prior-quarter result included $18.8 million in restructuring costs that did not recur in the second quarter. On a non-GAAP basis, gross margin reached 53.3%, up 430 basis points sequentially.

McKinnis said roughly one-third of the sequential gross-margin improvement came from durable baseline cost reductions, one-third reflected the $32 million increase in revenue, and one-third came from items not expected to recur, including tariff refunds and precious-metal recovery associated with the shutdown of the company’s Baldwin Park site.

Excluding those nonrecurring items and favorable product mix, McKinnis said FormFactor’s normalized non-GAAP gross-margin baseline was about 51% at second-quarter volumes. He said the company expects its Farmers Branch, Texas, manufacturing site to be accretive to gross margins once it comes online.

• GAAP net income was $56.2 million, or $0.71 per diluted share, compared with $20.4 million, or $0.26 per share, in the first quarter.
• Non-GAAP net income was $65 million, or $0.82 per diluted share, compared with $44.5 million, or $0.56 per share, in the first quarter.
• Free cash flow totaled $52.6 million, up from $30.7 million in the prior quarter.
• Cash and investments increased $42.8 million sequentially to $349 million.

Systems-segment revenue reached a record $48.5 million, rising $20.6 million, or 74%, from the first quarter. McKinnis said the recovery reflected stronger engineering-prober demand and accelerating co-packaged optics revenue.

HBM, DDR and Foundry Demand

FormFactor’s DRAM probe-card business posted another record quarter as demand for HBM4 products increased alongside continued DDR demand. HBM accounted for approximately two-thirds of overall DRAM revenue during the period, according to Slessor.

The company said two customers continued to adopt its SmartMatrix full-wafer contactor technology for high-speed HBM4 testing. Slessor said the technology allows customers to test hundreds of completed HBM stacks simultaneously at HBM4 data rates exceeding 10 gigabits per second.

For the third quarter, however, FormFactor expects overall DRAM revenue to remain comparable with the second-quarter record while the mix shifts materially toward DDR. Slessor attributed that expected shift to constrained memory supply and increased DDR pricing, which he said is prompting customers to adjust wafer-start mixes toward DDR designs.

Foundry and logic probe-card demand also increased significantly from the first quarter, driven primarily by data-center CPU applications, continued networking strength, early momentum in hyperscaler custom ASICs, and steady PC and mobile demand.

Slessor said increasing CPU compute intensity associated with agentic AI use cases is creating probe-card opportunities. He cited FormFactor’s incumbent position with a data-center CPU supplier, an expanding relationship with a high-performance-compute leader across networking, GPU and CPU products, and multiple design wins at a large fabless XPU customer.

He characterized the company’s current share at the fabless CPU customer as low single digits but said it has additional opportunity over time. Capacity availability could limit the pace of share expansion until Farmers Branch begins ramping, he said.

Co-Packaged Optics Gains Momentum

FormFactor increased its outlook for co-packaged optics, or CPO, revenue after seeing faster-than-expected adoption. The company had initially forecast 2026 CPO revenue of $10 million to $20 million but now expects to exceed $20 million by the end of the third quarter and to finish the full year significantly above that level.

The growth is being supported by planned increases in CPO chip volumes later in the year and FormFactor’s role in testing photonic integrated-circuit wafers before they are combined with electrical integrated circuits to create optical modules, Slessor said.

While he said FormFactor is seeing “strong acceleration” in the business, Slessor did not provide a detailed quarterly CPO forecast for 2027, citing variables including customer adoption, yields and test times. The company has previously identified a CPO served market of about $400 million by 2030.

Capacity Expansion and Third-Quarter Outlook

FormFactor’s Farmers Branch facility remains on track to begin ramping at the end of 2026 and continue ramping through 2027. The initial targeted capacity is roughly equivalent to the company’s existing California probe-card manufacturing footprint, McKinnis said.

The company expects 2026 cash capital expenditures for Farmers Branch and other capacity additions of $140 million to $170 million. It also expects total pre-production ramp costs of about $25 million to $30 million this year, including roughly $12 million incurred through the second quarter and approximately $7 million expected in the third quarter.

McKinnis said FormFactor expects Farmers Branch to be accretive to gross margin after reaching its initial target capacity, which is anticipated by the beginning of 2028. The company has received incentives that include a $24.2 million grant from the Texas Semiconductor Innovation Fund, subject to meeting certain criteria.

For the third quarter, FormFactor forecast revenue of $270 million, plus or minus $10 million, and non-GAAP gross margin of 54%, plus or minus 150 basis points. The outlook includes expected tariff refunds that McKinnis said would contribute about 300 basis points to gross margin. The company forecast non-GAAP earnings per diluted share of $0.86, plus or minus $0.09.

About FormFactor (NASDAQ:FORM)

FormFactor, Inc NASDAQ: FORM is a leading provider of advanced test and measurement solutions for the semiconductor industry. The company specializes in the design, development and manufacture of high-performance wafer-level and package-level test interfaces used in wafer sort, characterization, reliability and failure analysis applications. By leveraging precision microelectromechanical systems (MEMS) and photolithographic processes, FormFactor delivers probe cards, analytical probes and test sockets that enable device makers to validate next-generation integrated circuits across logic, memory, RF, analog and power applications.

FormFactor's product portfolio includes custom probe cards for wafer probers, TEM-based analytical probes for material and device characterization, and socket solutions for burn-in and final test of packaged devices.

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