What FormFactor (FORM) Said on Its Q3 Earnings Call

Key Points

• Strong Q3 performance: FormFactor reported revenue of $280.5 million, up 9% sequentially and nearly 40% year over year, while non-GAAP EPS rose to $1.04. Results benefited from broad semiconductor-test demand, manufacturing efficiencies and tariff refunds.
• Growth fueled by AI and photonics: Foundry and Logic demand expanded across CPUs, GPUs and hyperscaler custom ASICs, while record Systems revenue was driven by TRITON photonic systems. The company now expects more than $30 million in TRITON revenue during 2026.
• Farmers Branch capacity ramp is central to the outlook: FormFactor qualified its new Texas facility and expects it to reach roughly $400 million in annualized probe-card capacity by the end of 2027. Management forecasts fourth-quarter revenue of about $285 million and expects to surpass $1 billion in 2026 revenue.

FormFactor NASDAQ: FORM reported third-quarter results that exceeded the high end of its outlook, supported by broad demand for semiconductor test products and higher output from its existing manufacturing footprint. The company also outlined plans to ramp its new Farmers Branch, Texas, facility through 2027 as capacity constraints emerge in its current operations.

Chief Executive Officer Mike Slessor said quarterly revenue, gross margin and earnings per share all increased, with revenue rising nearly 40% from a year earlier while the company operated within essentially the same manufacturing footprint. He attributed the performance to FormFactor's exposure to high-performance computing and advanced packaging markets, as well as manufacturing efficiency gains.

Third-quarter revenue totaled $280.5 million, up 9% sequentially and $10.5 million above the midpoint of the company's outlook range. GAAP net income was $73.8 million, or $0.93 per diluted share, compared with $56.2 million, or $0.71 per diluted share, in the prior quarter. Non-GAAP net income reached $82.3 million, or $1.04 per diluted share, up from $65 million, or $0.82 per diluted share, in the second quarter.

Margins Improve, Though Tariff Refunds Added to Results

Chief Financial Officer Aric McKinnis said FormFactor generated a 56.5% non-GAAP gross margin in the third quarter, an increase of 320 basis points from the prior quarter. The figure included about $10.5 million, or approximately 380 basis points, of benefits primarily related to tariff refunds and favorable quantum-business sub-component costs that the company does not expect to recur.

Excluding those items, non-GAAP gross margin would have been between 52.5% and 53%, which McKinnis said was roughly 150 basis points above the baseline described in the prior quarter. He attributed the baseline improvement to better labor performance, manufacturing spending discipline, yields and other production-cost reductions.

The company now views roughly 53% as its gross-margin baseline at third-quarter volumes. Management expects gross margins in 2027 to remain near that level as higher volume and further operating efficiencies offset the temporary inefficiencies associated with ramping a new facility.

Probe card gross margin increased about 90 basis points to 55.3%, while Systems segment gross margin rose by more than 10 percentage points to 61%. Higher utilization, improved yields, manufacturing spending discipline and tariff benefits offset less favorable DRAM product mix in the probe card business, according to McKinnis.

Foundry, Logic and Photonics Demand Drive Growth

Foundry & Logic revenue increased 10% sequentially during the third quarter, with demand spanning multiple applications. Slessor said the company expects the segment to grow again in the fourth quarter, supported in part by demand for data-center CPUs used in what he described as agentic AI use cases.

The company is also expanding its presence in GPUs and hyperscaler custom ASICs. During the quarter, FormFactor shipped probe cards to the world's leading foundry for one GPU design in multimillion-dollar volumes, Slessor said. He said the company expects to build on that qualification and initial ramp to gain meaningful share in GPU and custom ASIC applications in 2027, with Farmers Branch supplying needed capacity.

DRAM probe card revenue remained near the record level reported in the second quarter, though the mix changed as high-bandwidth memory revenue declined and DDR5 revenue increased. Slessor said customers shifted wafer starts toward DDR designs to pursue higher market pricing. He added that FormFactor achieved record DRAM probe card revenue and strong gross-margin performance despite the DDR5-heavy mix, reflecting manufacturing cost-reduction efforts.

The Systems segment delivered record revenue of $59.5 million, up $11 million, or 23%, sequentially. The increase was driven by demand for the company's TRITON photonic systems for co-packaged optics applications.

FormFactor now expects more than $30 million in TRITON revenue during 2026, up from its initial forecast of $10 million to $20 million at the start of the year. Slessor said the company is also seeing demand tied to near-package optics and pluggable devices, and does not expect manufacturing capacity to constrain growth in the TRITON business.

Farmers Branch Ramp Becomes Key Priority

FormFactor recently qualified the assembly and test portion of its nearly 300,000-square-foot Farmers Branch factory and shipped its first production unit to a customer. The facility will initially serve Foundry & Logic customers, with assembly and test ramping first and MEMS front-end production planned for 2027.

Management said its existing footprint is nearing its production limits after generating higher output through cycle-time, yield and efficiency improvements. McKinnis said the Texas facility is expected to ramp approximately linearly during 2027, beginning near zero and reaching an annualized capability of roughly $400 million in probe card revenue by the end of the year. That figure represents capacity rather than projected revenue.

The company lowered its expected 2026 cash capital expenditures for Farmers Branch to $100 million to $110 million from a prior estimate of $140 million to $170 million. McKinnis said the reduction reflected timing of capital spending and favorable payment terms rather than changes to the project's scope or ramp schedule. Related cash spending is expected to shift into 2027.

FormFactor recorded $6.4 million in pre-production ramp costs during the third quarter. About $5 million of startup costs are expected to shift from operating expenses to cost of revenue in the fourth quarter, while another $5 million is expected to remain in operating expenses for capacity phases not yet in production.

Fourth-Quarter Outlook

For the fourth quarter, FormFactor forecast revenue of approximately $285 million, plus or minus $10 million. The company expects non-GAAP gross margin of 54%, plus or minus 150 basis points, and non-GAAP operating expenses of about $69 million, plus or minus $2 million.

Non-GAAP diluted earnings per share are expected to be $0.95, plus or minus $0.09. The fourth-quarter outlook includes remaining tariff refunds of roughly $2 million, which management said will not provide an ongoing benefit to baseline margins after they are received.

FormFactor ended the quarter with $399 million in cash and investments, up $50 million sequentially, and generated $64.8 million in free cash flow. McKinnis also noted that Teradyne's previously announced $300 million investment in FormFactor strengthens the balance sheet but does not alter the company's capital-allocation priorities.

Slessor said the midpoint of fourth-quarter guidance puts FormFactor on track to exceed $1 billion in 2026 revenue for the first time in company history. The company continues to target $1.6 billion in revenue, 55% gross margin and $5 in non-GAAP earnings per share.

About FormFactor (NASDAQ:FORM)

FormFactor, Inc is a semiconductor test and measurement company that designs and manufactures equipment and components used to evaluate integrated circuits during the wafer fabrication and production process. Its products help semiconductor manufacturers and suppliers measure electrical performance, identify defects and improve the development and manufacturing of advanced chips.

The company's portfolio includes probe cards used for wafer-level testing, as well as probe stations, analytical systems and related accessories for semiconductor engineering and production applications.

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