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FormFactor Inc. (FORM)

Q2 2012 Revenue Plan Update Call

May 30, 2012 08:00 AM ET


Thomas St. Dennis - Chief Executive Officer

Michael Ludwig - Chief Financial Officer


Wenge Yang - Citigroup

Patrick Ho - Stifel, Nicolaus

Olga Levinzon - Barclays Capital

Tom Diffely - D.A. Davidson



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Thank you and welcome everyone to FormFactor’s Q2 2012 Mid Quarter Update Conference Call. On today’s call are Chief Executive Officer Tom St. Dennis and Chief Financial Officer Mike Ludwig.

A reminder for everyone that today's discussion contains forward-looking statements within the meaning of the Federal Securities Laws. Such forward-looking statements include, but are not limited to, projections, including statements regarding business momentum, demand for our products and future growth. Statements that contain words like expects, anticipates, believes, possibly, should and the assumptions upon which such statements are based. These forward-looking statements are based on current information and expectations that are inherently subject to change and involve a number of risk and uncertainties. FormFactor’s actual results could differ materially from those projected in the forward-looking statements.

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The company assumes no obligation to update the information provided during today’s call, to revise any forward-looking statements or to update the reasons. Actual results could differ materially from those anticipated in the forward-looking statements. For more information, please refer to the Risk Factor discussion in the company’s Form 10-K for Fiscal 2011 and the company’s subsequent Form 10-Qs in Fiscal 2012 and in the press release issued yesterday.

With that, we will now turn the call over to CEO, Tom St. Dennis.

Thomas St. Dennis

Thank you for joining us this morning. FormFactor’s second quarter revenue is developing to being stronger than we first anticipated. We are seeing strengths across the DRAM and Flash Memory segments. Historically, the second and third calendar quarters are generally the strongest quarters for FormFactor, with the fourth quarter and first quarter being seasonally weaker.

Several industry analysts as well as key semiconductor manufacturers have pointed to a stronger forecast for the second half of 2012. We also expect to see more investments in Q3 than in Q2 this year and in fact some of the revenue growth in Q2 is coming from customers accelerating demand from early Q3. Additionally some of the growth is coming from market share gains in Flash, while DRAM market share is flat to slightly up.

The growth in DRAM is surprising, given the recent negative announcements related to personal computer shipments. The mobile portion of our DRAM revenue is up quarter-over-quarter to about 40% which is the highest percentage in the past year. With the growth of mobile devices and the growth of DRAM content in some tablets and smart phones, we believe the DRAM manufacturers are allocating more of their capacity in this area.

Our Matrix product line revenue continued to grow for both DRAM as well as Flash. In this quarter, we expect to have record unit shipments of Matrix products. Well we are encouraged by the marketplace momentum for our Matrix product line, our outlook for the second half of the year is tempered by concerns about softness in the personal computer market and the potential impact of the macroeconomic forces.

We will continue last years (inaudible) and provide more updates at the second quarter earnings call at the end of July.

With that I will turn it over to Mike to give you our updated Q2 guidance.

Michael Ludwig

Thank you and then good morning. As Tom mentioned strength in DRAM probe card demand came from customers seeking shipments of orders that have been anticipated for the second half. Additionally, our reduced lead time has allowed the company to compete more and win additional DRAM and complex Flash memory opportunities at certain customers. Overall we are seeing positive impacts to our Q2 revenue outlook.

We expect Q2 revenues to increase to $50 million to $54 million, higher than our previous Q2 revenue guidance of $43 million to $47 million. We expect revenues to increase in both DRAM and Flash Memory markets compared to the first quarter of 2012 levels.

Given the new revenue guidance, we expect non-GAAP gross margins to be in the range of 26% to 28%, compared to our earlier guidance of 22% to 24%. Non-GAAP gross margins are being positively impacted primarily by higher absorption of fixed costs and direct labor from higher revenue levels. Our non-GAAP operating expense guidance remains unchanged. We continue to expect Q2 non-GAAP OpEx to be roughly equivalent to the amount expensed in Q1 2012.

Higher receivables and inventory expenditures from increased revenues will be offset by increased collections[ph], resulting in a cash burn of $4 million to $6 million excluding stock repurchasing.

Our visibility is so limited with respect to Q3therefore we will not provide any guidance with respect to Q3 2012 until our second quarter earnings call at the end of July.

With that let’s open the call for Q&A, operator.

Question-and-Answer Session


(Operator Instructions) Our first question is from Terence Whalen from Citigroup, your line is open.

Wenge Yang – Citigroup

Hi, this is Wenge Yang for Terence, thank you for taking my question. First of all regarding the DRAM strengths, could you comment is this more a seasonal factor or do you see some secular change in the shift from PC to mobile, that is at the last not more than one to two quarters?

Thomas St. Dennis

I don’t know if we can separate the two Wenge on this very clearly, as I mentioned the mobile portion or the mobile percentage of the DRAM revenues for us this quarter are higher, they are almost 40%, that’s the highest it came in the last year. There are just some seasonal effects as people are after perhaps under investing or delaying investments have accelerated some of those investments and certainly some of this in anticipation of some of the product announcements that are coming out later in the year. So at this point in time, there is a blend between perhaps a higher percentage of mobile, but it is understandable with the major products out there and perhaps some catch up on delayed investments.

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