FormFactor Inc., (FORM)

Q2 2010 Earnings Call

July 27, 2010 4:30 pm ET


Carl Everett - Chief Executive Officer

Richard DeLateur - Chief Financial Officer


Timothy Arcuri – Citigroup

Gary Hsueh – Oppenheimer

Kate Kotlarsky - Goldman Sachs

C.J. Muse - Barclays Capital

Patrick Ho - Stifel Nicolaus

Kevin Vassily - Pacific Crest Securities



Fiscal 2010 Earnings Conference Call. On today’s call, our Chief Executive Officer, Carl Everett and Chief Financial Officer, Rich DeLateur.

Before we begin, let me remind you that the company will be discussing GAAP P&L results and some key non-GAAP results to supplement understanding of the company’s financial. A schedule that provides GAAP to non-GAAP reconciliation is available in the press release issued today and also on the investor section of FormFactor’s website.

Also a reminder for everyone that today’s discussion contains forward-looking statements and that FormFactor’s actual result could differ materially from those projected in our forward-looking statements. The company assumes no obligation to update the information provided during today’s call, revise any forward-looking statements or to update the reasons, actual results could differ materially from those anticipated in forward-looking statements. For more information, please refer to the risk factors discussed in the company’s form 10-K and subsequent forms 10-Q and in the press release issued today.

With that, we will now turn the over to C.E.O, Carl Everett.

Carl Everett

Thank you and hallo everyone. FormFactor plays an important role in the semiconductor industry by enabling our customers to improve yields, lower overall costs of tests and deliver highly reliable semiconductor devices for all competing applications.

We have just begun the work required to transform FormFactor performance around. As a matter of fact, I expect the next two quarters to show incremental improvements as we position the company for better results in 2011. I am organizing the work in front of us in step with strategic objectives I am setting for the company. Within the strategy framework, we will set detailed targets and goals to measure our progress and drive to results.

For example, Rich will be discussing our key financial targets regarding cash burn, gross margin and OpEx.

Our long term guide focus to work toward is 50, 30, 20, which means a 50% gross margin, a 30% operating expenses as a percentage of revenue and 20% operating profit.

Let me describe the strategic framework. Our first objective; take care of our core business. We are the number one supplier of advanced wafer probe solutions for the DRAM industry. In this role we have several paths to address; first our product line and architecture is changing. We are transitioning from the harmony generation products to a smart matrix and touch matrix product lines. We have notified our customers of end of life plans for Harmony and will begin accepting last time orders at the end of Q3 2010.

The new products enable our customers to achieve better yields and therefore our lower cost of ownership solutions. We are in or have completed the qualification phase of this transition at all of our customers. I am pleased to report the products are well received and coming on line to production.

Through Q2 2010 FormFactor key matrix unit volumes shipments to our customers totaled 200 units. This volume shipped into the market place two and one half times faster than the initial rump up of a harmony product line.

However, on the down side, I do expect to lose market share as we make this transition. This share loss is a result of the time required for the matrix part qualifications and of our customers’ manufacturing lead times as they move from qualification volumes to full commercial production volumes resulting in lost opportunities for us.

I would estimate the share loss to be 8% plus or minus a few points. However we will move in to 2011 and at a much stronger position with the transition behind us. I do know we are making steady improvement in our matrix manufacturing operations, and we see no technical roadblocks. Quarter-over-quarter, our matrix unit volume were at 90% and we expect it to grow another 30% in our third quarter of 2010.

Next, I expect we will be challenged with helping response to strong demand for semiconductors. After 2 years of negative growth, the semiconductor industry has roared back to a Gardner forecast in 27% growth rate for 2010.

The industry capital required to sustain an increased ramp is being deployed and the new output will find its way to the [pump] station. Our customers have asked for faster response times and we are working to deliver.

I have taken action to simplify what was a complex and overreaching manufactuiring strategy at FormFactor. By shutting down the Korean manufacturing site, we eliminated a risk of overbuilding our capacity. We are now focused upon our Livermore, Singapore and Japan sites. Each site has an achievable mission and a stable future. Our output has shown a quick and positive improvement as we reduced our delinquent loss significantly inside the second quarter.

This new factory strategy has enabled us to meet six week general lead times for reorders across our product families. First article designs for new orders require an additional two to three weeks.

Our new matrix products offer reduced complexity for our factory as well as the potential for shorter design times. This will help us in the customer lead time requirements better in the future.

I am driving a weekly cost of goods sold improvement focus internally across our operations and into our supply chain as well. The improvements will be visible as early as Q4 2010. As you are aware, I have taken OpEx actions and will remain focused on operating expenses in our efforts to return to profitability.

Read the rest of this transcript for free on

If you liked this article you might like

Towers Watson & Co. - Analyst/Investor Day

Towers Watson & Co. - Analyst/Investor Day

Cresud's CEO Discusses F2Q12 Results - Earnings Call Transcript

Cresud's CEO Discusses F2Q12 Results - Earnings Call Transcript

Ocean Power Technologies Management Discusses Q1 2013 Results - Earnings Call Transcript

Ocean Power Technologies Management Discusses Q1 2013 Results - Earnings Call Transcript

Microsemi Corporation - Analyst/Investor Day

Microsemi Corporation - Analyst/Investor Day

Lattice Semiconductor's CEO Presents At Deutsche Bank's DbAccess 2012 Technology Conference (Transcript)

Lattice Semiconductor's CEO Presents At Deutsche Bank's DbAccess 2012 Technology Conference (Transcript)