FormFactor's CEO Discusses Q4 2011 Results - Earnings Call Transcript

FormFactor, Inc. ( FORM)

Q4 2011 Earnings Call

February 7, 2012 04:30 pm ET


Tom St. Dennis - CEO

Mike Ludwig - CFO


Terrence Whalen - Citi

Mark Delaney - Goldman Sachs

Patrick Ho - Stifel Nicolaus



Thank you. And welcome everyone to FormFactor’s fourth quarter 2011 earnings conference call. On today’s call are Chief Executive Officer Tom St. Dennis; and Chief Financial Officer Mike Ludwig.

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 financials. A schedule that provides GAAP to non-GAAP reconciliations is available on the press release issued today and also on the investor sector of FormFactor’s website.

Also 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 about our development, introduction and/or qualification of next generation Matrix or new SoC products.

And statements that contain words like expect, anticipate, believe, 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 risks and uncertainties. FormFactor’s actual results 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 to 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 Factor discussions in the company’s Form 10-K for the fiscal year 2010 as filed with the SEC, subsequent SEC filings included in the company's Form 10-Qs filed in fiscal 2011 and in the press release issued today.

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

Tom St. Dennis

Good afternoon. Demand for probe cards remained weak in the fourth quarter, significant drops in DRAM prices caused by DRAM manufacturers to reduce wafer starts and delay introducing new designs. As a result, the demand for DRAM probe cards was reduced by approximately half compared to the third quarter. The impact on the hard disk drive market from the Thailand floods appears to be improving and estimates are that approximately 80% of the manufacturing capacity will be restored by the end of Q2, 2012. We expect to see the market for DRAM probe cards improving later this quarter or early in Q2 as a result of increased hard drive shipments. The market for SoC probe cards also slowed in the fourth quarter although not as significantly as DRAM. IC manufacturers invested cautiously in the fourth quarter due to macroeconomic uncertainty and as a result some of their programs were delayed or postponed.

Operationally we took the opportunity given by the slowdown in Q4 to expand training and to continue to reduce cycle times. We ended Q4 with first [starting] lead times for our Matrix product at approximately 54 days. This is over 30 days less than Q4, 2010. We are continuing to drive lead times down throughout our factory and with our suppliers to achieve a lead time goal of 42 days by the end of 2012.

Our product development programs made solid progress during Q4 as we continue to work closely with our customers. Two customers have installed our next-generation Matrix cards and are evaluating them currently. We are in the process of designing a card for a third customer which will ship in Q2. We expect the next generation Matrix product to begin to contribute to revenues in the second half of this year.

The development of our vertical probe technology for the SoC market continued in Q4 also with solid progress. We’re currently working with our development customers to characterize and evaluate all aspects of performance of this new product. The development phase of this product should be completed in Q2 and then we will begin customer evaluations.

Recently, we’ve begun to make capital investments for production tools that will come online in the second half of 2012. Despite the recent disruptions in the DRAM probe card market, FormFactor’s opportunity for growth in probe cards remained strong. We intend to achieve this growth by increasing our focus and products in the SoC segment of the market. We believe the SoC probe card market is poised to leverage the same technologies that significantly reduce the cost of test for our memory customers.

FormFactor’s products and technologies are well positioned to take advantage of this market opportunity. Revenue growth in the SoC market, on top of the base of revenues from the DRAM market will improve our profitability and the diversification will reduce revenue volatility.

This is our primary focus going in to 2012 and we expect to make significant progress towards this goal. Last Thursday, Jim Prestridge notified FormFactor’s Board that he will not stand for reelection at this year’s shareholder meeting. Jim has served as a Board member for 10 years and was Chairman of the Board for four years.

On behalf of the FFI Board, I would like to thank Jim for his years of service. Now, Mike Ludwig will review Q4 and our Q1 guidance.

Mike Ludwig

Thank you, Tom. Revenues for Q4 were $30.2 million, a decrease of 42% from Q3 2011 and 31% from Q4 2010 respectively. The revenue decline from the third quarter came from all sectors of the business. Fourth quarter revenues for DRAM products were $18.4 million, a decrease of 50% from our third quarter and a decrease of 32% versus the fourth quarter a year ago. The DRAM industry continued to be hit hard in Q4 by falling DRAM device prices, by the limited availability of hard disk drives impacting the PC market which is a significant source of DRAM devices and by the EU debt crises weighing on the global economy.

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