FormFactor's CEO Discusses Q1 2012 Earnings Results - Earnings Call Transcript

FormFactor, Inc. (FORM)

Q1 2012 Earnings Call

May 1, 2012 4:30 pm ET

Executives

Thomas St. Dennis – Chief Executive Officer & Director

Michael M. Ludwig – Chief Financial Officer

Analyst

Patrick Ho – Stifel Nicolaus & Company, Inc.

James Covello – Goldman Sachs

Olga Levinson – Barclays Capital

Terence Whalen – Citi

Tom Diffely – D.A. Davidson

Presentation

Operator

Welcome everyone to FormFactor’s first quarter 2012 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. The schedule that provides GAAP to non-GAAP reconciliations is available in the press release issued today and also on the investors’ section of FormFactor’s website.

Also as a reminder for everyone, today’s discussion contains forward-looking statements within the meaning of the Federal Securities Law. Such forward looking statements include but are not limited to projections including statements regarding business momentum, demand for our product, and future growth, payment of outer development, introduction, and/or qualification of next generation matrix, or USOC products and statements that contain words like expects, anticipate, believe, possibly, should and the assumptions upon which statements are based.

The forward-looking statements are based on current information, expectations that area 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, provide 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 10K for the fiscal year 2011 as filed with the SEC, subsequent SEC filings and in the press release issued today. With that I would like to turn the call over to CEO Tom St. Dennis.

Thomas St. Dennis

Before Mike Ludwig presents are Q1 results I’d like to make some comments on the probe card market in Q1 and the progress we made operationally through the quarter. Demand for probe cards remained weak at the beginning of Q1 similar to Q4 of 2011. Late in January though, we began to see increased orders that continued to improve throughout the quarter. Unfortunately, the orders came in too late in the quarter to contribute significantly to Q1 revenues, but will be reflected in higher Q2 guidance.

The demand increases appear to be the result of our end customers rebuilding inventories and preparing their new products for the second half of 2012. DRAM pricing appears to have stabilized but we do not have good visibility into end market demand for the second half of the year.

The filing by Elpida in February for bankruptcy protection in Japan, has little effect on our business during the quarter and at this point in time our interactions with Elpida have returned to normal. The SoC market had challenges in Q1 as many manufacturers were cautious regarding capacity increases. For our served SoC probe card markets, we saw revenue increases in automotive applications, micro controllers and image sensors as our 3D MEMS springs gained traction with those customers.

While some customers are forecasting that the second half of 2012 will be stronger and that the first quarter was a bottom for their demand, at this point in Q2 these customers are still investing cautiously. Our overall flash memory probe card sales were down in Q1 compared to Q4. NAND flash revenues and bookings increased in Q1 while NOR flash revenues and bookings decreased. The NAND flash increases are the result of certain customers using more complex probe cards which allows FormFactor to be more price competitive. Entering Q2 we see increased demand for both NOR flash and NAND flash probe cards.

New product development continued in the quarter for both our vertical spring probe card for the SoC market and our next generation matrix product for the DRAM market. The new matrix product will strengthen our DRAM revenue base while the vertical SoC product will open up a new $100 million plus market for FormFactor.

We completed several important milestones in the development of our vertical spring product for SoC during the quarter. In addition, we’ve begun the manufacturing planning and process development in parallel to our product development in order to shorten our time to market once product development is complete.

Two customers that are currently evaluating our next generation matrix products for DRAM and a third customer will receive their first card in June. Our first customer has completed their engineering evaluation successfully and will begin production testing this quarter. Our second customer is continuing their engineering evaluation work which should be completed by the end of this quarter. We expect that both of these products will begin to contribute to revenues in the second half of 2012 and both products are important to grow revenue as well as profits for FormFactor, and we expect them to be important parts of our revenue stream in 2013.

Now, Mike Ludwig will review Q1 and our Q2 guidance.

Michael M. Ludwig

Revenues for Q1 2012 were $34.8 million just above the high end of our guidance and an increase of 15% from Q4 2011. Compared to the fourth quarter, revenues in Q1 increased in DRAM and SoC but declined in flash. First quarter revenues for DRAM products were $21.9 million, an increase of 19% from our fourth quarter. The DRAM industry continued to be negatively impacted in the first half of the quarter by following DRAM device prices and by the limited availability of hard disk drives impacting the PC market which is a significant source of DRAM demand. In the second half of the quarter DRAM device prices improved and stabilized which had a positive impact on orders and revenue.

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