Elizabeth Sun

Elizabeth Sun inquired about the outlook for the Foundry and Logic market this year, considering both the upside from networking and potential GPU qualification, and the softness in traditional markets like smartphones and PCs. She also asked for clarification on the target model gross margin of 47%, specifically whether it includes the 200 basis points tariff impact, and inquired about the mitigation methods being implemented for tariffs and potential upside from these efforts.

Answer

CEO Mike Slessor stated that FormFactor expects the Foundry and Logic market to grow overall, with the company aiming to gain share, highlighting the successful shift towards high-performance compute (e.g., networking switches) and the achievement of record revenue without the large microprocessor IDM being a 10% customer as testament to this diversification. Senior VP Aric McKinnis clarified that the 47% target model gross margin does not include tariffs, so the adjusted target is 45% with the 200 basis point tariff headwind. He explained that the primary mitigation path is pursuing "drawbacks" with the customs department to reclaim paid tariffs, but noted it's a detailed, time-intensive process that could take several quarters to show P&L benefits.

Elizabeth Sun asked for FormFactor's outlook on the functional logic market this year, considering upsides from networking and GPU qualification balanced against softness in traditional smartphone and PC markets. She also asked Senior VP Aric McKinnis if the 47% target model gross margin includes the 200 basis points tariff impact, what mitigation methods are being implemented for tariffs, and the potential upside from these efforts.

Answer

CEO Mike Slessor expects the functional logic market to grow for FormFactor and overall, driven by share gains and a shift towards high-performance compute applications like networking switches. He highlighted achieving record revenue without the traditional large microprocessor IDM as a 10% customer, demonstrating diversification. Senior VP, FormFactor, Inc. Aric McKinnis clarified that the 47% target model gross margin does *not* include tariffs, and they are targeting 45% adjusted for the 200 basis point tariff headwind. Mitigation efforts involve 'drawbacks' with customs, but benefits may take several quarters.