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FORMFACTOR INC (FORM)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue was $195.8M, up 14.3% q/q and slightly down 0.8% y/y; non-GAAP EPS was $0.27 and non-GAAP gross margin 38.5% as Systems mix and HBM ramp costs weighed on margins despite upside revenue .
  • Versus Street, revenue beat ($195.8M vs ~$190.2M) while EPS missed ($0.27 vs ~$0.30); management guided Q3 revenue to ~$200M with non-GAAP GM ~40% and non-GAAP EPS ~$0.25, noting 1–1.5pp tariff headwinds (potentially 2pp) . Values retrieved from S&P Global*.
  • FormFactor is now shipping HBM probe cards in volume to all three major DRAM manufacturers; CEO highlighted margin headwinds from DRAM mix, tariff costs, and an unforecasted HBM4 ramp-up at a second customer, but reiterated the long-term 47% GM on $850M target model .
  • Strategic investments: $55M purchase of a Farmers Branch, Texas manufacturing facility to lower operating cost structure and add capacity; Q2 free cash flow was -$47.1M largely due to this outlay .

What Went Well and What Went Wrong

  • What Went Well

    • “Revenue exceeded the high end of our outlook range, due to higher-than-anticipated growth in our probe-card business” . HBM and Foundry & Logic drove sequential strength; two F&L customers topped the 10% threshold .
    • Shipping in volume to all three major HBM manufacturers; diversified HBM demand profile in place .
    • Systems pushouts shipped; CPO pilot production underway with multiple CM300xi systems at the primary customer; quantum probers (IQ2000/3000) supporting industry progress .

  • What Went Wrong

    • Non-GAAP GM fell to 38.5%, “at the low end of the range,” impacted by Systems mix, higher manufacturing spend, tariffs, and ramp-up costs for an HBM4 design at a second DRAM customer .
    • Tariffs reduced GM by ~1–1.5pp (risk to ~2pp); management is evaluating supply-chain mitigation but expects continued margin pressure .
    • Free cash flow turned negative (-$47.1M) primarily due to $66.3M CapEx (including $55M facility purchase); operating cash flow also declined q/q .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$189.5 $171.4 $195.8
GAAP Diluted EPS ($)$0.12 $0.08 $0.12
Non-GAAP Diluted EPS ($)$0.27 $0.23 $0.27
GAAP Gross Margin (%)38.8% 37.7% 37.3%
Non-GAAP Gross Margin (%)40.2% 39.2% 38.5%

Segment breakdown (Q2 2025):

SegmentRevenue ($M)% of TotalSeq Δ vs Q1 ($M)
Probe Cards$162.1 —+$25.6
Foundry & Logic$100.0 50.8% +$14.0
DRAM (incl. HBM)$57.1 29.1% +$8.2
HBM (subset of DRAM)$37.0 —+$7.4
Flash$5.5 2.8% +$3.1
Systems$33.7 17.2% -$1.1

KPIs

KPI ($USD Millions unless noted)Q1 2025Q2 2025
GAAP Net Cash from Ops$23.539 $18.893
Free Cash Flow$6.268 -$47.100
Capital Expenditures$18.584 $66.256
Cash, Cash Equiv. & Restricted (end period)—$70.905
Weighted-average diluted shares (millions)77.884 77.527

Estimate comparison (Q2 2025):

MetricConsensusActualResult
Revenue ($USD Millions)190.2195.8 Beat
Primary EPS (non-GAAP, $)0.300.27 Miss
Values retrieved from S&P Global*.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ2 2025 (guided on 4/30)$190M ± $5M ——
RevenueQ3 2025 (guided on 7/30)—$200M ± $5M Raised vs Q2 level
Non-GAAP Gross MarginQ2 202540% ± 1.5% ——
Non-GAAP Gross MarginQ3 2025—40% ± 1.5% (includes 1–1.5pp tariff headwind) Maintained
Non-GAAP EPS (diluted)Q2 2025$0.30 ± $0.04 ——
Non-GAAP EPS (diluted)Q3 2025—$0.25 ± $0.04 Lower vs Q2 guidance (tax catch-up)
OpEx (non-GAAP)Q3 2025—~$55M ± $2M Introduced
Effective Tax RateFY 2025 / Q3Prior 14–18% (FY) FY now 19–23%; Q3 ~31% (catch-up) Raised

Earnings Call Themes & Trends

TopicQ4 2024 (Q-2)Q1 2025 (Q-1)Q2 2025 (Current)Trend
AI & Advanced PackagingHBM ~half of DRAM revenue; focus on high-performance compute apps Outlook for double-digit sequential growth across major markets; FICT minority stake to secure substrates HBM and F&L drove revenue; now shipping in volume to all three HBM makers; target model reiterated Strengthening exposure; diversification across HBM customers
Tariffs / MacroNoted trade barriers/export restrictions risks broadly Export controls limited shipping advanced node DRAM to China 1–1.5pp GM headwind from tariffs; risk to 2pp with policy changes Persistent headwind on margins
Systems (CPO/Photonics)—Systems soft; guidance for recovery CPO pilot production tools running; aiming for HV production in 1H26 Building momentum toward 2026
Quantum computing——IQ2000/3000 aiding commercialization; HVP years out Early-stage but strategic
Hyperscaler custom ASIC——Multimillion $ contribution; pursuing GPU qualifications via foundries New revenue stream emerging
Tax / Regulation——OBBB raises effective tax rate; Q3 catch-up to ~31% Near-term EPS impact

Management Commentary

  • “FormFactor reported sequentially stronger second-quarter revenue that exceeded the high end of our outlook range, due to higher-than-anticipated growth in our probe-card business… non-GAAP gross margin and overall profitability fell short… caused by an unfavorable shift in product mix and unforecasted ramp up costs for a second HBM DRAM customer.” — CEO Mike Slessor .
  • “We are also now shipping in volume to all three major HBM manufacturers… executing our strategy to be a key supplier to all the leading customers in the industry” .
  • “We remain committed to our target financial model, which delivers 47% gross margin on $850 million of annual revenue.” .
  • “Farmers Branch facility… located in a lower-operating cost region… provides a clear path to lower our ongoing manufacturing costs” .

Q&A Highlights

  • No additional HBM startup costs assumed in Q3; issue resolved with customer-specific HBM4 design .
  • Tariffs headwind embedded in Q3 GM (1–1.5pp; could be ~2pp if policies change); supply-chain diversification options under evaluation .
  • GPU advanced probe cards: competitor captured initial adoption; FormFactor “rapidly catching up” with qualifications and pilot volumes targeted to generate revenue in 2H 2025 .
  • Hyperscaler custom ASIC probe card revenue: multimillion-dollar contribution in Q2; new segment focus for diversification .
  • Effective tax rate: Q3 ~31% due to catch-up from OBBB; FY now 19–23% vs prior 14–18% .

Estimates Context

  • Q2 2025: Revenue beat (actual $195.8M vs ~$190.2M consensus), EPS miss (actual $0.27 vs ~$0.30 consensus). Expect margin recovery as Systems mix improves and HBM ramp costs subside . Values retrieved from S&P Global*.
  • Q3 2025: Guidance ($200M revenue, $0.25 EPS) aligned with consensus ($200.0M revenue, ~$0.249 EPS), with tariff headwinds and tax catch-up impacting EPS . Values retrieved from S&P Global*.

Key Takeaways for Investors

  • Revenue momentum driven by HBM and Foundry & Logic; shipping HBM in volume to all three majors should reduce single-customer volatility and underpin secular growth .
  • Near-term margin pressure from DRAM mix, tariffs, and HBM4 ramp costs; Q3 guide points to GM recovery to ~40% as Systems revenue increases and specific HBM costs abate .
  • Strategic capacity and cost actions (Farmers Branch) intended to structurally lower opex/costs and support growth; expect incremental expense in ramp period, longer-term margin support .
  • Watch tariff policy trajectory and supply-chain adjustments; management quantified GM impact and is pursuing mitigation options .
  • Emerging AI-related vectors (hyperscaler custom ASIC, GPU qualifications, CPO) broaden growth drivers beyond mobile/PC, improving mix over time .
  • EPS sensitivity to tax legislation in 2025 (Q3 catch-up); normalize to 19–23% effective tax rate thereafter per guidance .
  • Trade setup: revenue strength vs EPS/margin headwinds produced a mixed print; stock reaction likely tied to confidence in margin recovery path and visibility into AI-related Systems/CPO ramps .

*Disclaimer: Consensus estimates/values retrieved from S&P Global.