FormFactor's 2025 Q2 Earnings Call: Key Contradictions on HBM4, Tariffs, and Margins

HBM4 ramp-up and market share position, impact of tariffs on revenue and gross margins, gross margin improvement strategies, impact of China export controls, and gross margin expectations are the key contradictions discussed in FormFactor's latest 2025Q2 earnings call.



Revenue and Segment Performance:
- FormFactor reported sequentially stronger second quarter revenue with $195.8 million, exceeding the high end of their outlook range, primarily driven by higher-than-anticipated growth in the probe card business.
- Probe Cards segment revenues for Q2 were $162.1 million, an increase of $25.6 million or 18.7% from Q1, mainly due to higher revenues in both foundry and logic, and DRAM markets.
- The growth in foundry and logic revenues was attributed to seasonal ramps of major mobile application processor designs and client PC microprocessor designs.

Gross Margin Challenges:
- Non-GAAP gross margin fell short of the outlook, reaching 38.5%, at the low end of the range, due to an unfavorable shift in product mix and unforecasted ramp-up costs for a second HBM DRAM customer.
- The shift in product mix was towards historically lower-margin markets like DRAM, and operational cost increases were additionally attributed to the gross margin underperformance.
- The company is addressing these issues through strategic investments and operational improvements.

HBM and DRAM Market Dynamics:
- DRAM probe cards, specifically HBM, experienced expected sequential growth in Q2, with revenues increasing from $29.5 million to $37 million.
- This expansion is driven by FormFactor's strategy to become a key supplier to all major HBM manufacturers, despite quarter-to-quarter volatility in demand due to concentrated designs and short lead times.
- The company is now shipping in volume to all three major HBM providers, which is expected to diversify demand and smooth out volatility.

Strategic Investments and Capacity Expansion:
- FormFactor made a minority equity investment in FICT, a leading supplier of multilayer organic substrates, and acquired a fit-for-purpose brownfield manufacturing facility in Farmers Branch, Texas.
- These investments are designed to improve competitive advantages and expand capacity to meet increased test intensity and complexity arising from advanced packaging applications.
- The new facility is expected to provide lower operating costs and offer a clear path to reducing ongoing manufacturing costs.