Q4 2019 Earnings Call
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Ladies and gentlemen, please continue to hold your conference call will begin momentarily.
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Thank you and welcome everyone to form factors fourth quarter 2019 earnings conference call on today's call, our Chief Executive Officer, Mike Slessor, and Chief Financial Officer shy Shaw before we begin Jason calling the company's general Counsel will remind you of some important information.
Thank you.
Today, the company will be discussing gap you know result into the important non-GAAP results intended to supplement your understanding of the company's financials.
Reconciliations of GAAP and non-GAAP measures and other financial information are available in the press release issued today by the company Andone Investor Relations section of our website.
Today's discussion contains forward looking statements within the meaning of the federal Securities laws. Examples of such forward looking statements include those with respect to the projections of financial and business performance.
Due to macroeconomic conditions foreign exchange rate is this momentum business seasonality you anticipated the band for product customer requirements, our future ability to produce and sell products.
The development of future products and technologies and the assumptions upon which such statements are based.
These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed during this call information on risk factors and uncertainties is contained in our most recent filings on form 10-K with the FTC for the fiscal year ended 2018 and our other.
SEC filings, which are available on the Fccs website at Www Dot FCC dot Gov and in our press release issued today.
Forward looking statements are made as of today February 5th 2020, and we assume no obligation to update though.
With that well now turn the call over to form factor CEO, Mike Slessor.
Thanks, Jason and thank you everyone for joining us today.
Form factor delivered record revenue and profitability in the fourth quarter with financial performance, surpassing the high end to the outlook range, we revised upwards on December 11.
The strong performance closed an exceptional 2019 in which we posted 11% topline growth against the semiconductor capital equipment market the shrunk by double digits.
Our results again illustrate the robustness of foreign factors broadly diversified leadership positions in attractive consumables and R&D driven markets in semiconductor test and measurement.
As we move through the early part of 2020. Many of the same drivers of our 2019 results are contributing to a strong first quarter outlook.
As we noted in December our fourth quarter benefited from rapidly accelerating demand for foundry and logic probe cards layered on top of steady demand for other products.
The foundry logic strength was notable in the spread coming from both 10, and 14 nanometer microprocessor designs as well as an assortment of five and seven nanometer designs ramping it each of the two leading edge foundries.
We also began volume shipments of probe cards to test millimeter wave RF devices, which are planned to be a key component in the RF front end of Fiveg handset launches anticipated later this year.
On the memory from we ended 2019 with sequential growth in DRAM probe card revenues building on the decade high revenues posted in the third quarter.
At the risk of repetition or 2019 DRAM results offer an excellent for example of how form factors demand drivers differ from capital equipment.
Probe card demand is not generated primarily from baseline capacity additions, but instead from both customer node transitions and new design releases.
Consequently form factor benefits as each of the major DRAM manufacturers execute node migrations.
Such as transitions to the one why in one the nanometer nodes as well as from architectural and product advances such as DDR five in both server and mobile implementations.
Turning briefly to our team we welcome Sherry roads to our board of directors during the fourth quarter as Chief Information Officer of Workday, Sherri adds significant I T and cyber security experience.
[noise] concurrent with share his appointment Mike Zellner retired from our board and I'd like to publicly thank Mike for his insight and guidance over eight years of service to form factor.
I'd also like to recognize the world class performance of our operational team they've done an outstanding job leveraging our market leading scale to have labor in tool capacity on extremely short cycle times.
This enabled us to not only capitalize on the strong demand I've discussed, but also to ramp and operate in a relatively efficient way to deliver solid gross margins and strong operating profit leverage.
Demonstrating one of the key attributes of our target financial model.
Turning now to the current quarter.
We continue to experience robust demand for foundry and logic probe cards, extending the same basic themes that drove the fourth quarter.
Accordingly, we continue to use the capacity we added in the quarter I'll be that nominally lower utilization levels.
We do expect a sequential reduction in DRAM probe card demand in the first quarter.
The major DRAM manufacturers are producing wafers on their new designs digesting and utilizing the large volumes of probe cards, we delivered to them during the second half of 2019.
But that said with the general strengthening of the DRAM pricing environment and robust new design pipelines from DRAM manufacturers to take advantage of new nodes like one Z nanometer and new architectures like DDR five we expect long term DRAM probe card demand to remain solid.
In the microprocessor space probe card demand for 14 nanometer designs continues to sustain at high levels, even as 10 nanometer designs ramp simultaneously in significant volume.
As Moore's law slows this extended node overlap is another example of the breadth and diversity of form factors demand drivers as a reminder, probe cards were consumable specific to each new chip design and so we benefit both from 10 nanometer node transition and the release of new designs on the existing Ford.
Teen nanometer node.
Given the foundry space, we're experiencing strong demand for both a major five nanometer mobile applications processor design and multiple seven nanometer mobile and high performance compute designs.
This continues to be a space, where form factors differentiated Mems probe technology provides significant cost of ownership and performance advantages.
This is especially pronounced in advanced packaging applications with high interconnect densities and challenging electrical test performance requirements.
With their adoption of new die level advanced packaging strategies like chip puts and heterogeneous integration our top customers are telling us that their test requirements are expected to get even more challenging.
This complexity paired with form factors marketing technology leadership give us an exciting opportunity to provide further value in enabling our customers a leading edge innovation roadmaps.
Our engineering systems business again produced steady results, serving R&D in development applications for a variety of electrical and optical devices, including next generation Cmos finfets structures silicon carbide power devices and Vixel Optoelectronic sensors.
In addition, during the fourth quarter of F. RTT leadership position in optical multi sensor surface metrology opens up an incremental $150 million of addressable market, primarily in advanced packaging and Mems applications.
We have begun to selectively inject the authorities, leading technologies and products into the worldwide form factor footprint, leveraging our long standing partnerships with the top fabulous foundry logic and memory customers.
These early efforts are encouraging and we expect to further accelerate if rts growth in contribution in the year ahead.
[laughter].
We're closely monitoring the Corona virus situation and like many of our peers have taken significant preventative measures, including travel restrictions with our primary concern being the health and wellbeing of form factor employees customers and partners.
With China recently, contributing approximately 20% of form factors total revenue the potential demand impact could be substantial and we've attempted to reflect this in our first quarter outlook.
However, the rapidly evolving nature of the situation makes this impact impossible to accurately quantify at this time.
Finally, with average lead times less than a quarter our visibility remains limited as always so we're encouraged by the continued strength of our diversified consumables and R&D driven demand profile.
This strength was clearly demonstrated in 2019 overall and in the fourth quarter, specifically, where we posted multiple records lukewarm semiconductor capital spending environment.
Although there is only a single quarter, our fourth quarter results validate our target financial model showing form factor has the ability to deliver a $1.25 cents of non-GAAP EPS and $110 million of free cash flow on an annualized topline of $650 million.
Shy over to you.
Thank you, Mike and good afternoon.
As you saw in our press release and as Mike noted, our fourth quarter revenue exceeded our updated outlook, Craig and our gross margin was of the high end the world.
The combination of these factors coupled with lower effective tax rate in Q4 resulted in EPS that will significantly above the high end of our updated.
[noise] Formfactors fourth quarter revenues were $178.6 million at 27% sequential and year over year improves.
These record quarterly revenues contributed to total fiscal 2019 revenue of 590 million Boes.
And 11.3% increase compared to 2018.
Brokered segment revenue, whereas quarterly record high $153.2 million, an increase of $36.7 million or 31.5% from Q3 2019.
Sisto segments revenue were 25 point $500 in Q4, an increase of $1.3 million or 5.4% from Q3 2019.
Well for de revenue included in Q4 came in about $1 million higher than our preliminary estimate of $2 million to $3 million.
[noise] within that probe card segment in line with a robust incremental demand we discussed during our December 11 press release.
Foundry and logic revenue increased 53.8% from Q3, two 105.1 million Boes and was 59% of total company revenue in Q4.
From 49% in the third quarter.
DRAM revenue were $42.9 million in Q4, an increase of $3.5 billion from the third quarter and were 24% historical quarterly revenue as compared to 28% in the third quarter.
Really move the strength demonstrated over the past two years. This was our highest quarterly revenue from DRAM since Q1 2008.
Slash revenues of $5.2 million in Q4 were $3.4 million lower than in the third quarter and were 2.9% of poker revenue in Q4 down from 6% in Q3.
GAAP gross margin for the fourth quarter planning team was 74 point Threemillion.
41.
230 basis points higher than the 39.3% GAAP gross margin in Q3.
Cost of revenues included $7.4 million of GAAP to non-GAAP reconciling items, which we outlined in our press release issued today and are concerned in the reconciliation table available on the Investor Relations section over website.
The increase of $1.6 million into non-GAAP reconciling items in Q4 as compared to Q3 is the result of the acquisition of a 40 during the fourth quarter.
On a non-GAAP basis gross margin for the fourth quarter was 81 point $81.7 million or 45.7% of revenues to 120 basis points higher than to 43.5% non-GAAP gross margin in Q3.
And came in at the high end of our outlook range.
Our probe card segment gross margin of 45.4% in the fourth quarter and an increase of 410 basis points compared to 41.3% in Q3.
The increase from Q3 was the result of higher volume and lower manufacturing variances, partially offset by higher performance based compensation.
Our Q4 systems segment gross margin were 48% as compared to 53.9% in the third quarter.
The decrease of 580 basis points was driven mainly by lists favorable product mix.
As we've said previously we expect our system segment gross margin to range between the high Fortys too low fiftys.
Our GAAP operating expenses were $50.6 million for the fourth quarter $4.6 million higher than in the third quarter.
The fourth quarter operating expenses included $6.8 million of GAAP to non-GAAP reconciling items slightly lower for the $7 million of reconciling items in Q3.
Non-GAAP operating expenses for the fourth quarter were $43.8 million or 24.5 for several revenues compared with $39 million or 27.7% of revenues in Q3.
The increase of $4.8 million, mainly due to higher performance based compensation and the inclusion of efforts operating expenses.
Company noncash expenses for the fourth quarter included $7.4 million for them, which position of intangible assets 6.1 billion dollar for stock based compensation.
Amortization of inventory step up your point $5 billion and depreciation of 4.5 indoors.
Amortization of intangible assets was $1.3 million higher in Q3 as a result was acquisition of authority.
Stock based compensation was zero point $4 million lower than in Q3 due to the timing of annual grants.
GAAP net income for the fourth quarter was $18.6 million or 24 cents per fully diluted share compared to GAAP net income of $8.3 million or 11 cents per fully diluted share in Q3.
The non-GAAP effective tax rate for the fourth quarter, 2019 was 17.3% 650 basis points lower than a 23.8% in Q3 due to a significant increase in us based income which is fast at the lower rate versus foreign based income.
Non-GAAP onto an effective tax rate for 2019 or 22% slightly below our previously communicated estimated range for the year, 23% to 5% 26%.
Fourth quarter non-GAAP net income was $32 million or 41 cents per fully diluted share compared to $17.3 million or 22 cents per fully diluted share in Q3.
Moving onto the balance sheet of cash flows, we generated $31.6 million or free cash flow into fourth quarter compared to $25.6 million in Q3, taking our total cash and investments to $224 million at the end of the quarter.
The increase in free cash flow in the fourth quarter as compared to the third quarter was mainly a result of higher revenue and profitability.
We spent $11.5 billion on principle and interest payments on our term loan during the quarter and the loan balance was reduced to $35 million.
Global will be fully repaid by the beginning of Q3 2012.
We funded therefore, the acquisition with a new three years 21 million Euro denominated loan utilizing the low euro based interest rates to optimize our cost of capital.
At quarter end, our total cash balance exceeded the debt balance by 166 million Boes, an increase of $10.4 billion.
While paying down these term loans remains our first priority for using cash M&A is an important part of our strategy and we intend to continue to flow topic, though to acquire leadership positions that expand our served markets as we'd we'd acquisition are there for team.
We invested $6.6 million in capital expenditures during the fourth quarter 2019.
Linking our ongoing investments to $20.8 million slightly above our estimated copies of spending plan of 16 to 20 million those for the year.
Before turning to our 2024th quarter outlook I would like to elaborate on our 2020 non-GAAP effective tax rate.
Two biggest drivers impacting our restricted stock rates are the mix of us and foreign taxable income and before in derived intangible income deduction, which rewards exports for Us Corporation.
In general the higher our us based taxable income the lower effective tax rate.
Accordingly, we estimate our overall non-GAAP effective tax rate for fiscal 2022, being the range of 15% to 20%.
As a reminder, our cash tax rate is expected to remain at the 6% to 8% of non-GAAP pre tax income and feel we fully utilize our remaining us based Antonio and R&D credits.
Turning to the first quarter 2020, non-GAAP outlook as Mike mentioned, we expect the strong year end demand for foundry and logic broke bars of getting layered on top of continued solid demand for other products.
These factors, resulting our Q1 revenue outlook in the range of $160 million to $172 million and non-GAAP gross margins to be in the range of 43% to 46%.
Non-GAAP earnings per fully diluted shares for Q1 is exposed are expected to be in the range of 27 to 35 cents.
A reconciliation of our GAAP to non-GAAP Q1 outlook. These are available on the Investor Relations section over website and in the press release issued today.
With that let's open the call the questions operator.
Thank you Sir as a reminder to ask a question you need to press star one on your telephone. So we're doing a question press the pound cake. Please standby, while we compile the culinary roster.
Our first question comes from Quinn Bolton from Needham and company. Please go ahead.
Okay.
Hey, Thanks for taking my question dozens Charles see on behalf of Quinn Bolton I have a question.
Capacity expansion part.
So if we look at the Q4, you Oh Youre Pope copper is already running at about 600 million per year.
And the very close to 650, probably model and ER.
Thank you are in the last quarter, you spend a 6.6 million Capex I love the higher than the original 16 to 20 million plan. So my question is when I think about next year right.
With the contact so what you expect up on demand coming up and the what how should we think about your capacity expansion and self said attacks.
Sure. Thanks for the question there Charles So our capacity is a function of both flexible labor and some capex physician, yeah. We added mostly flexible capacity in Q4 and as you heard in their prepared remarks, the Q4 Capex and as you noted looking at 6.6 million a slightly higher than in the previous quarter and Doug brought our total.
Capex through 21 million for the year.
And the higher level of investment is inline with our high revenue and they added capacity and we expect to invest in a similar level during Q1.
Okay. Okay. Thanks on regarding the I think Mike you mentioned.
I mean, one month ago at Needham growth conference that that to handle that like a search in NAND like what we saw in the last quarter you had to do it again less efficient I mean messy efficient way like that leveraging I mean, you moving higher utilization upping another highlight of the labor how should.
We think about that I mean going into upon your appointee do you expect a singular situation to repeat or whether you wish you to think about that differently.
Yes, well I think the comments I made at the conference earlier. This year were associated with we anytime you ramped up capacity that quickly you're obviously, bringing on.
New labor that needs to be trained it's not at the peak efficiency, it's going to be at over the long run and we're also retaining the the flexibility to bring this capacity back down so paying temp wages quite a bit of overtime. So that we're not substantially adding to our fixed costs in.
In the event the demand moderates a little debt.
So when I look at this we're still in the first quarter, probably not operating at peak efficiency levels.
And now it's consistent with the if you noted our gross margin outlook range, even at relatively high revenue levels. The top into that range is 46%. So still operating with some efficiencies, but we believe inefficiencies sorry, but we believe those to be a reasonable trade for the flexibility that is going to give us as we move forward.
Third through 2020.
Okay.
Hey, guys, but answering my questions.
Thank you. My next question comes from Craig Ellis from B. Riley FBR. Please go ahead.
Yeah. Thanks for taking my question and congratulations on the strength in the quarter and in the outlook, Mike I'd wanting to go back and just reconcile what I thought was appointed and.
Announcement, when the company raised in the fourth quarter guidance with our outlook I think at the time. The company's view was sent it was being opportunistic around a number of opportunities and certainly there was very good execution there but.
With the calendar first quarter guidance down 7% at the midpoint. It seems like there might be some decent sustainability to what we're seeing so perhaps you can speak to that point, maybe just talk about some of the gives and takes to should look at the first quarter, what's more opportunistic what might be more sustainable.
Yes.
A good observation, Craig and goes back maybe a little bit to the point about retaining flexibility I'll remind everyone that we operate with very short lead times and limited visibility in this business well well inside a quarter, where most of our business has to turn in the quarter. So flexibility in agility, both to the upside in the downside risk.
Portland in our operating model.
When I compare how we currently view the first quarter to the fourth quarter results as we said in the prepared remarks foundry and logic continues to be very strong both in the microprocessor part of the business as well as the foundry partners a business by and large around the same advancement.
Overlapping advanced node themes that we had at work in the fourth quarter.
So those are probably the positive side to the ledger. We did also note that we expect a sequential decrease in DRAM probe card demand first quarter compared to the fourth quarter.
But we really think thats, mostly due to digestion. If you put this into context you.
In the last half of 2019, we operated at record high shipment levels for DRAM probe cards.
Certainly some of that is due to the trends we've talked about like advanced packaging and increased test intensity, but I think it's reasonable to expect that theyre does need to be a little bit of digestion as our customers use those pro cards and as they move through the middle part of the year, probably refresh their their new design Roadmaps and.
And return to more normalized levels. So in terms of puts and takes I think foundry and logic continues to be strong, we'll see how that last through 2020.
DRAM in a bit of I digestion phase everything else kind of steady as she goes but that.
Gives us a relatively strong view for the first quarter of 2020.
That's helpful. Appreciate that and then I'll just give a follow up to shy on can you just talked about operating expense clearly very well controlled despite the big revenue increase in the fourth quarter, how should we think about the arc of operating expenses. We look through 2020 are there particular initiatives are programs to be aware of in that line item. Thank you.
Sure I think it a two main changes we will get 2020 Opex versus 2019 is first. The addition of FRG hardware acquired the company you in Q4 in 2020, we're going to have them for the full year, they're adding about 1.5 billion of opex per quarter, and if you think about liquidity structural.
Well the increases in Opex related to.
Salary raises benefit costs, which increase year over year, and so I'm if you look at.
The ranges for 2020, we're probably talking about 40 to 45 million of Opex per quarter with the first quarter being a die and of that range because of the analog benefits reset.
Hi, Thank you.
Thank you next question comes from.
Brian Chin from Stifel. Please go ahead.
Hi, good afternoon that congratulations on the execution this past quarter and year and thanks for letting us ask a few questions.
Maybe to hone in first again this is kind of gone back to some of the epicenter of the strength that you've seen in Q4 and into Q1 here.
But how do you know what sort of your largest customer they're driving a very high level spend in Q4 can you talk about your visibility on the sustainability of this run rate moving across the year that's take into consideration.
Comments, maybe they have been made on off and recent public forums about what they're trying to do in terms of getting supply out what made again in front of that some degree.
Yeah, I think as big as a great observation, Brian and it's part of the reason again, why we want to retain some flexibility and agility I think as anybody who operates in the semiconductor supply chain knows today things are very dynamic.
Our fourth quarter showed the ability to really respond to the upside and execute well in capturing the demand, we see with our largest customer and some of the other customers in foundry and logic that strength continuing into the first quarter, but it does seem like there is a general consensus that foundry and logic spending an index.
Segment is probably first half weighted in 2020.
Having said that the constituents of the strength with our largest customer continue to be this.
Sort of the result of Moore's law slowing driving overlapping activity on both the 14 nanometer in 10 nanometer node 10 nanometer being a new nodes, it's ramping with relatively high test intensity also plays into the strength of demand for form factors products at the present time, but I think it's.
One of those situations, where the usual caveats associated with visibility it's definitely apply here.
On a general consensus that may be the overall spending will moderate as we move into the second half, resulting in a first half weighted these so I think foundry and logic pretty strong at this point.
We'll continue to execute capture the demand as we can and take advantage of the opportunities as they present themselves.
Okay.
Thats helpful. So.
I heard correctly maybe.
Some more revenue concentration in first half relative to second.
For you guys. Some moderation in second half if I'm not if I'm hearing you correctly.
And then I think I think that yeah, I think thats, a fair working assumptions that has pretty big error bars around it right I think everybody's visibility is awfully limited at this point not just us.
Yeah. It maybe go into something that again, it is difficult to sort of get a readout on but.
Mike you didn't mention out there is some.
Contemplation in your guidance for for the March quarter relative to the current a virus, albeit it's difficult to quantify.
You know sort of the ranges around that but just to be more clear is that sort of that reflected in the width of your revenue range or more kind of where you put the midpoint on that revenue guide or anything else you can kind of provide there would be and even what you're saying for the supply chain disruptions standpoint would be helpful.
Sure, Brian I'll take that that and our review answer to two parts or was there will talk about the demand the impact and they also have other operational into supply chain.
So when it comes with the demand as you heard in their prepared remarks, because of the addition on uncertainty uncertainty and the difficulty to accurately quantified the impact of every corner buyers of these time, we have lowered and our range.
More than you would otherwise would have been we will widen. These are revenue outlook range. It's now 12 million to look at previous quarters was eight.
And we assigned to higher risk of certain transactions, we took into consideration our backlog, what we shipped already to China and others, we closely computer to Micronet situation and do your specific risk and we believe our outlook is adequately reflected the queen situation.
We have moved into the range and that's in the demand side when it comes to the operational in the supply chain impact we have significant food for growth in China flooring over they could now anyway, but bring mine or manufacturing and we believe there will be not significant new product on operations and our supply chain when compared to the corner virus.
Okay, a tough extra.
Maybe one last question from a capital allocation standpoint.
Clearly, you're putting up a lot of free cash and it's clear the bias is with an eye towards M&A as you alluded to and the prepared remarks is there any update in terms of.
Extend you can talk about that in terms of timing and or the characteristics. The company is looking for in terms of any potential deal.
Sure I mean, as we've said M&A.
Has been and we'll continue to be a key part of our strategy.
We also have as equally important part of our strategy executing in the served markets. We have leadership positions in now as you can see in the in the fourth quarter and first quarter Ellen.
On the M&A front.
There's two pieces to it one we're executing a final a smaller tuck in deals half our tea in the fourth quarter. An excellent example, or case study of this.
Smaller companies, maybe lacking the the channel the customer relationships and support infrastructure to really take their compelling technologies and drives them to share positions inside was a pretty risk averse customer base. So we think we bring a lot of value to those kind of companies FRG again being a nice example that we're beginning to.
Make some progress on.
You know, we're also investigating and where possible trying to execute and pursue deals of scale. A good example of that would have been the cascade Microtech deal. We did back in 2016, they're really add significant revenue cost synergy and fundamental.
Strategic value to the company changing the character of our EPS as you might imagine those are a little more challenging to get done.
Part of the reason why we're executing on a tuck in funnel, but we're not given up hope on being able to continue to do deals with scale that expand our served market and put the cash regenerating to work for shareholders.
Okay. Thank you.
Okay. Thank you. My next question comes from Tom definitely from D.A. Davidson. Please go ahead.
Yes. Good afternoon, so Mike I wanted to ask a little bit about the 14 nanometer business that you're seeing me obviously, it's a fairly mature node at this point in the fact that it's still a robust driver for you does that change your long term view of capital intensity for testing and our pestered intensity and how these nodes could be a figure.
And longer less than previously thought.
Yeah, I think a a good observation Tom I mean, the 14 nanometer node excuse me at our largest customers been around for I think push in seven or eight years by now.
From the first probe cards, we ship and obviously at some point, especially as 10 nanometer really reaches entitlement yields and maturity.
We'd expect 14 nanometer activity to tail off.
Having said that I, probably made that comment three years ago. So he gets longevity and robustness overtime has been obviously, a very pleasant surprise for our demand drivers the test intensity for a node that matures.
Does go down overtime the yields go up.
Customers work hard to test less and make sure they are really being most efficient with their intensity.
Expand on on capital, but.
There is any time because of the way wafer test works and the programs work anytime they released a new design even on these mature nodes it creates incremental demand for us and Thats part of what you're seeing not just in the 14 nanometer microprocessors base.
So when we talk about opportunities like automotive those are backup at 28 nanometer and even 45 nanometer in some cases, but as customers release, new designs, they need new probe cards driving demand for us.
Okay. Thanks, and then maybe just quickly touch on what you're seeing as far as the broadening of your customer base and the foundry side and it sounds like that was going to be a big opportunity over the next few years at the leading edges.
Yes, and I think a lot of that still in front of US. We're we're pleased to be able to report and is this was in our prepared remarks.
That you know our business at the at the largest foundry is beginning to diversify its still really concentrated on the advanced nodes, primarily today, a big applications processor project as five nanometer and then a couple of other projects at seven nanometer, but the interesting part is the seven nanometer.
Projects are both mobile and high performance compute and begin to diversify and broaden us out of just having that one the application processor project as with year.
Obviously, a big effort for US we think this customer can grow into the scale and scope of the contribution our largest customer currently makes its still going to take a several years to do that as more wafer starts move to these advanced nodes, where we are relevant and have a competitive advantage and as we continue to go.
Although our stature as a supplier to this customer.
Okay.
And then shy.
Looking at the.
Current of Iris lowering the widening of the range is that a specific.
Sector that you certainly over the DRAM logic foundry or was it just a general you've taken a hair cut across all Chinese or trends related customers.
I would say, it's specific to China, but the so generally over the markets we serve.
Okay and then finally when you look at the Opex I was surprised when you talked about the increase in the quarter you Didnt mention increased head count as a driver that is that just not as meaningful as the two items you mentioned.
So some of us or some way than most of the increase in has kind of went because thats the direct labor or the flexible capacity we talked about.
And for 2020 to increase I talked about answering and.
Great question was there some more investments in R&D, some headcount, but mostly the inclusion over 40 and structural annual increases.
Okay. Thanks for your time.
Thanks, Tom.
Thank you. My next question comes from David duly from still have security. Please go ahead.
Thanks for taking my questions and congratulations on nice results just a couple of macro questions here.
Regarding the virus.
There's at least I think to memory fab in that it will on are right in the epicenter up the virus are you able to get product into there are you able to ship stuff in and out of the area at this point.
Well it was it a couple of things going on in very.
Right now obviously.
The team in China, and most of the country has been on lunar new year holiday and kind of still is on an extended at least worked at home holiday through what we understand to be next Monday.
With the Luann based customers in particular.
I'll remind you that they are primarily flash producers.
And as you might remember and can see from our results were not a big player in the flash, we do do reasonably well at the high end of will flash memory market, but we don't have a lot of core revenue concentration in that segment or as you might imagine with those customers in particular, so we haven't had to exercise particular.
Shipments in the now does that region because honestly, we just don't have a lot of backlog in their mainstream flash production.
Okay excellent.
Oh.
I got on the guidance range for the current quarter lot of companies I've talked to talk about just kind of extending the lunar new year by another week beyond what they would normally see our two weeks.
You know that's how they came up with their lower revenue projections as that's essentially the logic behind your lower revenue projection.
One less week production in the quarter or maybe just a little bit more color on that.
No not necessarily because we don't have a significant reductions in China.
It's mostly generally impact of Uh huh.
Business overall and.
More uncertainty more unknown at this point than specific manufacturing.
Yeah.
Okay, and then final question for me to Us.
What TSMC has been talking a lot about at the it perhaps now it's not just at five and seven nanometers, but maybe include no core that we're seeing a higher percentage of parts move into advanced packaging or an advanced package type package.
I wonder, what you're seeing who.
In the industry at this point are you seeing a higher percentage of parts a move into the advanced packaging realm.
I think the simple answer is yes, we obviously don't have perfect visibility into all the parts in the industry because our business does tend to be concentrated.
More at least in the foundry and logic side, mostly around flip chip in advanced packages.
But it clearly with the growth we've shown in foundry and logic and as we've described before as a competitive differentiation. We have in testing parts that are packaged with advanced packages.
They are almost must be any increased adoption of this.
I still think Theres, a significant amount of it in front of us as I.
Talks about in the prepared remarks, the roadmap reviews, we have between our exec team, our R&D team and our key customers.
More and more of those discussions are pointed towards the requirements associated with advanced packages, whether they be chip Blitz sore fan out or HB memory, and those are driving incentive test requirements.
That are very very difficult to meet form factors, probably one of a handful of suppliers, who can meet them and keep pace with these really aggressive roadmaps and so.
We'll probably see in some of that contribution today, but I feel like this is one is a big longer term secular opportunities for us as the industry moves forward off not just a front end driven innovation roadmap, but using advanced packaging to create the products that are going to differentiate them in the marketplace.
Final question for me I I, just had one more I wanted to slip in.
Do you expect to grow in calendar 2020.
A good question and one that were on debating I think given the the comments I made before in response to one of the earlier questions on sort of that house view well the general view, maybe not the house via the general industry view being maybe that foundry and logic spending years.
First half weighted I think you're going to need.
DRAM to continue its recovery and and move forward into a more aggressive growth posture in the second half of the year and I think we'll need fiveg to accelerate but if we see some of those things happen I don't think is unreasonable that we could see 2020 agree a growth here.
The usual caveats associated with less than one quarter visibility don't allow us to make a definitive statement, but there's some ingredients that if they move our way in the industry's way in general I think we're in pretty good shape to capitalize on it and deliver growth here.
Thank you so much.
Thanks.
Thank you as a reminder to ask a question you would need to press star one on your telephone so what's your your question. Please press the pound cake.
Our next question comes from Christian Schwab from Craig Hallum Capital Group. Please go ahead.
Yes, congratulations on a a great quarter.
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I guess most of my questions have been asked I just have one quick one on market share can you give us an update of of where you think you ended the year end market share.
In foundry logic, and DRAM and maybe in particular in foundry and logic, what the multiyear opportunity for share gains is if.
If things grow with the Taiwanese customer.
Yeah.
I'm going to have to be a little bit lawfully on that because some of the key data we need to really understand that comes out over the next several weeks both in terms of industry benchmarking reports and some of our competitors reporting publicly.
So having said that I do believe we made structural share gains in our two biggest businesses in probe cards, both DRAM and foundry and logic over the year.
If you look at DRAM there were some nice designs in the advanced packaging arena like H.B.M., the we executed pretty well on and I think led to some share gains in foundry and logic.
If I just look at the fourth quarter results. It does seem reasonable to assume that there must be some implicit share gain in there.
Yes, the entire foundry and logic space spend to sort of triple the historical rate that they ever have.
And so not being too glib about it we do need to wait for some of the data, but I feel like qualitatively as we look at our 2019 performance and in particular, the second half 2019 performance that are there are some share gains in there.
Great no other questions. Thanks.
Thanks, guys.
Thank you.
And last question in the queue comes from Cheyenne Goehner from Sidoti. Please go ahead.
Hi, congratulations on the strong quarter and also sorted out.
And.
Mike I just to have a highway five first on the maybe a follow up.
Afterwards, so you mentioned about the DRAM.
Let me in the first quarter will you give a sequential decline because it will be in that digestion phase and then maybe in the second a happy to where we humans gross I assume you me we assume into gross like.
Probably come how much comes level.
Yes.
Fair observation.
If you put things into broader context.
Q3 in Q4 of 29 team, we're decade high levels for our DRAM probe card revenue and so I think it's reasonable to expect that there is some digestion that's going to go on here.
We'll take those the structural fundamental change in long term DRAM probe card spend and so the levels. We delivered in Q3 in Q4 are probably a reasonable expectation for a near term high watermark, let's conditions are right, maybe we get back to there in the second half with one point.
Okay. That's clear so that you know steel follow up on the DRAM and how long do a same keynote because now I really I too high we highlight as you pointed out that could high high level. So how long do the same keno.
You am while maintaining the content that will take a few years store attorneys to no.
Why don't you.
Well again I think you have to look at these levels probably through a cycle right the customers design releases.
And node shrinks Abbott and flow as you go through the cycle and so I think if you look at.
2018, DRAM revenue was in the call as 135 million range 2019 closer to a 145 million. So stepped up a little bit I think these are reasonable levels to think about long term DRAM probe card spend one potential components is upside.
Hi.
We've talked a little bit about MCU and hey, this is the adoption of advanced packaging things DRAM structures like HBS more high bandwidth memory as we've explained in the past driving much higher test intensity and so that could be something if we get more and more HCM wafer start.
You could see any increase in the overall DRAM probe card spend but absent that I think this sorta 131 40 million level is about right for an annual DRAM probe card contribution of one of them.
Okay. That's great and then my last question would be do give any color on you know what fr TDD enough.
Fourth quarter and don't.
Any color also in 2020.
Okay.
Sure. So effort the new initially we talked about two or $3 million contribution for Q4. They came in about a million better than that so that's about 4 million in Q4.
We analyze that we're talking about.
60 million.
Next year over this year.
Okay.
Okay, that's going on from myself.
Okay. That's that's very helpful. Thank you and a good luck.
Thank you thanks.
Thank you I show no further questions in the queue at this time I'd like to turn the call over to Mike Slessor CEO for closing remarks.
Alright, thanks, everyone for joining us today, we'll keep you updated on our progress as we navigate through the first part of 2020 have great day.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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