Q1 2020 Earnings Call
Ladies and gentlemen, today's conferences schedule to begin shortly please continue to standby and thank you for your patience.
[music].
Thank you have welcome everyone to form factor first quarter 2020 earnings conference call.
On today's call, our Chief Executive Officer, Mikes, Lesser and Chief Financial Officer <unk>.
Well, we began 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 results and some important non gap results intended to supplement your understanding of the company's financials reconciliations adopted non get measures and other financial information are available in the press release issue today by the comfort and on the Investor Relations section of our.
A website.
Today's discussion contains forward looking statements within the meaning of the federal Securities laws.
Samples of such forward looking statements include those with respect to the projections of financial and business performance.
Future macro economic conditions, the impacts of the cope with 19 pandemic the impacts of regulatory changes the anticipated demand for products customer requirements are future ability to produce and sell products the development of future products and technologies and the assumptions upon which such statements or base.
These statements are subject to known and unknown risks and uncertainties that could cause actual results to defer materially from those express during this call.
Permission on risk factors in a certain keys is contained in our most recent filing on form 10, k. with the S.C.C. for the fiscal year ended 2019, and our other actually see filings, which are available on the S.P.C.'s website, W.W.W. Dot F.C.C. dot Gov and in our press release issue today.
Looking statements are made as of today May 620, 20, and we assume no obligation to update them.
Also as an aside since this is an entirely remote earnings call for US. Please bear with us on any audio delays are issues with that we will now turn the call over to form factor CEO Mikes lesser.
Thanks, Jason.
Every one for joining us today.
Before to our results and outlook I want to recognize and thanks.
Employees for their effort dedication and person.
During the curve it 19 path.
Our global quickly reacted to of rock government directives didn't we shifted focus to re plan and you factoring operations to restart or California.
Factories.
Closely with our customers for key products were priority.
We delivered.
Their performance demonstrates.
Agility and resilient.
I'm extremely proud of our team.
Hmm.
There's first quarter had two distinct parts is strong first weeks, followed by tulley, where our ability to produce and she.
Substantially reduce.
You'll recall that we was first quarter outlook rage on March teeth, following beer alter in place orders and the tape you shut down on the part Livermore and.
Sites, including all.
During operations.
Subsequent to Oregon encounter you statewide orders also we get our Beaver tenant Carlsbad, our sins, but through the exam.
Essential infrastructure business.
And development of a set of.
Of on site employee.
Features we restart.
Production at each site in the final days of the quarter.
Well review details of the first <unk> <unk>, but it's noteworthy that.
The avalanche of unexpected.
Form factor delivered result.
Revalidate, our target financial model viewing.
Order on an annualized basis, we delivered $643 million of revenue have 46% gross margin.
With a dollar and 32 cents, if non gap earnings per share.
$110 million, a free cash flow.
Take it together with our fourth quarter. These results demonstrate achievement of our target financial model and we plan to update or model later this year when over all conditions of settled.
Or first quarter revenue contained a strong mix of foundry in logic probe cards consistent with the commentary we provided on our February 5th or earnings call.
This demand was broad based spanning both 10 and 14 Emeter microprocessor designs multiple foundry five in seven then emeter mobile in high performance compute designs.
With a variety of five g., enabling or a filter and then 10 or devices.
D. Ram brokered revenue was down in the first quarter during unexpected digestion period.
Sequential quarters of record.
<unk>.
<unk> working closely with each of the D. Ram manufacturers on news.
Mobile and designs on both the wall in one xena meter nodes.
These designs were expected been volume in the second half 2020.
Our engineering systems delivered steady results.
Leave the seasonally weakest quarter.
Customers could to engage form factor to solve toughest electrical in off the measurement challenges.
<unk>.
As an example, we delivered or.
Ultralow noise 300, Peter automated system to will be foundry to help them <unk>.
Yeah, and the meter development build improvement.
Formfactors read.
Demonstrate the resilience.
If I'd leadership position probe cards in engineering.
That leadership again documented in view of US searches annual survey of the probe card market.
We're form factors, 13% annual growth in 2019, Oh paste nine per cent market growth in the same period.
This market growth is in sharp contrast to 2019 is decline in semiconductor capital equipment spending and provides an additional proof point of the consumable nature of probe card demand.
As a reminder, probe cards are a consumable this specific to each new chip design and so demand is generated from both no transitions and the release of new chip designs on existing notes.
Form factors marketshare gains to 32% of the advanced prepared market are driven by seems we've discussed before namely the increase in test complexity associated with advanced packaging schemes like triplets heterogeneous integration.
The high interconnect entities in challenging electrical test performance requirements in advance packaging applications continues to be a space were form factors differentiated memes probe technology provides significant cost of ownership and performance advantages.
In view of the continued uncertainty regarding code with 19 restrictions in the region, where form factor in our suppliers operate we're not providing a formal outlook range this quarter and we'll instead provide.
You to near term domain first in supply constraints.
As I mentioned.
The results were limited by.
And capacity constraints.
True cut downs and buy a lack of customer demand.
At present.
Factory operations.
Social distancing requirement the capacity constraints situation continues and we expect.
At least through the second.
We continue to experience robust infer foundering logic brokered with steady demand for memory cards in engineering systems, extending the same basic the the first quarter.
We've maintained close in true or communication with our customer starting with our factories shut down.
Through the restart in in the limited production phase to ensure we are focused on getting.
Getting to their highest priority <unk> some designs.
<unk> scheme continues to assist medically resolve both internal choir constraints steadily increasing throughput and capacity.
The best customer production and design release schedules.
Our prison view of the various output constraints limits second quarter factory output to approximately 10 per cent below the overall first quarter output.
Although our visibility is even more limited than usual demand for formfactors designed specific consumer bowls, and R. and d. driven products would be expected to produce sequential growth in the second quarter, if not for these output constraints.
Shy over to you.
Thank you, Mike and good afternoon.
Fructose first quarter revenues were $161 million at 10 per cent sequential decrease for more cue for 19 record high revenue and a 22% year over year increase.
These are impressive results, especially in light of the Bucks of Coby 19, which included a temporary shutdown of our California factories for the last two weeks so the quarter.
These results are Testament overcame spoke with some doubt judith necessary to believer for our customers, while safeguarding and ease and supporting our supply chain partners during a period of unprecedented challenges.
As noted they are also compelling evidence of our ability to perform echo or long term target financial motor levels of costs nearly all lines of work you know.
Very challenging environment.
Probe courts revenues were $135 billion into first quarter decrease over $19 billion or 12% from Q. for 2090.
System segment revenues were $26 million and Q1, an increase of zero point $6 million or 2% from Q. for 2019, we'd strong sales of our advanced 300 meeting maker systems.
Within the Grub cart segment robust demand for 500 logic continued we've driven you increased 1% from Q. for $106 million comprising 66% of total company wherever you Q1 up from 59% do the fourth quarter.
Bureau, I'm revenues were $25 billion in Q1, a decrease of $18 billion from the fourth quarter Edward 15% of total of course pretty revenue as compared to 24% either fourth quarter.
DRAM demand was down in large part due to customers absorbing purchases made in several recent peak revenue quarters.
Flush revenues of four point $300 in Q1, where $1 million lower during the fourth quarter.
2.7% of the revenue to one.
The 2.9 per se to queue for.
We continue to expect flesh revenue to be lumpy from quarter to quarter.
Gap gross margin for the first quarter of 2020 was $67 billion or 41.9% of revenues.
Basis points higher than the 41.6% gap gross margin in Q. for.
Cost of revenues included $6.7 billion of <unk>, Reconcepting items, which we outline you know press release, you should you should today.
Reconciliation table available on the list donations picture of our website.
We had 0.8 dollars a week on studying items in the fourth quarter related to the acquisition over there for Ti did not we according to one.
I did not got basis.
Gross margin for the first quarter was $74 million or 46.1% of revenues 40 basis points higher than to 45.7 per cent bound to jab gross margin in q. for mainly as a result of our system segment gross margin.
I would <unk> segment gross margin was 45.1% do the first quarter and small decreases 30 basis points compared to 45.4% of Q. for.
Decrease from Q. for was a result of lower volume par Steele said by more favorable for the mix and lower performance based compensation.
However, Q1 system segment gross margin was 51.2% as compared to 48% in the fourth quarter.
The increase with 320 basis points was driven maybe bring more favorable product mix.
As you said previously we expect our system segment gross margin to range between the high forties to low fifties.
Howard Gap operating expenses were $49 billion for the first quarter 1.6 million barrels Lord any before quarter.
Maybe greasing first quarter gap to non gap reconstructing items from $6.8 million and Q. for $6.2 million in Q1, he's mainly due to lower stuff based compensation.
Noncapital breeding expenses for the first quarter were 43 daughters, or 26.6%, the revenues Colbert and $44 million or 24.5% of revenues and Q. for.
They decrease of $1 million, he was mainly due to lower performance based compensation and lower travel expenses.
You have set by the impact of the keeping code beginning of the your benefits recent.
Company not a cash expenses for the first quarter included $7.3 million for <unk> tangible assets.
Point $6 million for start based compensation and depreciation of four point $600.
<unk> 0.5, <unk> lower than queue for due to the timing of animal regrets.
Gap that income for the first quarter was $16 million for 20 cents per 40 due to cheer called break the gap net income of $19 billion or 24 cents per 40 data sharing queue for.
The <unk> for the first quarter of 2020 was 72.6% similar to 17.3% been queue for.
Within the range of 15% to 20% Guesstimated rate for the isn't communicate that you know previous starting school.
As a reminder, cashed x. rayed you'd expect it to remain 6% to 8% of non got pretax income.
Utilize all remaining U.S. based in Wales and already credits.
First quarter now gap that income was $26 million or 33 cents per fully due to chair colbert to $32 million or 41 sense briefly due to chair in Q. for.
Moving onto the balance sheets <unk>.
As you would expect where especially folk wisdom cash flow management at this time.
Regenerate the $28 billion, a free cash flow into fourth quarter compared to $32 million and keep before.
Greens are free cash flow over the trading 12 months to $110 billion and takes over total cashing investments to $243 million at the end of the quarter.
Almost 9% over these cashing investment bonuses are in the U.S.
The sequential decreasing to free cash flows in the first quarter was mainly a result of lower revenues go for the ability.
Increase investment in copy coding expenditures.
We have to term loans on our balance sheet totaling $45 million. The first loan related to the acquisition of 'cause carried micro taking 2016 had the remaining balance of $24 million at quarter N.
It is expected to be fully repaid by the end of June 2020.
The second long either three year 21 million Euro had been all mandated loan we took to find that.
Positioning queue for 2019.
Low you were based interest rate to optimize our cost of topic, though.
The remaining bounce it would be slowing as of the end of the first quarter was 19.3 hundred euro.
We spent $13.4 million on principle that interest payments on these two term loans during the quarter.
It's quarter Rand, Oh, total cash balance exceeded the debt balanced by $198 million, an increase of $32 million.
Well paying down these tarom loans remain at first priority for using cash we continue to invest in the R. and D. and capital expenditures that support our organic growth as part of our movie or plan.
And they also continues to be any ported part of our strategy and we intend to continue to investigate opportunities to be play copy, though and acquire leadership positions that expand there are certain markets as we did with acquisition over there for a t. last year.
We invest at $12 million in capital expenditures during the first quarter of 2020 compared to $6.6 million in Q. for.
Increasing Catholics in the first quarter is part of a multi year plan to support the demand for a product. That's we anticipate over the medium to long term.
Will continue to be very decent playing you know spending as part of aligning are expensive as we've customer demand well rationing copy called that he's not directly related to additional capacity or technology development.
Oh liquidity position on capital structure are solid and together, we though disciplined approach to spending.
Flexible cost structure, we we think significant resilience to whether an economic downturn.
In light of a recent results and too bitter align our target financial motor we'd go to see the markets. We serve we plan to hold the Webcasts strategy update for the investment community Lady fear, it's which we will update or long term model.
<unk> provide more details closer to the event.
Turning to a cue to out too.
Although we are not providing a former out to give them to continue the uncertainties related to covered 19 I can share some things for you to consider when thinking about our Secondquarter financial performance.
We are continuing to experience capacity invitations, we could just wants to factory operations does implement social distancing and other safety measures.
The man to abuse to remain strong you're out to put constraint.
Recipe challenges.
Negatively impact go revenue in course mortgages and cute too.
It's Mike melted obscenities capacity constraints, we would have expected sequential growth and cute too.
Based on a court assessment of capacity constraints, we expect expect you to revenue we'd be lower than Q1 by approximately 10%.
Estimate be subject to conceivable uncertainty of course with evolving Kobe 19 classes and it's broader potential anyway.
Given about uncertainties, we're not providing an outlook range for gross margin only be as for the second quarter.
We that that's open to call to Christians, we aspect of when you ask a question. Please indicate if you direct you of course into Mike or to me.
Since you can imagine ran off at the same room.
Operator.
Thank you.
Ladies and gents meant to ask the question you wouldn't eat depressed Star then one on your telephone.
To withdraw your question press the pound key.
<unk>.
I asked a question.
Did you ask one question.
Please.
I first question comes from a lot of Tom differently.
<unk>.
Yes. Good afternoon. Thanks for the color So Mike I'm curious what do you talk about the the constraints for manufacturing is that purely just manufacturing capacity issues or are you, having supply chain issues as well getting the parts and pieces.
Yeah. Good question time, and before I address that particular, one I understand the Fidel do my prepared remarks wasn't great. So for all the participants we've distributed the written script for you as well so apologies there, but hopefully we get better information transfer here.
Your question really the answer your question is both there are continue to be constraints, both internal to form factor as well as through our supply chain.
You know there is you can imagine our supply chain as global in nature, and so different government directives have had impact with different suppliers in different regions at different times, starting with China early in the corridor.
Our operations team has done a great job of resolving those conflicts revolving those constraints as well is continuing to add capacity to the internal form factor operations in our Californian, Oregon factories as we continue to grow experience operating in these social distancing measures.
Okay, Great and then you talked about demand being strong but is there you know relative strength between the logic in memory size of your business from a demand point of view.
Yeah, you in the prepared remarks, we tried to detail at four yet really continued strengthened foundering logic first quarter D. Ram revenues were relatively weak coming off.
Very strong 2019, where we had several sequential record quarters, you know our customers are digesting those record shipments.
And at the same time, we're seeing very strong activity and foundry in logic, both in the microprocessor space the foundry space and the R.F. space.
You know I think this is a good example of a form factors overall diversification strategy playing out pretty nicely. When some of our segments are weak others are strong and we've managed to find a way to be able to balance our overall manufacturing capacity to deliver into each of them and deliver relatively stable.
Results as each of these segment demands go up and down.
Okay, Thanks, and and finally for shy when you you're not giving gross margin guidance I understand but when you look at the the additional costs brought on by cope with 19.
Way to quantify you know what the near term impact will be.
So I think when we when we think about gross margin we need to think about what are the main drivers there right.
Screwed up we do it some additional costs through their decor, we 19 like.
Additional cleaning and stuff, but things that most debug gross margin or every previous quarter first of all product mix use change from quarter to quarter and this will continue to have the biggest impact and then the second Alright, then we'll be volume.
Noticed in Q1 versus Q4 Q4 or keep one volume was Lord in Q4, and you'd have sent me back into golf So.
Fed by product mix, it away and of course operational excellent alright, our team or doing excellent job in executing even in these challenging times. So annoyed due to quantify exactly for you, but these are the the main things up.
Marginal computing bucking cute.
Okay. Thank you.
Thanks.
My next question.
Elnur fidelity.
Hi, Yeah. Thanks for taking my questions first a question just shy on the objects and I remember you gave.
Probably last accord I in the range of 40 to 45 meaningful quarter I know, we don't give a phone more guidance now, but I'm just wondering <unk> be a reasonably no range you know for us to look into the 20 to 20.
Yeah. That's a good question as you saw and Q1 Opex. There you know went down one yeah.
This is going to go we added a fourth quarter of their forties versus only like two and a half 19 q. for.
We had to analog benefit from your second Q. want that though so he fucks you Wanna, usually q. too.
And back the the main reason for that'd be Greece, or you know less travel.
Which is of course are in this term in this environment.
As an impact.
Their performance based compensation a portion of our expenses easier tied directly to our performance and you know move up and down with it. So that's why you saw it decreasing in there and cute to leave I'm thinking about the rest of the year.
Think about the same transcribed we continue to control your expenses.
Portion of it will be affected by performance based I suspected cute always people going to see less travel am I think we're going to C.R., and d. and bucketed as well and truly be because some projects just cannot be done from home right you have to be in the lab to perform duct work.
And so you know q. why he's a good good estimate but it includes the rubber lower benefits. It's already hired I don't benefit for the lower performance based compensation as compared to previous quarters and before these are fucked. Her will continue feedback there next quarter's.
Okay. Thank you <unk> put the before Mike Mike You know when we look at I found ran the logic, it's really high very high and on the other hand.
<unk>.
I said they G.S.
Yeah.
Purchase I'm just wondering how should we really think about type what 2020.
Well, you know still be at the dialogue.
<unk>.
Go back to the higher level.
<unk> <unk> and then you would technologies. Thank you.
Let me start he ran one of the interesting things right. Now you use were very actively engage with the major DRAM manufacturer on new design.
Designs are expected to <unk> in.
Yeah for the year. According to current cast schedules Oh I think we're we're in a period.
Preparing for.
The next ramp of D. <unk>, we look forward to the.
After the you're obviously, there's obvious tremendous caveats around Max comic conditions in the memory, but that's that's the way we currently things.
I think foundry Dick the street eight now all of the issues were getting again our customers.
Are that that's shrink there's going to.
It's fairly broad based in processors five.
Ability in high performance.
And indications, we're getting from all comers or that we should be prepared for this foundry in logic to man.
When you to be robust.
Balance of 2020 begin obviously, there's a caveats associated with macro economic impact is 19 for now that's the way we see things.
Thank you.
Thank you.
Quake Ellis would be rally.
Yeah. Thanks for taking the questioning congratulations on your execution and challenging environment. The first question I wanted to ask just really just a clarification, maybe I'll check this to shy shy as we look at the revenue level that was reported versus the initial guidance the variance.
Being due to shelter in place issues impacting manufacturing how did that impact revenue is on and then market basis was it more concentrated in one area, where the other or what's it about equally distributed on a per cent basis across the key round boundary in my check and and band et cetera.
Sure. So first of all the other day factories that were infected we're mainly in California, and then later and be worked on and so difficulties in Germany, where 90 bucks. It. So the buttons on the systems business was not that'd be so most of the back for almost basically all of it came from.
<unk> probes guard it'd business.
And we think back market you know all factories in California leave or more San Jose cause bad they serve oldies markets I don't know if we can take it easy in a couple of weeks to the factory was shut down and try to extrapolate on you know once it's exactly the Brooklyn, each one of these.
Okay.
So you know they're fucking was also feeding each other.
Got it okay. So that it would be tough to teach apart for that for the second quarter impact given.
10% impacts us o'clock.
Let me, let me move on and asked Mike a question to make it seems like one for the thing that's happening is that there is some supplies constraint in the system and I don't know if that's occurring beyond form factor.
Help us understand what's going on at the customer level our customers just.
Finding a way to operate with less probe hard supply in the near term or is there some share shipped either way what's going on downstream from you at the customer level of given that we have fewer pro cards available in the first half of the year than what we were thinking a couple of months ago.
Yeah, and I I think that's a good overall observation Craig in the you know if you look at that age or probe card supplier form factor and our competitors. We're all sitting in regions that have been some affected by this pandemic, Vermont responses.
Hmm. So you know there is a <unk> <unk> overall probe card supply I would say that it's been a very active discussions with our <unk>.
And they're being with other pieces of supply chain as well so the reactive prioritization tivity that's ongoing can use to this day.
Shifting design, probably <unk> in moving things up and down at high priority to make sure. We ask your job weekend of supporting them and it's my view that that's going on throughout the industry, but within pro guards end in capital equipment.
That's helpful. Thank you and then see if I could try can I just come back you since our our view on the second quarter is impacted by some their terms supply constraint what do you need to see from the operational teens.
And and more broadly to be comfortable that output can be back at optimal levels X. sitting two q. If you can just give us a short list of two or three things that would be real helpful. Thank you.
So we are now impacted by you know governmental orders or we have some capacity constraints, mainly related social distancing and we also you know putting some m. measures in place to make sure employees are are safe, we're getting better and better at it or we are shifting tools around.
And the rest of their factories to make some room for social do something and increasing capacity. So it's an ongoing process, we are getting better at it.
Yeah, Alright, I expect to output to to improve but they're still live on certain a lot of uncertainties right that we are still.
Even though we're a few halfway through the quarter or lead times or do you remember a relatively short and they're different government guidelines change <unk>.
Well most of working very hard without supply chain.
Partners to make sure we secure what we need to continue to use and we make.
Made progress there as well.
Fairpoint, Thank you and good luck.
Thanks.
Thank you.
<unk>.
Okay.
Yeah.
<unk>.
Good like really strong revenues from China was trying to figure it out.
Can you just try to segment it between.
Sticking multinational and between logic boundary and data.
Mhm.
Sure and two people.
People recently.
For the past several quarters.
I know revenue has been about.
Tend to have the total company as Chris notes, that's <unk> Nick's of multinationals that operate and then you were a major customers and sticks that mix.
Back and forth. According to spending cycles. So you know I I'm not sure I'd want to try and segmented.
Foundries does the same thing although recently you know obviously with a memory and has been quite strong from your perspective again from the multinationals into done that.
So.
You in the rest of the world.
A a pretty good blend between all segments, although recently and memory has been quite true.
Alright fit enough, Mike and then that's a follow up you know I understand yeah.
You have to pick a lead times would probably like.
So.
But.
Lead time stretch out and.
Supplied does.
Oh and by the end of cute too.
Should we see a snap back in Q3 because of pent up demand.
Mmm.
<unk> lead times, obviously, the second quarter.
Did a little bit if only because of lowered overall capacity the avid our competitors outside g. in general Pro card lead time I've extended here in the quarter.
I think it's a real thick assumption to think things are going to you snap back I think we're parading under the assumption.
The loose in the frictions is going to be a little more.
You know and we will continue D.D. to off with some measure of social distance in our factories, which obviously uses our overall through.
Even as we add the through cap accident long term measures to try and a sister now so I don't view as a snap back we're gonna gradually build capacity to meet this demand as we go through Q2 and into Q3.
Thankfully.
Thank you.
Next question.
Oh 10 would need.
Mm.
Yeah.
Up on that last question.
<unk>.
Clean room.
Which may be more.
Or or you experience.
<unk>.
<unk>.
Yeah Quinn, there's certainly some of the things we've confronted N.B. gun to resolve our spacing issues didn't footprint issues in the variety of clean rooms, we operate whether they'd be our members fab worthy Assembly area. So we are deploying cat.
On increasing our 10, making sure yeah mentioned that were spacing zone.
The best possible adult people are separated from each lots of work by the obscene and optimize inside.
Footprint and find <unk>.
Additional space.
Clean room areas, which you know to our capital intensive.
You have to find.
Clean room.
Deserve.
So.
Yeah.
<unk>.
They sort of depends on the magnitude.
You know we've <unk>.
Least up till noon to take.
Existing lab insider footprints in all this that does require some capital investment, but as we've discussed with you in the past were getting pretty close to breaking our overall capacity limitations.
And as we you know look forward to sharing a new target modeling a longer term strategies that'll be part of the overall discussion.
It seems to you guys significantly.
And back.
<unk>.
Yeah.
Capture that demanded it certainly looks like that man environment is remained pretty robust.
Oh.
Do you talk about you know.
Environment has now.
Improved.
Some of the factors that drove the upside.
Last year.
<unk>.
Temporary nature.
<unk>.
Two.
I mean.
No more sustainable.
Nature.
Well I think is.
Well, we delivered in Q1, even missing you in good part, though the last part of the quarter.
I think there are some trends associated with advanced packaging with five g.'s that are driving fundamentally more spend in test and preferentially as you saw on the V.L.S.I. research results market share gains for form factor in the leaders in the industry because there's only a few people who can.
Really serve these advance nodes and these the requirements associated with things like testing ship Blitz testing the high frequencies of a five g. front end. These are some pretty stringent requirements.
You know is that momentum continue.
Things are a little more involved than we might have thought back and forth.
<unk>.
Concentration in in the boundary business.
Customers.
You're kind of.
Customer.
Yeah.
Oh.
It's a.
Point, we've talked about or three business.
We're diversified over time, you know several years ago.
Like no one please standby.
[noise].
Operator, we couldn't hear it if I could talk me.
Yeah.
<unk>.
Yeah.
<unk>.
Okay.
Hi, everybody could you. Please stay on the line, we tried to free up activities.
Lessors back the apologies again.
During Chinese back can you hear me.
Yes.
Our next question comes from the line of Christian Schwab with Craig Hallum. Your line is open.
Great. Thanks, [laughter], My guess, what I make sure that.
No we're not the Q twos revenue due to capacity constrained isn't lost revenue.
Thats something you would expect to recoup maybe isn't as Q3, depending upon.
Social dispensing and kind of movement controls is that fair.
Well I think there is some level of demand.
That will continue into the third quarter, there's some longer term initiatives in projects.
Where customers are increasing capacity and really investing in capacity around some of these key designs.
And initiatives.
Some of the Fiveg investment is probably one of them.
So I think there is some element with lead time extensions that we talked about earlier in the call.
Where you are going to see some of this demand spill over into Q3 now that obviously cannot last indefinitely and we want to make sure that we're doing everything we can to add capacity to serve the element that could be perishable demand and so trying to add capacity continue to reduce our lead times and even in a soap.
Finally distance manufacturing environment gets us back to the output levels, we were out in in the fourth quarter and in portions of the first quarter.
Great and then.
Another question for you.
We're hearing a lot of more.
Positive chatter about the micro LNG markets, then maybe we would have said Dino 90 to 180 days ago.
Are you seeing any positive movement on your side in that market yet.
That that's the application in a market, where we've been very engaged with some of the leading developers of the technology.
If you recall, we start talking about a few years ago in serving basically serving it with our.
Systems business, we've continued to see activity, there, but as with most of our systems business.
I don't know that we're really going to see a lot of volume production business from that we're exposed to some of it in the probe card business.
And we are seeing initial activity there.
For example, you you're not going to see the ramp as it from US like you might from some of the assembly equipment providers in the space, who will undergo significant growth when it really ramp so continued steady good evolution, but more in enabling the R&D and next generation of it.
Okay, Great and then lastly.
No not does this potentially spoil the new target model, but.
This is our market shares so close to our target model it is that.
Were you surprised that your ability to get to 32% market share exiting 2000.
19.
And in any color you could you share with us regarding future aspirations.
Yes, well I think their market share.
We do expect that Theres continued gains to be made in our served markets.
Obviously, you end up saturating at some point given the industries need for multiple suppliers into key things balance. So we do think there are still share gains to be had from the overall 32% level.
Maybe looking at a different way. This is one of the reasons why we're so focused on deploying the cash we generated from our leadership positions to buy companies like F. R T who lead in growth areas that extend our served addressable market.
So I think there are continued share gains to be out as we continue to execute and things like advanced packaging in fiveg derive preferential share gains for us, but I also think it's one of the reasons why.
M&A is such an important part of our overall strategy.
All right no other questions. Thank you.
Thanks.
Thank you.
As a reminder, ladies and gentlemen that star I want to ask the question.
Our next question comes at Atlanta, Brian Chin with Stifel. Your line is open.
Okay.
Hi, there good afternoon, nice execution, and Mike I think we need to upgrade you to fiveg.
So again I guess my first question here.
In terms of maybe shipment linearity can can you give us a sense sort of what that looks like in Q1 and also how to think about it in Q2, and sorry, I didn't quite catch this but it didn't sound like you were shut down for most of the final two weeks of the first quarter did you still achieved a low end of your original guidance range, which I know you retracted, but essentially it sounds like you would.
Have exceeded that range you had the.
Measures not taking place.
Sure I'll take that.
And then that go through your for you.
It will not be accurate to extrapolate.
Seven weeks over strong over and over 13 week, so fourth quarter and assume linearity.
That's not how our business has been operating.
There were several quarters not the first demand for the second month was stronger and stronger than the third mantra and vice versa. So I wouldn't take there are resolved divide by 11 and multi Barbara 13 atmosphere, we would add.
Ill be out of their out of the range I think we will be and would have been at the high end of our preliminary outlook ranges as we stated a new you confirmed.
Going into the second quarter, we started out.
Restarted the factories in the beginning of the quarter as you can imagine we started slow putting new measures in place.
Increasing Gregg Ribatt too slowly so even in Q2.
Again, I Wonder if you look at linearity.
And try to understand how the quarter would look like.
Okay Fair.
Fair enough I appreciate that color.
Yes stainless supplier for another question.
In terms of that 10% lower output in Q2 is this take into an underlying assumption for shelter in place measures being listed in the associated and affected region.
Is this a swing factor or does is.
Graduating the higher output has more to do what do you sort of create efficiencies and maybe perhaps mix that you referenced.
Yes, it's Mike again, it's more the latter we're not expecting.
Sort of the I think somebody use the snap back analogy, we're not expecting.
Or assuming in the in the outlook we provided.
That we're going to be free of social distancing measures in our factories or on site or visiting customers anytime in the second quarter.
That may be an overly pessimistic or conservative view, but is the one we're taking now just to make sure we're able to make a realistic commitments to our customers and then be able to deliver on those commitment.
So if if we do find a situation where government restrictions are completely lifted and equally importantly.
We feel confident in our employees feel confident in the lifting of those restrictions then I think there probably is some upside baked into this but the assumptions were working with right. Now is that were essentially under the same restrictions for the balance of the second quarter and able to gradually improve things.
Inside that set of restrictions and mandate.
Got it.
It's helpful.
And then shifting to demand.
Let me use for DRAM specifically.
Do you see the DRAM industry migrating support away from mobile towards supporting more PC server wafers. So what is the net effect or our product.
Yes, if you revenue outlook for this segment, if thats the case and I guess.
Talking about the designs that you referenced in DRAM.
Are they more tend to know transitions more have to do about the migration of wafers, maybe the DC server stronger markets or things like GDR six.
Anything youd be descriptive on would be helpful.
Sure I think like most people who operate in the design specific space, we have seen a tactical shift by the DRAM manufacturers of wafer starts from mobile to server in particular, but also PC DRAM.
That obviously has generated a little bit of incremental demand for some of the PC server designs that we serve.
But probably a zero sum game against the mobile designs that were originally planned.
When I talked about the heavy design activity right now that will feed second.
Second half 2020 volume design.
You know that spread out pretty evenly between graphics mobile.
And sort of PC server, so I think in the short term certainly our customers adapted pretty quickly to goes serve the.
The non mobile demand, but the longer term design roadmaps haven't changed much I don't think.
Looking forward to the second part of the year.
Yes.
Thanks, so much.
Thanks, Brian Thank you.
We have a follow up questions on the amount of Craig Ellis with B. Riley Your line is open.
Yes, thanks for taking the follow up question, Mike I wanted to cycle back on a topical issue on this call so just reflecting on.
The key themes here versus three months ago, obviously shelter in place in the crisis is wind, but that's not the question. It seems like one of the things it's really starting to happen with the business is fiveg is starting to become a more meaning Paul incremental driver to probe card demand and customer engagement for you now then.
I'd say.
Three year six months ago. So one is that true when and to if it is can you provide us some color with how you see five she has an incremental driver playing out over the business system you look through the back half of this year and 2021.
Yes, so I think fiveg for Formfactor, certainly is creating some momentum not just around our RF probe card business, but more broadly when you think about a fiveg handset and as a reminder, form factors exposure really is to the handset side of the business because of a large number.
Units, there and not so much the infrastructure side.
When you look at the content increases not just in the RF front end driven by Fiveg, but.
More DRAM more NAND the more complex display clearly more complex applications processor.
The overall move to Fiveg on the handset manufacturers Roadmaps.
Is driving a real growth opportunity for form factor.
When we look at it we feel like we're relatively well positioned in with both the RF established people customers as well as the digital portion of it and of course, the memory portion of it.
So I think your observation that fiveg is becoming a bigger part of our overall business and driving the more substantial poor.
Position for for form factor in the overall supply chain, probably a fair observation now the timing of these fiveg handset launches I think is pretty up in the air at this point, we've seen some handset manufacturers push them initial ones out I think there's still some uncertainty but over the longer term Theres. No question. This is.
A very strong positive tailwind for form factors business.
And Thats helpful. Then.
Question was in reference to.
Comments made around Pls side, they had a report identified market share and congrats to form for its strong performance there, but I think they also kind of forecast for industry growth that was somewhere around 6% to 7.5% on a compound basis over the next three to four year. So.
With form factor, having executed some very interesting tuck in deals recently transformative deals.
A few years ago.
Is it reasonable to think that yes. The company can maintain its execution on inorganic growth that that at least.
Mid to high single digit growth would be possible for the company or are there things that you're seeing and you are served markets step would argue for.
For growth to be a discount to that.
Well I think overall.
The.
The growth you mentioned about our served market in the probe card space is really a function of some of the themes. We've talked about in the past where probe cards are a design specific consumable.
So as customers change designs, whether it be and no change or a move from DDR far to Ddrfour to DDR five.
These are things that drive probe card demand and I think thats why you're seeing.
This high single digit long term growth, it's quite a bit more stable than semiconductor capital equipment.
You know as we look at form factor strategy. It has both capitalizing on that organic growth as the market in which we lead but also the inorganic piece in markets, where we want to serve that really are nicely adjacent to the overall.
Probe card and engineering systems market. So.
I think it's reasonable to expect will continue to execute organically against this market growth and amplifying our leadership position, but also then.
Taking the cash we generate there.
And acquiring leadership positions in new pieces. It served market to keep the growth though.
That's helpful. Thank you and good luck team.
Thanks, Rick.
Thank you.
Showing no further questions in the queue I'd now like to end the call back over to Mike Slessor for closing remarks.
Thank you again, everyone for joining us today apologies for some of the technical difficulties if.
If we need to follow up with you and schedule something to make sure that we get your questions answered. Please reach out to stand on our IR Department.
Thanks, again and Stacey.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect everyone have a wonderful.
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