Q3 2020 FormFactor Inc Earnings Call
Selling the company's general counsel will remind you of some important information.
Thank you.
Today, the company will be discussing GAAP CNL results and some important non-GAAP results intended to supplement your understanding of the company's financials reconciliations of GAAP to non-GAAP measures and other financial information are available in the press release issued today by the company and on the 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 future macroeconomic conditions, the benefits of acquisitions and investments the impacts of the COVID-19 pandemic the impacts of regulatory.
Gary changes you anticipate a demand for products, our future ability to produce and sell products.
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 filing on form 10-K with the FCC for the fiscal year ended 2019, 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 October 28, 2020, and we assume no obligation to update them.
With that we'll now turn the call over to form factor CEO, Mike Slessor.
Thanks, Jason and thank you everyone for joining us today.
For tractor delivered third quarter results at the high end of our July outlook range nearly matching our all time record fourth quarter of 2019.
Responding to continued robust demand for our products and despite the challenges posed by COVID-19.
Steadily improve the efficiency of both our internal operations and external supply chain.
Adding capacity and increasing factory output in a safety focused and socially distance manufacturing environment.
This positive trajectory continues in the fourth quarter as we finish off 2020 and launched the new year.
In the third quarter for semiconductor industry leaders comprised our 10% customers as we explained in our August analyst day presentation, a foundational element of form factor strategy isn't long term intimacy with a diverse group of top tier companies spanning rtms in foundry.
Across logic memory and specialty chips like RF.
Revenue from these customers is one important indicators that demonstrates our engagement as we meet their near term production needs.
Longer term were also working with each of them to understand and meet their next generation test and measurement challenges.
This close dialog helped shape our capacity investments in R&D spend and as a result, we stay synchronized with important customers were at the forefront of our industry.
This is the first major fiveg handsets ramp in volume the growth of our foundry and logic probe card business is a great example of the value provided by these long term customer collaborations and associated R&D programs.
Our multi year investments in both RF and high performance digital test are now yielding dividends that's.
Customers utilize formfactors differentiated market, leading products to meet their highly complex test requirements for millimeter wave RF front ends next generation application processor.
As we've discussed in the past there's substantial increases in test complexity associated with Fiveg silicon, especially for millimeter wave or else.
At the same time Fiveg is also driving significant increases in test intensity.
Recent comments by one of the major 80 suppliers indicate the tough times for the chips into fiveg handset or 60% greater than the chips in a fourg LTE phone.
All else being equal longer test times means more probe cards are required which grows the served market in which we leave.
This combination of increased test intensity, which expands the number of probe cards required for wafer out and test complexity, which widens form factors competitive advantage is a hallmark of not just fiveg, but also with advanced packaging.
As the industry's focus moves to post fab integration to offset the slowing of Frontend Moore's law wafer test and probe cards are taking a prominent role in enabling a variety of advanced packaging schemes like heterogeneous integration of chipsets and H.B.M. stocking of DRAM die.
As we discussed in August both advanced packaging in Fiveg are important long term growth drivers a foreign factors businesses than or at least partially responsible for the double digit growth rates, we've delivered over the past two years.
Turning to DRAM.
As expected foreign factors DRAM revenues return to prior baseline levels in the third quarter. After a first half 2020 digestion period by our customers.
At present, we are experiencing steady demand in this market with a combination of technology node migrations. The d. Euro five transition and the introduction of 12, and 16 gigabit designs driving healthy and sustained new design activity across our customer base.
As a reminder, for perjury consumable with the specific to each new chip design and so demand is generated from not just node migrations, but also the release of new chip designs, such as 16 gigabit L.P. Beattie our five.
Looking into the regional details, you'll see that our revenue from China reduced significantly in the third quarter off record levels in the second quarter.
Interestingly this reduction is not directly due to the challenge to U.S. Chinas semiconductor trade relationship, but instead reflects one of our major multinational customers shifting production out of the region during the third quarter.
As we noted in the past our China revenue was primarily derived from multinational manufacturers, who operate test and assembly facilities in the region.
Form factors domestic China revenue has been a mid single digit percentage of total company revenue for the last several quarters.
These domestic customers offer a growth opportunity for us, especially in applications, where formfactors technology provides significant performance and cost benefits, but.
Oh, well like we need at least a partial return to historical trade norms to fully capitalize on that opportunity.
On the M&A front as noted in our press release following the close of the quarter, we acquired high precision devices incorporated.
H.P.D. based in Boulder, Colorado brings world class cryogenic thermal control and test expertise to augment form factors existing capabilities and products in this area.
Operation and testing of devices at temperatures from 77, Kelvin where liquid nitrogen temperatures down to just above absolute zero is a growing area of our systems business driven by applications, such as low noise infrared detectors and the futuristic field quantum computing.
The ability to control and manage the thermal test environment from your absolute zero hundreds of degrees centigrade, It's a strategic capability in semiconductor test and we're excited about the addition of H.P.D. to form factors, leading portfolio of engineering system test and measurement capability.
Finally, with near record third quarter results and the strong fourth quarter outlook, we are already making progress towards our new target financial model that delivers $2 of non-GAAP earnings per share one $850 million of revenue.
Test and measurement is becoming more important and strategic place in the semiconductor industry driven by trends like Fiveg in advanced packaging.
Our leadership position in these attractive markets paired with our differentiated strategy a disciplined execution will drive continued growth and share gains as we progress towards our target model.
Shy or do you.
Thank you, Mike and good afternoon.
As you saw no press release and as Mike noted, our third quarter revenue and gross margin well above the need for the world.
Yes, excuse me, though.
These are impressive results close to a record high results with Q4 nights.
Full buckles third quarter revenues were 128 million Boes.
13% sequential increase for Q2 revenue.
Revenues increased increased 27% year over year anywhere near a quarterly record high revenues of 178 $6 billion in Q4.
Fourth quarter segment revenues were $151 million in the first quarter.
An increase of $17 million or 13% from Q2.
The increase was driven by higher de 11, such revenues, partially offset by a small decline fundamentals.
System segment revenues were $27 million.
An increase of $3 million or 13% from the second quarter.
Within the probe card segment.
Robust demand for foundry logic booking revenues decreasing miss and $1 million from Q2 to $108 million comprising 61% of total company revenues in Q3.
Down from 69% for the second quarter.
DRAM revenues were $31 million in Q.
An increase of $12 million for the second quarter and was 18% that's the total quarterly revenue as compared to 12%.
Yes.
After a couple of quarters of cost him his digesting purchases, maybe preventing DRAM.
DRAM demand return to what we believe to be more normalized quarterly run rate.
Flash revenues of $11 million in Q3 were $5.6 million higher than the second quarter.
And it was 6% total revenue in Q3 compared to 3% in Q2.
Some would increase is attributed to the completion of the advance its full course assets during the quarter.
The integration of this business is doing well, but this does not change our expectations. That's less revenue as we continue to be lumpy from quarter to quarter.
Specifically in Q4, we expect cash revenue to be back to mid single digits.
GAAP gross margin for the third quarter was $77 million 43.1% of that.
As compared to 41.9%.
Cost of revenues included $6.5 billion of GAAP to non definitely puts on margins, which we all the time you know press release issued today.
The reconciliation table available in the Investor Relations section of the website.
On a non-GAAP basis gross margin for the third quarter was 86.
46.7% of revenues.
90 basis points higher than the 45.8% non-GAAP gross margin Q2 revenue.
Many of the result of higher overall revenue I.
Higher system segment gross margin slightly higher throughputs.
Our report card segment gross margin was 46.2% quarter small increase of 20 basis points compared to the 46%.
Oh system segment gross margin return to that you should take that range. We had previously reported high fortys to low Fiftys and was 49 point enforcing.
As compared to 44.6%.
The increase of 520 basis points was driven mainly by higher sales and lower warranty costs.
Our GAAP operating expenses before.
The $4.7 million for the third quarter and $11 million higher than the second.
Non-GAAP operating expenses for the third quarter were $48.4 million.
Oh, it's 27.2%.
Well Britain $41.1 billion, that's when she expenses of revenue in Q2.
The increase of $7.3 million is mainly due to higher performance based compensation one.
One time write these security remediation costs.
I know in salary raises and that vision of the business, we acquired in the quarter.
Company non cash expenses for the third quarter included $6.5 billion for them, which is actually going to the losses and $5.5 million for stock based compensation.
Both at similar levels to Q3.
Depreciation was five point.
An increase of zero point $6 million for the second quarter as a result of recent investments maybe capacity expansions and acquisitions.
GAAP net income for the third quarter was $22.9 million or 29 cents per fully diluted share compared to GAAP net income was $20.5 million or 20.
26 cents per fully diluted share.
The non-GAAP effective tax rate for the third quarter was 12.7%.
Have you lowered the 17.4% in Q2.
This reflects new regulations, you shouldn't do life.
Respected globally into both toxin Olsson mobile.
The application of the new regulation resulted in a one time she's gonna could benefit.
And we will also result, the full year circuits, that's really due to the lower end of the 15% to 20% range communicated previously.
As a reminder, our cash tax rate these expenses.
The remaining 6% to 8% non-GAAP pre tax income I didnt fully utilized over many years. Thanks.
Third quarter non-GAAP net income was $31 million.
39 cents per fully diluted share versus $26 million or 33 cents per fully diluted share keeps you.
Moving onto the balance sheet investments.
We generated $37 million of free cash flow.
Well break a $19 million in Q2, taking a total cash and investments of $244 million of yes of course.
The sequential increase in free cash flow in the third quarter reflects reduced capital expenditures.
During the third quarter and fully repaid the loan for the acquisition of Cascade Microtech expenses.
As of the end of the third quarter, we had to film loans remaining on our balance sheet.
<unk> expenses.
We invested $5 million in capital expenditures.
Border.
$25 million in future.
The decrease in Capex, the result of the $19 million spread during the second quarter, we completed the acquisition of the movies.
As a reminder, our capacity expansions at specific window 2020 companies that expenditures to $50 million to $60 million.
At quarter end, our total cash balance exceeded the debt balance, but we wanted to make those a decrease of $6 million from quarter to quarter.
Chris is mostly attributable to the $35 million used to acquire does that this flip cards assets during the quarter.
You're going to have substantial liquidity and a healthy and solid capital structure, we continue to invest in capital expenditures and M&A as important parts of our strategy.
As Mike noted earlier this month, we completed the acquisition of HBV for $15 million net of cash was.
H.B. These additions is not expected to have immediate that's on our financial results.
As for the described in our press release issued today. Our board of directors is both of ours is to your $50 million share repurchase program will offset the dilution from share issuances.
Good to stop this decision.
Turning to the fourth quarter non-GAAP houses it's.
As Mike mentioned, we expect the overall strong demand to continue.
Higher demand and foundry and logic and DRAM revenues, assuming similar levels to Q3, partially offset by decreased and stuff.
These factors resulted in a Q4 revenue also from the range of 178, 100 and make it even better.
Next is expected to be less visible in Q4, resulting in non-GAAP gross margins also.
Q4, the range of 44% to 47%.
At the midpoint of these ranges, we expect Q4 operating expenses to be comparable to Q.
Non-GAAP earnings for fully diluted shares for Q4 is expected to be between 35 and 42 cents.
A reconciliation of GAAP to non-GAAP.
He is available on the Investor Relations section of our web site and the person who's interested.
With that let's open the call to questions. We ask that when you ask you question. Please indicate if you direct your questions to Michael to me. He says you can imagine you're not going to say.
Operator.
Thank you so much to ask the question you will need to press Star then the number one on your telephone keypad again to ask a question you will need to press. The Star then the number one on your telephone keypad withdraw your question. Please press the pound.
Our first question will come from the line of seeing Bolton from time.
Lets now open.
Hey, guys congratulations on the nice results in the.
There appears to be record quarterly outlook for the fourth quarter wanted to ask about the foundry logic straight if you could give us a little bit more color is that fairly broad based across your large logic and foundry customers and then a second question, obviously, a tighter trade restrictions.
You know I've been announced during the third quarter wondering if you're seeing any impact on the tighter export controls around SMIC and then I've got a follow up question for Shai.
Quinn, it's Michael I'll handle that one does the foundry and logic strength is quite broad based as it was in the in the third quarter as well if you take a look at our 10% customer less you can see some nice strength across multiple meters in the foundry and logic space. There. We're seeing the same thing continue here.
In the fourth quarter. So it is a reasonably diversified nicely broad base what are the drivers we've talked about before certainly fiveg major fiveg and set launch history behind that.
Infrastructure data spending data center spending some really nice robust the trends continuing year through the back part of the year.
On the China situation, you know, we tried to give you a little more detail in the prepared remarks.
The domestic China business for US has been a sort of a mid single digit percentage of revenue for the past several quarters or are the majority of our China business is serving the multinationals in the region and as a consequence, you can imagine the the major domestic foundry is not a really big business for us.
Having said that for sure as a U.S. companies there have been some headwinds associated with serving them and other domestic China customers and I think like everybody else, we're working our way through it.
Investigating the different ways, we can mitigate that whether they be through two licenses or other compliance activities.
Great and then the other question for Shai just you talked about a.
Less favorable mix in the quarter I guess I just look at.
Foundry logic strain with lower NAND and about flat DRAM I would think that that mix would would generally be positive for you. So can you sort of walk us through within foundry logic, and perhaps the memory business what what.
<unk> segment mix shift maybe going on that that would sort of offset what I would have thought to be a tailwind.
Yes.
[music].
Shifting towards foundry logic. Thank you.
Sure. That's a good observation, we did say in the past that if you look at the different markets, we serve and historically or maybe on average system has the highest gross margin for by foundry and logic and DRAM and flash.
But few things first of all to read some overlap over there there are cases that you're going to have the no DRAM cards with their higher gross margins and if all the luxury cars and also the Knicks and within these markets and the product mix within these markets even with the same customer can change. So it's true that if you look.
But the trend for Q4.
Hi, good logic is expected to be higher inflation is expected to be down but the mix within these markets also as anybody. That's why are you at the midpoint of the outlook range.
We expect a good thing for the gross margin lower than Q3, even though revenue.
Got it and then I may have missed it but did you give a quarter to quarter sort of guidance.
What the systems business would do in the fourth quarter.
We did not.
Spoke about.
Okay, great. Thank you I'll hop back in the queue.
Our next question will come from the line of Cardinal Lynch from B. Riley. Your line is now open.
Hey, guys. This is carlin on for Craig two quick questions. One starting with you. Mike You know you had talked I think previously about the with a more plant asset purchase if you could just give us an update on how that ramp is coming and you know what we can expect in terms of timing.
And production facility conversion that would be great and then I have a follow up.
Yeah, I think we're still in the fairly early stages out to remind everyone. We bought or close to 100000 square foot building, which is going to be utilized entirely for manufacturing capacity.
Adjacent to our existing footprint in Livermore, California.
We're still in the very early stages of the outfitting that building. So you know in our current results, we're continuing to get more.
More affected it incrementally at manufacturing inside our existing footprint, obviously still a lot of social distancing.
Measures in place that are <unk> make us less efficient inside that footprint than we would have been say a year ago, but we are getting better at it and as you can see from the Q3 results and guidance managing to squeeze more out of that existing footprint, we expect the new capacity to start.
Come on line in the middle part of 2021.
But it's going to be a gradual and incremental start as we continue to match our capacity to the overall customer.
Got it and then.
With regards to the advantage.
You know the $35 million advanced test technology integration.
I guess, if you could just provide a roadmap kinda integration update where we are in that process.
That would be great and then lastly, just really quick did you guys see anything in terms of the snake buffer invent a buffer stocking in the quarter were there any signs that maybe people.
People have started to pull kind of pull orders in ahead of time I know, China was a less so or less intense in the quarter, but any signs of buffer stock in there.
[laughter], let me deal with that one first because we did try and lay things out for people a little more clearly in the prepared remarks, so I'd refer you back to those as well.
Our domestic China revenue as a relatively small percentage kind of mid single digits of total company revenue. So the signal to noise on any inventory pull aheads and things like that are not going to be great for us So Oh limited exposure.
Hopefully in a few places we did see some risk reduction that's difficult to parse out from general strategies as inventory buys associated with things like co visit some of our customers as well so.
I wouldn't say, we've got a real clean signal there.
In any event, it's not a really significant part of our revenue given the exposure footprint to the domestic China business the form factor has.
Oh on the Advantest acquisition, so we're about a quarter.
Think it's shy mentioned in the prepared remarks things are going really really well, we're very pleased with both the technology assets and the team that has come in to be a part a form factor.
You can imagine in the technology integration those are fairly long.
Long term projects and so we're in the early stages of characterization rationalizing Roadmaps, where we can use some of these technology elements in form factors, DRAM and foundry and logic probe card growth.
As we talked about that is one of the key pieces be interconnect technology in the Mems probe technology that this acquisition brought us.
Also brings us a better competitive position in flash and there was a contribution.
Although not huge contribution in the third quarter.
Continuing to make some progress in increasing market share there doing some operational and manufacturing integration to see whether we can extract the a little bit more share in the $250 million or markets. Its NAND flash.
Got it all right. Thanks, so much guys.
Thanks.
Our next question will come from the line of Brian Chin from Stifel. Your line is now open.
Hi, good afternoon, nice results and thanks for letting us ask a few questions.
Maybe first question for you Mike.
Revenue from your largest customer does appear to be normalizing in Threeq you. All the very strong first half level. So I guess I was wondering if you're a strong fourth quarter outlook reflects any further normalization from this customer has their rate of 10 nanometer capacity growth moderates.
Yeah, it's a good observation Brian So you know in the first half of 2020 and probably in the fourth quarter 2019, as well our largest customer was that revenue levels that we viewed as above kind of a normalized run rate and you do see the third quarter results those coming back down to.
As you call it a more normalized level, we should be expected from this customer.
As I look at our fourth quarter outlook in and more generally the mix of the business in the third quarter.
See a nice balance between some of these leading customer once again, we had 410% customers in the third quarter, you know comprising some real leaders in the industry and so I think that's indicative, whether they're 10% customers in this specific quarter or not it's indicative of the.
The footprint to the customer relationships that we have and the overall diversification that we've managed to build in this business in any given quarter I would certainly expect any any one of these customers whether our largest customer are working through.
The list of other major customers, they're going to fluctuate around according to their design release Roadmaps and their need for a you know specific probe cards, whether they be for node migrations or new design village.
That's helpful maybe to switch gears and this either for you Mike or for shy, but more from a supply perspective.
I'm definitely impressed you were able to your capable shifting towards the upper end potentially affect your fourq guidance range again, given the timing of your new capacity next year I was wondering if you could elaborate more on some of the levers at your age that you are able to exercise right now to increment up your revenue output in the near term and maybe suffice to say.
Can you maybe touch the ceiling in terms of your capacity at the upper end of that revenue guide.
Yes, it's Mike again, maybe I'll take that at a high level again as I said in a response to one of the previous questions. I think we're just getting better at operating in this environment. Obviously as we went through the first part of the year. It was a complete re.
Then shouldn't have a lot of our on site manufacturing and safety processes.
Some of the things that we've done for example have been annexing engineering lab space as production space incremental production space and then having conference rooms turned into engineering labs right. You can imagine there's not a lot a need for conference rooms, among the DNA population. These days and so you have sort of pivoted.
Didn't reposition inside the existing footprint I.
I think as we get towards the high end of the fourth quarter outlook range, there's not much more beyond that you know our existing footprint, obviously mix does play a role there are more favorable mix is that there are more revenue per feel like square foot of manufacturing space that were.
Getting pretty close to straining the existing footprint.
Having said that you know youve got yield improvement.
Ongoing see IP that really has been a a foundational piece of how form factors continue to lead in the industry and an improved gross margins and financial results and those are things will be depending on as well.
You know and we get to the middle of the 21 and start to bring on loosen those rains and bring on some significant new capacity capability and the new building.
Maybe one last really quick one but.
Yeah. If you if you think of foundries for example, they seem to be running fairly tight capacity themselves and you have other folks you yourselves included maybe in kind of a similar camp do you think that's giving folks yourselves other folks in the supply chain, maybe a little bit better visibilty even into the early parts of next year.
If I look at lead times certainly.
I'd say on average they have gotten a little bit longer but not dramatically. So right. We are still fundamentally running a turns business where.
You know to start a quarter, we have a significant amount of designs to win and work to do to fill in the rest of the shipments and revenue for the quarter.
You know.
But there are certainly cases because of the customer capacity situation, where their white wafer cycle times and design lead times are a little bit longer and that's offering some measure of increased visibility, but it hasn't fundamentally changed the nature of the business still a turns business and Oh, our headlamps only goes.
So far into the fall.
Fair enough. Thank you.
Thanks.
All right. That's a reminder to ask a question. Please press as far down the number one on your telephone keypad.
Our next question will come from the line of differently from D.A. Davidson. Your line is now open.
Yes, good afternoon, so Mike obviously very good to see 410% customers all the diversification in the quarter.
On a go forward basis would you expect the logic foundry customers. The two large guys to be consistently in the 10% customer range, while the memory players kind of come and go depending on their quarter.
I think in any given quarter and I tried to allude to this in one of the answers to Ryan's question I think you're still going to see some lumpiness in the 10% customer list both in the memory.
Of course, one of those customers is both a foundry customer and that.
But even it you know as we build out our business and grow our business at the world's leading foundry, it's still going to be a little bit lumpy much less so than it was even a year ago.
As we shift thing.
Multiple designs in high volume across both mobile high performance compute and RF, but I would still expect some fluctuations around the 10% level that might cause them to move in and out of that over.
Over the long term, we certainly expect them to be a 10% customer a perpetual 10% customer for form factor, but no over the over the short term I think you could see them move on and off the list.
Okay. That's helpful and then going back to your answer earlier on the flash the man business.
At this point are you using the acquired technology on a go forward basis that might improve the margins in that space are you still opportunistically using your.
Traditional technology.
Yeah, it's it's a mix of both Tom so the.
The product we acquired as part of the advanced test acquisition nicely positioned for mainstream flash as we said when we announced the acquisition qualified at one major NAND flash manufacturer, we're working to expand that customer base across the worldwide form factor footprint of example.
Got me the revenue synergies that we can bring to some of these acquisitions.
But there are areas of the.
The high end of NAND Flash, where we're still being opportunistic with our legacy technology. So.
A product strategy that has a lot of sub segmentation in it.
That's pretty usual given the design specific nature of the space you know a a very dense high performance piece of NAND flash.
It's going to need some of the legacy form factor technology, maybe more mainstream.
Commodity NAND flash the advanced test product much better position.
And finally shy when you look at the 500 basis point improvement in the probe card margin year over year is that strictly just because of revenue or volume or has the mix towards more RF benefited that as well.
Yeah, I think you know when we talk about and for that makes them or if they're part of a foundry and logic Jerry Storch. He has a higher margin and so that that helps.
We can feel good about yourself.
Margin growing up.
And we are glad to show doesn't make progress toward a more than 47%.
Hi revenue.
Overall also helped the margin is.
As for the cost of libraries of course, Oh, so both of them.
Okay all right. Thank you.
Thanks.
[laughter].
[laughter].
The next question will come from the line of Amanda Scarnati from Citi. Your line is now open.
Hi, good afternoon.
The first question I have is on on TSMC, it's nice to see them finally crossing that 10% threshold can you talk a little bit about how large that customer can be common and looking at it in a different way is there a limit to how much.
Yes, you can see is willing to sort of outsource to form.
Or you know how do you look at that going forward.
Yeah, obviously the effort to first get qualified several years ago, and then grow our business at the world's largest foundry is a key strategic element of where we're trying to take the company.
You know that business really were competitors that use only that the dance and we've talked about that being hidden immigrant below obviously with a bit of an amplifier. If there's advanced packaging involve because that's the.
Fundamental value Formfactors technology has.
As with most of our customers, it's a competitive business, where we're competing against other probe card providers and so that capex. It in some sense, but when you look at that.
That foundry business in you know in contrast everywhere else, there's probably still some upward momentum available because it's a leading edge node business as more of that foundries wafer starts move to advance nodes you feel like that piece of available market to us he is going to continue.
Due to increase we've talked about it in the past being a comparably sized to the business with our leading customer and I think that's a reasonable way to continue to think about it long term, you're not going to get there next quarter and as I said in response to some of the previous questions expect.
We expect them to move up and down a little bit around the 10% level, but long term.
I think the growth trajectory that weve shown so far are essentially going from zero three or four years ago up to a 10% customer there's still some legs left in that story.
Great.
Moving on to sort of that the cryo testers that both via the acquisition you announced today and then also the announcement you made back in September in terms of new technology capabilities well.
When could we expect to see any sort of revenue from from Cryo is this sort of more of a longer term technology try and or are there some near term opportunities.
I think in terms of significant revenue that would change your model or something like that he it's out there a ways right. These are really.
That's we're making at the right hand end of our road map guided by some of our key customers who are driving applications like quantum computing that require very very low temperatures essentially approaching absolutely zero.
And so from a.
A significant revenue perspective.
He is probably even outside the scope of our long term model that gets to 850 million in 2023, having said that you know there are these businesses are bearing revenue right now.
It's part of the reason why we have the confidence to invest in an acquisition like H.P.D. and continue to invest our Indiana is customers are engage with us and clearly pulling for a more capable development platforms, which eventually will move into production, but as I said it.
Represents probably a growth component for our next long term target model once we get past the 850.
Great. Thank you.
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Our next question will come from the line of Robert Mertens from Cowen. Your line is now open.
Hi, This is Bob Burton on behalf of Krish Shankar Cowen. Thanks for taking my question.
Just just one along the lines of probe cards for advanced packaging, maybe you could give a little more clarity on puts and takes and how you see that business growing over the next year or so and in terms of sort of the customer concentration and margin profile of that business. How you see that over the next year.
Thank you.
Yeah. Good question and one that maybe so everybody's baseline I'd encourage you to go back and look at our August analyst day presentation, because we tried to frame it in some sense there, but if I look at things going forward clearly the leaders in the industry are going to rely more and more on.
In advanced packaging to fuel organization.
Whether its chip what strategies.
H.B.M. in memory, no, there's some pretty compelling.
Product differentiation as our customers can achieve by by employing advanced packaging, we're still pretty early in that but.
Because it's relatively early you're you're going to see a concentrated I think among the leaders so people.
Like the 10% customers that we've had in the third quarter are obviously going to be the people driving and innovating at the leading edge of those advanced packaging roadmaps that part of the reason why we're working so hard to stay engaged with those customers. We believe they're going to be the the drivers of advanced packaging, which is we've seen in a variety.
Do you have other applications will then fan out to the rest of the industry are fun.
So from a concentration perspective again, it's going to continue to be with the leaders I think from a margin profile Theres always competition. So I would not expect a huge uplift in margins having.
Having said that there are some elements of value that we provide in the advanced packaging applications, whether theyd be much tighter densities or higher speeds, enabling things approaching known good die test.
The do bear a higher gross margin a higher price than say a commodity probe card in monolithically packaged part.
Great. Thank you that's very helpful.
I am showing no further questions at this time I would now like to turn the conference back to Mike Slessor.
Great. Thank you everybody for joining us today, you've got a couple of IR events coming up to to close the year, but if we don't talk to you during those Ah stay safe stay healthy and we'll talk to you again soon take care.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[noise].