Q2 2024 FormFactor Inc Earnings Call

Thank you and welcome everyone to FormFactor's second quarter 2024 earnings conference call. On today's call...

Stan Finkelstein: On today's call, our Chief Executive Officer, Mike Slessor, and Chief Financial Officer, Shai Shahar, before we begin, Stan Finkelstein, the company's VP of Investor Relations, will remind you of some important information.

Operator: on today's call. Our Chief Executive Officer, Mike Slessor, and Chief Financial Officer, Shai Shahar. Before we begin, Stan Finkelstein, the company's VP of Investor Relations, will remind you of some important information.

Stan Finkelstein: Today the company will be discussing GAAP P&L results and some important non-GAAP results intended to supplement your understanding of the company's finances. 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.

Speaker Change: Our Chief Executive Officer, Mike Slessor, and Chief Financial Officer, Shai Shahar. Before we begin, Stan Finkelstein, the company's VP of Investor Relations, will remind you of some important information.

Stan Finkelstein: Thank you. Today's company will be discussing Gap 10L results and some important non-GAAP results intended to supplement your understanding of the company's financials. The consolations of gap to non-gap measures and other financial information are available in the press release issued today by the company and on the Invest Relations section of our website.

Stan Finkelstein: Thank you. Today the company will be discussing gap P&L results and some important non-gap results intended to supplement your understanding of the company's financials.

Stan Finkelstein: 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.

Stan Finkelstein: 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 and geopolitical conditions, the benefits of acquisitions and investments in capacity and in new technologies, the impacts of global, regional and national health crises, including the COVID-19 pandemic, anticipated industry trends, potential disruption in our supply chain, the impacts of regulatory changes, including the recent U.S.-China trade restrictions, the anticipated demand for products are rebuilt to develop, produce and sell products, and the assumptions upon which such statements are based.

Stan Finkelstein: 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 and geopolitical conditions, the benefits of acquisitions and investments in capacity, and new technology. The impacts of global, regional, and national health crises, including the COVID-19 pandemic, anticipated industry trends, potential disruption in our supply chain, and the impacts of regulatory changes, including the recent U.S.-China trade restrictions.

Stan Finkelstein: Today's discussion contains forward-looking statements within the meaning of the federal securities laws.

Stan Finkelstein: Examples of such forward-looking statements include those with respect to the projections of financial and business performance, future macroeconomic and geopolitical conditions, the benefits of acquisitions and investments in capacity and in new technologies.

Stan Finkelstein: The impact of global, regional, and national health crises, including the COVID-19 pandemic,

Stan Finkelstein: Anticipated industry trends, potential disruption in our supply chain, the impacts of regulatory changes, including the recent US-China trade restrictions.

Stan Finkelstein: The anticipated demand for products, our ability to develop, produce, and sell products, and the assumptions upon which such statements are based. However, these statements are subject to known and unknown risk uncertainties that could cause actual results to differ materially from those expressed during this. Information on risk factors and uncertainties is contained in our most recent filing on Form 10-K with the SEC for the fiscal year ending December 30th, 2023, and in our other SEC filings, which are available on the SEC's website at www.sec.gov and in our press release issued. Forward-looking statements are made as of today, July 31st, 2024, and we assume no obligation to update them. With that, we will now turn the call over to FormFactor's CEO, Mike Slessor.

Stan Finkelstein: The anticipated demand for products, our ability to develop, produce, and sell products, and the assumptions upon which such statements are based.

Stan Finkelstein: These statements are subject to known and unknown restaurant authorities that could cause actual results to deform material from those expressed during this call.

Stan Finkelstein: These statements are subject to known and unknown risk uncertainties that could cause actual results to differ materially from those expressed during this call.

Stan Finkelstein: Information on risk factors and uncertainties is contained in our most recent filing on Form 10-K with the SEC for the physical year and the December 30, 2023, and in our other SEC filings which are available on the SEC's website at www.sec.gov and in our press release issued today.

Stan Finkelstein: Information on risk factors and uncertainties is contained in our most recent filing.

Stan Finkelstein: on Form 10-K with the SEC for the fiscal year end of December 30th.

Stan Finkelstein: and in our other SEC filings, which are available on the SEC's website at www.sec.gov and in our press release issued today.

Stan Finkelstein: Forward-looking statements are made as of today, in July 30, 2024, and will issue no obligation to update them.

Stan Finkelstein: Forward-looking statements are made as of today, July 31st, 2024, and we assume no obligation to update them.

Michael Slessor: With that, we will now turn the call over to FormFactor CEO Mike Slather. Thanks, everyone, for joining us today. Form factor second quarter revenue, non-GAAP gross margin and non-GAAP EPS all exceeded the midpoint of the outlook range we provided in May. The expected strength in our probe card business drove second quarter results as we recorded sequential increases in all three probe card markets. DRAM probe card revenue reached record levels, with revenue from high bandwidth memory or HBM doubling for the third consecutive quarter to nearly 75% of our DRAM revenue. In the current third quarter, we're experiencing steady overall demand for form factors products as we continue to make progress towards our target financial model.

Stan Finkelstein: With that, we will now turn the call over to FormFactor's CEO , Mike Slessor.

Michael D. Slessor: Thanks, everyone, for joining us today. FormFactor's second quarter revenue, non-GAAP gross margin, and non-GAAP EPS all exceeded the midpoint of the outlook range we provided in May. The expected strength in our ProbeCard business drove second quarter results as we recorded sequential increases in all three ProbeCard markets. DRAM probe card revenue reached record levels, with revenue from High Bandwidth Memory, or HBM, doubling for the third consecutive quarter to nearly 75% of our DRAM revenue. In the current third quarter, we're experiencing steady overall demand for FormFactor's products as we continue to make progress towards our target financial.

Michael D. Slessor: Thanks, everyone, for joining us today.

Michael D. Slessor: FormFactor's second quarter revenue, non-GAAP gross margin, and non-GAAP EPS all exceeded the midpoint of the outlook range we provided in May.

Speaker Change: The expected strength in our probe card business drove second quarter results as we recorded sequential increases in all three probe card markets.

Speaker Change: DRAM probe card revenue reached record levels, with revenue from High Bandwidth Memory, or HBM, doubling for the third consecutive quarter to nearly 75% of our DRAM revenue.

Speaker Change: In the current third quarter, we're experiencing steady overall demand for FormFactor's products, as we continue to make progress towards our target financial model.

Michael Slessor: Our second quarter results in third quarter outlook illustrate the unique value of form factors diversification strategy, which differentiates us from our direct competitors with a broad lab-to-fab product portfolio across founder and logic, DRAM and flash probe cards together with our system segment product. This portfolio enables us to compete for business across diverse demand pools at all major customers, producing relatively stable results during last year's downturn and the top line growth we're delivering this year. High-unit volume-in markets to drive foundry and logic probe cards bending, like mobile handsets and client PCs. FormFactor's third quarter-L look also demonstrates several unique features of probe card demand.

Michael D. Slessor: Our second-quarter results and third-quarter outlook illustrate the unique value of FormFactor's diversification strategy, which differentiates us from our direct competitors with a broad lab-to-fab product portfolio across Foundry and Logic, DRAM, and Flash probe cards, together with our system segment products. This portfolio enables us to compete for business across diverse demand tools at all major customers, producing relatively stable results during last year's downturn and the top line growth we're delivering this year.

Speaker Change: Our second quarter results and third quarter outlook illustrate the unique value of FormFactor's diversification strategy, which differentiates us from our direct competitors with a broad lab-to-fab product portfolio across Foundry & Logic, DRAM, and Flash probe cards,

Speaker Change: together with our system segment products.

Speaker Change: This portfolio enables us to compete for business across diverse demand tools at all major customers, producing relatively stable results during last year's downturn and the top line growth we're delivering this year.

Michael D. Slessor: Our revenue growth is being driven by exposure to expanding areas like high bandwidth memory and DRAM probe cards and co-packaged silicon photonics in systems, enabling FormFactor to grow even as we await refresh cycles in important high unit volume end markets that drive foundry and logic probe card spending, like mobile handsets and client PCs. FormFactor's third quarter outlook also demonstrates several unique features of the probe card domain. As we often note, probe cards are consumables that are specific to each new chip design, meaning we benefit from both technology node transitions and from the release of new designs on existing nodes.

Speaker Change: Our revenue growth is being driven by exposure to expanding areas like high bandwidth memory and DRAM probe cards, and co-packaged silicon photonics in systems.

Speaker Change: enabling FormFactor to grow even as we await refresh cycles in important high unit volume in markets that drive foundry and logic probe cart spending like mobile handsets and client PCs.

Speaker Change: FormFactor's third quarter outlook also demonstrates several unique features of probe card demand.

Michael Slessor: As we often note, probe cards are consumable that's specific to each new chip design, meaning we benefit from both technology node transitions and from the release of new designs on existing nodes. Together with our broad market and customer exposure, this produces a more stable demand profile than the more volatile demand cycles that characterize capital equipment. This difference is particularly evident in the current environment, as FormFactor's stable third quarter-L look could trash sharply with the sequentially weaker third quarter outlooks offered by several companies in the test in the assembly capital equipment sector.

Speaker Change: As we often note, probe cards are consumable that's specific to each new chip design, meaning we benefit from both technology node transitions and from the release of new designs on existing nodes.

Michael D. Slessor: Together with our broad market and customer exposure, this produces a more stable demand profile than the more volatile demand cycles that characterize capital equipment. This difference is particularly evident in the current environment, as FormFactor's stable third-quarter outlook contrasts sharply with the sequentially weaker third-quarter outlooks offered by several companies in the test and assembly capital equipment. Turning now to market and segment level details.

Speaker Change: Together with our broad market and customer exposure, this produces a more stable demand profile than the more volatile demand cycles that characterize capital equipment.

Speaker Change: This difference is particularly evident in the current environment, as FormFactor's stable third-quarter outlook contrasts sharply with the sequentially weaker third-quarter outlooks offered by several companies in the test and assembly capital equipment sector.

Michael Slessor: Turning now to market and segment level details. As I noted, we set a record for DRAM probe card revenue in the second quarter, driven by the sequential doubling of high bandwidth memory revenue, layered on top of steady DDR5 new design activity. To put HBM's toward growth into perspective, in the first half of 2024 alone, we doubled the HBM revenue we delivered in all of 2023. In addition, our second quarter HBM revenue is greater than FormFactor's total quarterly DRAM revenue in each quarter of 2023. This activity is a direct result of the large hyperscaler investments in generative AI infrastructure and our customers' corresponding ramps of HBM capacity and output.

Michael D. Slessor: As I noted, we set a record for DRAM probe card revenue in the second quarter, driven by the sequential doubling of high bandwidth memory revenue, layered on top of steady DDR5 new design revenue. To put HBM's torrid growth into perspective, in the first half of 2024 alone, we doubled the HBM revenue we delivered in all of 2023. In addition, our second quarter HBM revenue is greater than FormFactor's total quarterly DRAM revenue for each quarter of 2023. This activity is a direct result of the large hyperscaler investments in generative AI in and our customers' corresponding ramps of HBM capacity and output.

Speaker Change: Turning now to market and segment level details, as I noted, we set a record for DRAM probe cart revenue in the second quarter, driven by the sequential doubling of high bandwidth memory revenue, layered on top of steady DDR5 new design activity.

Speaker Change: To put HBM's torrid growth into perspective, in the first half of 2024 alone, we doubled the HBM revenue we delivered in all of 2023. In addition, our second quarter HBM revenue is greater than FormFactor's total quarterly DRAM revenue in each quarter of 2023.

Speaker Change: This activity is a direct result of the large hyperscaler investments in generative AI infrastructure and our customers' corresponding ramps of HBM capacity and output.

Michael Slessor: HBM, which is a stack of 8, 12, or even 16 individual DRAM die, assembled with advanced packaging processes like through silicon via and thermal compression bonding, continues to offer a powerful example of how advanced packaging is driving our current results. It also foreshadows our long term opportunity, as we benefit from the increased test intensity and increased test complexity that is inherent in advanced packaging architecture. In the third quarter, demand for DRAM probe guards continues to be robust, and we expect a slight increase in revenue from the second quarter record. We do, however, expect a shift in our DRAM product mix with a sequential increase in DDR5 shipments and a reduction in HBM shipments.

Michael D. Slessor: HBM, which is a stack of 8, 12, or even 16 individual DRAM die assembled with advanced packaging processes, like through silicon vias and thermocompression bonding, continues to offer a powerful example of how advanced packaging is driving our current results. It also foreshadows our long-term opportunity, as we benefit from the increased test intensity and increased test complexity that is inherent in advanced packaging architecture. In the third quarter, demand for DRAM probe cards continues to be robust, and we expect a slight increase in revenue from the second quarter record.

Speaker Change: HBM, which is a stack of 8, 12, or even 16 individual DRAM die assembled with advanced packaging processes like through silicon vias and thermocompression bonding,

Speaker Change: continues to offer a powerful example.

Speaker Change: how advanced packaging is driving our current results.

Speaker Change: It also foreshadows our long-term opportunity as we benefit from the increased test intensity and increased test complexity that is inherent in advanced packaging architectures.

Speaker Change: In the third quarter, demand for DRAM probe cards continues to be robust, and we expect a slight increase in revenue from the second quarter record.

Michael D. Slessor: We do, however, expect a shift in our DRAM product, with a sequential increase in DDR5 shipments and a reduction in HBM shipments. We've mentioned in the past that our customers often have one to two quarter periods of digestion following a strong quarter of ship. With lead times of less than a quarter, our short-term visibility remains challenging, as always, but given our customers' continued strong investment in HBM capacity, we expect the third quarter pause in HBM growth will represent a temporary digestion phase, and the growth will resume in one to two quarters.

Speaker Change: We do, however, expect a shift in our DRAM product mix with sequential increase in DDR5 shipments and a reduction in HBM shipments.

Michael Slessor: We mentioned in the past that our customers often have one to two quarter periods of digestion following a strong quarter of shipments. With lead times of less than a quarter, our short term visibility remains challenging as always, but given our customers' continued strong investment in HBM capacity, we expect the third quarter pause in HBM growth will represent a temporary digestion phase and the growth will resume in one to two quarters. Schifting to the Founder in Logic Probe Card Markets, we delivered the expected second quarter sequential growth, driven by the seasonal ramp of new mobile application processor designs, and stronger probe card demand for client PC and server microprocessor designs.

Speaker Change: We've mentioned in the past that our customers often have one to two quarter periods of digestion following a strong quarter of shipments.

Speaker Change: With lead times of less than a quarter, our short-term visibility remains challenging as always, but given our customers' continued strong investment in HBM capacity, we expect the third quarter pause in HBM growth will represent a temporary digestion phase, and that growth will resume in one to two quarters.

Michael D. Slessor: Shifting to the Foundry and Logic ProbeCard market, we delivered the expected second quarter sequential growth driven by the seasonal ramp of new mobile application processor designs and stronger ProbeCard demand for client PC and server microprocessors. In the current third quarter, we expect Foundry and Logic demand and product mix to be similar to that achieved in the second quarter. Advanced packaging processes like FOVROS and COOS are being increasingly used to design foundry and logic chip designs. As with HBM and DRAM, this disaggregation of a chip into subcomponent chiplets, or tiles, increases both test intensity and test complexity compared to an equivalent monolithic chip.

Speaker Change: Shifting to the Foundry and Logic ProbeCard market, we delivered the expected second-quarter sequential growth driven by the seasonal ramp of new mobile application processor designs and stronger ProbeCard demand for client PC and server microprocessor designs.

Michael Slessor: In the current third quarter, we expect Founder in Logic demand and product mix to be similar to that achieved in the second quarter. Advanced packaging processes like Foveros and Khoos are being increasingly used to architect Founder in Logic chip designs. As with HBM and DRAM, this disaggregation of a chip into subcomponent chiplets or tiles increases both test intensity and test complexity compared to an equivalent monolithic chip. The increase in test intensity is driven by the need for our customers to probe and test each component chiplet prior to stacking, and then to probe and test the multi-chiplet stack at various points during the assembly process.

Speaker Change: In the current third quarter, we expect Foundry and Logic demand and product mix to be similar to that achieved in the second quarter.

Speaker Change: Advanced packaging processes like Foveros and COAS are being increasingly used to architect Foundry and Logic chip designs.

Speaker Change: As with HBM and DRAM, this disaggregation of a chip into subcomponent chiplets, or tiles, increases both test intensity and test complexity compared to an equivalent monolithic chip.

Michael D. Slessor: The increase in test intensity is driven by the need for our customers to probe and test each component chiplet prior to stacking, and then to probe and test the multi-chiplet stack at various points during the assembly process. The resulting increase in probe card use per die out is the same dynamic that is driving the strong probe card spending by our customers for HBM DRAM and is the source of relatively strong mid-year founder and logic demand, despite the lack of recovery and important end markets like mobile handsets and PCs.

Speaker Change: The increase in test intensity is driven by the need for our customers to probe and test each component chiplet prior to stacking, and then to probe and test the multi-chiplet stack at various points during the assembly process.

Michael Slessor: The resulting increase in probe card use per good die out is the same dynamic that is driving the strong probe card spending by our customers for HBM DRAM, and is the source of relatively strong mid-year Founder in Logic demand despite the lack of recovery in important end markets like mobile handsets and PCs. At the same time, the technical requirements for probe cards for Founder in Logic designs built using advanced packaging processes are significantly more demanding than for a standard unstack products involving higher test speeds and more challenging thermal and power specifications. As we've seen with HBM and DRAM, are differentiated ability to meet these performance requirements who drive both market share and profitability gains as the adoption of advanced packaging and Founder in Logic continues.

Speaker Change: The resulting increase in probe card use per good die out is the same dynamic that is driving the strong probe card spending by our customers for HBM DRAM, and is the source of relatively strong mid-year founder and logic demand, despite the lack of recovery in important end markets like mobile handsets and PCs.

Michael D. Slessor: At the same time, the technical requirements for probe cards for foundry and logic designs built using advanced packaging processes are significantly more demanding than for standard unstacked products, involving higher test speeds and more challenging thermal and power specifications. As we've seen with HBM and DRAM, our differentiated ability to meet these performance requirements will drive both market share and profitability gains as the adoption of advanced packaging and foundry and logic technologies continues. In the system segment, we expect a slight sequential increase in third quarter revenue as customers continue to engage us to solve the most complex electro-optical test and measurement challenges in areas like quantum computing and co-packaged silicon photonics.

Speaker Change: At the same time, the technical requirements for probe cards for foundry and logic designs built using advanced packaging processes are significantly more demanding than for standard unstacked products involving higher test speeds and more challenging thermal and power specifications.

Speaker Change: As we've seen with HBM and DRAM, our differentiated ability to meet these performance requirements will drive both market share and profitability gains as the adoption of advanced packaging in Founder & Logic continues.

Michael Slessor: In the system segment, we expect a slight sequential increase in third quarter revenue as customers continue to engage us to solve the most complex electro-optical test and measurement challenges in areas like quantum computing and co-packaged silicon photonics. In co-package optics, which is poised to revolutionize chip-to-chip communication in the data center by significantly reducing power consumption at high data rates, we're collaborating with key customers in the early stages of the lab to fab transition from R&D to low volume production. In these collaborations, customers are deploying form factors turn key electro-optical measurement systems built on our CM 300 and Summit 200 engineering probers together with our proprietary Pharaohs optical probes.

Speaker Change: In the system segment, we expect a slight sequential increase in third quarter revenue as customers continue to engage us to solve the most complex electro-optical test and measurement challenges in areas like quantum computing and co-packaged silicon photonics.

Michael D. Slessor: In Copackage Optics, which is poised to revolutionize chip-to-chip communication in the data center by significantly reducing power consumption at high data rates, we're collaborating with key customers in the early stages of the lab-to-fab transition from R&D to low-volume production. In these collaborations, customers are deploying FormFactor's turnkey electro-optical measurement systems, built on our CM300 and Summit200 engineering prob These highly differentiated optical probes enable either surface or edge coupling to the photonic dye with unrivaled coupling efficiency, providing our customers with higher yields and shorter test time.

Speaker Change: In Copackage Optics, which is poised to revolutionize chip-to-chip communication in the data center by significantly reducing power consumption at high data rates, we're collaborating with key customers in the early stages of the lab-to-fab transition from R&D to low-volume production.

Speaker Change: In these collaborations, customers are deploying FormFactor's turnkey electro-optical measurement systems built on our CM300 and Summit200 engineering probers together with our proprietary Pharos optical probes.

Michael Slessor: These highly differentiated optical probes enable either surface or edge coupling to the photonic die, with unrivaled coupling efficiency, providing our customers with higher yields and shorter test times. As silicon photonics matures and moves to high volume production in the coming years, we expect that our leadership positions in combined electrical and optical test will provide a new growth vector for both our systems and probe card businesses.

Speaker Change: These highly differentiated optical probes enable either surface or edge coupling to the photonic dye with unrivaled coupling efficiency, providing our customers with higher yields and shorter test times.

Michael D. Slessor: As silicon photonics matures and moves to high volume production in the coming years, we expect that our leadership positions in combined electrical and optical tests will provide a new growth vector for both our systems and probe guard. In closing, we're excited about both our strong second quarter results and our solid third quarter outlook, as the accelerating adoption of advanced packaging drives increased demand across FormFactor's Lab2Fab product portfolio. Longer term, we're confident in the growth prospects for FormFactor in the industry overall, driven by the fundamental trends of semiconductor content growth and advanced packaging innovations like HBM, chiplets, and co-packaged silicon photonics.

Speaker Change: As silicon photonics matures and moves to high-volume production in the coming years, we expect that our leadership positions in combined electrical and optical tests will provide a new growth vector for both our systems and probe guard businesses.

Michael Slessor: Enclosing works cited about both our strong second quarter results and our solid third quarter outlook as the accelerating adoption of advanced packaging drives increased demand across form factors lab to fab product portfolio.

Speaker Change: In closing, we're excited about both our strong second quarter results and our solid third quarter outlook, as the accelerating adoption of advanced packaging drives increased demand across FormFactor's Lab2Fab product portfolio.

Michael Slessor: CEO. Longer term, we're confident in the growth prospects for FormFactor in the industry overall, driven by the fundamental trends of semiconductor content growth and advanced packaging innovations like HBM, chiplets, and co-packaged silicon photonics. And it's evident from our recent results in Outlook; these are trends where FormFactor's well-positioned, and we're confident that our investments in R&D, capacity, and talent will further enhance FormFactor's market leadership.

Speaker Change: Longer term, we're confident in the growth prospects for FormFactor in the industry overall, driven by the fundamental trends of semiconductor content growth and advanced packaging innovations like HBM, chiplets, and co-packaged silicon photonics.

Speaker Change: As is evident from our recent results and outlook, these are trends where FormFactor is well positioned, and we're confident that our investments in R&D, capacity, and talent will further enhance FormFactor's market leadership.

Michael Slessor: This will enable us to achieve, and then surpass, our target model that delivers $2 of non-GAAP earnings per share on $850 million of revenue.

Michael D. Slessor: As evident from our recent results and outlook, these are trends where FormFactor is well positioned, and we're confident that our investments in R&D, capacity, and talent will further enhance FormFactor's market leadership. This will enable us to achieve and then surpass our target model that delivers $2 of non-GAAP earnings per share on $850 million of revenue.

Speaker Change: This will enable us to achieve and then surpass our target model that delivers $2 of non-GAAP earnings per share on $850 million of revenue.

Shai Shahar: Shai, over to you. Thank you, Mike, and good afternoon. As you saw in our press release, Q2 revenues were $197.5 million, $2.5 million above the midpoint of our outlook range, and non-GAAP growth margin of 45.3% was 0.3% of the midpoint of the range. These, together with OPEX, slightly lower than the midpoint of the Outlook, resulted in a non-GAAP EPS at the top end of the range. Second quarter revenues increased 17% sequentially from the first quarter, and increased 26.7% year-over-year from Q2-20 few revenues. The app size versus the midpoint of the Outlook range was due to higher revenues in our probe card segment.

Shai Shahar: Thank you, Mike, and good afternoon. As you saw in our press release, Q2 revenues were $197.5 million, $2.5 million above the midpoint of our outlook, and a non-gap gross margin of 45.3%, or 0.3 percentage points above the midpoint of the range. These, together with OPEX slightly lower than the midpoint of the outlook, resulted in a non-gap EPS at the top end of the range. Second quarter revenues increased 17% sequentially from the first quarter and increased 26.7% year-over-year from our Q2-23 revenue.

Shai: Shai, over to you.

Shai: Thank you, Mike, and good afternoon.

Shai: As you saw in our press release, Q2 revenues were $197.5 million, $2.5 million above the midpoint of our outlook range, and non-gap gross margin of 45.3%, or 0.3 percentage points above the midpoint of the range.

Shai: These, together with OPEX slightly lower than the midpoint of the outlook, resulted in a non-gap EPS at the top end of the range.

Shai: Second quarter revenues increased 17% sequentially from the first quarter and increased 26.7% year-over-year from our Q2-23 revenues.

Shai Shahar: The app size versus the lead point of the Outlook range was due to higher revenues in our probe costs. Procard segment revenues were $167 million in the second quarter, an increase of $30 million or 22% from the first quarter. The increase was driven mainly by higher foundry and logic, and DRAM.

Shai: The app size versus the midpoint of the Outlook range was due to higher revenues in our ProbeCard segment.

Shai Shahar: Probe card segment revenues were $167 million in the second quarter, and increased of $30 million, or 22% from the first quarter. The increase was driven mainly by higher foundry and logic and demand revenue. The system segment revenues were $30.7 million in Q2, a $1.3 million decrease from the first quarter, and comprise 15.5% of total company revenues, down from 19% in the first quarter. Within the probe card segment, Q2 foundry and logic revenues were $104 million, and a 19.5% increase from the first quarter. Foundry and logic revenues increased to 52.5% of total company revenues compared to 51.4% in the first quarter.

Shai: PromCard segment revenues were $167 million in the second quarter, an increase of $30 million, or 22% from the first quarter. The increase was driven mainly by higher Foundry and Logic and DRAM revenue.

Shai Shahar: The system segment revenues were $30.7 million in Q2, a $1.3 million decrease from the first quarter, and comprised 15.5% of total company revenues, down from 19% in the first quarter. Within the PropCard segment, Q2 Foundry and Logic revenues were $104 million, a 19.5% increase from the first quarter. Foundryologic revenues increased to 52.5% of total company revenues, compared to 51.4% in the first quarter. DMM revenues were a record $58 million in Q2, $12.1 million, or 26.5%, higher than in the first quarter, and rose to 29.4% of total quarterly revenues, as compared to 27.2% in the first quarter. Within DRAM, HBM revenue almost doubled from $22 million in Q1 to over $43 million in the second quarter.

Shai: The system segment revenues were $30.7 million in Q2, a $1.3 million decrease from the first quarter, and comprised 15.5% of total company revenues, down from 19% in the first quarter.

Shai: Within the PropCard segment, Q2 Foundry and Logic revenues were $104 million, a 19.5% increase from the first quarter.

Shai: Foundryologic revenues increased to 52.5% of total company revenues, compared to 51.4% in the first quarter.

Shai Shahar: The amount revenues were a record $58 million in Q2, $12.1 million or 26.5% higher than in the first quarter, and rose to 29.4% of total quarterly revenues as compared to 27.2% in the first quarter. Within the RAM, HBM revenue almost doubled from $22 million in Q1 to over $43 million in the second quarter. Slash revenue is $5.1 million in Q2, or $1.1 million higher than in the first quarter, and 2.6% of total revenue is in Q2 as compared to 2.4% in Q1. GAB gross margin for the second quarter was 44%, as compared to 37.2% in Q1.

Shai: BMM revenues were a record $58 million in Q2, $12.1 million or 26.5% higher than in the first quarter, and rose to 29.4% of total quarterly revenues, as compared to 27.2% in the first quarter.

Shai: Within DRAM, HBM revenue almost doubled from $22 million in Q1 to over $43 million in Q2.

Shai Shahar: Slash revenues of $5.1 million in Q2 were $1.1 million higher than in the first quarter and were 2.6% of total revenues in Q2, as compared to 2.4% in Q1. Gap gross margin for the second quarter was 44% as compared to 37.2% in Q1. Cost of revenues included $2.5 million of GAAP to non-GAAP reconciling items, which we outlined in our press release issued today and in a reconciliation table available in the Investor Relations section of our website. On a non-GAAP basis, gross margin for the second quarter was 45.3%. 6.6 percentage points higher than the 38.7% non-Gabber's margin in Q1, and 0.3 percentage points above the midpoint of our output.

Shai: Slash revenues of $5.1 million in Q2 were $1.1 million higher than in the first quarter and were 2.6% of total revenues in Q2, as compared to 2.4% in Q1.

Shai: Gap gross margin for the second quarter was 44% as compared to 37.2% in Q1. Cost of revenues included $2.5 million of gap to non-gap retail selling items, which we outline in our press release issued today and in a reconciliation table available in the Investor Relations section of our website.

Shai Shahar: Cost of revenues included $2.5 million of GAB to non-GAB regional selling items, which we outlined in our press release issued today, and in a reconciliation table available in the investor's relations section of our website. On a non-Gab basis, gross margin for the second quarter was 45.3%, 6.6% points higher than the 38.7% non-Gab gross margin in Q1, and 0.3% of the points above the midpoint of Inc. The increases compared to Q1 was mostly the result of higher gross margins in the probe card segment. While we expect fluctuations quarter of a quarter, mainly due to product mix changes, achieving this 45.3% gross margin in the second quarter validates our progress towards our 47% target financial model non-GAAP gross margin at annual revenue of $85 million.

Shai: On a non-GAAP basis, gross margin for the second quarter was 45.3%, 6.6 percentage points higher than the 38.7% non-GAAP gross margin in Q1, and 0.3 percentage points above the midpoint of our output claims.

Shai Shahar: The increases compared to Q1 were mostly the result of higher gross margins in the probe cards. While we expect fluctuations quarter over quarter, mainly due to product mix changes, achieving this 45.3% gross margin in the second quarter will validate our progress towards our 47% target financial model non-gap gross margin at annual revenue of $850 million. Our PromCut segment gross margin was 45.1% in the second quarter, an increase of 8 percentage points compared to 37.2% in Q1.

Shai: The increases compared to Q1 was mostly the result of higher gross margins in the probe card segment.

Shai: While we expect fluctuations quarter-over-quarter, mainly due to product mix changes, achieving this 45.3% gross margin in the second quarter will validate our progress towards our 47% target financial model non-gap gross margin, at annual revenue of $850 million.

Shai Shahar: Our probe card segment gross margin was 45.1% in the second quarter, an increase of 8 percentage points compared to 37.2% in Q1. Our Q2 system segment gross margin was 46.2% and increased of 0.9% percentage points compared to 45.3% gross margin in the first quarter. As compared to Q1, approximately two thirds of the increase in non-gab gross margin is attributable to the higher volume, and the remaining third relates to a more favorable product mix. Our gap operating expenses were 69.4 million dollars in for the second quarter, as compared to 61.7 million dollars in the first quarter.

Shai: Our PromCard segment gross margin was 45.1% in the second quarter, an increase of 8 percentage points compared to 37.2% in Q1.

Shai Shahar: In Q2, our system segment gross margin was 46.2%, an increase of 0.9 percentage points compared to 45.3% in the first quarter. As compared to Q1, approximately two-thirds of the increase in non-GAP gross margin is attributable to higher volume, and the remaining third relates to a more favorable product. Our GAAP operating expenses were $69.4 million for the second quarter, as compared to $61.7 million in the first quarter. Non-GAAP operating expenses for the second quarter were $60.9 million, or 30.8% of revenues, as compared with $52.3 million, or 31% of revenues in Q1. The $8.5 million increase relates mainly to higher performance-based components.

Shai: Our Q2 system segment gross margin was 46.2%, an increase of 0.9 percentage points, compared to 45.3% gross margin in the first quarter.

Shai: As compared to Q1, approximately two-thirds of the increase in non-GAP gross margin is attributable to the higher volume, and the remaining third relates to a more favorable product mix.

Shai: Our GAAP operating expenses were $69.4 million for the second quarter, as compared to $61.7 million in the first quarter.

Shai Shahar: Non-GAAP operating expenses for the second quarter were 60.9 million dollars, or 30.8% of revenues, as compared with 52.3 million dollars, or 31% of revenues in Q1. The 8.5 million dollar increase relates mainly to higher performance-based compensation. Company non-gab gross expenses for the second quarter included 10.2 million dollars for Stockway's compensation, 0.6 million dollars for the amountization of acquisition related intangibles, and depreciation of 7.4 million dollars, all similar to the first quarter. Gap operating income was 17.8 million dollars for Q2 compared to Gap operating income of 21.3 million dollars in Q1. Non-GAAP operating income for the second quarter more than doubled to 28.5 million dollars compared with 13 million dollars in the first quarter and increased of 15.6 million dollars or 120%, demonstrating the leverage in our operating model.

Shai: non-GAAP operating expenses for the second quarter was $60.9 million, or 30.8% of revenues, as compared with $52.3 million, or 31% of revenues in Q1.

Shai: The $8.5 million increase relates mainly to higher performance-based compensation.

Shai Shahar: Company non-cash expenses for the second quarter included $10.2 million for start-waste compensation, $0.6 million for the amortization of acquisition-related intangibles, and depreciation of $7.4 million, all similar to the first. GAAP operating income was $17.8 million for Q2, compared with GAAP operating income of $21.3 million in Q1. Non-capital operating income for the second quarter more than doubled to $28.5 million compared with $13 million in the first quarter, an increase of $15.6 million, or 120%, demonstrating the leverage in our operating model.

Shai: Company non-cash expenses for the second quarter included $10.2 million for stock raise compensation, $0.6 million for the amortization of acquisition-related intangibles and depreciation of $7.4 million, all similar to the first quarter.

Shai: GAAP operating income was $17.8 million for Q2, compared with GAAP operating income of $21.3 million in Q1.

Shai: Non-cap operating income for the second quarter more than doubled to $28.5 million compared with $13 million in the first quarter, an increase of $15.6 million, or 120%, demonstrating the leverage in our operating model.

Shai Shahar: Gap net income for the second quarter was 19.4 million dollars, or 25 cents per cylinder to share, comparing with a Gap net income of 21.8 million dollars, or 28 cents per cylinder to share in the previous quarter. Gap net income in Q1 included again of 20 million dollars from the investor of our Chinese subsidiaries. The non-gap tax rate for the second quarter was 15.4%, 1.7 percentage points higher than the 13.7% in the first quarter. And we continue to expect our annual non-GAAP tax rate to be between 14 and 18%. Second quarter non-GAAP net income almost doubled to 27.3 million dollars or 35 cents per cylinder to share compared to 14.3 million dollars or 18 cents per cylinder to share in Q1.

Shai Shahar: Gap net income for the second quarter was $19.4 million, or $0.25 per fully diluted share, compared with a gap net income of $21.8 million, or $0.28 per fully diluted share, in the previous quarter. Gap net income in Q1 included a gain of $20 million from the divestiture of our Chinese subsidiaries. The non-gap effective tax rate for the second quarter was 15.4%, 1.7 percentage points higher than the 13.7% in the first quarter, and we continue to expect our annual non-gap effective tax rate to be between 14 and 18%.

Shai: Gap net income for the second quarter was $19.4 million, or $0.25 per fully diluted share, comparing with a gap net income of $21.8 million, or $0.28 per fully diluted share, in the previous quarter.

Shai: Gap net income in Q1 included a gain of $20 million from the divestiture of our Chinese subsidiaries.

Shai: The non-gap effective tax rate for the second quarter was 15.4 percent, 1.7 percentage points higher than the 13.7 percent in the first quarter, and we continue to expect our annual non-gap effective tax rate to be between 14 and 18 percent.

Shai Shahar: Second quarter non-GAAP net income almost doubled to $27.3 million, or $0.35 per fully diluted share, compared to $14.3 million, or $0.18 per fully diluted share in Q1. Q2 EPS was $0.17 higher due to significantly higher revenues and higher gross margins with relatively flat OPEX as a percentage of revenue. Moving through the balance sheet and testing. We generated free cash flow of $14.2 million in the second quarter, compared to $19.7 million in Q1. The main reason for the decrease in free cash flows was increased working capital, attributable to revenue growth, partially offset by lower capital expenditure spending of $5 million.

Shai: Second quarter non-GAAP net income almost doubled to $27.3 million, or $0.35 per fully diluted share, compared to $14.3 million, or $0.18 per fully diluted share in Q1.

Shai Shahar: Q2 EPS was 17 cents higher due to significantly higher revenues and higher gross margins, with relatively flat optics as a percentage of revenue. Moving to the balance sheet and cash flow, we generated free cash flow of 14.2 million dollars in the second quarter compared to 19.7 million dollars in Q1. The main reasons for decreasing free cash flows was increased working capital, attributable to the revenue growth, partially offset by lower capital expenditure spending of five million dollars. We invested $8.4 million in capital expenditures during the second quarter, compared to $13.4 million in Q1. There is no change in our previously communicated expected CAPEX range for $20.4 of $35 to $45 million.

Shai: Q2 EAPS was $0.17 higher due to significantly higher revenues and higher gross margins with relatively flat OPEX as a percentage of revenue.

Shai: Moving to the balance sheet and cash flow. We generated free cash flow of $14.2 million in the second quarter compared to $19.7 million in Q1.

Shai: The main reasons for the decrease in free cash flows was increased working capital attributable to the revenue growth partially offset by lower capital expenditure spending of $5 million.

Shai Shahar: We invested $8.4 million in capital expenditures during the second quarter, compared to $13.4 million in Q1. There was no change in our previously communicated expected CapEx range for 2024 of $35 to $45 million. At quarter end, total cash and investments were $366 million, an increase of $8 million from Q1. At the end of the second quarter, we had one term loan remaining with the balance totaling $14 million.

Shai: We invested $8.4 million in capital expenditures during the second quarter, compared to $13.4 million in Q1.

Shai: There is no change in our previously communicated expected CapEx range for 2024 of $35-45 million.

Shai Shahar: At quarter end, total cash and investments were $356 million and an increase of $8 million from Q1. At the end of the second quarter, we had one term loan remaining with a balance totaling $14 million. Regarding stock buyback, during the second quarter, we used $2.9 million to buy back shares under the $75 million to a buyback program that was approved in Q4, 2020. At quarter end, $53.5 million remained available under that authorization. As a reminder, the main purpose of the share repurchase program is to offset the illusion from stock price compensation. Turning to the third quarter, now gap outlook, we expect US$3.1 million of $200 million plus or minus $5 million, with a slight increase over Q2 coming from DRAM and systems. With DRAM, we also expect a mixed shift with a higher percentage of BDR5 versus HBM revenue.

Shai: At quarter end, total cash and investments were $366 million, an increase of $8 million from Q1.

Shai: At the end of the second quarter, we had one term loan remaining with the balance totaling $14 million.

Shai Shahar: Regarding stock buyback, during the second quarter, we used $2.9 million to buy back shares under the $75 million two-year buyback program that was approved in Q4 2023. At quarter end, $53.5 million remain available under that authorization. As a reminder, the main purpose of the share repurchase program is to offset dilution from stock-based competition.

Shai: Regarding stock buyback, during the second quarter, we used $2.9 million to buy back shares under the $75 million two-year buyback program that was approved in Q4 2023.

Shai: At quarter end, $53.5 million remain available under that authorization.

Shai: As a reminder, the main purpose of the share repurchase program is to offset dilution from stock-based compensation.

Shai Shahar: Turning to the third quarter, non-GAAP outlook, we expect Q3 revenue of $200 million, plus or minus $5 million, with a slight increase over Q2 coming from DRAM and Q4. Within DRAM, we also expect a mixed shift with a higher percentage of BBR5 versus HBM.

Shai: Turning to the third quarter non-GAAP outlook.

Shai: We expect Q3 revenue of $200 million, plus or minus $5 million, with a slight increase over Q2 coming from DRAM and systems.

Shai: Within DRAM, we also expect a mixed shift with a higher percentage of BBR5 versus HBM revenue.

Shai Shahar: Third quarter, non-gab growth margin is expected to be 43% plus or minus 150 basis points. The expected decrease in non-gab growth margin in the third quarter, at the midpoint of the outlook range, on slightly higher revenues, relates to a less favorable product mix. With DRAM revenues, as a percentage of total revenue, is expected to increase, and HBM revenue within DRAM is expected to decrease. At the midpoint of these outlook ranges, we expect Q3 operating expenses to be $61 million plus or minus $2 million, similar to Q2. Non-gab earnings, particularly the duty to share for Q3, is expected to be $31 plus or minus $4.

Shai Shahar: Third quarter non-GAAP gross margin is expected to be 43% plus or minus 150 basis points. The expected decrease in non-GAAP gross margins in the third quarter at the midpoint of the outlook range, on slightly higher revenues, relates to a less favorable product mix, with DRAM revenues as a percentage of total revenues expected to increase, and HBM revenue within DRAM is expected to decrease. At the midpoint of these outlook ranges, we expect Q3 operating expenses to be $61 million, plus or minus $2 million, similar to Q2.

Shai: Third quarter non-GAAP gross margin is expected to be 43% plus or minus 150 basis points.

Shai: The expected decrease in non-GAAP gross margins in the third quarter at the midpoint of the outlook range, on slightly higher revenues, relates to a less favorable product mix, with DRAM revenues as a percentage of total revenues expected to increase, and HBM revenue within DRAM is expected to decrease.

Shai: At the midpoint of these outlook ranges, we expect Q3 operating expenses to be $61 million plus or minus $2 million, similar to Q2.

Shai Shahar: Non-GAAP earnings per fully diluted share for Q3 is expected to be $0.31, plus or minus $0.40. A reconciliation of our GAAP to non-GAAP Q3 outlook is available on the Investor Relations section of our website and in our press release issued today. With that, let's open the call for questions. Operator? To ask a question, you will need to press star 1.

Shai: Non-Gup earnings per fully diluted share for Q3 is expected to be $0.31, plus or minus $0.04.

Shai Shahar: A reconciliation of our gap to non-gap Q3 outlook is available on the investor relations section of our website and in our press release issued today.

Shai: A reconciliation of our GAAP to non-GAAP Q3 outlook is available on the Investor Relations section of our website and in our press release issued today.

Operator: With that, let's open the call for questions.

Operator: Operator? To ask a question, you will need to press star 1-1 on your telephone. To remove yourself from the question queue, you may press star 1-1 again.

Operator: To ask a question, you will need to press star one one on your telephone to remove yourself from the question queue. You may press star one one again. We ask that you limit yourself to one question and one follow-up to allow everyone the opportunity to participate. Please stand by while we compile the Q&A roster. Our first question comes from the line of Craig Ellis of B. Riley Securities.

Speaker Change: With that, let's open the call for questions. Operator?

Speaker Change: To ask a question, you will need to press star 11 on your telephone. To remove yourself from the question queue, you may press star 11 again. We ask that you limit yourself to one question and one follow-up to allow everyone the opportunity to participate.

Operator: We ask that you limit yourself to one question and one follow-up to allow everyone the opportunity to participate. Please stand by while we compile the Q&A roster.

Speaker Change: Please stand by while we compile the Q&A roster.

Craig Ellis: Our first question comes from the line of Craig Ellis of B. Riley Securities. I'm taking the question, and congratulations on the execution, guys.

Speaker Change: Our first question comes from the line of Craig Ellis of B. Reilly Securities.

Craig Andrew Ellis: Thanks for taking the question and congratulations on the execution, guys. Mike, I wanted to start just by following up on a point you made with regard to high bandwidth memory. I think you indicated the company expected that after some digestion in the third quarter growth could reaccelerate there. I was hoping you could just share some of the either customer interaction or things that you're seeing that lend confidence to the reacceleration, and any color on timing would be helpful. Thank you.

Michael Slessor: Mike, I wanted to start just by following up on a point you made with regard to high bandwidth memory. I think you indicated the company expected that after some digestion, the third quarter of growth could re-accelerate there. I was hoping you could just share some of the either customer interaction or things that you're seeing that when confidence to the re-acceleration and any current timing would be helpful. Thank you.

Craig Andrew Ellis: Thanks for taking the question and congratulations on the execution, guys.

Craig Andrew Ellis: Mike, I wanted to start just by following up on a point you made.

Speaker Change: with regard to high bandwidth memory.

Speaker Change: I think you indicated the company expected that...

Speaker Change: After some digestion.

Speaker Change: and the third quarter growth could re-accelerate there. I was hoping you could just share some of the either customer interaction or things that you're seeing that lend confidence to the re-acceleration and any on timing would be helpful. Thank you.

Michael Slessor: Yeah, so Craig, good question. Just to level said everybody, you know, we again in the second quarter, double HBM revenue to 75% of our DRAM revenue. So a really significant contribution from that. As I think most of you know, it's pretty concentrated with a single customer, although each of the three major DRAM manufacturers do have contributions in there. And it's not unusual when we ship at that scale for a customer to have a period of digestion, where they then use the procards for a quarter or two. You can see this historically through our major customers as they're in their cadence a quarter to quarter that we report for 10% customers.

Michael D. Slessor: Yeah, so Craig, good question. Just to level set everybody, you know, we again doubled HVM revenue to 75% of our DRAM revenue. So a really significant contribution from that. As I think most of you know, it's pretty concentrated with a single customer, although each of the three major DRAM manufacturers do have contributions in there. And it's not unusual when we ship at that scale for a customer to have a period of digestion where they then use the probe cards for a quarter. You can see this historically with our major customers as they're in their cadence quarter-to-quarter that we report for 10% customers. So what gives us confidence that this is indeed digestion?

Speaker Change: Yeah, so Craig, good question. Just to level set everybody, you know, we again in the second quarter doubled HBM revenue to 75% of our DRAM revenue. So a really significant contribution from that.

Speaker Change: As I think most of you know, it's pretty concentrated with a single customer, although each of the three major DRAM manufacturers do have contributions in there.

Speaker Change: and it's not unusual when we ship at that scale for a customer to have a period of digestion where they then use the probe cards for a quarter or two. You can see this historically through our major customers as they're in their cadence quarter to quarter that we report for 10% customers.

Michael Slessor: So what gives us confidence that this is that digestion? I think a couple of things. If I look at it from a macro level, you know, continued hyperscaler investment in generative AI, which in turn is driving our customers, our DRAM customers, to increase their capacity and output of HBM three and three, currently and beginning to do development on HBM four and pilot production. And really, in conversations with those customers, there's no pause in that. They really are continuing to invest very heavily in this pretty lucrative part of the DRAM market, again driven by hyperscaler investments.

Michael D. Slessor: I think a couple of things. If I look at it from a macro level, you know, continued hyperscaler investment in generative AI, which in turn is driving our customers, our DRAM customers, to increase their capacity and output of HBM3 and 3E currently and begin to do development on HBM4 and pilot production. And really, in conversations with those customers, there's no pause in that. They are really continuing to invest very heavily in this pretty lucrative part of the DRAM market, again, driven by hyperscaler investment.

Speaker Change: So, what gives us confidence that this is that digestion? I think a couple of things. If I look at it from a macro level, you know, continued hyperscaler investment in generative AI,

Speaker Change: which in turn is driving our customers, our DRAM customers, to increase their capacity and output of HBM 3 and 3E currently and beginning to do development on HBM 4 and pilot production.

Speaker Change: And really, in conversations with those customers, there's no pause in that. They really are continuing to invest very heavily in this pretty lucrative part of the DRAM market, again, driven by hyperscaler investments.

Michael D. Slessor: You know, our direct visibility, as most of you know, is pretty limited. We operate with lead times of less than a quarter. And so, you know, in terms of POs and backlog, we can't see much past the end of the third quarter here. But when we look at the conversations we're having with these customers, when we look at the investments the hyperscalers are making, it does seem like it's pretty reasonable to attribute this Q3 pause, still HBM, still at pretty healthy levels, to digestion.

Michael Slessor: You know, our direct visibility, as most of you know, is pretty limited. We operate with lead times of less than a quarter. And so, you know, in terms of POs and backlog, we can't see much past the end of the third quarter here. But when we look at the conversations we're having with these customers, when we look at the investments, the hyperscalers are making, it does seem like it's pretty reasonable to attribute this Q3 pause. Still HBM still at pretty healthy levels to a digestion period.

Speaker Change: You know, our direct visibility, as most of you know, is pretty limited. We operate with lead times of less than a quarter.

Speaker Change: And so, you know, in terms of POs and backlog, we can't see much past the end of the third quarter here. But when we look at the conversations we're having with these customers, when we look at the investments the hyperscalers are making, it does seem like it's pretty reasonable to attribute this Q3.

Michael D. Slessor: That's really helpful, Mike. Thanks.

Craig Ellis: That's really helpful, Mike.

Speaker Change: are still at pretty healthy levels to a digestion period.

Michael Slessor: Thanks. And then the follow-up question is somewhat similar. Three months ago, you noted that a Foundry Logic customer, formerly the largest customer for this last quarter, where it's now DRAM, would at times in the past go through periodic digestion after a really strong quarter? Are you seeing signs, and is it baked in the guidance that we will see that digestion in the third quarter, or how are you thinking about the risk that that could happen at this point? Yes, Foundry Logic overall, we see in the third quarter pretty comparable to the second quarter, both from overall levels and customer and product mix.

Craig Andrew Ellis: And then the follow-up question is somewhat similar. Three months ago, you noted that a FoundryLogic customer, formerly the largest customer before this last quarter, where it's now DRAM, would, at times in the past, go through a period of digestion after a really strong quarter. Are you seeing signs, and is it baked into guidance that we will see that digestion in the third quarter, or how are you thinking about the risk that that could happen at this point?

Speaker Change: That's really helpful, Mike. Thanks. And then the follow-up question is somewhat similar. Three months ago, you noted that a FoundryLogic customer, formerly the largest customer before this last quarter, where it's now DRAM.

Speaker Change: would, at times in the past, go through a period of digestion after a really strong quarter. Are you seeing signs, and is it baked into guidance, that we will see that digestion in the third quarter, or how are you thinking about the risk that that could happen at this point?

Michael D. Slessor: Yes, as founder and CEO overall, we see the third quarter pretty comparable to the second quarter, both from overall levels and customer and product. And I think this is really another proof point associated with how advanced packaging is driving our business. You see major customers, certainly in compute, but also to some extent in mobile, beginning to adopt advanced packaging; in fact, more are beginning to adopt advanced packaging. And we see that across the compute sector, technologies like Foveros and COAS, even as the PC market remains, the PCN market remains somewhat muted.

Speaker Change: Yes, at Foundry & Logic overall, we see in the third quarter pretty comparable to the second quarter, both from overall levels and customer and product mix.

Michael Slessor: And I think this is really another proof point associated with how advanced packaging is driving our business. You see, major customers, certainly in compute, but also to some extent in mobile, beginning to adopt advanced packaging. In fact, more beginning to adopt advanced packaging. And we see that with across the compute sector, technologies like Floreaus and Khoas, even as the PC market remained, PCN market remained somewhat muted, we're seeing pretty solid demand for probe cards because of the increase in test intensity and complexity driven by advanced packaging in these sectors. So third quarter pretty similar to second quarter in Foundry Logic from an overall customer and product mix perspective, again driven by advanced pack.

Speaker Change: And I think this is really another proof point associated with how advanced packaging is driving our business.

Speaker Change: You see major customers certainly in compute, but also to some extent in mobile.

Speaker Change: beginning to adopt advanced packaging, in fact more beginning to adopt advanced packaging, and we see that with across the compute sector. Technologies like Foveros and CoWAS

Michael D. Slessor: We're seeing pretty solid demand for probe cards because of the increase in test intensity and complexity driven by advanced packaging in these sectors. So third quarter, pretty similar to second quarter in Foundry and Logic from an overall customer and product mix perspective, again driven by advanced packaging.

Speaker Change: Even as the PC market remains somewhat muted, we're seeing pretty solid demand for probe carts because of the increase in test intensity and complexity driven by advanced packaging in these sectors.

Speaker Change: So, third quarter, pretty similar to second quarter in Foundry and Logic from an overall customer and product mix perspective, again driven by advanced packaging.

Michael Slessor: Technology.

Michael D. Slessor: That's really helpful, and then just the observation on that, Mike, would be since those heterogeneous dye-based products are such a small part of the mix now but, over time, will become a majority of the mix, that would seem to be a really nice long-term secular talent for the business.

Michael Slessor: That's really helpful, men. Just the observation on that mic would be, since those heterogeneous dye-based products are such a small part of mix now, but over time we'll become a majority of mix, that would seem to be a real nice one-term secular talent for the business. Yeah, I think across the industry it's a really interesting and compelling secular opportunity for those of us exposed to advanced packaging.

Speaker Change: That's really helpful. And then just the observation on that, Mike, would be since those heterogeneous dye-based products are such a small part of mix now, but over time will become a majority of mix, that would seem to be a real nice long-term secular talent for the business.

Craig Andrew Ellis: Yeah, I think across the industry, it's a really interesting and compelling secular opportunity for those of us exposed to advanced packaging.

Michael D. Slessor: Yeah, I think across the industry, it's a really interesting and compelling secular opportunity for those of us exposed to advanced packaging.

Michael D. Slessor: Thanks, Mike. Good luck in 3Q. Thank you.

Craig Ellis: Thanks Mike, good luck in 3Q. Thank you.

Charles She: Our next question comes from the line of Charles She, of Needham Company.

Speaker Change: Thanks, Mike. Good luck in 3Q. Thank you.

Operator: Our next question comes from the line of Charles Shee of Needham & Company.

Michael D. Slessor: Thank you.

Speaker Change: Our next question comes from the line of Charles Shee of Needham & Company.

Charles She: I, Mike, good afternoon; thanks for letting me ask two questions. The first one, it's about DVR5 versus HBM. I think, prior to this quarter, the way you characterized that DVR and Pub-Cart market was, if you back out HBM, the standard DVR or DVR Pub-Cart, we're still rung rating around that, I would say, 20 million ish, the downturn level basically.

Charles Shee: Mike, good afternoon. Thanks for letting me ask you two questions.

Charles Shee: Hi, Mike. Good afternoon. Thanks for letting me ask two questions.

Charles Shee: The first one is about DDR5 versus HBM. I think prior to this quarter, the way you characterized the DRAM PopCart market was that if you back out HBM, the standard DRAM or DDR PopCart, we're still running around that, I would say 20 million-ish, the downturn level, basically. Looks like the next quarter, the September quarter, you're expecting a somewhat similar DRAM total revenue, but since you talk about a mixed shift away from HBM, more to DDR5, would you characterize maybe this as the beginning of the standard DRAM recovery, or is this maybe just a one-off quarter? I just want to know the sustainability of the DDR5 PopCart growth from here.

Michael D. Slessor: ...

Charles Shee: The first one...

Charles Shee: It's about DDR5 versus HBM. I think prior to this quarter, the way you characterize the DRAM PopCart market was if you back out HBM, the standard DRAM or DDR PopCart.

Speaker Change: We're still running around that, I would say, $20 million-ish downturn level, basically.

Charles She: Looks like the next quarter, the September quarter, you're expecting a somewhat similar DVR total revenue, but since you talked about mixed shift across away from HBM, more to DVR5, would you characterize maybe this is the beginning of the standard DVR recovery or, or this is maybe just one off quarter. I just want to know the sustainability of the DVR5 Pub-Cart growth front here.

Speaker Change: Looks like the next quarter, the September quarter, you're expecting a somewhat similar DRAM total revenue, but since you talk about mixed shift away from HBM, more to DDR5.

Speaker Change: Would you characterize maybe this is the beginning of the standard DRAM recovery or this is maybe just one-off quarter? I just want to know the sustainability of the DDR5 probe card growth from here.

Michael D. Slessor: Yeah, it's an interesting question. As you might imagine, we're having similar discussions internally and with our customers. I think if you look at the overall non-HBM DRAM market, we're characterizing it as DDR5, but that's a pretty broad brush that covers low power, server, and compute. It is seeing a significant step up here in the third quarter to levels that are comparable to the previous cyclical highs. Now, when we see where HBM is, we said there's a bit of a one-quarter digestion period, and that's not unusual.

Michael Slessor: Yeah, it's an interesting question. As you might imagine, we're having similar discussions internally with our customers. I think if you look at the overall non-HBM DVR market, we're characterizing it as DVR5, but that's a pretty broad brush that's low power, server and compute. It is seeing a significant step up here in the third quarter to levels that are comparable to the previous cyclical highs. Now, when we see where HBM is, we said there's a bit of a one-quarter digestion period, and that's not unusual. Remember probe cards are specific to each customer chip design, and so as customers move their wafer starts in back and forth between technologies and different products for them to optimize their output for their market, we can see these pretty significant swings between designs and market sub-markets and sub-markets.

Speaker Change: Yeah, it's an interesting question. As you might imagine, we're having similar discussions internally and with our customers.

Speaker Change: I think if you look at the overall non-HBMDRAM market, we're characterizing it as DDR5, but that's a pretty broad brush that's low power, server, and compute.

Speaker Change: You know, it is seeing a significant step up here in the third quarter.

Speaker Change: to levels that are comparable to the previous cyclical highs.

Speaker Change: Now, you know, when we see, you know, where HBM is, we said there's a bit of a one-quarter digestion period. And that's not unusual. Remember, probe cards are specific to each customer chip design.

Michael D. Slessor: Remember, probe cards are specific to each customer chip design. And so as customers move their wafer starts back and forth between technologies and different products for them to optimize their output for their market, we can see these pretty significant swings between designs and markets, and sub-markets. Whether this is the start of a DRAM upturn is still to be seen, but it is encouraging, you know, if you've seen DRAM spot prices, if you've heard the narrative from our customers on the overall DRAM market improving, it certainly may be the beginning of an upturn. For now, we just don't have the visibility to say so, whether it is or not. But it is nice to be again operating our DRAM business, a very important business for us, at record levels.

Speaker Change: And so, as customers move their wafer starts back and forth between technologies and different products for them to optimize their output for their market, we can see this pretty significant swing between designs and markets, sub-markets, and sub-markets.

Michael Slessor: Whether this is the start of a DRAM upturn, I think, is still to be seen, but it is encouraging. If you've seen DRAM spot pricing, if you've heard the narrative from our customers on the overall DRAM market improving, it certainly may be the beginning of an upturn. For now, we just don't have the visibility to say so, whether it is or not, but nice to be again operating our DRAM business, a very important business for us, upper record levels.

Speaker Change: Whether this is the start of a DRAM upturn, I think, is still to be seen, but it is encouraging if you've seen DRAM spot pricing, if you've heard the narrative from our customers on the overall DRAM market improving.

Speaker Change: It certainly may be the beginning of an upturn. For now, we just don't have the visibility to say so, whether it is or not, but nice to be again operating our DRAM business, a very important business for us, up at record levels.

Charles She: Thanks, Michael. I want to have a follow-up on the boundary logic side of the business. It's up in Q2. It was up; the boundary logic was up in Q2 by quite a lot, but your largest microprocessor customer, the revenue, you do disclose on a quarterly basis. It didn't really go up as much. It doesn't explain all the incremental you're seeing in the boundary logic side.

Charles Shee: Thanks, Mike. I want to have a follow-up on the FoundryLogix side of the business. It's up in Q2. It was up, FoundryLogix was up in Q2 by quite a lot, but your largest microprocessor customers, the revenue, you do disclose on a quarterly basis. It didn't really go up, I mean, by much. I mean, it doesn't explain all the incremental improvements you're seeing on the FoundryLogix side. And so this is kind of a mid-year strength. Would you mind if I clarified a little bit of what's driving that outside of this microprocessor company? And more importantly, going into next quarter, who is driving that incremental growth in the FoundryLogix probe card?

Speaker Change: Thanks, Mike. I want to have a follow-up on the boundary logic side of the business.

Speaker Change: It's up in Q2, it was up, FoundryLogic was up in Q2 by quite a lot, but your largest microprocessor customer, the revenue, you do disclose on a quarterly basis.

Speaker Change: Go up, I mean, as much. I mean, it doesn't explain all the incremental you're seeing in the Foundry logic side. And so this kind of a mid-year strength.

Michael Slessor: This kind of a mid-year strength, mind if you clarify a little bit, what's driving that outside of this microprocessor company? More importantly, going into next quarter, who is driving that incremental growth in the Boundary Logic protocol. Yeah, we often see this mid-year strength in mobile application processors. If you look at phone release cadences and work back to the timing where customers are going to need probe cards for this, that's exactly what we're seeing right now. And we talked about it on the last call with the anticipated second quarter strength, which materialized, being associated both with microprocessors but also mid-year releases of these mobile application processors.

Speaker Change: Mind if you clarify a little bit of what's driving that outside of this microprocessor company? And more importantly, going into next quarter, who is driving that incremental growth in the FoundryLogic probe card?

Michael D. Slessor: Yeah, we often see this mid-year strength in mobile application processors. If you look at the phone release cadences and work back to the timing where customers are going to need probe cards for this, that's exactly what we're seeing right now. And we talked about it on the last call with the anticipated second quarter strength, which materialized being associated both with microprocessors and also mid-year releases of these mobile application processors. That's a theme that we see carrying through the second quarter.

Speaker Change: Yeah, we often see this mid-year strength in mobile application processors. If you look at phone release cadences and work back to the timing where customers are going to need probe cards for this, that's exactly what we're seeing right now. And we talked about it on the last call with the anticipated second quarter strength, which materialized.

Speaker Change: being associated both with microprocessors but also mid-year releases of these mobile application processors.

Michael Slessor: That's a theme that we see carrying through the second quarter. Again, we see founder and logic having a similar level and profile in the third quarter as in the second quarter. And so, you know, beyond that, again, visibility pretty limited, but we're pretty happy with how we're executing in the broader founder and logic market. Always some improvements, always some shared again, but that's, you know, both of those factors driving our founder logic strength in the middle part of the year.

Michael D. Slessor: Again, we see Foundry and Logic having a similar level and profile in the third quarter as in the second quarter. And so beyond that, again, visibility is pretty limited, but we're pretty happy with how we're executing in the broader Foundry and Logic market. Always some improvements, always some share to gain, but that's both of those factors driving our Foundry and Logic strength in the middle part of the year.

Speaker Change: That's a theme that we see carrying through the second quarter. Again, we see Foundry and Logic having a similar level and profile.

Speaker Change: in the third quarter as in the second quarter.

Speaker Change: And so, you know, beyond that, again, visibility pretty limited.

Speaker Change: But we're pretty happy with how we're executing in the broader founder and logic market.

Speaker Change: Always some improvements, always some share to gain, but that's, you know, both of those factors driving our Foundry logic strength in the middle part of the year.

Charles She: And maybe a quick fall off to that.

Charles Shee: And maybe a quick follow up to that. Do you see a little bit of a next shift in the Foundry Logic probe card from Q2 to Q3? No, it's very similar.

Michael Slessor: Do you see a little bit of a next shift in founder logic probe card from Q2 to Q3? Thanks. No, it's very similar, Charles. Thank you.

Speaker Change: Maybe a quick follow-up to that. Do you see a little bit of a next shift in Foundry logic probe card from Q2 to Q3? Thanks.

Michael D. Slessor: No, it's very similar, Shar.

Speaker Change: No, it's very similar, Charles.

Tom Difflee: Our next question comes from the line of Tom Difflee of DA Davidson. Yes, good afternoon. Thank you.

Operator: Our next question comes from the line of Tom Diffely of D.A. Davidson.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Tom Diffely of D.A. Davidson.

Thomas Robert Diffely: Yes, good afternoon. Thank you. Mike, I was curious, how much of that was driven by just increasing volumes of high bandwidth memory versus a design change? And then if there is a big shift to the next generation design, what does that do for your business?

Michael Slessor: Mike, I was curious when you look at the high bandwidth memory ramp that you've had this year, how much of that was driven by just increasing volumes of high bandwidth memory versus a design change.

Thomas Robert Diffely: Yes, good afternoon. Thank you. Mike, I was curious, when you look at the high bandwidth memory ramp that you've had this year, how much of that was driven by just increasing volumes of high bandwidth memory versus a design change? And then if there is a big shift to the next generation design, what does that do to your business?

Michael Slessor: And then, if there is a big shift to the next generation design, what does that do to your business? Yeah, as we've said, you know, probe cards are a design-specific consumable, and so there's these two pieces. There's the release of a new design, but there's also the number of wafer starts and number of test cells and therefore probe cards that need to run on this design. I'd characterize, you know, the growth in the second quarter of the HBM business, being concentrated across, let's call it in round numbers 10 designs that are really the high runners driving the growth.

Michael D. Slessor: Yeah, as we've said, probe cards are a design-specific consumable, and so there are these two pieces. There is the release of a new design, but there is also the number of wafer starts and number of test cells, and therefore probe cards that need to run on this design. I'd characterize, you know, the growth in the second quarter of the HBM business as being concentrated across, let's call it in round numbers, 10 designs that are really the high runners driving the growth.

Speaker Change: Yeah, it, as we've said, you know, probe cards are a design-specific consumable and so there's these two pieces. There's the release of a new design but there's also the number of wafer starts and number of test cells and therefore probe cards that need to run on this design.

Speaker Change: I'd characterize, you know, the growth in the second quarter of the HBM business

Speaker Change: being concentrated across, let's call it in round numbers, ten designs.

Michael D. Slessor: And so, you know, that could be one chip. Remember, HBM, a stack of mostly eight-high DRAM, but there's a base die. There are test insertions for the eight core die, and then there's also a test insertion when the customer's done stacking. Each of those three sets of probe cards is a unique fleet of probe cards. And so that's part of the test intensity increase associated with HBM in particular and advanced packaging in general. But, you know, more than a handful of designs really drive it.

Michael Slessor: And so that could be one chip. Remember HBM, a stack of mostly eight high DRAM, but there's a base die, there's test insertions for the eight core die, and then there's also a test insertion when the customer's done stacking. Each of those three sets of probe cards is a unique fleet of probe cards. And so that's part of the test intensity increase associated with HBM in particular and advanced packaging in general, but you know, more than a handful of designs really driving the strength.

Speaker Change: that are really the high runners driving the growth. And so, you know, that.

Speaker Change: Could be one chip, remember HBM, a stack of mostly eight high DRAM, but there's a base die, there's test insertions for the eight core die, and then there's also a test insertion when the customer's done stacking.

Speaker Change: Each of those three sets of probe cards is a unique fleet of probe cards. And so, that's part of the test intensity increase associated with HBM in particular and advanced packaging in general. But, you know, more than a handful of designs really driving the strength.

Thomas Robert Diffely: When you look at the business next year in 2025, do you think it's pretty well split between the three main suppliers, or are you still going to be very leveraged to one of the players?

Michael Slessor: And then when you look at the business next year and 25, do you think it's pretty well split between the three main suppliers? Are you still going to be very leveraged to one of the players? No, I think, you know, as they said, we currently see contributions from all three manufacturers, although we're over indexed to the leader in HBM market share.

Speaker Change: And then when you look at the business next year in 2025, do you think it's pretty well split between the three main suppliers or are you still going to be very leveraged to one of the players?

Michael D. Slessor: No, I think, you know, as I said, we currently see contributions from all three manufacturers, although we're over indexed to the leader in the HBM market. You know, a fundamental tenet of our strategy is to make sure that we're a key supplier at the leading edge to all major customers. And so, you know, qualification work is ongoing at both of them. We're in a position to compete for that business as HBM 3 and HBM 4 come out. Those are opportunities for our customer share and for us to go compete for new business as well.

Speaker Change: No, I think, you know, as I said, we currently see contributions from all three manufacturers, although we're over-indexed to the leader in HBM market share.

Michael Slessor: You know, a fundamental tenet of our strategy is to make sure that we're a key supplier at the leading edge to all major customers. And so, you know, qualification work is ongoing about them. We're in a position to compete for that business as a, you know, HBM 3 and HBM 4 come out. Those are opportunities for our customer share and for us to go compete for new business as well.

Speaker Change: A fundamental tenet of our strategy is to make sure that we're a key supplier at the leading edge to all major customers.

Speaker Change: And so, you know, qualification work is ongoing at both of them. We're in a position to compete for that business. As, you know, HBM3 and HBM4 come out, those are opportunities for our customer share to show up and for us to go compete for new business as well.

Thomas Robert Diffely: And the final question, Shai, when you look at the margin guidance for the next quarter, is it simply, you know, the decrease in high bandwidth memory is a percentage of product MIPSH issue? Well, it's a combination.

Shai Shahar: And the final question, Shai, when you look at the margin guidance for the next quarter, is it simply, you know, the... Decrease of high bandwidth memory as a percentage of product-mitch issue? Well, it's a combination of DRAM revenue overall as a higher percentage of revenue, and within DRAM the shift from HBM to DDR5, so it's both of them. Okay, great. Thank you.

Speaker Change: And the final question, Shai, when you look at the margin guidance for the next quarter, is it simply, you know, the decrease of high bandwidth memory as a percentage of product mix issue?

Shai Shahar: Well, it's a combination of DRAM revenue overall as a higher percentage of revenue, and within DRAM, the shift from HBM to DDR5, so it's both. Great, thank you.

Shai: It's a combination of DRAM revenue overall as a higher percentage of revenue and within DRAM the shift from HBM to DDR5, so it's both of them.

Tom Difflee: Thank you, Tom.

Operator: Thank you.

Christian Schwab: Our next question comes from the line of Christian Schwab, of Craig Hollum. Great. Thanks for taking my questions.

Speaker Change: Okay, great. Thank you

Phil: Thank you, Phil.

Speaker Change: Thank you. Our next question comes from the line of Christian Schwab of Craig Harlem.

Thomas Robert Diffely: Great, thanks for taking my questions.

Christian Schwab: So, just again on high bandwidth memory, you know, we can kind of back into the math pretty modest revenue from the other two big guys. You know, as we get into 2025, do you think you have, you know, three meaningful customers in that space? Or do you think that there's the potential for, as the other two guys get up to speed, that they, you know, begin to take share? I'm just trying to size what your expectations and 25 and 26 are for high bandwidth memory, as the other two guys come to mark and have talked about being sold out for next year.

Christian David Schwab: Great. Thanks for taking my questions. So, just ...

Speaker Change: Again on high bandwidth memory, you know, we can kind of back into the math pretty modest revenue from

Speaker Change: and the other two big guys.

Speaker Change: You know, as we get into 2025, do you think you have, you know, three meaningful customers?

Speaker Change: in that space, or do you think that there's the potential for, as the other two guys get up to speed, that they, you know, begin to take share? I'm just trying to size.

Speaker Change: What are your expectations in 2025 and 2026?

Michael D. Slessor: Yeah. Well, remember, if we back out a little bit, we're a key supplier to all three major DRAM manufacturers in DDR4, DDR5, and we hope to be for HBM as well. Currently, one of them owns the lion's share of HBM shipments, and so that's why we're over-indexed to that customer. But again, as Tom asked, we do expect, as the other two DRAM manufacturers gain share in the transition from HBM3E to HBM4, work their way through some pretty significant technical and yield challenges in ramping this up, we do expect that share to balance out a little bit.

Speaker Change: For high bandwidth memory as the other two guys come to market and have talked about being sold out for next year. Yeah Yeah, well remember if we back out a little bit, we're a key supplier to all three major DRAM manufacturers in

Michael Slessor: Yeah. Well, remember, if we back out a little bit, we're a key supplier to all three major DRAM manufacturers in DDR4, DDR5, and we hope to be for HBM as well. Currently, one of them owns the lion's share of HBM shipments, and so that's why we're over-indexed to that customer. But again, you know, as Tom asked, we do expect, as the other two DRAM manufacturers gain share in the transition from HBM 3E to HBM 4, to work their way through some pretty significant technical and yield challenges in ramping this up. We do expect that shared a balance out a little bit.

Speaker Change: You know, DDR4, DDR5, and we hope to be for HBM as well. Currently, one of them owns the lion's share of HBM shipments. And so that's why we're overindexed to that customer. But again, you know, as Tom asked, we do expect.

Speaker Change: As they, as the other two VRAM manufacturers gain share in the transitions from HBM3 to HBM4, work their way through some pretty significant technical and yield challenges in ramping this up, we do expect

Michael D. Slessor: So, as we look into 25, the transition to HBM4 is certainly exciting for us. It raises the speed requirements for the probe card, so again, a notch up in complexity. And as customers go to stacking 12 and even 16 high die, that obviously is going to increase the overall test intensity and complexity in testing that overall stack. So, we feel like we're in a pretty strong competitive position, even as the share starts to balance among all three DRAM manufacturers.

Michael Slessor: So, you know, as we look into 25, the transition to HBM 4, certainly exciting for us, it raises the speed requirements for the probe card. So again, a notch up in complexity. And as customers go to stacking 12 and even 16 high die, that obviously is going to increase the overall test intensity and complexity in testing that overall stack. So we feel like we're in a pretty strong competitive position, even as the share starts to balance among all three DRAM manufacturers.

Speaker Change: That shared a balance out a little bit.

Speaker Change: So, you know, as we look into 25, the transition to HBM4, certainly exciting for us.

Speaker Change: It raises the speed requirements for the probe card, so again, a notch up in complexity.

Speaker Change: And as customers go to stacking 12 and even 16 high dye,

Speaker Change: That obviously is going to increase the overall test intensity and complexity in testing that overall stack. So we feel like we're in a pretty strong competitive position, even as the share starts to balance among all three DRAM manufacturers.

Thomas Robert Diffely: And to follow up on that, on the high bandwidth memory 4 transition, you know, given, as you said, the speed and then the increased stacking capabilities, I would assume that there should be some pricing power on those probe cards, not all the way, obviously, to foundry and logic levels, but, you know, potentially higher than where we sit today. Is that fair?

Michael Slessor: And to follow up to that on the high bandwidth memory 4 transition, you know, given, as you said, the speed and then increase stacking capabilities, I would assume that there should be some pricing power on those probe cards, not all the way, obviously, the boundary and logic levels, but, you know, potentially higher than where we sit today, is that fair? Yeah, yeah, that's fair, right? And one of the reasons, right, you know, we touched on it in a question a couple of minutes ago, but the mix shift away from HBM towards DDR5 inside DRAM at these high levels certainly, as a gross margin headwind.

Speaker Change: And to follow up to that, on the high bandwidth memory 4 transition, you know, given, as you said, the speed and then increased stacking capabilities, I would assume that there should be some pricing power

Speaker Change: on those probe cards, not all the way, obviously, to foundry and logic levels, but potentially higher than where we sit today. Is that fair?

Michael D. Slessor: Yeah, yeah, that's fair, right? And one of the reasons, right, you know, we touched on it in a question a couple of minutes ago, but the mixed shift away from HBM towards DDR5 inside DRAM at these high levels certainly is a gross margin. And so you can connect the dots there. Our ability to build probe cards that are highly differentiated and provide a lot of value to our customers in testing at speed and across multiple temperatures in a very complex mechanical situation.

Speaker Change: Yeah, that's fair. And one of the reasons, right, you know, we touched on it in a question a couple of minutes ago, but the mixed shift away from HBM towards DDR5 inside DRAM at these high levels certainly is a gross margin hit.

Michael Slessor: And so you can connect the dots there. Our ability to build probe cards that are highly differentiated and provide a lot of value to our customers in testing at speed and across multiple temperatures in a very complex mechanical situation. You know, you're testing a whole 300 millimeter wafer of the stacked die across a temperature range of over a hundred degrees Celsius. And you can imagine the thermal scaling challenges associated with that are significant. And that's why at HBM probe cards, we're more.

Speaker Change: and so you can connect the dots there. Our ability to build probe cards that are highly differentiated and provide a lot of value to our customers in testing.

Speaker Change: At speed and across multiple temperatures in a very complex mechanical situation. You know, you're testing a whole 300 millimeter wafer of the stacked dye across a...

Michael D. Slessor: You're testing a whole 300-millimeter wafer of the stacked dye across a temperature range of over 100 degrees Celsius, and you can imagine the thermal scaling challenges associated with that are significant. And that's why an HBM probe card is worth more.

Speaker Change: temperature range of over 100 degrees Celsius and you can imagine the thermal scaling challenges associated with that are significant and that's why an HBM probe card is worth more.

Thomas Robert Diffely: And then my second question, now we've got two quarters and call it roughly $200 million, which is kind of the target model. Do you guys have any expectations when you plan on updating your target model?

Christian Schwab: Great, and then my second question.

Christian Schwab: Now we've got two quarters that call it roughly 200 million, which is kind of the target model.

Speaker Change: Great, and then my second question, now we've got two quarters and call it at roughly 200 million, which is kind of the target model. Do you guys have a set expectations when you plan on updating your target model?

Shai Shahar: Do you guys have a set expectations when you plan on updating your target model? Sure, I'll take this one, Christian. So we are two quarters of 200 million, but the target model is a little higher than that, right? If you take the age 50, it's about 210, 200 as well. So what we want to do is what we have done in the past.

Shai Shahar: Sure, I'll take this one, Christian. So we are two quarters of 200 million, but the target model is a little higher than that, right? If you take the 850, it's about 210 or 212.

Speaker Change: Sure, I'll take this one, Christian. So we are at two quarters of 200 million, but the target model is a little higher than that, right? If you take the 850, it's about 210, 212. So what we want to do is what we have done in the past. Once we have a quarter or two at this model run rate, and I agree we're getting closer to it, but we're not there yet,

Thomas Robert Diffely: So, what we want to do is what we have done in the past. Once we have a quarter or two at this model run rate, and I agree, we're getting closer to it, but we're not there yet. Then we'll, you know, set up a date, schedule a new analyst day, and then work on publishing the new target model. We're not there yet, but stay tuned.

Christian Schwab: Once we have a quarter or two at this model run rate, and I agree we get closer to it, but we're not there yet, then we'll shut up a day schedule and you run on this day and then work on publishing the new target model. So we're not there yet, but straight to you. All right, sounds great. Thank you, guys. Thanks.

Speaker Change: Then we'll set up a date, schedule a new analyst day, and then work on publishing the new target model.

Thomas Robert Diffely: All right. Sounds great.

Speaker Change: So, we're not there yet, but...

Operator: Thank you. As a reminder to ask a question, please press Star 11 on your telephone. Again, that star 11 on your telephone to ask a question to remove yourself from the question queue. You may press star 11 again.

Michael D. Slessor: Thank you, guys. Thanks. Thank you.

Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone. Again, that's star 11 on your telephone to ask a question. To remove yourself from the question queue, you may press star 1 1 again. Our next question comes from the line of Brian Chin on Steve.

Speaker Change: Stay tuned.

Christian David Schwab: All right. Sounds great. Thank you, guys. Thanks.

Speaker Change: Thank you. As a reminder, to ask a question, please press star 11 on your telephone. Again, that's star 11 on your telephone to ask a question. To remove yourself from the question queue, you may press star 11 again.

Brian Chin: Our next question. I'm from the line of Brian Chin of Steve Full.

Speaker Change: Our next question.

Brian Edward Chin: Hi there, thanks for letting us ask a few questions. Mike or Shai, did you comment whether you expect sort of that, the next shift you're seeing in the DRAM business to persist into Q4? I guess that's kind of the first question because, you know, maybe it's like 150 to 200 basis points Edwin or something relative to what it was in 2Q, and so that's, I guess, the first question.

Brian Chin: Hi, that likes for a few questions.

Speaker Change: comes from the line of Brian Chin of Stiefel.

Michael Slessor: MicroShide, do you comment whether you expect sort of that the next shift you're seeing in the DRAM business to persist in the queue for? I guess that's kind of the first question because maybe it's like 150 or 200 basis points, Edwin, or something relative to what it was in two queue. That's the first question.

Brian Edward Chin: Hi there, thanks for letting us ask a few questions.

Brian Edward Chin: Mike or Shai, did you comment whether you expect sort of that, you know, the next shift you're seeing in the DRAM business to persist into Q4?

Brian Edward Chin: And, well, I guess that's kind of the first question, because, you know, maybe it's like 150 to 200 basis point Edwin or something relative to what it was in 2Q. And so that's, I guess, the first question.

Shai Shahar: Yeah, Brian. Mike, I'll take that. I think in terms of timing, you know, I'll again, caveat this with our visibility; our direct visibility doesn't really go much past the end of three queue here. We're operating with short lead times. We certainly have forecasts from our customers, but the dramatic shift in DRAM towards production capacity for DDR5 is something that's a relatively dynamic situation. Whether a persist or not is something that probably we need a few more weeks or months to really get a read on from our direct backlog. Having said that, if you do look at the underlying DRAM market, DDR4 and DDR5, low power server and PC, they do seem to be strengthening.

Michael D. Slessor: Yeah, Brian, Mike, I'll take that. I think in terms of timing, you know, I'll again caveat this with our visibility; our direct visibility don't really go much past the end of 3Q here. We're operating with short lead times, and we certainly have forecasts from our customers. But the dramatic shift in DRAM towards production capacity for DDR5 is something that's a relatively dynamic situation. Whether it persists or not is something that probably we need a few more weeks or months to really get a read on from our direct backlog.

Brian Edward Chin: Yeah, Brian , Mike, I'll take that. I think in terms of timing, you know, I'll again caveat this with our visibility, our direct visibility,

Speaker Change: It doesn't really go much past the end of 3Q here. We're operating with short lead times. We certainly have forecasts from our customers.

Speaker Change: But the dramatic shift in DRAM towards production capacity for DDR5 is something that's a

Speaker Change: A relatively dynamic situation, whether it persists or not is something that probably we need a few more weeks or months to really get a read on.

Michael D. Slessor: Having said that, you know, if you do look at the underlying DRAM market, DDR4 and DDR5, low-power server and PC, they do seem to be strengthening. And so it wouldn't be all that surprising if there was a shift of some capacity towards those markets. And we saw some growth in the non-HBM parts of the market, but it's a little early to tell. And again, our visibility doesn't go that far into the future. But some of the fundamental factors are in place for DRAM recovery. Again, I got it.

Speaker Change: from our direct backlog. Having said that, you know, if you do look at the, you know, the underlying DRAM market, DDR4 and DDR5, low-power server and PC, they do seem to be strengthening, and so it...

Shai Shahar: It wouldn't be all that surprising if there was a shift of some capacity towards those markets, and we saw a bit of growth in the non-HBM parts of the market; a little bit early to tell. Again, our visibility doesn't go that far into the future, but some of the fundamental factors are in place for a DRAM recovery. I was even thinking, you know, Samsung seemed pretty confident last night that there are HBM three shipments. They aren't the dominant player, but they would accelerate substantially in the back half of the year. So maybe it's not 3Q, but I imagine that could factor in your outlook for HBM at some point in the second half.

Speaker Change: It wouldn't be all that surprising if there was a shift of some capacity.

Speaker Change: towards those markets and we saw a bit growth in the non-HBM parts of the market. A little bit early to tell and again our visibility doesn't go that far into the future but some of the fundamental factors are in place for a DRAM recovery.

Brian Edward Chin: Yeah, I was even thinking, you know, Samsung seemed pretty confident last night that their HBM-3 shipments, you know, they aren't the dominant player, but they would accelerate substantially in the back half of the year, so maybe it's not 3Q, but I imagine that could factor into your outlook for HBM at some point in the second half. Okay. And I don't know if anyone asked, but in terms of the I missed this part, but the China increased Q on Q, was that mainly just multinational rather than any kind of additional color on what drove that? Yeah.

Speaker Change: Again, got it.

Speaker Change: Yeah, I was even thinking, you know, Samsung seemed pretty confident last night that their HBM3 shipments, you know, they aren't the dominant player, but they would accelerate substantially in the back half of the year. So maybe it's not 3Q, but I imagine that could factor into your outlook for HBM at some point in the second half. That's right.

Shai Shahar: That's right. Okay.

Shai Shahar: I don't know if anyone asked, but in terms of the, I missed this part, but the China increased Q&Q.

Speaker Change: Okay.

Shai Shahar: Was that mainly just multinational, any kind of additional color on what drove that? Yeah, I know that that wasn't asked or a good topic to touch on. Yay!

Speaker Change: And I don't know if anyone asked, but in terms of the, I missed this part, but the China increase, Q1Q, was that mainly just multinational than any kind of additional color on what drove that? Yeah, no, that wasn't asked, so a good topic to touch on.

Michael D. Slessor: Yeah, no, that wasn't asked, so a good topic to touch on. A reminder, so in Q2, a little over 10% of revenue came from China. And inside the Q3 outlook, we are forecasting moderate growth, but it'll still be in the teens, nowhere near the 40 to 50% some of the WFE suppliers have for China. You know, we've been pretty proactive in managing this situation. We divested our China operations and then formed an exclusive distributorship with the purchaser of that business, and we're opportunistically serving the domestic Chinese business as best we can in the face of some pretty significant geopolitical headwinds both from direct export controls and the Chinese industry's semiconductor response to stand up its own domestic semiconductor industry. So we see a moderate increase. I don't see it as a theme where we're going to get significant contribution from the China business again because of these almost structural geopolitical headwinds.

Shai Shahar: Reminder, so in Q2, a little over 10%, China's a percentage of revenue, and inside the Q3O, look, we are forecasting a moderate increase, but it'll still be in the team, nowhere near the 40 to 50%, some of the WFE suppliers have for China concentration. You know, remember, we've been pretty proactive in managing this situation. We divested our China operations, and then formed an exclusive distributorship with the purchaser of that business, and we're opportunistically serving the domestic China business as best we can in the face of some pretty significant geopolitical headwinds, both from direct export controls and the China industry's semiconductor response to stand up its own domestic semiconductor industry.

Speaker Change: A reminder, so in Q2, a little over 10% shine as a percentage of revenue and inside the Q3 outlook, we are forecasting a moderate increase.

Speaker Change: but it'll still be in the teen, nowhere near the 40 to 50 percent some of the WFE suppliers have for China concentration.

Speaker Change: You know, remember, we've been pretty proactive in managing this situation. We divested our China operations and then formed an exclusive distributor ship with the.

Speaker Change: with the purchaser of that business. And we're opportunistically serving the domestic China business as best we can in the face of some pretty significant geopolitical headwinds, both from direct export controls

Speaker Change: and the China Industry Semiconductor Response to stand up its own domestic semiconductor industry. So, we see a moderate increase. I don't see it as a theme where we're going to get a significant contribution from the China business, again, because of these

Shai Shahar: So we see a moderate increase; I don't see it as a theme where we're going to get significant contribution from the China business, again, because of these almost structural geopolitical headwinds. Great.

Brian Edward Chin: Great. I may just kind of get real off topic here for one last question. Energy efficiency, usage, bandwidth, these are obviously key themes in data centers. Understanding that silicon photonics is an area the company has invested in, where are we on the adoption curve for co-packaged optics and how significant of a market opportunity could that be in maybe a couple of years? Yeah, we are very, very early.

Michael Slessor: Let me just kind of get through off topic here for one last question.

Speaker Change: almost structural geopolitical headwinds.

Michael Slessor: Energy efficiency usage bandwidth, these are obviously key themes in data center, but understanding that silicon photonics as an area of company has invested in, where are we on the adoption curve for co-package optics and how significant a market opportunity could that be in maybe a couple of years? Yeah, we are very, very early. You know, as I said, just inching out of the lab where we've been engaged with customers for years in co-developing the fundamental measurement technologies like our Pharaoh's optical probe that allows customers faster test times and better overall yield because of its better signal, the noise, and coupling efficiency.

Speaker Change: Great. Let me just kind of get real off-topic here for one last question.

Speaker Change: Energy efficiency, usage, bandwidth, these are obviously key themes in data center.

Speaker Change: Understanding that Silicon Photonics is an area the company has invested in, where are we on the adoption curve for co-packaged optics and how significant of a market opportunity could that be?

Michael D. Slessor: Yeah, we are very, very early, you know, as I said, just inching out of the lab where we've been engaged with customers for years in co-developing the fundamental measurement technologies like our Pharos optical probe that allows customers faster test times and better overall yield because it's better signal-to-noise and coupling efficiency. But, you know, we've got a handful of tools inside production sites that are in the very early stages As you note, though, you know, this is one of the ways to help solve it.

Speaker Change: [inaudible]

Speaker Change: that allows customers faster test times and better overall yield because of its better signal-to-noise and coupling efficiency.

Michael Slessor: But, you know, we've got a handful of tools inside production sites that are in the very early stages of pilot production. As you note, though, you know, this is one of the ways to help solve; it's not going to entirely solve, but it helps solve a pretty significant problem associated with data centers, and that's energy consumption. Going to silicon photonics on chip-to-chip communication in the data center has the potential to impact the energy usage energy budgets for these data centers. And that's something, you know, the broader compute industry is going to have to confront as data centers become bigger and bigger users of electricity worldwide.

Speaker Change: But, you know, we've got a handful of tools inside production sites.

Speaker Change: that are in the very early stages of pilot production. As you note, though, you know, this is one of the ways to...

Operator: It's not going to entirely solve, but it helps solve a pretty significant problem associated with data centers, and that's energy consumption. Going to silicon photonics on chip-to-chip communication in the data center has the potential to impact the energy usage energy budgets for these data centers. And that's something the broader compute industry is going to have to confront as data centers become bigger and bigger users of electricity worldwide. So we view silicon photonics as something that's when, not an if.

Speaker Change: help solve, it's not going to entirely solve, but it helps solve a pretty significant problem associated with data centers, and that's energy consumption.

Speaker Change: going to silicon photonics on chip-to-chip communication in the data center has the potential to impact the energy usage, energy budgets for these data centers, and that's something, you know, the broader compute industry is going to have to confront.

Michael Slessor: So we view silicon photonics as something that's a when, not an if. I think the timing, you know, probably at the earliest, late 25 into 26, where we start to see moving into the knee of the curve of adoption and running significant volumes inside the Foundry's World Live. Thank you.

Speaker Change: as data centers become...

Speaker Change: Bigger and bigger users of electricity worldwide. So we view silicon photonics as a something that's a when not an if. I think the timing you know probably at the earliest late 25 into 26 where we start to see

Operator: I think the timing, you know, probably at the earliest, late 25 or early 26, when we start to see moving into the knee of the curve of adoption and running significant volumes inside the foundries worldwide. That's great.

Speaker Change: moving into the knee of the curve of adoption and running significant volumes inside the foundries worldwide.

Michael D. Slessor: Okay, great. Thanks Mike.

Robert Mertens: Next question comes from the line of Robert Mertens of 2D Cohen. Hi, this is Rob Mertens on for Krish. Thanks for taking my questions.

Robert Bruce Mertens: Our next question comes from the line of Robert Mertens of TD Cohen.

Michael D. Slessor: Thank you.

Speaker Change: Our next question comes from the line of Robert Mertens of TD Cohen.

Robert Bruce Mertens: Hi, this is Rob Mertens on behalf of Krish. Thanks for taking my questions. You mentioned the better than expected gross margins in the probe card business, largely due to higher volumes and maybe around 200 basis points or so attributed to the mix. Was the positive mix largely the bandwidth memory increase or more of a general mix throughout both the foundry logic and memory and market?

Robert Mertens: You mentioned the better-than-expected gross margins in the probe-quart business, largely due to higher volumes and maybe around 200 basis points or so attributed to the mix.

Michael D. Slessor: Hi, this is Rob Mertens on for Krish. Thanks for taking my questions.

Speaker Change: You mentioned the better-than-expected gross margins in the probe card business, largely due to higher volumes and maybe around

Shai Shahar: Was the positive mix largely the bandwidth memory increase, or more of a general mix throughout both the foundry logic and memory and market? So if you refer to Q2, we were right on spoke, right? So gross margin was 45.3% versus midpoint of the outlook of 45%. So I'm not sure what to miss you referred to. Sorry, just in terms of the gross margins. I saw I heard two thirds driven by volumes and the third driven by mix. That's the increase from Q1. So Q1 gross margin, if you recall, was in the high 30s, 38.7. So the increase from Q1 to Q2 from the 38.7 to the 45.3.

Speaker Change: 200 basis points or so attributed to the mix. Was the positive mix largely the bandwidth memory increase or more of a general mix throughout both the foundry logic and memory and markets?

Shai Shahar: So if you refer to Q2, we were right on spot, right? Gross margin was 45.3% versus the midpoint of the outlook of 45%. So I'm not sure what missed you.

Robert Bruce Mertens: So if you're afraid to.

Speaker Change: So, if you refer to Q2, we were right on spot, right, gross margin was 45.3% versus midpoint of the outlook of 45%, so I'm not sure what missed you referred to.

Robert Bruce Mertens: Sorry, just in terms of the gross margins. Thought I heard two-thirds driven by volumes and a third driven by mix. Yeah, that's an increase from Q1. So Q1 gross margin, if you recall, was in the high 30s, 38.7. So the increase from Q1 to Q2, from 38.7 to 45.3, two-thirds of it relates to volume and about a third to mix. And that change in mix is more HBM, more foundry, and lodging.

Speaker Change: Sorry, just just in terms of the gross margins.

Speaker Change: I thought I heard two-thirds driven by volumes and a third driven by mix. That's the increase from Q1. So Q1 gross margin, if you recall, was in the high 30s, 38.7.

Shai Shahar: The two thirds of it relates to volume, and about a third to mix. And that change in mix is more HBM, more foundry, and larger. Q2, Q1.

Speaker Change: So the increase from Q1 to Q2, from the 38.7 to the 45.3, two-thirds of it relates to volume and about a third to mix. And that change in mix is more HBM, more foundry and logic.

Robert Bruce Mertens: Thank you to everyone. And then could you just provide a little more color on the progress with the qualifications of MIM-based probe cards for GPU tests and maybe what the size of the market opportunity could look like?

Michael Slessor: And then could you just provide a little more color on the progress with qualifications of men-based probe cards for GPU tests and maybe what the size of the market opportunity could look like? Yeah, I think sizing is interesting. You know, maybe to get everybody on the same page as the largest GPU manufacturer transitions to advanced packaging, you know, primarily co-os at the world largest foundry that requires men's programs, right? The legacy programs they use for monolithic GPUs no longer work. And so we are in a qualification process there. I'd say our major competitor has been ahead of us and has got the initial business kind of what we've been more focused on HBM and that opportunity.

Speaker Change: Q2 of Q1.

Speaker Change: And then, could you just provide a little more color on the progress with qualifications of MIM-based probe cards for GPU tests, and maybe what the size of the market opportunity could look like?

Michael D. Slessor: Yeah, I think sizing it up is interesting, you know, maybe to get everybody on the same page as the largest GPU manufacturer transitions to advanced packaging, primarily co-auth at the world's largest foundry, that requires MEMS ProCards, right? The legacy ProCards they use for monolithic GPUs no longer work.

Speaker Change: Yeah, I think sizing it is interesting, you know, maybe to get everybody on the same page as the largest GPU manufacturer transitions to

Speaker Change: Advanced Packaging, primarily CoOS at the world's largest foundry, that requires MEMS probe cards, right? The legacy probe cards they use for monolithic GPUs no longer work. And so...

Michael D. Slessor: And so we are in a qualification process there. I'd say our major competitor is, has been ahead of us, and has got the initial business, kind of what we've been more focused on HBM and that operation. But it's a strategic imperative for us to qualify here in 2024 and make some progress. I do think, you know, again, relatively difficult to size the opportunity, but as you heard from some of the memory manufacturers, there's an interesting asymmetry associated with some of these AI products where the amount of memory in the package is almost 10 times that of the GPUs.

Speaker Change: We are in a qualification process there. I'd say our major competitor is, has been ahead of us and has got the initial business, kind of what we've been more focused on HBM and that opportunity.

Michael Slessor: But it's a strategic imperative for us to qualify there here in 2024 and make some progress.

Speaker Change: But it's a strategic imperative for us to qualify there here in 2024 and make some progress. I do think, you know, again, relatively difficult to size the opportunity. But as you heard from.

Michael Slessor: I do think, you know, again, relatively difficult to size the opportunity. But, as you heard from some of the memory manufacturers, there's an interesting asymmetry associated with some of these AI products where the amount of memory in the package is almost 10 times that of the GPUs. And so for unit-driven businesses like ours, HBM becomes a much more compelling opportunity. That's not to diminish the importance of qualifying during this important transition of GPUs to needing men's based technologies for probe. But we like, obviously, the exposure to HBM as well.

Speaker Change: As you heard from some of the memory manufacturers, there's an interesting asymmetry associated with this.

Speaker Change: some of these AI products where the amount of memory in the package is almost 10 times that of the GPU.

Michael D. Slessor: And so for unit-driven businesses like ours, HBM becomes a much more compelling option. That's not to diminish the importance of qualifying during this important transition of GPUs to needing MEMS-based technologies for probe, but we like, obviously, the exposure to HBM as well.

Speaker Change: And so, for unit-driven businesses like ours, HBM becomes a much more compelling opportunity.

Speaker Change: That's not to diminish the importance of qualifying during this important transition of GPUs to meeting MEMS-based technologies for probe, but we like, obviously, the exposure to HBM as well.

Robert Bruce Mertens: Got it. Thank you.

Operator: Thank you. I would now like to turn the conference back to Mike Slessor for his closing remarks, sir. All right. Thanks, everybody.

Michael Slessor: I would now like to turn the conference back to Mike's lesser for closing remarks, sir. All right. Thanks, everybody, for joining us today.

Speaker Change: Got it, thank you.

Michael D. Slessor: All right. Thank you everybody for joining us today. We've got a couple of conferences in late August and early September that we hope to see you at. Until then, take care.

Speaker Change: Thank you. I would now like to turn the conference back to Mike Slessor for closing remarks, sir. All right. Thanks, everybody, for joining us today. We've got a couple of conferences in late August and early September that we hope to see you at. Until then, take care.

Michael Slessor: We've got a couple of conferences in late August and early September that we hope to see you at. Until then, take care.

Operator: So this concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Thank you, Matisse. We will see you on our next. Thank you.

Operator: Thank you, Matisse. We will see you on our next visit.

Speaker Change: Thank you, Lateef. We will see you on our next...