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FormFactor (FORM) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Information Technology· Apr 29, 2026

Source: earnings call transcript

Executive summary

FormFactor Q1 FY26 — Record Revenue & Strong Margin Expansion Driven by HBM and Networking

FormFactor delivered record Q1 FY26 revenue of $226.1 million and achieved significant non-GAAP gross margin expansion to 49%, exceeding its target model on a run rate basis. Growth was fueled by strong demand in HBM and networking, with an accelerating ramp in co-packaged optics. The company is focused on operational efficiencies and the Farmers Branch expansion to support future growth and margin expansion, with a new target model to be unveiled at its upcoming Investor Day.

Highlights

7

  • Q1 revenue grew sequentially to an all-time record of $226.1 million, exceeding the midpoint of the outlook range.

  • Non-GAAP gross margin reached 49%, a 510 basis point increase quarter-over-quarter and 250 basis points above the high end of the Q1 outlook.

  • Non-GAAP EPS was $0.56, up from $0.46 in Q4 FY25.

  • Q2 revenue outlook of $240 million (midpoint) is expected to set another record.

  • Record revenue is forecasted for DRAM probe cards in Q2, driven by a step-up in HBM demand, including increased adoption by a second customer.

  • Significant growth in foundry and logic probe cards was driven by networking applications, making a high-performance compute leader a 10% customer for the first time, and incremental strength in data center CPU applications.

  • 2026 CPO revenues are expected at the high end of the $10 million to $20 million range, accelerating due to growing volumes and leadership in Insertion 1 test.

Concerns

5

  • GAAP gross margin decreased to 38.4% from 42.2% in Q4 FY25, primarily due to $21.5 million in restructuring costs.

  • GAAP net income for Q1 was $20.4 million ($0.26 per share), down from $23.2 million ($0.29 per share) in the prior quarter, driven by $17.6 million in restructuring-related costs, net of tax.

  • Free cash flow decreased to $30.7 million in Q1 from $34.7 million in Q4, due to greater capital expenditures and higher working capital needs.

  • Gross margins continue to be adversely impacted by tariffs, with approximately 140 basis points assumed in the Q2 outlook.

  • The pace of profitability improvement is expected to moderate later in the year as the company approaches the limitations of its current manufacturing footprint.

Guidance & targets

CategoryTargetConfidence
Q2 Revenue
$240 million, plus or minus $5 million
high materiality
High
Q2 Non-GAAP Gross Margin
49.5%, plus or minus 150 basis points
high materiality
High
Q2 Non-GAAP Operating Expenses
$65 million, plus or minus $2 million
medium materiality
High
Q2 Non-GAAP Effective Tax Rate
15% to 19%
medium materiality
High
Q2 Non-GAAP EPS
$0.61, plus or minus $0.04
high materiality
High
2026 CPO Revenues
high end of the $10 million to $20 million range
medium materiality
High
Farmers Branch Cash CapEx
$140 million and $170 million
high materiality
High
Farmers Branch Preproduction Ramp Costs and G&A
$20 million and $25 million
medium materiality
High
Farmers Branch Initial Production
begin to come online later this year
high materiality
High
Farmers Branch Ramp to Initial Target Capacity
over the course of 2027
high materiality
High
Farmers Branch Initial Target Capacity
equivalent to our existing California footprint (roughly 60% of our existing probe cards business today)
high materiality
High
Share Repurchase Program
offset dilution from stock-based compensation
medium materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
DRAM Probe Cards
Delivered expected sequential growth from Q4 FY25 to reach another record in Q1 FY26, driven by increased HBM applications and sustained DDR demand. Forecasting record revenue in Q2 FY26, driven by another step-up in HBM demand, primarily from a second customer's increased adoption of Smart Matrix technology for HBM4 testing.
HBM demand: increasedDDR demand: sustainedSmart Matrix full wafer contactor technology adoption: increased by second customer
Record—Sequential growth—
Foundry and Logic Probe Cards
Q1 FY26 demand increased significantly over Q4 FY25, driven primarily by networking applications, making a high-performance compute leader a 10% customer. Q2 FY26 expects continued growth from incremental strength in data center CPU applications (linked to AI inference) and continued strong networking demand, as well as steady PC and mobile demand.
Networking applications: primary driver of Q1 growthData center CPU applications: incremental strength in Q2PC and mobile demand: steady
Increased significantly—Increased significantly—
Systems segment
Experienced expected seasonal reduction in demand in Q1 FY26. Non-GAAP gross margin declined to 38% (down 350 bps QoQ) due to softer demand and transition to Triton production for CPO. Focus continues on CPO growth and quantum computing.
Co-package optics (CPO) growth opportunityQuantum computing challenges: helping customers solve
Seasonal reduction—Seasonal reduction38%

Product announcements

ProductTypeDetails
Flatiron dilution refrigeratorlaunch

Deals & partnerships

Keystone Photonics Integration of fourth-quarter acquisition to define and execute silicon photonics and co-packaged optics probing roadmap.

Successfully integrated the fourth-quarter acquisition.

Capital programs

Farmers Branch site expansion on track
Period spend: $140 million and $170 million (cash CapEx for 2026); $20 million and $25 million (preproduction ramp costs and G&A for 2026)
Spent to date: $7.1 million (Q1 FY26 operating expenses related to preproduction ramp)
Funding: certain incentives (including $24 million in cash grants)

Benefit:increased capacity with structurally lower costs; initial target capacity equivalent to existing California footprint (roughly 60% of current probe cards business)

The project is on track and expected to begin coming online later this year, ramping over 2027. It is expected to be accretive to gross margins upon completion of the ramp to initial target capacity. Incentives include $24 million in cash grants designated to fund capital expenditures.

Risks & headwinds

Tariffs Q2 FY26

around 140 basis points of tariffs in our outlook for Q2

Mitigation:Actively monitoring developments; potential refund of $9 million to $11 million from previously paid tariffs due to Q1 FY26 Supreme Court ruling.

Production capacity constraints Later this year

pace of profitability improvement will moderate as we approach the limitations of our current footprint, later this year

Mitigation:Farmers Branch site coming online later this year to provide increased capacity and structurally lower costs.

Yield learning curve for new CPO technology As new technology ramps

discussed_not_quantified

Mitigation:Focusing on Insertion 1 as foundational optical probing technology, which can be ported to other insertions. Active conversations on all insertions with partners and customers.

What to watch in Q2 FY26

Farmers Branch ramp progress

End of 2026
Current on track and expected to begin to come online later this year
Target Initial production online

Why it matters

This expansion is key to increasing capacity, lowering costs, and enabling future revenue and gross margin expansion.

Our Farmers Branch site expansion is the next key priority. And the project is on track and expected to begin to come online later this year and to ramp over the course of 2027.

Find out whether FORM delivers this. Inve re-checks your case every morning.

Q&A highlights

Why is NVIDIA broken out separately, how much is networking-related, and what does it imply for market share?

NVIDIA crossed the 10% customer threshold based on purchase orders and invoices. The second 10% customer is associated with networking applications. GPU qualification is nearing completion, with $20 million in revenue expected in the second half of the year, likely from the foundry.

“With all customers, as we report them as -- when they cross the 10% threshold is required to it's based on who's placed the PO and who's paying the invoice. And so in this case, you see we have 2, 10% customers in this quarter. And as I described on the call, the second 10% customer is associated with networking.”

asked by Brian Chin · answered by Mike Slessor

2 min read 6 chapters

Detailed narrative

Operational Excellence and Margin Expansion

FormFactor achieved its target model of 47% non-GAAP gross margins at $850 million in annual revenues on a run rate basis in Q1 FY26, reaching 49%. This improvement was driven by operational effectiveness, manufacturing yield improvements, reduced manufacturing spending, and cycle time reductions. The company expects the bulk of these improvements to be durable, with further moderate gains throughout 2026, and anticipates another 50 basis points of expansion in Q2.

High-Performance Compute and Advanced Packaging Leadership

The company continues to benefit from its leadership position at the intersection of high-performance compute and advanced packaging, two powerful trends transforming the semiconductor industry. This strategic positioning is critical as test intensity and complexity continue to rise. Growth is fueled by strength in familiar areas like HBM and accelerating contributions from newer foundry and logic opportunities like networking.

DRAM Probe Card Strength

FormFactor delivered expected sequential growth in DRAM probe cards in Q1 to reach another record, with increased demand in HBM applications paired with sustained demand in DDR applications. The company is forecasting record revenue in DRAM probe cards again in Q2, driven by another step-up in HBM demand. This incremental growth is largely from a second customer's increased adoption of FormFactor's Smart Matrix full wafer contactor technology, enabling high-speed testing for HBM4.

Foundry and Logic Diversification

Foundry and logic demand increased significantly in Q1 over Q4, primarily driven by growth in probe cards for networking applications, which led to a high-performance compute leader becoming a 10% customer for the first time. In Q2, the company expects continued growth in foundry and logic probe revenue, driven by incremental strength in data center CPU applications (linked to AI inference use cases), continued strong networking demand, and steady PC and mobile demand. FormFactor is also expanding its custom ASIC business with hyperscalers and their ASIC design partners.

Co-Packaged Optics (CPO) Ramp

The ramp of the Triton production test system for co-packaged optics (CPO), co-developed with Advantest and Tokyo Electron, is accelerating. FormFactor now expects 2026 CPO revenues to reach the high end of the previously communicated $10 million to $20 million range. This acceleration is due to growing volumes of CPO chips and the company's leadership in Insertion 1 test, which ensures known good die on the photonic integrated circuit (PIC) wafer, a critical step for high yields in CPO modules.

Farmers Branch Expansion Progress

The Farmers Branch site expansion project is on track and expected to begin coming online later in 2026, with a ramp over the course of 2027. This increased capacity is anticipated to provide structurally lower costs, creating the foundation for future revenue growth and gross margin expansion beyond the current target model. The initial target capacity is estimated to be equivalent to roughly 60% of the company's existing probe cards business today.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.