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FormFactor (FORM) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Information Technology· Jul 29, 2026

Source: earnings call transcript

Executive summary

FormFactor Q2 FY26 — Record Revenue and Profitability Driven by HPC and Advanced Packaging

FormFactor delivered record Q2 FY26 results, driven by strong demand in high-performance compute and advanced packaging, particularly in HBM and co-packaged optics. The company surpassed a $1 billion annual revenue run rate and achieved over 50% gross margin, making significant progress towards its 2030 target model. Operational efficiencies and the upcoming Farmers Branch expansion are key to sustaining this growth and profitability trajectory.

Highlights

5

  • Record Q2 revenue of $258.2 million, up 14% QoQ and $18.2 million above the midpoint of guidance.

  • Non-GAAP gross margin expanded to 53.3%, up 430 bps QoQ, exceeding 50% for the first time.

  • Non-GAAP EPS nearly doubled sequentially to $0.82 per share, more than tripled YoY.

  • Systems segment revenue nearly doubled sequentially to $48.5 million, driven by core engineering probers and co-packaged optics (CPO).

  • Co-packaged optics (CPO) revenue expected to significantly exceed $20 million for the year, up from an initial $10M-$20M range.

Concerns

3

  • DRAM product mix expected to shift significantly towards DDR in Q3, offsetting higher Q3 revenue volumes for gross margin.

  • Farmers Branch ramp will incur some inefficiencies in 2027, though largely offset by operational effectiveness improvements.

  • Capacity constraints across the industry and within FormFactor's current footprint may govern market share growth for new customers until Farmers Branch ramps.

Guidance & targets

CategoryTargetConfidence
Revenue
$270 million, plus or minus $10 million
high materiality
High
Non-GAAP Gross Margin
54%, plus or minus 150 basis points
high materiality
High
Non-GAAP Operating Expenses
$70 million, plus or minus $2 million
medium materiality
High
Non-GAAP Effective Tax Rate
between 15% to 19%
low materiality
High
Non-GAAP EPS
$0.86, plus or minus $0.09
high materiality
High
Co-Packaged Optics (CPO) Revenue
significantly exceed the $20 million level
medium materiality
High
Cash CapEx for Farmers Branch and capacity additions
between $140 million and $170 million
medium materiality
High
Farmers Branch Preproduction Ramp Costs (total)
between $25 million and $30 million
low materiality
High
Farmers Branch Initial Target Capacity Completion
by the beginning of 2028
medium materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Probe Cards
Record DRAM Probe Cards revenue driven by HBM4 and DDR. Foundry and Logic growth from data center CPU, networking, and custom ASICs.
HBM comprised approximately 2/3 of overall DRAM revenueDRAM revenues comparable to record Q2 in Q3significant underlying shift from HBM to DDR in Q3 DRAMFoundry and Logic demand increased significantly over Q1continued growth in Foundry and Logic Probe Card revenue in Q3
———54.4%
Systems
Significant recovery and new record, up $20.6 million QoQ, driven by core engineering prober business and accelerating growth in co-packaged optics (CPO).
CPO revenues to exceed $20 million for 2026leadership in test insertion 1 for CPO
$48.5 million—74%48.5%

Deals & partnerships

Keystone Microtech Expansion of multiyear partnership for semiconductor manufacturing and test services. multiyear

Expands FormFactor's regional footprint in Taiwan, improving local assembly and service capabilities and responsiveness in supporting the exceptionally steep ramps of complex devices like GPUs and custom ASICs.

Capital programs

Farmers Branch site expansion on track to come online in the fourth quarter and ramp throughout 2027
Period spend: between $140 million and $170 million
Spent to date: $12 million
Funding: largely self-funding from increased profitability, more efficient cost structure and cash flow from operations

Benefit:increased capacity at a structurally lower cost, roughly equivalent to our California approach [indiscernible] to date

The expansion is supported by a $24.2 million grant from the Texas Semiconductor Innovation Fund, designated to fund capital expenditures upon meeting certain criteria. Preproduction ramp costs are expected to be $25 million to $30 million in total for 2026, with $7 million expected in Q3.

Risks & headwinds

DRAM Product Mix Shift Q3 FY26

significant underlying shift from HBM to DDR

Mitigation:FormFactor's probe cards are device-specific, so mix will track customer product shifts; company adapts to dynamic market to maximize profit opportunity.

Farmers Branch Ramp Inefficiencies 2027

some measure of inefficiency

Mitigation:Planning to be as efficient as possible, completing ramp quickly, largely offsetting inefficiencies through operational effectiveness improvements.

Capacity Constraints until Farmers Branch comes online

very capacity constrained across the industry

Mitigation:Farmers Branch expansion will provide needed capacity to support market share growth for new customers.

Supply Chain Constraints current

more constraints across the supply chain at current production levels

Mitigation:Global FormFactor team demonstrates remarkable agility in navigating and quickly resolving internal and external constraints.

What to watch in Q3 FY26

Farmers Branch capacity ramp

Q4 2026 and throughout 2027
Current On track to come online in Q4 2026
Target Ramping throughout 2027, contributing meaningful capacity

Why it matters

Essential for next phase of growth, gross margin expansion, and supporting demand.

Our Farmers Branch site expansion remains on track to ramp starting at the end of this year and continue to ramp over the course of 2027. Bringing this capacity up on time and on budget, remains a key focus as it will enable our next phase of growth and gross margin expansion.

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

Q&A highlights

Clarification on the new 51% non-GAAP gross margin baseline and if Farmers Branch accretion is included, and if margins should be higher with increased revenue.

Aric clarified that 51% is the sustainable baseline for current volumes and mix, excluding non-recurring items. Farmers Branch is expected to be accretive to current gross margin levels once online.

“So the recurring or sustainable element of gross margins, we believe, is more like at the current volumes and mix. So we expect that, that's the new baseline that you should be thinking of.”

asked by Sreekrishnan Sankarnarayanan · answered by Aric McKinnis

2 min read 7 chapters

Detailed narrative

Strategic Diversification and Market Position

FormFactor's strategy to serve all major semiconductor customers and applications, rather than concentrating on a single segment, has proven valuable. This diversification is evident in the broad demand across high-performance compute (HPC) and advanced packaging, including high-bandwidth memory (HBM) and co-packaged optics (CPO), and is driving market share gains. The company's unique position at the intersection of HPC and advanced packaging is a key competitive advantage, with 65% of revenue coming from customers not on the 10% customer list.

Taiwan Operations and Foundry Relationship

Taiwan is a critical manufacturing hub for HPC and advanced packaging, with FormFactor playing an important role. Q2 revenue from Taiwan grew over 30% sequentially, and the world's leading foundry remained a 10% customer. The recent expansion of a multiyear partnership with Keystone Microtech in Taiwan further enhances local assembly and service capabilities, supporting the steep ramps of complex devices like GPUs and custom ASICs.

HBM and DDR Market Dynamics

The DRAM Probe Card business saw record revenue, driven by HBM4 demand and sustained DDR applications. HBM comprised approximately two-thirds of overall DRAM revenue, with FormFactor's SmartMatrix technology enabling high-speed HBM4 testing. However, in Q3, a significant shift towards DDR is expected as customers prioritize DDR designs due to higher profitability, leading to a corresponding dynamic product mix.

Foundry and Logic Strength

Q2 saw significant growth in Foundry and Logic Probe Card demand, primarily from data center CPU applications, networking, and initial hyperscaler custom ASICs. FormFactor benefits from long-term relationships with data center CPU leaders, an expanding relationship with a high-performance compute leader, and successful design wins with a large fabless XPU customer, providing broad exposure to growing CPU demand.

Co-Packaged Optics (CPO) Acceleration

The Systems segment experienced rapid growth in CPO, with 2026 CPO revenues now expected to significantly exceed $20 million, up from an initial forecast of $10 million to $20 million. This acceleration is driven by increasing CPO chip volumes and FormFactor's leadership in critical test insertions for photonic integrated circuits (PICs), addressing the physical limits of traditional copper interconnects.

Operational Excellence and Farmers Branch

The company achieved significant operational improvements, driving higher output from existing facilities through yield and cycle time enhancements. The Farmers Branch site expansion remains on track to ramp in Q4 2026 and throughout 2027, providing increased capacity at a structurally lower cost and enabling the next phase of growth and gross margin expansion. This investment is largely self-funded by increased profitability and cash flow, supported by a $24.2 million grant from the Texas Semiconductor Innovation Fund.

Progress Towards 2030 Target Model

FormFactor is making meaningful progress towards its new target model introduced in May, aiming to double revenue to $1.6 billion, achieve 55% non-GAAP gross margin, and more than double non-GAAP EPS to $5 per share by 2030. The Q2 results and Q3 outlook demonstrate strong operating leverage and a clear path to these long-term goals, with the current normalized non-GAAP gross margin at 51%.

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