FormFactor (NASDAQ:FORM) reported fourth-quarter results that topped the company’s outlook on revenue, margins, and earnings, with management pointing to stronger demand tied to advanced packaging and high-performance computing and to a faster-than-expected pace of gross margin improvement actions.
Chief Executive Officer Mike Slessor said fourth-quarter revenue, gross margin, and earnings per share exceeded both third-quarter results and the high end of the company’s guidance range. He added that FormFactor posted record revenue on both a quarterly and annual basis, and expects to deliver sequentially higher revenue and non-GAAP gross margin in the first quarter.
Fourth-quarter results and margin progress
- GAAP gross margin: 42.2%, up from 39.8% in Q3.
- Non-GAAP gross margin: 43.9%, up 290 basis points sequentially from 41% in Q3, driven primarily by improved probe card segment margins.
- GAAP net income: $23.2 million, or $0.29 per diluted share (up from $15.7 million, or $0.20, in Q3).
- Non-GAAP net income: $36.6 million, or $0.46 per diluted share (up from $25.7 million, or $0.33, in Q3).
- Free cash flow: $34.7 million in Q4 versus $19.7 million in Q3.
McKinnis highlighted the company’s focus on improving gross margins sustainably through operational effectiveness and financial discipline. He cited actions over the past two quarters including workforce reductions and reallocation, yield improvements in key process areas, manufacturing spend reductions, and shorter cycle times. He said non-GAAP gross margin expansion totaled 540 basis points cumulatively through Q4 2025, and the company expects an additional 110 basis points of expansion at the midpoint of Q1 guidance.
In response to questions, management said roughly two-thirds of the gross margin improvement since Q2 2025 was tied to cost-side initiatives such as cycle time and yield, with the remainder attributed to factors including volume; McKinnis noted Q4 benefited from volume.
First-quarter outlook and tariff headwinds
For the first quarter, FormFactor guided to revenue of $225 million plus or minus $5 million. The company expects non-GAAP gross margin of 45% plus or minus 150 basis points and non-GAAP EPS of $0.45 plus or minus $0.04.
McKinnis said the company continues to see an approximately 200 basis point headwind to gross margin from tariffs. In discussion of the company’s target model, he said the previously discussed 47% gross margin target at an $850 million annual revenue run rate did not assume tariffs; with the tariff impact, he described 45% as the adjusted target while the headwind persists. As a mitigation path, he pointed to pursuing “drawbacks,” a process to reclaim tariffs paid on items that are re-exported, but said it could take several quarters before recoveries appear in the P&L.
Non-GAAP operating expenses for Q1 were guided to $62 million plus or minus $2 million, about $4.5 million higher than Q4, mainly due to costs tied to the Farmers Branch manufacturing expansion.
Demand drivers: DRAM, HBM, and data center applications
Slessor described strong demand in served markets as customers invest in test intensity and test complexity, particularly at the intersection of advanced packaging and high-performance compute. He said FormFactor holds leading positions in areas including HBM and DRAM as well as network switches and parts of the foundry and logic market, while it continues qualification work in GPUs and custom ASICs.
In DRAM probe cards, Slessor said Q4 delivered sequential growth to a record, driven by non-HBM DRAM applications such as DDR4 and DDR5. For Q1, he said the company expects another all-time DRAM record, “this time on HBM strength,” with contributions from sustained HBM3E demand and the early stages of the HBM4 ramp.
Management emphasized that higher stack heights and faster interfaces are increasing test intensity and complexity. Slessor said HBM4 moves to 16-high stacks, up from 8- and 12-high stacks for HBM3/3E, and he highlighted rising bandwidth and I/O speeds as a driver of more complex test requirements. He also said FormFactor’s SmartMatrix architecture is “production-proven” for combining high parallelism with high-speed test capability, which the company believes is supporting market share gains across all three major HBM manufacturers, though Q1 HBM revenue remains skewed toward its largest customer.
On an HBM intensity question, Slessor offered a rule of thumb of “maybe 20%-25%” higher test intensity per generation on a like-for-like basis, while noting stack height is also a major driver.
In foundry and logic probe cards, Slessor said Q4 demand was comparable to Q3, but the company expects increased demand in Q1 driven by a “significant shift” toward data center applications such as network switches rather than historical drivers like PC, client, and mobile. He also pointed to diversification in the customer base, noting that a historically top customer—a large microprocessor IDM—was not a 10% customer in Q4 or for 2025 overall despite record revenue.
Capacity, Farmers Branch expansion, and strategic moves
Both executives tied margin improvement efforts to increased output from the existing manufacturing footprint. McKinnis said better cycle times, yields, and workforce deployment are allowing more output from the same resources, supporting the company’s ability to operate at a $225 million quarterly revenue run rate. He said the company expects further incremental output improvements through 2026, though at a more moderate pace.
Management reiterated that the new Farmers Branch site is expected to begin coming online later in 2026 and ramp over the course of 2027. McKinnis said capital expenditures tied to Farmers Branch are expected to be $140 million to $170 million over 2026, with pre-production operating expenses of about $6 million in Q1 2026 and $20 million to $25 million over 2026. Once production begins at the end of 2026, he said most of those costs will be recorded in cost of goods sold and that Farmers Branch is expected to be accretive to gross margins upon completion of the ramp.
On capital allocation, McKinnis said the company did not repurchase shares in Q4 and had $70.9 million remaining under its $75 million two-year buyback authorization announced in April 2025. He said FormFactor remains committed to offsetting dilution from stock-based compensation, but is prioritizing cash deployment to accelerate the Farmers Branch ramp in the near term.
FormFactor also discussed its December acquisition of Keystone Photonics, which Slessor said strengthens the company’s optical test capabilities in co-packaged optics (CPO). McKinnis said the company used about $20 million in cash for the acquisition, and total cash and investments rose $9.1 million sequentially to $275 million.
Looking ahead, Slessor said FormFactor will host an Analyst Day on May 11 where the executive team plans to share the company’s next target financial model and discuss market opportunities and strategic priorities.
About FormFactor (NASDAQ:FORM)
FormFactor, Inc (NASDAQ:FORM) is a leading provider of advanced test and measurement solutions for the semiconductor industry. The company specializes in the design, development and manufacture of high-performance wafer-level and package-level test interfaces used in wafer sort, characterization, reliability and failure analysis applications. By leveraging precision microelectromechanical systems (MEMS) and photolithographic processes, FormFactor delivers probe cards, analytical probes and test sockets that enable device makers to validate next-generation integrated circuits across logic, memory, RF, analog and power applications.
FormFactor’s product portfolio includes custom probe cards for wafer probers, TEM-based analytical probes for material and device characterization, and socket solutions for burn-in and final test of packaged devices.
