Analysis FORM
FormFactor's chip-testing boom needs more factory space
July's sales and earnings targets proved too cautious. The next quarter's margin outlook is more measured as the semiconductor supplier prepares for its next phase of growth.
FormFactor has produced four straight quarterly sales records by getting more output from its factories. A new factory in Farmers Branch is becoming increasingly important as the existing sites near their capacity limits.
The company makes probe cards and other equipment that semiconductor manufacturers use to check chips during development and production. Stronger demand helped revenue in the third quarter of 2026 rise 38.4% from a year earlier to $280.5 million. Reported net profit reached $73.8 million, up from $15.7 million.
Chief Executive Officer Mike Slessor said productivity gains from the existing manufacturing footprint were moderating as it neared capacity limits. FormFactor is bringing the new factory online to add room for growth.
In its previous quarterly filing, the company expected production at Farmers Branch to start ramping up late in the fourth quarter of 2026.
A promise of better margins shows results
A year ago, Slessor said actions to improve profitability would continue through 2026. The latest figures show how far the results have moved: gross margin, the share of sales left after production costs, reached 54.7%, compared with 39.8% a year earlier.
FormFactor also delivered on the targets it set in July. Revenue narrowly exceeded the top of its $260 million to $280 million forecast. Adjusted earnings of $1.04 a share beat the earlier range of 77 to 95 cents. Reported earnings of 93 cents also exceeded their separate forecast.
The adjusted measure leaves out costs including employee share awards, restructuring and the gradual write-down of acquired assets, with their tax effects. Both reported and adjusted profit improved, so the progress does not depend on those exclusions alone.
More sales may come with a lower margin
The next forecast is more measured. For the fourth quarter, FormFactor expects $275 million to $295 million of revenue, with a midpoint above the latest quarter. It forecasts a reported gross margin of 52.3%, plus or minus 1.5 percentage points, below the third-quarter result.
The company is planning for more sales without assuming another margin record.
Expansion is already taking more money. Quarterly spending on property and equipment reached $39.6 million, compared with $7.5 million a year earlier. Factory start-up costs, recorded separately as operating expenses, rose to $6.4 million from about $1 million.
Cash generation has strengthened too. Operations brought in $104.3 million during the quarter, against $27 million a year earlier. FormFactor ended September with $138.2 million in cash and $257.2 million in marketable securities.
The FormFactor company profile tracks the quarterly comparisons and factory timetable.