FormFactor is an OEM of wafer probe cards used in the back end of
the semiconductor manufacturing process. The company's second
quarter earnings missed the Zacks consensus estimate by a couple of
cents. Management provided encouraging revenue guidance for the
upcoming quarter. We believe that FormFactor's decision to shift
focus away from the PC DRAM market toward mobile segment is likely
to be beneficial. Form has the product pipeline and cost structure
to register robust growth and profitability going forward. However,
we believe the weakening demand for probe cards might prevent the
company from absorbing all of its manufacturing costs, impacting
margins. We have a Neutral recommendation on FormFactor shares.
Based in Livermore, CA, FormFactor, Inc. (FORM) is an original
equipment manufacturer (OEM) of automated wafer probe cards that
are used in the back-end portion of the semiconductor integrated
circuits (ICs) manufacturing process. The company went public
through an IPO in June 2003.
The back-end of the manufacturing process takes place after a
wafer (usually made of silicon) has completed the device formation
stage, in which multiple copies of an IC device have been
constructed on it. A wafer prober then moves the wafer so that each
IC device's electrical contact points are properly aligned with the
probe card's pins, facilitating the parametric or functional
testing of the device. Parametric testing is done both during and
at the completion of the device fabrication process. Functional
testing, done after final construction, determines whether the
device meets performance specifications (wafer sorting).
Following the wafer sort, the wafer is cut or separated into
individual die. Electrical leads are then attached to the die
surface. This is followed by die encapsulation and packaging within
an environmentally protective encasement. The purpose of the die
package or encasement is to protect the semiconductor device from
environmental elements and secure the electrical contacts to the
protruding electrical leads. In addition, the encasement acts as a
medium through which thermal energy or heat is dissipated from the
die. A final test is then conducted on the chip.
Roughly 85% of wafer probers are used in wafer sorting
applications, while the rest are used in parametric testing. Thus
most of the testing is done in the back-end of the fabrication
process. Each probe card is custom-built for each specific wafer,
as well as for the test equipment that accepts the probe card's
electronic information. Functionally, this test equipment increases
the efficiency of the manufacturing process through the detection
and removal of defective semiconductor devices prior to final
The primary challenges facing wafer prober and probe card
manufacturers are the transition to larger wafers, the shrinking of
device sizes, increasing throughput requirements, and devices
running at greater speeds and at lower power.
FormFactor has an extensive intellectual property (IP)
portfolio, with over 707 patents.
The company's wafer probe cards are used by manufacturers of
dynamic random access memory (DRAM), system-on-chips (SoCs) and
Flash. These three markets generated 57%, 26% and 17% of 2012
revenue, respectively. DRAM revenue was down 11.4%, SoC up 60.4%
and Flash up 19.7% from 2011 levels.
The principal technology used in the probe cards is the
proprietary MicroSpring interconnect technology, which utilizes a
MicroElectroMechanical Systems (MEMS) approach. Here, a spring is
used to push the probe card contact point down sufficiently to
establish electrical contact, thus limiting the number of times the
surface has to be touched by the probe card ( touchdown') to
complete the required electronic testing, thus speeding up the
testing process. The wafer probe cards are, of necessity, custom
designed and built to mechanically fit and electrically test a
customer's unique semiconductor wafer design. The rest of the
company's probing system product line consists of MicroLign,
MicroForce, TRE X64 X253 and high-speed probing.
Products are primarily distributed through a direct sales force,
supplemented with a distributor (Spirox) in China and three
independent sales representatives in Europe and North America. SK
hynix was the largest customer in 2012, having generated 29.4% of
total revenue. Samsung was the second largest customer in 2012 with
a 12.4% share.
Given the manufacturing locations in Asia, the company derives
most of its revenues from the region. North America has started to
grow in recent times because of the increasing level of
manufacturing activity in the region. The revenue distribution by
geography was as follows South Korea 33% (up 49.2% from 2011),
Taiwan 21% (down 31.4%), North America 15% (up 6.3%), Japan 12%
(down 27.7%), Asia/Pacific 13% (up 62.9%) and Europe 6% (up
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