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Mike Slessor

Mike Slessor

CEO
FormFactor
24 December 2024

FormFactor, Inc. (NASDAQ:FORM) is a leading provider of essential test and measurement technologies along the full IC life cycle – from characterization, modeling, reliability, and design de-bug, to qualification and production test.


FormFactor has a saying: “Paving the shortest path from lab to fab” for its customers. How do you do this?

FormFactor provides electrical and optical test and measurement technologies, serving clients like Intel, TSMC, and Samsung. These technologies are crucial for the quick evaluation of new devices such as AI processors, memory chips, silicon photonic switches, and even quantum computers as they are developed in the lab. Once these devices reach production in the fab, our technology then helps diagnose issues related to yield and quality, which improves manufacturing yields and accelerates our customers’ production output. 

Our diverse product lineup, ranging from large capital equipment to small contactors and probe cards, plays an essential role in ensuring testing of chips at various stages of the manufacturing process. This yield improvement and characterization capability are vital for customers, enabling them to ramp up their technological solution effectively and bring them to volume market efficiently.

Could you explain how you are improving yield numbers for your customers with a practical example?

FormFactor leads the market in probe cards, which are used to  ensure the quality of our customers' chips before they are integrated into larger modules. You can think of a probe card as a complex connector between the chip and test equipment to verify the chip’s functionality in its final application.

Our products conduct high-speed, high-current tests to identify manufacturing defects, enabling customers to make critical adjustments to their manufacturing processes, and to screen out defective chips. This leads to higher yields and improved product reliability. Probe cards, for example, help pinpoint problem areas on the chip, allowing our customers to refine the manufacturing process for better yields.

What key challenges do you face in balancing demand and growth, especially considering the industry's cyclical nature?

The semiconductor industry is cyclical, despite its long-term growth and  projections for continued growth to a trillion-dollar industry by the end of the decade. Balancing expansion with profitability is a challenge. As a publicly traded company, we must deliver results to shareholders while also investing in capacity and new technology. Managing short-term industry fluctuations alongside long-term growth and innovation is critical. The COVID-19 pandemic led to overinvestment and inventory accumulation, particularly in the automotive sector, causing current market fluctuations. Our strategy involves diversifying exposure across various semiconductor end uses to mitigate cyclicality, maintaining both profitability and sustained growth through the cycles.

Do you notice any talent shortages at FormFactor given the fast growth rate of the sector?

The semiconductor industry's growth requires smart, passionate individuals, especially in electrical engineering, physics, and material science. However, there's a notable shift of talent towards software, AI, and machine learning, creating a gap in for hardware-oriented companies. This talent shortage poses a challenge not only for us but for the entire U.S. semiconductor industry. Trade groups like SEMI are working to accelerate workforce development, but attracting and retaining talent in hardware remains crucial. Additionally, geopolitical aspects, such as competition between China and the U.S., compound this challenge. Ensuring a steady pipeline of skilled professionals is vital for sustaining growth and innovation.

What was the reasoning behind your divestiture of your China operations?

The decision aligns with broader geopolitical and strategic considerations. The semiconductor industry is heavily influenced by geopolitics, particularly between China and the U.S. Divesting from China reflects a strategic move to navigate these complexities, ensuring our growth and stability in a changing global landscape.

Export controls have limited our ability to ship products to China, and China's efforts to develop its semiconductor industry influenced our decision. By monetizing our assets in China, we captured remaining value while continuing to operate in the region through partnerships, maintaining engagement with the Chinese market.

Where do you see the semiconductor industry going in the next three to four years, and what advancements can we expect?

Significant regional investments are driving the industry, prompted by initiatives like the CHIPS Act in the U.S. and similar initiatives around the globe. This response to supply chain disruptions and the strategic importance of semiconductors is leading to substantial onshoring, diversifying capacity that is currently concentrated in Taiwan and Southeast Asia.

Industry growth is driven by increasing semiconductor content in cars, investments in generative AI, and advancements in everyday products. Despite cyclical ups and downs, we anticipate robust long-term growth. At FormFactor, our focus will remain on innovation, particularly in testing semiconductors for applications like the high-speed memory used in generative AI applications.

What advancements can we expect in GenAI from a consumer perspective in the next two years?

Our role in enabling GenAI applications such as ChatGPT and Microsoft CoPilot is more behind-the-scenes, but the advancements are exciting. These applications depend on semiconductors from companies like NVIDIA and SK hynix, and  our technology helps these companies to build more complex and capable chips, which drives GenAI capability. As GenAI use cases evolve, we expect useful real-world applications to explode, increasing demand for the advanced semiconductors that power the Large Language Models at the heart of GenAI. 

Is there a particular use case you are excited about resulting from your work?

We are excited about improving yield in semiconductor manufacturing, reducing waste, and enhancing efficiency. By improving yields, we help make resource-intensive processes more efficient and lower their environmental footprint. We are investing in products to test silicon photonics and co-packaged optics to boost data center energy efficiency by replacing electrical connections with lower-power optical connections.

These advancements are crucial as data centers face significant energy consumption challenges. We are proud to enable complex end applications like drug discovery while making computations more energy-efficient, reducing the semiconductor industry's environmental impact.

What key milestones can investors expect from FormFactor in the coming year?

As the market leader and top innovator in our field, we have a clear vision for the future. set a  financial target of $850 million in annual revenue and $2 in earnings per share. We are progressing toward this model, with recent performance reflecting this. Investors can anticipate continued growth driven by our market leadership and innovation. The next milestones include achieving our current financial targets and committing to a new model reflecting further growth in revenue and profitability. By expanding market share and enhancing profitability through innovation, FormFactor will become increasingly integral to the semiconductor ecosystem, promising ongoing growth for investors.