FormFactor (NASDAQ:FORM) reported its second-quarter earnings after the market close on July 29. The company reported a solid quarter, beating analyst estimates for both earnings and revenue. Quarterly revenue came in at $73.9 million, up 10% year over year and about $3 million higher than analysts were expecting. Non-GAAP EPS was $0.11, up from $0.08 during the same period last year, and two cents higher than the average analyst estimate.
Growth despite PCs
The weak PC market has hit the results of many companies, but FormFactor was able to grow both the top and bottom lines during the second quarter. Revenue grew year over year in most of the company's geographical regions, with 19.1% growth in Asia-Pacific, 1.2% growth in North America, 6.1% in South Korea, and 88.2% in Japan. The Europe/Middle East region suffered a 35% revenue decline, but with this region now accounting for just 8% of total revenue, growth in other regions more than made up for the weakness.
FormFactor operates in three market segments, and growth in the DRAM segment balanced out a decline in both the SoC segment and the Flash segment. SoC revenue fell by 5.2% year over year to $34.6 million, while DRAM revenue grew by 33.7% to $35.3 million, and Flash revenue declined by 11.1% to $4 million. FormFactor pointed to strong demand for mobile, server, and commodity DRAM, as well as market-share gains at a major South Korean memory producer, as the main drivers behind its revenue growth.
CEO Mike Slessor had this to say about the company's results: "In the second quarter of 2015, the company again delivered strong operational and financial performance in a solid demand environment. Despite the current headwinds in PC-related end-market demand, we remain encouraged by our strong and growing position in the overall advanced probe card market while executing on a structurally profitable operational model."
On a GAAP basis, operating income of $697,000 was a substantial improvement compared with a $4.3 million loss in the same period last year. Revenue growth and lower operating costs were behind this improvement in profitability. SG&A expense declined by 13.7% year over year, while R&D increased by just 1.3%. Gross margin rose to 31.5%, up from 29.7% during the same period last year.
FormFactor has been mostly unprofitable on both a GAAP basis and a free-cash-flow basis since 2008. Through the first six months of this year, the company's GAAP net income was $1.6 million, far better than the $17 million net loss the company had through the first half of 2014.
Operating cash flow through the first six months of this year was $21.7 million, compared with a loss of $521,000 in the same period last year. Free cash flow surged to $17.4 million, up from a loss of $3.5 million during the same period last year.
FormFactor's top four customers accounted for 61% of its revenue during the second quarter, up from 53.1% during the same period last year. Micron, Intel, Samsung, and SK Hynix accounted for 17.8%, 17.1%, 13.1%, and 13% of revenue respectively during the quarter.
FormFactor ended the quarter with $168.8 million in cash and marketable securities, with no debt. At market close on July 29, this cash represented about 45% of the company's market capitalization.
Overall, FormFactor reported a strong quarter, driven by high demand for DRAM. This situation could change going forward, as Gartner expects industrywide DRAM revenue to decline in both 2016 and 2017, and that could hurt FormFactor's results. Despite a weak PC market, profitability dramatically improved during the second quarter, and a long streak of losses stretching back to 2008 seems to have been broken.