FormFactor Inc (FORM) 2015 Q3 法說會逐字稿

Welcome, everyone, to FormFactor's third-quarter 2015 earnings conference call. On today's call are Chief Executive Officer, Mike Slessor, and Chief Financial Officer, Mike Ludwig. Before we begin, also here is Jason Cohen, the Company's General Counsel, to remind you of some important information.

Thank you. Today the Company will be discussing GAAP P&L results and some important non-GAAP results intended to supplement your understanding of the Company's financials. Reconciliations of GAAP to non-GAAP measures and other financial information are available in our press release issued today, and on the Investor Relations section of our website.

Today's discussion also contains forward-looking statements within the meaning of the federal securities laws. Examples of such forward-looking statements include projections of financial and business performance; future macroeconomic conditions; business momentum; business seasonality; the anticipated demand for our products; our future ability to produce and sell products; the development of future products and technologies; and the assumptions upon which such statements are based.

These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed during this call. Information on risk factors and uncertainties is contained in our most recent SEC filing on Form 10-K and in our other SEC filings available on the SEC's website at www.sec.gov and in our press release issued today.

Forward-looking statements are made as of today, October 28, 2015, and we assume no obligation to update them.

With that, we will now turn the call over to our CEO, Mike Slessor.

Good afternoon, everyone, and thanks for joining us today.

In the third quarter of 2015, FormFactor delivered a non-GAAP net profit and generated cash for the sixth consecutive quarter, even in the face of some well publicized industry headwinds. At a revenue level approaching our financial model breakeven, we validated that model and demonstrated ongoing cost discipline. At the same time, we continued to invest in the key initiatives that will drive FormFactor's future share gains in the growing advanced probe card market.

As we progress through the fourth quarter we are experiencing stronger demand during what has historically been one of our weaker seasonal periods. Interestingly, this year's fourth quarter is also set against a backdrop of reduced overall capital equipment spending by our customers. FormFactor's current favorable situation is the result of both the design-specific consumable nature of probe card demand, as well as the market share gains resulting from our technology leadership and continuously improving operational execution.

Our SoC probe card business was robust in the third quarter, delivering sequential gains off a solid second quarter. This growth was driven primarily by supplying 16-nanometer mobile application processor projects in the fabless foundry ecosystem. This theme continues at present and is now augmented by accelerating demand in our microprocessor probe card business, as a key customer begins to ramp multiple new designs.

As we described in detail on our last earnings call, introduction of new integrated circuit designs by our customers, even on the same silicon node, using the same capital equipment, requires completely new sets of probe cards.

In addition, the fine-pitch copper pillar packages of these latest SoC devices require advance probe architectures, such as FormFactor's MEMS probe technology, that are only available from a few suppliers with the scale and resources to productize and support these technologies. Although our visibility remains limited as usual, these two factors are enabling us to deliver strong SoC results.

Consistent with many industry data points, our DRAM business was weaker in the third quarter when compared to the first two quarters of the year. We continued to supply probe cards for devices on leading edge nodes such as 20 nanometer and for leading edge designs such as DDR4 in both the server and mobile spaces. There is also some limited PC DRAM activity at present. However, it is a relatively small fraction of the overall business.

Although the DRAM industry outlook for 2016 is uncertain, we are encouraged by our ongoing interactions with all three major DRAM manufacturers who are articulating plans to make measured investments in both leading edge capacity and new designs.

I'd like to take a moment to view our combined SoC and DRAM demand in the context of our third-quarter financial results. From these, it's clears that FormFactor's growth and diversification efforts of the past few years are providing broadened exposure to the overall semiconductor industry, resulting in an expanded opportunity and revenue base from which to operate the business.

Our Vector product represents an additional element of further growth and diversification, enabling meaningful future share gains in the $200-million-plus NAND flash probe card market. We recently traversed a key internal product release milestone and, while we gradually ramp shipments, we are continuing to fortify our internal manufacturing processes to improve cost, lead time, and quality.

At the same time we are competing for multiple 3D NAND production designs at the two customers where we are qualified and expect to deliver $2 million to $3 million of incremental quarterly revenue from Vector in the first half of 2016.

Finally, we continue to both buy back shares and pursue M&A opportunities. In our selection of M&A candidates, we remain committed to deploying our capital against attractive opportunities from both valuation and strategic perspectives.

In particular, we are targeting acquisitions that we expect to be pro forma accretive to earnings per share in the first year after closing, as well as to expand our addressable market, leverage our significant R&D and channel investments, and create a long-term product and technology synergies.

We'll now turn the call over to Mike Ludwig for details of our third-quarter results and our fourth-quarter guidance.

Thank you, Mike, and good afternoon.

Overall, the financial performance of the Company in Q3 was better than the midpoint of our Q3 guidance and slightly better than our communicated financial model for the revenue level achieved. As Mike mentioned, with continued focus on execution and spending discipline we generated our sixth consecutive quarter of positive non-GAAP earnings and positive cash flow.

Revenues for Q3 of $65.9 million decreased $8 million, or 11%, compared to both a strong second quarter of 2015 and a strong third quarter of 2014. The decreased Q3 revenues compared to the second quarter were driven primarily by a decrease in our DRAM probe card revenues resulting from a weak PC environment that began in Q2 and carried into Q3.

SoC revenues in Q3 of $36.5 million increased $1.9 million, or 5%, compared to our second quarter. SoC revenues comprised 55% of our revenues in the third quarter. We achieved higher mobile processor revenues driven primarily by new designs that resulted in higher overall SoC revenues in the quarter compared to Q2.

Third-quarter revenues for DRAM products were $27.5 million, a decrease of $7.8 million, or 22% compared to the second quarter. DRAM revenues comprised 42% of our revenues in the quarter. The decline was primarily attributable to lower revenues from probe cards serving the PC market.

Flash revenues were $1.9 million for the third quarter, a decrease of $2.1 million from the second quarter. NOR flash revenues were $1 million in the third quarter and NAND flash revenues, including our new Vector probe card architecture, were $0.9 million in the quarter.

Third-quarter GAAP gross margin was $18.5 million, or 28% of revenues, compared to $23.3 million, or 31.5% of revenues, for the second quarter. GAAP gross margin expenses in Q3 included $0.8 million for stock-based compensation and $2.8 million for the amortization of intangibles.

On the non-GAAP basis gross margin for the third quarter was $22 million, or 33.4% of revenues, compared to $26.7 million, or 36.1% of revenues, for the second quarter. The decrease in the third quarter of non-GAAP gross margin resulted from lower revenues which results in lower absorption of fixed costs and a less favorable product mix compared to the second quarter.

Our GAAP operating expenses were $21.8 million for the third quarter, a decrease of $0.8 million compared to Q2. GAAP operating expenses in the third quarter included $2.3 million for stock-based compensation and $0.7 million for amortization of intangible assets.

Non-GAAP operating expenses for the third quarter were $18.5 million, 28% of revenues, a decrease of $1.5 million compared to the second quarter. Variable compensation costs were lower in the third quarter due to reduced profitability.

The tax provision in the third quarter was $0.2 million compared to a tax provision of $24,000 in the second quarter.

GAAP net loss was $2.5 million, or $0.04 per share, for the third quarter compared to GAAP net income of $0.8 million, or $0.01 per fully diluted share for Q2.

Non-GAAP net income was $3.3 million, or $0.06 per fully diluted share, for Q3 compared to $6.7 million, or $0.11 per fully diluted share, for Q2.

Cash, comprised of cash, short-term investments, and restricted cash, ended the third quarter at $184.3 million, $5.1 million higher than Q2. Excluding cash used for stock buybacks, the Company generated $8.6 million of cash in the quarter. The Company used $3.5 million to repurchase 473,000 shares in the third quarter.

Here are some other financial details for the third quarter.

Our depreciation and amortization in the third quarter was $6 million, including $2.7 million for depreciation and $3.3 million for amortization of intangible assets.

Our capital expenditures in Q3 were $2.4 million, which brings our year-to-date expenditures to $6.7 million, within our planned annual CapEx of $8 million to $10 million.

Our stock-based compensation for the third quarter was $3.1 million.

With respect to the fourth quarter, we see a continued strong SoC environment. We expect fourth-quarter revenues to be in the range of $68 million to $73 million. We anticipate a more favorable product mix for Q4, which should benefit our margins. Therefore, we expect the non-GAAP gross margin to be in the range of 34% to 37%.

We expect non-GAAP fully diluted earnings will be $0.07 to $0.12 per share.

We expect cash flow will be positive $4 million to $7 million before the impact of stock repurchases.

With that, let's open the call to questions. Operator?

Thank you. (Operator Instructions)

Operator, let's hang on for a couple minutes. There must be technical difficulty somewhere, so let's hold the line here.

(Operator Instructions) Tom Diffley; D.A. Davidson.

(Discussion regarding technical difficulties)

So, I guess getting into the business here, you said that DRAM business is somewhat weak right now. A lot of that's PC-driven. What do you see in terms of the conversions to the 2X node as far as a driver over the next few quarters?

Certainly when we look at the design activity and the projects that we're working on with the three major DRAM manufacturers, all of these things are pretty heavily biased towards 20 nanometer or whether you want to call it 2y/2z nanometers, somewhere around the 20-nanometer node. Obviously each of our customers are ramping those at different rates and on different timelines. But I would characterize that as where the majority of the activity is right now.

There certainly is still some activity, for example, reorders of existing designs on things like 25 nanometer on higher nodes. But certainly, as we characterized in the prepared remarks, a lot of the activity is at the leading edge, whether it be 20 nanometer per se, or the DDR4 architectures that our customers are releasing.

Okay, thanks. And then, when you look at the Vector business and the $2 million to $3 million a quarter of business you're projecting for the first half of next year, is that in addition to your other flash business, the NOR business? And is that just --

That's correct.

-- (multiple speakers) that total?

So, incrementally, Vector -- and to be clear, the expectation that we have is $2 million to $3 million of quarterly revenue achieved in the first half. Now, the Vector product, if you recall, really has been engineered to serve mainstream NAND flash wafer test and probing. And as a consequence it really is additive to the NOR flash business we already have that we serve with our Matrix architecture.

For a variety of reasons, NOR flash turns out to be quite a bit different than NAND flash probing. So, Vector really is specialized and targeted towards NAND flash. And as a consequence, you could consider it to be additive to the NOR flash business that continues to tick along quarter after quarter.

Okay. And does that $2 million to $3 million represent just one production customer at this point?

It probably is dominated by one production customer. There will be some contribution to that from the second production customer. But I think you can think about it as being fairly heavily stilted towards a single production customer on multiple 3D NAND designs.

Okay. And it sounds like over the next year we're going to get a fifth major player on the NAND side. Any reason why over time you wouldn't be able to get some share at each of these players?

No, no fundamental reason, Tom. As we've discussed at a variety of times in the past, certainly we want to be able to deploy the Vector architecture broadly across the NAND flash market opportunity. As we said, about a $200 million annual spend on NAND flash probe cards. Four customers today; obviously a fifth one has announced its entry into the market. But we're certainly over the coming years going to be qualifying with each of those and pushing towards taking a significant share position in the NAND flash probe card market, commensurate with the share positions we have in DRAM and SoC.

Okay. And after your initial work with the one main flash customer, or Vector customer, still the view that the margin structure on that product can be at or above corporate?

That's certainly our goal. As you can probably tell from my comments on ramping it gradually and investing in the manufacturing engineering to improve costs, lead time, and quality, we're very focused on making sure that we can achieve margin structures and gross margins that are helpful to the overall corporate financial results. But there's a lot of work going into that right now.

It's essentially a problem of accumulating enough cycles of learning on different cards and different designs so that we can continue to take cost out, take cycle time out, and improve our internal first-pass yields and quality so that when we ramp in significant volume and achieve significant volumes with Vector, that we do have a margin structure that is favorable to the overall P&L.

Okay. And finally, when you look at the two main sides of your business, the memory and the logic side, do you see any real seasonality going forward? Or do you believe it will be project based on a go-forward basis?

Well, I think there's two elements to this. There's certainly in some of the end markets, or some of the applications that get driven by different end markets, some level of seasonality. If I look at -- there certainly still is a PC business, or a PC-driven business, that seems to have calendar seasonality associated with it, where Q2 and Q3 are stronger quarters for us and Q1 and Q4 are weaker quarters for us.

As you can tell from this year's results and last year's results, there's also another set of seasonality and dynamics imposed on top of that that are, as you'd sort of note, these project-based dynamics. And so if we're working on different chips that are aimed at different handset launches or different mobile device launches, those are going to superimpose with the regular calendar seasonality. And in the last two years, certainly that's stilted things towards having relatively strong results in the fourth quarter.

I think the other thing we see is that we do appear to be gaining some market share in various areas. And as I said in the prepared remarks, certainly our exposure across more customers, more end market drivers, helps us damp some of the calendar seasonality and the lumpiness of these project-based timings that we have historically seen in the business.

Okay. And then maybe just one more. If you look at the total end market exposure that you have, has the mobile consumer surpassed the PC as your biggest end market?

Hmm. I don't know that I could say that the mobile market in general has surpassed everything associated with maybe not just PC, but PC, automotive, industrial, and some of the other segments. I would say that mobile applications are driving the largest part of our overall volume, whether it be in the SoC business or in the DRAM business.

And you aggregate that together I think you can make connections between most of that probe card demand and various mobility applications. Whether they're the application processors in the phones or tablets themselves, whether they're the mobile DRAM, or in some cases the server backbones that are driving all of the connectivity between these devices as well.

Okay. Well, thank you.

(Operator Instructions) We do apologize for any type of technical difficulties. Patrick Ho; Stifel.

Congrats on a nice quarter. Mike, I know looking ahead to 2016, I know you don't want to get specific, but as you look at your different business segments and some of the opportunities going forward, where do you see the I guess potential for largest revenue growth in 2016? Is there going to be continued strength on the SoC side? Or do you see new design-ins for DRAM both at 20 and even some of the 1X design-ins that are probably going to start occurring?

So, a great question, Patrick, and one that as we're going through our 2016 planning cycle is certainly a topic of hot debate internally. I think the number of mixed signals coming out of the industry make it a difficult question to answer definitively. But I'd certainly say there are opportunities along both of those segments.

DRAM, now that we have exposure to all three customers, and clearly at least two of those customers are aggressively shrinking and pushing out new designs on a variety of advanced nodes, in different flavors of advanced nodes, there's opportunity there.

I think the question associated with DRAM, as you well know, is what's the industry health and the investment profile going to look like next year. But certainly there are some opportunities there. And, given our broad participation and coverage across DRAM, I think we're in a good position to capitalize if that demand does occur.

On the SoC side, I think there's an equally compelling set of opportunities for us to execute against. Again, probably some uncertainty around end market demand and how some of the different -- those mobile device launches and node shrinks at major customers proceed as we go through 2016.

But, again, I would say that we are in a good position to capture the demand, sort of no matter how those chips fall. Again, going back to the prepared remarks, that's what we've been trying to do and what we're continuing to try and do with Vector and NAND, is get ourselves in a position to capitalize on the demand opportunities regardless of which way sort of the industry pendulum swings, from a customer base or a technology base.

Great. That's really helpful. And maybe just on the model and your cash flow generation, which has seen a nice improvement obviously over the last several quarters. Maybe Mike, for you, on this end, what are some of I guess the balance sheet leverage that you can do in terms of better inventory management, AR, things of that nature that can even I guess enhance cash flow generation going forward?

Yes, I think you hit on the levers, Patrick. For us, we place a high importance on our collection of receivables, our DSO. We had very good DSOs for this quarter. And certainly as you look at how we've generated cash flow over, as you mentioned, the last six quarters, we've done a very nice job of managing our collections, our DSOs.

Inventory, we certainly over the last two years have done a much better job from a planning perspective in terms of materials and managing materials that come in the door. So we've lessened our charge for excess and obsolete inventories. So we've just done a much better job, a much tighter job. And I think Mike mentioned the execution in the manufacturing organization, as well as our leveraging of receivables and managing DSOs, I think have been probably two of the most significant items.

And also, I guess the last piece is, again, managing our CapEx. We've managed it to -- I think a little under $8 million a year ago. We'll be somewhere between $8 million to $10 million this year. And, again, as we continue to grow we're going to watch the CapEx line pretty closely.

So I think those are the three things that we've really done, Patrick, and we'll continue to do those.

Great. Thank you very much.

(Operator Instructions) Srini [Sundar] of Summit Research.

My first question is, if DRAM spending next year is indeed on the lower side, what defensive steps are you taking to kind of rationalize in a reduced spending environment?

So, there's a couple of elements, in my view, Srini, to DRAM spending. And I want to come back to the theme that certainly most of the prevailing views in the industry right now are that DRAM capital equipment spending will be down in 2016. That, again, as you can see from our Q4 guidance, doesn't necessarily correlate, at least in a one-to-one manner, to probe card spending.

And one of the things we're certainly seeing is that customers, although their capital spending will be down, they're still trying to aggressively pursue different design slots with different types of memory, whether it be different capacities, different flavors of DDR4 or low-power DDR4. And that's driving continued design activity that, as I said in the prepared remarks, leave us relatively positive for 2016.

Having said that, if there is even in the consumables end or the design-driven end of the business, a significant downturn in DRAM spending, I think we've got some levers to pull with regard to continued cost control. And, again, if you look at how we've architected the operations of the Company now, we're able to use the operational assets in different ways to do different things and serve different markets.

So, if I back up three or four years, if DRAM spending went soft on probe cards, it was a very dire situation for FormFactor and we had essentially no actions we could take other than to just downsize and cut costs. In this case, sort of mirroring back to Patrick's question, there's a set of opportunities that we have. Now, if all of them don't materialize then, yes, we have to cut costs. But I think there's enough certainty or enough confidence around at least some of those opportunities coming to fruition that we're able to shift resources and spend around to address these different opportunities.

Great. One follow-up question. In your prepared remarks you talked about 16 nanometer application [processes]. Am I hearing it right? Or is it -- are you referring to 14 nanometers?

Well, the node I think is kind of blended. Let's call it the foundry inset node. Is that a reasonable way to put it?

Yes. And one last question. Given the M&A environment in which we find ourselves in, is there any change in your business prospects as a result of that, number one? Number two, are you yourself going to be getting into the M&A frenzy?

So, I think a great question on two fronts. So, I'll interpret the first part of the question as the consolidation of our customers and any impact that may be having on us. It's a little early to tell, given that most of these deals are just in the announcement stages. And a lot of them, at least from the frenzied pace of things, have not yet closed or reached the stage where integration of manufacturing facilities has taken place.

I do think in a couple of cases as we look forward and maybe speculate a little on how that will go, I think there's one common theme where FormFactor certainly stands to benefit. As our customers get bigger and consolidate around fewer manufacturing facilities, fewer operational organizations, we've certainly seen them start to bias their activities and spends and interactions with suppliers who are larger, have more scale, and are able to deliver, call it consistently, with high quality and support a much larger customer and operation.

So I think as this plays out I think as the leader in probe cards, I think FormFactor certainly stands to benefit from that trend. A little early to see any results.

I think that then goes to the second part of your question, which is are we also participants in this overall M&A. We've been quite active in let's call it pursuing a variety of targets in the M&A space. Again, the theme associated with scale and being able to serve a customer base which is consolidating and getting larger is something that we understand very clearly and are at least attempting to act accordingly. With now $185 million in cash on the balance sheet and no debt, we'd like to be acquirers in this space and continue to grow our scale and footprint as the industry matures and consolidates around us, both from a customer base and a supplier base.

Thank you so much. Great answers.

Edwin Mok; Needham & Company.

Due to technical difficulties I may have missed some of these questions. But how many [10%] customers do you have for the quarter?

How many 10% customers? We have three this quarter.

Three. Okay, that's helpful. And then on the DRAM side, there was a large customer that you have gained share and successfully win that business back. Right? How far -- is that being kind of quantified, Mike, where you are on that? Are we in the third inning of ramp up? Are you in sixth inning of ramp up? Anyway you can quantify that? And when do you think kind of get to normalized share position in that customer?

Yes. So, if we're going to use the inning analogy, we won't talk about last night's game. Several of us tried to hang on. We'll talk about a regular nine inning game. I'd characterize it as we're kind of in the middle to late innings. Call it the fifth to sixth. We have gained significant share there. As you're able to tell from our previous 10-Q and the 10-Q that will go out later today, we are continuing to gain share there. I think there's more to be had.

But I also -- as you say, it's in the process of normalizing and is not going to go on forever. So I'd characterize it as in the mid to late innings, where we're now a significant part of the supply chains of all three major DRAM manufacturers. And with essentially one competitor in MJC in that market, I think we've figured out how to normalize share, compete effectively, drive our costs down, drive our customers' costs down, and work our way forward, again, in a normalized share situation.

Okay, that's good. Regarding 20 nanometer converts that you talked about (inaudible) DDR, how far do you think we are on those conversions? It seems -- my impression is we're somewhere in the midpoint of that conversion. Am I correct on that, or anyway you can quantify that? Maybe you can use that inning analogy there.

Okay. I'll use the baseball game analogy again. They're two different transitions. And clearly they're coupled, but the transition to 20 nanometer is one associated with silicon node. The transition to DDR4 is another around memory architectures.

If we think about the different customers and where they are, they're each in different places. But if you take the industry in aggregate, it feels like it's probably kind of half way there. So I'd call this truly the middle innings, the fourth or fifth, somewhere in there, associated with both of those transitions. And that's probably reflective of our DRAM revenue mix as well, whether it be the 20-nanometer projects or things associated with DDR4 or low-power DDR4.

Great. That's good. You had mentioned on then earlier question but in terms of your guidance is most of the growth coming from SoC? And I have a follow-up question on SoC.

I'm sorry. Ask the --

The guidance --

(inaudible) your 4Q guidance on the sequential growth from 3Q to 4Q, is that going to come from SoC?

Yes. So on the Q4 guidance, what you're going to see is generally the biggest increase is going to be SoC. DRAM will probably be flat to slightly down, and flash probably slightly up from kind of where we are in Q3.

Thanks, that's helpful. And then still SoC, I'm trying to understand beyond the one large volume customer and you guys (inaudible) foundry you guys are working with that they (inaudible) foundry (inaudible) people. Do you see some broadening of demand into kind of -- not the most advanced inset process, but like maybe 28 nanometer process or even higher node? Because we've seen more of those -- more distributors' loyalty as some of this trend is driving it there. Are you seeing any demand coming from those non-leading-edge nodes from other -- maybe not the one or two foundries?

There's a couple of elements to the string. One as you referred to certainly the leading edge node. As NAND's fabless customers utilizing that capacity as well as sort of the large IDM that's pushing that platform forward as well.

There's also, as you inferred in your question, some call it secondary demand associated with another set of customers who are choosing to stay on call it the 28 nanometer foundry node, yet are moving to advanced packages with fine-pitch copper pillars. We certainly saw some of that earlier in the year. And it's a trend that seems to be continuing as things push forward.

And we're working very hard, again, around the theme of broadening and diversifying our customer base and exposure to make sure we're becoming the supplier of choice to some of these other fabless customers as well. Even if they choose to stay on 28 nanometer for multiple years, which sounds like it may be a very viable option for several people, they then resort to advanced packaging, which moves them towards the kind of probe cards where FormFactor has a pretty strong leadership position.

Great. Thanks. That's all I have.

(Operator Instructions) Craig Ellis of B. Riley.

This is Jamison calling in for Craig. Congratulations and thanks for taking the call. So I guess one thing I was hoping to get from you guys is if you could maybe frame SoC opportunity heading into 2016. I know you're saying it's going to be a pretty strong quarter this coming quarter, and after Teradyne, they said that they're expecting growth in 2016. But I was wondering if you might be able to quantify or provide some additional thoughts on that.

I think we want to come short of quantifying. Given the remarks we made earlier around certainly the opportunities are there, but the uncertainties on them materializing, whether it's a 10 nanometer ramp of a large IDM or some of the dynamics that Teradyne referred to yesterday. Whether it's our visibility or our confidence and certainty, I don't think we're in a position to quantify them at this point.

Having said that, I do think there's a spectrum of opportunities in the SoC space that are pretty interesting, that do offer the possibility of 2016 being quite a bit stronger than 2015. I think various things have to happen for those opportunities to materialize, whether it be 10 nanometer ramping hard and being successful in pushing to market, or some of the mobile application processors indeed requiring the test time increases that are being forecasted or being speculated upon.

At this point I don't think we're in a position to say anything other than we feel like we've put ourselves in a good position to capitalize on a variety of those opportunities. Certainly SoC appears to have several of those opportunities in 2016 that would enable us to grow our SoC business on a year-over-year basis.

Okay, thanks. And secondly, could you maybe talk some about the implications of XPoint? I don't think I've heard much of that from you guys. Any insight would be helpful.

This is the XPoint memory that Intel and Micron announced a few weeks back now, maybe a month back?

Yes, sir.

I think it's similar to the situation that people had a lot of questions with 3D NAND and what changes it would have on the probe and test environment. And although I'd like to be able to say something different, it doesn't really have a fundamental difference for the following reasons.

For the XPoint or any other alternative memory technology to be successful in the market, it's got to have substantially the same interfaces to the outside world. They may be a little in terms of [cost] rate and the various protocols involved. But they're not going to be vastly different. And so, from a technical requirement standpoint, we don't see it being substantially different than some of the more mainstream memory technologies like DRAM or flash that it's aspiring to replace.

From a demand perspective I think any new memory technology is a good thing. 3D NAND, I don't think it's any secret to the industry as people ramp it their test times are longer because they have new defect modes to go both detect and then go solve. And so that drives up demand for test.

And I would anticipate us seeing if indeed XPoint becomes a significant memory technology in the market, and I think that's still an open question. But if it becomes a significant memory technology in the market, I think we'll see some increased demand associated with everything in and around wafer test, whether it be probe cards, testers, or probers.

Okay, great. And lastly, I was wondering if you could give a little bit of insight into have you seen any stabilization of PC heading into Q4.

Heading into Q4.

Yes, have you started to see, exactly, any stabilization within the PC end market?

So, for us the PC end market read-through is a bit tricky. We have to make a couple of assumptions on what we're inferring about the parts we're testing. If it's in our microprocessor business, we participate in a wide variety of microprocessor tests ranging from the high-end server that go into the datacenter all the way down through some of the simpler client microprocessor chips.

And so, that one -- same story in DRAM. You can infer a little bit associated with the capacity of the chip and the data rate. But you are making some assumptions.

It does feel to us on that read-through like things have stabilized. But as we said in the prepared remarks, there's certainly not any robustness or strength there, either. That's probably the best read I can offer you.

Okay, great. Well, thanks, guys. I appreciate it.

Thank you. And if we have no further questions I'd like to turn the conference back to Mike Slessor for any closing remarks.

Well, first of all, thank you all for your patience in sticking with us while several of our suppliers resolved the technical difficulties. We appreciate it.

Thanks again for joining us today. At the relatively lower revenue levels of the third quarter we are pleased to have delivered yet another profitable quarter, while maintaining our investments in FormFactor's future growth. We are expecting to deliver strong results in the current quarter despite overall semiconductor CapEx trends to the contrary, and are excited about our future as we further build and broaden our presence in the semiconductor supply chain.

Thanks again.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.