Earnings Call: Q4 2019

Feb 5, 2020

Thank you, and welcome everyone to FormFactor's 4th Quarter 2019 Earnings Conference Call. On today's call are Chief Executive Officer, Mike Slessor and Chief Financial Officer, Shai Shahha. Before we begin, Jason Cohen, the company's General Counsel will remind you of some important information. Thank you. Today, the company will be discussing GAAP P and L results some important non GAAP results intended to supplement your understanding are available in the press release issued today by the company and on the Investor Relations section of our website. Today's discussion contains forward looking statements within the meaning of the federal securities laws. Examples of such forward looking statements include those with respect to the projections business momentum, business seasonality, the anticipated demand for products, customer requirements, 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 filing on Form 10 K with the SEC for the fiscal year ended 2018 and our other SEC filings, which are 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, February 5, 2020, and we assume no obligation to update them. With that, we will now turn the call over to FormFactor's CEO, Mike Slessor. Thanks, Jason, and thank you, everyone, for joining us today. FormFactor delivered record revenue and profitability in the fourth quarter. With financial performance surpassing the high end of the outlook range we revised upwards on December 11. The strong performance closed in exceptional 2019 in which we posted 11% top line growth against the semiconductor capital equipment market that shrunk by double digits. Our results again illustrate the robustness of foreign factors broadly diversified leadership positions in attractive consumables and R and D driven markets in semiconductor test and measurement. As we move through the early part of 2020, Many of the same drivers of our 2019 results are contributing to a strong first quarter outlook. As we noted in December, our 4th quarter benefited from rapidly accelerating demand for foundry and logic probe cards, layered on top of steady demand for our other products. The foundry and logic strength was notable in its breadth coming from both 10 and 14 nanometer microprocessor designs, as well as an assortment of 57 nanometer designs ramping it each of the 2 leading edge foundries. We also began volume shipments of probe cards to test millimeter wave RF devices, which are planned to be a key component in the RF front ends of 5G handset launches anticipated later this year. On the memory front, building on the decade high revenues posted in the third quarter. At the risk of repetition, our 2019 DRAM results offer an excellent example of how form factors demand drivers differ from capital equipment. Probe card demand is not generated primarily from baseline capacity additions, but instead from both customer node transitions and new design releases. Consequently, form factor benefits as each of the major DRAM manufacturers execute node migrations, such as transitions to the 1Y and 1Z nanometer nodes, as well as from architectural and product advances such as DDR5 in both server and mobile implementations. Turning briefly to our team, we welcomed Sherry Rhodes to our Board of Directors during the fourth quarter. As Chief Information Officer of Workday, Sherry adds significant IT and cybersecurity experience. Concurrent with Sherry's appointment, Mike Zelmer retired from our board, and I'd like to publicly thank Mike for his insight and guidance over 8 years of service to form factor. I'd also like to recognize the world class performance of our operational team. They've done an outstanding job leveraging our market leading scale to have labor and tool capacity on extremely short cycle times. This enabled us to not only capitalize on the strong demand I've discussed, but also to ramp and operate in a relatively efficient way to deliver solid gross margins and strong operating profit leverage. Demonstrating one of the key attributes We continue to experience robust demand for foundry and logic probe cards extending the same basic themes that drove the 4th quarter. Accordingly, we continue to use the capacity we added in the quarter, albeit at normally lower utilization levels. We do expect a sequential reduction in DRAM probe card demand in the first quarter. Are producing wafers on their new designs digesting and utilizing the large volumes of probe cards we delivered to them during the second half of twenty nineteen. But that said, with the general strengthening of the DRAM pricing environment and robust new design pipelines from DRAM manufacturers, To take advantage of new nodes like 1z nanometer and new architectures like DDR5, we expect long term DRAM probe card demand to remain solid. In the microprocessor space, probe card demand for 14 nanometer designs continues to sustain at high levels even as 10 nanometer designs extended note overlap is another example of the breadth and diversity of form factors demand drivers. As a reminder, probe cards are consumable specific to each new chip design. And so we benefit both from 10 nanometer node transition and the release of new designs, on the existing 14 nanometer node. In the foundry space, we are experiencing strong demand for both a major 5 nanometer mobile applications processor design and multiple 7 nanometer mobile and high performance compute designs. This continues to be a space where form factors differentiated MEMS probe technology provides significant cost of ownership and performance advantages. This is especially pronounced in advanced packaging applications with high interconnect densities and challenging electrical test performance requirements. With their adoption of new die level advanced packaging strategies like chiplets and heterogeneous integration, Our top customers are telling This complexity paired with form factors market and technology leadership give us an exciting opportunity to provide further value in enabling our customer's leading edge innovation roadmaps. Our engineering systems business again produced steady results serving R and D and development applications for a variety of electrical and optical devices, including next generation CMOS FinFET structures, silicon carbide power devices and VCSEL Optoelectronic sensors. The addition during the fourth quarter of FRT's leadership position in optical multi sensor surface metrology opens up an incremental $150,000,000 of addressable market. Primarily in advanced packaging into the worldwide form vector footprint, leveraging our long standing partnerships with the top fabless, foundry, logic and memory customers. These early efforts are encouraging, and we expect to further accelerate FRT's growth and contribution in the year ahead. We are closely monitoring the coronavirus situation and like many of our peers have taken significant preventative measures, including travel restrictions, with our primary concern being the health and well-being of form factor employees customers and partners. We China recently contributing approximately 20 percent of form factors total revenue, the potential demand impact could be substantial. And we have attempted to reflect at this time. Finally, with average lead times of less than a quarter, our visibility remains limited as always but we are encouraged by the continued strength of our diversified consumables and R and D driven demand profile. This strength was clearly demonstrated in 2019 overall and in the fourth quarter specifically where we posted multiple records in a lukewarm semiconductor capital spending are. Although it is only a single quarter, our 4th quarter results validate our target financial model, showing form factor has the ability to deliver a dollar in $2.5 of non GAAP EPS and $110,000,000 of free cash flow on an annualized top line of $650,000,000. Shay, over to you. Thank you, Mike, and good afternoon. As you saw in our press release, and as Mike noted, our 4th quarter revenue exceeded our updated outlook range, and our gross margin was at the high end of our outlook range. The combination of these factors coupled with low effective tax rate in Q4 resulted in EPS that was significantly above the high end of our updated outlook Phone factors 4th quarter revenues were $178,600,000, a 27% sequential and year over year increase. These record quarterly revenues contributed to total fiscal 2019 revenue of $590,000,000, an 11.3% increase compared to 2018. Probe card segment revenues were quarterly record high of $153,200,000, an increase of $36,700,000 or 31.5 percent from Q3 twenty nineteen. Systems segment revenue were $25,500,000 in Q4, an increase of $1,300,000 or 5.4% from Q3 2019. FRT revenue included in Q4 came in about $1,000,000 higher than our preliminary estimate of $2,000,000 to $3,000,000. Within the probe card segment, in line with the robust incremental demand with cast in our December 11 press release. Foundry and Logic revenue increased 53.7% from Q3. To $105,100,000 and was 59% of total company revenue in Q4, up from 49% in the 3rd quarter. DRAM revenues were $42,900,000 in Q4, an increase of $3,500,000 from the 3rd quarter. And over 24% of total quarterly revenue as compared to 28% in the first quarter. Building on the strength demonstrated over the past 2 years, This was our highest quarterly revenue from DRAM since Q1, 2008. Slash revenues of $5,200,000 in Q4 were $3,400,000 lower than in third quarter and were 2.9% of total revenue in Q4, down from 6% in Q3 GAAP gross margin for the fourth quarter of 2019 was $74,300,000 or 41.6 percent of revenues, 230 basis points higher than the 39.3 percent GAAP gross margin in Q3. Cost of revenues included $7,400,000 GAAP to non GAAP reconciling items, which we outlined in our press release issued today and in the reconciliation table available on the Investor Relations section of our website. The increase of $1,600,000 in the non GAAP reconciling items in Q4 as compared to Q3 a result of the acquisition of FRT during the fourth quarter. On a non GAAP basis, gross margin for the 4th quarter was 81 point $81,700,000 or 45.7 percent of revenues, 220 basis points higher than the 43.5 percent non GAAP gross margin in Q3 and came in at the high end of our outlook range. Our probe card segment gross margin was 45.4% in the fourth quarter, an increase of 4 ten basis points compared to 41.3% in Q3. The increase from Q3 was a result of higher volume and lower manufacturing variances, partially offset by higher performance based compensation. Our Q4 systems segment gross margin was 48% as compared to 53.9% in the 3rd quarter. The decrease of 580 basis points was driven mainly by less favorable product mix. As we've said previously, we expect our systems segment gross margin to range between the high 40s to low 50s. Our GAAP operating expenses were $50,600,000 for the 4th quarter, $4,600,000 higher than in third quarter. The 4th quarter operating expenses included $6,800,000 of GAAP to non GAAP reconciling items slightly lower than the $7,000,000 of reconciling items in Q3. Non GAAP operating expenses for the 4th quarter were $43,800,000 or 24.5 percent of revenues compared to $39,000,000 or 27.7 percent of revenues in Q3. The increase of $4,800,000 is mainly due to higher performance based compensation and the inclusion of FRT operating expenses. Company non cash expenses for the fourth quarter included $7,400,000 for the amortization of intangible assets, $6,100,000 for stock based compensation, amortization of inventory step up of $500,000 and depreciation of $4,500,000. Amortization of intangible assets was $1,300,000 higher than in Q3 as a result of the acquisition of FRT. Stock based compensation was $400,000 lower than in Q3 due to the timing of annual grants. GAAP net income for the 4th quarter was $18,600,000 or $0.24 per fully diluted share compared to GAAP net income of $8,300,000 or $0.11 per fully diluted share in rate for the fourth quarter of 2019 was 17.3 percent, 650 basis points lower than a 23.8% in Q3. Due to a significant increase in U. S.-based income, which is taxed at the lower rate versus foreign based income. Non GAAP annual effective tax rate for 2019 was 22%, slightly below our previously communicated estimated range for the year of 23% to 25%. 26%. 4th quarter non GAAP net income was $32,000,000 or $0.41 per fully diluted share compared to $17,300,000 or Moving on to the balance sheet and cash flows. We generated $31,600,000 of free cash flow in the 4th quarter. Compared to $25,600,000 in Q3, taking our total cash and investments to $224,000,000 at the end of the quarter. The increase in free cash flow in the fourth quarter as compared to the third quarter was mainly a result of higher revenue and profitability. We spent $11,500,000 on principal and interest payments on our term loan during the quarter, and the loan balance was reduced to $35,000,000, This loan will be fully repaid by the beginning of Q3 2020. We fund that the Forte acquisition with a new 3 year 1,000,000 denominated loan, utilizing the low euro based interest rates to optimize our cost of capital. At quarter end, our total cash balance exceeded the debt balance by $166,000,000 an increase of $10,400,000. While paying down these term loans remains our first priority for using cash M and A is an important part of our strategy, and we intend to continue to deploy capital to acquire leadership positions that expand our served markets as we did with acquisition of FRT. We invested $6,600,000 in capital expenditures during the fourth quarter of 2019, bringing our annual investments to $20,800,000, slightly above our estimated capital spending plan of $16,000,000 to $20,000,000 for the year. Before turning to our 2020 first quarter outlook, I would like to elaborate on our 2020 non GAAP effective tax rate. The 2 biggest drivers impacting our effective tax rates are the mix of the U. S. And foreign taxable income and the foreign derived intangible income deduction, which rewards exports for U. S. Corporation. In general, the higher our U. S.-based taxable income, the lower the effective tax rate is. Accordingly, we estimate our overall non GAAP effective tax rate for fiscal 2020 to be in the range of 15% to 20%. As a reminder, our cash tax rate is expected to remain at the 6% to 8% of non GAAP pretax income until we fully utilize our remaining U. S.-based NOLs and R and D credits. Turning to the first quarter of 2020 non GAAP outlook. As Mike mentioned, we expect a strong year end demand for Fabry and Logic protocols to continue, layered on top of continued solid demand for our other products. These factors result in our Q1 revenue outlook in the range of $160,000,000 to $172,000,000. And non GAAP gross margins to be in the range of 43% to 46%. Non GAAP earnings per fully diluted share for Q1 is expected to be in the range of $0.27 to $0.35. A reconciliation of our GAAP to non GAAP Q1 outlook is available on the Investor Relations section of our website and in the press release issued today. With that, let's open the call to questions. Thank Our first question comes from Quinn Bolton from Needham And Company. Please go ahead. Hey, thanks for taking my question. This is Charles Xi on behalf of Quinn Bolton. I have a question on the capacity expansion part. So if we look at the Q4, you are your pulp corporate is already running at about $600,000,000 per year and very close to your 650 target model. And, I think you are, in the last quarter, you spent 6 $600,000 CapEx, a little bit higher than the original $16,000,000 to $20,000,000 plan. So my question is when I think about net year, right? With the context of what you expect about the demand coming up? And how should we think about your capacity expansion and associated CapEx? Sure. Thanks for the question, Charles. So our capacity is a function of both flexible labor and some CapEx additions. We added mostly flexible capacity in Q4. And as you've heard in the prepared remarks, Q4 CapEx And as you noted, it was $6,600,000, slightly higher than in the previous quarters. And that brought our total CapEx to $21,000,000 for the year. And the higher level of investment is in line with our higher revenue and the added capacity. And we expect to invest in a similar level during Q1. Okay. Okay. Thanks. And regarding the, I think, Marc, you mentioned, I mean, 1 month ago at Needham Growth Conference that to, handle that, like, the search demand, like, what we saw in the last quarter, you have to do that less efficient, I mean, less efficient way, like, leveraging, I mean, using higher utilization, paying a little bit higher of the how should we think about that? I mean, going into 2020, do you expect a similar situation to repeat or whether we should think about it differently? Yes. Well, I think the comments I made at the conference earlier this year. We're associated with any time you ramp up capacity that quickly, you're obviously bringing on new labor that needs to be trained. It's not at the peak efficiency. It's going to be at over the long run. And we're also retaining the flexibility to bring this capacity back down. So paying temp wages quite a bit of overtime so that we're not substantially adding to our fixed costs in the event that demand moderates a little bit. When I look at this, we're still in the first quarter, probably not operating at peak efficiency levels. And that's consistent with if you noted our gross margin outlook range, even at relatively high revenue levels, the top end of that range is 46%. So still operating with some efficiencies, But we inefficiencies, sorry, but we believe those to be a reasonable trade for the flexibility that's going to give us as we move forward through 2020. Okay. Thank you guys for answering my questions. Thank you. Our next question comes from Craig Ellis from B. Riley FBR. Please go ahead. Yes. Thanks for taking the question and congratulations on the strength in the quarter and in the outlook. Mike, I wanted to go back and just reconcile what I thought was a point and announcement when the company raised the 4th quarter guidance with our outlook. I think at the time, the company's viewed was that it was being opportunistic around a number of opportunities and certainly there was very good execution there. But with the calendar first quarter's guidance down 7% at the midpoint. It seems like there might be some decent sustainability to what we're seeing. So perhaps you can speak to that point maybe just talk about some of the gives and takes as you look at the first quarter, what's more opportunistic, what might be more sustainable? Yeah. So a good observation, Craig, and goes back maybe a little bit to the point about retaining flexibility. I'll remind everyone that we operate with very short lead times and limited visibility in this business well inside a quarter where most of our business has to turn in the quarter. So flexibility and agility, both to the upside and the downside are important in our operating model. When I compare how we currently view the first quarter to the 4th quarter results. As we said in the prepared remarks, Foundry and Logic continues to be very strong. Both in the microprocessor part of the business as well as the foundry part of the business. By and large, around the same advance node, overlapping advanced node themes that we had at work in the fourth quarter. So those are probably the positive side of the ledger. We did also note that we expect a sequential decrease in DRAM probe card demand 1st quarter compared to the 4th quarter But we really think that's mostly due to digestion. If you put this into context, in the last half of twenty nineteen, we operated record high shipment levels for DRAM probe cards. Certainly some of that is due to the trends we've talked about like advanced packaging and increased test intensity. But I think it's reasonable to expect that there does need to be a little bit of digestion as our customers use those probe cards. And as they move through the middle part of the year, probably refresh their new design roadmaps and return to more normalized levels. So in terms of puts and takes, I think foundry and logic continues to be strong. We'll see how that lasts through 2020. DRAM in a bit of a digestion phase, everything else kind of steady as she goes, but that gives us a strong view for the first quarter of 2020. That's helpful. I appreciate that. And then I'll just give a follow-up to Shai. Can you just talk about operating expense? Clearly, very well controlled, despite the big revenue increase in the fourth quarter. Should we think about the arc of operating expense as we look through 2020? Are there particular initiatives or programs to be aware of in that line item? Thank you. Sure. I think the 2 main changes, if we look at 2020 OpEx versus 2019 is first the addition of FRT, right? We acquired the company in Q4. In 2020, we're going to have them for the full year. They're adding about $1,500,000,000 of OpEx per quarter. And if you think about let's call it structural annual increases in OpEx related to salary raises, benefit cost, which increased year over year. And so if you look at the ranges for 2020, we're probably talking about $42,000,000 to $45,000,000 of OpEx per quarter with the first quarter being at the high end of that range because of the annual benefits reset. Nice. Thank you. Thank you. Our next question comes from Brian Chin from Stifel. Please go ahead. Hi, good afternoon. Congratulations on the execution this past quarter year. And thanks for letting us ask a few questions. Maybe to hone in first, again, this is kind of going back to some of the epicenter of the strength that you've seen in Q4 and into Q1 here. But holding in on sort of your largest customer, they're driving a very high level of spend in Q4. Can you talk about your visibility on the stainability of this run rate moving across the year. And that's taking into consideration comments maybe that have been made in recent public forums. About what they're trying to do in terms of getting supply out and maybe get in front of that to some degree? Yes, I think it's a great observation, And it's part of the reason again, why we want to retain some flexibility and agility. I think as anybody who operates in the semiconductor supply chain knows today. Things are very dynamic. Our fourth quarter showed the ability to really spawn to the upside and execute well in capturing the demand. We see with our largest customer and some of the other customers in foundry and logic. That strength continuing into the first quarter, but it does seem like there's a general consensus that foundry and logic spending and investment is probably 1st half weighted in 2020. Having said that, the constituents of the strength with our largest customer continue to be this, sort of the result of Moore's law slowing, driving, overlapping activity on both the 14 nanometer and 10 nanometer node, 10 nanometer being a new node that's ramping with relatively high test intensity, also plays into the strength of demand for form factors products at the present time. But I think it's, one of those situations where the usual caveats associated with visibility, it's definitely apply here. A general consensus that maybe the overall spending will moderate as we move into the 2nd half, resulting in a 1st half weighted piece. So I think foundry and logic pretty strong at this point. We'll continue to execute, capture the demand as we can, and take advantage of the opportunities as they present themselves. Got it. That's helpful. So if I heard correctly, maybe some more revenue concentration in first half relative to second. For you guys, some moderation in second half, if I'm not hearing you correctly. And then I think that's Yeah, I think that's a fair working assumption, that has pretty big error bars around it, right? I think everybody's visibility is awfully limited at this point, not just us. Okay. Yeah. And maybe go into something that again, it is difficult to sort of get a readout on, but Mike, you did mention how there is some contemplation in your guidance for the March quarter relative to the coronavirus, albeit difficult to quantify sort of the ranges around that. But just to be more clear, is that sort of reflected in the width of your revenue range or more kind of where you put the midpoint on that revenue guide or anything else you can kind of provide there would be. And even what you're seeing from a supply chain disruption standpoint would be helpful. Sure. Brian, I'll take that. And I will answer to 2 parts, I would say. I will talk about the demand impact and also about the operational and the supply chain impact. So when it comes to the demand, as you heard in the prepared remarks, because of the additional uncertainty and the difficulty and the difficulty to accurately quantify the impact of the coronavirus at this time. We have lowered our range, more than it would otherwise would have been, but we also widened it our revenue outlook range. It's now 1,000,000. If you look at previous quarter, it was 8. And we assigned a higher risk to certain transactions. We took into consideration our backlog, what we shipped already to China and others. We closely continue to monitor the situation. And to your specific question, we believe our outlook is adequately reflecting the current situation. We built it into the range. That's on the demand side. When it comes to the operational and the supply chain impact, We have significant footprint in China for over a decade now, but bring mine or manufacturing. And we believe there will be not significant impact on our operation. And our supply chain when it comes to the coronavirus. Okay. That's helpful. Thanks, Shay. Maybe one last question. From a capital allocation standpoint, clearly, you're putting up a lot of free cash and it's clear that the bias is with an eye towards M and A as you alluded to in the prepared remarks. Is there any update in terms of, to the extent you can talk about this in terms of timing and or the characteristics the company is looking for in terms of any potential deal? Sure. I mean, as we've said, M and A has been and will continue to be a key part of our strategy. We also have as a equally important part of our strategy executing in the served markets. We have leadership positions in now, as you can see in the fourth quarter 1st quarter outlook. On the M and A front, there's two pieces to it. 1, we're executing a funnel of smaller tuck in deals, FRT in the fourth quarter, an excellent example or case to of this. Smaller companies may be lacking the channel, the customer relationships and support infrastructure to really take their compelling technologies and So we think we're bringing a lot of value to those kind of companies. FRT again being a nice example that we're beginning to make some progress on. We're also investigating and where possible trying to execute and pursue deals of scale. A good example of that would have been the Cascade Microtech deal we did back in 2016. That really adds significant revenue, cost synergy and fundamental strategic value to the company, changing the character of our EPS. As you might imagine, those are a little more challenging to get done. Part of the reason why we're executing on a tuck in funnel but we're not giving up hope on being able to continue to do deals of scale that expand our served market and put the cash we're generating to work for shareholders. Thank you. Thank you. Our next question comes from Tom Diffely from D. A. Davidson. Please go ahead. Yes. Good afternoon. So Mike, I wanted to ask a little bit about the 14 nanometer business that you're seeing, you obviously, it's a fairly mature note at this point. And the fact that it's still a robust driver for you does that change your long term view of capital intensity for testing and or tester intensity and how these nodes could be a bigger and longer lasting than you previously thought? Yes, I think a good observation, Tom. I mean, 14 nanometer node, excuse me, is our largest customers, been around for, I think, pushing 7 or 8 years by now. From the first probe cards we shipped. And obviously, at some point, especially as 10 nanometer really reaches entitlement yields and maturity, We'd expect 14 nanometer activity to tail off. Having said that, I probably made that comment 3 years ago. So it's longevity and robustness over time has been obviously a very pleasant surprise for our demand drivers. The test intensity for a node that mature, does go down over time. The yields go up. Customers work hard to test less and make sure they're really being most efficient with their intensity. Of spend on capital. But, there's any time because of the way wafer test works and probe cards work, Anytime they release a new design, even on these mature nodes, it creates incremental demand for us. And that's part of what you're seeing. Not just in the 14 nanometer microprocessor space, but when we talk about opportunities like automotive, those are backup 28 nanometer and even 45 nanometer in some cases. But as customers release new designs, they need new probe cards driving demand for us. Okay. Thanks. And then maybe just quickly touch on what you're seeing as far as the broadening of your customer base in foundry side. And it sounds like that was going to be a big opportunity over the next few years at the leading edge nodes. Yes. And I think a lot of that's still in front of us. We're we're pleased to be able to report and this was in our prepared remarks. That our business at the largest foundry is beginning to diversify. It's still really concentrated on the advanced nodes, primarily today a big applications processor project at 5 nanometer and then a couple of other projects at 7 nanometer. But the interesting part is The 7 nanometer projects are both mobile and high performance compute and begin to diversify and broaden us process or project every year. Obviously a big effort for us. We think this customer can grow into the scale and scope of the contribution our largest customer currently makes, it's still going to take us several years to do that as more wafer start move to these advanced nodes where we're relevant and have a competitive advantage and as we continue to grow our stature as a supplier to this customer. Okay. And then Shai, looking at the, the coronavirus, the lowering widening of the range Was that a specific, sector that you serve? Was it DRAM, logic foundry, or was it just a general taking a haircut across all the Chinese or Chinese related customers? I would say it's specific to China, but it's general over the markets occurred. Okay. And then finally, when you look at the OpEx, I was surprised when you talked about the increase in the quarter, you didn't mention, increased headcount as a driver of that. Is that just not as meaningful as the two items you mentioned? So some or some or even most of the increase in headcount went to COGS, right? That's the direct labor, the flexible capacity we talked about. And for 2020, the increase I talked about answering, and Craig's question was some investments in R&D, some headcount, but mostly the inclusion of FRT and structural annual increases. Okay. Thanks for your time. Thanks, Tom. Thank you. Our next question comes from David Duley from Stillhead Security. Please go ahead. Thanks for taking my questions and congratulations on nice results. Just a couple of macro questions here. Regarding the virus, there's at least, I think, 2 memory fabs in WULAN or right in the epicenter of the virus. Are you able to get product into there? Are you able to ship stuff in and out of the area at this point? Well, there's a couple of things going on very right now. Obviously, the team in China and most the country has been on a Lunar New Year holiday and kind of still is on an extended, at least work at home holiday through what we understand to be next Monday. With the Wuhan based customers in particular, I'll remind you that they are primarily flash producers. And as you might remember and can see from our results, we're a big player in Flash. We do do reasonably well at the high end of the Flash memory market, but we don't have a lot of revenue concentration in that segment or as you might imagine with those customers in particular. So we haven't had to exercise particular shipments in and out of that region, because honestly, we just don't have a lot of backlog in their mainstream flash production. Okay, excellent. And as far as, again, on the guidance range for the current quarter, a lot of companies that I've talked to have talked about just kind of extending the new the lunar new year by another week beyond what they would normally see our 2 weeks. And that's how they came up with their lower revenue projections. Is that essentially the logic behind your lower revenue projection? 1 less week of production in the quarter or maybe just a little bit more color on that? No, not necessarily because we don't have significant productions in China. It's mostly general impact of business overall and more uncertainty more unknown at this point than specific manufacturing risk. Okay. And then final question for me is, TSMC has been talking a lot about at the advanced nodes, not just at 57 nanometers, but maybe include the note before that. That they're seeing a higher percentage of parts move into advanced packaging or an advanced package type package. I'm wondering what you're seeing in the industry at this point, are you seeing a higher percentage of parts move into the advanced packaging realm? I think the simple answer is yes. We obviously don't have perfect visibility into all the parts in the industry because our business does tend to be concentrated more at least in the foundry and logic side, mostly around flip chip and advanced packages. But clearly with the growth we've shown in foundry and logic and as we've described before, the competitive differentiation we have in testing parts that are packaged with advanced packages. There almost must be an increased adoption of this. I still think there's a significant amount of it in front of us. As I talked about in the prepared remarks, The roadmap reviews we have between our exec team, our R and D team and our key customers more and more of those discussions are pointed towards the requirements associated with advanced packages, whether they be chiplets or fan out or HBM in memory. And those are driving a set of test requirements, that are very, very difficult to meet. FormFactor is probably one of a handful of suppliers who can meet them and keep pace with these really aggressive roadmaps. And so We're probably seeing some of that contribution today, but I feel like this is one of the big longer term secular opportunity for us as the industry moves forward off not just a front end driven innovation roadmap, but using advanced packaging to create the products that are going to differentiate them in the marketplace. Final question for me. I just had one more I wanted to slip in. Can you expect to grow in calendar 2020? A good question and one that we're debating. I think given the comments I made before in response to one of the earlier questions on sort of the house view, well, the general view, maybe not the house view. The general industry view being maybe that foundry and logic spending is 1st half weighted. I think you're going to need, DRAM to continue its recovery and move forward into a more aggressive growth posture in the second half of the year. And I think we'll need 5G to accelerate. But if we see some of those things happen, I don't think it's unreasonable that we could see 2020 degree of growth here. The usual caveats associated with less than 1 quarter visibility don't allow us to make a definitive statement, but there's some ingredients that if they move our way and the industry's way in enroll, I think we're in pretty good shape to capitalize on it and deliver a growth here. Thanks, Dave. Our next question comes from Christian Schwab from Craig Hallum Capital Group. Please go ahead. Yes, congratulations on a great quarter. I guess, both of my questions have been asked. I just have one quick one. On market share, can you give us an update of where you think you ended the year in market share in foundry logic in DRAM? And maybe in particular in foundry and logic with the multi year opportunity for share gains is, if, if things grow with the Taiwanese customer? I'm going to have to be a little bit waffly on that because some of the key data we need to really understand that comes out over the next several weeks both in terms of industry benchmarking reports and some of our competitors reporting publicly. So having said that, I do believe we made structural share gains in our 2 biggest businesses in probe cards, both DRAM and Foundry and Logic over the year. If you look at DRAM, there were some nice designs in the advanced packaging arena like HBM that we executed pretty well on and I think led to some share gains. In Foundry And Logic, if I just look at the 4th quarter results, it does seem reasonable to assume that there must be some implicit share gain in there, unless the entire foundry and logic space spent it sort of triple the historical rate that they ever have. And so not being too glib about it, we do need to wait for some of the data. But I feel like qualitatively as we look at our 2019 performance and in particular, the second half twenty nineteen performance that there are some share gains in there. Great. No other questions. Thanks. And our last question in the queue comes from Tiaoyan Gohner from Sidoti. Please go ahead. Congratulations on the strong quarter and also solid outlook. And, Mike, I just have clarify first and then maybe a follow-up afterwards. So you mentioned about DRAM, probably in the first quarter will experience sequential decline because it will be in the digestion phase. And then maybe in the second half, it will assume to growth? I assume you mean resuming to growth like probably comparable to counter level? Yes, so a fair observation. The if you put things into a broader context, the Q3 and Q4 of 2019 were decade high levels for our DRAM probe card revenue. To expect that there is some digestion that's going to go on here. I don't think there's a structural fundamental change in long term DRAM probe card spend. And so the levels we delivered in Q3 and Q4 are probably a reasonable expectation for a near term high watermark, if conditions are right, maybe we get back to there in the second half of twenty twenty. Okay, that's clear. So then, you know, still follow-up on the DRAM and how long do you think, you know, because now we're really at a very high level as you pointed out over a decade high or record high level. So how long do you think the DRAM will maintain at the current level like a few years or least 1 year? Well, again, I think you have to look at these levels. Through a cycle, right? The customers design releases, and node shrinks admin flow as you go through the cycle. And so I think if you look at 2018 DRAM revenue was the, call it, $135,000,000 range, 2019 closer to in, so stepped up a little bit. I think there's a reasonable levels to think about long term DRAM probe card spending. One potential component of upside that we talked a little bit about in Q And A is the adoption of advanced packaging. Things DRAM structures like HBM or high bandwidth memory, as we've explained in the past, driving much higher test intensity. And so that to be something if we get more and more HBM wafer start, you could see an increase in the overall DRAM probe spend. But absent that, I think this sort of $130,000,000, $140,000,000 level is about right for an annual DRAM probe card contribution. That's one thing. Okay, that's great. And then my last question would be, you know, do, can you give any color on, you know, what FRT did in the fourth quarter and any color also in 2020 regarding FRT? Sure. So, effort initially we talked about to remedy dollars of contribution to Q4. They came in about a 1,000,000 better than that. So that's about 4,000,000 in Q4. If we analyze that, we're talking about 16,000,000 for next year or for this year. That's very helpful. Thank you and good luck. Thank you. I show no further questions in the queue. At this time, I'd like to turn the call over to Mike Slessor, CEO for closing remarks. All right. Thanks everyone for joining us today. We'll keep you updated on our progress as we navigate through the 1st part of 2020. Have a great day. Thank you. Ladies and gentlemen this concludes today's conference call. Thank you for participating. You may now disconnect.