7005 Southfront Road
Livermore, California 94551
Telephone: (925) 290-4000
Fax: (925) 290-4010
Web site: http://www.formfactor.com
Sales: $237.4 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: FORM
NAIC: 334413 Semiconductor and Related Device Manufacturing
FormFactor, Inc., designs and manufactures semiconductor wafer probe cards used by integrated circuit makers to test the performance of their chips. FormFactor's probe cards test at the wafer level, before wafers are diced into individual chips. The company's proprietary MicroSpring technology enables semiconductor manufacturers to test many chips at once, roughly four times as many as competing products allow. FormFactor's largest customers are Intel, Spirox, Elpida Memory, and Samsung. The company's main operations are based in Livermore, California, and supported by facilities and offices in Tokyo and Yokohama City, Japan; Seoul, South Korea; Dresden and Munich, Germany; Milan, Italy; and Jubei City, Taiwan. Form-Factor derives 34 percent of its revenue from North America, 26 percent from Japan, 30 percent from the Asia-Pacific region, and nearly 10 percent from Europe.
In its first decade of business, FormFactor evolved from a research-and-development start-up into the national leader in its market, completing an impressive rise that drew its strength from superior technology developed under the direction of the company's founder, Dr. Igor Y. Khandros. Khandros worked as an engineer during the late 1970s at the Institute of Casting Research in Kiev, then the capital city of the Ukrainian Soviet Socialist Republic. In the United States, where he earned his doctorate degree in metallurgy from the Stevens Institute of Technology in Hoboken, New Jersey, Khandros worked as a research metallurgist and manager at ABEX Corporation before joining IBM Corp.'s Yorktown Research Center as a member of the technical staff in the mid-1980s. He launched his entrepreneurial career in 1990, starting a San Jose, California-based company named Tessera Technologies that developed chip-scale packaging technology. In April 1993, he started a second company, FormFactor, a company that would revolutionize the market for testing wafers.
Khandros's objective was to win the business of semiconductor manufacturers by saving them time and money. The technology he intended to develop would play an instrumental role in the manufacturing process that turned a wafer—a base material such as silicon—into finished integrated circuits. Semiconductor manufacturers produced integrated circuits, or chips, in two distinct steps: the front-end process and the backend process. The front-end process involved taking a wafer and subjecting it to numerous processing steps, including deposition, photolithography, etch and ion implantation, that produced hundreds or thousands of copies of an integrated circuit on a single wafer. Once this step, known as wafer fabrication, was completed, a wafer probe test was performed to verify whether each chip on the wafer performed basic functions, such as sending and receiving electrical signals. Completion of the wafer probe test marked the end of the front-end process and the last time the wafer, dotted with numerous individual chips, remained intact. Next the backend process began, starting with the singulation of the wafer, a step that entailed cutting the wafer into individual die, yielding individual integrated circuits. After discarding the singulated die that failed the wafer probe test, the remaining chips were assembled, packaged, and given a final test to confirm they performed according to full specifications.
Khandros's first start-up, the chip-scale packager Tessera Technologies, addressed the back-end of chip manufacturing; his second start-up sought to eliminate part of the back-end by accomplishing more on the front-end of the production process. He established FormFactor to develop a novel type of wafer probe card, a test device whose superior capabilities would remove a major bottleneck in the back-end. Work began on developing the technology shortly after the company's founding, touching off what would be a two-year period before FormFactor could begin courting customers with a product. In 1995, as initial research-and-development work concluded, the company established its headquarters and manufacturing operations in Livermore, California, where it debuted as a commercially active company.
THE DEBUT OF MICROSPRING IN 1995
FormFactor introduced its first wafer probe card in 1995, unveiling its proprietary MicroSpring technology. Probe cards served as an interface connecting a wafer and testing equipment, traditionally using metal needles to touch the wafer and test for a signal. FormFactor's MicroSpring technology performed in a different way, using thousands of microscopic springs made from gold wires coated with nickel alloy. "Picture a bedspring in your bed," an industry pundit said in a December 5, 2003, interview with Investor's Business Daily. "Now shrink it down by a factor of 10,000. That's the type of spring they're making, and a lot of them are on one small piece of silicon."
FormFactor's MicroSprings drew praise for their ability to get a better signal than traditional probe cards, and for their efficiency. Traditional probe cards needed to contact the wafer (referred to as a "touchdown") approximately four times as many times as FormFactor's probes, resulting in faster test times. Further, the Micro-Spring technology was capable of performing far more tests simultaneously than competing models, offering chip makers another compelling reason to switch to the new technology.
The superior performance came at a price, however. FormFactor's probe cards cost far more than the products offered by the company's competitors. Later versions of the company's probe cards would cost $200,000 compared to $25,000 for competitors' probe cards. Savings realized over the long term, FormFactor executives argued, would make up for the higher cost of MicroSpring technology, particularly as chips became more complex and dense, but it would take time for chip makers to appreciate the advantages offered by Khandros's company.
FormFactor delivers products that rein in the high cost of testing and provide the capability needed to test high performance, advance semiconductor devices. FormFactor offers wafer test products for 200 mm and 300 mm wafer test to the world's leading DRAM, Flash, and microprocessor manufacturers.
Financially, FormFactor faced an uphill battle as it attempted to woo semiconductor manufacturers to its costly, advanced wafer probe cards. "Despite its merits," noted the December 14, 1998, issue of Electronic Buyers' News, "industry analysts are viewing the [MicroSpring] technology coolly. While they say the technique could help manufacturers improve yields by giving them an earlier look at defective parts, they are also concerned about the cost of changing over back-end lines." While FormFactor focused on convincing its customers of the value of MicroSpring technology, it endured the financial plight of operating as a private company struggling to penetrate its market. The introduction of its first product gave the company its first trickle of revenue, a total of $1.1 million in 1995, but its volume of business was not enough to offset its losses. To sustain its operations, FormFactor relied on capital supplied by venture capitalists and institutional investors, a dependence that would continue until the company was able to generate sufficient profits. Menlo Park, California-based Mohr Davidow Ventures provided $2.9 million in first-round financing in April 1995, and another Menlo Park-based investment firm, Institutional Venture Partners, assisted in a second round of financing in May 1996, giving FormFactor an additional $5.4 million. Two more rounds of financing led by investment banker Morgan Stanley followed in 1997 and 1999, raising $20.4 million and $20 million, respectively, giving the company the financial support it needed until it could stand on its own. During this period, its sales increased steadily, rising from $6.6 million in 1997 to $35.7 million in 1999, but it averaged more than $5.5 million in losses each year.
FormFactor's financial prospects brightened considerably after the company reached a milestone in its history. In 2000, when revenues reached $56 million, the company recorded its first annual profit, posting $2 million in net income. Considerable progress had been achieved by this point in illuminating the benefits of MicroSpring technology to the semiconductor community. Orders were streaming in from the world's largest chip makers, including Intel Corp., Samsung, and Spirox Corp., vaulting FormFactor to the number four position in the probe-card market in 2000.
The following year, when sales swelled to $73.4 million, FormFactor became the leader in the $392 million probe-card market, completing a six-year climb from start-up to the number one position. The company by this point counted the ten largest DRAM (dynamic random-access memory) manufacturers and three of the ten largest flash memory makers as its customers, succeeding in attracting the industry's luminaries because of the financial benefits of its MicroSpring technology. FormFactor's probe cards, able to test in four or five touchdowns instead of the 16 touchdowns required by competing products, were reducing chip development and packaging costs by 30 percent by eliminating some back-end steps and moving others to the front-end, to the wafer level. Further, the company's probe cards were capable of testing 32 chips simultaneously, four times as many as the probe cards made by the company's rivals.
As FormFactor summited the probe-card market, economic conditions in the market soured, resulting in what the July 27, 2001, edition of the San Francisco Business Times referred to as the "semiconductor industry's most brutal slowdown ever." The company responded to the severe downturn by increasing its involvement in one of the few growing segments of the chip industry, the market for flash memory chips. Flash memory chips were used in numerous consumer electronics products such as digital cameras, cellular phones, and MP3 players. FormFactor teamed with Agilent Technologies, a spinoff of Hewlett-Packard, to develop a system to test flash memory chips at a substantially higher rate than existing technology permitted. The collaboration resulted in increased business with flash memory manufacturers, complementing the company's commanding lead in the market for memory chips used in personal computers. FormFactor derived 17 percent of its revenues from flash memory business in 2002. In 2003, flash memory business accounted for 27 percent of the company's total revenues.
INITIAL PUBLIC OFFERING: 2003
After a decade of relying on capital supplied from the private sector, FormFactor began preparing for its conversion to a public company in 2003. The same forces that had contributed to the downturn in the semiconductor industry had caused the collapse of the technology sector at the beginning of the new millennium, which severely reduced the number of initial public offerings (IPOs) completed during the period. Because few companies had tested investors' response to an IPO in the months before FormFactor announced its intention to go public, the company attracted considerable attention when it revealed its plans. FormFactor completed its IPO in June 2003, debuting at 36 percent above its offering price. "There were 500 venture capitalists gathered and people were cheering [FormFactor's IPO]," an analyst said in a June 23, 2003, interview with Private Equity Week. "It was exciting to see that it went off successfully." FormFactor had hoped to raise $55 million from the stock offering, but raised $84 million instead, securing more capital than anticipated to fund its expansion.
- Dr. Igor Y. Khandros founds FormFactor.
- FormFactor introduces its MicroSpring technology.
- FormFactor becomes the leading advance probe card maker.
- FormFactor completes its initial public offering of stock.
- Revenues reach a record high of $237 million.
In the wake of its IPO, FormFactor displayed energetic growth, increasing its lead in a market valued at more than $450 million. The company's revenues reached $98 million at the end of 2003 and leaped to $177 million the following year. In 2005, after a decade on the market, FormFactor's MicroSpring technology drew $237 million in sales from semiconductor manufacturers. More impressively, the company registered substantial gains in profits, endearing itself to the investment community. In 2003, FormFactor completed its first year as a publicly traded company with $7.5 million in net income. In 2004, the company more than tripled its net income, posting $25.1 million in profit. In 2005, the company's sixth consecutive year of profitability, net income reached $30.1 million. As the company looked ahead, its dominance in the advanced probe-card market pointed to a promising future. In less than a decade, MicroSpring technology had seized control of the market, giving FormFactor an advantage over competitors that it would not easily relinquish in the years ahead.
Jeffrey L. Covell
FormFactor International, Inc.; FormFactor Europe Ltd. (U.K.); FormFactor Germany GmbH; FormFactor Hungary Licensing LLC; FormFactor, KK (Japan); FormFactor Korea, Inc.
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