10q10k10q10k.net

What changed in FORMFACTOR INC's 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of FORMFACTOR INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+217 added−208 removedSource: 10-K (2024-02-23) vs 10-K (2023-02-24)

Top changes in FORMFACTOR INC's 2023 10-K

217 paragraphs added · 208 removed · 168 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

44 edited+4 added−10 removed51 unchanged
Biggest changeThe following customers represented 10% or more of our quarterly revenues for the quarters indicated: Fiscal Quarters Ended Dec. 31, 2022 Sep. 24, 2022 June 25, 2022 Mar. 26, 2022 Dec. 25, 2021 Sep. 25, 2021 June 26, 2021 Mar. 27, 2021 Intel Corporation 16.5 % 17.0 % 20.9 % 20.8 % 16.7 % 20.8 % 16.3 % 28.1 % SK hynix Inc. * 10.7 * * * * * * Taiwan Semiconductor Manufacturing Co., LTD. * * * 10.7 * * 11.0 11.5 Samsung Electronics Co., LTD. * * * * 13.8 12.9 14.7 * 16.5 % 27.7 % 20.9 % 31.5 % 30.5 % 33.7 % 42.0 % 39.6 % * Less than 10% of revenues.
Biggest changeThe following customers represented 10% or more of our quarterly revenues for the quarters indicated: Fiscal Quarters Ended Dec. 30, 2023 Sep. 30, 2023 Jul. 1, 2023 Apr. 1, 2023 Dec. 31, 2022 Sep. 24, 2022 Jun. 25, 2022 Mar. 26, 2022 Intel Corporation 16.7 % 17.1 % 14.2 % 20.0 % 16.5 % 17.0 % 20.9 % 20.8 % SK hynix Inc. 10.7 % * * * * 10.7 % * * Samsung Electronics Co., LTD. * 11.2 % * * * * * * Taiwan Semiconductor Manufacturing Co., LTD. * * * * * * * 10.7 % 27.4 % 28.3 % 14.2 % 20.0 % 16.5 % 27.7 % 20.9 % 31.5 % * Less than 10% of revenues.
Our range of capabilities enable us to rapidly produce customer-design specific probe cards that deliver leading precision, quality, reliability, and electro-mechanical performance. Our probe cards are customized for our customers’ unique wafer and chip designs by modifying and adapting our standard product architectures to meet an individual customer’s specific wafer and chip design layouts and electrical test requirements.
Our range of capabilities enable us to rapidly produce customer-design specific probe cards that deliver leading precision, quality, reliability, and electro-mechanical performance. Our probe cards are customized for our customers’ unique wafer and chip designs by modifying and adapting our standard product architectures to meet an individual customer’s specific wafer and chip layouts and electrical test requirements.
We typically use distributors in particular geographies due to local regulations or business customs. Governmental Regulations We are subject to international, federal, state and local regulations that are customary to businesses in our industry. These regulations relate to, among other things, environmental matters, anti-corruption, marketing, fraud and abuse, trade regulations, employment, and privacy.
We typically use distributors in particular geographies due to local regulations or business customs. Governmental Regulations We are subject to international, federal, state and local regulations that are customary to businesses in our industry. These regulations relate to, among other things, environmental matters, anti-corruption, marketing, fraud and abuse, trade, employment, and privacy.
Our training initiatives promote the continuous improvement of our workforce to keep pace with an increasingly complex business and industry, and are designed to foster skills development, compliance and our company values.
Our training initiatives promote the continuous improvement of our workforce to keep pace with an increasingly complex business and industry, and are designed to foster skills development and compliance and promote our company values.
Our applications engineers assist our customers in test methodologies to make advanced measurements during process and product development, and during mass production, along with offering traditional maintenance services. 5 Customers Our customers include companies, universities and institutions that design or make semiconductor and semiconductor related products in the foundry & logic, DRAM, flash, display, sensor and quantum computer markets.
Our applications engineers assist our customers in test methodologies to make advanced measurements during process and product development, and during mass production, along with offering traditional maintenance services. Customers Our customers include companies, universities and institutions that design or make semiconductor and semiconductor related products in the foundry & logic, DRAM, flash, display, sensor and quantum computer markets.
These systems are marketed externally and also allow for vertical integration with our existing cryogenic wafer and chip probe stations and cryogenic engineering probes. Services and Support. In addition to routine installation services at the time of sale, we offer services to enable our customers to maintain and more effectively utilize our products and to enhance our customer relationships.
These systems are marketed externally and also allow for vertical integration with our existing cryogenic wafer and chip probe stations and cryogenic probes. Services and Support. In addition to routine installation services at the time of sale, we offer services to enable our customers to maintain and more effectively utilize our products and to enhance our customer relationships.
Some of these components and materials are supplied by a single vendor, 6 and some are subject to certain minimum order quantities. Generally, we rely on purchase orders rather than long-term contracts with our suppliers, which subjects us to risks, including price increases, manufacturing capacity constraints and component shortages.
Some of these components and materials are supplied by a single vendor, and some are subject to certain minimum order quantities. Generally, we rely on purchase orders rather than long-term contracts with our suppliers, which subjects us to risks, including price increases, manufacturing capacity constraints and component shortages.
We believe we compete favorably with respect to these factors. Some of our competitors are also suppliers of other types of test and measurement equipment or other semiconductor equipment and may have greater financial and other resources than we do. Our competitors may enhance their current products and may 8 introduce new products that will be competitive with ours.
We believe we compete favorably with respect to these factors. Some of our competitors are also suppliers of other types of test and measurement equipment or other semiconductor equipment and may have greater financial and other resources than we do. Our competitors may enhance their current products and may introduce new products that will be competitive with ours.
We also inspire employee engagement through our commitment to corporate social responsibility, including in defined focus areas of sustainable technology, health and safety, labor and human rights, energy and climate change, supply chain responsibility, and waste and chemical management. Our workplace health and safety programs include robust policies, procedures, training programs, and self-audits.
We also inspire employee engagement through our commitment to corporate social responsibility, including in defined focus areas of sustainable technology, health and safety, labor and human rights, energy and climate change, supply chain responsibility, and waste and chemical management. Our workplace health and safety programs include policies, procedures, training programs, and self-audits.
We provide a broad range of high-performance probe cards, analytical probes, probe stations, metrology systems, thermal systems, and cryogenic systems to both semiconductor companies and scientific institutions. Our products provide electrical and physical information from a variety of semiconductor and electro-optical devices and integrated circuits from early research, through development, to high-volume production.
We provide a broad range of high-performance probe cards, analytical probes, probe stations, metrology systems, thermal systems, and cryogenic systems to both semiconductor companies and scientific institutions. Our products provide electrical information from a variety of semiconductor and electro-optical devices and integrated circuits from early research, through development, to high-volume production.
We design probe cards to provide for a precise match with the thermal expansion characteristics of the wafer under test across the range of test operating temperatures. For many of our products, our customers can use the same probe card for both low and high temperature testing.
We design probe cards to provide for a precise match with the thermal expansion characteristics of the wafer under test across the range of test operating temperatures. For many of our products, our customers can use the same 5 probe card for both low and high temperature testing.
Intellectual Property Our success depends in part upon our ability to continue to innovate and invest in research and development to meet the test and measurement requirements of our customers, to maintain and protect our proprietary technology, and to conduct our business without infringing on the proprietary rights of others.
Intellectual Property Our success depends in part upon our ability to continue to innovate and invest in research and development to meet the test and measurement requirements of our customers, to maintain and protect our proprietary technology, and to conduct our business 9 without infringing on the proprietary rights of others.
Competition The markets for our products are highly competitive, and we anticipate that these markets will continually evolve and be subject to rapid technological change. Our current and potential competitors are as below: Probe Cards.
Competition The markets for our products are highly competitive, and we anticipate that these markets will continually evolve and be subject to rapid technological change. Our current and potential competitors are as below: 8 Probe Cards.
These tools and processes are intended to enable the rapid and accurate customization of products required to meet customer requirements, including automated routing and trace length adjustment within our probe cards, to rapidly design complex structures. 4 In addition, some of our customers test certain chips over a large range of operating temperatures, such as for automotive applications.
These tools and processes are intended to enable the rapid and accurate customization of products required to meet customer requirements, including automated routing and trace length adjustment within our probe cards, to rapidly design complex structures. In addition, some of our customers test certain chips over a large range of operating temperatures, such as for automotive and cryogenic applications.
We regularly assess and evaluate alternative sources of supply for all components and materials. Our primary manufacturing facilities are located in Livermore, Carlsbad, and Baldwin Park, California; Beaverton, Oregon; Boulder, Colorado; and Woburn, Massachusetts, all in the United States; and in Thiendorf, Munich, and Bergisch Gladbach, Germany. We also have smaller manufacturing operations in Suzhou, China; and Yokohama, Japan.
We regularly assess and evaluate alternative sources of supply for all components and materials. Our primary manufacturing facilities are located in Livermore, Carlsbad, and Baldwin Park, California; Beaverton, Oregon; Boulder, Colorado; and Woburn, Massachusetts, all in the United States; and in Thiendorf and Munich, Germany. We also have smaller manufacturing operations in Suzhou, China and Yokohama, Japan.
These include advanced cryogenic probe systems to test complete wafers or singulated die, as well as Dilution Refrigerator (DR) and Adiabatic Demagnetization Refrigerator (ADR) cryostats used in various applications at close to absolute zero degree temperature, including quantum and superconducting computing applications, astronomy, and other situations where cryogenic temperature management is required.
These include advanced cryogenic probe systems to test complete wafers or singulated die, as well as Dilution Refrigerator (DR) and Adiabatic Demagnetization Refrigerator (ADR) cryostats used in various applications at temperatures close to absolute zero, including quantum and superconducting computing applications, astronomy, and other situations where cryogenic temperature management is required.
Critical steps in our manufacturing process are performed in a variety of clean room environments as stringent as a Class 100, depending on the requirements of the specific manufacturing processes. Our probe stations and metrology systems are designed to provide highly accurate electrical and optical measurements enabled by precise and reliable mechanical components and assemblies.
Critical steps in our manufacturing process are performed in a variety of clean room environments as stringent as a Class 100, depending on the requirements of the specific manufacturing processes. Our probe stations are designed to provide highly accurate electrical and optical measurements enabled by precise and reliable mechanical components and assemblies.
Our customers use our products to test nearly all semiconductor device types, including SoCs, mobile application processors, microprocessors, quantum processors, microcontrollers, graphic processors, radio frequency, analog, mixed signal, image sensors, electro-optical, DRAM memory, NAND flash memory, NOR flash memory, and quantum computer processor devices.
Our customers use our products 6 to test nearly all semiconductor device types, including SoCs, mobile application processors, microprocessors, quantum processors, microcontrollers, graphic processors, radio frequency, analog, mixed signal, image sensors, electro-optical, DRAM memory (including HBM), NAND flash memory, NOR flash memory, and quantum computer processor devices.
In the future, we may receive notices of violations of environmental regulations, or otherwise learn of such violations. Environmental contamination or violations may negatively impact our business. Import and Export Control We manufacture, market and sell our products both inside and outside the U.S. Certain products are subject to export control regulations.
In the future, we may receive notices of violations of environmental regulations, or otherwise learn of such violations. Environmental contamination or violations may negatively impact our business. Import and Export Control We manufacture, market and sell our products both inside an d outside the U.S. Certain products are subject to export control regulations.
In addition to formal training, the capabilities of our workforce are intended to grow through structured feedback, mentorship, team building, career progression, tuition assistance, and a culture of transparency. We leverage both formal and informal programs to identify, foster, and retain top talent.
In addition to formal training, the capabilities of our workforce are intended to grow through structured feedback, mentorship, team building, career progression, tuition assistance, and a culture of transparency. We leverage both formal and informal programs to identify, reward, and retain top talent.
We believe that the primary competitive factors in the production probe card market depend upon the type of integrated circuit being tested, and include customer service, knowledge of measurement techniques, delivery time, price, probe card lifetime, chip damage prevention, probe tip touch-down accuracy, speed of the probe card, number of chips contacted in parallel, number of probe tips and their layout and pitch, signal integrity, and frequency and effectiveness of any required cleaning.
We believe that the primary competitive factors in the production probe card market depend upon the type of integrated circuit being tested, and include customer service, knowledge of measurement techniques, delivery time, price, probe card lifetime, chip damage prevention, probe tip touch-down accuracy, electrical signal speed and current carrying capability of the probe card, number of chips contacted in parallel, number of probe tips and their layout and pitch, signal integrity, and frequency and effectiveness of any required cleaning.
Sales and Marketing We sell our products worldwide through a global direct sales force and through a combination of manufacturers’ representatives and distributors. Our direct sales and marketing staff is located in the United States, China, France, Germany, Italy, United Kingdom, Japan, Singapore, South Korea, and Taiwan.
Sales and Marketing We sell our products worldwide through a global direct sales force and through a combination of manufacturers’ representatives and distributors. Our direct sales and marketing staff is located in the United States, China (pending the close of the China Transaction), France, Germany, Italy, United Kingdom, Japan, Singapore, South Korea, and Taiwan.
We believe that we comply in all material respects with the environmental laws and regulations that apply to us as of December 31, 2022. There are no matters pending that we currently believe are reasonably possible of having a material impact to our business, consolidated financial condition, results of operations or cash flows.
We believe that we comply in all material respects with the environmental laws and regulations that apply to us as of December 30, 2023. There are no matters pending that we currently believe are reasonably possible of having a material impact to our business, consolidated financial condition, results of operations or cash flows.
These systems integrate hybrid metrology capabilities and proprietary software to enable non-destructive and rapid measurement of multiple features and parameters simultaneously, which has multiple applications but is particularly useful in the growing space of advanced packaging, Silicon Carbide (SiC) power, Silicon Photonics, and MEMS applications. Thermal Subsystems.
These systems integrated hybrid metrology capabilities and proprietary software to enable non-destructive and rapid measurement of multiple features and parameters simultaneously, which had multiple applications but is particularly useful in the growing space of advanced packaging, Silicon Carbide (SiC) power, Silicon Photonics, and MEMS applications. Thermal Subsystems.
Human Capital We believe that each employee contributes to our culture of integrity, innovation, and teamwork. We reinforce this culture through our human capital development programs that drive talent acquisition, retention and employee engagement. These programs include carefully designed compensation across all levels, a variety of training, diversity and inclusion objectives, and other initiatives.
Our People We believe that each employee contributes to our culture of integrity, innovation, and teamwork. We reinforce this culture through our people development programs that drive talent acquisition, retention and employee engagement. These programs include carefully designed compensation programs across all levels, a variety of training, diversity and inclusion programs, and other initiatives.
We believe that the primary competitive factors in the probe station market are measurement accuracy and versatility at temperature, including cryogenic temperatures, measurement speed, automation features, knowledge of measurement techniques, completeness of the measurement solutions, delivery time and price. We believe that we compete favorably with respect to these factors. Metrology Systems.
We believe that the primary competitive factors in the probe station market are measurement accuracy and versatility at temperature, including cryogenic temperatures, measurement speed, automation features, knowledge of measurement techniques, completeness of the measurement solutions, delivery time and price. We believe that we compete favorably with respect to these factors. Thermal Subsystems.
With resolution down to nanometer scales, these systems measure topography, structure, step height, roughness, wear, thickness variation, film thickness and other parameters. The modular architecture of the systems allows for the sensor configuration to be customized for the application while leveraging a common platform.
With resolution down to nanometer scales, these systems measured topography, structure, step height, roughness, wear, thickness variation, film thickness and other parameters. The modular architecture of the systems allowed for the sensor configuration to be customized for the application while leveraging a common platform.
Item 1: Business General FormFactor, Inc., headquartered in Livermore, California, is a leading provider of essential test and measurement technologies along the full semiconductor product lifecycle - from characterization, modeling, reliability, and design de-bug, to qualification and production test.
Item 1: Business General FormFactor, Inc. is a leading provider of essential test and measurement technologies along the full semiconductor product lifecycle - from characterization, modeling, reliability, and design de-bug, to qualification and production test.
We offer pre-configured and customized measurement systems for production testing, power device characterization, vacuum probing, cryogenic probing, high-pressure probing, photonics testing, and a variety of other specific applications. Metrology Systems. We offer surface metrology systems for various applications including the development, production and quality control of semiconductor products.
We offer pre-configured and customized measurement systems for production testing, power device characterization, vacuum probing, cryogenic probing, high-pressure probing, photonics testing, and a variety of other specific applications. Metrology Systems. Until the sale of FRT in November 2023, we offered surface metrology systems for various applications including the development, production and quality control of semiconductor products.
We use information from outside compensation and benefits consulting firms to evaluate the competitiveness of the compensation we offer to employees in specific job types, and the structure of our compensation programs, to help provide benchmarking against our peers within the industry.
We use information from outside compensation and benefits consulting firms to evaluate the competitiveness of the compensation we offer to employees in specific job types, and to evaluate the structure of our compensation programs, as a benchmark against our peers within the industry.
On an annual basis, we have conducted a talent review process with our Chief Executive Officer, and leaders of our business units and functions that is focused upon performance, potential, diversity, and succession for critical roles. 9 Our commitment to diversity and inclusion is a significant part of our human capital development programs.
On an annual basis, we conduct a talent review process with our Chief Executive Officer and leaders of our business units and functions that is focused on performance, potential, diversity, and succession for critical roles. Our commitment to diversity and inclusion is a significant part of our people development programs.
We offer probe cards to test a variety of semiconductor device types, including systems on a chip (SoC), mobile application processors, microprocessors, microcontrollers, graphic processors, radio frequency, analog, mixed signal, image sensors, electro-optical, DRAM memory, NAND flash memory and NOR flash memory devices.
We offer probe cards to test a variety of semiconductor device types, including systems on a chip (SoCs), mobile application processors, microprocessors, quantum processors, microcontrollers, graphic processors, radio frequency, analog, mixed signal, image sensors, electro-optical, DRAM memory (including high-bandwidth memory, or “HBM”), NAND flash memory, NOR flash memory, and quantum computer processor devices.
We also provide worldwide on-site probe card maintenance and service training, seminars and telephone support. In certain geographic regions, and for selected products, our manufacturers’ representatives and distributors provide additional service and support.
We assist our customers in the selection, integration and use of our products through application engineering support. We also provide worldwide on-site probe card maintenance and service training, seminars and telephone support. In certain geographic regions, and for selected products, our manufacturers’ representatives and distributors provide additional service and support.
Probe Cards. Our probe cards utilize a variety of technologies and product architectures, including micro-electromechanical systems (MEMS) technologies. We use advanced design and automation technologies to enable rapid and cost-effective manufacturing of resilient composite contact elements with characteristic length scales of a few microns.
We use advanced design and automation technologies to enable rapid and cost-effective manufacturing of resilient composite contact elements with characteristic length scales of a few microns.
We maintain repair and service capabilities in Livermore and Carlsbad, California and Beaverton, Oregon, United States; Thiendorf, Dresden, Munich and Bergish Gladbach Germany; Bundang, South Korea; Yokohama and Hiroshima, Japan; Suzhou and Shanghai, China; Hsinchu, Taiwan; and Singapore.
We maintain repair and service capabilities in Livermore, Carlsbad, and Baldwin Park, California and Beaverton, Oregon, United States; Thiendorf, Dresden and Munich Germany; Bundang, South Korea; Yokohama and Hiroshima, Japan; Suzhou and Shanghai, China; Hsinchu, Taiwan; and Singapore. 7 In February 2024, we entered into an agreement with Grand Junction Semiconductor Pte.
We believe our customers consider timely service and support to be an important aspect of our relationship as our products are critical elements of high-volume manufacturing and design-specific product ramps.
We believe our customers consider timely service and support to be an important aspect of our relationship as our products are critical elements of high-volume manufacturing and design-specific product ramps. Our probe stations are installed at customer sites either by us, our manufacturers’ representatives or our distributors, depending on the complexity of the installation and the customer’s geographic location.
Speed, accuracy and agility in this process is important to our business. Similarly, it is important to our business that we are able to regularly recruit and train quality new and replacement design and engineering staff. For example, our probe card products require that we develop custom designs for our customers’ new product designs.
We rely upon both employees and resources from staffing firms to meet our needs for direct labor. Speed, accuracy and agility in this process is important to our business. Similarly, it is important to our business that we are able to regularly recruit and train quality new and replacement design and engineering staff.
Approximately 22% of our fiscal 2022 revenue was derived from sales to customers in China, which is subject to the recent 7 expanded export license requirements imposed by the United States government. We continue to take all necessary steps to ensure full compliance with these new rules, including holding shipments, if necessary.
Approximately 14% of our fiscal 2023 revenue and 22% of our fiscal 2022 revenue was derived from sales to customers in China, which were subject to the expanded export license requirements imposed by the United States government.
For our manufacturing activities, the speed at which we can recruit, train and deploy quality new and replacement personnel is an important part of our ability to ramp up and maintain our production capacity. We rely upon both employees and resources from staffing firms to meet our needs for direct labor.
Nearly all of our manufacturing employees are located in California, Oregon and Germany, where workplace safety and labor regulations support maintaining high standards of employee protection. 10 For our manufacturing activities, the speed at which we can recruit, train and deploy quality new and replacement personnel is an important part of our ability to ramp up and maintain our production capacity.
Sales of our probe cards and analytical probes are included in the Probe Cards segment, while sales of our probe stations, metrology systems, thermal systems and cryogenic systems are included in the Systems segment. Products We design, manufacture and sell multiple product lines, including probe cards, analytical probes, probe stations, metrology systems, thermal systems, and cryogenic systems, and related services.
Products We design, manufacture and sell multiple product lines, including probe cards, analytical probes, probe stations, metrology systems, thermal systems, cryogenic systems, and related services. On November 1, 2023, we completed the sale of our FRT Metrology business. Probe Cards. Our probe cards utilize a variety of technologies and product architectures, including micro-electromechanical systems (MEMS) technologies.
These acquisitions have helped transform our business into a semiconductor test and measurement market leader with greater scale, diversification, breadth and market opportunities from lab to fab. As of December 31, 2022, we operate in two reportable segments consisting of the Probe Cards segment and the Systems segment.
From time to time, we have acquired businesses to help transform our business into a semiconductor test and measurement market leader with greater scale, diversification, breadth and market opportunities from Lab to Fab. We continue to evaluate opportunities to acquire businesses and technologies to further these goals.
We face strong competition from companies in a variety of technology fields to secure the engineering talent that we require. In addition, restrictions on immigration and skilled-worker visas in a variety of jurisdictions impacts the ease and flexibility with which we can develop these resources.
For example, our probe card products require that we develop custom designs for our customers’ new product designs. We face strong competition from companies in a variety of technology fields to secure the engineering talent that we require.
Customers use our products and services to accelerate profitability by optimizing device performance and advancing yield knowledge. FormFactor, Inc., was incorporated in 1993, and we introduced our first product in 1995. In October 2012, we acquired Astria Semiconductor Holdings, Inc., including its subsidiary Micro-Probe Incorporated (together “MicroProbe”); in June 2016, we acquired Cascade Microtech, Inc.
Customers use our products and services to accelerate profitability by optimizing device performance, reducing scrap, and improving yields. Founded in 1993, we introduced our first product in 1995.
As of December 31, 2022, our Probe Cards Segment had 1,485 regular full-time employees, our Systems Segment had 426 regular full-time employees, plus we had 194 regular full-time employees in corporate functions. None of our employees in the United States are covered by a collective bargaining agreement.
By region, 1,469 of our employees were in North America, 391 in Asia, and 255 in Europe. As of December 30, 2023, our Probe Cards Segment had 1,565 regular full-time employees, our Systems Segment had 362 regular full-time employees, plus we had 188 regular full-time employees in corporate functions. Available Information We maintain a website at http://www.formfactor.com .
Removed
(“Cascade Microtech” or “CMI”); in October 2019, we acquired FRT GmbH (“FRT”); in July 2020, we acquired the probe card assets of Advantest Corporation (“Baldwin Park”); in October 2020, we acquired High Precision Devices, Inc. (“HPD”), and in June 2022, we acquired the assets of the dilution refrigerator product line of American ULT Cyrogenics, formerly d/b/a JanisULT (“Woburn”).
Added
As of December 30, 2023, we operate in two reportable segments consisting of the Probe Cards segment and the Systems segment. Sales of our probe cards and analytical probes are included in the Probe Cards segment, while sales of our probe stations, metrology systems, thermal systems and cryogenic systems are included in the Systems segment.
Removed
Our probe stations and metrology systems are installed at customer sites either by us, our manufacturers’ representatives or our distributors, depending on the complexity of the installation and the customer’s geographic location. We assist our customers in the selection, integration and use of our products through application engineering support.
Added
Ltd. to divest our operations in China and establish an exclusive distribution and partnership agreement to continue sales and support of our products in the region (the “China Transaction”). The China Transaction is expected to close in the first half of 2024.
Removed
Information concerning revenue by geographic region and by country based upon ship-to location appears under Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Revenues by Geographic Region and Note 16 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Added
The revenue derived from large multinational customers with a presence in China represented 5% of fiscal 2023 revenue, with the remaining 9% representing regional customers in China. As noted above, we have entered into an agreement to divest our China operations, which is expected to close in the first half of 2024.
Removed
Segment and Enterprise-Wide Disclosures See Note 16 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for certain financial information related to our segments and our enterprise-wide disclosures.
Added
In addition, restrictions on immigration and skilled-worker visas in a variety of jurisdictions impacts the ease and flexibility with which we can develop these resources. As of December 30, 2023, we had 2,115 regular full-time employees, including 1,225 in operations, 425 in research and development, 276 in sales and marketing and 189 in general and administrative functions.
Removed
Our primary competitors in the metrology system market are Bruker Corporation, Camtek Ltd., Cohu, Inc., Filmetrics (a KLA company), Onto Innovation, and Unity SC.
Removed
We believe that the primary competitive factors in this market are breadth of measurement types, measurement accuracy, measurement speed and throughput, ability to apply algorithms to multiple sensor inputs to indirectly measure attributes not otherwise directly observable, knowledge of measurement techniques and applications, delivery time and price. We believe that we compete favorably with respect to these factors. Thermal Subsystems.
Removed
Nearly all of our manufacturing employees are located in California, Oregon and Germany, where workplace safety and labor regulations support maintaining high standards of employee protection. We have also been demonstrating a focus on health and safety in our response to the COVID-19 pandemic world-wide, including work-from-home flexibility, and requiring those who may be sick to stay home.
Removed
We believe that our current human capital is appropriate to serve the requirements of our business, and that our human capital development programs and other initiatives are well designed to maintain the quality of our human capital.
Removed
As of December 31, 2022, we had 2,105 regular full-time employees, including 1,170 in operations, 426 in research and development, 322 in sales and marketing and 187 in general and administrative functions. By region, 1,420 of our employees were in North America, 391 in Asia, and 294 in Europe.
Removed
Certain employees at one of our manufacturing facilities in Germany are represented by a works council. Our employees take pride in their work and we believe that our overall relations with our employees is positive. Available Information We maintain a website at http://www.formfactor.com .

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

53 edited+11 added−13 removed111 unchanged
Biggest changeThese risks and challenges include: • compliance with a wide variety of foreign laws and regulations; • legal uncertainties regarding taxes, tariffs, quotas, export controls, export licenses and other trade barriers; • political and economic instability or foreign conflicts, including trade wars, that involve or affect the countries of our customers; • difficulties in collecting accounts receivable and longer accounts receivable payment cycles; • difficulties in staffing and managing personnel, distributors and representatives; • reduced protection for intellectual property rights in some countries; • currency exchange rate fluctuations, which could affect the value of our assets denominated in local currency, as well as the price of our products relative to locally produced products; • the impact of pandemics or other disruptions to trade and production; • seasonal fluctuations in purchasing patterns in other countries; and • fluctuations in freight rates and transportation disruptions.
Biggest changeThese risks and challenges include: • compliance with a wide variety of foreign laws and regulations, including social, political, immigration, and tax and trade policies; • legal uncertainties regarding taxes, tariffs, quotas, export controls, export licenses and other trade barriers; • political and economic instability or foreign conflicts, including trade wars, that involve or affect the countries of our customers; • government restrictions on, or nationalization of, our operations in any country, or restrictions on our ability to repatriate earnings from or distribute compensation or other funds in a particular country; • adverse changes relating to government grants, tax credits, or other government incentives, including more favorable incentives provided to competitors; • difficulties in collecting accounts receivable and longer accounts receivable payment cycles; • difficulties in staffing and managing personnel, distributors and representatives; • reduced protection for intellectual property rights in some countries; • currency exchange rate fluctuations, which could affect the value of our assets denominated in local currency, as well as the price of our products relative to locally produced products; • global, regional and national geopolitical or other events, such as political instability, acts of war or terrorism, regional tensions, health crises and natural disasters; • seasonal fluctuations in purchasing patterns in other countries; and • fluctuations in freight rates and transportation disruptions.
Factors affecting the trading price of our common stock could include: • variations in our operating results; • our forecasts and financial guidance for future periods; • announcements of technological innovations, new products or product enhancements, new product adoptions at semiconductor customers or significant agreements by us or by our competitors; • reports regarding our ability to bring new products into volume production efficiently; • the gain or loss of significant orders or customers; • changes in the estimates of our operating results or changes in recommendations by any securities analysts that elect to follow our common stock; • rulings on litigation and proceedings; • seasonality, principally due to our customers' purchasing cycles; • market and competitive conditions in our industry, the entire semiconductor industry and the economy as a whole; • recruitment or departure of key personnel; • announcements of mergers and acquisition transactions and the ability to successfully integrate the business activities of the acquired/merged company; and • political and global economic instability, including as a result of trade barriers, natural disasters, epidemics and pandemics, military conflicts, climate change, and other factors acting alone or in combination.
Factors affecting the trading price of our common stock could include: • variations in our operating results; • our forecasts and financial guidance for future periods; • announcements of technological innovations, new products or product enhancements, new product adoptions at semiconductor customers or significant agreements by us or by our competitors; • reports regarding our ability to bring new products into volume production efficiently; • the gain or loss of significant orders or customers; • changes in the estimates of our operating results or changes in recommendations by any securities analysts that elect to follow our common stock; • rulings on litigation and proceedings; • seasonality, principally due to our customers' purchasing cycles; • market and competitive conditions in our industry, the entire semiconductor industry and the economy as a whole; • recruitment or departure of key personnel; 20 • announcements of mergers and acquisition transactions and the ability to successfully integrate the business activities of the acquired/merged company; and • political and global economic instability, including as a result of trade barriers, natural disasters, epidemics and pandemics, military conflicts, climate change, and other factors acting alone or in combination.
These provisions: • establish a transition from a classified board of directors to a declassified board of directors, such that, until the annual shareholder meeting in 2024, not all members of our board are elected at one time; • provide that directors may only be removed “for cause” and only with the approval of 66.7% of our stockholders; • require super-majority voting to amend some provisions in our certificate of incorporation and bylaws; • authorize the issuance of “blank check” preferred stock that our board could issue to increase the number of outstanding shares and to discourage a takeover attempt; 20 • limit the ability of our stockholders to call special meetings of stockholders; • prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; • provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; and • establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings.
These provisions: • establish a transition from a classified board of directors to a declassified board of directors, such that, until the annual shareholder meeting in 2024, not all members of our board are elected at one time; • provide that directors may only be removed “for cause” and only with the approval of 66.7% of our stockholders; • require super-majority voting to amend some provisions in our certificate of incorporation and bylaws; • authorize the issuance of “blank check” preferred stock that our board could issue to increase the number of outstanding shares and to discourage a takeover attempt; • limit the ability of our stockholders to call special meetings of stockholders; • prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; • provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; and • establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings.
Any errors or defects could: • cause lower than anticipated yields and lengthen delivery schedules; • cause delays in product shipments; • cause delays in new product introductions; • cause us to incur warranty expenses; • result in increased costs and diversion of development resources; • cause us to incur increased charges due to unusable inventory; • require design modifications; • have implications for timing of revenue recognition and associated costs; or • decrease market acceptance or customer satisfaction with these products.
Any errors or defects could: 14 • cause lower than anticipated yields and lengthen delivery schedules; • cause delays in product shipments; • cause delays in new product introductions; • cause us to incur warranty expenses; • result in increased costs and diversion of development resources; • cause us to incur increased charges due to unusable inventory; • require design modifications; • have implications for timing of revenue recognition and associated costs; or • decrease market acceptance or customer satisfaction with these products.
Increased competition has resulted in, and in the future may result in, price reductions, reduced gross margins or loss of market share. 10 Existing competitors might introduce new competitive products for the same markets that our products currently serve. These products may have better performance, lower prices, shorter delivery times or broader acceptance than our products.
Increased competition has resulted in, and in the future may result in, price reductions, reduced gross margins or loss of market share. Existing competitors might introduce new competitive products for the same markets that our products currently serve. These products may have better performance, lower prices, shorter delivery times or broader acceptance than our products.
During industry downturns, semiconductor manufacturers sharply curtail their spending, including their spending on our products, which may adversely impact our revenues, gross margins and results of operations. Further, a protracted downturn could cause one or more of our customers to become insolvent, resulting in a loss of revenue and impacting our ability to collect on accounts receivable.
During industry downturns, semiconductor manufacturers sharply curtail their spending, including their spending on our products, which may adversely impact our revenues, gross margins and results of operations. Further, a 13 protracted downturn could cause one or more of our customers to become insolvent, resulting in a loss of revenue and impacting our ability to collect on accounts receivable.
Our electronic data systems may be subject to defects, failures or disruptions as a result of, among other things, natural disasters, accidents, power disruptions, telecommunications failures, deficiencies in new system designs and implementations, 16 acts of terrorism or war, physical security breaches, computer viruses or other cyber attacks.
Our electronic data systems may be subject to defects, failures or disruptions as a result of, among other things, natural disasters, accidents, power disruptions, telecommunications failures, deficiencies in new system designs and implementations, acts of terrorism or war, physical security breaches, computer viruses or other cyber attacks.
These events or perceptions may expose us to additional reputational and operational risks. Risks Relating to Our Acquisitions We have made acquisitions, and may make additional acquisitions or investments in the future, which could put a strain on our resources, cause ownership dilution to our stockholders, or adversely affect our financial results.
These events or perceptions may expose us to additional reputational and operational risks. 19 Risks Relating to Our Acquisitions We have made acquisitions, and may make additional acquisitions or investments in the future, which could put a strain on our resources, cause ownership dilution to our stockholders, or adversely affect our financial results.
Finite-lived intangible 19 assets are assessed for impairment in the event of an impairment indicator. Any reduction or impairment of the value of goodwill or other intangible assets will result in a charge against earnings, which could materially adversely affect our results of operations and stockholders’ equity in future periods.
Finite-lived intangible assets are assessed for impairment in the event of an impairment indicator. Any reduction or impairment of the value of goodwill or other intangible assets will result in a charge against earnings, which could materially adversely affect our results of operations and stockholders’ equity in future periods.
These challenges, if not timely resolved could have a material adverse effect on operating results and our ability to compete effectively. 13 If we are unable to continue to reduce the time it takes for us to design and produce products, our growth could be impeded.
These challenges, if not timely resolved could have a material adverse effect on operating results and our ability to compete effectively. If we are unable to continue to reduce the time it takes for us to design and produce products, our growth could be impeded.
Our future growth depends, in significant part, upon our ability to work effectively with and anticipate the future technical and operational needs of our customers and to develop and support new products and product enhancements to meet those needs on a timely and cost-effective basis.
Our future growth depends, in significant part, upon our ability to work effectively with and anticipate the future technical and operational needs of our customers and to develop and support new 11 products and product enhancements to meet those needs on a timely and cost-effective basis.
The degree to which we depend upon the sales of our probe card products for our revenues may increase our susceptibility to failures to satisfy the customers for such products, which may adversely affect our revenues and our ability to grow our business. 11 We derive a substantial portion of our revenues from a small number of customers.
The degree to which we depend upon the sales of our probe card products for our revenues may increase our susceptibility to failures to satisfy the customers for such products, which may adversely affect our revenues and our ability to grow our business. We derive a substantial portion of our revenues from a small number of customers.
In addition, certain of our customer contracts contain provisions that require us to defend or indemnify our customers for third party intellectual property infringement claims, which could increase the costs and negative impacts of intellectual property claims.
In addition, certain of our customer contracts contain provisions that require us to defend or indemnify our customers for third 18 party intellectual property infringement claims, which could increase the costs and negative impacts of intellectual property claims.
While we report our financial results in U.S. dollars, we incur certain costs in other currencies, and have certain foreign currency denominated assets and liabilities. We, therefore, face exposure to fluctuations in currency exchange rates.
While we report our financial results in U.S. dollars, we incur certain costs in other currencies, and have certain foreign currency denominated assets and liabilities. We, therefore, face 17 exposure to fluctuations in currency exchange rates.
In fiscal 2022, we observed a continuing trend of increasing risks and challenges in the conduct of our international business activities, including expanded tariffs and other trade barriers affecting the United States and China. Additionally, we are required to comply with foreign import and export requirements, customs and value added tax standards that can be unclear or complex.
In fiscal 2023, we observed a continuing trend of increasing risks and challenges in the conduct of our international business activities, including expanded tariffs and other trade barriers affecting the United States and China. Additionally, we are required to comply with foreign import and export requirements, customs and value added tax standards that can be unclear or complex.
We have generally been able to offset increases in these costs through various productivity and cost reduction initiatives, as well as by adjusting our selling prices to pass through some of these higher costs to our customers; however, our ability to raise our selling prices depends on market conditions and competitive dynamics.
We have generally been able to offset increases in these costs through various productivity improvement and cost reduction initiatives, as well as by adjusting our selling prices to pass through some of these higher costs to our customers; however, our ability to raise our selling prices depends on market conditions and 16 competitive dynamics.
In addition, prospective customers might decide not to use our products or use our products for a relatively small percentage of their requirements after we have expended significant effort and expense toward product design, development, and/or manufacture.
In addition, prospective customers might decide not to use our products or use our products for a relatively small percentage of their requirements after we have expended significant effort and expense toward product design, development, and/or manufacturing.
Global economic stability can be negatively affected by a variety of factors and interrelationships, including the impacts of epidemics and pandemics, military conflicts, climate change, trade barriers (such as the U.S.-China trade restrictions implemented during fiscal 2022) and other factors acting alone or in combination.
Global economic stability can be negatively affected by a variety of factors and interrelationships, including the impacts of epidemics and pandemics, military conflicts or regional tensions, climate change, trade barriers (such as the U.S.-China trade restrictions implemented since fiscal 2022) and other factors acting alone or in combination.
Our international sales as a percentage of our revenues were 83%, 84% and 82% for fiscal 2022, 2021 and 2020, respectively. Certain of our non-U.S. based customers also purchase through their subsidiaries in the United States. In the future we expect international sales to continue to account for a significant percentage of our revenues.
Our international sales as a percentage of our revenues were 74%, 83% and 84% for fiscal 2023, 2022 and 2021, respectively. Certain of our non-U.S. based customers also purchase through their subsidiaries in the United States. In the future we expect international sales to continue to account for a significant percentage of our revenues.
Consolidation in the semiconductor industry and within the semiconductor test equipment market could adversely affect the market for our products and negatively impact our ability to compete. Consolidation in the semiconductor industry may reduce our customer base and could adversely affect the market for our products, which could cause a decline in our revenues.
Consolidation in the semiconductor industry and within the semiconductor test equipment market could adversely affect the market for our products and negatively impact our ability to compete. Consolidation in the semiconductor industry may reduce our customer base and could adversely affect the market for our products, which could negatively impact our revenues.
This could be exacerbated by certain events outside the control of either the supplier or us, such as global, regional or national health crises or armed conflict. The occurrence of any of these risks could adversely impact our business, results of operations and financial condition.
This could be exacerbated by certain events outside the control of either the supplier or us, such as global, regional or national health crises, armed conflicts, regional tensions or other adverse global, regional and national events. The occurrence of any of these risks could adversely impact our business, results of operations and financial condition.
We believe our ability to manage successfully and grow our business and to develop new products depends, in large part, on our ability to recruit and retain qualified employees, particularly highly skilled technical, sales, management, and other key personnel.
We believe our ability to manage successfully and grow our business and to develop new products depends, in large part, on our ability to recruit and retain qualified employees, particularly highly skilled technical, sales, management, and other key personnel. Competition for qualified resources is intense.
A relatively small number of customers account for a significant portion of our revenues. One customer represented 19.0% of total revenues in fiscal 2022, two customers represented a combined 31.8% of total revenues in fiscal 2021 and one customer represented 31.5% of total revenues in fiscal 2020.
A relatively small number of customers account for a significant portion of our revenues. One customer represented 17.1% of total revenues in fiscal 2023, one customer represented 19.0% of total revenues in fiscal 2022 and two customers represented a combined 31.8% of total revenues in fiscal 2021.
Our suppliers have raised their prices and may continue to raise prices, and in the competitive markets in which we operate, we may not be able to make corresponding price increases to preserve our gross margins and profitability.
Our suppliers raised their prices and may continue to raise prices, and in the competitive markets in which we operate, we may not be able to make corresponding price increases, productivity improvements or cost reductions to preserve our gross margins and profitability.
Cancellations, reductions, deferrals or non-payment of invoices could result from another downturn in the semiconductor industry, manufacturing delays, quality or reliability issues with our products, or from interruptions to our customers’ operations due to fire, natural disasters or other events, or other issues with the financial stability of our customers.
Cancellations, reductions, deferrals or non-payment of invoices could result from downturns in the semiconductor industry, including the cyclical downturn we are now experiencing, manufacturing delays, quality or reliability issues with our products, or from interruptions to our customers’ operations due to fire, natural disasters or other events, or other issues with the financial stability of our customers.
Because our expense levels are based in part on our expectations as to future revenues and to a large extent are fixed in the short term, we might be unable to adjust spending in time to compensate for any unexpected shortfall in revenues, such as the decline in bookings and revenues in the second half of fiscal 2022.
Because our expense levels are based in part on our expectations as to future revenues and to a large extent are fixed in the short term, we might be unable to adjust spending in time to compensate for any unexpected shortfall in revenues.
If we cannot do these things, both our existing products and our new products may not be commercially successful, our revenues and profitability may be adversely affected, our customer relationships and our reputation may be harmed, and our business may be materially adversely affected.
If we fail to do so, both our existing products and our new products may not be commercially successful, our revenues and profitability may be adversely affected, our customer relationships and our reputation may be harmed, and our business may be materially adversely affected.
We recorded restructuring charges in fiscal 2022 and 2021 and we may implement restructuring plans in the future, which would require us to take additional, potentially material, restructuring charges related to employee terminations, asset disposal or exit costs.
We have recorded significant restructuring charges in prior periods, and we may implement restructuring plans in the future, which would require us to take additional, potentially material, restructuring charges related to employee terminations, asset disposal or exit costs.
Any of these events may result in global, regional or national economic slowdowns or other economic downturns. Such downturns could curtail or delay spending by businesses and consumers which may ultimately result in reductions in the demand for our products and greater volatility in demand and supply conditions. These events may also increase uncertainty in global credit and financial markets.
Any such adverse events may result in global, regional or national economic slowdowns or other economic downturns. Such downturns could curtail or delay spending by businesses and consumers which may ultimately result in reductions in the demand for our products, greater volatility in demand and supply conditions and other adverse impacts.
Furthermore, because our probe cards are custom products designed for our customers’ unique wafer designs, any cancellations, reductions or delays can result in significant non-recoverable costs, including but not limited to the potential for impairment of inventories. In some situations, our customers might be able to cancel or reduce orders without a significant penalty.
Furthermore, because our probe cards are custom products designed for our customers’ unique wafer designs, any cancellations, reductions or delays can result in significant non-recoverable costs, including but not limited to the potential for impairment of inventories.
The circumstances which give rise to epidemics and pandemics from new or existing pathogens with similar impacts are expected to persist indefinitely. Another example of events outside of our control arises from our manufacturing facilities being located in seismically active areas in California and Oregon. The manufacturing equipment and processes that we use can be severely disrupted by seismic activity.
The circumstances which give rise to epidemics and pandemics from new or existing pathogens with similar impacts are expected to persist indefinitely. 15 Another example of events outside of our control arises from our manufacturing facilities being located in seismically active areas in California and Oregon.
A significant seismic event in an area of our operations could have a materially negative impact on our operations, financial results or financial condition. Much of the infrastructure on which we rely for our operations is outside of our control, such as electric power infrastructure.
The manufacturing equipment and processes that we use can be severely disrupted by seismic activity. A significant seismic event in an area of our operations could have a materially negative impact on our operations, financial results or financial condition. Much of the infrastructure on which we rely for our operations is outside of our control, such as electric power infrastructure.
We may be further impacted by the adoption and evolution of ESG-related regulation and legislation in the jurisdictions in which we do business, such as the Securities and Exchange Commission disclosure requirements proposed earlier in 2022, which could result in increased compliance, operational, and other costs.
We may be further impacted by the adoption and evolution of ESG-related regulation and legislation in the jurisdictions in which we do business, which could result in increased compliance, operational, and other costs.
Any such events could adversely impact our costs or results of operations. Concerns relating to climate change have led to a range of local, state, federal, and international regulatory and policy efforts to seek to address greenhouse gas (“GHG”) emissions. In the U.S., various approaches are being proposed or adopted at the federal, state, and local government levels.
Any such events could adversely impact our costs or results of operations. Concerns relating to climate change have led to a range of local, state, federal, and international regulatory and policy efforts to seek to address greenhouse gas (“GHG”) emissions.
During fiscal 2022, our stock price (Nasdaq Global Market close price) ranged from $18.19 per share to $46.74 per share. The trading price of our common stock is likely to continue to be subject to wide fluctuations.
During fiscal 2023, our stock price (Nasdaq Global Market close price) ranged from $21.92 per share to $42.01 per share. The trading price of our common stock is likely to continue to be subject to wide fluctuations.
We could also face pressure from these groups to adapt our physical facilities for alternative sources of energy, which may be less cost-effective than current sources.
Climate change concerns and GHG regulatory efforts could also affect the Company's customers themselves. We could also face pressure from these groups to adapt our physical facilities for alternative sources of energy, which may be less cost-effective than current sources.
There is a continuing trend of increasing trade barriers affecting exports and imports between the United States and China. For example, the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”), has recently amended the U.S. Export Administration Regulations to expand license requirements on exports to entities in China that may support military end uses.
Department of Commerce, Bureau of Industry and Security (“BIS”), has recently amended the U.S. Export Administration Regulations to expand license requirements on exports to entities in China that may support military end uses.
Our access to raw materials may be adversely affected if our suppliers’ operations were disrupted as a result of limited or delayed access to key raw materials and natural resources, which may result in increased cost for these items. 14 Our operations, or those of our important suppliers, business partners and customers, could be adversely affected by events outside of our control such as natural disasters, pandemics and man-made disasters.
Our access to raw materials may be adversely affected if our suppliers’ operations were disrupted as a result of limited or delayed access to key raw materials and natural resources, which may result in increased cost for these items.
If our relationships with our customers deteriorate, our product development activities could be harmed. The success of our product development efforts depends upon our ability to anticipate market trends and to collaborate closely with our customers.
In some situations, our customers might be able to cancel or reduce orders without a significant penalty. 12 If our relationships with our customers deteriorate, our product development activities could be harmed. The success of our product development efforts depends upon our ability to anticipate market trends and to collaborate closely with our customers.
Accordingly, any significant shortfall of revenues in relation to our expectations could hurt our operating results. If our ability to forecast demand for our products or the predictability of our manufacturing yields deteriorates, we could incur high inventory losses. Each semiconductor chip design requires a custom probe card.
If our ability to forecast demand for our products or the predictability of our manufacturing yields deteriorates, we could incur high inventory losses. Each semiconductor chip design requires a custom probe card. Because our probe card products are design-specific, demand for these products is difficult to forecast.
The impacts of such uncertainty and disruptions to the availability of credit or other sources of capital could also adversely affect our ability to access capital on favorable terms or on a timely basis to meet our objectives. Any of these factors could have a material adverse impact on our business, results of operations, financial condition and cash flows.
Additionally, these events may also increase uncertainty in global credit and financial markets. The impacts of such uncertainty and disruptions to the availability of credit or other sources of capital could also adversely affect our ability to access capital on favorable terms or on a timely basis to meet our objectives.
Further, these investments may consume available cash in the short term for a presumed future benefit that may or may not occur. These impacts have caused, and could cause in the future, our operating results and liquidity to decline.
Further, these investments may consume available cash in the short term for anticipated benefit that may or may not occur. Our operating results and liquidity have been and may in the future be negatively impacted by these factors.
Sustained inflation could have a material adverse effect on our business, financial condition, results of operations and liquidity. Inflation rates in the markets in which we operate have increased and may continue to rise. Recent inflation has led us to experience higher costs related to labor, materials from suppliers, and transportation.
Any of these factors could have a material adverse impact on our business, results of operations, financial condition and cash flows. Sustained inflation could have a material adverse effect on our business, financial condition, results of operations and liquidity. Inflation rates in the markets in which we operate have increased and may continue to rise.
In addition to the potential for additional GHG regulation or incentives, enhanced corporate, public, and stakeholder awareness of climate change could affect the Company's reputation or customer demand. Climate change concerns and GHG regulatory efforts could also affect the Company's customers themselves.
These efforts could also materially increase our costs of evaluating potential manufacturing sites, or in some cases eliminate some potential locations as feasible sites. In addition to the potential for additional GHG regulation or incentives, enhanced corporate, public, and stakeholder awareness of climate change could affect the Company's reputation or customer demand.
Because our probe card products are design-specific, demand for these products is difficult to forecast. Due to our customers’ short delivery time requirements, we often design and procure materials and, at times, produce our products in anticipation of demand for our products rather than in response to an order.
Due to our customers’ short delivery time requirements, we often design and procure materials and, at times, produce our products in anticipation of demand for our products rather than in response to an order. Our manufacturing yields and inventory requirements, particularly for new products or when we are operating at high output levels, have at times been unpredictable.
Other companies may have greater resources available to provide substantial inducements to lure key personnel away from us or to offer more competitive compensation packages to individuals we are trying to hire. 18 Our failure to comply with environmental laws and regulations could subject us to significant fines and liabilities, and new laws and regulations or changes in regulatory interpretation or enforcement could make compliance more difficult and costly.
Other companies may have greater resources available to provide substantial inducements to lure key personnel away from us or to offer more competitive compensation packages to individuals we are trying to hire.
From time to time, this industry has experienced significant downturns, often in connection with, or in anticipation of, 12 maturing product and technology cycles, excess inventories, and declines in general economic conditions. The global economic and semiconductor downturns have caused and may in the future cause our operating results to decline dramatically from one period to the next.
The semiconductor industry has historically been cyclical and is characterized by wide fluctuations in product supply and demand. From time to time, this industry has experienced significant downturns, often in connection with, or in anticipation of, maturing product and technology cycles, excess inventories, and declines in general economic conditions.
Such disclosures are aspirational and based on frameworks and standards for such initiatives and progress that are still developing, assumptions that may change, and disclosure control and procedures that continue to evolve. We may fail, or be perceived to fail, in attaining or maintaining our ESG-related initiatives. The topics on which we focus may not be popular with our stakeholders.
We may fail, or be perceived to fail, in attaining or maintaining our ESG-related initiatives. The topics on which we focus may not be popular with our stakeholders.
In addition, the Company has provided voluntary disclosures on ESG matters, including regarding energy usage, greenhouse gas emissions, health and safety, diversity and inclusion, and labor and human rights.
In addition, the Company has provided voluntary disclosures on ESG matters, including energy usage, greenhouse gas emissions, health and safety, diversity and inclusion, and labor and human rights. Such disclosures are aspirational and based on frameworks and standards for such initiatives and progress that are still developing, assumptions that may change, and disclosure control and procedures that continue to evolve.
For example, in the second half of fiscal 2022, we saw a significant decline in demand for foundry & logic and DRAM products due to cyclicality in those markets. The timing, length and severity of these cyclical downturns are difficult to predict, and our business depends on our ability to plan for and react to these cyclical changes.
The timing, length and severity of these cyclical downturns are difficult to predict, and our business depends on our ability to plan for and react to these cyclical changes.
These efforts could lead to additional costs on the Company now or in the future, including increased energy and other capital or operational costs, or additional legal requirements on the Company. These efforts could also materially increase our costs of evaluating potential manufacturing sites, or in some cases eliminate some potential locations as feasible sites.
In the U.S., various approaches are being proposed or adopted at the federal, state, and local government levels, such as recent legislation enacted in California. These efforts could lead to additional costs on the Company now or in the future, including increased energy and other capital or operational costs, or additional legal requirements on the Company.
We may also incur significant research and development expenses in order to introduce new product architectures and platforms to serve the testing needs of new semiconductor technologies. Cyclicality in the semiconductor industry may adversely impact our sales. The semiconductor industry has historically been cyclical and is characterized by wide fluctuations in product supply and demand.
We may also incur significant research and development expenses in order to introduce new product architectures and platforms to serve the testing needs of new semiconductor technologies. These expenses are often incurred in advance of customer adoption or other anticipated benefits, and the return on these investments may be lower, or may develop more slowly, than we expect.
In addition, the reaction to these rules by governments and private businesses outside the U.S., particularly in China, may be expected to 17 include retaliatory controls and preferences for non-U.S. or local suppliers. In China we are already observing stronger preferences for non-U.S. suppliers in general, and in favor of new and existing local suppliers in particular.
For example, China has restricted U.S. access to certain minerals and has blocked certain companies that provide products to Taiwan's military from selling products in China. Also, in China, we are already observing stronger preferences for non-U.S. suppliers in general, and in favor of new and existing local suppliers in particular.
Removed
Our manufacturing yields and inventory requirements, particularly for new products or when we are operating at high output levels, have at times been unpredictable.
Added
This may become more difficult to do as the semiconductor industry innovates to address demand for AI-related products, which may develop more slowly than we anticipate or change from one period to another.
Removed
Global, regional or national health crises, such as the COVID-19 pandemic, have impacted, and could continue to negatively impact, our operations and those of our important suppliers, business partners and customers. We are exposed to risks associated with public health crises and outbreaks of contagious diseases, such as COVID-19.
Added
If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our operating results may be negatively impacted. Cyclicality in the semiconductor industry has in the past and may in the future adversely impact our sales.
Removed
To date, these outbreaks have had, and may continue to have, an adverse impact on our operations, our supply chains and our expenses, including as a result of precautionary measures that we take in response to them.
Added
The global economic and semiconductor downturns have caused and may in the future cause our operating results to decline dramatically from one period to the next.
Removed
For example, a variety of health orders and regulations arising from the COVID-19 pandemic apply to our operations and employees in the regions where we operate which have had, and will continue to have, negative affects upon our operations and business.
Added
For example, the semiconductor industry has been experiencing a cyclical downturn since the second half of fiscal 2022, which has extended through fiscal 2023, resulting in a significant decline in demand for foundry & logic and DRAM products over the same period.
Removed
The extension of existing government orders and implementation of new orders or mandates, such as government vaccine and testing mandates, could impact the availability of members of our workforce or lead to the loss of key employees, further adversely impacting our business.
Added
If we do not achieve the benefits anticipated from any of these investments, or if the achievement any of these benefits is delayed, our operating results may be negatively impacted.
Removed
I mplementation of such mandates and requirements could also have similar consequences for our suppliers, which 15 may impact their ability to deliver their goods and services to us.
Added
Our operations, or those of our important suppliers, business partners and customers, could be adversely affected by events outside of our control such as natural disasters, pandemics and man-made disasters.
Removed
Even as the availability of vaccines has relieved the economic effects of the COVID-19 pandemic, new variants of the virus may continue to impede the vaccines’ efficacy, or other factors may prolong or worsen the pandemic and its direct and indirect effects upon our business.
Added
For example, any deterioration in the relations between Taiwan and China, and other factors affecting military, political or economic conditions in Taiwan or elsewhere in Asia, could adversely impact our suppliers, manufacturers and customers with operations located in the region, which could disrupt our business operations, affect demand for our products or increase our costs, negatively impacting our revenues, gross margins, and overall results of operations.
Removed
In response, many of our employees continue to work remotely, which can increase operational risk and cybersecurity risks. If we do not respond appropriately to these health crises, or if employees, customers or others do not perceive our response positively, we could suffer damage to our reputation, which could also adversely affect our business.
Added
Inflation in recent periods has led us to experience higher costs related to labor, materials from suppliers, and transportation.
Removed
We obtain some of the components and materials used in our products from a sole source or a limited group of suppliers, and in some cases alternative sources are not readily available.
Added
Geopolitical and trade tensions between the United States and China, one of our largest markets, have led to increased tariffs and trade restrictions and have affected customer ordering patterns, and this dynamic between the countries may persist or increase for the foreseeable future. For example, the U.S.
Removed
Health crises may heighten the risks posed by our dependence upon sole or limited source suppliers to the extent that they could disrupt the operations of one or more of these suppliers, resulting in an inability to obtain an adequate supply of materials, late deliveries or poor component quality while we seek to identify and qualify alternative suppliers.
Added
In reaction to U.S. trade regulations, governments and private businesses outside the United States, particularly in China, may implement retaliatory controls and preferences for non-U.S. or local suppliers, which can increase our manufacturing costs, make our products less competitive, reduce demand for our products, limit our ability to sell to certain customers, limit our ability to procure components or raw materials, or impede or slow the movement of our goods across borders.
Removed
The extent to which these health crises impact our operations and those of our important suppliers, business partners and customers will depend on numerous evolving factors and future developments that we are not able to predict, including but not limited to: the severity and duration of each event; governmental, business and other actions including government vaccine and testing mandates (which could include further restrictions on our operations); the ongoing requirements of social distancing and health orders; the impacts on our supply chain; the impact on economic activity; the extent and duration of the effect on business confidence and investments by our customers; the effects of changes to our operations that may continue indefinitely; the effects on our workforce and our ability to meet our staffing needs, particularly if members of our workforce are exposed or infected; any impairments in the value of our assets; and the potential impacts upon our internal controls, including those over financial reporting, that may result from changes in working environments and other circumstances.
Added
Our failure to comply with environmental laws and regulations could subject us to significant fines and liabilities, and new laws and regulations or changes in regulatory interpretation or enforcement could make compliance more difficult and costly.
Removed
All of these circumstances are highly uncertain and cannot be predicted, and the circumstances which give rise to new or existing infectious diseases becoming epidemics or pandemics with potentially similar impacts to the COVID-19 pandemic are expected to persist.
Removed
Competition for qualified resources is intense, and the increased availability of work-from-home arrangements accelerated by the COVID-19 pandemic has intensified and expanded competition.

Item 2. Properties

Properties — owned and leased real estate

2 edited+1 added−0 removed1 unchanged
Biggest changeWe believe that our existing and planned facilities are suitable for our current needs. 21 Information concerning our properties as of December 31, 2022 is set forth below: Location Principal Use Segment Square Footage Ownership Livermore, California, United States Manufacturing Probe Cards 90,508 Owned Livermore, California, United States Corporate headquarters, sales, marketing, administration, product design, manufacturing, service and repair, distribution, research and development All 168,636 Leased Thiendorf, Germany Sales, marketing, administration, manufacturing, service and repair, distribution, research and development Systems 101,291 Leased Beaverton, Oregon, United States Sales, marketing, administration, product design, manufacturing, service and repair, distribution, research and development Probe Cards 101,205 Leased Baldwin Park, California, United States Manufacturing, distribution, research and development Probe Cards 44,000 Leased Boulder, Colorado, United States Sales, marketing, administration, manufacturing, distribution, research and development Systems 34,133 Leased Carlsbad, California, United States Sales, product design, administration, manufacturing, service and repair, distribution, research and development Probe Cards 30,876 Leased Woburn, Massachusetts, United States Sales, marketing, administration, manufacturing, distribution, research and development Systems 26,070 Leased Jubei City, Hsinchu, Taiwan Sales, administration, product design, field service and repair center All 25,629 Leased Singapore Sales, administration, product design, service, and field service All 24,413 Leased Suzhou, China Sales, marketing, administration, product design, manufacturing, service and repair, distribution, research and development All 22,777 Leased San Jose, California, United States Sales, marketing, and distribution Systems 21,489 Leased Bundang, South Korea Sales, administration, product design, field service, and repair center All 17,161 Leased Yokohama City, Japan Sales, marketing, administration, product design, manufacturing, service and repair, distribution, research and development All 13,309 Leased Bergisch Gladbach, Germany Sales, manufacturing, administration, service and repair, distribution, research and development Systems 12,235 Leased Munich, Germany Sales, manufacturing, administration, service and repair, distribution, research and development Systems 11,981 Leased Shanghai, China Sales and service All 3,348 Leased Dresden, Germany Sales and service All 2,960 Leased Hiroshima, Japan Repair center Probe Cards 1,007 Leased 22
Biggest changeWe believe that our existing and planned facilities are suitable for our current needs. 23 Information concerning our properties as of December 30, 2023 is set forth below: Location Principal Use Segment Square Footage Ownership Livermore, California, United States Manufacturing Probe Cards 90,508 Owned Livermore, California, United States Corporate headquarters, sales, marketing, administration, product design, manufacturing, service and repair, distribution, research and development All 168,636 Leased Thiendorf, Germany Sales, marketing, administration, manufacturing, service and repair, distribution, research and development Systems 101,291 Leased Beaverton, Oregon, United States Sales, marketing, administration, product design, manufacturing, service and repair, distribution, research and development Probe Cards 101,205 Leased Baldwin Park, California, United States Manufacturing, service and repair, distribution, research and development Probe Cards 44,000 Leased Boulder, Colorado, United States Sales, marketing, administration, manufacturing, distribution, research and development Systems 34,133 Leased Carlsbad, California, United States Sales, product design, administration, manufacturing, service and repair, distribution, research and development Probe Cards 42,080 Leased Woburn, Massachusetts, United States Sales, marketing, administration, manufacturing, distribution, research and development Systems 26,070 Leased Jubei City, Hsinchu, Taiwan Sales, administration, product design, field service and repair center All 25,631 Leased Singapore Sales, administration, product design, service, and field service All 24,413 Leased Suzhou, China (1) Sales, marketing, administration, product design, manufacturing, service and repair, distribution, research and development All 22,777 Leased San Jose, California, United States Sales, marketing, and distribution Systems 21,489 Leased Bundang, South Korea Sales, administration, product design, field service, and repair center All 17,161 Leased Yokohama City, Japan Sales, marketing, administration, product design, manufacturing, service and repair, distribution, research and development All 16,150 Leased Munich, Germany Sales, manufacturing, administration, service and repair, distribution, research and development Systems 18,786 Leased Shanghai, China (1) Sales and service All 3,348 Leased Dresden, Germany Sales and service All 2,960 Leased Hiroshima, Japan Repair center Probe Cards 1,007 Leased (1) On February 7, 2024, the Company signed an agreement with Grand Junction Semiconductor Pte.
Adjacent to our campus we own approximately 6 acres of vacant land for future expansion. In addition, we lease office, repair and service, manufacturing and/or research and development space both inside and outside of the United States. The leases expire at various times through 2028.
Adjacent to our campus we own approximately 6 acres of vacant land for future expansion. In addition, we lease office, repair and service, manufacturing and/or research and development space both inside and outside of the United States. The leases expire at various times through 2034.
Added
Ltd. to divest its China operations. These leased locations are to be included as part of the divestiture. See Note 19 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further details. 24

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

0 edited+1 added−3 removed0 unchanged
Removed
Item 3: Legal Proceedings From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. As of December 31, 2022, and as of the filing of this Annual Report on Form 10-K, we were not involved in any material legal proceedings.
Added
Item 3: Legal Proceedings Information with respect to this item may be found under the caption “Legal Matters” in Note 12, Commitments and Contingencies, to our consolidated financial statements included herein, which information is incorporated into this Item 3 by reference. Item 4: Mine Safety Disclosures Not applicable. PART II
Removed
In the future, we may become a party to additional legal proceedings that may require us to spend significant resources, including proceedings designed to protect our intellectual property rights. Litigation can be expensive and disruptive to normal business operations.
Removed
Moreover, the results of legal proceedings are difficult to predict, and the costs incurred in litigation can be substantial, regardless of outcome. Item 4: Mine Safety Disclosures Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+1 added−1 removed1 unchanged
Biggest changePeriod (fiscal months) Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Amount that May Yet Be Purchased Under the Plans or Programs September 25, 2022 - October 22, 2022 240,479 $ 25.45 240,479 $ 21,364,697 October 23, 2022 - November 19, 2022 125,000 21.84 125,000 18,634,446 November 20, 2022 - December 31, 2022 — — — 18,634,446 365,479 $ 24.22 365,479 23 Stock Price Performance Graph The following graph shows the total stockholder return of an investment of $100 in cash on December 30, 2017 through December 31, 2022 for (1) our common stock, (2) the S&P 500 Index, (3) the RDG Semiconductor Composite (former industry index) and (4) the S&P Semiconductors Select Industry Index (new industry index).
Biggest changePeriod (fiscal months) Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Amount that May Yet Be Purchased Under the Plans or Programs October 1, 2023 - October 28, 2023 — $ — — $ 93,634,446 October 29, 2023 - November 25, 2023 184,464 36.77 184,464 86,851,705 November 26, 2023 - December 30, 2023 351,908 36.99 351,908 73,834,628 536,372 $ 36.92 536,372 25 Stock Price Performance Graph The following graph shows the total stockholder return of an investment of $100 in cash on December 29, 2018 through December 30, 2023 for (1) our common stock, (2) the S&P 500 Index, and (3) the S&P Semiconductors Select Industry Index.
Item 5: Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Stock Information Our common stock is listed on The Nasdaq Global Market under the symbol “FORM.” As of February 17, 2023, there were 120 registered holders of record of our common stock, which does not include beneficial owners of stock held in street name (i.e., through a brokerage firm, bank, broker-dealer, trust or other similar organization).
Item 5: Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Stock Information Our common stock is listed on The Nasdaq Global Market under the symbol “FORM.” As of February 16, 2024, there were 115 registered holders of record of our common stock, which does not include beneficial owners of stock held in street name (i.e., through a brokerage firm, bank, broker-dealer, trust or other similar organization).
The pace of repurchase activity will depend on levels of cash generation, the Company's current stock price, and other factors. The program may be modified or discontinued at any time. The current share repurchase program will expire May 2024.
The pace of repurchase activity will depend on levels of cash generation, the Company's current stock price, and other factors. The program may be modified or discontinued at any time. The current share repurchase program will expire October 2025.
Repurchases of Common Stock In May 2022, our Board of Directors authorized a program to repurchase up to $75.0 million of outstanding common stock to offset potential dilution from issuances of our common stock under our employee stock purchase plan and equity incentive plan.
Repurchases of Common Stock In October 2023, our Board of Directors authorized a program to repurchase up to $75.0 million of outstanding common stock to offset potential dilution from issuances of our common stock under our employee stock purchase plan and equity incentive plan.
The following table provides information as of December 31, 2022 with respect to the shares of common stock repurchased during the fourth quarter of fiscal 2022 pursuant to the foregoing Board authorization.
The following table provides information as of December 30, 2023 with respect to the shares of common stock repurchased during the fourth quarter of fiscal 2023 pursuant to the foregoing Board authorization.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among FormFactor, Inc., the S&P 500 Index, RDG Semiconductor Composite and the S&P Semiconductors Select Industry Index *$100 invested on December 30, 2017 in stock or index, including reinvestment of dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among FormFactor, Inc., the S&P 500 Index, and the S&P Semiconductors Select Industry Index *$100 invested on December 29, 2018 in stock or index, including reinvestment of dividends.
This authorization is in addition to the program authorized October 2020 to repurchase up to $50.0 million of outstanding common stock that was fully utilized through June 2022 and expired October 2022. Under the current stock repurchase program, we may repurchase shares from time to time on the open market.
This authorization was in addition to the program authorized in May 2022 to repurchase up to $75.0 million of outstanding common stock that was fully utilized as of December 30, 2023. Under the current stock repurchase program, we may repurchase shares from time to time on the open market.
We believe the new industry index is more representative of the industry in which we operate and is in alignment with the index utilized by FormFactor within compensation metrics. All values assume reinvestment of the full amount of all dividends. Stockholder returns over the indicated period are based on historical data and are not necessarily indicative of future stockholder returns.
All values assume reinvestment of the full amount of all dividends. Stockholder returns over the indicated period are based on historical data and are not necessarily indicative of future stockholder returns.
Removed
Cumulative Total Return December 30, 2017 December 29, 2018 December 28, 2019 December 26, 2020 December 25, 2021 December 31, 2022 FormFactor, Inc. $ 100.00 $ 89.52 $ 166.39 $ 272.08 $ 284.41 $ 142.04 S&P 500 Index 100.00 95.62 125.72 148.85 191.58 156.89 RDG Semiconductor Composite 100.00 90.09 134.47 195.30 295.15 184.29 S&P Semiconductors Select Industry Index 100.00 93.57 154.61 251.02 359.18 248.88 Item 6: [Reserved]
Added
Cumulative Total Return December 29, 2018 December 28, 2019 December 26, 2020 December 25, 2021 December 31, 2022 December 30, 2023 FormFactor, Inc. $ 100.00 $ 185.87 $ 303.93 $ 317.70 $ 158.67 $ 297.72 S&P 500 Index 100.00 131.49 155.68 200.37 164.08 207.21 S&P Semiconductors Select Industry Index 100.00 165.23 268.27 383.86 265.98 359.96 Item 6: [Reserved]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

56 edited+31 added−12 removed38 unchanged
Biggest changeThe following table sets forth our operating results as a percentage of revenues: Fiscal 2022 Fiscal 2021 Fiscal 2020 Revenues 100.0 % 100.0 % 100.0 % Cost of revenues 60.4 58.1 58.5 Gross profit 39.6 41.9 41.5 Operating expenses: Research and development 14.6 13.1 12.8 Selling, general and administrative 17.6 16.1 16.6 Total operating expenses 32.2 29.2 29.4 Operating income 7.4 12.7 12.1 Interest income 0.3 0.1 0.2 Interest expense (0.1) (0.1) (0.1) Other income, net 0.2 0.1 0.1 Income before income taxes 7.8 12.8 12.3 Provision for income taxes 1.0 1.9 1.0 Net income 6.8 % 10.9 % 11.3 % Revenues by Segment Fiscal 2022 Fiscal 2021 Fiscal 2020 (In thousands) Probe Cards $ 591,422 $ 633,281 $ 581,739 Systems 156,515 136,393 111,877 Total $ 747,937 $ 769,674 $ 693,616 Revenues by Market Fiscal % of Fiscal % of Change 2022 Revenues 2021 Revenues $ % (In thousands, except percentages) Probe Cards Markets: Foundry & Logic $ 409,196 54.7 % $ 435,812 56.6 % $ (26,616) (6.1) % DRAM 133,446 17.8 156,049 20.3 (22,603) (14.5) Flash 48,780 6.5 41,420 5.4 7,360 17.8 Systems Market: Systems 156,515 21.0 136,393 17.7 20,122 14.8 Total revenues $ 747,937 100.0 % $ 769,674 100.0 % $ (21,737) (2.8) % 27 Fiscal % of Fiscal % of Change 2021 Revenues 2020 Revenues $ % (In thousands, except percentages) Probe Cards Markets: Foundry & Logic $ 435,812 56.6 % $ 446,183 64.3 % $ (10,371) (2.3) % DRAM 156,049 20.3 109,734 15.8 46,315 42.2 Flash 41,420 5.4 25,822 3.7 15,598 60.4 Systems Market: Systems 136,393 17.7 111,877 16.2 24,516 21.9 Total revenues $ 769,674 100.0 % $ 693,616 100.0 % $ 76,058 11.0 % Foundry & Logic — The decrease in Foundry & Logic product revenue in fiscal 2022 compared to fiscal 2021 was driven by the weakening demand from the slowdown in the semiconductor industry that began in the third quarter of fiscal 2022 causing decreased unit sales.
Biggest changeThe following table sets forth our operating results as a percentage of revenues: Fiscal 2023 Fiscal 2022 Fiscal 2021 Revenues 100.0 % 100.0 % 100.0 % Cost of revenues 61.0 60.4 58.1 Gross profit 39.0 39.6 41.9 Operating expenses: Research and development 17.5 14.6 13.1 Selling, general and administrative 20.1 17.6 16.1 Total operating expenses 37.6 32.2 29.2 Gain on sale of business 11.0 — — Operating income 12.4 7.4 12.7 Interest income 1.1 0.3 0.1 Interest expense (0.1) (0.1) (0.1) Other income (expense), net — 0.2 0.1 Income before income taxes 13.4 7.8 12.8 Provision for income taxes 1.0 1.0 1.9 Net income 12.4 % 6.8 % 10.9 % Revenues by Segment Fiscal 2023 Fiscal 2022 Fiscal 2021 (In thousands) Probe Cards $ 497,903 $ 591,422 $ 633,281 Systems (1) 165,199 156,515 136,393 Total $ 663,102 $ 747,937 $ 769,674 (1) During the fourth quarter of fiscal 2023, we completed the sale of our FRT business.
Our accounting policies are fundamental to understanding our financial condition and results of operations reported in our financial statements and related disclosures. We have identified the following accounting policies as being critical because they require our management to make particularly difficult, subjective and/or complex judgments about the effect of matters that are 25 inherently uncertain.
Our accounting policies are fundamental to understanding our financial condition and results of operations reported in our financial statements and related disclosures. We have identified the following accounting policies as being critical because they require our management to make particularly difficult, subjective and/or complex judgments about the effect of matters that are inherently uncertain.
For items which do not have observable prices, we use our best estimate of the stand-alone selling prices. 26 We account for tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction (i.e., sales, use, value added) on a net (excluded from revenue) basis.
For items which do not have observable prices, we use our best estimate of the stand-alone selling prices. We account for tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction (i.e., sales, use, value added) on a net (excluded from revenue) basis.
We provide a broad range of high-performance probe cards, analytical probes, probe stations, metrology systems, thermal systems, and cryogenic systems to both semiconductor companies and scientific institutions. Our products provide electrical and physical information from a variety of semiconductor and electro-optical devices and integrated circuits from early research, through development, to high-volume production.
We provide a broad range of high-performance probe cards, analytical probes, probe stations, metrology systems, thermal systems, and cryogenic systems to both semiconductor companies and scientific institutions. Our products provide electrical information from a variety of semiconductor and electro-optical devices and integrated circuits from early research, through development, to high-volume production.
Indemnification Agreements We have entered, and may from time to time in the ordinary course of our business enter, into contractual arrangements with third parties that include indemnification obligations. Under these contractual arrangements, we have agreed to defend, indemnify and/or hold the third party harmless from and against certain liabilities.
Indemnification Arrangements We have entered, and may from time to time in the ordinary course of our business enter, into contractual arrangements with third parties that include indemnification obligations. Under these contractual arrangements, we have agreed to defend, indemnify and/or hold the third party harmless from and against certain liabilities.
Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors, including those discussed under “Item 1A: Risk Factors” and elsewhere in this Annual Report on Form 10-K.
Our actual results could differ materially from those 26 anticipated by these forward-looking statements as a result of many factors, including those discussed under “Item 1A: Risk Factors” and elsewhere in this Annual Report on Form 10-K.
In 24 addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions as described under the “Note Regarding Forward-Looking Statements” that appears earlier in this Annual Report on Form 10-K.
In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions as described under the “Note Regarding Forward-Looking Statements” that appears earlier in this Annual Report on Form 10-K.
Sales incentives and other programs that we may make available to our customers are considered to be a form of variable consideration, which is estimated in determining the contract’s transaction price to be allocated to the performance obligations.
Sales incentives and other programs that we may make available to 28 our customers are considered to be a form of variable consideration, which is estimated in determining the contract’s transaction price to be allocated to the performance obligations.
Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuation allowance, changes to U.S. federal, state or foreign tax laws, changes in ASC 718 stock-based compensation expense/benefit, future expansion into areas with varying country, state, and local income tax rates, and deductibility of certain costs and expenses by jurisdiction.
Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuation allowance, changes to U.S. federal, state or foreign tax laws, changes in stock-based compensation expense/benefit, future expansion into areas with varying country, state, and local income tax rates, and deductibility of certain costs and expenses by jurisdiction.
The first half of fiscal 2022 was strong, realizing net income of $60.1 million with $401.1 million in revenue at 47.0% gross margins. In the second half of fiscal 2022, revenues declined, mainly within the Probe Cards segment, and mix became less favorable, resulting in a net loss of $9.4 million with $346.9 million in revenue at 31.0% gross margins.
The first half of fiscal 2022 was strong, producing net income of $60.1 million with $401.1 million in revenue at 47.0% gross margins. In the second half of fiscal 2022, revenues declined, mainly within the Probe Cards segment, and mix became less favorable, resulting in a net loss of $9.4 million with $346.9 million in revenue at 31.0% gross margins.
Corporate and Other — Corporate and Other includes unallocated expenses relating to amortization of intangible assets, inventory, fixed asset, and deferred revenue fair value adjustments due to acquisitions, share-based compensation, and restructuring charges, net, which are not used in evaluating the results of, or in allocating resources to, our reportable segments.
Corporate and Other — Corporate and Other includes unallocated expenses relating to amortization of intangible assets, inventory, fixed asset, and deferred revenue fair value adjustments due to acquisitions, stock-based compensation, and restructuring charges, net, which are not used in evaluating the results of, or in allocating resources to, our reportable segments.
For a discussion of the year ended December 25, 2021 compared to the year ended December 26, 2020, please refer to Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 25, 2021.
For a discussion of the year ended December 31, 2022 compared to the year ended December 25, 2021, please refer to Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022.
Provision for income taxes Fiscal Year Ended December 31, 2022 December 25, 2021 December 26, 2020 (Dollars in thousands) Provision for income taxes $ 7,132 $ 14,576 $ 6,652 Effective tax rate 12.3 % 14.8 % 7.8 % Provision for income taxes reflects the tax provision on our operations in foreign and U.S. jurisdictions, offset by tax benefits from tax credits and the foreign-derived intangible income (“FDII”) deduction.
Provision for income taxes Fiscal Year Ended December 30, 2023 December 31, 2022 December 25, 2021 (Dollars in thousands) Provision for income taxes $ 6,880 $ 7,132 $ 14,576 Effective tax rate 7.7 % 12.3 % 14.8 % Provision for income taxes reflects the tax provision on our operations in foreign and U.S. jurisdictions, offset by tax benefits from tax credits and the foreign-derived intangible income (“FDII”) deduction.
We have not had any material requests for indemnification under these arrangements. We have not recorded any liabilities for these indemnification arrangements on our Consolidated Balance Sheets as of December 31, 2022 or December 25, 2021. New Accounting Pronouncements See Note 17, New Accounting Pronouncements , of Notes to Consolidated Financial Statements.
We have not had any material requests for indemnification under these arrangements. We have not recorded any liabilities for these indemnification arrangements on our Consolidated Balance Sheets as of December 30, 2023 or December 31, 2022. New Accounting Pronouncements See Note 18, New Accounting Pronouncements , of Notes to Consolidated Financial Statements.
Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Results of Operations In this section, we discuss the results of our operations for the year ended December 31, 2022 compared to the year ended December 25, 2021.
Results of Operations In this section, we discuss the results of our operations for the year ended December 30, 2023 compared to the year ended December 31, 2022.
On May 20, 2022, our Board of Directors authorized an additional program to repurchase up to $75 million of outstanding common stock, also with the primary purpose of offsetting potential dilution from issuance of common stock under our stock-based compensation programs. This share repurchase program will expire on May 20, 2024.
On October 30, 2023, our Board of Directors authorized an additional program to repurchase up to $75 million of outstanding common stock, also with the primary purpose of offsetting potential dilution from issuance of common stock under our stock-based compensation programs. This share repurchase program will expire on October 30, 2025.
Fiscal Year W e operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. The fiscal years ended December 31, 2022, December 25, 2021 and December 26, 2020 included 53 weeks (with 14 weeks in the fourth quarter), 52 weeks and 52 weeks, respectively.
Fiscal Year We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. The fiscal years ended December 30, 2023, December 31, 2022 and December 25, 2021 included 52 weeks, 53 weeks (with 14 weeks in the fourth quarter) and 52 weeks, respectively.
Financing Activities Net cash used in financing activities in fiscal 2022 primarily related to $82.3 million used to purchase common stock under our stock repurchase program, $15.7 million used to pay tax withholdings for net share settlements of employee equity awards, and $8.4 million of principal payments made towards the repayment of our term loans, partially offset by $10.5 million of proceeds received from issuances of common stock under our stock incentive plans.
Financing Activities Net cash used in financing activities in fiscal 2023 primarily related to $19.8 million used to purchase common stock under our stock repurchase program, $10.7 million used to pay tax withholdings for net share settlements of employee equity awards, and $1.0 million of principal payments made towards the repayment of our term loan, partially offset by $8.8 million of proceeds received from issuances of common stock under our stock incentive plans.
Customers use our products and services to accelerate profitability by optimizing device performance and advancing yield knowledge. We operate in two reportable segments consisting of the Probe Cards segment and the Systems segment.
Customers use our products and services to accelerate profitability by optimizing device performance, reducing scrap, and improving yields. We operate in two reportable segments consisting of the Probe Cards segment and the Systems segment.
The Building Term Loan contains covenants customary for financing of this type. As of December 31, 2022, the balance outstanding pursuant to the Building Term Loan was $15.5 million, and we were in compliance with all covenants under the agreement.
The Building Term Loan contains covenants customary for financing of this type. As of December 30, 2023, the balance outstanding pursuant to the Building Term Loan was $14.4 million, and we were in compliance with all covenants under the agreement.
Cash Flows Fiscal Year Ended December 31, 2022 December 25, 2021 December 26, 2020 (Dollars in thousands) Net cash provided by operating activities $ 131,786 $ 139,364 $ 169,256 Net cash used in investing activities (75,704) (124,741) (98,922) Net cash used in financing activities (95,932) (47,199) (30,935) Operating Activities Cash provided by operating activities consists of net income for the period adjusted for certain non-cash items and changes in certain operating assets and liabilities.
Cash Flows Fiscal Year Ended December 30, 2023 December 31, 2022 December 25, 2021 (Dollars in thousands) Net cash provided by operating activities $ 64,602 $ 131,786 $ 139,364 Net cash provided by (used in) investing activities 29,049 (75,704) (124,741) Net cash used in financing activities (22,711) (95,932) (47,199) Operating Activities Net cash provided by operating activities consists of net income for the period adjusted for certain non-cash items and changes in certain operating assets and liabilities.
Based on our historical results of operations, we expect that our cash, cash equivalents, and marketable securities on hand, and the cash we expect to generate from operations, will be sufficient to fund our short-term and long-term liquidity requirements primarily arising from: research and development, capital expenditures, working capital, outstanding commitments, and other liquidity requirements associated with existing operations.
Based on our historical results of operations, we expect that our cash, cash equivalents, and marketable securities on hand, and the cash we expect to generate from operations, will be sufficient to fund, through at least the next 12 months, our liquidity requirements including those arising from: research and development, capital expenditures, working capital, outstanding commitments, and other liquidity requirements associated with existing operations.
The decrease in interest expense in fiscal 2022 compared to fiscal 2021 was primarily due to lower outstanding debt balances offset by increased average rates on the outstanding debt. Other income, net Other income, net primarily includes the effects of foreign currency impact and various other gains and losses.
The decrease in interest expense in fiscal 2023 compared to fiscal 2022 was primarily due to lower outstanding debt balances. Other income (expense), net Other income (expense), net, includes the effects of foreign currency and various other gains and losses.
The table above excludes our gross liability for unrecognized tax benefits, which totaled $40.1 million as of December 31, 2022. The timing of any payments which could result from these unrecognized tax benefits will depend upon a number of factors and, accordingly, the timing of payment cannot be estimated.
The table above excludes our gross liability for unrecognized tax benefits and our deferred grant. The gross liability for unrecognized tax benefits was $45.6 million as of December 30, 2023. The timing of any payments which could result from these unrecognized tax benefits will depend upon a number of factors and, accordingly, the timing of payment cannot be estimated.
The increase in interest income in fiscal 2022 compared to fiscal 2021 was attributable to an increase in investment yields due to the higher interest rate environment. Interest expense primarily includes interest on our term loans, interest rate swap derivative contracts, and term loan issuance costs amortization charges.
The increase in interest income in fiscal 2023 compared to fiscal 2022 was attributable to an increase in investment yields due to the higher interest rate environment as well as an increased average invested balance. Interest expense primarily includes interest on our term loan, interest rate swap derivative contract, and term loan issuance costs amortization charges.
Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”).
Actual results may differ from these estimates under different assumptions or conditions. 27 Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”).
We typically invest in highly-rated securities with low probabilities of default. Our investment policy requires investments to be rated single A or better, and limits the types of acceptable investments, issuer concentration and duration of the investment. Our cash, cash equivalents and marketable securities totaled approximately $238.1 million at December 31, 2022 compared to $276.1 million at December 25, 2021.
Our investment policy requires investments to be rated single A or better, and limits the types of acceptable investments, issuer concentration and duration of the investment. Our cash, cash equivalents and marketable securities totaled approximately $328.3 million at December 30, 2023 compared to $238.1 million at December 31, 2022.
Revenues by Geographic Region Fiscal 2022 % of Revenues Fiscal 2021 % of Revenues Fiscal 2020 % of Revenues (In thousands, except percentages) Taiwan $ 169,789 22.7 % $ 185,925 24.2 % $ 150,837 21.7 % China 160,668 21.5 163,069 21.2 174,915 25.2 United States 127,730 17.1 122,147 15.9 127,628 18.4 South Korea 111,419 14.9 123,463 16.0 86,951 12.5 Malaysia 50,067 6.7 49,485 6.4 11,382 1.6 Singapore 39,388 5.3 36,197 4.7 16,707 2.4 Europe 39,246 5.2 43,705 5.7 65,572 9.5 Japan 38,419 5.1 36,504 4.7 43,605 6.3 Rest of World 11,211 1.5 9,179 1.2 16,019 2.4 Total Revenues $ 747,937 100.0 % $ 769,674 100.0 % $ 693,616 100.0 % Geographic revenue information is based on the location to which we ship the product.
Systems — The increase in Systems product revenue in fiscal 2023 compared to fiscal 2022 was driven by increased sales of probe stations and thermal systems, partially offset by decreased sales of our metrology systems. 30 Revenues by Geographic Region Fiscal 2023 % of Revenues Fiscal 2022 % of Revenues Fiscal 2021 % of Revenues (In thousands, except percentages) United States $ 171,781 25.9 % $ 127,730 17.1 % $ 122,147 15.9 % Taiwan 147,842 22.3 169,789 22.7 185,925 24.2 South Korea 117,747 17.8 111,419 14.9 123,463 16.0 China 91,736 13.8 160,668 21.5 163,069 21.2 Europe 38,858 5.9 39,246 5.2 43,705 5.7 Japan 36,791 5.5 38,419 5.1 36,504 4.7 Malaysia 26,601 4.0 50,067 6.7 49,485 6.4 Singapore 18,335 2.8 39,388 5.3 36,197 4.7 Rest of World 13,411 2.0 11,211 1.5 9,179 1.2 Total Revenues $ 663,102 100.0 % $ 747,937 100.0 % $ 769,674 100.0 % Geographic revenue information is based on the location to which we ship the product.
As of January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and experimental expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures attributable to domestic and foreign research over five and fifteen years, respectively.
Tax Cuts and Jobs Act of 2017 eliminated the existing option to deduct research and development expenditures and requires taxpayers to amortize such expenditures attributable to domestic and foreign research over five and fifteen years, respectively, pursuant to IRC Section 174.
Stock Repurchase Programs In October 2020, our Board of Directors authorized a program to repurchase up to $50 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation programs. This repurchase program replaced the previous repurchase program that expired in February 2020 to purchase up to $25.0 million of outstanding common stock.
Stock Repurchase Programs On October 26, 2020, our Board of Directors authorized a two-year program to repurchase up to $50 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation programs.
We are no longer subject to the terms of the FRT Term Loan. Building Term Loan On June 22, 2020, we entered into an $18.0 million 15-year credit facility loan agreement (the “Building Term Loan”) with MUFG Union Bank, National Association (“Union Bank”).
Debt On June 22, 2020, we entered into an $18.0 million 15-year credit facility loan agreement (the “Building Term Loan”) with MUFG Union Bank, National Association (“Union Bank”). The proceeds of the Building Term Loan were used to purchase a building adjacent to our leased facilities in Livermore, California.
This was partially offset by an increase in net working capital of $18.2 million, primarily related to cash paid for inventories of $28.8 million, decrease in accrued liabilities of $8.0 million, and a reduction in operating lease liabilities of $8.0 million, partially offset by cash provided by a decrease in accounts receivable of $26.0 million. 32 Investing Activities Net cash used in investing activities in fiscal 2022 primarily related to $65.3 million of cash used in the acquisition of property, plant and equipment, $6.1 million used for the purchase of marketable securities, net of maturities, and $3.4 million used for the acquisition of a business.
Net working capital resulted in an outflow of $32.2 million, primarily related to an increase in accounts receivable of $23.3 million, a decrease in deferred revenues of $10.2 million, an increase in inventories of $9.5 million, and a reduction in operating lease liabilities of $7.6 million, partially offset by an increase from a deferred grant of $18.0 million. 35 Investing Activities Net cash provided by investing activities in fiscal 2023 primarily related to $101.8 million cash provided by the sale of our FRT business, partially offset by $56.0 million of cash used in the acquisition of property, plant and equipment and $16.7 million used for the purchase of marketable securities, net of maturities.
While it is possible that Congress may defer, modify, or repeal this provision, potentially with retroactive effect, we have no assurance that this provision will be deferred, modified, or repealed. An Advanced Manufacturing Investment credit becomes available in 2023 and is a 25% credit for qualified investments in an advanced manufacturing facility.
While it is possible that Congress may defer, modify, or repeal this provision, potentially with retroactive effect, we have no assurance that this provision will be deferred, modified, or repealed.
Stock-based compensation expense included in cost of revenues for fiscal 2022 and 2021 was $3.8 million and $5.2 million, respectively. 29 Research and Development Fiscal Year Ended December 31, 2022 December 25, 2021 $ Change % Change (Dollars in thousands) Research and development $ 109,222 $ 100,937 $ 8,285 8.2 % % of revenues 14.6 % 13.1 % Fiscal Year Ended December 25, 2021 December 26, 2020 $ Change % Change (Dollars in thousands) Research and development $ 100,937 $ 89,034 $ 11,903 13.4 % % of revenues 13.1 % 12.8 % The increase in research and development expenses in fiscal 2022 compared to fiscal 2021 was primarily driven by an increase in headcount which is to support our continued investment in technology leadership.
Research and Development Fiscal Year Ended December 30, 2023 December 31, 2022 $ Change % Change (Dollars in thousands) Research and development $ 115,765 $ 109,222 $ 6,543 6.0 % % of revenues 17.5 % 14.6 % Fiscal Year Ended December 31, 2022 December 25, 2021 $ Change % Change (Dollars in thousands) Research and development $ 109,222 $ 100,937 $ 8,285 8.2 % % of revenues 14.6 % 13.1 % The increase in research and development expense in fiscal 2023 compared to fiscal 2022 was primarily driven by an increase in headcount designed to support our continued investment in technology leadership.
There was no stock repurchased in fiscal 2020. During fiscal 2021, we repurchased 622,400 shares of common stock for $24.0 million, and, as of December 31, 2022 we had utilized the remaining funds available for repurchase under this program after repurchasing 676,408 shares of common stock for $26.0 million during fiscal 2022.
During fiscal 2021 and 2022, we repurchased and retired 622,400 shares of common stock for $24.0 million and 676,408 shares of common stock for $26.0 million, respectively, utilizing the remaining shares available for repurchase under the program.
On March 17, 2020, we entered into an interest rate swap agreement with Union Bank to hedge the interest payments on the Building Term Loan for the notional amount of $18.0 million.
Interest payments are payable in monthly installments over a fifteen-year period. The interest rate at December 30, 2023, before consideration of the interest rate swap, was 7.20%. On March 17, 2020, we entered into an interest rate swap agreement with Union Bank to hedge the interest payments on the Building Term Loan for the notional amount of $18.0 million.
The components of this increase were as follows (in thousands): Fiscal 2022 compared to Fiscal 2021 General operational costs $ 3,513 Project material costs 3,252 Stock-based compensation 634 Restructuring charges 629 Depreciation 166 Employee compensation costs 91 $ 8,285 Stock-based compensation expense included within research and development in fiscal 2022 and 2021 was $8.2 million and $7.6 million, respectively.
These increases were partially offset by lower performance-based compensation and restructuring charges. 32 The components of this increase were as follows (in thousands): Fiscal 2023 compared to Fiscal 2022 Employee compensation costs $ 3,861 Stock-based compensation 2,435 Depreciation 892 General operational costs 562 Restructuring charges (1,207) $ 6,543 Stock-based compensation expense included within research and development in fiscal 2023 and 2022 was $10.7 million and $8.2 million, respectively.
Despite the decline in total revenues in the second half of fiscal 2022, the Systems segment recognized record revenue levels in the third and fourth quarters of fiscal 2022.
Despite the decline in total revenues in the second half of fiscal 2022, the Systems segment recognized record revenue levels in the third and fourth quarters of fiscal 2022. Recent Development On February 7, 2024, we signed an agreement with Grand Junction Semiconductor Pte.
Gross profit and gross margin by segment were as follows (dollars in thousands): Fiscal 2022 Probe Cards Systems Corporate and Other Total Gross profit $ 235,562 $ 80,937 $ (20,490) $ 296,009 Gross margin 39.8 % 51.7 % 39.6 % Fiscal 2021 Probe Cards Systems Corporate and Other Total Gross profit $ 279,873 $ 65,834 $ (22,940) $ 322,767 Gross margin 44.2 % 48.3 % 41.9 % Fiscal 2020 Probe Cards Systems Corporate and Other Total Gross profit $ 263,215 $ 51,835 $ (27,130) $ 287,920 Gross margin 45.2 % 46.3 % 41.5 % Probe Cards — Gross profit and gross margin in the Probe Cards segment decreased in fiscal 2022 compared to fiscal 2021, primarily due to lower revenues, greater inventory excess and obsolescence reserves, higher net manufacturing spending driven by higher labor and overhead costs, and lower standard margins related to a less favorable product mix.
Gross profit and gross margin by segment were as follows (dollars in thousands): Fiscal 2023 Probe Cards Systems Corporate and Other Total Gross profit $ 185,392 $ 84,735 $ (11,547) $ 258,580 Gross margin 37.2 % 51.3 % 39.0 % Fiscal 2022 Probe Cards Systems Corporate and Other Total Gross profit $ 235,562 $ 80,937 $ (20,490) $ 296,009 Gross margin 39.8 % 51.7 % 39.6 % 31 Fiscal 2021 Probe Cards Systems Corporate and Other Total Gross profit $ 279,873 $ 65,834 $ (22,940) $ 322,767 Gross margin 44.2 % 48.3 % 41.9 % Probe Cards — Gross profit and gross margin in the Probe Cards segment decreased in fiscal 2023 compared to fiscal 2022, primarily due to lower revenues and unfavorable absorption of costs on these lower production volumes, partially offset by lower inventory excess and obsolescence reserves.
Net cash provided by operating activities in fiscal 2022 was primarily attributable to net income of $50.7 million and net non-cash expenses of $99.2 million, which includes depreciation, amortization, stock-based compensation, and the provision for excess and obsolete inventories.
Net cash provided by operating activities in fiscal 2023 was primarily attributable to net income of $82.4 million and net non-cash items of $14.4 million, which include depreciation, amortization, stock-based compensation, and the provision for excess and obsolete inventories, partially offset by the adjustment for the $73.0 million gain from the sale of our FRT business.
The increase in other income, net, in fiscal 2022 compared to fiscal 2021 was attributable to a net increase in foreign exchange gains. Foreign exchange gains for fiscal 2022 were $1.1 million.
The decrease in Other income (expense), net, in fiscal 2023 compared to fiscal 2022 was primarily attributable to an other than temporary impairment on a debt receivable for $1.1 million and a decrease in foreign exchange gains. Foreign exchange gains for fiscal 2023 were $0.6 million.
Selling, General and Administrative Fiscal Year Ended December 31, 2022 December 25, 2021 $ Change % Change (Dollars in thousands) Selling, general and administrative $ 131,875 $ 123,792 $ 8,083 6.5 % % of revenues 17.6 % 16.1 % Fiscal Year Ended December 25, 2021 December 26, 2020 $ Change % Change (Dollars in thousands) Selling, general and administrative $ 123,792 $ 115,098 $ 8,694 7.6 % % of revenues 16.1 % 16.6 % The increase in selling, general and administrative expenses in fiscal 2022 compared to fiscal 2021 was primarily driven by higher stock-based compensation, increased travel related costs as restrictions related to COVID-19 relaxed, restructuring charges, and annual salary increases, partially offset by lower performance-based compensation. 30 The components of this overall increase were as follows (in thousands): Fiscal 2022 compared to Fiscal 2021 Stock-based compensation $ 2,712 General operating expenses 2,672 Travel related costs 2,572 Restructuring charges 2,115 Employee compensation (1,412) Consulting fees (576) $ 8,083 Stock-based compensation expense included within selling, general and administrative in fiscal 2022 and 2021 was $19.3 million, and $16.6 million, respectively.
Selling, General and Administrative Fiscal Year Ended December 30, 2023 December 31, 2022 $ Change % Change (Dollars in thousands) Selling, general and administrative $ 133,012 $ 131,875 $ 1,137 0.9 % % of revenues 20.1 % 17.6 % Fiscal Year Ended December 31, 2022 December 25, 2021 $ Change % Change (Dollars in thousands) Selling, general and administrative $ 131,875 $ 123,792 $ 8,083 6.5 % % of revenues 17.6 % 16.1 % The increase in selling, general and administrative expense in fiscal 2023 compared to fiscal 2022 was primarily driven by increased general operating expenses, increased costs from the sale of our FRT business, higher stock-based compensation expense, and higher consulting costs, partially offset by lower employee compensation from decreased headcount and lower performance-based compensation, lower amortization of intangibles, and lower restructuring charges.
During fiscal 2022, we repurchased 1,700,893 shares of common stock for $56.4 million, and as of December 31, 2022 $18.6 million remained available for future repurchases. 33 Contractual Obligations and Commitments The following table summarizes our significant contractual commitments to make future payments in cash under contractual obligations as of December 31, 2022 (in thousands): Payments Due In Fiscal Year 2023 2024 2025 2026 2027 2028 and thereafter Total Operating leases $ 8,038 $ 7,784 $ 7,695 $ 6,615 $ 5,737 $ 3,423 $ 39,292 Term loans - principal payments 1,050 1,080 1,111 1,142 1,175 9,941 15,499 Term loans - interest payments (1) 894 835 763 699 630 2,324 6,145 Total $ 9,982 $ 9,699 $ 9,569 $ 8,456 $ 7,542 $ 15,688 $ 60,936 (1) Represents our minimum interest payment commitments at 5.87% per annum for the Building Term Loan, excluding the interest rate swap described in Debt, above.
During fiscal 2023, we repurchased and retired 32,020 shares of common stock for $1.2 million and as of December 30, 2023 $73.8 million remained available for future repurchases. 36 Contractual Obligations and Commitments The following table summarizes our significant contractual commitments to make future payments in cash under contractual obligations as of December 30, 2023 (in thousands): Payments Due In Fiscal Year 2024 2025 2026 2027 2028 2029 and thereafter Total Operating leases $ 9,337 $ 9,215 $ 7,586 $ 7,154 $ 3,870 $ 1,432 $ 38,594 Term loan - principal payments 1,080 1,111 1,142 1,175 1,208 8,732 14,448 Term loan - interest payments (1) 1,025 937 857 773 688 2,163 6,443 Total $ 11,442 $ 11,263 $ 9,585 $ 9,102 $ 5,766 $ 12,327 $ 59,485 (1) Represents our minimum interest payment commitments at 7.20% per annum, excluding the interest rate swap described in Debt, above.
We generated net income of $50.7 million in fiscal 2022 compared to net income of $83.9 million in fiscal 2021 and net income of $78.5 million in fiscal 2020.
We generated net income of $82.4 million in fiscal 2023 compared to net income of $50.7 million in fiscal 2022 and net income of $83.9 million in fiscal 2021. On November 1, 2023, we completed the sale of our FRT Metrology (“FRT”) business.
As future levels of LIBOR over the life of the loan are uncertain, we entered into this interest-rate swap agreement to hedge the exposure in interest rate risks associated with movement in LIBOR rates. By entering into the agreement, we convert a floating rate interest at one-month LIBOR plus 1.75% into a fixed rate interest at 2.75%.
As future levels of LIBOR over the life of the loan were uncertain, we entered into this interest-rate swap agreement to hedge the exposure in interest rate risks associated with movement in LIBOR rates. This agreement was amended on May 19, 2023 to replace the benchmark reference rate LIBOR with SOFR to match the Building Term Loan agreement (as amended).
Systems — Gross profit and gross margin in the Systems segment increased in fiscal 2022 compared to fiscal 2021, primarily as a result of higher revenues and a more favorable product mix, largely related to increased sales of 300mm and 200mm probe stations, and metrology systems.
Systems — Gross profit and gross margin in the Systems segment remained relatively flat in fiscal 2023 compared to fiscal 2022, despite the increase in revenue primarily as a result of less favorable product mix.
The $7.6 million decrease in cash provided by operating activities for fiscal 2022, as compared to fiscal 2021, was primarily related to decreased net income, partially offset by relatively less investment in working capital, due primarily to lower accounts receivable and higher accounts payable.
The $67.2 million decrease in cash provided by operating activities for fiscal 2023, as compared to fiscal 2022, was primarily related to decreased net income, after adjusting for the impact from the $73.0 million gain recognized on the sale of our FRT business, and an investment in working capital of $14.1 million, due primarily to higher accounts receivable and lower deferred revenue that were partially offset by an increase from a deferred grant of $18.0 million and lower inventories.
Liquidity and Capital Resources Capital Resources Our working capital decreased to $324.9 million at December 31, 2022 compared to $375.3 million at December 25, 2021. Cash and cash equivalents primarily consist of deposits held at banks, money market funds, commercial paper and U.S. agency securities. Marketable securities primarily consist of corporate bonds, U.S. treasuries and agency securities, and commercial paper.
Cash and cash equivalents primarily consist of deposits held at banks, money market funds, and U.S. treasuries. Marketable securities primarily consist of corporate bonds, U.S. treasuries and agency securities, and commercial paper. We typically invest in highly-rated securities with low probabilities of default.
Increased project material costs, general operational costs, annual salary adjustments, restructuring charges, and stock-based compensation also contributed to the increase. These increases were partially offset by lower performance-based compensation.
Increased stock-based compensation, depreciation, and general operational costs, also contributed to the increase.
DRAM — The decrease in DRAM product revenues in fiscal 2022 compared to fiscal 2021 was driven by decreased design wins and customer demand, a result of overall DRAM market weakness in fiscal 2022. Flash — The increase in Flash product revenue in fiscal 2022 compared to fiscal 2021 was driven by increased demand from large multi-national customers.
Flash — The decrease in Flash product revenue in fiscal 2023 compared to fiscal 2022 was driven by lower customer production activity and demand for our products in light of worldwide excess supply, a result of weaker demand in the overall semiconductor industry, as discussed above, and Flash market weakness.
The increase of stock-based compensation in fiscal 2022 compared to fiscal 2021 was primarily driven by an increase in total awards outstanding, which has increased in recent years consistent with an overall increase in headcount. Interest Income and Interest Expense Interest income is earned on our cash, cash equivalents, restricted cash and marketable securities.
The increase of stock-based compensation expense in fiscal 2023 compared to fiscal 2022 was driven by an increase in weighted average fair value of awards outstanding and the timing of awards.
The reduction in Corporate and Other in fiscal 2022 compared to fiscal 2021, is primarily due to a reduction in the amortization of intangibles from significant intangibles becoming fully amortized and a reduction in stock-based compensation expense, partially offset by increased restructuring charges arising from a change in estimate of excess and obsolete inventories related to our third quarter of fiscal 2021 plan and the execution of a headcount reduction in the fourth quarter of fiscal 2022 targeted at aligning FormFactor's cost structure with reduced demand levels within the Probe Cards segment by streamlining and improving the efficiency and business effectiveness of our operations.
In fiscal 2022, there was $11.8 million in restructuring charges arising from a change in estimate of excess and obsolete inventories and a headcount reduction targeted at aligning our cost structure with reduced demand levels within the Probe Cards segment. Overall — Gross profit and gross margin fluctuate with revenue levels, product mix, selling prices, factory loading and material costs.
The interest rate swap included a 0% floor that was effective for one year from the date of the swap. As of December 31, 2022, the notional amount of the loan that is subject to this interest rate swap is $15.5 million.
After the amendment, the interest rate swap continues to convert our floating-rate interest into a fixed-rate of 2.75%. As of December 30, 2023, the notional amount of the loan that is subject to this interest rate swap was $14.4 million. See Note 10, Fair Value , for additional information.
Changes in revenue by geographic region in fiscal 2022 compared to fiscal 2021 were primarily attributable to changes in customer demand and product sales mix. In October 2022, the United States government imposed new controls, including expanded export license requirements that significantly impacted trade with China for advanced U.S. semiconductor technology sold in China.
Changes in revenue by geographic region in fiscal 2023 compared to fiscal 2022 were primarily attributable to changes in customer demand, shifts in customer regional manufacturing strategies, particularly with our large multinational customers, and product sales mix.
Systems — The increase in Systems product revenue in fiscal 2022 compared to fiscal 2021 was driven by increased sales of probe stations, metrology systems, and cryogenic systems.
The increase of stock-based compensation in fiscal 2023 compared to fiscal 2022 was driven by an increase in weighted average fair value of awards outstanding and the timing of awards.
Removed
The increase in net income in fiscal 2021 compared to fiscal 2020 was primarily due to increased revenue in both of our reportable segments, partially offset by slightly lower margins driven primarily by a less favorable product mix and a higher effective tax rate due to significant one-time tax benefits during fiscal 2020 that did not recur.
Added
As a result of the transaction, we received aggregate net consideration of $99.8 million and the transaction resulted in a gain of $73.0 million. The increase in net income in fiscal 2023 compared to fiscal 2022 was primarily due to the $73.0 million gain recognized from the sale of our FRT business.
Removed
Although the percentage of revenue to China was relatively stable when comparing fiscal 2022 to fiscal 2021, these restrictions resulted in a decline in expected revenues from shipments to China.
Added
Apart from this gain, the semiconductor industry weakness that began in the third quarter of fiscal 2022 continued into fiscal 2023, impacting our Probe Cards segment with a $93.5 million reduction in revenue and the associated decline in gross margins as a result of the lower operating levels.
Removed
Within the Probe Cards segment and Systems segment, respectively, approximately $7.8 million and $1.9 million of expected revenues in the fourth quarter of fiscal 2022 were not recognized as a result of these sanctions, and primarily related to China domestic customers.
Added
Despite the overall semiconductor industry weakness that impacted the Probe Cards segment, the Systems segment continued to show strength with revenue increasing $8.7 million, or about 5.6% in fiscal 2022, since customer spending for products in this segment is driven by research and development of next-generation innovation.
Removed
Although the current impact to our large multi-national customers with operations in China has been minimal, it remains to be seen whether these customers will be able to 28 sustain their licenses going forward.
Added
Ltd. to divest our China operations and establish an exclusive distribution and partnership agreement to continue sales and support of our products in the region (the “China Transaction”). The China Transaction is expected to close in the first half of 2024.
Removed
We do not anticipate these expanded export license requirements to be relaxed, and expect these regulatory conditions to continue to negatively affect our revenues similarly going forward.
Added
As a result, Metrology Systems revenue will not recur in future periods. The year ended December 30, 2023 includes Metrology Systems revenue of $21.2 million.
Removed
Overall — Gross profit and gross margin fluctuate with revenue levels, product mix, selling prices, factory loading and material costs.
Added
The years ended December 31, 2022 and December 25, 2021 include Metrology Systems revenue of $29.0 million and $23.7 million, respectively. 29 Revenues by Market Fiscal % of Fiscal % of Change 2023 Revenues 2022 Revenues $ % (In thousands, except percentages) Probe Cards Markets: Foundry & Logic $ 363,539 54.8 % $ 409,196 54.7 % $ (45,657) (11.2) % DRAM 113,779 17.2 133,446 17.8 (19,667) (14.7) Flash 20,585 3.1 48,780 6.5 (28,195) (57.8) Systems Market: Systems (1) 165,199 24.9 156,515 21.0 8,684 5.5 Total revenues $ 663,102 100.0 % $ 747,937 100.0 % $ (84,835) (11.3) % Fiscal % of Fiscal % of Change 2022 Revenues 2021 Revenues $ % (In thousands, except percentages) Probe Cards Markets: Foundry & Logic $ 409,196 54.7 % $ 435,812 56.6 % $ (26,616) (6.1) % DRAM 133,446 17.8 156,049 20.3 (22,603) (14.5) Flash 48,780 6.5 41,420 5.4 7,360 17.8 Systems Market: Systems 156,515 21.0 136,393 17.7 20,122 14.8 Total revenues $ 747,937 100.0 % $ 769,674 100.0 % $ (21,737) (2.8) % (1) During the fourth quarter of fiscal 2023, we completed the sale of our FRT business.
Removed
For fiscal 2022 compared to fiscal 2021, gross profit and gross margins have decreased on lower revenue levels, a less favorable Probe Cards segment product mix, increased labor, overhead, inventory excess and obsolescence reserves, and restructuring charges, offset by less amortization of intangible assets.
Added
As a result, Metrology Systems revenue will not recur in future periods. The year ended December 30, 2023 includes Metrology Systems revenue of $21.2 million. The years ended December 31, 2022 and December 25, 2021 include Metrology Systems revenue of $29.0 million million and $23.7 million, respectively.
Removed
We have utilized our previous net operating loss carryforwards allowing us to benefit from the available FDII deduction, resulting in a decrease from the U.S. statutory rate and, combined with higher R&D tax credits, a decrease from fiscal 2021 of our worldwide effective tax rate for the fiscal year ended December 31, 2022.
Added
Foundry & Logic — The decrease in Foundry & Logic product revenue in fiscal 2023 compared to fiscal 2022 was driven by the weakening demand in the semiconductor industry, especially in the personal computer and mobile sectors, that began in the third quarter of fiscal 2022 and continued into fiscal 2023, resulting in decreased unit sales across several of our major customers for both us and our competitors.
Removed
We expect to generate federal tax credits under this program that will both lower our effective 31 tax rate in the future and also help to offset the additional cash taxes arising from the change to capitalize research and experimental expenditures described earlier.
Added
DRAM — The decrease in DRAM product revenues in fiscal 2023 compared to fiscal 2022 was driven by lower customer production activity and demand for our products in light of worldwide excess supply of DRAM chips, along with weaker demand in the overall semiconductor industry, as discussed above.
Removed
Debt FRT Term Loan On October 25, 2019, we entered into a euro denominated $23.4 million, three-year credit facility loan agreement (the “FRT Term Loan”) with HSBC Trinkaus & Burkhardt AG, Germany, to fund the acquisition of FRT GmbH in fiscal 2019.
Added
These declines were partially offset due to increased demand for HBM chips utilized in generative artificial intelligence applications.
Removed
The FRT Term Loan bore interest at a rate equal to the Euro Interbank Offered Rate (“EURIBOR”) plus 1.75 % per annum and was repaid in quarterly installments of approximately $2.0 million plus interest. We made the final payment on the FRT Term Loan on October 25, 2022.
Added
More specifically, the increase in revenues for the United States, and decreases in revenues for China and Malaysia, were driven principally by a single large U.S.-based company with operations in these regions that shifted shipments from these regions to the United States.
Removed
The proceeds of the Building Term Loan were used to purchase a building adjacent to our leased facilities in Livermore, California. The Building Term Loan bears interest at a rate equal to the applicable LIBOR rate plus 1.75% per annum. Interest payments are payable in monthly installments over a fifteen-year period. The interest rate at December 31, 2022 was 5.87%.
Added
We expect the trade restrictions to continue to drive multinational customers to concentrate operations in regions other than China, impacting our geographical mix.

… 19 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+0 added−1 removed3 unchanged
Biggest changeWe recognized a net gain from foreign exchange of $1.1 million and zero in fiscal 2022 and 2021, respectively, and a net loss of $0.5 million in fiscal 2020. 34 Interest Rate Sensitivity Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio.
Biggest changeWe do not use derivative financial instruments for trading or speculative purposes. 37 We recognized a net gain from foreign exchange of $0.6 million, $1.1 million, and zero in fiscal 2023, 2022, and 2021, respectively. Interest Rate Sensitivity Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio.
Item 7A: Quantitative and Qualitative Disclosures about Market Risk Foreign Currency Exchange Risk We conduct certain operations in foreign currencies. We enter into currency forward exchange contracts to hedge a portion, but not all, of existing foreign currency denominated amounts. Gains and losses on these contracts are generally recognized in Other income, net in our Consolidated Statements of Income.
Item 7A: Quantitative and Qualitative Disclosures about Market Risk Foreign Currency Exchange Risk We conduct certain operations in foreign currencies. We enter into currency forward exchange contracts to hedge a portion, but not all, of existing foreign currency denominated amounts. Gains and losses on these contracts are generally recognized in Other income (expense), net in our Consolidated Statements of Income.
Because the effect of movements in currency exchange rates on the currency forward exchange contracts generally offsets the related effect on the underlying items being hedged, these financial instruments are not expected to subject us to risks that would otherwise result from changes in currency exchange rates as of December 31, 2022.
Because the effect of movements in currency exchange rates on the currency forward exchange contracts generally offsets the related effect on the underlying items being hedged, these financial instruments are not expected to subject us to risks that would otherwise result from changes in currency exchange rates as of December 30, 2023.
Our exposure to interest rate risk arising from our Term Loans (see Note 5, Debt , of Notes to Consolidated Financial Statements) is insignificant as a result of the interest-rate swap agreement (see Note 8, Derivative Financial Instruments , of Notes to Consolidated Financial Statements) that we entered into with Union Bank to hedge the interest payments on our Building Term Loan.
Our exposure to interest rate risk arising from our Term Loan (see Note 6, Debt , of Notes to Consolidated Financial Statements) is insignificant as a result of the interest-rate swap agreement (see Note 9, Derivative Financial Instruments , of Notes to Consolidated Financial Statements) that we entered into with Union Bank to hedge the interest payments on our Building Term Loan.
A hypothetical 100 basis-point (one percentage point) increase or decrease in interest rates compared to rates at December 31, 2022 and December 25, 2021 would have affected the fair value of our investment portfolio by $2.1 million and $1.8 million, respectively.
A hypothetical 100 basis-point (one percentage point) increase or decrease in interest rates compared to rates at December 30, 2023 and December 31, 2022 would have affected the fair value of our investment portfolio by $2.5 million and $2.1 million, respectively.
Removed
We do not use derivative financial instruments for trading or speculative purposes.

Other FORM 10-K year-over-year comparisons