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Executives

Tom St. Dennis – Chief Executive Officer

Mike Ludwig – Chief Financial Officer

Analysts

Vernon Essi – Needham & Company

Mark Delaney – Goldman Sachs

Olga Levinzon – Barclays

Patrick Ho – Stifel Nicolaus

Terence Whalen – Citi

Tom Diffely – D.A. Davidson

FormFactor, Inc. (FORM) Q2 2012 Earnings Conference Call August 1, 2012 4:30 PM ET

Operator

Thank you and welcome everyone to FormFactor’s Second Quarter 2012 Earnings Conference Call. On today’s conference call are Chief Executive Officer, Tom St. Dennis and Chief Financial Officer, Mike Ludwig. As a reminder, today’s call will be recorded.

Before we begin, let me remind you that the company will be discussing GAAP P&L results and some key non-GAAP results to supplement understanding of the company’s financials. A schedule that provides GAAP to non-GAAP reconciliations is available on the press release issued today and also on the Investor section of FormFactor’s website.

Also a reminder for everyone, that today’s discussion contains forward-looking statements within the meaning of the Federal Securities Laws. Such forward-looking statements include, but are not limited to projections, including statements regarding business momentum in macroeconomic conditions, demand for our products and future growth. Statements about our development, introduction, and/or qualification of next generation matrix, or new SOC products and statements that contain words like expect, anticipate, believes, possibly, should and the assumptions upon which such statements are based. These forward-looking statements are based on the current information and the expectations that are inherently subject to change and involve a number of risks and uncertainties. FormFactor’s actual results could differ materially from those projected in our forward-looking statements.

The company assumes no obligation to update the information provided during today’s call, to revise any forward-looking statements or update the reasons, actual results could differ materially from those anticipated in forward-looking statements. For more information, please refer to the Risk Factor discussions in the company’s Form 10-K for the fiscal year 2011, as filed with the SEC, subsequent SEC filings and in the press release issued today.

With that, we will now turn the call over to CEO, Tom St. Dennis.

Tom St. Dennis – Chief Executive Officer

Good afternoon. During the second quarter, FormFactor experienced a strong recovery in orders and revenue relative to the first quarter of 2012. The increased demand was led by both our DRAM and flash customers. We achieved record shipments of our matrix product line and now have over 1,400 cards shipped.

Gross margins, as a percent of revenue, were the highest since the fourth quarter of 2007, reflecting continued improvement in our manufacturing operations and supply chain organizations. Orders for the second quarter were also the highest since the fourth quarter of 2007, as we have continued to improve our market share with key customers.

Lastly, our cash flows from operations were positive in the quarter. All of these were important milestones for the company. We continued our product development and customer evaluations of our next generation matrix products in Q2 with three customers, and we expect to complete the evaluation phase with all three customers during Q3 with revenue beginning in Q4.

Our vertical SoC product development is continuing with our focus now on customer-specific designs versus engineering test vehicles. We expect to ship the first complete card for customer testing later this quarter. Similar to Q3 last year, we have recently seen a significant slowdown of orders for DRAM probe cards. The 10% decline of DRAM spot prices since May of this year along with slower personal computer sales appears to have reduced our customer’s demand for DRAM probe cards. In the NAND flash and NOR flash markets, price drops for NAND flash and overall volume decreases have reduced orders for our probe cards in these segments.

Our SoC customers have been forecasting improved performance in the second half of the year, but at this point, it doesn’t appear to be developing quickly. Several of our customers have had recent announcements indicating difficult market environments. As a result, our SoC sales are down slightly in Q2 from Q1 and don’t appear to be improving for Q3. This is normally a seasonally stronger time of the year for our customers and the probe card market in general

But the fact that the market has weakened up roughly after a strong recovery in Q2, we just believe that a weak macro economy and the lack of a clear DRAM industry demand driver will keep demand levels depressed in the near-term. Multiple product platform transitions that are occurring now may also be contributing to erratic ordering. The upcoming transitions to next generation smartphones, tablets, and ultrabooks caused the overall semiconductor industry supply chain to manage inventory very cautiously.

As a result of this market environment, we are taking actions to control expenses this quarter. And additionally, we are revisiting our cost structures and breakeven levels with the intention of reducing them further during the second half of 2012.

I’ll now turn the call over to Mike Ludwig to review our performance and Q3 guidance.

Mike Ludwig – Chief Financial Officer

Thank you, Tom. Revenues for Q2 were $54.8 million, an increase of $20 million or 57% versus Q1, 2012. Compared to the first quarter, revenues increased in DRAM and flash, but declined in SoC. Second quarter revenues for DRAM products were $38 million, an increase of 74% from our first quarter. The positive momentum we experienced in the back half of the first quarter from DRAM device price stabilization continued through the second quarter.

All of our full wafer contact DRAM customers increased their orders and revenues in the second quarter compared to the first quarter. We experienced increased probe card revenues from customers that are transitioning to 4-gig devices and 3X-nanometer nodes, while probe cards for mobile devices continue to be a strong revenue component.

Flash revenues were $9.7 million for the second quarter, an increase of 91% from the first quarter. Our NAND Flash revenues for Q2 increased close to 100% to $5.3 million resulting from improved lead time execution and increased complexity on our customers. Our NAND Flash revenues increased $2 million compared to Q1 to $4.4 million.

SoC revenues were $7.1 million, a decrease of $0.7 million or 9% from Q1. We saw several of our SoC customers’ businesses experienced reduced demand in the quarter, negatively impacting our business in the quarter as well.

Second quarter GAAP gross margins were $16.2 million or 29% of revenues compared to $4.2 million or 12% of revenues for the first quarter of 2012. On a non-GAAP basis gross margin for the second quarter was $16.9 million or 31% of revenues compared to $4.7 million or 13% of revenues for the first quarter. Non-GAAP gross margin for the second quarter was favorably impacted by approximately $12.9 million from fixed spending leverage on incremental revenues and a favorable product mix.

Our GAAP operating expenses were $22.5 million for Q2, an increase of $0.5 million compared to Q1. Non-GAAP operating expenses for the second quarter were $19.7 million, an increase of $0.2 million compared to the first quarter. The increase in non-GAAP operating expenses in the second quarter is due to increased charges for evaluation in test vehicles for our next generation Matrix products and an increase in quarterly sales and incentive compensation from the increased booking level in the quarter.

The increases were partially offset by reduced professional fees incurred in the quarter. In the second quarter, the company recorded a tax benefit of $1.6 million compared to provision of approximately $100,000 in the first quarter. The benefit in the second quarter was derived primarily from the expiration of the federal statute limitations around specific uncertain tax positions. We do not expect this level of tax benefits to be recorded in the foreseeable future.

Cash, comprised of cash, short-term investments and restricted cash ended the second quarter at $278 million, $2.6 million lower than Q1. The company generated over $100,000 of cash from operations in the quarter including a cash usage of $3.5 million from increases in current asset investments as a result of the increase in orders and revenues for the second quarter. This is the first quarter since Q4 of 2007 that the company has generated positive cash flow from operations.

The company did not repurchase any of its common stock in the first half of 2012. There are some other financial details. Our depreciation and amortization in the second quarter was $2.6 million. Our capital additions in Q2 were $2.1 million compared to $1.8 million in Q1. Our stock-based compensation for the second quarter was $3.5 million compared to $3 million in the first quarter. With respect to Q3 we are experiencing a demand contraction across all market segments similar to that experienced by some of our customers as a result of market uncertainty created by the global macroeconomic conditions and the lack of a new demand driver for DRAM devices.

As such we expect third quarter revenues to be in the range of $38 million to $42 million. With respect to gross margin, the decreased revenues and unfavorable product mix will have a negative impact on fixed spending leverage in factory utilization. Therefore we expect our non-GAAP gross margin to be in the range of 11% to 17% from the third quarter. We expect Q3 non-GAAP operating expenses to be approximately $18.5 million to $19 million, a decrease from our Q2 expenses of $19.7 million. With the reduced revenues and demand, we expect to recapture than that current asset investment made in Q2. Therefore Q3 cash burn will be $5 million and $7 million not including any stock repurchase activity.

Given the significance of the order decline in Q3 and the protracted nature of the macroeconomic environment, we believe that it’s prudent to reduce our current cash flow breakeven level. We expect our actions to reduce our breakeven level to $50 million by the end of the fourth quarter compared to our current level of $54 million to $56 million by preserving our ability to complete development and to commercialize new Matrix and SoC vertical technologies.

With that, let’s open the call for Q&A. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And the first question comes from Vernon Essi of Needham & company. Please proceed.

Vernon Essi – Needham & Company

Thank you for taking my question. I’d say congratulations on what you can control and I’m sorry to hear that you’re having a tough guide here going into the third quarter. If you can just I guess elaborate little bit Mike about taking some cost reductions and sort of what areas you’re targeting it looks like you are absolutely seeing a breakeven by about $5 million on cash basis and a little bit more, what specific areas do you think you will be tackling more on the cost side or OpEx?

Mike Ludwig

I think we will be looking at several different areas. So, I think we will be looking at manufacturing footprint. We will be looking at our cost structure in general. We certainly will be looking at payback on certain of our programs that we have out there whether in R&D programs or marketing programs or any other types of programs. And then lastly I think what we will also have to look at is how we are compensated for the level of services that we are providing our customers as well. So, I think the actions will be pretty comprehensive across several areas.

Vernon Essi – Needham & Company

Okay. And then Tom I guess seeing back to some comments you’ve made out at Semicon West about lead times it sounds as though those were very helpful and beneficial to your gross margin as well as giving some additional perhaps market share in the second quarter, can you discuss sort of the landscape of that and how that’s playing out related to your competitors and what your customers are saying or thinking about your ability to deliver on time?

Tom St. Dennis

Well, I think that when we started on this 15, 16 months ago we were at a competitive disadvantage with what our lead times were for our first articles and for reorders. And as we’ve talked about over the last four or five quarters or so we’ve been able to make steady progress in reducing those lead limes. As you go through that you eliminate really you eliminate waste through out your whole process and your supply chain in your own factory, that has contributed to the improvements in gross margin and overall product profitability that we’ve seen. And in a quarter like Q2, we came off essentially a $35 million revenue run rate coming out of Q1 and we did essentially $55 million in Q2. And that improvement in cycle time it added some capacity as you shrink your utility cycle time through the factory and it allowed us to respond to the opportunities that showed up in the quarter. What’s striking is how broadly things have changed in the last six weeks or eight weeks here six weeks I guess that things have slowed down so rapidly. And now we’ll have the challenge of also slowing rapidly.

Vernon Essi – Needham & Company

Just as a side bar and last question, but your lead times have come down obviously the tone is not updated if you well in the overall semi industry, but I am just serious if you are looking to go after if you will is now more narrow the visibility is certainly shorter because of this your customers perhaps responding to that as well or do you feel very comfortable that if you went back say a year ago lead times are longer, you’ll be getting pretty much same message from your customers?

Tom St. Dennis

I think that – I think if you went back a year we would have been getting the same kind of messages. When we didn’t have sufficient – when our lead times were not sufficiently short, we just missed opportunities because we couldn’t match up competitively on that. And I think at this point in time we have competitive set of lead times. I think that the entire electronics food chain has made great progress in reducing lead times. The uncertainty today is that there is product transitions going on, people talk about the fourth quarter being better for DRAM and for some of the new products coming out. There is a number of kind of product transitions going on with planning around new iPhones and other things. And I think that people are extremely cautious with the inventory positions they take.

And distributors and IDM’s life are being really very careful about how they spend and invest. And then you’ve listened and you see Toshiba cuts back 30% of their production in Flash. There is information out that Elpida and Rexchip have been taking down their capacity. We’ve heard other DRAM suppliers taking down their wafer starts. So, it’s hard to say which way it’s going to go if some of things hit there in the fourth quarter I think you can see demand is now back on it. But at this point in time we cannot see six weeks ahead.

Vernon Essi – Needham & Company

Okay, alright. Thank you very much.

Operator

Thank you. The next question is from James Covello of Goldman Sachs. Please proceed.

Mark Delaney – Goldman Sachs

Yeah. It's Mark Delaney calling for Jim Covello. Thanks very much for taking the question. I was hoping if you can talk a little bit more on longer term about the DDR4 revenue opportunity, when do you expect that transition to occur what could it mean for sales and then what you need to do from an R&D perspective to prepare for that?

Tom St. Dennis

So, we've been supplying engineering cards for LPDDR3 as well as DDR4, now in 2012 and have – we have customer designs in for both of those that would – that support early production on that. We really in terms of positioning the product and having the technologies in place for it was an activity back in the 2011 timeframe. So, we are in good shape and in good position to support manufacturing on both of those technologies.

Mark Delaney – Goldman Sachs

Okay, that’s helpful. Thank you. And then as a follow-up question I was wondering if you can talk about any impact you've seen in terms of market share from some of the reorganization that’s going on, some of the larger DRAM customers that’s been publicly announced, is it an opportunity for you to either increase share or do see risk of share loss?

Mike Ludwig

As we talked about, we think I’d say it’s relatively neutral with the actions that are going on between Micron and Elpida there. I think if we look at Q2 compared to our competitors we had pretty strong growth against the forecast and contraction on their part. So, some of that comes from market share growth, some of it comes from customer mix also. So, hard to say on that, but the consolidation or integration that is expected to go on between Elpida and Micron, we believe should be good for FormFactor. We support both customers and have good working relationships both of them. So, we would expect to continue that.

Mark Delaney – Goldman Sachs

Great, thanks very much.

Operator

Thank you. The next question is from C J Muse of Barclays. Please proceed.

Olga Levinzon – Barclays

Hi, this is Olga calling in for C. J. Thanks for taking my question. Just wondering if you could provide us a bit more granularity of the revenue guide regarding how the DRAM Flash and revenues will break out?

Tom St. Dennis

Yeah. We think that DRAM certainly is going to be down relative to Q2 that’s probably the biggest decline, but no surprise given that 65% or 70% of our revenues is there. Flash probably will be somewhat lower but as a percentage we’ll probably make up a higher mix with respect to Q2 revenues versus Q1 revenues. And then SoC, I believe will be – maybe flat, maybe slightly down, but generally it will be flat to maybe slightly down. That’s how we see the mix coming in Q2.

Olga Levinzon – Barclays

Got you. And then I guess on the SoC side previously, you have talked about provision to some level of growth in the second half of the year and you had also discussed potential for market share gains with the vertical probe cards. Just wondering how much of that is of the current floors and anticipated ramp there is driven by just caution of your customers versus longer than expected time to actually get the design win. How should we think about that?

Tom St. Dennis

I’d say actually we’ve been pretty successful with our – the current product line, which we think we have room to grow share and grow the business in. We had good luck in terms of positioning those products getting through some key qualifications, getting engaged in some key projects on it. The unfortunate part of it is that companies like TI and Renaissance, Infineon, Freescale, others are really being very cautious. They have many of them and talked about upcoming market and business improvements for the second half of the year. And I think that in most cases, the second half of the year doesn’t even appear flat with the first half or Q2 that in many cases they’ve got it down on revenue on it. So, it’s frustrating because we feel like we’ve gotten ourselves in a good position, but we’ve just run into a headwind there of conservative capacity planning and spending etcetera. So, we continue to on with those.

And as I think as those businesses recover, we’ve got a much improved position there for the SoC business with our existing product line. On the vertical probe card, that part of the market is certainly harder as it’s serving a lot of the mobile application processors. So, whether it’s Apple processors or Samsung processors or Qualcomm processors, that part of the market I think is quite active today still, and that is where we have our vertical technology targeted. And as I said, we’ll work to build the fully functional card product type card for a customer this quarter to get their test and feedback on it, but as we’ve said all along, the incremental revenue come from it would be in Q4 and it would be relatively a small force, but important for positioning going into 2013 and 2014.

Olga Levinzon – Barclays

And just the final sort of housekeeping question what are you assuming for stock comp and the tax expense or benefit in the third quarter?

Mike Ludwig

Stock compensation, I think you should think of it stock-based compensation, pretty much what we saw in Q2 around $3.5 million and the tax provision should be somewhere between $100,000 and $200,000 of expense, which is what we have typically run.

Olga Levinzon – Barclays

Okay, thank you.

Operator

The next question is from Patrick Ho of Stifel Nicolaus. Please proceed.

Patrick Ho – Stifel Nicolaus

Thank you. Tom, you mentioned some of the CapEx on the DRAM side in terms of wafer starts, can you just provide a little bit color whether you are seeing any slowdowns in the conversion to book 3X and 2X node or some of the cuts that you are seeing on the, I guess, the existing capacity? And I guess how is your competitive positioning in terms of those, really leading-edge node the 3X and 2X?

Tom St. Dennis

So, we’ve got designs on 2X and on 3X. So, customers have cards and are using them in a pilot – in a pilot manufacturing way. So, I think our position on that is pretty strong. With regards to what the timing is around that, to some degree, I’d say we saw some of this – some similar behavior in the fourth quarter of last year. If you look at the fact that it certainly appears that at least two of the four major suppliers on DRAM today have made cut backs. And most recently, some of the articles are came out around Elpida and Rexchip. When they’re doing that the existing technology nodes are the most mature. The yields are on them are the highest and that the most conservative things to do is to continue to run that versus trying to ramp a new technology node where yields are often substantially lower and you have wafer start requirements go high. And additionally there is a great deal of spending to put in place all of the infrastructure to test the new nodes which of course includes probe cards.

So, what we've seen in the last couple of weeks is customers defer ramping some of the new technology citing yield issues and whatever. And committing to continue with the existing more mature products where they’ve got all of the infrastructure in place including probe cards to run their production. We – I would say that the first article designed for the new technology nodes and such, those continue, but those are one card versus 10 or 20 or 30 cards. So, I’d say the profile is to kind of pull back, be conservative, run the manufacturing that you know well and continued to do technology development. But not be aggressive about ramping of the new nodes.

Patrick Ho – Stifel Nicolaus

Great, that’s really helpful. With the improved lead times that you're seeing now and you’re competitive I guess you're being more competitive now versus MJC, have you seen any response from them in terms of pricing and what that potential impact could be gross margins?

Tom St. Dennis

Well I’ll say MJC had an announcement of some substantial organizational cut backs and substantial restructuring back in the June timeframe. And if you look at it I mean obviously we’ve had our challenges and difficulties and we've made some progress I think both FormFactor and MJC realized that we’ve got a focus on overall profitability. We have to make sure, we’re making investments in the right product areas and we got to make sure, we've got business models P&Ls and everything that are healthy and profitable going forward. So, as a result I think that they're looking at the business more critically, perhaps more than just kind of all-out market share, if you will. And so at this point in time, we don’t see any significant price collapse or anything like that. I think we've already going through that. At this point in time we need to make sure that we're getting full value from cards from customers and I think they’re trying to work though those things also.

Patrick Ho – Stifel Nicolaus

Final question maybe for Mike in terms of the working capital management, you guys going really good job with the inventory situation particularly given how both orders and revenues have ramped, what can we look at like inventories maybe over the next quarter or so given that you had strength in orders and how quickly you can turn that inventory into product?

Mike Ludwig

We can turn it into products relatively quickly, so I'm not concerned about that. And I think inventory management it looks to me like it won’t be really any different in the third quarter versus the second quarter. The one thing we are trying to manage is the fact that with the decline in orders that we don’t get ourselves caught into a large position. However, the nature of the business is we do have minimum order quantities and what not. So, we’ll be somewhat susceptible but certainly Patrick we’re very much sensitive to that and trying to keep incremental or unnecessary materials out of the company. Therefore, we have a strong management program on that, but with -- again with decline in orders, we will be challenging the third quarter.

Patrick Ho – Stifel Nicolaus

Great. Thanks a lot guys.

Operator

The next question is from Terence Whalen of Citi. Please proceed.

Terence Whalen – Citi

Yeah, thanks for taking the question. This one is on sort of the progression over the next couple of quarters to get the breakeven. What are some of the milestones and the timing that we can expect that you – as you grow our breakeven $5 million. And I believe you may have said this earlier, but I didn’t catch it. What component of that will be through COGS production as it is to OpEx? Thanks.

Tom St. Dennis

Yeah, so we haven’t – so, we haven’t given any specific breakout between what would be COGS versus what would be – that would be OpEx. We are still working through what we think are the appropriate actions and we are getting into that. And at this stage, I think you could probably see – so, we are trying to reduce our cash flow breakeven by $5 million, $6 million right from $54 million to $56 million down to $50 million. So, I would expect that you would be able to see maybe a third to half of that in the third quarter and probably than the remainder of that taking place in the fourth quarter. So, at the end of the fourth quarter, we get to cash flow breakeven, to have the ability to get the cash flow breakeven at $50 million. So, that’s sort of the progression. And at this stage, we haven’t worked out specific targets for COGS versus OpEx.

Terence Whalen – Citi

Okay, terrific. And then in terms of market share position, it sounds like you have two ongoing bake offs. Were your expectations that those were going to close in the second quarter or the timing of the qualifications proceeding as you expected? In other words, are they being influenced one way or the other by the pullback in orders? Thanks.

Tom St. Dennis

Yeah, the – on the next generation matrix card, there were chances in the second quarter in the June timeframe to finish some of the work that actually one of the cards was damaged – and evaluation cards or qualification cards was damaged had to be rebuilt and shipped in the last month. And so, there were some things that held us up there. On the vertical product side of it, I think we are pretty much going against the schedule that we talked about, if we get through some product level qualifications this quarter that will transition us into really going after new designs and things like that in the follow-on quarter. So, we’ll continue to drive on that.

Terence Whalen – Citi

Thanks. And then another follow-up question I had is I understand it’s not a major component of the business, but have you seen any change in behavior on the part of your NAND customers recently based on improving NAND stock? Thanks.

Tom St. Dennis

Sorry, say again, our NAND customers are on improving what?

Terence Whalen – Citi

Based on improving NAND prices recently?

Tom St. Dennis

No, haven’t seen that. I haven’t seen a signal, if you will, I mean, it fluctuates up and down. There is – there have been a few orders recently that came through, but I can’t correlate it to a flattening or improvement in NAND prices in the last few weeks.

Terence Whalen – Citi

Okay, great. And then my final one is what would your expectation be in terms of mobile DRAM as the portion of mix of overall DRAM in the third quarter?

Tom St. Dennis

I would expect it to be not terribly different than what we saw in the second quarter. And that’s somewhere in the high 30% with respect to overall percentage of DRAM.

Terence Whalen – Citi

Terrific. Thank you.

Operator

The next question comes from Tom Diffely of D.A. Davidson. Please proceed.

Tom Diffely – D.A. Davidson

Yeah, good afternoon. First, Tom, I was hoping you could talk a little bit about the DRAM market, I’m kind of curious when you see a little bit of a slowdown, how do you know if it’s just lumpiness of a few large customers versus some seasonality or really a kind of a secular slowdown or a typical slowdown if you will?

Tom St. Dennis

Well, know how much specific visibility we get there is – there is not too many customers in the market that are as large as apple. And when apple has taken some capacity from people, it gets reported in the industry trade news and things like that and we can kind of line that up and say there was a big order there and we can see the impact to demand for us. And I think that some of that was certainly what unfolded in Q2 and surprised us on the upside by the strength if you will. The rest of it we are following – follow on through the market when the prices drop the further they drop, the more conservative the customers get. If prices continue to fall and they go below the cash manufacturing levels then we could see things slow even further. But I am afraid we are watching the bulk of DRAM market as it responds to electronic manufacturing and overall DRAM I’m afraid don’t have much more in that.

Tom Diffely – D.A. Davidson

So, this business is becoming less seasonal and more just based on pure product cycles?

Tom St. Dennis

Well, certainly that’s the indicator right now with I think with some of the Apple products. It is much more influenced by the big products coming out things like Samsung Galaxy, Apple products be it iPad or iPhone. These obviously put a significant demand on the overall supply chain, you look at what happened with Cirrus Logic recently and their orders and demand have gone up dramatically. I think it’s a function of essentially one product. So, I’d say its product cycle is more than – dominated more now by product cycles than just the seasonality.

Tom Diffely – D.A. Davidson

Okay and I’ll just move away from the PC world to mobile consumer world.

Tom St. Dennis

That certainly had a big impact and its shifted around demand for mobile DRAM and mobile compatible circuits in support for that versus some of the more standard or commodity products and from that it causes some challenges for the customers also.

Tom Diffely – D.A. Davidson

Yeah okay. And then Mike you talked about OpEx went down 18 and 19 it sounds like through your comments that you would expect it to come down further there in the fourth quarter as you got the other half of your cost reduction program?

Mike Ludwig

That’s correct.

Tom Diffely – D.A. Davidson

Okay I mean do guys details give out the order numbers anymore or do you try any quarter number guidance?

Mike Ludwig

No we’ve never and we don’t – haven’t provided guidance on orders in a long time. I don’t know when we did.

Tom Diffely – D.A. Davidson

Okay, (indiscernible) do you saw orders slow down in the first part of third quarter?

Mike Ludwig

Sorry, say again.

Tom Diffely – D.A. Davidson

You had commentary about orders still runs you’ll see over last 6 to 8 weeks then?

Mike Ludwig

Sorry, yeah just we have good strong flow as we went through the second quarter and the last week or so may be second quarter things slowed down. And then its just continued to slowdown through July.

Tom Diffely – D.A. Davidson

Okay and then a follow-up question on the SoC side, you talked about being soft in the quarter, soft in the third quarter as well what do you expect to drive that going forward?

Tom St. Dennis

I think if you see some strength come back into the businesses at the bigger micro controller companies like Freescale or Renesas, TI, Infineon those are areas where we focused on some of our products they fit very well with their needs. And we’ve had success with regards to design wins and qualifications and things like that. But currently they are fighting some headwinds in their business and expectations for the second half seem to have come down in many cases guiding down and certainly guiding below what people thought they were going to do. And so business I mean it carries on, but it doesn’t have all the strength then that it could have I think if they were in a little bit more normal environment.

Tom Diffely – D.A. Davidson

Okay, great. Thank you.

Operator

Ladies and gentlemen this does conclude the FormFactor’s second quarter conference call. Thank you for your participation.

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