Episode Transcript
[00:00:03] Speaker A: Welcome to AINA Insights, where prominent leaders and influencers shaping the industrial and industrial technology sector discuss topics that are critical for executives, boards and investors. INA Insights is brought to you by INA AI, a firm focused on working with industrial companies to make them unrivaled segment of ONE leaders. To learn more about INA AI, please visit our website at www.aina.AI.
[00:00:40] Speaker B: Hi everyone and welcome to another episode of Titanium Economy podcast series hosted by ina. Today, we are delighted to welcome Mike who's the President and CEO of Form Factor. Mike has been with form factor since 2012 as SVP and GM of MicroProbe and he was appointed CEO in 2014 and has been serving that role for over a decade. Prior to that, Mike was the CEO and President of Microprobe and stayed with Form Factor through the acquisition. Mike has served several leadership positions within the semiconductor industry over his career. Starting his career at KLA Tanker, Mike has a PhD in Aeronautics and Physics from Caltech and a BSc in Engineering Physics from University of British Columbia. Mike, it's a pleasure to have you today with us.
[00:01:27] Speaker C: Thanks for having me.
[00:01:28] Speaker B: Perfect Mike, One of the things that I wanted to start with is just learning a little bit about Form Factor and its role in the semiconductor value chain. Where does it fit and what problems are you solving?
[00:01:37] Speaker C: Yeah, well, we're a leading supplier of test and measurement equipment, mostly electrical test and measurement equipment, although as I think we'll talk about, it's now moving into the optical realm as well.
And what we do is help customers like Sam, Samsung, tsmc, Intel, Nvidia, some of the larger fabless customers, test their chips and characterize their chips to make sure they're going to work properly, both in a production setting and early in R and D. As they're beginning the overall development of new chips.
Our two sets of products, something called a probe card, which you can think of as the interface between test equipment and a semiconductor wafer when it comes out of the fab.
And every wafer, every die on every wafer actually gets tested as it comes out of the fab, at least for leading edge nodes. The reason for that is yields at the leading edge of the semiconductor industry are not very high. So our probe card business performs a critical task in making sure that chips are good before they go to the downstream packaging processes.
In our systems business, we're working with customers very early on in their development of next generation technologies, things like silicon photonics, things, things like quantum computing, so that we're there as they begin to develop these devices and help them Transition to production, what we call our lab to fab strategy.
[00:03:08] Speaker B: Perfect. And that's very interesting to hear, Mike and I know in a lot of your previous interviews you've said innovation and customer engagement are like two of the core things that you want to focus on. And especially when it comes to innovation. Right. You spend a lot on the R and D side.
How do you decide? What are the areas that you want to focus on and how do you spot the emerging trends early on?
[00:03:29] Speaker C: Yeah, it really all starts with customers. And one of we have four core values at form factor. One of them starts with Neff. Focus on the customer.
There's a pretty limited number of customers in this industry. I named a few of them that we've been primary suppliers for. They show up in our financial statements as significant customers, really partnering with them and the leaders in the industry to guide our R and D spend. And as you note, it is the largest in our served markets. Making sure we're solving the problems that are going to be relevant for them tomorrow. And it's a pretty concentrated industry. There's only so many customers and there's only a handful of suppliers who can do what we do.
And so the matching or alignment of our R and D priorities, our R and D spending is very closely matched to our customers. I spend a lot of time directly with these customers on the road, probably in Asia, six, seven times a year with some of these other customers and all of our engineering team. Same kind of engagement. So very close engagement with our customers to guide this R and D spending and make sure we are focused on the right problems to solve for our customers.
[00:04:47] Speaker B: That's very interesting to hear. And I remember in one of your interviews you said more than a third of your employees engage with customers pretty much on a daily basis.
How do you use this customer service as a competitive edge in this industry?
[00:05:01] Speaker C: Yeah, well, I think it goes beyond service.
[00:05:04] Speaker B: Right.
[00:05:04] Speaker C: It really is this engagement and partnership and collaboration with customers.
This industry, as I think most people know, moves very, very quickly and is even accelerating. Right. We're now seeing generative AI drive one year roadmap cadences in high performance compute. That's unheard of in the history of the semiconductor industry. And the complexity of new things that are being done and new products that are being released in that one year cycle is really astounding. It's one of the coolest things about being in the semiconductor industry.
At the same time that requires very close collaboration and partnership.
Customers don't want to send us down a path that's not going to be fruitful in solving their problem. We obviously don't want to be spending our resources and R and D spend on an area that's not going to turn into a profitable growing business for us.
It's this partnership and very close collaboration between us, our customers, us and our suppliers, and us and our other partners. We don't do this alone and that partnership is really what drives our ability to execute. And I think it's true for any successful supplier in this industry. You have to have this very strong ecosystem set of partnerships to be successful.
[00:06:32] Speaker B: That's very helpful to hear. And there are a few trends that you highlighted. Right. Which is tailwinds, especially for the semiconductor business, but also for your business.
I'll start with one of those 5G and 6G as one of the drivers. What makes it such a transformative force in your business?
[00:06:49] Speaker C: Yeah, well, I think generally 5G and 6G in terms of mobile communications are a trend that we've seen over the years in communications. Right. Increasing frequencies so more information can be sent through the same pipe, if you will, whether that's an actual pipe or over the airwaves.
As things move to higher frequencies. I think anybody who's taken a physics or electrical engineering class knows things get much more complex For a supplier of high technology test equipment.
Those present technical challenges, but they also present opportunities to go lead the industry forward as we move. 5G was a great example as things move from 4G, which is, yeah, sure, it's RF, but it's not particularly challenging frequencies. 5G moves things to millimeter wave frequencies where there's all kinds of different new challenges from an RF engineering standpoint in testing these devices because of course they have to be tested at the frequencies they're going to operate in some cases in the millimeter wave region.
That plays really well to our strengths. Right. If you look back in our history, we acquired a company called Cascade Microtech about 10 years ago, a real specialist in RF. And part of the motive of that acquisition was to really increase our RF capabilities and gain access to these RF markets. So a great example, not just 5G and 6G, but where that technical complexity and technical innovation allows us to go out and lead, drive a significant market share position, which then results in reasonable profitability and the ability to reinvest in the R and D you talked about about before.
[00:08:38] Speaker B: No, that's interesting. Another trend that you actually talked about was this silicon photonics and the optics co packaged optics space. Right. And that's as the data rates are climbing, you Know, these things are becoming more and more important.
How is form factor positioning itself to support this transition?
[00:08:54] Speaker C: Yeah, co packaged optics and silicon photonics more generally are a great example of that trend of increasing frequency, increasing bandwidth.
And there's another interesting wrinkle associated with that in that optics tends to be a much more energy efficient way to communicate data. Right. When you push light through a fiber, there's almost no losses. When you push electrons through a cable, there's always resistive losses.
So what we've been doing, and this is a great example for us of this overall lab to fab strategy in our systems business. We started working with some of our primary driver customers in silicon photonics a decade ago when they were beginning to develop things like co package optics, optical switches, coupling those to electrical devices. We started working with them in their labs when this is very, very, very early development that's now transitioning, as people probably have heard, into mainstream data center applications. And what we've done working with these customers is take the technology that we proved out in the lab and now make it production ready.
That can involve partnering with other suppliers to make sure there's an overall test system that works. It involves increasing the reliability and if you like, the hardening of our equipment for the production environment.
But a great example of that lab to fab trajectory and one that because CPO is reasonably well positioned to solve one of the major data center problems, which is energy usage. Right. You read these headlines in the New York Times of Amazon building nuclear reactors. Well, that's to power their dataset. That's crazy. Right? There's another way to help solve this problem and that's reduce the energy consumption of the data center. And CPO's pointed squarely at that. It's one of the reasons why we have been investing historically and will continue to invest in this area.
It's a key enabler for the industry and again plays well to our engineering and technical expertise in high speed signal propagation and test.
[00:11:04] Speaker B: I think you're absolutely right. Like with the amount of energy consumption that is happening in data centers and it is forecasted to happen, some of these things are definitely like the trends that will grow and will be tailwinds for business like form factor. And now moving to one of the other things that you talked about is the advanced packaging with the 2, 5D and 3D, it sort of is reshaping how the chips are built and tested. How is form factors positioned to like, you know, ride that wave?
[00:11:32] Speaker C: Yeah. When I take a step back and look at the Semiconductor industry overall, think advanced packaging and chiplets and heterogeneous integration. These are essentially all synonyms for the same thing.
We'll look back a decade from now and see this is a megatrend. And the reason is the industry's always innovated by making smaller, cheaper, faster transistors. That's gotten very difficult, if not impossible, to do. You can make smaller transistors along this trajectory of Moore's Law, but they're a lot more expensive.
Moore's Law was driven by every two years a transistor half the size and half the cost was within reach. That's no longer the case. And so our customers in the industry overall have shifted to putting some of that innovation burden and a lot more of that innovation burden on what's called the back end. This is how you assemble different pieces of silicon together.
And it turns out that the techniques have rapidly evolved to be able to do that, so that the end set of chiplets, all these different chiplets put together, performs a lot like a single piece of silicon. Very high performance.
Still got some work to do on cost, but the cost curves are coming down. So this is a viable next step in Moore's Law, right? Some people call it more than Moore. Proponents of Moore's Law would call it just an extension of Moore's Law. But this is what the industry is doing to continue to innovate, to provide us with more capable devices, with graphical processing units that drive generative AI, things like that.
It's important for form factor, because if you're going to break a chip apart into these different chiplets, you better make sure each of them are good before you assemble them in this chiplet stack. Otherwise you end up with a scenario where a single chiplet can kill its 7, 16, 24, even 50 cousins in this advanced packaging stack. And so what that's driven is a very rapid increase in both the requirements for test. Test complexity, as we generally call it, but also test intensity. How much our customers are spending on testing to avoid this nearly nightmare economic scenario of putting a bad chiplet together with 20 good chiplets.
[00:13:55] Speaker B: I think that's one of the reasons. Right. Like you pointed out, it's becoming more and more critical to test every single chip and test it across parameters that you would previously in previous generations, you would not even test.
[00:14:07] Speaker C: That's right.
[00:14:07] Speaker B: But now some of those parameters are becoming increasingly important and increasingly stringent in terms of the specs that you need to meet.
[00:14:14] Speaker C: And we've got a great example currently with high bandwidth memory, high bandwidth Memory is a type of DRAM or dynamic random access memory that essentially gets assembled together with the GPUs that are getting all the headlines for generative AI. But HBM a very important part of that overall system. A high speed memory that is built using advanced packaging. It's a stack of DRAM die on top of each other. And so we've seen our HBM business go from a couple of years ago with single digit millions. Again, a good example where we're co developing with our customers sk, Hynix, Micron, Samsung.
But this has exploded with the explosion of GPUs and generative AI, a business last year that was more than $100 million for US and is poised to continue to grow here in 2025.
[00:15:06] Speaker B: Thanks a ton Mike for sharing that. Now we talked a little bit about the innovations that are happening in the semiconductor industry, but there is a lot of stuff happening outside of the industry which is impacting the industry, which is all the geopolitical shift and tariffs.
What are your views on that and how is form factor positioning itself to play that out?
[00:15:25] Speaker C: Yeah, well, if I'm being a glass is half full guy, it's a new interesting challenge. I can tell you when you go to grad school for aeronautics and physics, they don't teach you about geopolitics. And Even in the first 20 years I spent in this industry, geopolitics was never really a consideration.
[00:15:46] Speaker B: Right.
[00:15:46] Speaker C: We operated as a globally interconnected, borderless industry that obviously has changed and changed substantially in the last 5ish years. You can view these situations as both an opportunity and a threat. Right. And there's different areas of the geopolitical landscape that we view as both.
For example, you know, a few years ago we made the decision that there was going to be or made the assessment that there was going to be a significant decoupling between the domestic China semiconductor industry and the rest of the world and started to set in place a divestiture of our China operations. Now we still do business in the region, but we do it through a distributor. We don't have our own team there, we don't have a factory there, we don't have repair centers there like we do in every other significant region of the world.
The other side of that coin, certainly tariffs and the US effort to onshore the semiconductor industry can offer us as a US based supplier, an opportunity.
We recently made a significant investment in buying what we call a brownfield factory in Texas just outside of Dallas. You can think of that as a double down on the domestic US semiconductor industry and maybe a way to play a bit of arbitrage on the tariff situation. All of our major competitors are not based in the US and so if there's significant production in the US that'll give us a home field advantage, if you will, if this tariff environment persists.
On the other hand, that's not a primary driver for our business. This is not a commodity business or a commodity industry. And so we need to continue to innovate, to have access to the best global workforce and still think of ourselves as a global company.
But to second order or third order, if you can gain a little bit of competitive advantage geopolitically, well, that's not a bad thing.
[00:17:53] Speaker B: And just talking about the testing industry in general, how do you think is US positioned to be the leader within the semiconductor testing environment?
[00:18:04] Speaker C: Yeah, I don't know that the US is positioned to be the leader in the semiconductor test industry. I think a lot of the focus near term has been on shoring wafer fabrication. And we talked about form factors, probe cards being used at the end of wafer fabrication before things go to packaging. So usually we're associated with the wafer fab, but in many cases those wafers, even if they're manufactured in the US probably have to go to, to Taiwan, Malaysia, somewhere else to be packaged, assembled and then put into an end device like an iPhone, which is obviously, you know, Apple's manufacturing strategy has been in the headlines quite recently because of this, I think form factor offers, you know, certainly a strong US Nucleus to support the test industry. There's also other companies, you know, we partner with a US based test equipment supplier called Teradyne. We also partner with their Japanese competitor Advantest. So, you know, you can still see primarily a global industry where I don't think the dominance of any particular geography for test or assembly is going to emerge, at least for a while.
[00:19:22] Speaker B: Thanks for sharing that perspective, Mike. I'll shift a little bit to sort of your own personal journey. You've been in the semiconductor industry for a, for a decade now, actually much more than a decade. What are the biggest lessons you have learned about the industry?
[00:19:36] Speaker C: I talked earlier about the pace, right.
I think I knew this early in my career, but the pace of this industry is relentless, right?
Our customers, us, our suppliers, the overall industry. When you look at the pace, even the acceleration of the pace of technological innovation in this industry, it's amazing.
And so that drives with it a real need to innovate rapidly and do things right the first time, right? Things are operating so quickly that if you miss some sort of technology transition, if you're late in delivering your products, if you don't have good quality so that the products don't work out of the box when they get there, you're going to be at a competitive disadvantage. And so doing things right the first time, whether it's in the final development and engineering of a product, sure, you need to innovate and fail quickly up front as you're doing things in very early R and D. But by the time you get to really investing in ramping a product and delivering it in volume, you got to do it quickly and you got to do it right the first time. And that's something.
It's a real initiative for us here at Form Factor. You can always do that better. Right. And that's a really key focus for us. Doing things right the first time. We call it FTR or first time. Right. And doing it quickly at a pace that at least keeps up with your customers, if not leads them slightly. It's difficult to lead them given the collaboration model I talked about. But, boy, that execution is super important.
I think that's my biggest takeaway is just that pace of relentless innovation. You're never, ever done right. When you release a product, it's immediately on to the next product. Finish a project, immediately on to the next project, and over a career. Right.
You talk to any of the executive staff here, people who've been in the industry for their whole lives, that actually becomes sounds daunting, it sounds intimidating. It becomes part of who you are, part of your lifeblood. That constant innovation, that constant change and the constant learning, which is one of the coolest things.
You're learning something every time you visit a customer, every time you sit in an engineering meeting. There's all kinds of things to learn in this industry, and that's what keeps it fresh and exciting, actually, just focusing.
[00:22:10] Speaker B: On that, the pace of innovation and the first time. Right. Which you said are like some of the critical things that have come out in this industry.
As a leader, how do you influence the culture of the rest of the organization to make sure that they are also imbibing that and moving ahead with the pace that is needed.
[00:22:28] Speaker C: Yeah. Well, and that's a constant effort.
[00:22:30] Speaker B: Right.
[00:22:30] Speaker C: Because not everybody wants to move with that pace. People like to make sure that everything is that there's no risk. And if you allow no risk in this industry, you're going to be too slow.
So that balance is critically important.
We do it a bunch of different ways and this has been a learning experience for me as a leader.
Form factors now 2200 people, a rate around the world, three quarters of a billion roughly in annual revenue.
I have to lead differently at scale compared to what I did when I ran Microprobe, which was 20 million in revenue and 100 people in a single location. There I could just walk around and talk to people and understand what was going on. Now we take advantage of all kinds of things. Yesterday we had what we call our senior leaders meeting where we use Microsoft Teams to bring all 150 director and above together and we talk about what the priorities for the company are, reflect on what we did well and what we didn't do well in the previous quarter and make sure that that sense of urgency, innovation, the focus on first time, right, is there have other leaders from the company come in and share stories where they've done it well, where they've learned lessons and make sure that propagates across the entire form factor team and into the culture of the company.
[00:23:59] Speaker B: One last question, Mike. If you look at the semiconductor industry where it is today and over the next, say five to 10 years, what are the most interesting things that you see happening in this space?
[00:24:10] Speaker C: Yeah, well, I think it goes to that theme of just constant change and constant learning. So no matter what, it's going to be different, a lot different, five to 10 years and we as a company are going to have to evolve and change and accelerate to be successful 10 years from from now. And those of us who are leaders in the company are going to have to do the same thing.
I think if I get more specific on applications, it feels like we're in the early innings of the impact of generative AI on the world. And semiconductors are the engine behind that, as we've seen with Nvidia's rise to the most valuable company in the world.
So some interesting things in the medium term will certainly come from the end applications of Gen AI.
Longer term, one of the things that we're pretty excited about, and I'm personally excited about, is quantum computing. Now, it's not going to replace digital computing, but as somebody who got a PhD in physics from Caltech, where the quantum computer was envisioned by Richard Feynman, this is something neat to be part of the overall development of. And I think there's such a compelling set of advantages to using a quantum computer compared to a digital computer. In applications like drug discovery, in applications like cryptography, fundamentally, if the underlying math of a problem is quantum mechanical in nature, it just makes sense to use quantum mechanics to solve it. And I think certainly in the next decade we're going to see that come to the forefront. And that's a really exciting, maybe not quite the semiconductor industry, but certainly the broader electronics and computation industry that I'm pretty excited about.
[00:26:01] Speaker B: Thanks a ton, Mike for engaging with us today. I really enjoyed talking to you about form factor and the semiconductor industry in general. Great. And again, a pleasure to have you on INA podcast.
[00:26:11] Speaker C: Thank you very much.
[00:26:17] Speaker A: Thanks for listening to AINA Insights. Please visit INA AI for more podcasts, publications and events on developments shaping the industrial and industrial technology sector.
