Thank you. Today, the company will be discussing GAAP P&L results and some important non-GAAP results intended to supplement your understanding of the company's financials. Reconciliations of GAAP to non-GAAP measures and other financial information are available in the press release issued today by the company and on the Investor Relations section of our website. Today's discussion contains forward-looking statements within the meaning of the federal securities laws. Examples of such forward-looking statements include those with respect to the projections of financial and business performance, future macroeconomic conditions, the benefits of acquisitions and investments in capacity and in new technologies, the impacts of the COVID-19 pandemic, the impacts of regulatory changes, the anticipated demand for products our future ability to produce and sell products, the development of future products and technologies, and the assumptions upon which such statements are based. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed during this call. Information on risk factors and uncertainties is contained in our most recent filing on Form 10-K with the SEC for the fiscal year ended 2020 and in our other SEC filings, which are available on the SEC's website at www.sec.gov and in our press release issued today. Forward-looking statements are made as of today, April 28, 2021 and we assume no obligation to update them. With that, we will now turn the call over to FormFactor's CEO, Mike Slessor.

Thanks Jason and thank you everyone for joining us today. FormFactor started the year with strong results, posting the second highest quarterly revenue in company history. We successfully addressed and closed the two discrete issues described in our February earnings call that impacted fourth quarter gross margins, producing a first quarter recovery. This revenue and gross margin performance, paired with good operating expense control, produced non-GAAP earnings per share at the midpoint of our outlook range as we continued our investments in capacity, technology, and people to serve long-term broad-based growth throughout the semiconductor industry. FormFactor's Foundry and Logic Probe Card business was robust again in the first quarter as 2020's strong demand continued. Foundry and Logic strength was evident in our two 10% customers in the quarter, the world's leading logic IDM and the world's leading foundry. The underlying components of first quarter demand were similar to 2020, with multiple new mobile and compute chip designs ramping for 5G, data center, and client PC applications. We do expect the sequential reduction in Foundry and Logic demand in the second quarter due to specific timing of individual customer design releases. As we said in the past, Probe Cards are consumables that are specific to each customer chip design, and the timing of those design releases and their volume ramps can create fluctuations in Probe Card demand. With the well-publicized investments that the top foundry and logic customers are making in wafer fab equipment and capacity, we expect continued strong secular growth in this market as their capacity comes online and they begin producing new technology nodes and new chip designs, each of which must be tested with advanced new probe cards. Accordingly, we are aggressively executing our planned capacity and technology investments to capitalize on these future opportunities. Turning to DRAM, first quarter demand for Probe Cards sustained at levels comparable to the fourth quarter as customers continued to execute node transitions and new design releases on existing nodes. We expect increased DRAM Probe Card shipments off these already high levels in the second quarter, driven primarily by new 16-gigabit DDR4 and DDR5 mobile and server designs ramping in volume. In addition, we're supporting substantial new design activity for high bandwidth memory, or HBM, as this enhanced performance advanced packaging application continues to gain market adoption in applications such as artificial intelligence. This incremental demand has the potential to drive second quarter DRAM revenues comparable to the decade-high levels delivered in the fourth quarter of 2019. With lead times of less than one quarter, our visibility remains limited as always, but we are encouraged by the current momentum in DRAM. As Shai will discuss in more detail, this shift is expected to pressure gross margins, as DRAM probe cards generally produce a less favorable product mix than foundry and logic probe cards. This anticipated second quarter product mix swing from foundry and logic to DRAM highlights the resilience of FormFactor's operating model. Even with this dynamic shift in underlying demand, our second quarter revenue outlook range is similar to reported first quarter revenue. This occurs because we serve major applications at all the leading customers in the semiconductor industry. With manufacturing resources that can be flexibly deployed to serve probe card demand in either foundry and logic or DRAM. Although the past several quarters have been characterized by extremely strong foundry and logic demand, experience has taught us that there is cyclicality and variability in our market and customer demand on a quarter-by-quarter basis. Consequently, ensuring that we're exposed to a broad set of opportunities that effectively utilizes our installed capacity is central to our operating strategy. I'd also like to highlight VLSI research's annual survey of the probe card market, which showed FormFactor again at the top position for the eighth consecutive year. Our 19% overall advanced probe card revenue growth was fueled by an eye-popping 40% in VLSI's non-memory probe card category, which mirrors our foundry and logic classification. FormFactor's 40% growth significantly outpaced foundry and logic market growth of 27%, as we gained share in our number one position. This market growth was driven by the trends in 5G in advanced packaging that we've highlighted previously. And our above-market growth provides validation of FormFactor's differentiated products, meeting customers' highly complex test requirements for millimeter-wave RF front ends, next-generation application processors, and high-power compute processors. We expect this preferential share gain to continue for two reasons: first, significant R&D resources are required to develop probe cards that meet increasing test complexity, and second, a coordinated global infrastructure at scale is needed to support simultaneous rapid customer product ramps to high volume in multiple regions around the world. Turning to our Systems segment, we executed on a more favorable product mix in the first quarter, which helped gross margins return to target model levels. A key factor in this improvement was shipments of multiple systems to research labs for testing devices at cryogenic temperatures. Test and measurement at these ultra-low temperatures, often approaching absolute zero, are critical in enabling a variety of applications from the emerging field of quantum computing to the more mature area of infrared detectors. Combining the capabilities we added in the fourth quarter acquisition of HPD, with our legacy engineering systems, electrical and optical test and measurement know-how, offers us significant long-term potential to drive further growth as we enable these technologically demanding R&D applications. As cryogenic applications like quantum computing mature and reach volume production over the next several years, our early engagement in the lab positions FormFactor well to serve the production test needs of the industry, as we continue to execute the lab to fab strategy that benefits both our customers and ourselves. Finally, with the tailwind from a continued strong demand outlook, we're on the path towards the target financial model we unveiled last year that delivers $2 of non-GAAP earnings per share on $850 million of revenue. Test and measurement is becoming a more important and strategic place in the semiconductor industry, driven by powerful trends, including 5G, advanced packaging, and memory content growth. Our leadership position in these attractive markets, paired with our differentiated strategy and disciplined execution will drive continued growth and share gains as we progress towards the target month. Shai, over to you.

Thank you, Mike, and good afternoon. As you saw in our press release, first quarter revenues were at the high end of our outlook range, the second highest in company history. Non-GAAP gross margin recovered to slightly below the midpoint of our outlook range and non-GAAP EPS was at the midpoint of the range. FormFactor's first quarter revenues were $187 million, a 5.3% sequential decrease from our record Q4 revenue and an increase of 16% year-over-year. Probe card segment revenues were $159 million in the first quarter, a decrease of $3.6 million or 2.2% from Q4. The decrease was driven by lower foundry and logic and slightly lower DRAM revenues, partially offset by an increase in Flash revenues. Systems segment revenues were $28 million in Q1, a decrease of $6.8 million or 20% from the fourth quarter. Within the probe card segment, foundry and logic revenues decreased by $9.3 million from Q4 to $113.4 million in Q1, comprising 61% of total company revenues, a slight decrease compared to 62% in the fourth quarter. DRAM revenues were $34 million in Q1, a decrease of $0.7 million from the fourth quarter and were 18% of total quarterly revenues, same as in the fourth quarter. The strong demand for DRAM continues the trends we have seen during the last three quarters, and we expect this to continue in the current quarter. Flash revenues of $11.6 million in Q1 were $6.4 million higher than in the fourth quarter and were 6% of total revenues in Q1, up from 3% in Q4. As we've said in the past, we expect flash revenues to be lumpy from quarter to quarter. GAAP gross margin for the first quarter was 41.1% of revenue as compared to 39.4% in Q4. Cost of revenues included $7.2 million of GAAP to non-GAAP reconciling items, which we outlined in our press release issued today and in the reconciliation table available in the Investor Relations section of our website. On a non-GAAP basis, gross margin for the first quarter recovered, as expected, to 45% of revenues, 160 basis points higher than the 43.4% non-GAAP gross margin in Q4, mainly due to warranty costs for foundry and logic new product released in Q4 that did not recur in Q1 and an anticipated improvement in the systems segment gross margin related to a more favorable product mix. Also in Q1, we began to see rising costs for key MEMS raw materials like rhodium, which is expected to impact our manufacturing costs. Our probe card segment gross margin was 44.3% in the first quarter, an increase of 40 basis points compared to 43.9% in Q4. The increase is mainly due to the Q4 warranty charge I just mentioned, partially offset by higher manufacturing spending and lower absorption on lower revenue. The favorable product mix in the Systems segment resulted in a significant recovery of 8 percentage points in gross margin from 41.3% in Q4 to 49.3% in Q1, even on lower revenue. In the quarter, Systems segment gross margin returned to the anticipated range of high 40s to low 50s. As we continue to make progress towards achieving our target financial model gross margin of 47%, we expect that margins will fluctuate from quarter to quarter. Our GAAP operating expenses were $54 million for the first quarter, $2.7 million lower than in the fourth quarter. Non-GAAP operating expenses for the first quarter were $46.4 million or 24.9% of revenues compared to $48.1 million or 24.4% of revenues in Q4. The decrease of $1.6 million quarter-over-quarter is mainly due to lower performance compensation, partially offset by the impact of annual benefits and payroll taxes. Company non-cash expenses for the first quarter included $7.1 million for stock-based compensation, $7.7 million for the amortization of acquisition-related amounts, and depreciation of $6.1 million. First quarter amortization of acquisition-related amounts was $0.9 million lower than in Q4 as a result of finalization of purchase tax allocation related to our 2020 acquisition. Stock-based compensation and depreciation were similar to Q4. Due to the gross margin recovery and good expense control, we generated first quarter non-GAAP operating income of $37.6 million, effectively flat compared to the fourth quarter, despite $10.4 million in lower revenue. GAAP net income for the first quarter was $19.6 million or $0.25 per fully diluted share compared to $19.3 million or $0.24 per fully diluted share in Q4. The non-GAAP effective tax rate for the first quarter was 18.6% as compared to 7.5% in the fourth quarter of 2020. The lower rate in Q4 was a result of the one-time cumulative benefit in 2020 of the application of regulations regarding global intangible low taxes income, also known as GILTI, and an increase in export revenues, as we mentioned in the previous earnings call. The first quarter effective tax rate is within our communicated anticipated annual non-GAAP effective tax rate for fiscal 2021 of 15% to 20%. As a reminder, our cash tax rate is expected to remain at 6% to 8% of non-GAAP pre-tax income until we fully utilize our remaining US-based R&D credit. First quarter non-GAAP net income was $31 million or $0.38 per fully diluted share compared to $35 million or $0.44 per fully diluted share in Q4. Moving to the balance sheet and cash flows. We generated $19 million of free cash flow in the first quarter compared to $31 million in Q4, taking our total cash and investments to $272 million at the end of the quarter. The sequential decrease in free cash flow in the first quarter reflects changes in working capital, mainly an increase in inventories and a decrease in accrued liabilities. As of the end of the first quarter, we had two term loans remaining on our balance sheet, totaling $32 million. We invested $13.5 million in capital expenditures during the first quarter compared to $14 million in Q4. This investment chiefly relates to the capacity expansion in the new building in our Livermore campus. We continue to expect a significant investment in capacity in 2021, and CapEx for the year is expected to be between $80 million to $100 million, as communicated in our previous earnings call. As a reminder, we expect CapEx to return to 3.5% to 4% of revenues in our target financial model after we conclude these capacity expansions. At quarter-end, our total cash balance exceeded the debt balance by $241 million, an increase of $18 million from the end of Q4. The increase is mostly attributable to strong cash flow from operations, less the cash used for capital expenditures, and $5.7 million used for stock repurchases during the quarter. Turning to second quarter non-GAAP outlook. As Mike mentioned, we expect generally strong demand for advanced probe cards to continue with lower demand in foundry and logic and flash, offset by increases in DRAM and system. These factors result in a Q2 revenue outlook in the range of $180 million to $192 million. Product mix is expected to be less favorable in Q2, with the decrease in foundry and logic and an increase in DRAM revenues, and we also expect higher raw materials costs, resulting in a non-GAAP gross margin outlook for the second quarter in the range of 41% to 44%. At the midpoint of these ranges, we expect Q2 operating expenses to be higher than Q1 by $1 million to $2 million, due to increasing headcount and R&D spend, partially offset by lower performance-based compensation. Accordingly, non-GAAP earnings per fully diluted share for Q2 is expected to be between $0.28 and $0.36. A reconciliation of our GAAP to non-GAAP Q2 outlook is available on the Investor Relations section of our website and in our press release issued today. With that, let's open the call for questions.

Thank you. Our first question comes from Tom Diffely with D.A. Davidson. Your line is now open.

Yes. Good afternoon, and thanks for the question. Shai, maybe starting with you on the gross margins. Obviously, nice to see the step function back up. But when you look at the revenue at the high end of the guide range versus EPS below the midpoint, were the margins impacted during the quarter by any particular items?

Well, as you know, Tom, we are a turns business, right? Even when we entered the quarter, we were exchanging backlog, but with the 6 to 8 weeks lead time, things change even within the quarter. And that's where we provide the range. And because of these changes, even within the quarter, that particularly just changes in the mix, we ended up with revenues closer to the high end of that range, but gross margin is slightly below the midpoint.

Okay. I just wasn't sure if the high material cost was a surprise during the quarter?

No, that's a good question. This is something we started noticing in the quarter, but we're mostly impacting going forward. It's things that are in our inventory for Q1, but will start impacting gross margin or will impact gross margin in Q2.

Okay. That's helpful. Thanks. And then, Mike, you kind of a big picture question here. When you look at one of your customers, or a customer talk about $100 million of spending over the next three years, how does that translate from both the timing and a dollar amount to the probe card market?

Yes. I think there's been some pretty well-publicized announcements from several customers, particularly in Foundry & Logic, our largest market, about capacity and technology investments over the next couple of years. Those are going to result, obviously, in more wafer starts, more design starts. And all of those designs and wafers are going to need to be tested by advanced probe cards. So if you look at how WFE and capacity increases translate into probe card spend, typically lags by somewhere between two and three quarters. Some customers are faster if they're going into existing facilities and it's just incremental additions. But we would expect this significant build during 2021, especially in the Foundry & Logic capacity to result in an increased demand for advanced probe cards as that capacity comes online either late in the year or into 2022.

And do you see a step function increase? Or do you see it kind of ramp up over a several quarter period as well?

No, I think it will ramp up. Those investments have been announced over several years. Obviously, we're starting to see WFE accelerate here in 2021. But it takes a while logistically for all that equipment to get in, to get it qualified and to get it running. So I don't expect it to be a step function. I would expect it to be rather gradual. But again, we're going to trail the equipment installs and qualification by a few quarters.

Great. Okay. Well, thank you.

Thanks, Tom.

Thank you. Our next question comes from Brian Chin with Stifel. Your line is now open.

Hi, there. Good afternoon and thanks for letting me ask a few questions. Maybe first to revisit the gross margin discussion a little bit. I think in the commentary I heard you referenced DRAM revenue run rate sort of back to the 2019 highs. And so that suggests DRAM somewhere sort of quarter of the business in Q2, maybe sustaining a high run rate given sort of 180 companies earlier today, they're seeing a lot of growth in the wafer test part of that business. And so I was hoping maybe you could talk about why the gross margins go down by 250 basis points at the midpoint? Because I noticed that back in the 2019 timeframe, kind of sustained gross margins at the higher end of the range you're guiding in Q2, more kind of closer to the 44 plus percent. And so I guess that's the first question. Second question would just be sort of on trajectory. I know you're not guiding for second half sales. So maybe it's a little bit difficult. But in terms of getting back to sort of a 45%, 46% level, can you maybe provide some of the drivers that would kind of get you back in that range?

Sure. Yes. So you rightly pointed out that we expect DRAM to grow to a similar level to the record we had in last year. So let's call it, low $40 million. But you need to remember that even within the DRAM, there's a wide range of margins with different customers and different products. So what we see in Q2 is not only DRAM going up, but also Foundry & Logic going down. And Foundry & Logic historically has higher gross margins than DRAM. So we see the phenomenon in Q2 of this shift in mix is that were high gross margin revenues are being replaced by low gross margin revenues. And because there is a specific mix to a specific customer and specific margin, it can fluctuate from quarter to quarter even if the DRAM revenue is at a similar level. And so if you look at the midpoint of our outlook range, yes, there’s a 2.5% decrease from Q1 to the midpoint of Q2, I would say about 2% of it may be a little less than that relates to this shift in the mix from foundry and logic to DRAM. And the remaining about 1%, a little bit less than that relates to the higher cost of materials that I mentioned in the call, specifically the rhodium. In terms of going back to the higher level, we put a model in place last year, right? We talked about reaching 47% of target financial model. We had some good evidence of our ability to get to these levels. If you go back a few quarters to Q3 of 2020, margin was almost at that model at 46.7%. So that was good evidence that we can achieve this level. And as we saw in the last couple of quarters and in the upcoming quarter, margin can fluctuate on our way to achieving that model, but we are confident that we are in our ability to get there.

I believe the impact from higher input costs could be around 50 to 100 basis points, which might continue into the second half of the year. It's likely that the business mix will shift, not necessarily with DRAM decreasing, but with foundry and logic revenue streams potentially increasing towards the end of the year. This should contribute positively to gross margin.

Yes, Brian, I think…

Go ahead.

I think that's probably a reasonable scenario, right? We do see DRAM strength here in the second quarter. With lead times of less than a quarter, it's challenging to forecast much beyond that. But certainly, the design activity that we're seeing pretends some DRAM strength through the middle part of the year and go back to Tom's question, with all of the capacity additions at the high end of foundry and logic, those almost have to turn into increased advanced probe card demand in the foundry and logic space. So I think your scenario is a reasonable one to think about in the mix shift as we go through 2021.

Okay. And maybe one kind of last question, again, a little bit bigger picture or longer horizon here. But again, going back to what seemed to be positive developments just around over the past six-plus months around next-generation 3D packaging adoption, again, frankly, new fab build-out in general. Thinking about your three-year targets that you gave last summer, I think it was 6% growth for probe cards for the market and your growth a little bit above that. Do you think those are now sounding too conservative, the 6% growth for the market? And I guess, again, that would bump up your growth potential as well.

Yes, that's a valid question and one we've also been considering. When we developed the model last summer, the rapid increase in wafer fabrication equipment capacity in the industry was not anticipated. Therefore, it seems reasonable to suggest that the projections for advanced probe card growth over the next few years might be closer to the mid-single digits. While we initially projected slightly above five, adopting a more conservative approach might be wise. However, if this projection holds, I concur that we should be capable of exceeding market growth, which would enable us to reach our target model sooner. We don't plan to adjust the target model, but we hope that this expanded capacity and increased wafer fabrication equipment lead to more wafer starts on advanced nodes. Looking at the results from 2020, we certainly need that market to provide a significant boost and position us to achieve $850 million in revenue and $2 in non-GAAP earnings per share before the timeframe we've outlined for 2023.

Okay. Great. Thank you.

Thanks.

Thank you. Our next question comes from Charles Shi with Needham. Your line is now open.

Hi. Thanks for taking my question. I want to have a follow-up question on the DRAM probe card strength. Well, supposedly, you're getting somewhere about $42 million, $43 million in Q2. And given that, as I understand, with the lead time for DRAM probe card, it's probably a little bit longer than you foundry and logic probe card, and you probably have a little bit better visibility into the third quarter or even fourth quarter here. Are you, sort of, expecting third quarter can be run rating at a similar level at Q2 and fourth quarter and after running hard a few quarters may come down a little bit and maybe the momentum of foundry and logic probe card can pick up the slack and get you to a sequential growth kind of situation towards the year end?

Yes. I mean, the mix shifts that you just articulated are certainly one of the possible scenarios. We have no visibility into the fourth quarter right now. No direct visibility in the fourth quarter. Obviously, our customer share forecast with us, we understand their design release cadences. It's part of the reason why we're putting significant capacity in place. But PO visibility and PO lead times don't go anywhere close to the fourth quarter at this point. Your statement about the third quarter, sure we've got a little bit of visibility into there when you look at the lead times that we're currently running. And if you look at past years, both 2019 and 2020, history would lead you to believe there's going to be some strong mobile foundry and logic activity in the fourth quarter. So the scenario you painted is not an unreasonable one. Having said that, we just don't have the direct visibility to be able to, sort of, confirm that in any really affirmative way. It has been the pattern in the last couple of years. It's part of the reason why we are continuing to aggressively make investments, but I don't want to also create the expectation that that profile is in the bag.

Thanks, Mike. I have a follow-up on the gross margin. You've mentioned a shift in the mix for the second quarter, with foundry, logic, and Flash probe cards declining, but you anticipate an increase in DRAM and Systems. The Systems business has a higher gross margin, which should help counterbalance the less favorable product mix. However, I understand from Shai that there are a few factors to consider, and I still have concerns that your DRAM probe card gross margins are relatively low heading into next quarter. Compared to your historical average, is Q2 slightly lower or about the same? What’s the outlook for gross margin by year-end?

Historically, foundry and logic have had higher gross margins than DRAM, while Flash has lower margins than DRAM. Within DRAM, there is some overlap where high-end designs can achieve higher gross margins than foundry and logic DRAM, whereas low-end designs may have lower margins than high-end Flash designs. In Q2, we are seeing a shift in the mix towards high-volume designs with low gross margins in DRAM, coupled with a decrease in higher gross margin foundry and logic designs. This combination is contributing to the expected lower gross margins in the second quarter, along with the effect of increased material costs.

Thanks. I have one last question, if I may. Looking at the longer term, your largest customer plans to enter the foundry business. Mike, do you have any thoughts on whether this could impact your market share strength in the existing IDM 1.0 segment for this customer, or could it potentially create more competition for your rivals? I understand that competition is always expected when the market is growing strong, but do you believe this development is overall positive or negative for your company? Or does it pose an increasing risk or a lower risk for you?

Yes, we see their ambitions to enter the foundry business as an exciting opportunity. Our relationship with that customer spans over a decade, both at the corporate and individual levels, leading to a strong partnership. As we have started discussions on how to support their foundry plans, it presents an exciting opportunity. They bring some impressive assembly and testing technologies to this venture. While it's uncertain if they will play a significant role in the foundry business initially, overall this is a positive development for us. We currently hold a strong position in the foundry market, and their entry allows us to add value to their initiatives, ideally leading to mutual growth for our businesses.

Thank you, Mike. Thank you. That's all.

Thanks, Charles.

Our next question comes from Craig Ellis with B. Riley Securities.

Guys, I'll start acknowledging that I'm leading with something that's at risk of beating a dead horse, but Shai, I get the intersegment mix dynamics that are going on in the guidance, the company has been very clear on those mechanics over time. The question though was really on the rhodium issue. Do you have the ability to do any hedging? Or is there anything else you can do to mitigate the volatility of pricing there? Or is it just going to be a matter of you being a price taker for whatever happens with spot or whatever contract pricing plays out?

Yes. In the quarter, we observed that the prices of rhodium increased from $16,000 per ounce to $28,000 per ounce, which is nearly double. While I'm not an expert in commodities and we are not directly involved in that market, we are exploring options for hedging, forward contracts, and similar strategies. Reports suggest that production and mining issues in South Africa, exacerbated by COVID, affected supply last year. It is still too early to determine whether this is a long-term trend or a temporary situation that might resolve in the coming months. We will definitely consider our options for managing these price fluctuations.

Okay. That's helpful. Mike, I wanted to turn it to you for a couple of questions. So the first question is regarding one of your prepared remarks statements, and it was about aggressive technology and capacity execution. And I just wanted to see if you could follow up and provide a little bit more color on the things that the company is focused on this year with technology and exactly what we should think about with respect to capacity, if there's any color beyond just the CapEx number that sounds like it's reiterated from where we were to start the year?

Sure. I'll begin with capacity. Referring back to our analyst presentation from last August and the subsequent earnings calls, it's evident that our capacity increases are tied to advanced probe cards and the establishment of a new fabrication facility, which will be gradually developed. Currently, we're limited by our footprint and will remain so until the new building is operational in the second half of the year. There are no significant changes to report. We're executing according to the plan outlined in previous calls. Regarding technology, our focus is on meeting accelerated demands, particularly in foundry and logic sectors related to advanced packaging and 5G. Examining our customers’ roadmaps for advanced packaging reveals that trends like die stacking, modular die, and heterogeneous integration significantly increase probe card complexity. The necessary pitches and densities for contacts are much higher, with probes positioned closely together. We need to test at higher frequencies and currents while ensuring we scale with cost and quality fundamentals. The majority of our technology investments aim to keep pace and even surpass our key foundry and logic customers' needs for their advanced packaging strategies. It’s clear that advanced packaging will play a crucial role in the technology roadmaps of customers working on 7-nanometer processes or other advanced nodes. Our current investments are designed to ensure we can support those requirements effectively.

And just to be clear on some of the things that you're seeing there, Mike, are the investments today and being an enabler, something that shows up in revenues in the back half of this year, first half of next year, through next year, is it really something that comes on board in the second half of 2022 and 2023, 2024?

Yes, there will be contributions later this year as some of these initiatives move into pilot production. However, they will be difficult to separate from our mainstream business, particularly in foundry, logic, and DRAM. I expect more to come. If you examine our key customers' product roadmaps and their plans to scale these advanced packaging architectures, it's really expected to happen in 2022 and 2023. To be prepared for this, we need to invest in R&D now.

Makes sense. And then lastly for me, if I could. From time to time, when you characterize the foundry market, you've talked about the breadth of customers in Foundry and Logic. And certainly, we had to 10%-plus customers this quarter. But, as you look ahead, do you expect the breadth of some of the larger customers to broaden out in the back half of the year and next year? Or as we think about some strengthening in the back half in Foundry and Logic, could we expect it to be some of the same customers that were strong in 1Q?

I think you will see, we've got a set of customers, if you look back historically that often sort of popping another, the 10% list. I think we expect those same customers in both the Foundry business and in the Memory business to continue to be staples of our 10% list. The breadth, though, in our business is interesting, because sometimes the Foundry itself is the customer. But sometimes, it's the fabless design house, that's the customer. And so, the breadth of the number of fabless customers that we're serving, whether directly with the fabless customer and their design and test team or indirectly through the Foundry, that breadth continues to expand and increase. And I think that's central to our continued diversification and trying to continue to drive a broad set of demand opportunities for form factor.

Make sense. Thanks guys.

Thanks Craig.

Thank you. Our next question comes from Krish Sankar with Cowen. Your line is now open.

Hi. This is Robert Mertens on behalf of Krish. Thank you for taking my question. First, how should we think about the margin profile of the engineering systems business? I know you mentioned, product mix headwinds from late last year have been worked through, but would you expect any similar volume patterns this year or seasonality? And then, just a quick follow-up.

In terms of seasonality, looking back at the last two or three years, Q1 tends to be a bit lower than Q4. This is largely due to many of our customers in that market being universities and educational institutions that have a budget for spending. As we approach the end of the year, we tend to see a slight increase in orders, followed by a dip in Q1. Regarding margins, over the past three years, we've observed that the margin for the Systems business fluctuates between the high 40s and low 50s. That's our target and it’s what we considered when developing our long-term model aiming for an overall gross margin of 47%. While there will be fluctuations along the way, we expect to stay within that range.

Great. Thank you. And then, just a quick one around the NAND Probe Cards business and new products and just thinking about on qualification through the first part of the year, when should we think about timing of any sort of new recognition of the business?

Yes. Our NAND business really has two components at this stage in the company history. The first is the legacy FormFactor NAND business, which continues to be opportunistic for us. We are, for most of mainstream NAND, not cost competitive. And so that business, you've seen historically has been pretty lumpy. We talked last quarter about starting to leverage the products and technology, we got as part of the acquisition of the Advantest probe card assets to try and go after a little bit more of the mainstream NAND Flash market. That product is a lot more cost competitive. And so, we're beginning to work on exercising that option. We're still in very early innings, discussing with customers' qualification plans, trying to extend that business a little bit beyond the single-digit millions revenue it had at the time of acquisition. So any qualification timeline for a new architecture in the industry takes several quarters, so probably getting us into the back half of '21. And then you got to go compete for designs and win and ramp. So, that's going to take you into sort of the middle part of '22. But as we go through that, we'll certainly keep you updated, as we make progress on trying to exercise that option in NAND flash.

Great. Thank you. That’s all from me.

Thank you. Our next question comes from Amanda Scarnati with Citi. Your line is now open.

Hi, good evening. Just on TSMC. Can you just talk a little bit about what the total opportunity can look like there, both from a perspective of what the opportunities for TSMC to outsource would look like as a percentage of their total probe card business? And what that looks like in terms of what FORM can achieve in terms of market share there?

Yes. At that customer, we are primarily focused on the advanced nodes, such as 10-nanometer, 7-nanometer, and 5-nanometer technologies. These nodes represent the full opportunity for FormFactor. There is minimal insourcing for these advanced nodes due to their complexity. Returning to the earlier question about the significant spending and investments in wafer fabrication equipment for these advanced nodes, we anticipate that this opportunity will continue to expand. In the first quarter, revenue is approaching a $100 million annual run rate, albeit still showing some concentration and quarter-to-quarter fluctuations. However, as we take on more designs and as more of this customer's wafer starts transition to advanced nodes, we are optimistic about our long-term growth in that business.

Great. And then, can you talk about capacity? And if you're still capacity constrained at these levels or if you've been able to open up new capacity through the extent that we talked about a couple of quarters ago.

I think, Amanda, in some areas, we are still capacity constrained. And it depends on the specific product mix. We have multiple factories with different dynamics. But by and large, in these levels of revenue, we are still capacity constrained.

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Mike Slessor for closing remarks.

Thanks everyone for joining us again this quarter. We're going to be at a bunch of conferences as we go through the late spring and early part of the summer and hope to see you there. Take care and stay safe.

This concludes today's conference call. Thank you for participating. You may now disconnect.