Optimistic About Formfactor - Analyst Blog

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Formfactor's ( FORM ) second quarter loss of 8 cents per share came in narrower than the Zacks Consensus Estimate of 16 cents loss per share. Reported loss was also narrower than both the previous as well as year-ago quarter.

Formfactor's revenue of $54.8 million was up 57.5% sequentially and 17.7% from a year ago.

Management stated that the strength in revenue and orders was led by DRAM and flash customers. The Matrix product line did well in the last quarter and Formfactor has now shipped over 1400 cards.

Revenue by End User

The DRAM, Flash and SoC customers generated 69.0%, 18.0% and 13.0%, respectively, of second quarter revenue.

The DRAM business grew 74.0% sequentially to $38.0 million, with both volumes and prices contributing. Formfactor saw stronger demand from all its DRAM customers, which coupled with price stabilization that started toward the end of the first quarter, resulted in strong second quarter results. Mobile devices drove the demand in the last quarter.

The Flash business was up 91.0% sequentially to $9.7 million. NAND revenue was up 96.3% to $5.3 million. The rise in Flash revenue was due to improved lead-time execution and increased complexity seen by customers.

The SoC business was $7.1 million, down 9.0% sequentially. Formfactor's customers had a bad quarter, which reflected on the company's results in the last quarter.

Revenue by Geography

Revenue contribution from South Korea in the second quarter was 36.5%, down from 46.0% in prior quarter, Taiwan 25.4%, up from 20.5% in prior quarter, Japan 14.0%, up from 10.6% in prior quarter, Asia/Pacific made 11.8% contribution, up from 9.0% in the first quarter of 2012, North America made 9.5%, down from 10.0% in the first quarter of 2012 while Europe accounted for the remaining 2.8%, down from 4.0% in the first quarter.

Margins

The GAAP gross margin increased 830 bps year over year to 29.5%. Higher volumes and favorable product mix were the main reason for the gross margin expansion.

Total operating expenses of $22.7 million were up 8.3% from the year-ago quarter's $20.9 million. The operating margin was (11.9%), up 1180 bps from (23.7%) recorded in the previous year quarter. Both R&D and SG&A decreased as a percentage of sales, although the higher gross margin was an offsetting factor.

Net Income

The GAAP net loss was $4.2 million, or 7.7% of sales, compared to loss of $7.7 million, or 16.5% in the year-ago quarter. After adjusting for restructuring charges and impairment of long-lived assets on a tax-adjusted basis, the net loss per share came to 8 cents in the last quarter, compared to 22 cents in the year-ago quarter.

Balance Sheet

Inventories were up 1.8% in the second quarter of 2012. The company ended with cash and marketable securities of $277.7 million, down $2.6 million during the quarter. Formfactor has no debt and long-term liabilities totaled $5.5 million at quarter-end.

Guidance

For the third quarter, Formfactor expects revenue of $38.0−$42.0 million (down 30.7% to 23.4% sequentially). The non-GAAP gross margin is expected to be in the range of 11%-17% due to lower factory utilization. Non-GAAP operating expenses are expected to be $18.5-$19 million. The cash burn in the quarter is expected to be $5-$7 million, before any stock repurchase activity.

Our Recommendation

The Zacks Rank for FORM shares is #3, implying a Hold recommendation in the short term (1-3 months).


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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