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FORM's Loss Narrows on Higher Revs - Analyst Blog

By: Zacks.com
Posted: 2/14/2013 4:50:00 PM
Referenced Stocks: ASX;DIOD;FORM;PLXT

FormFactor 's ( FORM ) fourth quarter loss of 32 cents per share was narrower than the Zacks Consensus Estimate of 33 cents loss per share.

Revenues of $47.7 million were up 15.5% sequentially and 57.7% from the year-ago quarter.

Revenues by End User

The system on chip (SoC), DRAM and Flash customers generated 52%, 35% and 13% of fourth quarter revenues, respectively.

The SoC business generated revenues of $24.8 million, up 259.4% sequentially. FormFactor is reaping the benefits of its MicroProbe acquisition, by virtue of which it became the largest supplier of probe cards to the fast growing SoC probe card market. Overall strength in this market is currently being driven by the move from PC applications toward mobile application processors

The DRAM business fell 36.5% sequentially to $16.5 million. The weakness in DRAM probe card demand was on account of oversupply of DRAM devices and corresponding decline in DRAM prices, mainly because of the continued softness in PC demand.  FormFactor is also battling lower investment by customers in DRAM test and DRAM probe cards.

We believe that the DRAM market may recover as the industry undergoes a structural shift from PC centered computing to mobile and cloud centered computing.

The Flash business was down 23.8% sequentially to $6.4 million. NAND revenue declined 30.2% to $3.7 million, while NOR revenue dropped 12.9% to $2.7 million in the fourth quarter .

Margins

The GAAP gross margin decreased 2,635 basis points (bps) sequentially but rose 986 bps year over year to (6.6%). Lower fixed cost leverage despite the benefit from restructuring actions in the third quarter was the reason for the sequential decline. However, the contribution from Microprobe was an offsetting factor in the last quarter.

Total operating expenses of $21.9 million were down 4.1% sequentially and 5.2% from the year-ago quarter. The operating margin was (52.5%), down 1,700 bps sequentially but up 4031 bps from the year-ago quarter. R&D as a percentage of sales was flat sequentially and down from last year. While SG&A also declined from last year, it increased sequentially.

Net Income

The pro forma net loss was $16.9 million or 35.4% of sales, compared to a loss of $10.7 million or 25.9% in the previous quarter and a loss of $26.6 million or 87.9% in the year-ago quarter.

Including restructuring charges and impairment of long-lived assets on a tax-adjusted basis, the GAAP net income per share came to $0.01 in the last quarter compared to a loss of 29 cents in the prior quarter and 54 cents in the year-ago quarter.

Balance Sheet

Inventories of $23.6 million were up 17.8% in the fourth quarter of 2012. The company ended with cash and marketable securities of $165.8 million, down $110.4 million during the quarter. FormFactor has no debt. Long-term liabilities totaled $11.4 million at quarter-end.

Cash used from operations was $110.4 in the fourth quarter million compared with $1.6 million in the prior quarter.

Guidance

For the first quarter, FormFactor expects revenue of $48.0−$53.0 million. The non-GAAP gross margin is expected to be in the range of 17%-21%. Non-GAAP operating expenses are expected to be $21.0-$22.0 million. The cash burn in the quarter is expected to be $10.0-$12.0 million, excluding stock repurchase.

Our Recommendation

FormFactor is an original equipment manufacturer (OEM) of automated wafer probe cards that are used in the back-end portion of the semiconductor integrated circuits (ICs) manufacturing process. It is a well-positioned player in the semiconductor industry and has further solidified its position with the addition of MicroProbe's SoC probe card segment. The acquisition will make FormFactor a bigger player in the SoC probe card market.

However, the lingering macroeconomic weakness and softness in the PC market that impacted FormFactor's results in the last quarter are expected to continue in the next. Therefore, FormFactor's core business (probe cards for DRAM and Flash) is likely to remain under pressure in the near term.

FormFactor shares carry a Zacks Rank #3 (Hold). Other front-end equipment suppliers such as Diodes Inc. ( DIOD ), Advanced Semiconductor Engineering Inc. ( ASX ) and PLX Technology Inc. ( PLXT ) all have a Zacks Rank #1 (Strong Buy).



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