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FormFactor (FORM) Beats Q4 Earnings & Revenue Estimates

FormFactor Inc.FORM reported fourth-quarter 2015 earnings of 5 cents, which exceeded the Zacks Consensus Estimate by a penny.

Subsequent with the earnings results, the company also announced that it has agreed to purchase Cascade Microtech, Inc. CSCD for a total of $352 million or $21.23 per share. Following the news, shares plunged more than 12% in response.

Revenues

Revenues of $71.8 million were up 9% sequentially and 0.7% year over year. The figure also surpassed the Zacks Consensus Estimate of $70.0 million.

All the three segments - System on chip (SoC), DRAM and Flash - increased sequentially. Region-wise, Asia Pacific, North America and Japan improved from the last quarter.

Revenues by Geography

Asia Pacific contributed 31.2% to fourth-quarter revenues (up 8.2% sequentially but down 7.8% year over year); North America accounted for 28.1% (up 98% sequentially but down 12.2% year over year); South Korea brought in 24.4% (down 17.1% sequentially but up 60.6% year over year); Europe/Middle East contributed 7.2% (down 41.6% sequentially and 28.8% year on year); and Japan accounted for the remaining 9.1% (up 30% sequentially and 12.1% year on year).

Revenues by End User

SoC revenues were $41.4 million, up 13.4% from the prior quarter and 12.8% from the year-ago quarter. SoCs contributed 57.7% to total revenue.

Reported revenues for DRAM products were $28.2 million, up 2.5% sequentially but down 8.4% year over year. DRAM contributed 39.3% to revenues in the reported quarter.

Flash revenues were $2.2 million, up 15.8% from the previous quarter but down 42.1% from the year-ago period.

Margins

Non-GAAP gross profit was $23.9 million, up from $21.2 million in the last quarter. The gross margin was up 107 basis points (bps) sequentially but down 28 bps year over year. The sequential increase in gross margin was attributed to higher revenues and a favorable product mix.

Operating expenses adjusted for restructuring, acquisition, amortization, integration and asset impairment charges came in at $21.3 million, up 2.2% sequentially but down 4% year over year. Operating margin of 3.7% was up 303 bps sequentially but almost flat year over year.

Formfactor Inc. - Earnings Surprise | FindTheBest

Pro-forma net income was $2.8 million (earnings of 5 cents) compared with $0.2 million (earnings of less than a cent per share) in the previous quarter and $3.3 million (6 cents) last year.

On a GAAP basis, net loss in the fourth quarter was $0.6 million (loss of 1 cent) as against a net loss of $2.5 million (loss of 4 cents) in the previous quarter and a net loss of $1.9 million (loss of 3 cents) in the comparable year-ago period.

Balance Sheet

FormFactor exited the quarter with cash (comprising cash, short-term investments, and restricted cash) of $146.3 million, down from $184.3 million reported in the prior quarter.

Cash generation in the fourth quarter was $3.8 million versus $5.1 million in the prior quarter. The company spent $1.2 million for share repurchases.

Our Recommendation

FormFactor is an original equipment manufacturer (OEM) of automated wafer probe cards used in the semiconductor integrated circuit (ICs) manufacturing process. The company surpassed the Zacks Consensus Estimate for both the top line and the bottom line in the fourth quarter.

The Advanced Probe Card market is a structurally attractive area of the semiconductor supply chain. The Cascade Microtech acquisition will further expand FormFactor's product portfolio to better serve the production probe card and engineering systems markets. Also, the company expects the buyout to be accretive to earnings. Moreover, it expects to realize $10 million to $12 million in annualized synergies within 18 to 24 months post the closure.

On the cost and efficiency front, the company is focusing on arranging its resources and investments more broadly across the SoC, DRAM and Flash probe card markets. This should help it to contain costs better while targeting growth opportunities across markets. This will eventually benefit FormFactor's market share, revenues and gross margin.

FormFactor shares carry a Zacks Rank #3 (Hold).

A couple of better-ranked stocks in the technology sector are Integrated Device Technology, Inc. IDTI and Rambus Inc. RMBS , both sporting a Zacks Rank #1 (Strong Buy).

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RAMBUS INC (RMBS): Free Stock Analysis Report

FORMFACTOR INC (FORM): Free Stock Analysis Report

INTEGR DEVICE (IDTI): Free Stock Analysis Report

CASCADE MICRO (CSCD): Free Stock Analysis Report

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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 Nasdaq, Inc.


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

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