FormFactor (NASDAQ:FORM) Posts Better-Than-Expected Sales In Q4, Provides Optimistic Guidance For Next Quarter

Adam Hejl /
2023/02/08 4:06 pm EST

Semiconductor testing company FormFactor (NASDAQ:FORM) beat analyst expectations in Q4 FY2022 quarter, with revenue down 19% year on year to $166 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $162 million at the midpoint, 7.01% above what analysts were expecting. FormFactor made a GAAP loss of $13.7 million, down on its profit of $25.9 million, in the same quarter last year.

Is now the time to buy FormFactor? Access our full analysis of the earnings results here, it's free.

FormFactor (FORM) Q4 FY2022 Highlights:

  • Revenue: $166 million vs analyst estimates of $155.3 million (6.89% beat)
  • EPS (non-GAAP): $0.05 vs analyst estimates of $0.03 ($0.02 beat)
  • Revenue guidance for Q1 2023 is $162 million at the midpoint, above analyst estimates of $151.4 million
  • Free cash flow was negative $5.38 million, down from positive free cash flow of $15.5 million in previous quarter
  • Inventory Days Outstanding: 93, down from 107 previous quarter
  • Gross Margin (GAAP): 27.2%, down from 43.4% same quarter last year

“As anticipated, FormFactor’s fourth quarter revenue and profitability were down sequentially from the third quarter,” said Mike Slessor, CEO of FormFactor,

With customers across the foundry and fabless markets, FormFactor (NASDAQ:FORM) is a US-based provider of test and measurement technologies for semiconductors.

The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers and data storage. The growth of data and technologies like artificial intelligence, 5G networks and smart cars are also creating a next wave of growth for the industry. To keep up with ever changing customer needs requires new tools that can design, fabricate and test at ever smaller sizes and more complex architectures, and that is driving the demand for semiconductor capital manufacturing equipment.

Sales Growth

FormFactor's revenue growth over the last three years has been unremarkable, averaging 9.09% annually. Last year the quarterly revenue declined from $205 million to $166 million. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

FormFactor Total Revenue

Despite FormFactor revenues beating analyst estimates, this was still a slow quarter with a 19% revenue decline.

FormFactor's looks headed into the trough of the semi cycle, as it is guiding to revenue declines of 17.8% YoY next quarter, and analysts are estimating 9.13% declines over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

FormFactor Inventory Days Outstanding

This quarter, FormFactor’s inventory days came in at 93, 2 days above the five year average, suggesting that despite the recent decrease the inventory levels are still slightly above the long term average.

Key Takeaways from FormFactor's Q4 Results

With a market capitalization of $2.27 billion FormFactor is among smaller companies, but its more than $238.1 million in cash and positive free cash flow over the last twelve months give us confidence that FormFactor has the resources it needs to pursue a high growth business strategy.

We were very impressed by the strong improvements in FormFactor’s inventory levels. And we were also excited to see that earnings outperformed Wall St’s expectations. On the other hand, it was less good to see that the revenue growth was quite weak and operating margin deteriorated. Overall, this quarter's results still seemed pretty positive and shareholders can feel optimistic. The company is up 1.97% on the results and currently trades at $29.52 per share.

Should you invest in FormFactor right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.