FormFactor (NASDAQ:FORM) Surprises With Q4 Sales But Quarterly Guidance Underwhelms

Jabin Bastian /
2024/02/07 4:08 pm EST

Semiconductor testing company FormFactor (NASDAQ:FORM) beat analysts' expectations in Q4 FY2023, with revenue up 1.3% year on year to $168.2 million. On the other hand, the company expects next quarter's revenue to be around $165 million, slightly below analysts' estimates. It made a non-GAAP profit of $0.20 per share, improving from its profit of $0.05 per share in the same quarter last year.

Is now the time to buy FormFactor? Find out by accessing our full research report, it's free.

FormFactor (FORM) Q4 FY2023 Highlights:

  • Revenue: $168.2 million vs analyst estimates of $165.3 million (1.7% beat)
  • EPS (non-GAAP): $0.20 vs analyst expectations of $0.20 (small miss)
  • Revenue Guidance for Q1 2024 is $165 million at the midpoint, below analyst estimates of $166.2 million
  • Free Cash Flow was -$310,000, down from $14.65 million in the previous quarter
  • Inventory Days Outstanding: 101, up from 99 in the previous quarter
  • Gross Margin (GAAP): 40.4%, up from 30.6% in the same quarter last year
  • Market Capitalization: $2.97 billion

“Compared to the outlook, FormFactor delivered moderately higher fourth quarter revenue and gross margins offset by a higher tax rate that produce non-GAAP EPS at mid-point of the outlook,” 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.

Semiconductor Manufacturing

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

Sales Growth

FormFactor's revenue has been declining over the last three years, dropping by 0.5% on average per year. As you can see below, this was a weaker quarter for the company, with revenue growing from $166 million in the same quarter last year to $168.2 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

While FormFactor beat analysts' revenue estimates, this was a sluggish quarter for the company as its revenue only grew 1.3% year on year. FormFactor's growth, however, flipped from negative to positive this quarter. This encouraging sign will likely be welcomed by shareholders.

Although FormFactor returned to positive revenue growth this quarter, its management team expects revenue to decline 1.5% next quarter. On the other hand, Wall Street expects the favorable trend to continue, projecting 8.5% revenue growth over the next 12 months.

Unless you’ve been living under a rock, it should be obvious by now that generative AI is going to have a huge impact on how large corporations do business. While Nvidia and AMD are trading close to all-time highs, we prefer a lesser-known (but still profitable) semiconductor stock benefitting from the rise of AI. Click here to access our free report on our favorite semiconductor growth story.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity 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 DIO came in at 101, which is 7 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from FormFactor's Q4 Results

We were impressed by FormFactor's strong gross margin improvement this quarter. We were also glad its operating margin improved. On the other hand, its revenue guidance for next quarter slightly missed analysts' expectations and its EPS missed Wall Street's estimates. Overall, this quarter's results still seemed fairly positive. Investors were likely expecting more, however, and the stock is down 2.3% after reporting, trading at $37.21 per share.

So should you invest in FormFactor right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.