FormFactor (NASDAQ:FORM) Posts Better-Than-Expected Sales In Q2, Provides Optimistic Guidance For Next Quarter

Semiconductor testing company FormFactor (NASDAQ:FORM) reported Q2 CY2024 results beating Wall Street analysts' expectations, with revenue up 26.7% year on year to $197.5 million. Guidance for next quarter's revenue was also optimistic at $200 million at the midpoint, 6% above analysts' estimates. It made a non-GAAP profit of $0.35 per share, improving from its profit of $0.14 per share in the same quarter last year.

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“FormFactor set an all-time record for DRAM probe-card revenue in the second quarter, driven by sequential doubling of high-bandwidth-memory revenue and steady DDR5 new-design activity,” 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 1.2% on average per year. But as you can see below, this was a strong quarter for the company, with revenue growing from $155.9 million in the same quarter last year to $197.5 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 had a good quarter as its revenue grew 26.7% year on year, topping analysts' estimates by 1.3%. This marks 3 straight quarters of growth, suggesting that FormFactor is in the middle of its cycle, as a typical upcycle generally lasts 8-10 quarters.

FormFactor's management team believes its revenue growth will continue, guiding to 16.6% year-on-year growth next quarter. Analysts expect the company to grow its revenue by 10.8% over the next 12 months.

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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.

This quarter, FormFactor's DIO came in at 94, which is one day below its five-year average. These numbers show that despite the recent increase, there's no indication of an excessive inventory buildup.

Key Takeaways from FormFactor's Q2 Results

We were impressed by FormFactor's strong gross margin improvement this quarter. We were also excited its EPS outperformed Wall Street's estimates. Zooming out, we think this was a great quarter that shareholders will appreciate. The stock remained flat at $53.56 immediately following the results.

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.