FormFactor Ups Q3 Outlook on Higher Demand; Shares Rise

Zacks

FormFactor Inc. (FORM) increased its guidance for the third quarter of 2014. Following the news, the share price rose 19.5% yesterday.

The company now expects sales of $71.0 to $75.0 million, higher than $68.0 to $73.0 million guided earlier. Non-GAAP gross margin is expected in the range of 35–38%, up from 34–38%.

Management stated that the revenue increase was driven by increased demand across all segments. Additionally, management expects to see strong business momentum across all market segments through the third quarter.

In the last quarter, FormFactor witnessed strong momentum in the SoC business with escalating customer attention toward its product solutions, including the copper pillar test solutions, mainly driven by mobile, industrial and automotive applications. It also made noteworthy progress in recovering from customer-specific DRAM problem that it faced in 2013. These developments will enable the company to both re-engage consumers and initiate new technologies into its operational practices.

FormFactor is an original equipment manufacturer of wafer probe cards used by semiconductor makers. Its products are used to test the integrated circuits (ICs) that power a large number of smartphones and tablets as well as electronic systems used in computing, consumer, automotive and other applications. The company lists the world’s leading semiconductor manufacturers as its customers.

The company posted better-than-expected fiscal second-quarter 2014 results with the top line surpassing the Zacks Consensus Estimate but the bottom line missing the same. Revenues of $67.4 billion were up 20.4% sequentially and 7.4% year over year driven by strong momentum in the SoC business. The company reported a profit of 2 cents for the first time since the fourth quarter of fiscal 2007. The increase in the bottom line was primarily driven by improvement in revenues.

We believe that FormFactor has the product pipeline and cost structure to register robust demand growth in all the markets and profitability, going forward.

Currently, FormFactor has a Zacks Rank #4 (Sell). Stocks that have been performing well and are worth considering include AXT Inc. (AXTI), NVE Corp. (NVEC) and OmniVision Technologies, Inc. (OVTI). All these stocks sport a Zacks Rank #1 (Strong Buy).

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