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Will FormFactor (FORM) Disappoint This Earnings Season?

Zacks Equity Research

FormFactor Inc. (FORM) is set to report first-quarter 2014 results on Apr 30. Last quarter, it posted a 3.9% positive surprise. Let’s see how things are shaping up for this announcement.

Growth Factors This Past Quarter

FormFactor posted decent fourth quarter 2013 results with both the top and bottom lines beating the Zacks Consensus Estimate. Its System on Chip (SoC) business performed well in the quarter. Overall strength in this market is currently being driven by the shift from PC to mobile application processors where probe card solutions are more complex and require higher parallelism. However, the company’s DRAM and Flash business posted dismal results.

FormFactor, a manufacturer of automated wafer probe cards used in the semiconductor integrated circuits (ICs) manufacturing process, is facing difficulty to recover its manufacturing costs, given a decline in probe card demand. Therefore the company’s decision to adopt strict cost control measures and focus on the mobile segment will likely prove to be beneficial.

For the first quarter, FormFactor expects revenues in the range of $53.0−$57.0 million. Non-GAAP gross margin is expected to be in the range of 23%–27%. Non-GAAP operating expenses are expected to be $18.0–$20.0 million.

Earnings Whispers?

Our proven model does not conclusively show that FormFactor will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 16 cents per share. Hence, the difference is 0.00%.

Zacks Rank: FormFactor’s Zacks Rank #3 (Hold), when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies, which you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Advanced Energy Industries, Inc. (AEIS), with Earnings ESP of +10.00% and a Zacks Rank #1 (Strong Buy).

ON Semiconductor Corp. (ONNN), with Earnings ESP of +6.67% and a Zacks Rank #1.

Hittite Microwave Corp. (HITT), with Earnings ESP of +1.75% and a Zacks Rank #2 (Buy).

Read the Full Research Report on FORM
Read the Full Research Report on ONNN
Read the Full Research Report on HITT
Read the Full Research Report on AEIS

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