FormFactor (NASDAQ:FORM) Posts Better-Than-Expected Sales In Q1, Stock Soars
Semiconductor testing company FormFactor (NASDAQ:FORM) announced better-than-expected results in Q1 CY2024, with revenue flat year on year at $168.7 million. Guidance for next quarter's revenue was also optimistic at $195 million at the midpoint, 14.5% above analysts' estimates. It made a non-GAAP profit of $0.18 per share, improving from its profit of $0.16 per share in the same quarter last year.
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FormFactor (FORM) Q1 CY2024 Highlights:
- Revenue: $168.7 million vs analyst estimates of $165.8 million (1.7% beat)
- EPS (non-GAAP): $0.18 vs analyst expectations of $0.19 (5.3% miss)
- Revenue Guidance for Q2 CY2024 is $195 million at the midpoint, above analyst estimates of $170.3 million
- Gross Margin (GAAP): 37.2%, up from 36.5% in the same quarter last year
- Inventory Days Outstanding: 93, down from 102 in the previous quarter
- Free Cash Flow of $19.72 million is up from -$683,000 in the previous quarter
- Market Capitalization: $3.46 billion
“DRAM probe card demand continues to be robust, and as expected, first quarter DRAM revenue reached the peak levels we last experienced in 2021,” 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 1.8% on average per year. As you can see below, this was a weaker quarter for the company, with revenue growing from $167.4 million in the same quarter last year to $168.7 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).
While FormFactor beat analysts' revenue estimates, this was a sluggish quarter for the company as its revenue only grew 0.8% year on year. Despite these results, we believe FormFactor is still in the early days of an upcycle, as this was just the second consecutive quarter of growth and a typical upcycle tends to last 8-10 quarters.
FormFactor's management team believes its revenue growth will accelerate, guiding to 25.1% year-on-year growth next quarter. Wall Street expects the company to grow its revenue by 10.7% 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 93, which is 1 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.
Key Takeaways from FormFactor's Q1 Results
It was unfortunate to see FormFactor miss analysts' expectations for EPS. On the bright side, its inventory levels shrank and its free cash flow increased from the last quarter. Looking ahead, it shared strong revenue guidance for the next quarter, which blew past analysts' expectations. Overall, we think it was a solid quarter. The stock is up 6% after reporting and currently trades at $46.50 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.
