Semiconductor testing company FormFactor (NASDAQ:FORM) met Wall Street’s revenue expectations in Q4 CY2024, with sales up 12.7% year on year to $189.5 million. On the other hand, next quarter’s revenue guidance of $170 million was less impressive, coming in 11.6% below analysts’ estimates. Its non-GAAP profit of $0.27 per share was 7.3% below analysts’ consensus estimates.
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FormFactor (FORM) Q4 CY2024 Highlights:
- Revenue: $189.5 million vs analyst estimates of $190.2 million (12.7% year-on-year growth, in line)
- Adjusted EPS: $0.27 vs analyst expectations of $0.29 (7.3% miss)
- Adjusted Operating Income: $20.9 million vs analyst estimates of $23.63 million (11% margin, 11.5% miss)
- Revenue Guidance for Q1 CY2025 is $170 million at the midpoint, below analyst estimates of $192.3 million
- Adjusted EPS guidance for Q1 CY2025 is $0.19 at the midpoint, below analyst estimates of $0.33
- Operating Margin: 4.1%, down from 48.3% in the same quarter last year
- Free Cash Flow was $28.25 million, up from -$310,000 in the same quarter last year
- Inventory Days Outstanding: 80, up from 78 in the previous quarter
- Market Capitalization: $3.07 billion
“As expected, FormFactor reported sequentially lower fourth-quarter revenue, gross margin, and non-GAAP earnings per share, driven by the forecasted reduction in Foundry & Logic probe-card revenue,” said Mike Slessor, CEO of FormFactor.
Company Overview
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
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Over the last five years, FormFactor grew its sales at a tepid 5.3% compounded annual growth rate. This fell short of our benchmark for the semiconductor sector and is a tough starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. FormFactor’s recent history shows its demand slowed as its annualized revenue growth of 1% over the last two years is below its five-year trend. 
This quarter, FormFactor’s year-on-year revenue growth was 12.7%, and its $189.5 million of revenue was in line with Wall Street’s estimates. Company management is currently guiding for flat sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 7.2% over the next 12 months. While this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.
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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 80, which is 14 days 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 Q4 Results
We struggled to find many positives in these results as its EPS and adjusted operating income missed analysts' expectations. Its revenue and EPS guidance for next quarter also fell short. Overall, this was a bad quarter. The stock traded down 21.5% to $32.30 immediately following the results.
FormFactor didn’t show it’s best hand this quarter, but does that create an opportunity to buy the stock right now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
