Please ensure Javascript is enabled for purposes of website accessibility

Here's Why FormFactor, Inc. Is Falling Today

By Brian Feroldi - Updated Feb 8, 2018 at 12:46PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares nosedive after management issues guidance that fails to impress.

What happened

In response to FormFactor's (FORM 0.23%) fourth-quarter results and forward guidance, shares in the equipment provider to the semiconductor industry fell as much as 14% in early-morning trading on Thursday. Shares have since recovered but were still down about 8% as of 12:15 p.m. EST.

So what

Here's a review of the headline numbers from FormFactor's fourth quarter:

  • Revenue grew 6.4% to $132 million. That was at the high end of management's guidance and also beat Wall Street's expectations.
  • Non-GAAP gross margin was 41.8% for the quarter, missing guidance. 
  • Non-GAAP EPS was $0.24. While this figure was within management's guidance range, it came up short of the $0.27 that analysts were expecting.

The quarterly results were accompanied by tepid guidance for the current quarter:

  • Revenue is expected to land between $112 million and $120 million. The midpoint of this range represents a 10% decline year over year. It is also below Wall Street's expectation of $120.6 million.
  • Non-GAAP EPS of $0.12 to $0.18 also represents a decline, of 37.5% at the midpoint. This range is well shy of the $0.20 that analysts were projecting.

The mixed quarterly results and unimpressive guidance are the likely reason shares are taking a step back today.

Woman in suit giving the thumbs-down

Image source: Getty Images.

Now what

On the company's investor call, CEO Mike Slessor explained the weak quarterly guidance was caused by an order delay from the company's largest customer, Intel (INTC 0.32%). However, he said he expects the company to send out record shipments to Intel in the second half of 2018.

In response to the slow demand, management has decided to temporarily scale back its manufacturing capacity to dampen the overall financial impact. Slessor said that capacity can be scaled up quickly once the demand returns.

This is the second quarter in a row that FormFactor's stock has fallen hard as a result of disappointing guidance. While I still think there are reasons to believe this company can return to long-term growth eventually, FormFactor's huge dependence on Intel's capital spending plans is a major risk that investors must consider before buying shares.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

FormFactor, Inc. Stock Quote
FormFactor, Inc.
$38.73 (0.23%) $0.09
Intel Corporation Stock Quote
Intel Corporation
$37.41 (0.32%) $0.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.