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FormFactor Makes the Best of a Tough Situation

By Brian Feroldi - Updated May 3, 2018 at 10:37PM

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It's awfully hard to post growth when your largest customer pulls back on its spending.

FormFactor (FORM -11.23%), a supplier to the semiconductor industry, warned investors during its last earnings report that the first quarter was going to be challenging. At the time, management noted that its largest customer had decided to delay a significant order, which was going to make it nearly impossible for the company to post year-over-year growth. 

Was the quarter as bad as management had anticipated? Let's dig through the results to find out.

FormFactor's first-quarter results: The raw numbers


Q1 2018

Q1 2017

Year-Over-Year Change


$118.3 million

$128.8 million


Non-GAAP net income

$12.7 million

$17.3 million


Non-GAAP earnings per share




Data source: FormFactor. GAAP = generally accepted accounting principles. Non-GAAP = adjusted.  

Worker handling semicondutor wafer

Image source: Getty Images.

What happened with FormFactor this quarter?

  • Revenue of $118.3 million came in at the high end of management's guidance range. On the conference call with investors, CEO Mike Slessor confirmed that the revenue drop was caused by lower levels of spending from Intel, which is FormFactor's largest customer. 
  • Non-GAAP gross margin was 43.3% for the quarter. That was above the guidance range projected by management, but still represents a significant pullback when compared to the 47.6% non-GAAP margin that was generated in the year-ago period.
  • Non-GAAP EPS of $0.17 landed toward the top end of guidance.
  • FormFactor generated $6.3 million worth of free cash flow during the period. 

What management had to say

Slessor did his best to stay positive and provided some additional context on why the quarter was so challenging: "Despite an anticipated reduction in revenues from delays in the 10-nanometer node at our largest customer, we realized the benefits of our opportunity set as a diversified leader in electrical test and measurement, and delivered revenue and non-GAAP earnings per share at the top end of our outlook range."

Slessor also introduced Shai Shahar, FormFactor's new CFO, on the call with investors. Commenting on the new hire, Slessor stated: "I'm enjoying the process of building our partnership, and I'm looking forward to working together to realize our target financial model to deliver $650 million of revenue and $1.50 of non-GAAP earnings per share." 

Looking ahead

Slessor was confident that the company's results would pick up during the second quarter, noting "we expect strength across our businesses, including a sequential increase in demand from our largest customer, resulting in improved results."

However, while business conditions are improving, the company's guidance still suggested that the upcoming quarter is going to feature negative growth yet again:

Metric Q2 2018 Guidance Range  Q2 2017 Actual Year-Over-Year Change at Midpoint
Revenue $130 million to $138 million $144 million (9.9%)
Non-GAAP gross margin 42% to 45% 47.6% (4.1%)
Non-GAAP EPS $0.20 to $0.26  $0.40 (42.5%)

Data source: FormFactor.

FormFactor's first-quarter results should remind all investors that customer concentration is a risk that needs to be taken seriously. Last year, Intel was responsible for more than 25% of FormFactor's total revenue, so it isn't surprising to see that revenue and margins are heading in the wrong direction because of Intel's decision to cut back on spending. 

On the bright side, even after accounting for the slow start to the year, Slessor still believes that FormFactor is poised to have a prosperous 2018, saying, "For 2018 overall, we continue to expect and plan for revenue growth as we progress through the year." 

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