What happened

After management reported first-quarter results and revealed disappointing guidance, shares of FormFactor (NASDAQ:FORM), an equipment supplier to the semiconductor industry, dropped 12% as of 10:40 a.m. EDT on Thursday.

So what

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

  • Revenue grew 12% to $132.2 million. This result was at the high end of management's guidance range and beat the $130.4 million that Wall Street had expected.
  • Non-GAAP net income grew 20% to $15.2 million.
  • Non-GAAP EPS expanded 18% to $0.20. That result was $0.02 higher than market watchers had predicted.

So why are shares falling if the results were good? You can put that blame squarely on management's guidance for the upcoming quarter:

  • Revenue is expected to land between $131 million and $139 million. The midpoint of this range is higher than the $134 million that Wall Street was expecting, but it still represents a year-over-year decline of about 1%.
  • Non-GAAP EPS is expected to land between $0.15 and $0.21. The midpoint of this range represents a year-over-year decline of 33%, and it also falls short of the $0.21 that market watchers were predicting.

Traders are fleeing the stock in response to the weak guidance.

Three people looking at a computer screen and acting concerned.

Image source: Getty Images.

Now what

The good news for investors is that FormFactor's results are holding up surprisingly well given the industrial backdrop. On the call with investors, FormFactor's CEO Mike Slessor stated that overall semiconductor capital equipment spending has fallen by 20% or more over the last year. That's a tough situation, so it is actually quite impressive that the company isn't forecasting an even bigger decline.

The bad news for investors is that FormFactor has no control over industry spending patterns, so its financial results will always remain cyclical. That's why I'm happy to focus my time and investment dollars on businesses that can grow like gangbusters even when the macro environment is challenging.