FormFactor, Inc. (FORM) Downgraded by B. Riley Amid Weaker Q4 Results and Soft Guidance

FormFactor, Inc. (FORM), a leading provider of test and measurement technologies for the integrated circuit (IC) lifecycle, has recently faced a downgrade from B. Riley, a prominent investment firm. The downgrade comes on the heels of the company's weaker-than-expected Q4 results and soft guidance for the upcoming quarter. This article will delve into the key factors contributing to these developments and their potential impact on the company's long-term prospects.



Weaker Q4 Results and Soft Guidance
FormFactor's Q4 2024 financial results, announced on February 5, 2025, revealed a sequential decline in revenue, gross margin, and non-GAAP earnings per share. The company's revenue for the quarter was $189.5 million, down 8.9% from the previous quarter but up 12.7% year-over-year. The company's Q4 GAAP net income was $9.7 million ($0.12 per share), compared to $18.7 million ($0.24 per share) in Q3 2024. Non-GAAP net income for Q4 was $21.3 million ($0.27 per share). Gross margin for Q4 2024 was 38.8%, down from 40.7% in Q3.

FormFactor's Q1 2025 guidance suggests near-term headwinds, with projected revenue of $170 million ± $5 million and compressed margins. The company attributed these challenges to a forecasted reduction in Foundry & Logic probe-card revenue, partially offset by growth in DRAM probe-card revenue, with HBM increasing to approximately half of DRAM revenue.



Key Factors Contributing to the Downgrade
The downgrade by B. Riley can be attributed to several key factors:

1. Sequential Reduction in Foundry & Logic Probe-Card Revenue: FormFactor's Q4 results were driven by a forecasted reduction in Foundry & Logic probe-card revenue, which led to sequentially lower revenue, gross margin, and non-GAAP earnings per share. This reduction was partially offset by growth in DRAM probe-card revenue, with HBM increasing to approximately half of DRAM revenue.
2. Market Challenges: The company's financial performance shows strong year-over-year improvements but sequential pressures. The Q1 2025 guidance suggests near-term headwinds with projected revenue of $170 million ± $5 million and compressed margins. These challenges are likely due to broader market conditions and the cyclical nature of the semiconductor industry.
3. Investment in FICT: FormFactor's investment of approximately $60M in FICT, a minority stake acquisition, is strategically significant but may have impacted short-term financials. This vertical integration move secures access to critical probe card components amid growing advanced packaging demands, potentially accelerating FICT's technological development.

Impact on the Company's Long-Term Prospects
Despite the weaker Q4 results and soft guidance, FormFactor's long-term prospects remain strong, driven by several strategic initiatives:

1. Pivot to AI-Driven Markets: The fourfold growth in High Bandwidth Memory (HBM) revenue, driven by Generative AI adoption, indicates FormFactor's successful pivot toward high-growth AI infrastructure markets. This strategic shift positions the company for long-term growth as AI continues to gain traction.
2. Improved Cash Generation: FormFactor's free cash flow improved dramatically to $82.8 million in FY2024 from $11.4 million in FY2023. This improvement in cash generation provides a solid foundation for long-term growth and investment in strategic initiatives.
3. Strategic Supply Chain Investment: FormFactor's investment in FICT strengthens its position in advanced probe card components, securing access to critical supplies and potentially accelerating technological development. This vertical integration move supports the company's long-term growth prospects.

In conclusion, FormFactor, Inc. (FORM) has faced a downgrade from B. Riley due to weaker Q4 results and soft guidance. While these challenges are likely to impact the company's near-term performance, its long-term prospects remain strong, driven by its successful pivot to AI-driven markets, improved cash generation, and strategic supply chain investments. Long-term investors should consider these factors when evaluating the company's potential as an investment opportunity.