FORM Expands Taiwan Service Center Capacity: Hold or Fold the Stock?

FormFactor FORM is doubling capacity at its Taiwan Capacity Center, which will enable the company to better serve customers in Taiwan and across Asia. The service center plays a key role in supporting chip manufacturers in developing advanced packaging technologies driven by AI, high-performance computing, and mobile and automotive applications. FormFactor doubled the cleanroom space and additional office areas, and the center offers expanded probe card services. 

Taiwan accounted for 22.7% of total revenues, with revenues reaching $173.5 million, up 17.4% over 2023. Other major Asian markets, including China, Japan, Singapore and Malaysia, contributed 13.5%, 4.4%, 2.6% and 2.4% of revenues, respectively. China, Japan, Singapore and Malaysia revenues were $103 million, $34 million, $20.2 million and $18.2 million, respectively. Hence, the expansion bodes well for FORM’s prospects in these regions.

FormFactor Suffers From Weak Demand

FORM has been suffering from challenging macroeconomic conditions and weak demand for semiconductors. In fourth-quarter 2024, lackluster demand persisted in important high-unit volume markets like client PCs and mobile handsets. This trend is continuing in the first quarter of 2025.

FormFactor expects sequential reductions in demand for both non-high bandwidth memory (HBM) DRAM probe cards and systems. Export controls are limiting the company’s ability to ship probe cards for advanced node DRAM designs to China, which is expected to hurt top-line growth. Weakness in the mobile handsets and client PCs is expected to hurt Foundry and Logic revenues in the near term.

However, strong demand for HBM and Generative AI (GenAI) is expected to benefit FORM’s prospects over the long term. These two added $100 million to FormFactor’s revenues in 2024. The company delivered record DRAM probe-card revenue with solid DDR5 demand coupled with sequential growth in HBM in the fourth quarter of 2024. HBM increased to roughly half the record quarterly DRAM revenues. FORM expects a similar HBM level in the first quarter of 2025.

FormFactor expects that the transition to new HBM4 designs will produce significant growth in DRAM probe card demand beginning in the middle part of 2025.

FORM to Suffer From Contracting Gross Margin

FormFactor expects gross margin to contract in the near term. Lower Foundry and Logic probe card demand, partially offset by strong DARM probe card demand, is expected to result in a challenging product mix, hurting gross margin. The company currently expects gross margin below the target of 47% on $850 million of annual revenues.

These factors have negatively impacted FORM shares. FormFactor shares have plunged 34.7% year to date, underperforming the Zacks Computer & Technology sector’s fall of 10.8% and the Zacks Electronics Semiconductors industry’s decline of 21.5%.

FORM has underperformed industry peers, including Nova Ltd. NOVA, Broadcom AVGO and Infineon Technologies IFNNY over the same timeframe.

While shares of Infineon Technologies have appreciated 2.7%, Nova Ltd. and Broadcom shares have declined 2.7% and 25.8%, respectively.

FORM Earnings Estimates Are Steady

The Zacks Consensus Estimate for first-quarter 2025 revenues is pegged at $170.01 million, indicating 0.76% year-over-year growth. The consensus mark for earnings is pegged at 19 cents, unchanged over the past 30 days, suggesting 5.56% year-over-year growth.

The Zacks Consensus Estimate for 2025 revenues is pegged at $772.83 million, indicating 1.21% year-over-year growth. The consensus mark for earnings is pegged at $1.26 per share, unchanged over the past 30 days, suggesting 9.57% year-over-year growth.
 

FormFactor, Inc. Price and Consensus

FormFactor, Inc. price-consensus-chart | FormFactor, Inc. Quote

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Conclusion

FormFactor is expected to suffer from sluggishness in the semiconductor demand that is likely to hurt the top line as well as contracting gross margin, making the stock risky for investors.

FORM currently has a Zacks Rank #5 (Strong Sell), which implies investors should avoid the stock right now.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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