Formfactor Inc. (
FORM) reported the third quarter earnings, missing the concensus by 7 cents.
Revenue
Revenue of $43.8 million was up 40.3% sequentially, but down 16.8% year over year. The sequential increase in revenue was driven by stronger memory prices (both DDR2 and DDR3), which led to some order pull-ins as customers stepped up production. The decline from the year-ago period is the impact of the recession, as the company is now growing revenue off a much smaller base.
The DRAM business was up 44% sequentially and flat year over year. This market was the primary driver of the revenue increase in the last quarter. Management attributed the sequential strength to some share gain in the DRAM market, the ramping of DDR3 production and stronger DRAM demand, particularly for mobile applications.
The Flash business also improved, posting a sequential increase of 13.4%, although it was down 75.2% from the year-ago quarter. The sequential improvement was the result of stronger demand for NOR probe cards.
The Logic business (SoCs) was up 13.5% sequentially and down 39.0% year over year. The sequential improvement was due to strengthening in the microprocessor market, as well as a stronger automotive market.
Operating Results
The gross margin was 16.8%, up 2,101 basis points (bps) from the previous quarter’s -4.3%. The gross margin was down 606 bps from the year-ago quarter. The improvement in gross margin was on account of higher volumes, a lower cost structure and better mix.
Operating expenses of $31.1 million were slightly lower than the previous quarter’s $32.2 million. The operating margin was -54.4%, up 5,309 bps from -107.5% recorded in the previous quarter. The improvement was due to very significant reductions in all the three components of cost—COGS, SG&A and R&D (as a percentage of sales).
There were no special items in the last quarter. Accordingly, the company posted pro forma net loss was $23.9 million, or 54.6% net loss margin, compared to $65.6 million or 210.2% in the previous quarter and $13.9 million or 26.4% in the year-ago quarter. The GAAP EPS was -$0.48 compared to -$1.33 in the Jun 2009 quarter and $0.29 in the Sep quarter of last year.
Balance Sheet
Inventories were up 14.0%, yielding inventory turns of 6.9X. This compares with 7.0X in the previous quarter. Days sales outstanding (DSOs) were around 100, flat compared to the Jun 2009 quarter. The company ended with cash of $462.6 million, down $33.2 million during the quarter. The cash burn was around $22 million.
Guidance
For the fourth quarter, management expects revenue to decline 10%, gross margin to decline as a result of the lower volume, non-GAAP spending on R&D and SG&A to increase slightly and the tax rate to stay at around 0%.
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