Goldman Sachs out on defence of FormFactor (NASDAQ:FORM) following yesterday's weakness, saying that most of the concern about near-term pause in fundamentals centers around the view that DDR2 driven demand will be weaker than expected for FORM driven by a slowdown in the DDR2 transition, particularly in Taiwan.
Firm continues to believe that these negative views are overemphasizing one isolated issue and ignoring the many positive factors that are more than offsetting the end of the DDR2 transition that was fully expected. Over the near-term, they see several drivers of continued positive business momentum, including:
(1) Their checks during a recent trip to Asia indicate that several DRAM makers in Taiwan intend to add significant capacity in CY2Q2007. This capacity needs to be tested and therefore will require significant probe card orders over the next several quarters. These orders will be made by the very same customers that the market is concerned about slowing orders because of the end of the DDR2 transition. FORM has multiple revenue drivers and in this case customers are reordering for capacity even as this one technology driver is slowing.
(2) While all of the negative calls are focused on Taiwan, firm believes FormFactor won a significant order from Hynix (in Korea) in early September. They believe the Hynix win increased the company's visibility into CY4Q2006. They believe the market is ignoring the strength in Korea in order to focus on an isolated negative issue in Taiwan.
(3) The market is focusing only on isolated negatives in the DRAM market while ignoring the strong growth in the NAND and wafer level testing segments which are the expected drivers of incremental growth in CY4Q2006.
Notablecalls: Expect a bounce in FORM shares today.
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