Thursday, February 01, 2007

Calls of Note Part 1

While most firms are happy with FormFactor's (NASDAQ:FORM) results and guidance (ests and tgts get upped), JP Morgan is somewhat more cautious:

- JPM notes Formfactor reported rev/pf EPS of $98.7mn/$0.48, beating their estimate of $92.5mn/$0.35 and consensus, due to a strong top line, significantly lower tax rate, and higher other income. C1Q07 rev/pf EPS guidance was up modestly to $98mn-$102mn/$0.36-$0.40 with GMs declining and OPEX increasing as the company begins adjusting its manf in preparation for a new assembly and test facility that is expected to come on line in Singapore in 2008.

They expect DRAM probe-card fundamentals will be strong in 2H07. Barring share loss in the
DRAM segment, Formfactor is likely to see revenue grow materially going forward. Although it is unclear why quarterly DRAM related revenue has leveled off, the firm suspects we have been in a consolidation period for the current level of DRAM probe card shipments and additional test capacity and/or incremental increases in wafer level test for DRAM are needed to reignite Formfactors DRAM probe-card revenue growth rate.

Recent improvements in Formfactor's manf facility has reduced average probe card lead-times.
Turns biz during the quarter is near 60% vs. 40% previously. This has a positive effect on the company's competitiveness as lower lead times are a key differentiator, but a negative effect on management's ability to predict the outlying quarter's financial results. Going forward they expect an increased level of volatility in earnings results vs. management guidance.

Reiterates Neutral rating FORM shares are trading at 23.9x times C2007 estimates of $1.70, a substantial premium to their consumables group average of 16.3x, which they believe is unwarranted given increasing competition and risk associated with its pending manf expansion into Singapore.

Notablecalls: Not sure if this is enough to stop the stock from moving beyond the $42-$42.5 level reached in after hrs action.

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