FormFactor Weathering Some Headwinds Ahead Of A Big Customer Transition

With a business driven by chip production volume, and not really by semiconductor equipment capex spending, FormFactor (FORM) has hung in there pretty well during a period where many semiconductor equipment and material companies have gotten hit hard. I thought FormFactor offered a challenging set up of “very good company, decent-to-good valuation, and tough macro/sector” back in August, and the shares are basically flat since then – outperforming the NASDAQ and definitely outperforming semiconductor equipment stocks, but still not exactly a performance to write home about.

Looking into 2019, I am concerned about pressures on the memory business, but recent wins should help offset that. Likewise, I’m concerned about the impact that falling lead-times and weakness in key end-markets like auto may have on chip volume, but FormFactor should benefit from Intel’s (INTC) transition to 10nm as the year goes on. I think a mid-teens fair value is still appropriate, and I see enough value here to make it worth a look, but investors should be aware of the downside risk from a greater negative impact to chip production (both logic and memory) from lead-time corrections and a deteriorating macro environment.

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FormFactor Weathering Some Headwinds Ahead Of A Big Customer Transition