FormFactor Slumps on Stealth Warning

Shares of FormFactor fell sharply for a second straight session in reaction to a weak revenue outlook for its fiscal first quarter and a board shake-up.
By Michael Baron ,

NEW YORK (

TheStreet

) -- Shares of

FormFactor

(FORM) - Get Report

fell sharply for a second straight session on Wednesday in reaction to a weak revenue outlook for its fiscal first quarter and a board shake-up.

The Livermore, Calif.-based maker of semiconductor testing equipment issued a press release late Monday that detailed the resignation of three of the eight directors on its board, its naming of Carl Everett to the chairman role, and its expectation that its fourth-quarter revenue will be within a prior view, but it waited until a filing with

Securities and Exchange Commission

after Tuesday's bell to discuss its outlook for the first quarter of next year.

In that Form 8-K, the company said it "expects to see signs of softness in the DRAM

dynamic random access memory market as customers react to market demands and timing of some technology transitions." As a result, FormFactor anticipates revenue for the first quarter ending in March 2011 "will be down significantly" from its projected fourth-quarter total of $40 million to $45 million.

Wall Street's current consensus view is for revenue of $36.6 million in the March period. For the current fourth quarter ending Dec. 31, the average estimate of five analysts polled by

Thomson Reuters

is for a loss of 43 cents a share on revenue of $43.1 million.

The stock finished Wednesday down 58 cents, or 6.1%, at $8.89, extending a plus 7% decline on Tuesday. Session volume of around 920,000 outpaced the issue's trailing three-month daily average of roughly 550,000. Year-to-date, the shares have fallen about 60%; although they have seen a slight bounce since dipping under $7 in early September.

FormFactor is already an underachiever as far as Wall Street is concerned as the company's quarterly performance has fallen short of analyst expectations in the past three quarters by an average of around 14%. Its loss of 63 cents a share in the third quarter ended in September on revenue of $47.4 million was 7 cents wider than the consensus view.

The company got some buzz as

a potential acquisition target when the stock was at its lows

and the tech sector was awash in M&A activity but the deal pace has cooled a bit since then and the company remains in turnaround mode with fiscal 2011 expected to be another flood of red ink.

The stock is supported by FormFactor's considerable balance of cash and marketable securities, which stood at $371.5 million at the end of the third quarter, or roughly $7.35 a share, and the company has minimal debt.

FormFactor said the departure of the three directors wasn't related to disagreements on the board but was rather "a reflection of the Board's decision to adjust its structure as a part of the Company's larger efforts to streamline its operations."

The company plans to provide more color on its first-quarter outlook when it reports its fourth-quarter results in early February, according to the 8-K, but given how early it's opting to bring down expectations, investors seem reluctant to hang around and find out how the forecast for a so-called "significant" drop translates into a concrete projection.

--

Written by Michael Baron in New York.

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Michael Baron

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