Summit: FormFactor Decline 'Mostly Horse Manure'

In a report released Wednesday, Summit Research Partners analyst Srini Sundararajan takes a look at FormFactor, Inc. FORM, which fell about 10 percent on Tuesday.

The analyst believes the decline was triggered by “grossly inaccurate interpretations” of the company’s business and industry fundamentals. In fact, Sundararajan believes the tumble only sets the company up for executing a substantial buyback, as the Board’s latest authorization has not been completely spent yet – it’s far from that.

Why Is FormFactor Falling

A couple of reasons put FormFactor’s stock in motion. First, a competitor’s report raised concerns around “weakened PC/server supply chain.” However, investors should remember that the company’s DRAM sales do not rely so much on DRAM capacity.

The analyst notes that “net-net, there might be some impact on revenues in CQ2 and for the guide in CQ3 for sure, but certainly not worth the size of the hit to the share price.”

Related Link: Thoughts On Reported Micron Bid From The Analyst Who Predicted It First

A Load Of Horse Manure

Since Summit is bullish on FormFactor, the note intends to prove that the re-interpretation of the boilerplate words (unchanged in about five years) in the SEC filings on DRAM consolidation about Tsinghua’s bid for Micron Technology, Inc. MU are "horse manure."

The company states that changes in management (i.e., at Micron) or on a DRAM consolidation could affect the tool selection. The analysts believe this is obvious, and “connecting it to the Tsinghua bid is a bit reckless, careless and anachronistic.”

Moreover,  even if the purchase were to occur, the chances of a DRAM consolidator changing the tried-and-trued (BKM) methods are very low, especially in the short-term. Furthermore, “for high end leading edge DRAM, FORM is the only solution, wherein even a politically unwilling Samsung was likely forced to buy FORM’s probe cards.”

Hence, even with a DRAM consolidation, FormFactor’s revenues should not be upset in the near-term.