FormFactor Inc. Reports Operating Results (10-Q)
Formfactor Inc designs develops manufactures sells and supports precision high performance advanced semiconductor wafer probe cards. Their products are based on proprietary technology including its MicroSpring interconnect technology which enables FormFactor to produce wafer probe cards for test applications that require reliability speed precision and signal integrity. FormFactor is headquartered in Livermore California. FormFactor Inc. has a market cap of $822.2 million; its shares were traded at around $16.7 with and P/S ratio of 3.9. FormFactor Inc. had an annual average earning growth of 47% over the past 5 years. Highlight of Business Operations: We incurred a net loss of $37.9 million in the first quarter of fiscal 2009 as compared to net loss of $18.0 million for the first quarter of fiscal 2008, primarily due to lower revenues, the inclusion of $7.7 million of restructuring charges, and $5.2 million in provision for bad debts due to the heightened risk of non-payment of certain accounts receivable. Net loss for the first quarter of fiscal 2008 included $5.3 million in restructuring charges. In the first quarter of fiscal 2009, we initiated a global reorganization and cost reduction plan designed to lower our cash breakeven level in order to enable us to sustain ourselves financially in the current market environment. As part of the plan, we reduced our workforce by approximately 22%. We also implemented certain non-severance measures that we expect to result in future cost savings. In addition, we are restructuring our operations through our global regionalization strategy by, for example, placing more decision-making in regions close to our semiconductor customers to enhance customer relationships, strengthening our local design, application and service capabilities to improve customer responsiveness, changing our manufacturing structure for shorter cycle time and improved product delivery capabilities, and realigning our research and development efforts.
Our cash, cash equivalents and marketable securities totaled approximately $518.7 million as of March 28, 2009 as compared to $522.9 million at December 27, 2008. While there are no specific significant transactions or arrangements that are likely to materially affect liquidity, economic uncertainty and weak credit markets are driving our customers to delay their procurement as well as payment decisions which could adversely delay and affect our cash collections. We believe that we will be able to satisfy our working capital requirements for the next twelve months with the liquidity provided by our existing cash, cash equivalents and marketable securities. If we are unsuccessful in improving our operating efficiency, reducing our cash outlays or increasing our available cash through financing, our cash, cash equivalents and marketable securities will further decline in the second quarter of fiscal 2009.
Revenues in the three months ended March 28, 2009 decreased 58.3%, or $38.3 million, to $27.4 million from $65.7 million in the comparable period a year ago. The decrease in revenue for the three months ended March 28, 2009 is primarily due to weak demand for our advanced wafer probe cards caused by the continued weakness in the semiconductor market. For certain of our products we also experienced pricing pressure due to the availability of competitive products, which also contributed to the decrease in revenues.
Gross margin fluctuates with revenue levels, product mix, selling prices, factory loading, and material costs. For the three months ended March 28, 2009, gross margin declined compared to the same period in the prior year, primarily due to the significant decline in revenue driving lower factory utilization, thereby increasing unit manufacturing costs, combined with declines in average selling prices as well as unfavorable change in product mix from higher margin to lower margin products. This decline was partially mitigated by lower personnel costs as a result of our fiscal 2008 and 2009 global cost reduction plans as well as a decline in inventory write-downs. Inventory provision decreased from $7.2 million or 11.0% of revenues the first quarter of fiscal 2008 to $5.1 million or 18.5% of revenues in the first quarter of fiscal 2009. The higher inventory write-downs in first quarter of fiscal 2008 were associated with deterioration in the DRAM memory segment in that period. Gross margin for the first three months of fiscal 2009 includes stock-based compensation expense of $0.8 million or 2.8% of revenue compared to $1.4 million, or 2.1% of revenue for the first three months of fiscal 2008. The decline of stock-based compensation, in absolute dollars, was primarily as a result of reductions in headcount as a result of our 2008 and 2009 global cost reduction plans.
Research and development expenses decreased in absolute dollars for the three months ended March 28, 2009 compared to the same period in the prior year primarily due to a decrease in certain new technology product development related costs, personnel costs and depreciation, facilities and information technology allocations. For the three months ended March 28, 2009, personnel costs decreased $1.4 million, primarily due to reductions in headcount as a result of our global reorganization plans; expenses related to new technology and product development decreased $0.5 million, depreciation and facilities and information technology allocations decreased $0.2 million, primarily due to the implementation of corporate cost reduction initiatives. Stock-based compensation included within research and development was $1.0 million for the three months ended March 28, 2009 compared to $1.2 million for the three months ended March 29, 2008, with the decrease in absolute dollars being primarily due to reductions in headcount due to the 2008 and 2009 global cost reduction plans.
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