FormFactor Closes MicroProbe Buyout - Analyst Blog

FormFactor Inc. (FORM) recently completed its acquisition of MicroProbe, Inc., a subsidiary of Astria Semiconductor Holdings, Inc. The company spent $100 million in cash and $16.8 million in stock for the acquisition. The deal was announced last month.

Headquartered in California, MicroProbe is the market share leader in the system on chip (SoC) probe card market, with a share of approximately 20% and has been continuously increasing its market share. Last year, the company posted non-GAAP EBITDA margin of approximately 20% and annual revenues of roughly $87.3 million, which was up 46% from the year-ago quarter.

FormFactor is already a leading supplier of memory probe cards. Its existing SoC sales are driven by the microcontroller (MCU) market, which is mostly used in auto and industrial sectors. The acquisition will strengthen FormFactor’s position in the SoC probe card market, mainly used to test chips for tablets and smartphones, where the company has been making significant investments over the past 12-18 months.

Today, the advanced SoC probe card market is the fastest growing portion of the entire probe card market. According to the market research firm, VLSI Research Inc, probe card revenue is expected to grow steadily and stay above the billion dollar mark despite severe pricing pressure over the next five years. The firm projects that the semiconductor probe card market will be worth about $1.5 billion by 2016.

Management stated that though it does not expect substantial cost synergies from the deal, the acquisition will be immediately accretive to the company financials, beginning from the first quarter of 2013.

FormFactor is an original equipment manufacturer (OEM) of wafer probe cards used by semiconductor makers to test integrated circuits. In the last-reported second quarter of 2012, the company delivered revenues of $54.8 billion, up 57.5% sequentially and 17.7% year over year. GAAP net loss was $4.2 million compared with a loss of $7.7 million in the year-ago quarter.

FormFactor has customer and market concentration that increases execution risks. Increasing competition from Advantest Corp. (ATE) and Cascade Microtech Inc. (CSCD) is also a matter of concern.

Currently, the shares of FormFactor carry a Zacks #4 Rank (short-term Sell rating).

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