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On May 6 2013, we upgraded semiconductor wafer probe card supplier, FormFactor Inc. (FORM - Analyst Report), to Outperform based on its impressive first-quarter results and improving prospects.

Why the Upgrade?

The company’s first-quarter 2013 loss came in at 18 cents, well below the Zacks Consensus Estimate of a loss of 26 cents per share. Revenues increased 10.4% sequentially and 51.2% from the year-ago quarter to $52.6 million. Over the past four quarters, FormFactor has delivered an average surprise of 27.9%.

Following the release of the first quarter results, the Zacks Consensus Estimate of a loss for 2013 has gone down 30.8% to 9 cents per share. Moreover, the Zacks Consensus Estimate for 2014 has gone from a loss of 7 cents to a profit of 8 cents up 214.3%.

What is the cause for the strong positive bias on the company?

Apart from the strong first-quarter results, FormFactor’s growth story looks compelling. FormFactor is a leading provider of probe cards for semiconductor manufacturing. The company has recently increased focus on probe cards targeting the mobile segment, which is likely to grow in leaps and bounds, driven by strength in the smartphone and tablet markets.

The MicroProbe acquisition helped the company add capabilities in the SoC segment, which has grown faster than both the DRAM and flash segments in the recent past. Formfactor is now seeing increased momentum for copper pillar packaging, which requires SOC probe cards specially built by Microprobe. We expect orders to ramp up over the next few quarters.

Other Stocks to Consider

FormFactor carries a Zacks Rank #2 (Buy). Other semiconductor stocks that are also worth considering include STMicroelectronics NV (STM - Snapshot Report), Magnachip Semiconductor Corp. (MX - Snapshot Report) and Lam Research Corp. (LRCX - Snapshot Report), all carrying a Zacks Rank #2 (Buy).

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