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FormFactor Diversifies, Closes Cascade Microtech Buyout

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FormFactor Inc. (FORM - Free Report) recently completed the acquisition of Oregon-based Cascade Microtech to expand further into the semiconductor testing space.

In February, FormFactor announced its plans to take over Cascade Microtech, its competitor in the semiconductor testing space, in a cash-and-stock deal, worth nearly $352 million. Under the deal, Cascade shareholders received $16 in cash and 0.6534 shares of FormFactor common stock for each share they owned.

Post acquisition, FormFactor appointed Mr. Ray Link to its board of directors, a former member of Cascade Microtech's board of directors, effective Jun 27, 2016. Currently, he also serves on the board of directors of Electro Scientific Industries, Inc. and nLight Corporation.

Based in Beaverton, OR, Cascade Microtech designs, develops and manufactures advanced wafer probing solutions for electrical measurement and testing integrated circuits (ICs). Its production probe cards lower the manufacturing cost of complex and high-speed ICs by identifying defects early in the process and testing multiple ICs concurrently.

The merged entity will gain a leading position in the semiconductor testing market by leveraging its resources to expand into newer markets. Earlier, FormFactor’s management had estimated that its addressable market opportunity would expand 40% to $1.4 billion from $1 billion by opening new engineering systems, thereby expanding the test and measurement businesses.

The combined entity is also likely to achieve significant cost and revenue synergies supported by the expanded product portfolio, a bigger customer base and better infrastructure. In fact, the merger is expected to be immediately accretive to gross margins, profits and earnings per share.

FormFactor's president and chief executive officer, Slessor, said "By completing the acquisition of Cascade Microtech, FormFactor transforms into a broader test and measurement market leader with significant scale and increased diversification. Also, we will benefit from significant financial synergies, driving improved gross margins, profitability and earnings accretion on a non-GAAP basis in the second half of 2016 and beyond.”

FormFactor is an original equipment manufacturer of wafer probe cards used by semiconductor makers to test ICs. In first-quarter 2016, the company’s loss of 16 cents was a penny greater than the Zacks Consensus Estimate. Revenues of $53.6 million were down 25.3% sequentially and 24.3% year over year due to timing-related factors. The company witnessed push-outs of DRAM probe card deliveries by certain customers.

FormFactor carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the technology sector are Amkor Technology, Inc. (AMKR - Free Report) and AXT Inc. (AXTI - Free Report) , sporting a Zacks Rank #1 (Strong Buy), and Alpha & Omega Semiconductor, Ltd. (AOSL - Free Report) , carrying a Zacks Rank #2 (Buy).

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