FormFactor Vs. Technoprobe: A Clear Winner Part 2

Since our initial comps analysis between FormFactor (NASDAQ:FORM) and Technoprobe, their stock price performances have been diametrically opposed. In our first analysis, FormFactor was rated as a neutral opportunity, whereas Technoprobe was a screaming buy. The former delivered a negative return of more than 40%, while the latter was listed at €5.7 per share, and today, despite the negative market return, after the just released results, it is trading at more than €7 per share (Fig 1), signing a plus 23% YTD. As a recap of our FormFactor analysis, here at the Lab, we also commented on the company’s Q4 and Q1 results.

Q2 results comps

In the half-year results, FormFactor delivered a good set of numbers. On a quarterly basis, revenue increased by 8.4% compared to Q2 2021 account; however, Technoprobe achieved a plus 42.6% in the same period. Going down to the P&L, we note the same positive trends. At gross margin level, FormFactor’s gross margin stood at 46.3% versus the 40.6% in the second quarter of 2021 (in line with the guidance previously forecasted). Looking at the Italian counterpart, gross margin was at almost 60%, in line with Q1 and up 36% year-on-year. Going back to FormFactor, this positive performance in Q2 result in an EPS at the high end of the management range. Here at the Lab, we positively favor the latest company acquisition of JanisULT that further strengthens FormFactor‘s “capabilities as a key supplier to the emerging quantum computing market“. Despite that, Technoprobe just delivered a breathtaking half-year performance, and we are much more confident of the long-term prospects.

Additional upside in Technoprobe to consider

1. FX development. Indeed, Technoprobe might benefit from a weak € currency. Being a net exporter, this might result in taking a higher market share in the probe market in the US;
2. Once again, FormFactor cost pressure wage might be higher versus Technoprobe. This is due to various reasons: the lower US unemployment rate compared to the Italian one and the salary cost-based (once again, it is much lower in Italy);
3. Higher expenditure in R&D development that favors Technoprobe;
4. As already anticipated in the Infineon follow-up note, being located in the EU, Technoprobe might prosper from the EU Chips Act: “the European Commission plans to allocate €11 billion in public funds for the research, design and manufacturing of semiconductors, with the goal of mobilizing a total of €43 billion of public and private investment until 2030“. A plan to bolster Europe’s “competitiveness and resilience in semiconductor technologies and applications“. It is just a piece of recent news that Intel is planning to open a new chip lab facility in the Northern part of Italy;
5. When the company will pass from Euronext Growth Milan to the Star segment, Technoprobe will certainly have better investor visibility (and more trading volumes liquidity), so we are confident that stock price performance will follow.

Conclusion and valuation

With the recent FormFactor stock price decline, we believe that it might offer a good entry point; however, we are still more confident in the Italian company that likely offers a better upside in terms of valuation and 5 additional short/medium quick takeaways. The Q3 outlook for FormFactor was also not very positive, so we reaffirm our neutral rating.

If you are interested in our latest coverage on European semis, please have a look at our recently published articles:

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