What happened

Shares of FormFactor (FORM -2.44%) flamed out on Thursday morning, falling by as much as 24.4%. As of 11:55 a.m. ET, the stock was still down by 19%.

Blame its third-quarter report for the plunge: The provider of semiconductor testing and measurement tools delivered disappointing financial results after the bell Wednesday, and warned that further pain is in store.

So what

For the third quarter, FormFactor reported revenue of $180.9 million, down 4.8% year over year and down 11.3% sequentially. The pain traveled down the income statement as adjusted earnings per share tumbled 40% to $0.24. 

To give those numbers some context, the analysts' consensus forecast had been for revenue of $183 million and earnings per share of $0.21.

Management identified several issues weighing on the results. Last month, the U.S. government imposed bans on the sale of the most advanced artificial intelligence and high-performance processors to China and Russia. These trade restrictions have weakened demand for certain semiconductors. Additionally, FormFactor cited weaker demand for DRAM probe cards and foundry and logic probe cards, caused by the slowdown in the broader economy and the ongoing cyclical downturn.

Now what

FormFactor management expects the weaker demand to "extend well into next year," so it has embarked on a restructuring plan to better align the company's cost structure with current market conditions. This will include a 13% reduction in the company's workforce, which is expected to save roughly $25 million to $30 million annually. 

The company also provided a muted outlook. For the fourth quarter, FormFactor anticipates revenue of $155 million at the midpoint of its guidance range, which would represent a decline of 24% from the prior-year quarter. The company also expects adjusted net income at or near the breakeven level.

Given the headwinds facing the company, only investors with both a long-term investing time horizon and a cast-iron constitution should consider buying FormFactor stock now. That said, the company is well-positioned to continue to serve the semiconductor industry once it emerges from this cyclical downturn.