It's been rough going for small semiconductor industry stock FormFactor (FORM -1.68%). Shares of the company remain 40% below all-time highs last set in early 2021. FormFactor was dragged down by the bear market last year, as well as by the present downturn in the chip industry.  

Nevertheless, there are some interesting things going on at FormFactor that could put this tiny business in growth mode for years to come. One of them is its systems used in quantum computing. 

Is FormFactor really a quantum computing stock?

FormFactor provides test and measurement equipment for semiconductor fabs (the facilities that manufacture chips). Specifically, three-quarters of revenue in the fourth quarter of 2022 came from probe cards, a consumable product (read: an ongoing operating expense for chip fabs) used to test silicon wafers and chips for defects.

As chip demand fell in late 2022, especially for PCs and smartphones, fabs have slowed their purchases of these probe cards. This explains FormFactor's slump, although management's expectation is for things to gradually rebound as chipmaking activity picks up pace again. 

But what of this quantum computing bait I lured you in with? About one-quarter of FormFactor's revenue is classified as "systems." Some of these systems are machines that use the probe cards themselves. CEO Mike Slessor noted on the last earnings call that these "systems" work with fab customers on the research and development front, helping advance new wafer and chip manufacturing techniques and new semiconductive materials like silicon carbide (SiC) and gallium nitride (GaN).

However, FormFactor also has "quantum cryogenics" systems lumped into this unit. Besides other things, quantum computers differ significantly from classical computers (the electronics we use today) in that they operate in a tightly monitored environment at close to absolute zero temperature (0° Kelvin, or -273° C).

This is where FormFactor comes into play. Its cryogenic systems are used by companies developing and operating quantum computers, as well as chipmakers testing novel chips and base materials for use in extreme environments. For example, chip manufacturing start-up SkyWater Technology (NASDAQ: SKYT) announced its cryogenic lab using an integrated system developed by FormFactor and fellow test and measurement company Keysight Technologies (NYSE: KEYS).

Why is FormFactor a worthy quantum computing investment?

Investing in FormFactor is, first and foremost, a bet on those probe cards -- a business that will ebb and flow with the cycles of the chip industry overall. That's not a bad thing since the semiconductor industry is expected to expand at an average high-single-digit percentage growth rate for the rest of the 2020s, but it's a cyclical space. Probe cards are also a low-margin business. Gross profit margins on product sold is typically a mid-30% affair.

That small systems segment is a different story, though. While purchasing from customers will also be up and down, FormFactor reported a gross profit margin of over 50% on systems sales this past year.

Quantum computing is currently in research and development mode. It could take many years until it's widely commercialized. And even then, many companies (including Nvidia (NVDA -2.61%), which is helping with quantum computing development) believe quantum computers will merely supplement classical computing. Some of the pure-play quantum computing stocks are a risky bet and may take many years to yield sustainable shareholder returns -- if they ever do at all. 

FormFactor is an interesting middle road. It isn't a huge bet on quantum computing, but it does yield significant exposure to this fast-developing field. And more importantly, its quantum computing equipment sales are profitable. And if those systems' sales grow as a percentage of overall revenue, it could make FormFactor an even more profitable business over time, given the higher margin profile from that segment. That removes a great deal of risk from the equation for investors interested in getting early exposure to quantum computing. 

In the meantime, I'm putting FormFactor stock on my watchlist rather than making a purchase, given that it's still managing through a general chip industry downturn. Stay tuned.