In the mammoth semiconductor industry, which features giants such as Intel
Yet tiny gems like FormFactor are the reason Intel, Infineon
Testing is profitable business, and FormFactor, which just went public last year and immediately vaulted to the top of the industry, is proof of it. Third-quarter revenues showed a 97% increase over last year's results, the third straight quarter of nearly doubling revenues.
The semiconductor industry is highly cyclical, and this year was particularly strong as it climbed out of the worst downturn it had seen. But analysts predict that next year will be flat, and there might even be a dip in 2006 before surging again. Yet that should make little difference to this industry-leading maker of probe cards.
During its conference call, the company noted that these are extraordinary times in the industry. Chip manufacturers are transitioning to smaller and smaller chips, trending down to 90 nm in size, while the size of the wafer from which the chips are cut is growing, from 200 mm to 300 mm. Additionally, memory -- both dynamic random access memory (DRAM) for PCs and flash memory for things such as cell phones and digital cameras -- is changing to new architectures. All of these design changes create superheated demand for FormFactor's products.
When Tom Engle and I recommended FormFactor for The Motley Fool's Hidden Gems newsletter back in June, we noted that even as the rest of the industry was caught in a tailspin four years ago, this tiny tester of tiny chips was still churning out 30% revenue growth. So despite the rest of the semiconductor industry showing signs of slowing down, FormFactor can continue to expect sizeable gains.
Earlier this year, the company was constrained by its capacity. It had to turn away work in another segment of the memory market, flip chip logic, because DRAM and flash memory demand was so high. It now has a new facility on line that will allow the company to meet the needs of all memory manufacturers, and it was even able to pay for it without reducing its cash position.
There are companies such as Kulicke & Soffa
It may not be a giant in the semiconductor industry, but FormFactor provides the shoulders upon which the industry stands.