Transitioning from an old manufacturing facility to a new one is bound to create unforeseen circumstances that can put a glitch in any rosy performance prediction. FormFactor (NASDAQ:FORM), the manufacturer of advanced test probe cards, experienced just that sort of scenario last quarter when it reported "stressed manufacturing capabilities," a need to continue "debugging" new equipment, and the continuation of management's climbing of the "learning curve."

When FormFactor reports its earnings next week, we'll find out how well it's resolved those performance glitches and how far management still needs to climb.

The entire chip industry has been in a state of flux. Intel (NASDAQ:INTC) and Advanced Micro Devices (NYSE:AMD) have reported earnings that send out conflicting signals on the strength of the industry, and analysts seem to differ on how much demand there is for high-end chips. FormFactor's stock has tumbled 25% over the past three months, similar to the fall competitor Kulicke& Soffa (NASDAQ:KLIC) has taken. Yet tiny Cascade Microtech (NASDAQ:CSCD) has been relatively flat.

Why the difference? I believe that Kulicke is a fading competitor in the process of getting out of the markets in which FormFactor competes. Cascade, on the other hand, has created technology that, although maybe not at the same stage of development, positions it as a contender for future growth.

What about FormFactor, which is far and away the industry leader? Uncertainty surrounds its transition. Last quarter, the company extended the transition period from year end to the first quarter of 2006. Revenues and, thus, earnings may yet be constrained, along with capacity, for a while longer. And since the market hates uncertainty, it has punished the stock.

But it's precisely that uncertainty that creates opportunities for investors. The stock sits at the same spot it was when it was recommended to subscribers of Motley Fool Hidden Gems a little more than a year ago. In the recent issue of the newsletter, Tom Gardner and Bill Mann set out to review all the recommended stocks and found that FormFactor's situation is a little precarious, considering weak industry demand.

I disagreed with that assessment on the newsletter's dedicated discussion boards, arguing that there did not seem to be any such consensus. I found that Global output for dynamic random access memory (DRAM), FormFactor's bread-and-butter moneymaker, was growing. DDR2, the next stage in memory transition, was also growing, although it was taking longer than previously anticipated to take hold. Bill Mann countered that he uses contract electronics manufacturer Celestica (NYSE:CLS) as a proxy for demand and finds that it expects weakness. Certainly, in the short run, Bill's call was prescient -- the stock has dropped 13% in the days following the discussion.

But in the long term, FormFactor looks promising, which is why the recent price drop is tantalizing. Investors have a chance to buy in to an industry leader that has positioned itself for further growth down the line. Analysts are expecting the probe card maker to report earnings of $0.14 per share on revenues of $57 million. Earnings are anticipated to be 26% below last year, even as revenues will be 12% higher. With FormFactor's history of earnings surprises, however, investors may soon find themselves on the profits' curve again.

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Cascade Microtech is a Motley Fool Hidden Gems "Tiny Gems" selection.

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Fool contributor Rich Duprey owns shares of FormFactor but does not own any of the other stocks mentioned in this article. The Motley Fool has a disclosure policy.