Who tests the testers? That's a question that investors in Motley Fool Hidden Gems recommendation FormFactor (NASDAQ:FORM) might ask themselves now that a small company named Applied Precision is testing the waters for an IPO.

FormFactor, along with competitor Cascade Microtech (NASDAQ:CSCD), manufactures advanced probe cards that are used for testing semiconductor chips while they're still in wafer form. The cards contain a huge number of tiny "MicroSprings" that make contact with specific points on the wafer and enable electrical testing of the chips. Well, just as semiconductor chips have to be tested to be sure they are functional, advanced probe cards must be tested themselves, both before being shipped to customers and also after being put into regular use, to be certain that all of the springs are still aligned properly and that the electrical performance is acceptable.

Applied Precision makes the equipment that's used in testing these cards. It is currently privately held, but it recently filed a registration statement announcing that it intends to go public in an IPO -- so I thought it would be interesting to take a closer look.

Applied operates two business segments. Roughly two-thirds of its 2005 revenues of $46 million were from the Semiconductor segment, with the remaining one-third from Life Sciences. The connection between these segments appears to be the precise motion control needed in testing, as well as abilities with optical systems. For instance, the probeWoRx instrument uses a technique called 3D Optical Comparative Metrology to measure the positions of the probe card tips, and in the Life Sciences arena, the DeltaVision products provide real-time imaging of cellular processes.

For the last couple of years, revenues have grown at a brisk rate: 34% in 2005 and 36% during the first three months of 2006. Despite the current appealing growth rate, however, this company does operate in a cyclical business.

Before buying shares at the IPO, investors may want to consider the effect of a possible slowdown in spending among memory manufacturers. A big chunk of FormFactor's business has been with both DRAM and NAND flash memory manufacturers, and those companies have been aggressively expanding capacity this year -- SanDisk (NASDAQ:SNDK) and Toshiba made such an announcement just the other day. But if the rate of capacity expansion falls, Applied Precision's growth may slow down.

Nevertheless, management claims that its test equipment is much faster than the competition's -- and there must be a significant advantage at play, given the rapidly increasing complexity of advanced probe cards. Applied's technology looks interesting enough that I plan to keep an eye on this company in the future.

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Fool contributor Dan Bloom doesn't own shares in any company mentioned in this article.