A Stock for the Long Term Investor

Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

There are a number of component suppliers who stand to gain from the mobile computing revolution. But investors need to be smart enough and separate the wheat from the chaff so that they can put their money on the right stocks. One such company which caught my mind when I was scouting for such stocks is Atmel (NASDAQ: ATML). Let’s see why.

Atmel makes touchscreen microcontrollers for tablets and smartphones. However, its performance in the last reported fourth quarter was not pretty impressive. Moreover, the company ships its microcontrollers to non-Apple (NASDAQ: AAPL) manufacturers such as Samsung, Dell, and HTC etc. Not being in the books of the iKingdom does knock some wind out of the sails. But one shouldn’t discount Atmel on this ground as the company has a lot to offer.

All of us know that the Apple iPad is the king of tablets. It has established its supremacy in this domain with little competition (read as the Amazon (NASDAQ: AMZN) Kindle Fire). However, market research firm IDC sees a trend reversal in this arena in the future. The firm says that Android enabled tablets might gain solid ground by 2015 and could trump Apple’s iOS in terms of global market share, but would remain behind on revenue generated.  The expected jump in sales of Android tablets will do a world of good to Atmel and might also bring in the shine for investors who place their faith in the stock.

But that’s not all. The study by IDC hasn’t factored in tablets powered by Windows 8 which again might prove to be a driver for Atmel. The company is making touchscreen controllers for Windows 8 based tablets and ultraportable computers. So once these devices hit the shelves, Atmel can expect some more addition to its top line.

Now let’s shift our attention to the smartphone segment. Although Atmel is not in the books of Cupertino, it does find a way inside Apple’s arch enemy, Samsung. Atmel’s maXTouch controllers are expected to be used across various series of Samsung phones, such as the Focus and the Galaxy S2 LTE version.

Moreover, rumors that Atmel may be the supplier for Amazon’s next edition of the Kindle Fire do their bit in filling up the air with some more excitement. If this turns out to be true, Atmel could be laughing all the way to the bank as the Kindle Fire is surely capable of creating a dent in iPad sales as we all saw some time back.

So much said, now let’s see how Atmel is valued. The company trades at a P/E multiple of 14.58, which is cheaper than the industry average of 16.64. Again, it is found to be cheap when stacked up against peers LSI Corporation and Himax Technologies (NASDAQ: HIMX) who sport P/E’s of 16.01 and 32.52 respectively. It should be noted that Himax has recently turned its attention towards manufacturing touchscreen controllers and came up with some impressive results last quarter. Himax’s controller business grew 26% from last year and this provides me with more belief that an established player like Atmel is capable of performing well in the long run.

Atmel might take some time to come around. But the developments at the company and in the industry more or less tell me that it will probably do well in the long term. If you are one of those investors who have the patience to wait out till Atmel steps on the gas, the time looks conducive for you to get Atmel in your portfolio.




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