Apple Gains Pave Way for Atheros, Broadcom

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The success of Apple(AAPL Quote) and Research In Motion(RIMM Quote) will eventually trickle down to companies that provide the technology their devices use. The trick is to pick the suppliers best positioned to succeed when the economy turns.

Chipmakers Atheros Communications(ATHR Quote) and Broadcom(BRCM Quote) are struggling now, but could rebound when the recession ends. Buying opportunities could soon emerge if weak earnings drag down their share prices.

While worldwide demand for traditional cell phones is expected to shrink 10% this year, sales of so-called "smart phones" is projected to grow 3.4%, according to market research firm IDC. Next year, smart-phone demand is forecast to rise 22%, three times faster than that of conventional phones.

iPhone and BlackBerry devices will likely lead the industry. These devices rely on wireless chips from Broadcom and global-positioning and Bluetooth technology from Atheros. Broadcom's shares have climbed 38% this year and Atheros's rose 19%, beating the 14% advance of S&P's semiconductor index.

The first quarter wasn't kind to either company. Broadcom and Atheros lost $97 million and $7.6 million, respectively. Revenue at both firms dropped by more than 17%.

However, short-term earnings misses and sales weakness shouldn't deter investors. There are plenty of reasons to believe these stocks will shine when the recession ends and spending picks up. Just look at the companies that Broadcom and Atheros supply.

Apple reported second-quarter earnings that beat analysts' estimates. Sales of iPhones doubled from a year ago. Research in Motion added 3.9 million new BlackBerry accounts during the quarter than ended in February.