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Sell Texas Instruments' Warning, Buy Atmel's Promise

NEW YORK ( TheStreet) -- There wasn't a lot of applause when I last discussed the state of Texas Instruments (TXN - Get Report), which has been marred by declining revenue for many quarters.

That hadn't prevented the stock from posting impressive gains. But when the stock reached a new 52-week high last month, I told investors to lighten their positions because the semiconductor giant was due for a breather.

In that article, I said:

"With the stock up 20% so far on the year, I would be taking some money off the table at this level. Although Texas Instrument offers an excellent yield, shares are just too expensive. There is no way that this company should command a higher P/E than Intel (INTC), much less Qualcomm (QCOM). Taking a position doesn't make much sense here."

That reference angered several investors, many of whom didn't' appreciate my matter-of-fact delivery. But since that article, not only have shares of Texas Instruments fallen by more than 5% but the company just issued a revised downbeat guidance that caused investors to panic.

For the quarter ending June 30, the company now expects to earn between 39 cents and 43 cents per share on revenue of $2.99 billion to $3.11 billion. In April, Texas Instruments had guided for profits of 37 cents to 45 cents per share, while revenue (for the current quarter) was expected to come in the range of $2.93 billion to $3.17 billion.

According to FactSet, the Street consensus for net income is at 41 cents per share on revenue of $3.06 billion. The issue is not whether the company will meet this revised target -- I believe that it can. Investors should begin to focus on when exactly revenue will start trending in the right direction again.

While I do understand the company is in the midst of transforming its business to become a leader in Analog and Embedded Processing, I worry investors are waiting too patiently while other growth opportunities are passing by. It doesn't help the company just completed its sixth consecutive quarter of revenue decline. With revised guidance, that streak will likely continue.

Meanwhile, investors are ignoring the rebounding potential in Atmel (ATML), which up 20% so far on the year. Unlike Texas Instruments' slow-moving progress in analog devices, Atmel's microcontroller business has been gaining plenty of traction.

Atmel's growing maXTouch business, coupled with the company's renewed focus on profitability by recently unveiling several products such as the mXT450S aimed at generating higher margins, makes Atmel's growth prospects all the more interesting.
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