iPad Boom Could Catapult Small Chipmaker

Demand for Apple's iPad computer could lift shares of chip supplier Atmel.
By David MacDougall ,

SAN JOSE, Calif. (TheStreet) --The iPad has become the latest craze in the ballooning mobile device market. Its success will boost not only its maker, Apple (AAPL) - Get Report, but the small companies that supply its parts.

The mobile device component market is rife with companies with weak balance sheets and spotty earnings, but it's a fertile ground for solid growth stocks. Investors looking to play the

smartphone

explosion without buying pricey Apple or

Research In Motion

(RIMM)

shares should consider

Atmel

(ATML)

.

This little-known company supplies chips for the Apple

iPad

, according to the tech design consultancy

Chipworks

. Atmel has also taken business from another Under the Radar pick,

Synaptics

(SYNA) - Get Report

, by supplying touch screens for

HTC's

new Evo device, according to

Lazard Capital Markets

.

The past two years have been lean at San Jose, Calif.-based Atmel. The company lost $27 million in 2008 and $109 million in 2009. Analysts expect the company to return to profitability in 2010 with earnings of almost 2 cents a share. The company is expected to boost revenue by 18% to $1.44 billion this year.

Atmel shares have gained 42% during the past year, outpacing the 40% advance of the

S&P 500 Technology Index

. Atmel has financed its business responsibly, leaving $438 million on its balance sheet and $95 million of debt.

Inclusion in Apple's iPad isn't a golden ticket, but the company will benefit if the device becomes a mega hit with consumers. Apple sold 300,000 iPads on April 3, the day it hit the market. That bodes well for Apple and Atmel.

Despite its shaky financial performance, Atmel shares seem relatively safe. The stock's low beta value of 0.6% means its price doesn't swing as widely as the market average. More product diversification could help the stock become even more stable.

By selling chips and touch-screen components to major device makers, Atmel has diversified itself within its own industry. Unlike rivals that focus on one technology, Atmel can benefit from demand for both.

With no dividend and only heavy losses during the past two years, it's difficult to value Atmel shares. However, the company has a strong balance sheet, acceptance by heavy hitters like Apple and HTC and growing sales of key components in a hot industry. Looks pretty good from here.

-- Reported by David MacDougall in Boston.

Prior to joining TheStreet Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.

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