6 Stocks to Benefit From Windows 8

NEW YORK (TheStreet) -- Microsoft's (MSFT) next generation of Windows, named Windows 8, is scheduled for release sometime next year. Pre-launch excitement is building and demand for the new generation interface, designed and optimized for touch, is solid. The preview build of Windows 8 itself has been downloaded more than 500,000 times by eager beavers during the preview launch week.

Microsoft announced that Windows 8 would run not only on Intel chips, but also on ARM-based ones. This could benefit ARM companies, which, otherwise, were not so popular and were shut out of the PC market as compared to the monopoly of traditional "Wintel." As an increasing number device manufacturers use the low-power processors to run mobile devices, the ARM processor has seen a revival in interest over the past few years.

With Windows historically being one of the most profitable divisions of Microsoft, the launch of a new operating platform would automatically boost sales of the interface as the Window 8 apps can use a broad set of controls that are designed for seamless connectivity. Also, with MSFT smartly trying to capture the Apple ( AAPL) way of launching apps in Windows 8 would lead to a significant change in the company's approach to applications and software.

These six stocks are likely to gain as it would help each of them distinctly with one benefiting from new laptop orders, while others gain from the rising use of ARM chips in technologies yet to be launched. Industry observers speculate that these chips would also work well in data center environments where it could save energy. It is likely that laptops and notebooks would eventually start sporting ARM processors.

Analysts polled by Bloomberg foresee potential upside of 14% to 64% for these stocks, with buy rating of 54% and hold rating of 37%.

These stocks are listed in ascending order of potential upside.

6. Texas Instruments ( TXN) engages in the design manufacture and sale of semiconductors to manufacturers and designers of electronic products worldwide. The company operates in four segments: Analog, Embedded Processing, Wireless and Other.

For the second quarter 2011, the company reported 2% year-over-year increase in its revenue to $3.5 billion with a 12% growth in its embedded processing revenue. Net income stood at $672 million, or 56 cents per share. Cash flow from operations soared 22% to $631 million from the year-ago quarter. Operating margin for the quarter stood at 26.17%. Return on average assets and average equity were recorded at 17.73% and 24.69%, respectively.

For the third quarter of 2011, TI forecasts revenue to range from $3.23 to $3.37 billion, and pegs earnings per share at 56 cents to 60 cents. For full year 2011, the company estimates research and development expenditure of $1.7 billion and guides capital expenditure of $0.9 billion.

Of the 41 analysts covering the stock, 49% recommend a buy and 44% rate a hold. Analysts surveyed by Bloomberg forecast an average 12-month price target of $31.10, nearly 14.0% greater than the current price.

5. NVIDIA ( NVDA) provides visual computing technologies and is the inventor of the graphics processing unit (GPU). The company operates in three segments: GPU, Professional Solutions Business (PSB) and Consumer Products Business (CPB). The GPU segment offers GeForce graphics products and professional Quadro graphics products for visual computing, Tesla computing solutions for the high performance computing market and Tegra system-on-chip products for the mobile computing market.

For the second quarter of fiscal year 2012, the company recorded revenue of $1.02 billion, up 5.7% from the previous quarter. Net income for the quarter increased to $151.6 million, or 25 cents per share, from $135.2 million, or 22 cents per share, in the first quarter in 2012. Gross margin increased to 51.7% from 50.4% in the same period prior year. During the quarter, NVIDIA completed the acquisition of Icera, a leading innovator of top-performing wireless modems for 3G and 4G cellular phones and tablets, for $367 million.

For the third quarter of 2012, the company expects revenue to increase by 4% to 6% from the second quarter revenue of $1.02 billion. Capital expenditure for the quarter is expected to be in the range of $25 to $35 million. For full year 2013 starting Jan. 30, 2012, NVIDIA estimates revenue of $4.7 to $5 billion with growth across the entire GPU and mobile-processor business. Also, GAAP and non-GAAP gross margins are expected at 51% to 53%.

The company recently revealed that all four NVIDIA processor brands will support Windows 8. The company said that its Windows 8 Developer Program will provide developers with tools and resources for building applications for hundreds of millions of ARM and x86-based devices that will take advantage of Microsoft's new operating system Windows 8.

Of the 38 analysts covering the stock, 34% recommend a buy and 61% rate a hold. Analysts surveyed by Bloomberg have an average 12-month price target of $17.76 for the stock, which is 16.2% higher than the current price.

4. Advanced Micro Devices ( AMD) is a global semiconductor company offering x86 microprocessors for the commercial and consumer markets, embedded microprocessors for commercial, commercial client and consumer markets and chipsets for desktop and notebook PCs, professional workstations and servers. Its operations are broadly divided into Computing Solutions and Graphics.

For the second quarter of 2011, the company recorded revenue of $1.57 billion. Meanwhile, net income stood at $61 million, or 8 cents per share, as against a net loss of $43 million, or 6 cents in the year-ago quarter. Sequentially, gross margin increased to 46% from 43%. Cash, cash equivalents and marketable securities increased $116 million sequentially to $1.86 billion.

For the third quarter of 2011, the company estimates revenue to increase sequentially by 10%, plus or minus 2%. Also, it forecasts APU shipments to surpass two-thirds of AMD's client unit shipments, reflecting almost 100% of their mobile platform shipments. With increasing participation in the mainstream and performance notebook market segments, AMD expects to achieve higher client ASP and gross margin, and increase mobile microprocessor unit market share in the second half of 2011.

Recently, AMD announced that it has created drivers to support Windows 8 operating system on AMD-based tablets, net books, PCs and servers. Besides, the company recently achieved the Guinness World Record for the "Highest Frequency of a Computer Processor," by overclocking the upcoming 8-core AMD FX desktop processor. This AMD FX CPU, which has achieved a speed of 8.429 GHz, will be launched in the fourth quarter of 2011.

Of the 34 analysts covering the stock, 38% recommend a buy and 47% suggest a hold. Analysts polled by Bloomberg project an average 12-month price target of $8.69, up 20.6% from the stock's current price.

3. QUALCOMM ( QCOM) designs, manufactures and markets digital wireless telecommunication products and services based on its code division multiple access (CDMA) technology and other technologies. The company operates through four segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); Qualcomm Wireless & Internet (QWI); and Qualcomm Strategic Initiatives (QSI).

For the third quarter of 2011, the company recorded revenue of $3.62 billion, an increase of 34% from the year-ago quarter. Net income increased 35% to $1.04 billion, or 61 cents per share from the third quarter of 2010. Operating cash flow, which indicated 35% of revenue, increased 33% year-over-year to $1.26 billion. The CDMA-based Mobile Station Modem (MSM) shipments for the quarter surged 17% to $120 million from the year-ago quarter.

For the fourth quarter of 2011, the company estimates revenue to be in the range of $3.86 to $4.16 billion, an increase of 31% to 41% from the same quarter prior year. GAAP diluted earnings per share expected between 60 cents to 65 cents, an increase of 13% to 23% from the fourth quarter of 2010. For full year 2011, it has raised its revenue guidance to $14.7 billion to $15 billion from the previous view of $14.1 billion to $14.7 billion. GAAP diluted earnings per share are estimated to range from $2.50 to $2.55, an increase of 28% to 30% from the previous year.

Recently, Qualcomm revealed that it is collaborating with Microsoft to enable Qualcomm's Snapdragon next generation family of mobile processors to power the first generation Windows 8-based PCs. This will make it one of the only silicon providers to date positioned to support both Windows smartphones and PCs. Besides, QCOM's Gobi mobile Internet connectivity solutions will provide Windows 8-based PCs with wireless 3G/4G connectivity to deliver an "always-connected" experience.

Of the 41 analysts covering the stock, 83% recommended a buy and the rest suggest a hold. There are no sell ratings on the stock. Analysts polled by Bloomberg forecast an average 12-month price target of $65.67, or 23.8% higher than the current price.

2. STMicroelectronics N.V. ( STM), an independent semiconductor company, engages in the design, development, manufacture and marketing of a range of semiconductor products that find application in Automotive, Consumer, Computer and Communication Infrastructure (ACCI), Industrial and Multi-segment Sector (IMS), and Wireless products.

For the second quarter of 2011, the company recorded a sequential increase of 1.3% in its net revenue to $2.57 billion. Net income for the quarter increased to $420 million from $170 million in the first quarter of 2011 and $356 million in the second quarter of 2010. Gross margin for the quarter stood at 38.1%. Net cash position was $1.07 billion as of July 2, 2011, compared to $702 million as of June 26, 2010.

For the first half of 2011, the company made significant progress in expanding its product portfolio, thereby gaining market share as revenue from wholly owned businesses increased 17% from the year-ago period. For the third quarter of 2011, STM estimates net revenue to evolve sequentially in the range of -5% to +2%. Gross margin is estimated at 35.5%, plus or minus 1 percentage point.

Recently, the company revealed that it has worked with Microsoft to enable STM's Near-Field Communication (NFC) Connectivity Support for Windows 8 operating system. The NFC will facilitate new types of short-range, security-enhanced and convenient communication among all these devices. Additionally, the company's general manager believes that being an early supporter of Windows 8, the company has a unique opportunity to enable plug-and-play NFC features on upcoming Windows 8-based tablets and PCs.

Of the 12 analysts covering the stock, 33% recommend a buy and 50% rate a hold. Data from Bloomberg has analysts reporting an average 12-month price target of $8.67, up 30.2% from the stock's current price.

1. Atmel ( ATML) engages in the design, development and supply of microcontrollers, offering a portfolio of touch products that integrate its microcontrollers with touch-focused property. Besides, it also designs and sells products complementary to its microcontroller business, including nonvolatile memory and flash memory products, radio frequency (RF) and mixed-signal components and application-specific integrated circuits (IC).

Revenue for the second quarter of 2011 stood at $478.6 million, up 4% sequentially and 22% from the second quarter of 2010. Gross margin stood at a record 51.8%, increasing 80 basis points sequentially and 1,120 basis points year-over-year. Net income for the quarter stood at $90.9 million, or 19 cents per share, as compared to a net loss of $36.4 million, or 8 cents per share, in the year-ago quarter.

Microcontrollers revenue increased 3% sequentially to $302 million, surpassing $300 million for the first time in the company's history. For the third quarter of 2011, Atmel estimates revenue to be flat to +4% on a sequential basis.

The company's Atmel maXTouch mXT1386 is the first touch controller to enable touch performance with Microsoft's new touch-centric operating system Windows 8 in a variety of sizes. With Windows 8, touch interfaces can be added to not only tablets but also to notebook PCs and all-in-one PCs. Meanwhile, according to market research firm IHS iSuppli, global shipments for tablets are expected to reach 275.3 million units by 2015.

Of the 16 analysts covering the stock, 88% recommend a buy and 6% rate a hold. A Bloomberg consensus expects an average 12-month price target of $16.18, which is 64.1% higher than the stock's current price.

>>To see these stocks in action, visit the 6 Stocks to Benefit From Windows 8 portfolio on Stockpickr.

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