By Marion Lougheed
With the economy on the rise, technology stocks are coming back into their own. Investors are asking themselves which stocks are the most viable. Strong margins and an increase in market value have brought Texas Instruments (TXN), NXP Semiconductors NV (NXPI) and STMicroelectronics NV (STM) up into the good graces of investors. However, while these three should not be ignored, I think that Cirrus Logic (CRUS) is the real money maker in this bunch, due to its drive and intelligent focus on specific areas that are recognizable as strong potential revenue streams.
Apple (AAPL) helped build up Cirrus by using its chips in many of its products, from various versions of the iPhone to the increasingly popular MacBook. But lately, Cirrus has been making strides in other directions. It has not abandoned its relationship with Apple, which would be a foolhardy thing to do, in my opinion, but Cirrus is expanding its horizons. Its first steps are into the LED market, and the company is being impressively innovative, in my view. Cirrus is not copying its competitors or imitating successful counterparts. Instead, this company has waited until it saw a significant gap in current supplies that it was then able to fill. Cirrus' focus for now seems to be on its new LED controller, which dims LED lights that are incompatible with traditional dimmers. I expect environmentally conscious consumers to get all over this new product, which bodes well for Cirrus and its shareholders.
The company does not appear to have forgotten about its other products either, which looks to me like a sign of effective management. Cirrus has fewer plates in the air than some companies, so it is able to keep a better overview of everything that is going on. This leads consumers to expect quality from this company, so it is good news for investors. While it works on the LED dimmer, Cirrus is also making life easier for semiconductor and flat-panel test equipment manufacturers by connecting its products with those of others. The new PB63 power booster accelerator triples the effect of the company's previous accelerators, which means enhanced performance for the equipment manufacturers that purchase Cirrus' booster accelerator along with a couple of relatively cheap amps.
A different approach comes from the very diverse TI. Although Cirrus seems to be doing well based on its ability to focus, TI has successfully diversified in such a way that it rarely has to worry about losing profits, in my opinion, since its money comes from many sources. Even if one area fails, TI has other sectors to fall back on.
This stock's profit margin of approximately 16% is only a fraction of that of Cirrus (about 41%), but it is maintaining its competitiveness nonetheless, as far as I can tell. While a lot of people immediately think of calculators, TI is much more than that. Currently, the company is working on expanding its medical application, by producing five new AFEs (analog front ends) for EEGs and ECGs. More importantly, in my opinion, the company likes to recognize excellence among its suppliers with its Supplier Excellence Award, which I think breeds good working relations with others. It can be difficult for any company to thrive without connections, so I feel that this is a good business attitude for TI. Investors should be able to expect intelligent ventures from this stock, which could keep it viable for the near future, in my opinion.
NXP is also taking determined control of its assets. It just bought the Catena Group, which should position it strongly in the automotive technology industry. Additionally, competitor ST has been ordered by a tribunal to pay $59 million to NXP for "underloading charges to be included in the price of wafers which NXP supplied to ST's wireless JV from October 1, 2008 until December 31, 2009." To me, it looks like ST is trying hard to cut corners, which could be great for short-term investment, but in the long run I think that shareholders should be prepared for more court orders like this one. If the company continues to be forced to pay large sums to others, I believe that its stock will start to plummet before too long. The payment to NXP is predicted to negatively affect gross margins of ST by 2.6 percentage points.
However, ST managed to increase its consumer and mobile MEMS revenue by 81% last year, so I don't think investors should completely give this stock the shaft. It still stands at number one in this area, and competitors like TI are not pushing it out of the market yet. Although it seems to be flip-flopping in terms of financial practices, as stated above, ST could still manage to pull out a profit for investors, as long as it keeps providing quality materials to its buyers, which includes Apple. ST is recognized as the world's largest supplier of accelerometers, a piece that functions as a motion sensor in cell phones, video game controllers and other electronics. I believe that upgrades to these consumer electronics will continue to be in high demand, especially as we see the U.S. economy pulling out of its depression.
It's a good time to be investing in technology stocks, in my opinion. Even though it is likely that the four stocks discussed in this article will drop a bit in the future, I expect to see all of them pay off for shareholders. Cirrus is the best option, according to my analysis, because it maintains a degree of security not seen in the others. Nevertheless, TI, ST and NXP are all equally valid options, in my opinion, because they have put in energy to working with larger partners. As a supplier, ST might be the best positioned to increase in value, as long as the company's leaders can keep their hands clean and avoid future lawsuits.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.