This Small-Cap Could Explode Any Day

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When you think about touchscreens, the first name that springs to mind might be Apple (Nasdaq: AAPL). After all, the finger-flicking goodness you see in the iPhone and recent iPods has brought on a veritable revolution in how we use mobile gadgets.

After that, you might think of Synaptics (Nasdaq: SYNA). That's who builds a lot of the actual touch-sensitive screens, from the touchpad on your laptop to the interactive screens on many a cell phone or navigation device.

So far, so good. But when you lift the next curtain, you'll find a plethora of chip designers fighting to establish themselves as the supplier of touchscreen controller chips. That's where you'll find Cypress Semiconductor (NYSE: CY), and the company is riding a wave of resurgent gadget demand to 15% quarter-on-quarter sales growth and a much-improved bottom line.

Cypress lost $0.13 per share in the third quarter on $178.7 million of revenue. That's much better than the second quarter's $0.32 loss per share and $155.8 million in sales. And if you back out one-time charges and stock-based compensation, you get a net profit of $0.10 per share, up from a loss of $0.03 per share three months ago.

Management held up its TrueTouch touchscreen controller products like that old baboon hoisting newborn prince Simba to accept the kingdom's adoration in The Lion King. "Customer acceptance of our new products remains very strong and we are pleased with high-profile design wins in many new end markets," CEO  T.J. Rodgers said. "We continue to achieve significant proprietary product design wins -- especially with our TrueTouch touchscreen products."

Just to name a few examples, publication DigiTimes reports that TrueTouch is the multitouch technology Palm (Nasdaq: PALM) uses in the Palm Pre smartphone. Samsung picked it for the high-end Omnia HD handset. Cypress is not without competition, as big boys like Atmel (Nasdaq: ATML) and Texas Instruments (NYSE: TXN) have their own multitouch touchscreen controllers, while Maxim Integrated Systems (Nasdaq: MXIM), a major player in the world of older but more widespread single-touch pads, is working its way into this new market. But Cypress has an early lead and an impressive range of technologies, including chips that allow up to 10 inputs simultaneously, finally allowing you to play piano sonatas on a single touchscreen.

Cypress has a few other products as well, including entire programmable systems on a single chip and USB controllers. But the company isn't head-and-shoulders above the rabble in those sectors. If and when multitouch screens catch on in a big way, bringing the revolution Apple started to its logical conclusion, small-cap Cypress should be one of the biggest winners along the way.