The Hidden Investment Opportunity of the Tablet Wars

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Apple (Nasdaq: AAPL  ) built a tablet computer. Kinda, sorta. So did Dell (Nasdaq: DELL  ) and Hewlett-Packard (NYSE: HPQ  ) , and nobody knows how many tablets we'll see running the Google (Nasdaq: GOOG  ) Android software soon enough. So there's a totally legit tablet war brewing; will Apple crush its enemies? Nobody knows.

But you know what all of these tablets have in common? Touchscreens.

That gives you an oblique way to invest in the whole tablet craze without choosing sides on the retail shelves. There are still choices to make, of course. Synaptics (Nasdaq: SYNA  ) and Cypress Semiconductor (Nasdaq: CY  ) battle to the death over supremacy in the touchscreen market, with varied results.

Strictly speaking, Cypress only designs controller chips for touchpads and touchscreens, while Synaptics also provides the hardware you'd actually touch. Still, they are direct competitors that fight tooth and nail over every smartphone and tablet contract.

Cypress reported fourth-quarter earnings last night, showing 18% year-over-year sales growth to $194 million. A $0.08 non-GAAP loss per share in 2008 reversed into $0.16 of earnings per share, and the company announced enough new products in the quarter to grow its addressable market tenfold to more than $15 billion a year.

High-end touchscreen controllers from Cypress, along with the proper software, allow 10-finger touch gestures and more. Yeah, you could play a 10-finger piano chord on a Cypress-powered tablet screen. Gross margins are improving along with unit volumes, possibly indicating the start of a veritable gold rush. Given the rise of smartphones and tablets, that only makes sense.

When our Rule Breakers analysts picked this stock, they saw massive promise in the markets Cypress serves. It looks like that promise is turning into reality right about now. Stay tuned for one heck of a roller-coaster ride.

Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. Cypress Semiconductor and Google are Motley Fool Rule Breakers recommendations. Apple is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like. The Motley Fool is investors writing for investors.

Read/Post Comments (2) | Recommend This Article (8)

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  • Report this Comment On January 29, 2010, at 6:48 PM, mollykat wrote:

    Your logic to own CY seems sound. Big problem is the volitity. I lost my CY on a stop loss at minus 10%.

  • Report this Comment On February 03, 2010, at 4:40 PM, martyf32 wrote:

    Well friend, it could be worse. You could be lke me and own synaptics which is down more than 10%.

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