Better Buy: Cypress or Atmel?

In this Motley Fool series, we pit two stocks against each other using five criteria to determine the better buy.

Atmel (Nasdaq: ATML  ) and Cypress Semiconductor (NYSE: CY  ) are flat-out rivals in the market for the controller chips that drive the now nearly ubiquitous touchscreens of smartphones and tablets. Given their close proximity in the open market and similar small-cap status, how would investors make an informed choice of one over the other?

Let the battle begin, and then we'll find out.

Round 1: Balance sheet
Neither Atmel nor Cypress has any significant debt to worry about, and both have a comfortable cash cushion on which to fall back. Not fluffy enough to go on a spending spree in Silicon Valley, mind you. Just enough to stay comfy.

Advantage: Tie.

Round 2: Operations
When you see a fancy new touchscreen phone by Palm or Research In Motion (Nasdaq: RIMM  ) , Cypress often has a finger in that pie. That puts Cypress in the catbird seat for a very, very attractive segment of the electronics market today as smartphones are the new pet rock, Rubik's Cube, and calculator watch rolled into one.

Atmel's customer list is much more impressive on a first glance since it includes not only smartphone makers such as Apple (Nasdaq: AAPL  ) and Nokia (NYSE: NOK  ) , but also electronics generalists such as Samsung, Cisco Systems (Nasdaq: CSCO  ) , and IBM (NYSE: IBM  ) . No, IBM and Cisco aren't about to release touchscreen smartphones to an unsuspecting world; Atmel simply has a broader product line than Cypress, stretching into networking, industrial controllers, and wireless communications among other fields.

That broader customer base and operational reach does work in Atmel's favor often, but we're looking for a smartphone and tablet hanger-on here, which makes Cypress the more focused choice.

Advantage: Cypress

Round 3: Long-term stability
In other words, where do you invest money you can't afford to lose? That plump base of operations works in Atmel's favor here, as the company will still be around doing other things if growth areas like touchscreens fizzle out. Don't laugh: Maybe we'll have mind-reading phones in five years.

Advantage: Atmel

Round 4: Short-term sexiness
One look at the stock chart says it all: Everybody loves Atmel right now. It's a turnaround story in the making while Cypress is just emerging from a long, dark tunnel. The market pop you get from a proven improvement hasn't happened yet for Cypress, but Atmel is on a rocket ride already. And hey, Atmel does land the touchscreen contract for plenty of hot phones, too.

Advantage: Atmel

Round 5: CAPS rating
This one's easy: Cypress has the edge with four CAPS stars versus Atmel's three (out of five), and Cypress also gets a much higher approval rating from a significantly larger horde of your fellow investors.

Advantage: Cypress

Recap

Data Point

Atmel

Cypress

Balance sheet

X

X

Operations

 

X

Long-term stability

X

 

Short-term sexiness

X

 

CAPS rating

 

X

Oh dear. It looks like we have a tie based on the criteria above. Let me throw in a tiebreaking factor to settle the score then:

Overtime: Value
When you factor in Atmel's gleeful 78% joyride over the last year while Cypress' stock settled for more modest 31% returns, this round goes to Cypress. I know, the stock looks ridiculously expensive based on P/E ratios and such, but remember what I said about just peeking out of a long, dark tunnel? It'll be another couple of quarters before we have the kind of trailing-12-month record here that makes for reasonable comparisons, but Cypress is clearly on a positive trajectory and deserves some investor attention.

Advantage: Cypress

So there you have it: A thrilling overtime battle is settled by a seemingly impossible value proposition truly worthy of Cypress' Rule Breaker status. But what do you think? Vote in the poll below. Then share your thoughts in the comments section below the poll.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Nokia is a Motley Fool Inside Value recommendation. Cypress Semiconductor is a Motley Fool Rule Breakers choice. Apple is a Motley Fool Stock Advisor recommendation. The Fool has written calls (bull call spread) on Cisco Systems. The Fool owns shares of International Business Machines. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On September 20, 2010, at 9:33 PM, lcmesquita3206 wrote:

    Cypress is a better buy based on fundamentals and price valuation as the author has argued. But in the next 1-3 months, momentum for Atmel will outperform Cypress. On the longer time horizon Cypress valuation will exert itself and Cypress is likely to outperform Atmel on a 24 month time frame.

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