The Top 10 Semiconductor Stocks of 2010

It's been a pretty kind year to stock investors, with the S&P showing a 12.5% gain in 2010. Of course, kindness might still feel relative after a lost decade of negative returns that included the nauseating depths and panic of the financial crisis.

However, while the general market might have edge up at a low double digit pace last year, quite a few stocks poured in monster performances either by riding new trends or by rebounding much stronger than investors expected.

Here's a list of this year's top 10 performers in the semiconductor industry.

Company

Percent Return in 2010

Entropic Communications (Nasdaq: ENTR  )

                        280.5

MIPS Technologies (Nasdaq: MIPS  )

                        229.7

Spreadtrum Communications

                        229.7

Silicon Image

                        171.7

Atmel (Nasdaq: ATML  )

                        162.7

Cirrus Logic (Nasdaq: CRUS  )

                        136.2

EZchip Semiconductor

                        133.8

ARM Holdings

                        120.9

Lattice Semiconductor

                        113.0

OmniVision Technologies (Nasdaq: OVTI  )

                        102.8

Source: Capital IQ, a division of Standard & Poor's. Only includes companies listed on U.S. exchanges that contain a market capitalization greater than $500 million.

When examining the above list, two themes quickly dominate. Home entertainment and mobile devices. In fact, you could boil those two themes into one central word: connected. In 2010, the idea of devices seamlessly connected together reached critical mass.

The top two performers, MIPS and Entropic both benefited from a digital home booming with connected devices . In MIPS case, it licenses a processor architecture that's extremely popular in home entertainment devices. Entropic has benefited from acceptance of home networking over coaxial cables, a standard in which it's a leader. Looking at home entertainment, MIPS is the leader within each device, and Entropic provides the technology to "bridge" all these devices together.

Then there's also semiconductor companies benefiting a boom in always-connected mobile devices. Atmel, along with Synaptics and Cypress Semiconductor, have gained traction supplying touchscreen controllers to smartphone manufacturers. Cirrus Logic has doggedly pursued high-end audio wins in smartphones, and its efforts have paid off handsomely -- it now provides it chips across Apple's product line-up, including the iPhone and iPad.

OmniVision Technologies pursued its backside illumination (BSI) technology even after other technology-heavies like Sony declared it too expensive. Now, BSI's use is taking off, and it's being integrated into the iPhone and other high-end smartphones. Finally, the most interesting stock of the bunch might be ARM Holdings. The company is similar to MIPS in that it merely licenses its processor designs. However, its focus is more geared toward smartphones, where its processor designs have near unquestioned dominance.

Just barely missing the list were two other smartphone plays: TriQuint Semiconductor (Nasdaq: TQNT  ) and Skyworks Solutions (Nasdaq: SWKS  ) , two companies who have an expertise in designing the chips that allow phones to communicate with the data networks that leave them constantly connected to the Internet.

Many of the trends that propelled these stocks forward in 2010 will still be powerful trends going forward into 2011. Its interesting to note that while several of these stocks saw huge price gains throughout 2010, their market multiples are still fairly reasonable. For example, TriQuint, Skyworks, OmniVision, and Cirrus Logic all sport forward P/Es of less than 15.

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Eric Bleeker owns shares of no companies listed above. Cypress Semiconductor is a Motley Fool Rule Breakers selection. Apple is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Apple and Cirrus Logic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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