The Best Small Cap for 2007: Atheros

If you thumb through any recent CircuitCity (NYSE: CC  ) or Best Buy (NYSE: BBY  ) flyer, you'll see more wireless-networking products than you can shake a virtual stick at. With the ultrafast 802.11n Wi-Fi specification on the market way before the standards bodies have fully ratified it, a wireless home network can now rival wired Ethernet equipment in speed and reliability.

A host of cities have installed municipal Wi-Fi networks, available cheap or even for free to anybody with a laptop, some PDAs, and even the occasional smartphone. That carefree and wireless capability is quickly becoming a must-have feature on all of these platforms.

Enter Atheros (Nasdaq: ATHR  ) . This madcap small cap wears a five-star Fool cap, and for good reason. Atheros makes nothing but wireless-networking chips, providing the networking platform for mastodons including Cisco (Nasdaq: CSCO  ) and Hewlett-Packard (NYSE: HPQ  ) . There is healthy competition from the likes of Marvell (Nasdaq: MRVL  ) and Texas Instruments (NYSE: TXN  ) , but none is as focused on the wireless space as Atheros is. And the little Wi-Fi expert that could is already a part of all of the major standards committees, so it will certainly play a significant part in the wireless future.

The company has been profitable for a couple of years, with growing gross and net margins and a compound annual revenue growth rate of 69% over the past three years. And that's before the next-generation wireless standard even got approved. When that platform becomes the de facto standard, the entertainment industry has some plans for putting a network like that into every home. That's where the real growth starts.

So will Atheros be the biggest Lilliputian of them all in 2007? I think it will, and if not, its time will come soon thereafter. In the end, time will tell, but if you agree with my assessment, let us know in our brand-new Motley Fool CAPS investment-intelligence community. Just rate Atheros "outperform," and fill out your virtual portfolio with a few more of your best ideas. Make your mark, and don't forget that you can add your own thoughts on any stock along with your rating. Based on your thoughts, we will declare the best small cap of 2007 early next week.

Further Foolishness:

Seen our other contenders for best small cap? If not, click here.

Best Buy is aMotley Fool Stock Advisorrecommendation.

Fool contributorAnders Bylundholds no position in any of the companies discussed here. This article was made possible by at least three wireless connection points powered by Atheros chips. You can check outAnders' holdingsif you like, and Foolishdisclosureis always cutting-edge.


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