On Monday, Atheros (NASDAQ:ATHR) reported fourth-quarter and full-year 2006 earnings and conducted the customary analyst call. The communications-chip specialist is a Motley Fool Hidden Gems recommendation and a five-star CAPS stock. You, our readers, also made Atheros the runner-up in a recent roundup of the market's best small-cap stocks. So we thought you might like to know what was said in that after-hours jamboree.

CEO Craig Barratt and CFO Jack Lazar provided a quick recap of recent results from a financial perspective, and it was all good -- 2006 turned out to be four quarters in a row of increased revenue and pro forma earnings. Total sales for the year ended up at $302 million, a 64% year-on-year boost, and non-GAAP net income skyrocketed more than 250%, to $40.7 million or $0.73 per share. These numbers exclude stock-based compensation, certain tax items, and about $12 million of acquisition-related charges.

But you could get that information from the earnings release itself. We're here to find out why the company is doing so well and where it intends to go next.

Atheros is one of the leading makers of chipsets for wireless networking functions. Its 2006 performance resulted from a bigger slice of that market pie -- which, in turn, is growing as we speak -- and from Atheros' diversification strategy. Last year, only 4% of revenues came from markets outside Wi-Fi networking. It's at 9% today, as the company expands into wired Ethernet networking, Bluetooth chips, and mobile phone markets traditionally dominated by the likes of Motorola and Texas Instruments.

But the bread and butter is still wireless networking under the IEEE 802.11(abgn) standards. 11n is still just an early specification draft, but Atheros, Intel (NASDAQ:INTC), and Broadcom (NASDAQ:BRCM) are already shipping these next-generation networking chips in systems put together by Dell (NASDAQ:DELL) and Hewlett-Packard (NYSE:HPQ), among others. As the standard moves toward final approval, it's expected to overtake the current 11g standard in revenue-generating power. Today, 11n accounts for 23% of Atheros' sales, outpacing the company's own target of 15% for the year.

If you thought your 11g network was fast, with speeds approaching the 100mbps Ethernet standard, the new wave is closer to gigabit Ethernet, only sans the wires. It's done with multiple radios listening and broadcasting on several antennae, and Atheros just introduced the first single-chip, triple-radio solution. You can do some cool things with a network like that, Barratt said: "At the 2007 Consumer Electronics Show, we demonstrated eight simultaneous applications, including multiple HD video streams, audio, multiplay gaming, and data, all on a single 11n wireless network."

And the best part is that Internet service providers such as Verizon (NYSE:VZ) and Comcast (NASDAQ:CMCSA) want you to have a network like that in your home, so they can give you instant triple-play services right from your cable modem or DSL gateway. "Carriers are actively planning a rollout of gateway solutions featuring the 11n standard," Barratt said. "The new standard is attractive to this segment of the market, since it will enable the delivery of Triple Play and IPTV services and therefore increase the service revenue carriers can derive from each home installation."

This is important because the retail market for wireless access points is rather small compared to the number of broadband customers out there. If everyone had a fast, convenient network provided by their phone or cable company, consumer-electronics makers could start rolling out televisions, stereo systems, digital video recorders -- you name it -- that hook into this ubiquitous ether of media-streaming goodness to fill your house with the sounds and videos you want, when you want them, and where you want them. It's the ultimate dream for the access providers, and Atheros is happy to sell the networking chips that make it all possible.

And if you're worried about increased competition in the space defusing this presumptive earnings rocket, Barratt disagrees: "We consider Intel's presence in this market to be positive." It's helping not only Atheros but also Broadcom, because there are really only three players in this fast-growing market right now.

In short, this small cap is strapped to a large bottle rocket, and the fuse just started burning. Unwired networks are invading our daily lives, and Atheros plays an instrumental part in that quiet revolution. Feel free to invest accordingly.

Further Foolishness:

Atheros is a Motley Fool Hidden Gems selection, Intel is a Motley Fool Inside Value pick, and Dell straddles the line between the Motley Fool Stock Advisor and Inside Value turfs. Fire up a free 30-day trial or two to find out more about our best investment ideas today.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is always on the front lines.