No Pain, No Gain for Atheros' Investors

 

Beautiful Woman

The spring
in
her step
has
turned to
fall.

-- A.R. Ammons

I love small, successful high-tech companies with rock-solid balance sheets. When they go down, they fall hard -- Mr. Market holds no mercy for small caps. But when they rebound, the spring in their step can be tremendous.

Wi-Fi chip maker Atheros Communications (Nasdaq: ATHR  ) is one of those spring-loaded stocks right now. Thursday night's first-quarter report did little to restore most investors' faith in a stock that has been punished harder than the S&P 500 over the past nine months. Atheros lost $7.6 million, or $0.12 per diluted share, on $87.9 million in revenue. That's a lot worse than the $0.06 income per share on $114.5 million in sales a year ago.

The bad news makes sense, because Atheros sells its products to ailing gadget makers and consumer electronics mavens such as Motorola (NYSE: MOT  ) , Sony (NYSE: SNE  ) , and Samsung. A few bright spots like the seemingly inexorable successes of Atheros customers Nintendo and Apple (Nasdaq: AAPL  ) couldn't overcome the generally torpid state of the markets where Atheros makes its living.

So here's the good news, if you're not that familiar with Atheros: The balance sheet is squeaky clean, with no debt and $289 million of cash and equivalents. Atheros remains a well-respected leader in Wi-Fi technology, with announcements about significant new products nearly every quarter. And the company piggybacks on a long-standing marketing partnership with Qualcomm (Nasdaq: QCOM  ) to get a foot in the door wherever someone designs around a Qualcomm platform.

Given these very tangible advantages, there is no doubt in my mind that Atheros will come back strong when the global thirst for advanced consumer electronics returns. Sure, you can buy Sony or Apple with the same rebound in mind, but Atheros looks poised to deliver even greater returns, because it's small, focused, and rock-solid -- like any good Motley Fool Hidden Gems pick should be.

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