Unless you've Rip Van Winkled your way through the past year, you know it hasn't been a good one for Nokia (NYSE: NOK). With lower guidance, increased competition, meaningless lawsuits, and an R&D machine that's gone so far underground it may as well be in witness protection, Nokia has become the poster company for those disrupted by the rise of app-savvy smartphones. The stock is down 29.6% since last June, and that's after accounting for a dividend that yields a remarkable 7.6% as of this writing.

Nokia's given investors little to cheer about. Sure, revenue growth is on the rise, but profits remain elusive. The former Finnish phenom has even had trouble squeezing cash from operations:

Growth Rates




Revenue 5.1% 3.6% (19.2%)
Normalized net income (23.3%) (10.1%) (62.7%)
Cash from operations (7.1%) 47.0% 1.6%

Source: Capital IQ, a division of Standard & Poor's.
*Trailing 12 months.

Whither the supply chain?
No wonder the stock is down. Nokia is backsliding on its most important metrics. Fortunately, what's true for Nokia isn't necessarily true for the rest of its supply chain. Quite a few partners have found ways to profit even in the face of Nokia's decline.

In the case of top performers such as RF Micro Devices -- which counts Nokia as its largest customer -- steps taken to broaden its customer case have paid off with higher levels of growth. The company ramped business with Samsung, LG Electronics, and, come September, Research In Motion.

Here's a closer look at other Nokia licensing, communications, component, and chip suppliers. I've included only those that Capital IQ shows as having some form of material profit change over the past year.


1-Year Profit Growth

1-Year Stock Return

Dolby Laboratories (NYSE: DLB) 13.2% (33.6%)
Silicon Laboratories (Nasdaq: SLAB) (26.8%) (10.3%)
Broadcom 208.8% (1.3%)
Integrated Silicon Solution 111.5% 5.0%
Anaren 18.1% 15.7%
RF Micro Devices (Nasdaq: RFMD) 44.9% 28.1%
Texas Instruments 42.9% 33.8%
Skyworks Solutions (Nasdaq: SWKS) 102.5% 51.6%
Qualcomm (Nasdaq: QCOM) 35.5% 62.3%
Littelfuse (Nasdaq: LFUS) 149.4% 65.9%
National Semiconductor 48.1% 78.0%
Atmel 10,837.4% 172.3%

Sources: Capital IQ, Yahoo! Finance.

See the pattern here? For all of Nokia's foibles, the majority of its suppliers are diversified enough to keep growing -- in the case of Atmel, Broadcom, and Skyworks, outrageously so.

The best of the best
Which suppliers should you bet on? In cases like these, I prefer to turn to the community-intelligence database we call Motley Fool CAPS. Among the 12 stocks listed, the three highest-rated are Silicon Laboratories, Dolby, and Littelfuse. Here's a closer look at the thesis for each:

  • Silicon Labs designs chips that convert analog sound and radio waves into digital signals that electronic devices can process. Mixed-signal processors are important, because plenty of data is still transmitted in traditional analog format (e.g., landline and cellular phone calls). The stock trades about in line with analysts' long-term growth estimates. 
  • Dolby is the world leader in audio technology. Nokia and Dolby first entered into a partnership last year to include surround-sound technology in certain handsets. For its part, Dolby has failed to impress lately, but the underlying business is valued below historic growth levels. There's upside here if that equation proves to be too conservative.
  • Littelfuse is a little-known company worth about $1.3 billion in market cap as of this writing. Its business? Circuit protectors for sensitive electronics that would be irreparably damaged if overheated -- wireless telephones, for example. Littelfuse's products are in such demand that the company increased guidance in the first quarter, yet the stock still trades for a modest premium to the long-term profit growth analysts expect.

All three of these stocks interest me at current levels. Dolby is already a part of my CAPS portfolio, but I've yet to add Silicon Labs and Littelfuse. I'll be remedying that shortly after filing this article. Care to join me? Just follow the links and rate each stock "outperform."

Or if you'd rather study a different stock poised to profit from the wireless revolution, try this free report. In it, my Foolish colleagues identify a top-rated broadband equipment supplier that has yet to take off. Get your copy of the report -- it's 100% free.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Texas Instruments and Qualcomm. Motley Fool newsletter services have recommended buying shares of Silicon Laboratories and Dolby Laboratories. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.