Wireless communications specialist Atheros Communications (NASDAQ:ATHR) will report third-quarter earnings tonight, and the Fool is here to give you a sense of what to expect.

What analysts say:

  • Buy, sell, or waffle? Thirteen Wall Street analysts follow Atheros. Of those, eight have a buy recommendation and the other five are staying at a hold. In Motley Fool CAPS, Atheros is a five-star stock with 112 bullish all-star picks versus two bears.
  • Revenues. Analysts agree that we should see sales around $79 million, with none of the 11 estimates straying more than $900,000 from the consensus average. That would be a 73% improvement over last year's $45.8 million.
  • Earnings. Gee, these guys are getting along. Ten analysts with a published EPS forecast say earnings will land at either $0.17 or $0.18 per share. No exceptions. Last year's $0.05 net income seems to be a distant memory.

What management says:
CEO Craig Barratt professes an "unwavering focus on becoming the number one provider of wireless [networking] silicon." That's a bold target, considering that most of the competition is significantly larger and better-funded. But the company isn't afraid to spend money to make money -- 70% of Atheros' 420 employees work in R&D to come up with The Next Big Thing in wireless communications.

What management does:
Gross margins have come back from a recent dip to surpass the all-time highs set 18 months ago. R&D expenses are rising, but not as fast as sales or gross profits, so the operational take is on an even stronger upswing. And thanks to a scrupulously clean balance sheet with no debt and plenty of interest-bearing cash, the bottom line is even fatter.

Margins %

3/05

6/05

9/05

12/05

3/06

6/06

Gross

46.3

44.0

43.5

44.2

45.4

47.2

Op.

6.7

2.6

2.6

4.0

7.0

10.9

Net

6.0

2.7

3.3

9.1

10.7

12.4
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Next-generation 802.11n products are expected to sell through the roof, with traffic speeds in excess of 100 megabits per second promised, alongside security and range improvements. Major system and networking gear makers like Samsung, Belkin, and Netgear (NASDAQ:NTGR) are already shipping Atheros-based 11n products today, even though the technology is still just a draft and maybe a year away from being finalized.

11n gear is selling at significant premiums to older 802.11a/b/g equipment, which is more good news for Atheros' margins. And the industry is working around the unproven status of the technology with an early certification program for equipment that passes a batch of interoperability tests. Atheros is one of the sponsors of that program, and is also working with the other major chip suppliers to ensure a smooth generational transition for consumers and manufacturers alike.

With those sales in full swing, Wall Street's high expectations should come as no surprise. Atheros has made a habit out of surpassing those estimates lately, and there's no reason to believe anything else this time around.

Competitors:

  • Intel (NASDAQ:INTC)
  • Texas Instruments (NYSE:TXN)
  • Broadcom (NASDAQ:BRCM)
  • Marvell Technology Group (NASDAQ:MRVL)
  • Conexant Systems (NASDAQ:CNXT)

Intel is a Motley Fool Inside Value pick. Take the newsletter for a 30-day free trial.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolishdisclosureis good for what ails ya.