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Cypress Semiconductor Corporation (CY), Broadcom Corporation (BRCM), Applied Materials, Inc. (AMAT): Buy the Smartphone Chip Suppliers

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With growing demand for smartphones and tablets, chipmakers providing the circuits for these technologies should considerably benefit. Cypress Semiconductor Corporation (NASDAQ:CY), Broadcom Corporation (NASDAQ:BRCM) and Applied Materials, Inc. (NASDAQ:AMAT) are three companies that are particularly strong in this area of the semiconductor industry and are, therefore, worth our attention –and money-. Let’s take a closer look at them:

Cypress: A leadership position

Opinion about Cypress Semiconductor Corporation (NASDAQ:CY) is divided amongst analysts. Some see a dark future for the company while others project brighter results for the upcoming years. I would stand in the latter group, posting an outperform recommendation on this firm. Several reasons lead me to believe this.

For starters, the book to bill ratio has surpassed 1, evidence the firm has demand visibility. Cypress is particularly boosted by demand in the Chinese and wider Asian market, which provided 64% of 2012´s revenue. Increasing demand of TrueTouch and CapSense technologies will certainly drive growth in the short term. In line with these projections, bolstered by seasonality and new customer ramps in Programmable Systems Division (PSD), management´s guidance for the second quarter looks promising.

The firm mainly owes its success to PSoC (Programmable System-on-Chip) products, which have been delivering strong results. Its contribution to revenue is expected to continue on the back of several important contracts with companies like Toyota.

Cypress Semiconductor Corporation (NASDAQ:CY)’s CapSense system is derived from PSoC technology.  This is a market share leading product which includes touch-sensing interface controls, reducing costs by dispensing of more expensive switches.

Cypress Semiconductor Corporation (NASDAQ:CY) also leads the market in the USB Controllers sector, having shipped over one billion devices already. Margins for these products should increase in the upcoming years as fabrication has been moved to India, therefore reducing labor costs.

Although the stock had undergone a little rally after Needham upgraded it to a Buy from Hold, its price fell considerably after Q1 results were announced. Currently trading at a price closer to its 52-week low than to its high, at 24.7 times earnings consensus estimates, if offers a more attractive valuation than the industry median stock, exchanging at 26.31 times consensus earnings estimates (projected assuming a bearish scenario). Nevertheless, its performance last quarter wasn’t as bad as the fall in its stock price made it seem. Earnings came in 200% ahead of consensus estimates, at $0.03 per share. Both earnings and revenue exceeded management’s guidance as well, while dividends paid also topped the average, yielding over 4%. At a reasonable valuation and offering great growth prospects, I’d say, buy Cypress now.

Broadcom: Innovation and growth

This tech giant provides both long and short term investment opportunities as an industry leader. Long-term growth prospects look promising, particularly when you consider that Broadcom Corporation (NASDAQ:BRCM) is a synonym for innovation and excellence, a reputation that the company will most likely continue to hold as engineering efforts to improve efficiency for both the company and its clients continue to deliver positive results.

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