In the Chips

10/27/2006 12:00 am EST


Tobin Smith

Founder and Chief Research Analyst, Transformity Research LLC

Perennial crowd favorite Tobin Smith is always on the lookout for the next wave of cutting-edge technology companies. In his recent letter to subscribers, he recommended a business that is active in rising three technology segments.

"Nothing gets my attention more than the prospect of a tasty profit. That's why I'm recommending computer chip maker Anadigics (ANAD NASDAQ).

"Computer chip maker is a bit of a misnomer. More specifically, the company might be called a "Chocolate" chip maker, because it makes the key components found in the new ultra-thin, ultra-chic cell phone from LG Electronics called the Chocolate.

"Not only do these phones look ultra-cool, but they also let you make calls, play video games, take photos, stream videos, and listen to music downloads-all from a package just slightly longer, and a little thicker, than a credit card. To enable all these functions, you need a chip designed to amplify power-and squeezing the most power out of a tiny chip is Anadigics' specialty.

"As 3G (third-generation) phones like the Chocolate grow more sophisticated, they'll need components to amplify power so they can keep up with increased requirements to perform multiple tasks. Those increased requirements mean more Anadigics chips.

"But Anadigics is not just about the 3G chips; it is riding several other waves of transformational change, including the migration to WiMAX, and the move toward digital set-top boxes. The company is also involved in fiber-to-the-premises (FTTP) communications systems.

"In the WiMAX, or wireless broadband, arena, Anadigics is helping to drive a revolution with its radio frequency integrated circuits (RFICs) and power amplifiers that enable original equipment manufacturers to build more capabilities into each new generation of products. On the fiber front, Anadigics offers amplifiers and drivers for a variety of fiber optic applications, and in the high-speed Internet and cable service area, the company provides tuners in set-top boxes, line amplifiers and RFICs.

"According to our recent survey, industry respondents saw growth in spending in all three waves-WiMAX, 3G, and FTTP. This kind of backbone support for the waves that drive demand is a key reason why I think we can get fat off of Anadigics.

"From a fundamental perspective, the company has posted steadily stronger financial results over the past six quarters, and projects that revenues could more than double through 2008-swelling to $300-$350 million from the $165 million expected this year.

"Let's get in the chips with Anadigics with a Buy Under of $9 and a target of $18. The Strong Buy price is $8 and the Accumulate price is $10."

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