Small-Cap Computer Stocks

Investing in Silicon Valley’s Future
By Aaron Gentzler
September 3, 2007

Semiconductors are made primarily from silicon. They are the integrated circuits otherwise known as the “chips” in your computer, cell phone and DVD players that conduct vital electrical charges. They might not seem like a big deal anymore to you and me, as we speedily travel through our brave new world of hi-tech gadgetry and always on-tap information…

But the truth is, semiconductors have always been — and will always be — a very big deal as both investments and as drivers of technological progress.

Advances in semiconductor technology are directly responsible for continued economic expansion around the globe. In the United States alone, the semiconductor industry is responsible for over 225,000 jobs and over $10 billion in annual sales.

Worldwide semiconductor sales eclipsed $225 billion in 2005. Manufacturing in South Korea, Japan, Taiwan and Malaysia are all immensely buoyed by the semiconductor industry.

But what’s truly appealing about investing in semiconductors is that the industry tends to eat itself every few years.

The Semiconductor Industry Association (SIA) reported that nearly 17% of industry-wide semiconductor sales revenues are reinvested in research and development each year. Another 10% of sales revenue goes back to upgrades in equipment.

Great numbers. Wonderful story. But it’s not exactly a breaking news flash to assert that investing in semiconductors is a solid strategy.

After all, semiconductor people are the eggheads we partly have to thank for our purchase of a hot new computer in 1997 with all the bells and hard drive whistles that went the way of the cutting edge dodo in six months.

That’s the “industry eating itself” I’m talking about. Advances in technology can — and often do — move faster than marketplace turnover is able to support.

2007 is no different. Though much has changed since your Packard-Bell home ice-cream maker was ushered into obsolescence by the sexy Pentium 2 models back in the mid-1990s, the template of quickly dying technology remains.

Gone are dial-up modems, the usefulness of America Online (AOL), waiting a half-hour to scan a photo and those old tube monitors with their pinging screen static. Today, the rage is “clarity of content.”

From personal computers to portable media gadgets, from home theaters to mobile devices — High Definition (HD) is where the action is today. The lines are sharper, the resolution is better, and the colors are more vivid and bright.

Watching football in HD, for example, is a revelation. Four out of five people, upon experiencing HD for the first time, say “Whoa!” The fifth person faints.

I’m kidding. But the advances just in HD television in the past few years have been staggering — and it’s a “here to stay” advance that’s changing the way we think of viewing media.

Clarity is also coming to the mess of wires and cables behind the TV.

High Def Multimedia Interface (HDMI), the worldwide protocol for the connection of personal computing and home entertainment hardware, is changing the way we think about hooking our gadgets together.

Where it once required a maze of cables and connectors to bring HD content to life, HDMI makes it possible to view and hear HD quickly, cleanly and without the hassle of having to spend an hour laying out cables on the living room floor and connecting them to hardware one by one.

Bottom line is this: Continued advances in semiconductors are bringing HD to new markets and new devices. HDMI is making that process easy and user-friendly.

But it all starts with the semiconductors.

Intel (INTC: NASDAQ) is up better than 29% in the past year, and Analog Devices (ADI: NYSE) has traded up more than 28%. The catalyst for these moves is simple enough.

The industry reinvents itself every 18 to 24 months and the HD wave, including spectacular advances like Blu-ray DVD, is gently pushing consumers toward next-generation content and content delivery devices.

Hidden in the semiconductor industry though is a small, ignored firm with rapidly improving numbers. This company has year over year increases in total revenue of 22% from 2004 to 2005 and 38% from ‘05 to ‘06. Total revenue for the six months of this year ending June 30 was up 14% from the same six months in 2006.

This company has its hands in semiconductors for just about every possible use you can imagine, including inroads with suppliers of HD technology, and a backdoor angle to make even the major Silicon Valley players jealous.

Semiconductor demand isn’t going anywhere but up as today’s coolest gadgets become tomorrow’s 8-tracks and CB radios. And the current penny stock companies sitting on the cutting edge of the next wave of industry reinvention stand to take off in a hurry.

Regards,
Aaron Gentzler

P.S.: The small growing company and frontrunner on this HDMI technology that I alluded to earlier is still sort of a secret. The only word out on it came on Thursday last week from one of your Penny Sleuth editors, Greg “Gunner” Guenthner. Gunner presented his readers with the full report in a Penny Stock Fortunes “special alert.” Check out his CXS Money Multiplier system and the name of this breakthrough company by clicking here.