Electric Component Semiconductors: What New Products Are Driving Profits?

The semiconductor industry is moving at a fast pace and companies are required to constantly upgrade their product portfolios. Rapid technological changes, evolving standards, and short product life cycles alter earnings quarter after quarter.

As price wars and intense competition affect this industry, new product innovations with advanced designs are the ones to help companies gain new contracts. Three companies in this field are worth mentioning:

Atmel: Bad quarter, brighter future
Considered as one of the top ten players in the microcontroller market, Atmel designs, develops, and supplies these products on a global scale. The company posted a poor second quarter with a 6% year-over-year decline in net sales, which reached $347 million, and adjusted earnings of $0.03 per share.

Despite the quarter results, Atmel's intention is to continue to invest more in its core microcontroller business. Its fast-growing touch-sensing technology has become one of the major growth drivers for the company, led by continued rapid use of smartphones and tablets. Plus, thanks to mobile applications, this technology is experiencing deeper penetration in markets like netbooks, cameras, printers, and automotive. Recently, high demand in the industrial market for its point-of-sale terminals, home and building automation, and medical equipment is pushing sales higher. According to a recent report by NPD DisplaySearch, the market for touch sensors is over $5 billion annually and it is expected to grow from 12 million square meters shipped last year to 35.9 million square meters by 2015. So, there is significant room for growth.

Atmel holds tight relationships with NVIDIA, QualComm, Nokia, Motorola, HTC, and Samsung, which will boost business in the future. However, one factor that we have to pay attention to is the company's high inventory levels along with its exposure to operating expenses in Europe, where the company manufactures a significant portion of its products.

Anadigics: Still looking to regain profitability
Another company to consider is Anadigics , which also experienced losses in its last second quarter. Its loss came in at $0.17 per share, reaching $13.8 million. However, this loss was narrower than the prior-year quarter's $20.9 million loss.

There is some hope, though. Management is focused on three market drivers: 3G and 4G data connectivity growth, expansion of wireless and CATV infrastructure, and proliferation of high-performance Wi-Fi mobile connectivity. Plus, Anadigics is increasing its offerings in markets that present high demand for multiple power amplifiers and multiple tuner ICs.

However, short and mid-term profitability are an issue for the company. Over the past few quarters, Anadigics has been incurring losses despite some gross margin improvement this quarter.

Applied Micro Circuits: Still strong
Applied Micro Circuits has a formidable position in the server solutions and wireless market.

The company is a leader in mixed-signal design, Internet protocol and ethernet packet processing, embedded processors, and high-speed signal processing, which gives it a preferential place to excel in the future generations of these technologies. Data center and wireless infrastructure demand will be a key driver for future contracts.

Moreover, Applied Micro Circuits' diversified product offerings, such as X-Gene and X-Weave products, will help it grow its market share. Its ground-breaking 64-Bit ARM processor has been a major hit. In addition, various key design wins in application-specific integrated circuits, or ASICs, will improve the company's computing business position.

But, the company's main challenges are mostly financial. Its 64-Bit ARM processor's gains cannot be gauged at present. Since heavy investments have been made, the fruits of these sales will likely be realized in about two years.

Bottom line
Atmel is well-positioned to profit from the growing touch-sensing market. The company remains a great investment, and if it manages to keep up with technology demands and renew its contracts, it will definitely outperform its peers.

Even though Anadigics has a good position in the 3G Wi-Fi and CATV markets, the company might not return to profitability before 2014. If you open a position in the company, keep an eye on capacity underutilization and revenue performance.

Despite the current leadership in some markets, Applied Micro Circuits could be in a tight position if its innovation does not continue creating great products with good sales levels. If you buy this stock, be cautious.

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The article Electric Component Semiconductors: What New Products Are Driving Profits? originally appeared on Fool.com.

Louie Grint has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

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