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Are We Ready for the Third Generation Touch?

Tablets and smartphones are here stay, but unless they're stamped with an Apple (NASDAQ:AAPL) logo, they don’t seem to make a difference.

That's what Atmel (NASDAQ:ATML) CEO Steve Laub said, as Atmel's present and near-future sales turned out to be weaker than analysts had expected. Touch Screen Controllers for modern Smartphone’s and tablets are the best performers in Atmel's product catalog today.

Atmel doesn't have the all-important Apple account for iPad screen controllers; that job falls to a combination of chips from Broadcom (NASDAQ:BRCM) , Analog Devices, and Texas Instruments (TXN) .

The company doesn't even have a complete lock on the market for Android tablet touch screen controllers. Cypress Semiconductor (NASDAQ:CY) is a fierce competitor and powers a few choice accounts.

And here's the kicker: Non-Apple tablets have done some decent business In Past Years, but there's a "very significant adjustment" going on in this nascent. Tablets not named iPad are sitting unsold on store shelves and in distribution channels, according to Laub. The demand for these things has "softened." This sounds an awful lot like consumers got bored with alternative tablets.

The third generation of maXTouch controllers is "clearly superior to anything else announced by others," says Laub,

Will Apple choose this allegedly superior technology over the current TI-based solution? Will the improvements be noticeable to consumers and made into a selling point for Motorola Mobility (NYSE:MMI) or Dell (NASDAQ:DELL) tablets with Atmel inside? At least one of these things needs to happen in 2012, lest all this tough talk turns out to be hot air. After all, the hottest Android tablet uses a last-generation controller that only sees two fingers at a time. Do we really want or need more touch power?

Granted, Atmel shares look cheap at less than eight times trailing earnings. But with falling revenue ahead, that might be all Atmel is worth right now. But maybe the company can deliver on its promises and rise up to double-digit earnings multiples. To find out, you'll need to keep a close eye on Atmel.

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