Atheros plans to kill the goose that laid the golden eggs, replacing it with one that lays more golden eggs.

The company is a leading seller of wireless fidelity chips. Wi-Fi chips in laptop PCs, cell phones and other devices let those products connect to the Internet wirelessly.

Atheros sells all standards of Wi-Fi, including an older Wi-Fi standard known as 802.11g. It’s now selling chips for the cutting-edge, faster Wi-Fi standard, 802.11n.

Last month, Atheros unveiled its latest line of 11n chips, the Align, which the company calls a family of low-cost chips. Chief Executive Craig Barratt says he hopes to replace 11g sales with 11n sales.

Shares of Atheros have fallen more than 60% since Aug. 11, but earnings have held up better than most. IBD gives it an Earnings Per Share Rating of 94, meaning it has outperformed 94% of publicly traded companies in earnings growth in recent years and quarters.

In the third quarter, sales rose 30% to $138.1 million and met analyst views, while per-share profit minus items rose 32% to 37 cents, beating views. It said it expects per-share profit ex items of 36 cents to 40 cents this quarter, in line with views, with sales of $131.2 million to $138.1 million, below views.

Barratt recently spoke with IBD about the Align chips.

IBD: What is the Align chip?

Barratt: It’s a very important new product family for us. It ties into the notion of providing more value and higher performance to customers.

11n is the newest generation of high-performance wireless networking. The challenge is that a tremendous number of products still use 11g, which offers (data) throughput that is substantially below that of 11n. What we’re doing with the Align family is to provide products based on the 11n specification, (which send data in) a single stream.

Align can offer user throughputs up to five times greater than 11g chips can. It may be a factor of two below the highest-end 11n throughput, though it’s very much closer to the highest-performance end.

IBD: What is “single stream,” and how does it help users?

Barratt: The 11n specification allows you to put two or more pieces of data together at the same time and send them together. So you increase the throughput.

But to do that requires multiple antennas in the chip (all Wi-Fi devices and/or Wi-Fi chips have antennas), and more complexity. With Align, we’re trying to offer 11n-class performance at price points that are going to be, over time, very close to 11g.

IBD: When will the first products with Align chips hit the market?

Barratt: By the first quarter we expect to see products on shelves. We’re sampling today, and customers will ship (early) next year and ramp up in the second half.

IBD: Won’t selling your 11n Align chips at 11g prices hurt your profit margins?

Barratt: We’re not saying (that Atheros will sell Align) necessarily at the same price (as 11g). What we’re trying to cannibalize is our 11g business, not at the same price point but at a slightly (higher) one (to spark) a favorable replacement cycle.

IBD: You sell wireless chips for video game consoles such as Microsoft’s Xbox. Is that a big contributor to your overall sales?

Barratt: To date we have not had a significant number of products in the gaming platform. We do have an important gaming product just coming to market.

We have not described what that product is. We want to keep that confidential. But we do view the gaming segment to be an important part of our business.

IBD: When will that product come to market?

Barratt: This quarter.

IBD: How would you describe your fourth-quarter outlook for sales that will be flat-to-down-5% from last quarter?

Barratt: In Q4, we expect share gains will help us on a relative basis compared to our competitors.We are being more cautious at hiring. We have been hiring aggressively through the first three quarters of this year. -Investor’s Business Daily

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