Atmel Corporation(ATML) reported revenues of $393.4 million, up 13% sequentially and up 38.5% from the year-earlier quarter. This beat management’s expectation of 5% – 9% growth on a sequential basis.
Based in San Jose , CA , Atmel designs, develops, manufactures and sells integrated circuit products. The company operates in four segments: Application-Specific Integrated Circuit (ASIC), Microcontrollers, Nonvolatile Memories, Radio Frequency (RF) and Automotives.
On a segment basis, revenues from microcontroller business unit, accounting for approximately 50.3% of total revenues, grew 31% sequentially and 98% year over year to $198 million. The growth in revenues was driven by solid growth in 8-bit and 32-bit microcontrollers.
Atmel experienced broad strength in most of its end-markets primarily driven by smartphones, consumers and industrial applications. Touch-related revenues delivered strong growth driven primarily by maXTouch solutions. During the second quarter, Atmel ramped volume shipments to Samsung, HTC, and Motorola (MOT).
In addition to handsets and tablet PCs, touch controllers are now being used in gaming consoles, mobile Internet devices, GPS, digital cameras, remote controls, printers, and a broad range of industrial applications.
The Application-Specific Integrated Circuit (ASIC) business segment generated revenues of $77 million, up 4% sequentially but down 2% year over year.
The Non-Volatile Memory segment posted revenues of $73 million, down 5% sequentially but up 6% from the year-earlier quarter. Management stated that the company had lower unit shipments of memory products with higher ASPs for most products due to supply constraints. Atmel has reduced the capacity available for the manufacture of multiple source memory products. This adversely impacted memory revenues in the second quarter and will continue to constrain revenue for this segment for the second half of 2010 as the company continues to prioritize wafer supplies to its microcontroller business.
The Radio Frequency (RF) and Automotive segment generated revenues of $45 million, down 3% sequentially and up 28% from the year-earlier quarter. The decline was due to declines in mature non-automotive product lines in the RFA segments.
Net loss came in at $36.4 million or 8 cents per share compared to a net income of $16.6 million or 4 cents per diluted share in the first quarter of 2010 and a net loss of $12.4 million or 3 cents per diluted share in the year-earlier quarter.
Excluding one-time items but including stock-based compensation expense, net income came in at 6 cents per share, in line with the Zacks Consensus Estimate.
Gross margin increased to 40.6% in the second quarter from 38.4% in the previous quarter and 32% in the year-earlier quarter, surpassing management’s guidance of 39% – 41%. The sequential improvement was due to higher volumes, increased factory utilization levels, and an improved product mix. More than half of the products shipped in the quarter were higher margin microcontroller products.
Operating loss came in at $78.9 million compared to an operating margin of 4.3% in the previous quarter and a loss of $17.6 million in the year-earlier quarter. The sale of manufacturing operations in Rousset , France , resulted in a loss on the sale of assets and related restructuring and impairment charges of $107.6 million.
Atmel generated $49.2 million of cash from operations in the quarter. Capital expenditures of $12 million in the quarter were lower than management’s guidance of $25 million – $35 million. This was due to the timing of the receipt of test and probe from the suppliers which in turn was attributed to increase in lead times.
As of June 30, 2010, Atmel had cash and cash equivalents of $552.2 million, down from $483.2 million at the end of the previous quarter. The healthy cash balance has prompted management to buy back thereby, increasing return to shareholders. Atmel announced that its Board of Directors has authorized the company to repurchase shares up to $200 million. The program does not have an expiration date.
Guidance
During the quarter, Atmel completed the sale of manufacturing operations in Rousset , France thereby reducing its wafer fabrication facilities from five to one. Atmel has also entered into a definitive agreement to sell its Smart Card business based in Rousset , France and East Kilbride , U.K. to INSIDE Contactless S.A. The transaction will close in the latter part of 2010.
With the sale of its Smart Card business, Atmel successfully divested or closed 15 non-core product lines or businesses since early 2007. This has also led to a 35% reduction in the employee base.
Atmel will turn into a purely microcontroller-based company and will focus on its core microcontroller and touch products. Management believes that this move will improve its cost structure and unlock value. Atmel is aggressively marketing its new MaxTouch technology. Touch-sensing technology is the fastest growing area in Atmel’s microcontroller business and it is expected to remain a major growth driver in the coming quarters and is expected to generate over $100 million of revenues for 2010.
Going forward, bookings continue to be strong with a book-to-bill ratio of more than 1 and management expects growth to resume in the third quarter. Management expects revenues to be up 6% – 10% sequentially in the third quarter of 2010. This implies a revenue guidance of $417.0 million – $432.7 million. Gross margins are projected around 43% – 45% driven by improved utilization of manufacturing assets and an increasing mix of microcontroller revenues.
Atmel had earlier targeted a gross margin of 45% by 2011. However, based on the divestiture of the Rousset wafer fab, the pending sale of the Smart Card business, a richer mix of microcontroller and touch products and ongoing manufacturing improvements, Atmel now targets a gross margin of 50% in the long-term.
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