We recently reiterated an Outperform recommendation on Atmel Corporation (ATML) in anticipation of strong growth in the coming quarters.
Based in San Jose, California, Atmel Corporation designs, develops, manufactures and sells integrated circuit (IC) products. These products include microcontrollers, advanced logic, mixed-signal, non-volatile memory and radio frequency (RF) components.
Atmel is currently focusing on its core Microcontroller business and is halting development in non-core areas with the aim of targeting high-growth and high-margin businesses. With the sale of its Smart Card business, Atmel successfully divested or closed 15 non-core product lines or businesses since early 2007.
Atmel Corporation’s top-line growth continues to accelerate, driven by solid growth in 8-bit and 32-bit micron rollers and touch sensing products. Microcontrollers are poised to grow significantly as economy revives due to their versatile application in a number of end markets. Atmel is well placed in the microcontroller market as the company is now one of the top ten players in this segment.
Atmel is aggressively marketing its new MaxTouch technology. Touch-sensing technology is the fastest growing area in Atmel’s microcontroller business and is expected to remain a major growth driver in the coming quarters and generate over $100 million of revenues for 2010. Moreover, as smartphones become ubiquitous in use, touch sensing products will continue to gain traction.
Meanwhile, management has been taking steps to streamline its workforce and improve profitability in response to the economic slowdown. The sale of numerous product lines has led to a 35% reduction in the employee base. Atmel also already reduced its wafer fabrication facilities from five to one.
Going forward, bookings continue to be strong with a book-to-bill ratio of more than 1 at the end of the second quarter. Atmel 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.
Earnings estimates for fiscal 2010 have been static in the last thirty days. Nevertheless, there were two positive revisions for fiscal 2011 earnings estimates in the last thirty days and one in the last seven days. Consequently, earnings estimates have been up by two cents in the last seven days for fiscal 2011.
In anticipation of strong results in 2010, we raise estimates and reiterate our Outperform recommendation on the stock. Our recommendation is supported by Zacks #2 Rank, which translates to a Buy rating.
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