ATML Atmel Corp.

Atmel Corporation (ATML) reported a net income of $20.4 million or $0.05 compared to a net income of $32.9 million or $0.07 per diluted share in the fourth quarter of 2011 and a net income of $74.6 million or $0.16 in the first quarter of 2011.

The reported earnings beat the Zacks Consensus Estimate by a penny.

Revenues

The company reported net sales of $357.8 million in the first quarter of 2012, down 22% year over year and 7% sequentially, in line with management’s guidance of revenues declining 6% – 11%. The revenue decline was better that management’s expectations due to stronger turns and the collection of the Asia distributor deferred revenue.

Atmel stated that the first quarter revenue was impacted by the ongoing customer rebalancing of their inventory and lower revenue, primarily within the aerospace business.

Atmel has invested heavily in its Microcontroller business during the downturn and released substantial number of new products in the past few quarters, which will benefit the business during industry recovery.

During the quarter, the industrial business stabilized during the first quarter after several weak quarters.

Consumer and automotive markets resumed growth in the quarter while communications and computational markets continued to be weak. Military and aerospace markets experienced a larger than normal decline after a very strong fourth quarter.

Atmel believes that the first quarter will mark the bottom of the cycle and the remainder of the year should post sequential growth in the coming quarters. 

Microcontrollers business generated revenues of $218 million, was down 26% year over year but increased 1% sequentially. 8-bit microcontroller declined 2% sequentially and down 30% year-over-year. 32-bit microcontrollers increased 9% sequentially but decreased 12% year-over-year.

The company grew its maXTouch revenue sequentially during the first quarter. The launch of the Microsoft's new Windows 8 operating system is expected to usher in a new era of touch-enabled tablets, ultrabooks, convertible PCs and all-in-one PCs. Management expects to book a major chunk of this market.

The Non-Volatile Memory segment generated revenues of $48 million, down 13% sequentially and down 25% year over year. The sequential decline in the memory business was due to the end of life for some of the order legacy parallel flash products.

In the RF and Automotive segment, revenue declined 7% sequentially and down 14% year over year to $44 million due to weakness in the nonautomotive portion of the business, including a legacy foundry business.

The ASIC business segment generated revenues of $49 million, down 26% sequentially and down 9% year over year. This is primarily due to a decline in Aerospace and Military businesses.

Margins

Gross margin declined to 43.2% from 48.7% in the previous quarter due to factory under-utilization, lower revenues from the Aerospace business, which carries a higher than average gross margin, pricing pressure in some of the commodity product lines and higher excess inventory reserves.  Operating margin came in at 9.9%, down from 17.9% in the previous quarter.

Balance Sheet and Cash Flows

The company ended the year with cash and cash equivalents of $288.3 million, down from $329.4 million at the end of the previous quarter. The decrease was due to share repurchase activity in the quarter.

Atmel generated $61 million of cash from operations in the first quarter and used $7 million in capital expenditures. During the first quarter, Atmel repurchased 9.5 million shares for $96.7 million.

Outlook

Atmel was late to experience the softening industry environment, which began in the second half of 2011 and hence the recovery is also later than its peers like Microchip. Assuming a recovery in almost all end markets, Atmel projects revenues to increase by 2% - 6% sequentially in the first quarter of 2012. Gross margin is expected between 43.5% and 44.5%.

The results disappointed investors leading to an almost 8% decline in share-price.

Atmel Corp. (NASDAQ:ATML)
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