ATML Atmel Corp.

We recently reiterated our recommendation on Atmel Corporation (ATML)

Atmel is in the process of transforming itself into a purely microcontroller-based company, which it believes will improve its cost structure and unlock value. The company is 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. 

Atmel has a growing microcontrollers business that should contribute to the company's top-line growth, going forward. Microcontrollers are poised to grow significantly due to their versatile application in various end markets, such as communications, industrial, automotive, computer and consumer. Atmel is well placed in the microcontroller market as the company at present is one of the top ten players in this segment. 

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. As expected by Atmel, maXTouch revenues exceeded $375 million in 2011, up from its previous forecast of $300 million.

The phenomenal growth is driven by continued rapid growth of smartphones, the rise of Android tablets and the penetration into new high-volume applications. Atmel continues to see the touch-sensing market expand rapidly beyond smartphones into new applications, such as tablets, netbooks, cameras, printers, automotive and other areas.

However, earnings estimates for 2012 declined after Atmel Corporation missed the Zacks Consensus Estimate in the fourth quarter. As expected, sales also fell short due to softness from microcontrollers driven by declining yields from the touch screen solutions segment and overall weak performances from the industrial and consumer markets.

The first quarter is also forecasted to be weak, primarily due to softness in the ASICs and memory businesses. In the long run, we expect strength in smartphones and tablets to offset the weakness in industrial markets.

Thus, we maintain our Neutral recommendation on the stock. Our neutral recommendation is supported by Zacks #3 Rank, which translates into a short term rating of Hold.

Atmel Corp. (NASDAQ:ATML)
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