Atmel Corporation (ATML) reported a net income of $43.0 million or 10 cents per share in the third quarter of 2012 compared to a net income of $37.4 million or 8 cents per share in the second quarter of 2012 and a net income of $124.0 million or 26 cents per share in the third quarter of 2011. The reported earnings were ahead of the Zacks Consensus Estimate of 5 cents per share.
Revenues
The company reported net sales of $361 million in the third quarter of 2012, down 24.7% year over year and 2% sequentially. Net sales in the quarter were within management’s previously provided guidance range of $357 million – $379 million.
The fall in revenue was caused by the downturn in the company’s business segments except its microcontroller business.
Microcontroller business generated revenues of $226 million, down 25% year over year but up 3% sequentially. 8-bit microcontroller declined 7% sequentially and 35% year over year. 32-bit microcontrollers increased 33% sequentially and 11% year over year.
The Non-Volatile Memory segment generated revenues of $44 million, down 7% sequentially and 33% year over year. The sequential decline in the business was due to the weak pricing situations.
In the RF and Automotive segment, revenue fell 9% sequentially and 17% year over year to $43 million. Atmel saw a downturn in the product ranges owing to the slow European automakers' trends during the quarter.
The ASIC business segment generated revenues of $48 million, declined 11% sequentially and 21% year over year. The fall in the revenue was particularly due to the delay in the government funding.
On a geographical basis, Asia accounted for 62% of total business. Europe, the Middle East and Africa accounted for 23% while the Americas contributed 15% to the total revenue.
Margins
Gross margin (excluding one-time items) decreased to 43.7% from 44.6% in the previous quarter, primarily due to the low revenue generated in the ASIC business segment and the negative impact from the company’s contract with the European foundry partners. However, reported gross margin was down from 50.4% in the third quarter of 2011. Operating margin came in at 12.7%, up from 11.7% in the previous quarter.
Balance Sheet and Cash Flows
The company ended the quarter with cash and cash equivalents of $287.0 million, up from $240.9 million at the end of the previous quarter, driven by the high net income earned from the sales of serial flash business.
Atmel generated $53.6 million in cash from operations in the third quarter, down from $61.1 in the prior year period. The company incurred $16 million in capital expenditures.
Share Repurchase
The company bought-back a total of 3.8 million shares at an average price of $5.98 per share during the third quarter of 2012.
Outlook
Going forward, Atmel anticipates that the revenues will be within the range of $328 million and $352 million in the fourth quarter of 2012, down 6% to up 1% sequentially. The revenue in the quarter is likely to be positively influenced by the company’s microcontroller business offsetting the decline in the other businesses.
Gross margin is projected between 41.6% – 43.6% in the fourth quarter of 2012. Operating expenses are expected to be nearly $110 million. Capital expenditures are likely to be nearly $5 million to $10 million.
Even though Atmel has globally established itself in the microcontroller business, it operates in an intensely competitive market. The industry is marked by rapid technological changes, evolving standards, short product life cycles and decreasing prices as competition increases. The company’s primary competitors include big players such as Texas Instruments Inc. (TXN) and Intel Corporation (INTC).
The company carries a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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