Tickers in this Article: ATML, CY, SYNA, MCHP, MMI, KYO, DELL
It is often remarkable that people who are entrusted with the responsibility of running millions (if not billions) of dollars are often so easily spooked. Right now, tech investors are running scared when it comes to the chip sector, leaving names like Broadcom (Nasdaq:BRCM) on the outs. Apparently Atmel (Nasdaq:ATML) can go on that list now too: Even though the company reported good results and consistent guidance, Wall Street does not seem overly impressed.

Tutorial: 20 Investments To Know

A Strong Start to the Year
Atmel reported revenue for the first quarter that just nearly matched the highest estimate and did surpass the average guess. Revenue grew just 1% on a sequential basis, while rising about 43% from last year on a like-for-like basis.

Growth was again led by the microcontroller business; now nearly two-thirds of the company's revenue base, microcontroller revenue was up 2% sequentially. Better still, the company's 32-bit microcontroller business was up 20% sequentially and the company continues to log impressive design wins in the smartphone and tablet industry. Non-volatile memory actually grew better than microcontrollers, while ASIC was the only segment to decline on a sequential basis. (For related reading, check out A Good Opportunity For Broadcom?)

Even though the company's revenue did not change much, Atmel squeezed more profitability out of its sales. Gross margin improved about 150 basis points, due in part to mix. The company's operating income requires a bit more explanation. Atmel is to be lauded for not indulging in the "non-GAAP" nonsense so common in tech, but here is a case where that would have helped a bit. Reported operating income dropped 13% sequentially, but if an investor strips out the restructuring charges, that drop reverses to a solid 6% sequential gain as the company's expenses were remarkably flat.

A Good Touch
Touchscreens continue to be a leading opportunity for Atmel. The company added several new products to the maXTouch roster this quarter - including seven phones from HTC, and phones from Kyocera (NYSE:KYO), Motorola (NYSE:MMI), Nokia (NYSE:NOK) and Samsung, as well as tablets for Motorola, Samsung and Dell (Nasdaq:DELL). Just as important, the company seems to be pulling into a significant lead in design wins versus rivals Cypress Semiconductor (NYSE:CY) and Synaptics (Nasdaq:SYNA).

Not Just a Smartphone Company
Smartphones are driving a lot of the buzz around Atmel, but that's not all the company is. Atmel actually sells more of its microcontrollers into the industrial sector, where they are used to control the motors that operate various features within a car like the windows and doors. Atmel is also pursuing more and more applications in aerospace and defense, and there is an outside shot that touchscreens will start appearing on more household goods (like "white goods" such as refrigerators or dishwashers). (For more, see Atmel Off To The Races.)

More Opportunities to Gain Share
Several chip companies have sold off on worries about the pace or timing of growth in the smartphone space. In the case of Atmel, though, that ignores the opportunity to gain share via design wins. It also seems to undercut the opportunity Atmel may have to benefit from the Japanese quake. Renesas is a major competitor in the microcontroller space, and half of the company's fabs were damaged. What's more, Fujitsu is a player in the automotive market and has also seen some disruption. (For more, see Don't Feel Blue About Chips.)

Bottom Line - Still Waiting
To be fair, Atmel shares have not sold off much - they have had a great run and only given back about 15% from the 52-week high. Still, it is an exciting company when compared to rivals like Cypress or Microchip Technology (Nasdaq:MCHP).

The trouble is what price to pay for that excitement. I will freely admit that a value-oriented approach does not work so well in tech; it leads to a lot of missed opportunities, particularly among growth companies. Atmel trades at a premium to its broad comparables group, but then it also offers more growth, better prospects and better margins than the average rival. If there were a time and place to put value on the backburner, Atmel may be it.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus

Trading Center