Atmel Offer Keeps It Strong

Atmel Corporation (ATML - Analyst Report) is expected to release its Q3:FY08 results on Oct. 29. Earlier, the company reported Q2:FY08 revenues of $420.9 million, up 4.1% y/y and up 2.4% q/q. Microcontrollers posted record revenues of $143 million and the ASIC segment posted revenues of $121 million.

Recently, Microchip, Inc. (MCHP - Analyst Report) and ON Semiconductor (ONNN - Analyst Report) announced an unsolicited offer to acquire ATML for $5/share in cash. The offer represents a 52.4% premium to Oct. 2 closing price, and values ATML at $2.3 billion. The deal is led by MCHP, with ONNN acquiring the NVM and RF/Auto businesses.

MCHP plans to sell Atmel's ASIC business together with the French fab to a third party. Going forward, management expects revenues to be down 3% 7% in Q3:FY08, due to onetime revenue adjustment. Excluding these adjustments, Q3 organic revenue guidance is for up 1% to 4% sequentially. We had earlier upgraded ATML to a Hold and have adjusted our target price to $5.00, reflecting the current cash offer price by MCHP.

While focusing at improving its cost structure, Atmel must struggle with ASP erosion in key product markets and face the challenges of manufacturing new products on advanced technologies. Aside from such ASP erosion and cyclical market risks, a key concern is Qualcomm's (QCOM - Analyst Report) plans to move away from Atmel's Bi-CMOS process to RF-CMOS.

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