Atmel Strengthens Touch-Sensing

The broad Semi rally during the March/April period seems to be tapering off a bit in some market segments, with June shaping up to be a mixed bag for the end markets.

While the rally was mostly driven by in inventory correction/replenishment, a dynamic which may continue to create more volatility in the current month, a couple of bright spots continue to be in the smart-phones and LCD/display areas. Atmel (ATML - Analyst Report) may be well-placed to capitalize on the continued momentum in smart-phones with new handset touch products, with competition poised to intensify in this space.

We had indicated in our recent updates that ATML is pushing towards becoming a pure-play microcontroller (MCU) company and is vigorously attempting to sell its ASIC business and related fabs by 2009. We expect a deal to be announced by the end of 2009, although additional steps maybe required to restructure/realign the company following the sale of its ASIC business.

At the same time, the company is aggressively marketing its new maxTouchTM technology. Touch-sensing technology is the fastest growing area in Atmel's MCU business and it is expected to remain a major growth driver in the coming quarters. maxTouchTM is beginning to gain traction among the OEMs and is expected to be one of the leading new technologies in the smart-phone and large screen apps [applications].

Q1 revenues of $271.5 million were far short of our $291 million estimate and consensus expectation of $289 million. However, ATML reported Q1 non-GAAP EPS of $0.03, surpassing our and consensus estimate of $(0.03) and $(0.04), respectively. The company had guided Q2 revenues up 1% - 4% sequentially, which implies $274 million - $284 million. Current consensus is at $279.3 million in revenues and non-GAAP EPS of $(0.03).

ATML had issues with Asian channel inventory exiting Q1, but it currently appears that the situation is under control now. The company expects its MCU business to recover in the current quarter and track higher in the second half of FY2009.