Atmel Corporation ( ATML - Analyst Report ) recently slashed its revenue guidance for the fourth quarter of 2011. The company expects revenues of $384 million, down 20% sequentially. The updated guidance is a significant decline from the previous provided range of 12% – 16% down sequentially which implied a revenue guidance of $403 million and $422 million.

The top-line was negatively affected by approximately $11 million as a result of rescheduling payments on a receivable related to an Asian distributor.

Nevertheless, Atmel continues to expect gross margin of 48.0%, +/- 0.5%. Earnings estimates for 2011 have been static of late but declined a bit for 2012.

Earlier, Atmel Corporation reported revenues of $479.4 million in the third quarter of 2011, up 8% year over year and almost flat sequentially.Excluding the impact of the divestiture of the Smart Card business, revenues grew 15% year over year.

Net income came in at $116.7 million or $0.25 per diluted share compared with a net income of $90.9 million or $0.19 per diluted share in the second quarter of 2011 and a net income of $219.8 million or $0.47 per share in the year-ago quarter. Excluding one-time items but including stock-based compensation expense, net income came in at $0.23 per share, beating the Zacks Consensus Estimate of $0.20.

Although earnings beat the Zacks Consensus Estimate in the third quarter, Atmel saw a significant decline in the industrial segment and a one-time inventory adjustment in non-Apple ( AAPL - Analyst Report ) tablets.

Atmel has a growing microcontrollers business that should contribute to the company's top-line growth going forward. We believe the tablet inventory correction should be done with the next quarter and demand should return to normal levels.

As of now, we maintain our Neutral recommendation ahead of the company’s fourth quarter results on February 8, 2012. The stock price plummeted 5% with the news of the cut in guidance but recovered quite a bit thereafter. Our recommendation is supported by Zacks #3 Rank which translates into a short-term rating of Hold.