We reiterate our Neutral recommendation on
Atmel Corporation
(
ATML
). The company's diversified product ranges and incipient buy-back
activities are likely to partially neutralize the effects of the
weak economic condition and tough competition prevailing in the
industry.
Atmel is in the process of converting itself into a complete
microcontroller-based company, which it believes will augment its
cost structure and unlock value. The company is focusing more on
its core microcontroller business through introducing its latest
products with the aim of targeting high-growth and high-margin
businesses.
Fast-growing touch-sensing technology is one of the major growth
drivers for Atmel's microcontroller business. Recently, Ingenico
adopted Atmel's maXTouch services for improving its touchscreen
payment portals. The high demand for the company's latest maXTouch
solutions is expected to improve its business in the touch sensing
market.
Atmel's strong associations with Nokia, Motorola, Sharp,
Toshiba, HTC, Samsung, NVIDIA and QualComm are expected to boost
its performance moving ahead. In addition, with the launch of
Microsoft's latest Windows 8 operating system in the second half of
2012, a new era of touch-enabled tablets, ultrabooks, convertible
PCs and all-in-one PCs will emerge. Atmel's leading technology and
market position combined with the company's partnership with
Microsoft help the company to be the favored touch supplier in
future.
Finally, a healthy cash balance has prompted management to buy
back shares, thereby increasing its shareholder value through share
repurchase. Year-to-date, under the existing share repurchase
program, Atmel has repurchased 15.6 million shares while $166.2
million shares are now available for buy-back. The buying back of
common shares is likely to be one of the best strategic moves,
which will help enhance investors' confidence.
Although Atmel's intent and advances towards meeting long-term
goals are impressive, we are, however, concerned about the
intensely competitive landscape. With the rise in competition
within the industry, the company is witnessing a decline in its
product prices, which in turn is detrimental to the company's
overall margins.
Atmel is a globally renowned enterprise generating 82% of its
revenue from countries outside the United States. Hence, the
company is highly exposed to foreign exchange rate risk. An
unfavorable movement in foreign currency exchange rates might
adversely affect the company's top line. Moreover, the high level
of inventory remains a huge matter of concern for the company.
Hence, until the situation ameliorates and a brighter picture
appears on the scene, we consider it wise to maintain a sideline
stance on Atmel. In the short run, we have a Zacks #3 Rank on the
stock, which translates into a short-term 'Hold' rating.
ATMEL CORP (ATML): Free Stock Analysis Report
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