ATML

Atmel Corporation (ATML)

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Atmel Corporation (ATML)

Q2 2010 Earnings Call Transcript

August 4, 2010 5:00 pm ET

Executives

Peter Schuman – Director of IR

Stephen Cumming – VP of Finance & CFO

Steve Laub – President & CEO

Analysts

Steven Eliscu – UBS

Anthony Stoss – Craig-Hallum

Ian [ph] – Goldman Sachs

Hans Mosesmann – Raymond James

Kyle [ph] – FBR Capital Markets

Doug Freedman – Gleacher & Company

Raji Gill – Needham & Company

Suji DeSilva – Noble Financial

Presentation

Operator

Good afternoon, my name is Paprika and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) Thank you.

Mr. Schuman, you may begin your conference.

Peter Schuman

Thank you, Paprika. Good afternoon and thank you for joining us for Atmel’s second quarter earnings conference call. A copy of the press release issued today is available on our Investor Relations Web site. A 48-hour telephone replay of this call will be available after 5.00 PM today Pacific time, and the call will be archived on the Company’s Web site for one year. Access information is provided in today’s press release.

Joining us for the call today are Steve Laub, Atmel’s President and CEO, and Stephen Cumming, Vice President of Finance and Chief Financial Officer. Stephen will begin with a review of our first quarter financial results; Steve will then provide additional color on the business. At the conclusion of Steve’s remarks, Stephen will discuss financial guidance for the third quarter 2010, and then open the call for questions.

During the course of this conference call, we may make forward-looking statements about Atmel’s business outlook including statements regarding expectations for revenue, target growth and operating margins, as well as cost savings for the remainder of 2010 and beyond.

Our forward-looking statements and all other statements that are not historical facts reflect our beliefs and predictions as of today, and therefore, are subjects to risks and uncertainties as described in the Safe Harbor discussion sign in today’s press release.

During the call, we will also discuss non-GAAP financial measures. The non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in today’s press release.

I would now like to turn the call over to Stephen Cumming for a discussion of our second quarter financial results. Stephen?

Stephen Cumming

Thank you, Peter, let me provide some details of our statement of operations. Revenues for the second quarter increased 13% sequentially to $393 million exceeding the top end of our guidance range of up 5% to 9%, compared with revenues of $349 million in the prior quarter and $285 million in the second quarter a year ago.

Revenues by market segment showed strength across almost the entire spectrum of markets, with particular strength in the cell phone market and consumer.

Gross profit as a percent of revenue was 40.6%, a 220 basis point improvement from the 38.4% we reported last quarter at the upper end of our guidance range of 39% to 41%. Driving the gross profit improvement this quarter were higher volumes of business and more favorable mix of higher margin microcontroller and touch solution products as well as improved factory utilization in both Rousset and Colorado wafer fab.

Total operating expenses came in at a $130 million in Q2 compared to $120 million in Q1 and $103 million in the second quarter of 2009. Operating expenses were higher than guidance of $120 million plus or minus two, due primarily to increases in variable compensation and a stock-based compensation incentive program based on our expectations of meeting certain long-term performance metrics sooner than was originally anticipated. Partially offsetting this increase was a favorable impact due to the declining euro relative to the U.S. dollar.

R&D expense was $62 million in the second quarter compared with $58 million for the prior quarter and $52 million in the year ago period. The sequential increase in spending is as stated earlier primarily due to the Company financial performance driving a higher than anticipated variable and long-term performance-based compensation expenses.

SG&A expense was $67 million for the second quarter compared with $61 million in the prior quarter and $51 million in the same period last year. The increase is primarily due to the previous mentioned impact of variable compensation on long-term stock-based performance program. Partially offsetting these increases were legal reimbursements received during the quarter relating to the settlement of historical litigations.

Stock compensation for Q2was $21 million and is broken out in the following areas; $2 million was related to manufacturing, $6 million to R&D, and $13 million to SG&A. Included in this number was a one-time incremental catch-up of approximately $9 million.

Loss from operations was $79 million in the second quarter due to the completion of the fab sale that incurred charges of approximately $108 million. This is comprised of $94 million of charges due to the sale of the Rousset, French wafer fab as well as restructuring charges of $1.6 million and impairment charges of $11.9 million.

Excluding these one-time items, operating income would have totaled approximately $29 million. This compares with operating income of $15 million in the first quarter, which included a net credit of $700,000 related to acquisition, restructuring, and grant repayment.

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