ATML

Atmel Corporation (ATML)

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Atmel Corporation (ATML)

Q3 2010 Earnings Call Transcript

November 4, 2010 6:00 pm ET

Executives

Peter Schuman – Director, IR

Stephen Cumming – VP, Finance and CFO

Steve Laub – President and CEO

Analysts

Steven Eliscu – UBS

Hans Mosesmann – Raymond James

Jim Schneider – Goldman Sachs

Rajvi Gill – Needham

Doug Freedman – Gleacher & Company

Craig Berger – FBR Capital Markets

Presentation

Operator

Good evening. My name is Ladashah and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 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. Peter Schuman, you may begin your conference.

Peter Schuman

Thank you, Ladashah. Good afternoon and thank you for joining us for Atmel’s third quarter 2010 earnings conference call. A copy of the press release issued today is available on our Investor Relations website. A 48-hour telephone replay of this call will be available after 5.00 PM Pacific today, and the webcast will be archived on the company’s website 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 third quarter financial results and Steve will then provide additional color on the business. At the conclusion of Steve’s remarks, Stephen will discuss our financial guidance for the fourth quarter of 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 revenues, target gross 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 found 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 third quarter financial results. Stephen?

Stephen Cumming

Thank you, Peter, let me provide some details of our statement of operations. Revenues for the third quarter increased 13% sequentially and 40% year-over-year to $444 million, exceeding the top end of our guidance range of up 6% to 10% compared with revenues of $393 million in the prior quarter and $318 million in the third quarter a year ago.


Third quarter gross margin reached the highest level since the fourth quarter of 1996. The gross margin of 46.8% was a 620-basis point improvement from the 40.6% we reported last quarter and well above the upper end of our guidance range of 43% to 45%. The sequential gross margin improvement was a result of second quarter divestitures of the Rousset manufacturing operations, higher business volumes, increased factory utilization levels, and an improved mix of higher margin microcontroller products.

Total operating expenses came in at $122 million in Q3 compared to $130 million in Q2 and $108 million in the third quarter of 2009. Compared to the second quarter, operating expenses decreased as we have lower variable and incentive stock-based compensation and more vacations taken during the third quarter. Operating expenses were slightly higher than guidance of $119 million, plus or minus $2 million, due primarily to increases in sales related costs.

R&D expense was $56 million in the third quarter, approximately $6 million less than the prior quarter and $5 million higher than the $51 million reported in the year-ago period. The reduction as compared to last quarter was primarily due to normal seasonal savings associated for the European summer vacations, and lower long-term performance based stock compensation expenses.

SG&A expense was $66 million for the third quarter 2010 compared to $67 million in the prior quarter and $57 million in the same period last year. Stock compensation for Q3 was $13 million and is broken out in the following areas. $2 million was related to manufacturing, $4 million to R&D, and $7 million to SG&A. Stock compensation was $8 million lower than the second quarter, which included the previously mentioned one-time incremental catch-up adjustment of approximately $9 million for our performance share plan.

Income from operations was $78 million in the third quarter. Excluding acquisition related charges, loss on the sale of assets, restructuring charges and related charges for grant repayments, third quarter operating income would have totaled approximately $86 million. This compares with loss from operations of $79 million in the second quarter.

Second quarter results included charges of approximately $109 million, comprising $94 million of charges due to the sale of Rousset France wafer fab, restructuring charges of $1.6 million, impairment charges of $11.9 million, acquisition related charges of $1.2 million, and charges related to grant repayment of $200,000. Excluding these one-time items, second quarter operating income would have totaled approximately $30 million. Operating loss for the third quarter of the prior year was $14.7 million.

Income tax benefits totaled $136.6 million in the third quarter of 2010 compared to an income tax benefit of $39.7 million in the second quarter of 2010 and an income provision of $400,000 in the third quarter of 2009. During the third quarter, Atmel completed a settlement of an IRS tax audit in the amount of $150.4 million or $0.32 per diluted share, which includes a $48.4 million tax refund.

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