ATML

Atmel Corporation (ATML)

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Atmel (ATML)

Q1 2011 Earnings Call

May 04, 2011 5:00 pm ET

Executives

Steve Laub - Chief Executive Officer, President and Executive Director

Stephen Cumming - Chief Financial Officer and Vice President of Finance

Peter Schuman - Director of IR

Analysts

Rajvindra Gill - Needham & Company, LLC

Craig Berger - FBR Capital Markets & Co.

Ian Ing - Gleacher & Company, Inc.

Jeffrey Schreiner - Capstone Investments

Sujeeva De Silva - ThinkEquity LLC

James Schneider - Goldman Sachs Group Inc.

Steven Eliscu - UBS Investment Bank

Hans Mosesmann - Raymond James & Associates, Inc.

Anthony Stoss - Craig-Hallum Capital Group LLC

Betsy Van Hees - Wedbush Securities Inc.

John Vinh - Collins Stewart LLC

Presentation

Operator

Good afternoon. My name is Bonnie, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Peter Schuman, Director of Investor Relations. Please go ahead, sir.

Peter Schuman

Thank you, Bonnie. Good afternoon, and thank you for joining us for Atmel's First Quarter 2011 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 p.m. 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 the call with a review of our first quarter financial results, and Steve will then provide additional information on the business. At the conclusion of Steve's remarks, Stephen will discuss our financial guidance for the second quarter of 2011, and then open the call up for questions.

During the course of this call, we may make forward-looking statements about business -- Atmel's business outlook, including statements regarding our expectations for market growth, revenues, target gross and operating margins, product introductions and cost savings for the remainder of 2011 and beyond. Our forward-looking statements and all other statements that are not historical facts reflect our expectations and beliefs as of today, and therefore, are subject 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 first quarter financial results. Stephen?

Stephen Cumming

Thank you, Peter. Let me provide some details of our statement of operations. Revenues for the first quarter increased 1% sequentially and 32% as compared to the same quarter in 2010 to $461.4 million at the high-end of our guidance, a downfall to up 1% sequentially. And our quarterly revenues reached the highest level in 10 years and is Atmel's 8th consecutive quarter of sequential revenue growth. Excluding the Smart Card business sold at the end of the third quarter of 2010, revenues increased 43% when compared to the first quarter of 2010.

Record first quarter 2011 gross margin of 51% is the highest level achieved since the company went public in 1991. The first quarter's gross margin of 51% was 150 basis points improvement from the 49.5% for we reported last quarter and ahead of our guidance range of 48.5% to 49.5%. And the sequential gross margin improvement was due primarily to increased volume, improved mix of higher-margin products and continued cost-reduction activities. Our operating expenses of $133 million were in line with our guidance of $133 million plus or minus $2 million. This compares to operating expenses of $130 million in Q4 2010 and $120 million in the first quarter of 2010.

In Q1 2011, operating expenses increased sequentially but the first quarter doesn't have the benefit from the seasonal holiday shutdowns, and as expected, we moderately increased our Q1 spending in sales and R&D. Operating expenses, overall, represent 28.9% of revenues in the first quarter, up from 28.4% in the fourth quarter of 2010. We continue to invest to support the growth of our focus markets. R&D expense of $62 million in the first quarter was approximately $2 million higher than the prior quarter and $4 million higher than the $58 million reported in the year-ago period. The increase, as compared to last quarter, was primarily due to increasing headcount and investments in new products, primarily in our Microcontroller business. SG&A expense was $71 million for the first quarter of 2011, compared with $70 million in the prior quarter and $61 million in the same period last year, primarily due to increased stock-based compensation expense, low vacation and higher sales-related spending.

Stock compensation for Q1 was $19 million and is broken out in the following areas: $2 million was relating to manufacturing; $6 million to R&D; and $11 million to SG&A. Stock compensation was $3 million higher than the fourth quarter of 2010.

Income from operations was $82 million in the first quarter of 2011. This compares with income from operations of $94 million in the prior quarter and $15 million in same period last year. Excluding acquisition-related charges, gain on the sale of assets and restructuring charges, first quarter 2011 income from operations would have totaled $102 million compared to $97 million in the fourth quarter of 2010 and $14 million in the first quarter of 2010.

Income-tax provision totaled $9.8 million in the first quarter of 2011, resulting in an effective tax rate of 11.6%. This was lower than our guidance of 18% as a result of one-time discrete items.

This compares to an income-tax benefit of $133.1 million in the fourth quarter of 2010 and an income-tax provision of $2.6 million for the first quarter of 2010. The fourth quarter income-tax benefit of $133.1 million included $118 million or $0.25 per diluted share, primarily from releasing reserves to certain deferred tax assets.

GAAP net income for the first quarter of 2011 was $74.6 million or $0.16 per diluted share. This compares with fourth quarter 2010 net income of $223.1 million or $0.47 per diluted share and a net income of $16.6 million or $0.04 per diluted share in the same period last year.

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