ATML

Atmel Corporation (ATML)

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Atmel (ATML)

Q2 2011 Earnings Call

August 03, 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

Craig Berger - FBR Capital Markets & Co.

Rajvindra Gill - Needham & Company, LLC

Jeffrey Schreiner - Capstone Investments

Ian Ing - Gleacher & Company, Inc.

Blayne Curtis - Barclays Capital

James Schneider - Goldman Sachs Group Inc.

Steven Eliscu - UBS Investment Bank

Sujeeva De Silva - ThinkEquity LLC

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 Atmel Corporation Second Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Peter Schuman, Director of Investor Relations.

Peter Schuman

Thank you, Bonnie. Good afternoon, and thank you for joining us for Atmel's Second Quarter 2011 Earnings Conference Call. A copy of the press release issued today is available on our Investor Relations website. A replay of this call will be available after 5 p.m. Pacific today, and will be archived for 48 hours. 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 second 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 third quarter 2011 and then open the call up for questions.

During the course of this conference call, we may make forward-looking statements about Atmel's business outlook, including statements regarding our expectations for market growth, litigation matters and the anticipated course of patent litigation, revenues, target growth 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 are therefore, subject to risks and uncertainties as discussed in the Safe Harbor discussion found in today's press release.

During the call, we will also discuss non-GAAP financial measures. Non-GAAP measures are not prepared in accordance with the 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 4% sequentially and 22% as compared to the same quarter in 2010 to $478.6 million, at the high end of our guidance about 1%, 4% sequentially. Our quarterly revenue reached the highest level in over 10 years and is Atmel's ninth consecutive quarter of sequential revenue growth. Excluding the Smart Card sold at the end of the third quarter in 2010, revenues increased 31% when compared to the second quarter of 2010.

We set another record for gross margin. Second quarter 2011 gross margin was 51.8%. The second quarter gross margin was an 80 basis point improvement from the 51% we reported last quarter and ahead of our guidance of 51%. The sequential gross profit improvement was primarily the result of a favorable onetime reimbursing adjustment from a sub con.

Our operating expenses of $136 million were within our guidance of $137 million, plus or minus $2 million. This compared to operating expenses of $133 million in Q1 of 2011 and $130 million in the second quarter of 2010. In the second quarter of 2011, operating expenses increased sequentially, primarily as a result of planned higher R&D expenditures. Overall, operating expenses represented 28.4% of revenues in the second quarter, down from 28.9% in the first quarter of 2011.

R&D expense of $65 million in the second quarter was approximately $3 million higher than the prior quarter and approximately $3 million higher than the $63 million reported in the year ago period. The increase in R&D expense as compared to last quarter was primarily due to increasing headcount to support our Microcontroller business, the higher mask and wafer costs.

SG&A expense was $70 million for the second quarter of 2011 compared with $71 million in the prior quarter and $67 million in the same period last year. The lower sequential spend was primarily due to decreased stock-based compensation expense, lower sales-related spending and more vacations in Q2, offset by higher variable compensation and merit increases during the second quarter.

Stock compensation for Q2 was $14 million. It is broken out in the following areas: $2 million was related to manufacturing, $5 million to R&D and $7 million to SG&A. Stock compensation was $5 million lower than the first quarter of 2011 due to the successful completion of our long-term performance-based compensation plan.

Income from operations was $111 million in the second quarter of 2011. The GAAP operating margins of 23.2% was the highest level achieved since the first quarter of 1997. This compares to income from operations of $82 million in the prior quarter and a loss from operations of $79 million in the same period last year. First quarter 2011 income from operations included $21 million of restructuring charges and a $2 million gain on the sale of assets. For the second quarter of 2010, loss from operations included charges related to sale of the company's manufacturing operations in Rousset, France, $108 million.

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