ATML

Atmel Corporation (ATML)

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Atmel (ATML)

Q3 2011 Earnings Call

November 01, 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., Research Division

Rajvindra S. Gill - Needham & Company, LLC, Research Division

Jeffrey A. Schreiner - Capstone Investments, Research Division

John Vinh - Collins Stewart LLC, Research Division

James Schneider - Goldman Sachs Group Inc., Research Division

Anthony J. Stoss - Craig-Hallum Capital Group LLC, Research Division

Li-Wen Zhang - Pacific Crest Securities, Inc., Research Division

Steven Eliscu - UBS Investment Bank, Research Division

Betsy Van Hees - Wedbush Securities Inc., Research Division

Sujeeva De Silva - ThinkEquity LLC, Research Division

Hans C. Mosesmann - Raymond James & Associates, Inc., Research Division

Blayne Curtis - Barclays Capital, Research Division

Presentation

Operator

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

Peter Schuman

Thank you, Wesley. Good afternoon, and thank you for joining us for Atmel's Third 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 1 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 third 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 fourth quarter of 2011 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 our expectations for market growth, litigation matters and anticipated course of patent litigation, 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's discussion found in today's press release.

During the call, we will also discuss non-GAAP financial measures. The non-GAAP financial 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 of $479.4 million for the third quarter 2011 were up slightly sequentially and increased 8% as compared to the same quarter in 2010 and at the low end of our guidance range are flat to up 4% sequentially. Our quarterly revenue reached the highest level in over 10 years and is Atmel's 10th consecutive quarter of sequential revenue growth. Excluding the Smart Card business sold at the end of the third quarter 2010, revenues increased 15% when compared to the third quarter 2010.

Third quarter 2011 gross margin was 50.1%. The third quarter gross margin was slightly below our guidance range of 51%, plus or minus 50 basis points. The sequential decrease in gross margin was due primarily to lower factory utilization and inventory adjustments.

Our operating expense of $133 million were below our guidance of $139 million, plus or minus $2 million. This compares to operating expenses of $136 million in Q2 2011 and $122 million in the third quarter of 2010. During the third quarter, we remained very focused on driving down operating expenses and took actions to reduce discretionary spending in light of the softer market conditions. Overall operating expenses represented 27.7% of revenues in the third quarter, down from 28.4% in the second quarter of 2011. R&D expense of $64 million in the third quarter was approximately $1 million lower than the prior quarter and approximately $8 million higher than the $56 million reported in the year ago period.

SG&A expense was $68 million in the third quarter of 2011 compared with $70 million in the prior quarter and $66 million in the same period last year. The sequential decrease in both R&D and SG&A was a direct result of strict controls over discretionary spending,as well as seasonal European vacation patents and adjustments to variable compensation expenses.

Stock compensation for Q3 was $16 million and is broken out in the following areas: $1 million was related to manufacturing, $5 million to R&D and $10 million to SG&A. Income from operations was $140 million in the third quarter of 2011. The GAAP operating margin of 29.2% was a record for the company.

Included within the third quarter of 2011 results was a gain of $33.4 million for the sale of our corporate headquarters. Excluding this amount, the operating margin would have been $107 million or 22.3% of sales. This compares with income from operations of $111 million in the prior quarter and income from operations of $78 million in the same period last year.

Income tax provision then totaled $23.2 million in the third quarter of 2011, resulting in an effective GAAP tax rate of 17%, which is slightly lower than our guidance of 18%. Our non-GAAP tax expense was approximately $0 during the third quarter 2011. As a reminder, the beginning of this year, we had implemented a global tax restructuring strategy, and we expect to have non-GAAP or cash tax effective rate in the low single-digit percentage for the foreseeable future. The third quarter 2011 tax provision compared to an income tax provision of $18.8 million in the second quarter of 2011 and a tax benefit of $136.6 million for the third quarter of 2010.

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