ATML

Atmel Corporation (ATML)

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Atmel (ATML)

Q3 2012 Earnings Call

November 01, 2012 5:00 pm ET

Executives

Peter Schuman

Stephen Cumming - Chief Financial Officer and Vice President of Finance

Steven A. Laub - Chief Executive Officer, President and Executive Director

Analysts

Steven Eliscu - UBS Investment Bank, Research Division

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

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

James Schneider - Goldman Sachs Group Inc., Research Division

Jeffrey A. Schreiner - Feltl and Company, Inc., Research Division

Craig Berger - FBR Capital Markets & Co., Research Division

Christopher Rolland - FBR Capital Markets & Co., Research Division

John Vinh - Collins Stewart plc, Research Division

Sidney Ho - Nomura Securities Co. Ltd., Research Division

Jaeson Schmidt - Craig-Hallum Capital Group LLC, Research Division

Presentation

Operator

Good afternoon. My name is Christy, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2012 Earnings Conference Call. [Operator Instructions] Mr. Peter Schuman, Director of Investor Relations, you may begin your conference.

Peter Schuman

Thank you, Christy. Good afternoon and thank you for joining us for Atmel's Third Quarter 2012 Earnings Conference Call. A copy of the press release issued today is available on our Investor Relations website. A replay of this conference call will be available after 5:00 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 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 2012, 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 the anticipated course of patent litigation, revenue, target gross and operating margins, product introductions and cost savings for 2012 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 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 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. The third quarter revenue of $361 million decreased $7 million or 2%, and was within our guidance range of between $357 million to $379 million. The lower sequential revenue was primarily due to weakness in all business segments other than our microcontroller business, which grew sequentially for the second consecutive quarter.

Subsequent to the end of the third quarter, Atmel completed the sales of its serial flash memory business, which had approximately $50 million in annual revenues.

The results of the third quarter includes serial flash revenue at approximately $12 million. Third quarter 2012 gross margin was 43.1%, which was at the lower end of our guidance of between 43% to 44%. The non-GAAP gross margin was 43.7%.

The majority of the sequential decrease in gross margin was due to lower revenue, particularly in the ASIC segment and the adverse impact of the take-or-pay agreements with our European foundry partners.

These take-or-pay agreements are set to conclude at the end of the second quarter 2013.

During the quarter, we managed our operating expenses extremely tightly. Operating expenses came in at $128 million, and was significantly lower than our guidance of $133 million plus or minus $2 million. This compares to operating expenses of $137 million in Q2 of 2012, and $133 million in the third quarter of 2011. Non-GAAP operating expenses were $112 million.

The sequential decrease in OpEx is primarily the result of strict controls on discretionary spending, the restructuring actions we took last quarter and higher seasonal vacations from our European sites.

With the recently announced sale of the serial flash memory business, we expect to save approximately $1 million per quarter in operating costs starting in Q4 2012. We continue to maintain strong discipline managing our operating expenses during the past quarter, and we will persist with our efforts to take additional steps to improve operating margin leverage in the future.

R&D expense of $60 million in the third quarter was approximately $6 million lower compared to the prior quarter's $66 million, and compared to $64 million in the same period last year.

SG&A expense was $68 million for the third quarter of 2012, compared with $71 million in the prior quarter, and $68 million in the same period last year.

Stock compensation for Q3 was $18 million, allocated as follows: $2 million to manufacturing; $5 million to R&D; and $11 million to SG&A. Stock compensation was flat compared to the second quarter of 2012.

Income from operations was $27 million in the third quarter of 2012. This compares with income from operations of $8 million in the second quarter 2012, which included $14.4 million of charges related to restructuring activities.

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