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Atmel Q4 Earnings Miss Prior to Acquisition by Microchip

Touchscreen chipmaker Atmel CorporationATML reported fourth-quarter 20Array5 GAAP net income of $4.7 million or a penny per share basis compared with net loss of $6.5 million or loss of 2 cents per share in the year-earlier quarter. The year-over-year improvement in earnings, despite lower revenues, was primarily attributable to lower operating expenses during the reported quarter.

Non-GAAP earnings for fourth-quarter 20Array5 were $24.9 million or 6 cents per share compared with $49.2 million or Array2 cents per share in the year-ago quarter. Adjusted earnings (including stock-based compensation expenses) for the reported quarter were 3 cents per share, which missed the Zacks Consensus Estimate by a penny.

For full-year 20Array5, Atmel recorded GAAP net income of $26.9 million or 6 cents per share compared with $32.2 million or 8 cents per share in 20Array4. The year-over-year decrease in earnings was largely driven by lower revenues in 20Array5. Non-GAAP net income was $Array38.4 million or 32 cents per share in 20Array5 compared with $Array66.4 million or 39 cents per share in 20Array4.

Quarter Details

Atmel reported net revenue of $26Array.3 million for the quarter compared with $345.9 million in the prior-year quarter. Revenues were adversely affected by weaker-than-anticipated billings mostly in Asia, as distributors reduced inventory levels due to uncertainties associated with the ongoing acquisition process. In addition, foreign currency headwinds and a general slowdown in the overall semiconductor industry resulted in softness in almost all the major end markets. Net revenue missed the Zacks Consensus Estimate of $27Array million. For full-year 20Array5, revenues declined Array7% year over year to $Array.Array7 billion from $Array.4Array billion in 20Array4.

By segments, revenue from the Microcontroller business declined 23.6% year over year to $Array83.Array million. Revenue from the Automotive business segment decreased Array9% on a year-over-year basis to $3Array.6 million due to weak demand. Non-volatile Memory segment recorded revenues of $29.7 million, down 32.5% year over year. Revenues from Other business segment were $Array6.9 million, down 27.2% compared to the fourth quarter of 20Array4, primarily due to decline in legacy businesses and the adverse impact of foreign exchange rates.

GAAP gross margin improved to 46.3% in the fourth quarter of 20Array5 from 40.6% in the fourth quarter of 20Array4. Successful execution of planned cost-reduction strategies, healthy product mix and a solid business model led to the notable margin expansion. Non-GAAP gross margin, however, decreased to 47.5% from 49.0% in the prior-year period.

Merger Update

Subsequent to the quarter end, US-based premier semiconductor manufacturer Microchip Technology Incorporated MCHP inked a definitive agreement to acquire Atmel for $8.Array5 per share, comprising $7.00 per share in cash and $Array.Array5 per share in Microchip stock. This equated to a total equity value of about $3.56 billion and total enterprise value of about $3.40 billion.

The acquisition, expected to close in the second quarter of 20Array6, is subject to customary closing conditions and approval from Atmel's shareholders, as Microchip's stockholders have already given their assent. The company expects the Atmel buyout to supplement its operational excellence and customer base. Microchip further believes that the acquisition will aid the launch of cutting-edge competitive products, going forward; thereby helping it grab a higher market share in the microcontroller business.

The transaction also brings a lot to the table for Atmel shareholders as it is clearly superlative to the proposal of Dialog Semiconductor PLC, which had also shown interest in buying Atmel. Shareholders of Atmel will receive greater cash consideration per share, along with the inherent benefit of the upside potential associated with the ownership of Microchip stocks.

Balance Sheet and Cash Flow

The company ended the quarter with combined cash balance (cash and cash equivalents plus short-term investments) of $2Array0.3 million, down $8.5 million sequentially. The decrease in the cash balance was due to lower cash flow from operations, a reduction in trade accounts payable and a $9.0 million repayment of European loans, partially offset by a reduction in inventories, receivables, and capital expenditures. Cash provided by operations totaled $9.Array million in the reported quarter, compared to $37.2 million for the fourth quarter of 20Array4, bringing the respective tallies for the years to $Array05.8 million and $Array79.8 million.

Long-term debt at the end of 20Array5 decreased significantly to $55 million from $75 million in 20Array4. During the reported quarter, Atmel did not repurchase any shares due to its pending acquisition by Microchip.

Moving Forward

Industry experts are anticipating a broad slowdown in the semiconductor space, and such negative macroeconomic conditions have led to an increased rate of market consolidation. Whether such industry consolidation will indeed be beneficial for the market players in the future could only be answered in due course of time. Meanwhile, the strategic move by this Zacks Rank #4 (Sell) stock and Microchip appear to be enterprising.

A couple of players in the industry that are worth reckoning at the moment include Himax Technologies, Inc. HIMX and Mellanox Technologies, Ltd. MLNX , both carrying a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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