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Atmel (NASDAQ:ATML)

Q4 2012 Earnings Call

February 06, 2013 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

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

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

John Vinh - Pacific Crest Securities, Inc., Research Division

James Schneider - Goldman Sachs Group Inc., Research Division

Steven Eliscu - UBS Investment Bank, Research Division

Blayne Curtis - Barclays Capital, Research Division

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

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

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

Ian Ing - Lazard Capital Markets LLC, Research Division

Betsy Van Hees - Wedbush Securities Inc., Research Division

Operator

Good afternoon. My name is Paula, and I'll be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter 2012 earnings conference call. [Operator Instructions] Thank you. I would now like to turn the call over to Mr. Peter Schuman, Director of Investor Relations, you may begin your conference.

Peter Schuman

Thank you, Paula. Good afternoon and thank you for joining us for Atmel's Fourth Quarter 2012 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 fourth 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 first quarter of 2013, 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 2013 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 measures do not -- 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 fourth quarter financial results. Stephen?

Stephen Cumming

Thank you, Peter. The fourth quarter revenue of $345 million decreased sequentially -- decreased $16 million or 4% and was within our guidance range of between $328 million to $352 million. The lower sequential revenue was primarily due to the sale of our Serial Flash business at the end of the third quarter. Excluding the Serial Flash divestiture from our historical results, revenue was down 2% sequentially, and down 8% from the prior year's fourth quarter. We continue to experience strength in our microcontroller business which grew sequentially for the fourth consecutive quarter, offset by weaknesses in all other business segments. For the full year 2012, revenue was $1.43 billion compared to $1.8 billion for 2011, representing a 21% decrease over the prior year. Excluding the Serial Flash divestiture, full year revenue declined by 19% during 2012.

Fourth quarter 2012 GAAP gross margin was 38.1%, which was below our guidance of between 41% to 43%, with the majority of the sequential decrease due to a $10.6 million loss incurred on purchase commitments relating to a take-or-pay supply agreement with a European foundry supplier. Without this onetime loss, our GAAP gross margin would have been 41.2%, within our guidance range. During the fourth quarter, as we assess our requirement for our take-or-pay wafer supply contracts, we determined that for one of our European foundries, our customer's requirements were less than our remaining purchase commitments, and we concluded we had a loss on this foundry contract. As a reminder, our European take-or-pay agreements conclude at the end of the second quarter of 2013, with wafer delivery scheduled to decline in the second quarter and to be completed by the end of the third quarter of 2013.

Our non-GAAP gross margin in the fourth quarter of 2012 of 41.6% was at the lower end of our guidance. The primary contributors to the lower non-GAAP gross margin were lower utilization at our Colorado fab and other manufacturing assets, the take-or-pay agreements and high inventory reserves. For the full year of 2012, gross margin of 42% compared to 50.4% during 2011. The non-GAAP gross margin of 43.3% for the full year 2012 compared to a non-GAAP gross margin of 50.8% in 2011.

Moving to operating expenses. During the quarter, we managed our operating expenses extremely tightly. Operating expenses, excluding restructuring charges, loss from a foundry supplier receivable and acquisition-related charges came in at $125 million and was slightly below the middle of our guidance range of $126 million, plus or minus $2 million. This compares to operating expenses of $128 million in Q3 of 2012 and $134 million in the fourth quarter of 2011.

Non-GAAP operating expenses were $110 million. The sequentially lower OpEx is primarily the result of strict controls on discretionary spending and the impact of the restructuring actions we have taken over the past few quarters. We continue to maintain strong discipline managing our operating expenses during the past quarter, and we will persist with our effort to take additional steps to improve operating margin leverage in the future.

R&D expense of $59 million in the fourth quarter was approximately $1 million lower compared to the prior quarter, $60 million, and down from $64 million in the same period last year.

SG&A expense was $66 million for the fourth quarter of 2012, down $2 million compared with $68 million in the prior quarter and down from $71 million in the same period last year.

Stock compensation for Q4 was $16 million, allocated as follows: $1 million to manufacturing, $5 million to R&D, and $10 million to SG&A. This compares to $18 million in the third quarter of 2012. The sequential decrease was due to restructuring actions taken during the fourth quarter of 2012. For the full year, stock compensation of $72 million increased from $68 million in the prior year, predominantly due to a full year of the performance stock-based compensation incentive program during 2012, which is based on our expectations of meeting certain long-term performance metrics compared to just 6 months of this plan during calendar 2011.

GAAP loss from operations was $13 million in the fourth quarter of 2012. This compares with income from operations of $27 million in the third quarter of 2012. Income from operations was $49 million in the prior year fourth quarter.

Non-GAAP operating income for the fourth quarter 2012 was $33 million or 9.7% of revenues and excludes the loss incurred on purchase commitments relating to a take-or-pay supply agreement, the write-off from a European foundry supplies receivables, acquisition-related charges, restructuring charges and stock-based compensation. This compares to third quarter 2012 non-GAAP operating income of $46 million or 12.7% of revenue and non-GAAP income from operations of $69 million in the same period last year.

For the full year 2012, GAAP income from operations totaled $47 million or 3.3% of revenue compared to $382 million or 21.2% of revenue during fiscal 2011. Non-GAAP income from operations totaled $158 million or 11% of revenue for the full year 2012. This compares with non-GAAP income from operations of $440 million or 24.4% of revenues during fiscal 2011.

GAAP income tax benefit totaled $2.2 million in the fourth quarter of 2012, which is lower than our guidance of a tax position of approximately $10 million to $12 million as a result of the GAAP net loss. The fourth quarter 2012 GAAP tax benefit compares to $5.9 million tax provision in the prior quarter and $14.4 million for the fourth quarter of 2011.

During the fourth quarter of 2012, our non-GAAP income tax provision was approximately $2.6 million which compared to $2.9 million in the prior quarter. We expect to have a non-GAAP or a cash tax effective rate in the mid-to-upper single-digit percentages for 2013 and several years beyond.

GAAP net loss for the fourth quarter of 2012 was $12.3 million or a loss of $0.03 per diluted share. This compared with third quarter 2012 GAAP net income of $21.6 million or $0.05 per diluted share and GAAP net income of $32.9 million or $0.07 per diluted share in the same period last year.

On a non-GAAP basis for the fourth quarter of 2012, we have net income of $29.4 million or $0.07 per diluted share. The 2012 results compared with non-GAAP net income of $43 million or $0.10 per diluted share in the third quarter of 2012 and non-GAAP net income of $67.5 million or $0.14 per diluted share in the fourth quarter of 2011.

For the full year 2012, GAAP net income totaled $30.4 million or $0.07 per diluted share. Excluding onetime items, non-GAAP net income for 2012 totaled $145.1 million or $0.32 per diluted share. This compares with 2011 GAAP net income of $315 million or $0.68 per diluted share and a non-GAAP net income of $438 million or $0.92 per diluted share for fiscal year 2011.

As to our stock repurchase program. During the first quarter, Atmel repurchased 3.3 million shares of common stock in the open market at an average price of $4.87 per share. For the full year 2012, we spent approximately $180 million to repurchase 22.7 million shares of stock in the open market at an average price of $7.92 per share.

Turning to the balance sheet. Combined cash balances, cash and cash equivalents plus short-term investments totaled $296 million for the fourth quarter, representing an increase of almost $7 million from the third quarter. The increase is primarily related to improved collections resulting in a lower accounts receivable balance, offset by cash outflows for the partial payment of the Ozmo, Inc. acquisition. We also used approximately $16 million for the repurchase of common stock during the fourth quarter of 2012.

Cash flow from operations totaled approximately $79 million in the fourth quarter, up approximately $25 million from $54 million in the third quarter of 2012, due primarily to improved receivables. We are pleased to report our operating cash flow for the year exceeded $200 million.

Capital expenditures was $6.5 million in the fourth quarter, down from the third quarter's $16 million, and within the guidance range of $5 million to $10 million. For the full year 2012, CapEx was $38 million, down from the prior year's $85 million.

Depreciation and amortization in the fourth quarter of 2012 was approximately $20 million, flat compared to the third quarter of 2012 and down from $21 million in the fourth quarter a year ago.

Accounts receivable totaled $188 million at the end of the fourth quarter, a decrease of approximately $60 million from the third quarter. Our day sales outstanding for the fourth quarter stood at approximately 50 days, down 13 days from the prior quarter's 63 days. Given the seasonal holiday period at the end of the fourth quarter, the linearity of shipments improved compared to the prior quarter which caused DSOs to benefit.

Our fourth quarter inventory dollars increased by 12.4 -- $12.5 million to $348 million compared to the prior quarter's $336 million. Our days of inventory decreased by 1 day and stood at 148 days compared to the third quarter. The higher dollar inventory is a result of the take-or-pay supply agreement and strategic builds in certain areas of our business. We see internal inventories peaking during the first quarter of 2013 and declining significantly thereafter for the remainder of the year as we work towards our model of 120 to 130 days.

Now let me turn the call over to Steve for a commentary on our business. Steve?

Steven A. Laub

Thank you, Stephen. 2012 marked a challenging year for the semiconductor industry and for Atmel. While the company's revenue declined, we are pleased that our microcontroller business grew each consecutive quarter during 2012, and the fourth quarter represented a record 2/3 of our company's revenue. Particularly noteworthy is that our 32-bit microcontroller business grew during 2012 on a full year basis as compared to calendar year 2011. While business levels were muted in 2012, market trends and the product and technology investments we have taken during the past 12 to 18 months have positioned us well for increasing revenue growth, market share gains and margin expansion in 2013 and beyond. In our 32-bit microcontroller business, we introduced more 32-bit products this past year than in any year before in the company's history. In addition, to further accelerate our growth in our core microcontroller business, we expanded our wireless portfolio to include Wi-Fi Direct solutions with the acquisition of Ozmo, Inc., which closed towards the end of the fourth quarter. By adding Wi-Fi Direct to our wireless portfolio, which already includes ZigBee solutions, Atmel is now well-positioned to provide fully integrated wireless solutions for smart-connected devices which are particularly well-suited for solutions that comprise the Internet of Things. 2012 also marked the introduction of the Windows 8 operating system, which features the use of capacitive touch as a key-enabling technology. This dramatically expands the market opportunity for larger screen capacitive touch solutions beyond tablets to the entire PC marketplace, particularly for Ultrabooks, notebooks and all-in-one computers. We are pleased to be the leading touch provider at the beginning of the ramp of Windows 8, which is a multiyear trend.

During 2012, we introduced XSense, our breakthrough touch sensor product, targeting the multibillion dollar market of touchscreen sensors. XSense is based on innovative metal mesh technology, which is a superior alternative to the existing market for ITO sensors. We reached a significant milestone during the fourth quarter with XSense, being selected by a Tier 1 customer for a production rescheduled for the first quarter of 2013. In the third quarter of 2012, we further optimized our business portfolio with the divestiture of our Serial Flash business, which allows the company to better focus on its strategic businesses. Looking forward, we're excited about the impact these new high-growth opportunities provide for Atmel during 2013 and beyond.

Returning our discussion to Q4, from an end market perspective, our largest end market industrial remained weak during the quarter. Tablets/eReaders and Ultrabooks were strong with the ramp of Windows 8 devices. Communications and networking was down slightly after 2 consecutive quarters of growth. Consumer markets weakened during the fourth quarter. Automotive was down slightly, while military and aerospace strengthened during the quarter.

Moving to a discussion of our business segments. For our microcontroller business unit, microcontroller revenue of $229 million increased 1% sequentially and was up 6% as compared to the fourth quarter of 2011. Q4 marks the fourth quarter that microcontroller revenue grew on a sequential basis.

By product family, during the fourth quarter, our 32-bit microcontrollers increased 20% sequentially and increased 62% year-over-year. While our 8-bit microcontrollers were down 8% sequentially and down 13% year-over-year.

As to new products, in ARM-based microcontrollers, we launched the new SAM4E family of Flash microcontrollers optimized for connectivity. The SAM4E family is based on the high-performance 32-bit ARM Cortex-M4 processor and features advanced connectivity peripherals, including a floating point unit, advanced analog capabilities and higher processing power. The high-performance and high-system integration of the SAM4E addresses the growing application requirements for high-speed wired and wireless communications. The SAM4E microcontrollers are ideal for industrial applications, including building automation.

In smart metering, we recently announced collaboration and product developments with the Wasion Group. The 2 companies have signed a memorandum of understanding to develop smart electricity meters and data concentrators, utilizing highly integrated power line communication solutions based on an Atmel ARM Cortex-M4 processor-based microcontroller. The solution is the world's first single-chip PRIME-compliant system-on-chip with 2 megabits of Flash memory.

In addition, Atmel recently announced it is shipping a new family of Cortex-A5 microprocessors for embedded industrial and consumer applications. The new SAMA5D3 series is a high-performance, best-in-class, low-power microprocessor based on the ARM Cortex-A5 core. The new series is based on a 65-nanometer process technology and integrates several security capabilities. That family's designed for embedded applications in the industrial space, including factor and building automation, smart grid and handheld terminals.

During 2012, we introduced more new 32-bit products, particularly ARM-based microcontrollers than ever before in the history of the company. Beginning in the second quarter, we introduced the general purpose SAM4S family, offering the industry's highest density embedded Flash devices, which are particularly well-suited for industrial applications, including building and home automation.

During the third quarter, we launched the SAM4L family of devices which set record low power and efficiency standards for ARM Cortex-M4 processor-based microcontrollers. The SAM4L family is ideal for battery-powered consumer, industrial and portable health care products.

When you combine these products with the introduction in Q1 of SAM4E family for industrial machine-to-machine connectivity and the SAMA5 family focused on industrial and consumer applications, we now offer a broad range of high-performance 32-bit ARM product families delivering the highest embedded memory density, lowest power and connectivity.

In the developer ecosystem, as a reminder, during 2012, Atmel delivered Studio 6, which for the first time supports our AVR and ARM microcontroller devices under a single unified development platform. Studio 6 has been enthusiastically received by our customers as measured by tool downloads. At the time of today's call, approximately 0.5 million downloads of Studio 6 have occurred since its release in the second quarter of 2012. This is the fastest development tool ramp in Atmel's history.

During the fourth quarter, Atmel further enhanced our Studio 6 with the launch of the industry's first integrated app store and collaboration workspace, further simplifying the software design process for embedded microcontroller designers with the introduction of Atmel Gallery, an app store for development tools and embedded software that evolves Atmel Studio 6 into a comprehensive, integrated development platform. Atmel is the first company to bring the convenience of an app store to the embedded microcontroller community. Designers can now take advantage of the same easy-to-use environment to satisfy all their tool and software needs with the opportunity to collaborate with other engineers. Atmel Gallery is built directly into the Atmel Studio 6 development environment and is also available via the Web to provide easy access to third-party developers tools for Atmel Studio and support the development of Atmel microcontrollers.

Moving to our touch products. In a marketplace for tablets and other large-screen devices, Windows 8-based products contributed significantly to our maXTouch revenue for the fourth quarter. And while we anticipate a seasonally soft Q1, we expect Windows 8 shipments to grow rapidly during 2013.

At the Consumer Electronic Show in January, Intel mentioned that all fourth-generation Haswell chips for Ultrabook designs must have touch as a standard feature to be called an Ultrabook. This means that all Ultrabooks coming later this year will feature touch as a requirement. Based on market research estimates, shipments of touch-enabled tablets, notebooks and Ultrabooks are expected to grow at over 50% annually over the next 2 years from approximately 125 million units in 2012 to over 200 million units this year and nearly 300 million units in 2014. As the largest touch supplier for Windows 8 products and offering the highest capacity of node count product available with Windows 8 certification, supporting touchscreens up to 17.3 inches, Atmel is well-positioned to capitalize on the growth of Windows 8.

Recent Windows 8 design wins for tablets and Ultrabooks include ASUS with multiple designs, Dell for several tablets and Ultrabooks, Fujitsu, HP with a number of both tablets and Ultrabooks, Lenovo, LG, Samsung with a plethora of tablets and Toshiba.

Continuing our large screen momentum, Atmel has new reference designs with Intel for Windows 8 Ultrabooks and Qualcomm and NVIDIA for Windows 8 RT tablets. Atmel is currently Win 8 certified for approximately 40 different tablets and Ultrabooks and is actively engaged in well over 50 different Windows 8 programs.

In the Android community for large screens, Atmel continues its leadership position in the market for Android-based tablets as maXTouch is now powering the touch in the new 10-inch Google Nexus tablet.

In the market for handsets, we continue to expand our maXTouch S family of touch controllers to support the trend of larger screens and handsets and smaller tablets. In January, Atmel launched our new maXTouch 540S device, which provides high-performance capacitive sensing for touchscreens up to 7 inches. The new 540S controller delivers all the features and high-performance characteristics of the current maXTouch S family, including thinner sensors for ultrathin stackups, superior noise immunity, better moisture performance and support for ultrathin passive stylus. Production quantities of the Atmel 540S are available now. Some recent smartphones introduced since our previous earnings calls utilizing maXTouch include phones from Samsung, Nokia, Kyocera, Sharp, Fujitsu and Chinese handsets from Gionee, Meizu and Xiaomi.

The area of touch for automotive applications continues to build momentum. We had our first meaningful revenue during 2012, and we expect continued growth during 2013 as we continue to pick up new design wins.

Regarding our maXTouch goal for the past year. Revenue for maXTouch during the year ended on a high note, increasing double digits sequentially and as compared to Q4 of 2011. For the full calendar year, maXTouch revenue is well in excess of $300 million, but shy of our target of down 15% for the year as compared to over $375 million in the prior year.

Turning our discussion to XSense. Atmel's XSense flexible touch sensors are ushering the new era of industrial designs for consumer electronic displays. We have qualified our second customer, ASUS for the XSense product. ASUS has selected XSense for a next-generation tablet product which is scheduled for release to the market in the first quarter of this year. ASUS is one of the first companies to integrate XSense with our maXTouch controllers to bring to market the improved performance and better noise immunity offered by the combined solution. Customer enthusiasm for XSense is strong and continues to build as our most recent product offerings provide several performance advantages and optical quality which is comparable to ITO. XSense has been sampled to several customers and in the past month was selected by a new Tier 1 customer for multiple tablet designs. XSense enables thinner sensor stacks with superior performance to enable OEMs to develop larger, lighter, sleeker, curved and edgeless designs for smartphones, tablets, Ultrabooks and a multitude of next-generation touch-enabled products.

At the Consumer Electronics Show in January, we announced our collaboration with Corning, demonstrating XSense's functionality on curved Corning Gorilla Glass, along with their ultrathin 0.55-millimeter glass. This work attention enables innovative and cost effective capacitive touch modules. Notably, the flexible touch sensor allows capacitive touch to be wrapped around the side of a device, potentially eliminating the need for mechanical buttons that can wear down when exposed to moisture and dirt.

Also at CES, we were pleased that XSense won the Innovations Award in the Embedded Technologies category, which recognized Atmel for delivering breakthrough performance for a new generation of touch-enabled products. The adoption of metal mesh technology as a replacement for traditional ITO sensors is just beginning. And this represents an over $5 billion market opportunity today and continues to grow rapidly. With XSense, Atmel is at the forefront of leading this technology transition.

Turning the discussion to our nonvolatile memory segment. Total revenue for the nonvolatile memory segment was $32 million in the fourth quarter, down 27% sequentially and down 42% as compared to the fourth quarter of last year. The decrease was primarily the result of the sale of the Serial Flash memory business, which consisted of our DataFlash and BIOS Flash product lines at the end of the third quarter. The fourth quarter 2012 segment revenue included approximately $2 million in Serial Flash revenue which was in the channel. Adjusting from the divestiture, nonvolatile memory was down 2% sequentially and 8% for the fourth quarter of 2011. Atmel had approximately $12 million of revenue in Q3 2012 from the Serial Flash devices and $12 million in the fourth quarter in calendar year 2011. In the RF and Automotive segment, revenue was $40 million in the fourth quarter of 2012, down 8% sequentially and down 14% as compared to fourth quarter of 2011 due to continued weakness in the European auto market. As to new products, we announced the availability of a new LIN family for automotive applications, such as switch scan and in-vehicle ambient lighting control. Switch scan applications are used in automotive doors, roof modules and center stacks. The new devices offer extremely low power consumption, an ultrasmall package and a cost-effective design.

Moving to the ASIC business segment. Fourth quarter revenue of $44.5 million was down 7% sequentially and decreased 32% as compared to the fourth quarter of 2011. The Aerospace business improved during Q4, but is still being adversely impacted by changes concerning export controls for products shipped from Europe to Asia.

Looking at the fourth quarter revenue by geography. Our largest ship-to location was Asia, representing 64% of revenue. EMEA was 22% of revenue, while the Americas were 14% of revenue during the fourth quarter. All regions weakened sequentially from the prior quarter.

Now a brief update on our recent acquisition. Near the end of the fourth quarter, Atmel announced the acquisition of Ozmo, Inc., a leading provider of ultra-low power Wi-Fi solutions that expands Atmel's wireless offerings and provides developers the ability to design smart-connected devices, including devices targeted for the Internet of Things. This acquisition adds to Atmel's broad wireless portfolio with innovative Wi-Fi Direct technologies that will accelerate seamless communication and connectivity across wireless personal area networks. The technology is key for consumer-electronics products requiring smaller form factors and longer battery life, including gaming peripherals, high-definition audio speakers, portable audio headsets, thermostats, security, appliances, and CE remotes. Ozmo's Wi-Fi products and technology offer developers ultra-low power, cost-effective solutions for connecting fixed and portable peripheral devices either point-to-point or through the Internet via a Wi-Fi router. According to market research data, Wi-Fi Direct is one of the fastest-growing segments within the overall wireless peripheral market, which is expected to reach 1 billion units by 2015 with a 23% compound annual growth rate. Wi-Fi technologies are expected to be the dominant technology to enable the Internet of Things. For Atmel, the Ozmo acquisition accelerates our strategy to provide complete solutions for products in this rapidly growing market. We expect this transaction to be slightly dilutive to our 2013 net income and expect it to be accretive to Atmel's earnings in 2014. In regard to our operations, during the fourth quarter and subsequent to quarter end, we took actions to appropriately size our wafer fab manufacturing operations consistent with our business levels as a result of the continued soft global economic conditions affecting the semiconductor industry and Atmel. These actions will strengthen our company for the future.

In summary, 2012 was a year of major investment and repositioning of Atmel for substantial future growth in our key businesses. As we enter 2013, we have multiple, new product areas that are expected to drive revenue growth, market share and margin expansion as the year progresses. We continue to build a valuable microcontroller-centered franchise with market-leading products. The launch of 4 new Cortex-M4-based 32-bit microcontroller product families reaffirms our position as a leading ARM supplier and has already spurred a significant increase in customer design activity for our 32-bit products. We are confident of strong growth in this business in 2013. The Ozmo acquisition provides Atmel with a leading position in solutions for smart-connected devices, including those comprising the Internet of Things, one of the fastest growing wireless marketplaces over the next several years. With the launch of Windows 8 in the fourth quarter of last year and touch becoming a key requirement for Windows 8 tablets, Ultrabooks and notebooks, Atmel's touch leadership at Windows 8 and other large screen products positions us well in a large and rapidly growing market. In the area of touch sensors, with the qualification and release of our innovative touch sensor product line, XSense, we can now enable a new generation of touch-enabled products and have already been selected for multiple Tier 1 customer designs. We are on track to ramp during the second half of 2013 and begin a large and multiyear growth opportunity. While we have successfully positioned Atmel to drive revenue higher in 2013 and beyond, we are also committed to reducing our cost structure and are taking significant measures to improve margins and increase both earnings growth and cash flow generation. While our Q4 sequential revenue was relatively better than many others in the semiconductor industry, we did experience soft bookings during the quarter and lower backlog as we began Q1. However, the tone of business and booking so far in the first quarter has been considerably stronger, and we believe that Q1 will represent the bottom of the current cycle. We're even confident that Atmel's long-term strategy and exceptional product portfolio sets a foundation for a strong future.

Now let me turn the call back to Stephen for our Q1 financial guidance. Stephen?

Stephen Cumming

Thank you, Steve. The company expects revenues to be between $311 million to $328 million, which is down 5% to 10% sequentially from our fourth quarter revenue.

We expect GAAP gross margin to be 40%, plus or minus 100 basis points in the first quarter of 2013. On a non-GAAP basis, modeled to 40.5%, plus or minus 100 basis points for the first quarter.

First quarter GAAP operating expenses are expected to be approximately $131 million, plus or minus $2 million. As a reminder, our guidance includes a full quarter of expenses associated with our recent acquisition. Non-GAAP operating expenses are expected to be approximately $116 million, plus or minus $2 million.

For the first quarter, depreciation and amortization is expected to be approximately $20 million and stock compensation to be approximately $17 million. We expect capital expenditures to be approximately $5 million to $10 million for the quarter. Other income expense is expected to be approximately $1 million to $2 million expense, and acquisition-related costs are expected to be approximately $2 million for the quarter.

We expect our Q1 GAAP tax expense to be approximately $1 million to $3 million. For those doing non-GAAP models, we expect non-GAAP tax on our normal operations to be approximately $1 million to $3 million per quarter in 2013. In 2013, or on a cash tax effective rate in the mid-to-upper single-digit percentages for 2013 and beyond. For modeling purposes, assume a GAAP fully diluted share count to be approximately 428 million and the non-GAAP share count to be 441 million.

This concludes our prepared remarks. We'll now open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Jeff Schreiner of Feltl and Company.

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

I guess first and foremost, I was hoping if you could somehow shape for us the contribution that you saw in Windows 8 for the fourth quarter when you talked about meaningful Windows 8 contribution.

Steven A. Laub

Yes, this is Steve. Breaking out to that level of granularity for competitive purposes, is actually not a good thing for us because it highlights to obviously our competition how big the opportunity is. So unfortunately, we won't break that out except to just repeat that it did contribute in a meaningful way to our growth of our maXTouch products in Q4.

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

And as a follow-up, Steve, I'd also like to just discuss a little bit, Atmel's current strategy with relation to smartphones during calendar year '13. Is this a focused market for the company still? And where did you see Atmel positioned in calendar year '13 for the smartphone touch IC market?

Steven A. Laub

Sure. So we -- our first priority with respect to the touch products has been in the larger screen. We feel that a larger screen provides actually a longer term growth, greater size opportunity, growth opportunity, and more differentiated opportunity to provide higher margin. And so that has been our primary focus as a company after initially having a very strong position in the smartphones before the emergence of the larger screen marketplace. We do that because we see in the larger screen opportunity, obviously, not just the tablets, but now the growth of Windows 8 and really the emergence now of the entire PC marketplace being opened up to touch. The differentiation is for things like the sensor hub technology, stylus technology and others which is a kind of differentiation that's harder to achieve on the smartphone side. Now with respect to smartphones, I believe that we are also very strong in the smartphone market and particularly strong with what I'd say is probably the world's largest supplier of smartphones now into the marketplace. So our position is strong there. It's still very important for us. It is actually a priority for us as well. But we do prioritize first, the larger screens; and second, the smartphones in that order.

Operator

Your next question comes from Craig Berger at FBR Capital Markets.

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

I guess, can you give us a little color on the Q1 guidance with respect to what you're seeing in industrial and automotive? We've been hearing a little bit better on the industrial front and sort of the China white goods homebuilding?

Steven A. Laub

Craig, it's hard to discern exactly how the industrial markets will turn out. But as an indication, I'll provide a little bit of color. And I think our markets, our different products will give you some indication of that. We do expect growth in Q1. I've seen our core micros which the large end market for that is industrial. So that does say better things about industrial in Q1 as compared to Q4, and we also are seeing expectation for growth in our automotive business in Q1 as well. So I think the indications you have are accurate in that respect.

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

Okay. Steve, I guess, the Q1 guidance seems to be a little weaker. And if it's not industrial and automotive, and you did note touch is being down seasonally into the first quarter it seems, at least seasonally down, if not worse. Can you give us some color as to how much of that is handset versus tablet versus Win 8 versus customer program losses or wins?

Steven A. Laub

Yes. So the businesses that are down in Q1, MaXTouch is down in Q1. Our memory business also is going to be down in Q1, our ASIC business is down in Q1. So we're saying mix with respect to the business. Core micro is up, automotive up, but we're seeing the rest of the businesses down. In the maXTouch area from what we see fundamentally, I would say the preponderance of the down is really a seasonal down based on primarily Windows 8 sell-through. It's not loss of programs. In fact, we feel very good about our position on the programs and our position in Windows 8. And we're very confident of a rebound in our maXTouch business in Q2 by the way. So it's really from our standpoint, a single quarter adjustment due to seasonality and some Windows 8 sell-through.

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

Do you have any thoughts on touch for 2013? And can you just also tell us whether there's any more restructuring charges and other onetimers? Those have been pretty high lately.

Steven A. Laub

We are not at this point going to provide a forecast for touch for 2013 for various customer and competitive reasons. We will give you guys updates on those during the year, each quarter and during the year and more granularity onto that. It seems to me that for every time people pull out a forecast, they come back later to regret it. So we won't do that at this time, but we feel very good about our touch business for 2013. With respect to restructuring charges, obviously, we don't tend to want to foresee restructuring activity in the company. Because obviously, it creates a concern for our employees as you can appreciate. But I will reiterate that our expectation is that we will, as I said in prepared remarks, we are focused on enhancing our margins and improving our cost structure and so of course we'll be taking actions to do so.

Operator

Your next question comes from the line of John Vinh of Pacific Crest Securities.

John Vinh - Pacific Crest Securities, Inc., Research Division

My first question is, when you look at 2013, can you just talk about what your kind of design win visibility is currently?

Steven A. Laub

John, the design win visibility is very different based on what product line. If you're talking about core micros, it's actually -- we have reasonably good visibility because typically the design cycles are longer and then the actual production cycles for our customers are typically multiple year. So in that respect, you have very good visibility. In our automotive business, you have very good visibility. With respect to, I'd say, the touch business, you have good visibility of sort of the next couple of quarters. But then it tends to decline after that because of the fact that programs go through such a rapid design cycle, and memory is also where you have less visibility for exactly the same reason.

John Vinh - Pacific Crest Securities, Inc., Research Division

Great. And then my follow-up is switching to XSense. You mentioned that you got another design win with another Tier 1 customer. When should we expect revenues to ramp for that second Tier 1 customer?

Steven A. Laub

Our expectation is in the fall. Probably it begins to ramp in Q3 and further growing in Q4. We're not going to inform you guys of every designer that we have with XSense, but we think it's important at the beginning of the birthing of this new business to provide you how -- particularly with Tier 1 customers, which I think adds additional credibility to the product line and to its impact it's having in the marketplace.

John Vinh - Pacific Crest Securities, Inc., Research Division

Great. And then my last question is on pricing. You guys have talked about kind of a significant step-up in the opportunity for XSense pricing. Can you help us and give us some boundaries on how do we think about pricing for content in a 7-inch tablet for XSense plus the touch controller?

Steven A. Laub

I'd love to share that because first of all, it is -- I would say as vis-à-vis the touch controller, the sensor is multiples from a standpoint -- from a pricing standpoint. But I don't want to give out the specific pricing because of competitive reasons again, because the alternative for all of these customers is ITO and obviously, what our guys attempt to do is to sell not directly saying, hey, I can undercut you. But frankly, there's a lot of value that the XSense products brings or what brings as well. But I can tell you that it is -- as the size of the screen gets larger, the differential of the pricing vis-a-vis the controller also gets larger. And so you'll see that the vast majority of our designs and our design wins will be on tablets, Ultrabooks and those types of things because that's where the differential, the actual price and content is significantly higher and the differential vis-a-vis the alternative such as ITO also provides us greater opportunity for differentiation as well. I will share with you that the pricing, as you get a above say, 10 inches, it does get into the area of above $10. So it's a very considerable impact of opportunity for us.

Operator

Your next question comes from the line of James Schneider of Goldman Sachs.

James Schneider - Goldman Sachs Group Inc., Research Division

I was wondering if you could talk a little bit about the inventory levels. How long do you think it's going to take you to get down to normalized sorts of inventory levels? Is it going to be a 1 or 2 quarter affair? And then what utilization you plan on running your fabs at to get down there for the next couple of quarters?

Stephen Cumming

Jim, this is Stephen here. From an overall inventory, I think we said in our prepared remarks, internally, we think Q1 is going to be the peak. Obviously, we're continuing to work through our take-or-pay agreements with our European foundries. I mean, you can assume that inventory as we go through the rest of the year will come down. I think it's going to come down substantially in Q2 and really work towards our target model of somewhere between 100, 120 and 130 days as we exit 2013. Obviously, the take-or-pay agreements has not allowed us to reduce inventory as quickly as we had thought. From a utilization perspective, we were running our fab somewhere in the low-to-mid 70s in Q4. You can expect that's going to be even lower in Q1 in the high-60s, again in efforts to continue to bring our inventory in check. We have resized the facility, and so that's going to improve manufacturing cost as we look out into subsequent quarters. But given the top line expectations and the weaker outlook for Q1 from a macro perspective, we're really dialing back the overall utilization.

James Schneider - Goldman Sachs Group Inc., Research Division

That's helpful. And then as a follow-up, Steve, your 8-bit MCU revenues have keeled off pretty substantial over the past few quarters and certainly for the year. I was wondering if you could give us some color on how much of that is just kind of shifting the 8-bit touch business to 32-bit and how much of that is an organic decline in 8-bit? And do you think we have pretty much washed through much of the touch business that was 8-bit?

Steven A. Laub

So just -- I'm not going to give out specific numbers, but yes, a part of that has been the transition from maXTouch 8-bit to maXTouch 32-bit and part of it has also been -- there has been a decline in, I'd say, the core 8-bit business. We are -- so it's a combination of the 2. With respect to moving forward, my expectation is you will see probably less of a dramatic decline due to transitions within, I'd say, the maXTouch products. And so I think that you won't see as significant a decline there going forward. But the other thing that you see as we've noted in the prepared remarks, the primary emphasis of the company is in the 32-bit area and not just because of maXTouch being in the larger screens, but also because that's where we're growing our core MCU business as well. That's where the new products are focused on and so forth as a primary goal. Because that market when you think longer term will provide greater opportunities for the company.

James Schneider - Goldman Sachs Group Inc., Research Division

And just as a quick follow-up, do you think you can maintain the 8-bit business flat this year? Or is it just too soon to tell and that's going to be all macro-based?

Steven A. Laub

It's too soon to tell it's all macro base. I think I mentioned though, we are expecting to grow the core MCU business sequentially in Q1. And as part of that, we would expect that the 8-bit business would be growing as well.

Operator

Your next question comes from the line of Steven Eliscu at UBS.

Steven Eliscu - UBS Investment Bank, Research Division

Our first question is around XSense, just getting an update on your $50 million goal for this year. And also if you could just elaborate more, you talked about in your prepared remarks about strength in the 2014. Can you also give us just some ideas if you're successful here this year with your OEMs. Are we talking about growing that business modestly, or are we talking about several hundred million dollars in 2014?

Steven A. Laub

Steve, so first of all, with respect to this year on XSense, we're just beginning to ship for production. I think we actually -- our first production shipments, they're really happening this quarter, so we are seeing a very robust design activity. We are winning some key designs, some high-volume designs with some very good ASPs. So we right now are retaining the guidance that we've given you, but we'll give you really more of an update on that, I think, at the end of the first quarter when at that time we will have a very good feel for the designs captured, the momentum on that and the ramp at those particular programs. Because you can appreciate with a new product like this in such a large market, there's a wide variation with respect to the outcome. With respect to 2014, it's too early for me to give you an update on that. We do look at this as being a huge opportunity for the company. Clearly, it's dependent upon making sure that we ramp our first program successfully, making sure that we expand the capacity, achieve the kind of yields that are necessary because a lot of this obviously, when you're ramping a new business and a completely new technology, there's a lot of unknown variables, a lot of learning that is going on with respect to that process. But just to reiterate, we expect to ramp very nicely in the second half of this year, and we expect that 2014, if successful, would be on a revenue basis multiples of 2013.

Steven Eliscu - UBS Investment Bank, Research Division

Okay, that's very helpful. And then on your core microcontroller business, you went through a period of out-shipping the market and then under-shipping the market. You seem now to be back. You've equalized channel inventory there. Can you give us an idea as to -- and it's made it very difficult to get a good understanding of how you think you're growing relative to the overall industry. Can you give us a sense what the new products and just the cycle you see for this year, how you think you'll outgrow the industry? And also just to give us some confidence that this is not about building up the channel again.

Steven A. Laub

So a couple of things. First of all, with respect to the business and so forth. We have seen some very nice upticks in the business. We are seeing, as I mentioned, a growth we expect in Q1 and very strong success in 32-bit, which we're quite confident we'll have a very successful year this year in our core business. The channel build up was something that occurred at the end of an extraordinarily strong cycle, where I believe the business grew, I think, upwards of over 60% that year. And so unfortunately, that occurred due to the very strong success of those products combined with, I'd say, long lead times or anything [ph] that were occurring at the time, and then of course the slowdown in the business generally. Our channel is, I'd say, very well-balanced right now, which we're very pleased about. We are very mindful that -- we have no interest in creating that kind of situation, nor do I think our distributors. Although I think sometimes they're less sophisticated, but appreciating what their customers want and what they should buy. But the key thing is to ensure the growth in the product line. It's a core business for us. We just released, as I mentioned in the prepared remarks, more new 32-bit products than we have in the history of the company. Some very competitive Cortex-M4 products, as well as the A5 core. And you can expect, we will be releasing a number of new ARM products in the first half of this year as well. So we aren't stopping, it's just been announced there's a number of new cores coming out as well. So our investments are very substantial, and our intention is to outgrow the market as we historically have.

Operator

Your next question comes from the line of Blayne Curtis of Barclays.

Blayne Curtis - Barclays Capital, Research Division

Steve, I just want to first clarify a comment. The core business, did it grow in Q4? I mean, it sounded like the touch came in a little bit weaker, the overall bucket was up 1%. But then 8-bit was down and given the mix in touch, it gets a little bit confusing. But the essence of it, I was trying to understand, it seems like some of your competitors have seen a pullback in Q4, you may not be seeing as much and kind of if you can comment on, I think you just did a little bit, but as far as you saw the correction a little bit later than others. So just your confidence on the health of the supply chain.

Steven A. Laub

Blayne, I'm just trying to understand your question. Are you asking about the core microcontroller business?

Blayne Curtis - Barclays Capital, Research Division

Yes, did the core microcontroller business decline for you in Q4 and kind of your thoughts on just the supply chain.

Steven A. Laub

So with respect to Q4, we did see a small decline in the core microcontroller business, and our expectation -- actually, our inventories also came down within the supply chain in Q4 as well. Our expectation, as I mentioned earlier, is that we'll see growth from our microcontroller business in Q1.

Blayne Curtis - Barclays Capital, Research Division

Got you. And then maybe in the touch business, if you could comment on the mix of large screen versus smartphones. You had been targeting 35% to 40% for the year. Is that where you guys came out? And do you think that mix changes as you look into 2013, you've highlighted a lot of design wins on large screen, how does that all mix out?

Steven A. Laub

So one of the things that we have made a decision upon in light of the comments that we've seen now coming from our direct competitors in the touch area is that no one else is breaking out their large screen versus smaller screen revenues. In fact, some people aren't even breaking out their own touch number. So we've decided that we'll no longer break it out for competitive reasons to highlight to people the size of those markets. So unfortunately, whereas we did give you some guidance as to our touch business for the year and for the quarter, we won't be breaking out between smartphones or small screens and large screens any longer.

Operator

Your next question comes from the line of Chris Caso of Susquehanna Financial group.

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Just the first question, a clarification on the gross margins and the impact of the expiration of the take-or-pay when that happens midyear. Did some of the actions that you took last quarter, does that impact, I guess, the take-or-pay agreement for the next 2 quarters? And what sort of benefit should we expect at this point once that take-or-pay expires?

Stephen Cumming

Chris, this is Stephen. The simple answer is that, it doesn't really impact. We don't get any sort of favorable upside from taking those onetime charges. We're still committed to fulfilling our contract and receiving those wafers under our take-or-pay agreement. And as I said in the prepared remarks, the contracts conclude at the end of Q2 at least from a start perspective and we see final wafers during Q3. From a gross margin perspective, certainly, what we're seeing at the moment in terms of the lighter top line revenue which is driving low utilization and these take-or-pay agreement is certainly putting pressure on our gross margin. So you really shouldn't expect too much of a change for gross margin as we look out at least into the first half and including Q2. But you will find as we go into the third quarter, you'll see improved utilization. We'll work through the inventory that we've built at the higher cost from the take-or-pay agreements. Obviously, we've got a lot of manufacturing cost reductions in the works as well. And so you should see gross margins improve in the second half of 2013.

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Okay. Just as a follow-up. Could you give us an update on where you guys are with maXFusion and perhaps talk about the sensor hubs in general with your expectation as you go through the year?

Steven A. Laub

With respect to the sensor hub business, I think we've earlier described that we have had design wins for example in the Samsung Note II product family which is shipping, as well as the Microsoft Surface tablet. We have won -- we've won some new designs with the sensor hub product which will be -- the product will be released into the market during 2013. So our expectation is that we will see considerable growth in that business during 2013.

Operator

Your next question comes from the line of Raji Gill of Needham & Company.

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

Just on the gross margin issue. The take-or-pay, if you can maybe remind me the agreement, but my understanding is that when you sold the fab, you basically got $0 for it, but you got significant discount on the wafers for a period of time, at which point then that discount, I guess, would go away. So I'm just trying to get a better understanding when you look to -- where are you going to look to be buying new wafers from and what the cost of those wafers would be as you move away from this agreement with your LFoundry?

Stephen Cumming

Raji, this is Stephen. So when you say significant discount, when we sold the fabs, we valued those foundry agreements and the wafer pricing at market price, I think it's fair to say given the weaker economic environment that we've lived through over the last year or so, the market price for foundry wafers has come down, and we, given our take-or-pay agreements, have not really been able to benefit from that over, particularly over the last year. And so that has been impeding our gross margins. We feel that once we are through the take-or-pay agreement and we burn off the inventory, we will be up to take advantage not only of lower cost foundries, but also have the flexibility to leverage our own manufacturing asset by bringing more production in-house, increasing utilizations and lowering our cost.

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

What's the mix of production, internal versus external? And what's kind of your thinking once you pass through the LFoundry agreement? How much you will shift internally versus externally?

Stephen Cumming

It's hard to gauge what it would look like going forward, but I would say, roughly at the moment, we see about 50-50 split between internal and external depending on the profile of inventory and what we have on hand. I can't really give you an estimate of what that looks like. I mean, as the company grows, the expectation is we'll do more and more through foundries as oppose to in-house. But I don't know the specific percentages.

Operator

Your next question comes from the line of Sidney Ho of Nomura Securities.

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

So your comments seem to suggest that business will bottom in Q1, and many of your broad-based mixed-signal companies are suggesting above seasonal growth starting in Q2, maybe even double-digit growth really for the next few quarters. So the questions are, one, is that consistent with your expectation when channel inventory starts to grow again? And two, what is your typical seasonality for then the next few quarters?

Steven A. Laub

So with respect to our outlook for the year, we do and I'll reiterate what you said. We do expect to bottom in Q1. We do expect to have a nice rebound in Q2. Obviously, it's early to understand what's going to happen in Q2. But based on what we're seeing in our bookings trends and other ramps, that is really our expectation. With respect to seasonality of our business, Q1 -- Q4 to Q1 has always been the softest business transition for us of any quarterly transition. And if you go back over, say, the last 5 years or so, about 5 to 6 years, we typically decline between 5% and 6% during Q4 to Q1. So it's slightly higher, our expectation this quarter. But again, we do have the same confidence that others do that there will be a rebound in Q2. And also to give you some seasonal perspective on that, the Q1 and Q2 transition for us is typically about a 5% sequential growth as well.

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

Great. As a follow-up, I'm hoping -- just to follow-up on the gross margin question. I'm hoping that you can give us a little more clarity as to you starting at 40% in Q1, I think you're still probably sticking with that 54% gross margin target exiting 2014. Qualitatively I understand the factors of factory utilization and the take-or-pay agreement, but can you help us quantify the impact, like what margin leverage are you going to get for, let's say, a 5% improvement in utilization? And also, how much of your cost of goods sold is tied to those take-or-pay agreements right now that will be rolled off?

Stephen Cumming

Sidney, we don't -- we're not going to break it out at that level. Certainly, like us and most of our competitors out there, we are all being impeded somewhat on gross margin given the lower utilization of our manufacturing assets. And certainly, that's an area that's been a drag on our gross margin. As business levels resume, and we start to increase our utilization substantially, there'll be a substantial increase in our overall gross margin. Let's just put this into perspective in terms of where we are in relation to our target of 54% exiting Q4 2014. It's 8 quarters away. As a management team, we're extremely focused on getting there. Clearly, that does require a recovery in the top line and steady growth for our business. As I say, we do expect our utilization of our fabs to improve as the top line comes in and we rebalance our inventory, and that's probably one of the bigger levers that we have. But we also have a lot of operational initiatives of cost reductions underway and in place. And we have a new senior VP of operations that, that's really his #1 priority, to go drive over the next say, 8 quarters. The take-or-pay agreements, we've had to live with, and they will be concluded, at least contractually concluded at the end of Q2 with final shipments happening through Q3. And as I said, the benefit of that is that allows us to leverage more of our own manufacturing assets, but also to take advantage of lower cost third-party foundries. So there's lots of opportunities to close the gap on that 54% gross margin. I'm not going to break them out individually for you.

Operator

Your next question comes from the line of Ian Ing of Lazard Capital Markets.

Ian Ing - Lazard Capital Markets LLC, Research Division

First for Stephen, on some discrete items. So given the revenue guidance, do you expect that take-or-pay foundry payment in Q2 or is the wafer requirement declining? And also the $6 million impairment of receivables, I mean, perhaps you could just describe some sort of write-down, what type of products were written down?

Stephen Cumming

So yes, we will still continue to receive wafers from our European foundry. And with regards to the impairment of the receivables, this was relating to our assessment of certain services that we provide to our European foundry suppliers, whether it's IT, lease services, et cetera. And we felt that it was prudent to take this given the aging of that receivable. And so we took that full coverage in Q4.

Steven A. Laub

I want to make sure also that we answered your question. If your question also included whether or not was there a risk of having a similar charge with respect to, on the gross margin side in Q2 as we did in Q1. The expectation is that we would not. The charge in Q1 had to do with 1 of the 2 foundries based on the fact, as Stephen stated in his prepared remarks, that the supply that we contracted to receive exceeds what our customers' requirements are, which is why we took that charge. With respect to having that charge again, we would not have it obviously with that particular foundry. Whether or not the other foundry, we have looked at our demand and supply situation there. And while you never know things 100%, we're actually pretty quite comfortable that we don't have a similar situation. There's a lot more opportunity to use the capacity at the other fab for our products and for our existing demand. So because of that reason, we do not expect to have a similar kind of charge in the gross margin line in Q1.

Ian Ing - Lazard Capital Markets LLC, Research Division

And a follow-up is, your comment on expectations of a rebound in maXTouch in Q2. Is that based on forecast from reliable customers, or is that more reflecting in bookings? You talked about some stronger bookings so far this quarter, is that starting to show up there?

Steven A. Laub

I would say the answer -- first of all, I think all of our customers we deem as generally reliable. But with respect to it showing up in booking, and it's based on our design win activity and based on our bookings rate.

Operator

We have time for one final question. Your final question comes from the line of Betsy Van Hees of Wedbush Securities.

Betsy Van Hees - Wedbush Securities Inc., Research Division

I understand for competitive reasons that you guys don't want to talk about your maXTouch mix buy-in application. But I was a little bit wondering if you could help us out, if you could help us understand how sticky your maXTouch design wins are? So for example, you guys gave a really impressive lineup of OEMs and ODMs in your Windows 8. So as we look at the second half, how are you guys going to be able to maintain that level of market share that you have today?

Steven A. Laub

So with respect to programs, obviously, when you win a design on a program, you have that program. There's not sharing of a program that the parts are multiple sourced. And so that provides stickiness with respect to those. As in all of our businesses, you have to continue to win the new programs. And I think as we typically do and as others do, that's dependent upon coming up with new products that have superior technology to others. And we don't share our product roadmaps and product introductions prior to actually having them occur generally. But you can be quite confident that we have lots of new developments and new products that will be introduced this year in the maXTouch area, which we feel very comfortable about their ability to continue to deliver and win new designs. So that gives us that comfort based on what we're hearing from the marketplace, what we're hearing from our customers about the competitiveness of our products relative to others.

Betsy Van Hees - Wedbush Securities Inc., Research Division

That was very helpful. And then my follow-up question has to do with pricing, particularly with maXTouch. Did you guys see any particular pricing pressure in the quarter? And how are you looking at pricing moving forward for this year? Is it going to be kind of on an average ASP decline cadence? Or do you expect given the changing competitive landscape especially overseas that ASP pressure might be a little bit tougher this year.?

Steven A. Laub

I expect ASP pressure for this year will probably be similar to last year. I don’t expect it to be any -- certainly, I don't expect it to be any worse than last year. In that regard, in fact our ASPs in Q4 actually rose. So our expectation is the ASP performance will be somewhat similar in that we take it into our plans and into our projections and so forth.

Operator

This concludes the allotted time for today's Q&A session. I would now like to turn the call back over to Mr. Peter Schuman for any closing statement.

Peter Schuman

Thank you, Paula. During the first quarter, Atmel will be presenting at the Goldman Sachs Technology Conference, Thursday, February 14, in San Francisco; as well at the SIG investor conference, March 5; and the Wedbush conference, March 6, both in New York City. Webcast information for these events will be available on the company's Investor Relations website. In the meantime, you're always welcome to contact our Investor Relations Department at (408) 437-2026 with any additional questions that arise. Thank you for joining us, and this concludes today's call.

Operator

Ladies and gentlemen, that does conclude today's quarterly all-hands meeting. Thank you for your participation. You may now log off.

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