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Atmel Corporation (NASDAQ:ATML)

February 14, 2013 12:00 pm ET

Executives

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

Analysts

James Schneider - Goldman Sachs Group Inc., Research Division

James Schneider - Goldman Sachs Group Inc., Research Division

Okay. Good morning, everybody. Welcome to the Atmel Corporation Presentation at the Goldman Sachs Technology & Internet Conference. My name is Jim Schneider from the semi's team here at Goldman. It's my pleasure to introduce Atmel today and we're very happy to have CEO Steve Laub with us. Welcome, Steve.

Steven A. Laub

Thank you, Jim.

James Schneider - Goldman Sachs Group Inc., Research Division

Maybe you just want to start out on the near term, I think I'd be skewered if I didn't ask some near-term questions before we start off. You guided for Q1 sales down about 5% to 10% sequentially, which I think is, some people would view as maybe worse than some of the analog peers in the space. So if you can maybe help us understand, you've got a lot more consumer and computing exposure than some of those peers. So maybe help us understand what you're seeing in terms of end markets and how that played in your guidance?

Steven A. Laub

So with respect to our sort of tone of business right now, as you may recall, our Q4, we were down just under 2% sequentially, which was actually better than most of our peers. I think we track a group of about 22 different semiconductor companies, and I think that was the third or fourth sort of best sequential performance of all of them. The -- and that's actually adjusting for a divestiture of a serial memory business that we had sold the previous quarter. With respect to the business, we are seeing in Q1 clearly some of the impacts of the end markets, one of the impacts we're seeing is what's happening on the PC end market, particularly we're actually in the, generally, in what I'd say the more positive part of that market, because while the market itself, I think, is having some more difficult times right now, the growth area will be in the Windows 8 area. And in fact, part of our, sort of our better performance relative to others in Q4 was driven by the Windows 8 product lines, specifically some of our touch products that go into those areas. In Q1, there's a bit of a pause in that business, as people digest some of the builds that they did and make sure they complete the sell-through of a lot of that. Our business, on a seasonal basis, is typically down about 5% in Q1. Now what we're seeing is a little bit worse than that this particular time. Our Q4 was better, as I said, than most. If you put the 2 quarters together, actually, the overall performance is quite good. So we feel good about that. With respect to it, I do think Q1, as I mentioned during our earnings call, is the bottom for us in the cycle. I'm seeing a real change in the tone of business. We saw that our bookings in January, when we compare that to October to do comparable month-over-month comparisons, was up double digit relative to that.

We continue to see the bookings strengthen this quarter as compared to last quarter. And more importantly, we're seeing it across many of our different product lines and businesses. So it's not just occurring, for example, in one product line or one end market, but we're seeing it more generally. And while it's still just the middle of the quarter, it does make me feel very good about seeing that tone. Clearly, we expect a quite good Q2 based on what we're seeing so far in Q1.

James Schneider - Goldman Sachs Group Inc., Research Division

That's a good point. And I think it's similar to what other people in the space have talked about in the past couple of days here at the conference. Can you maybe talk about, you have a lot of exposure to Asia in particular. You talked about improving bookings and typically, we have this pause right now during Chinese New Year and then we come back and see customer orders materialize after that. Can you maybe talk about your expectations of what your customers have told you about, how aggressive they will be after Chinese New Year? And then if you can maybe talk a little bit about the -- how long-dated your backlog looks like compared to what you saw maybe last year?

Steven A. Laub

So with respect to what we're seeing right now and clearly, Chinese New Year does cause a pause in bookings out of Asia. First of all, with respect to, I would say, so the bookings going into Chinese New Year were quite good in that respect. Our expectations based on what customers are telling us and new programs going out sort of in the end of this quarter, beginning of Q2, are also quite good. So that makes us feel very good. It is -- right now, I would say our inventories in the channel are actually at a relatively lower end than they've been in probably the last 18 months, if not more, which is a very good thing. Our inventories in the channel now are less than 9 weeks generally, and that's been working itself down throughout the past 1.5 years or so. And that's also our -- I'd say that the sort of tone of the programs, we're seeing a lot more clear end market demand driving the number. So all those pieces come together very nicely. Looking at what the second half of the year looks like, it's probably too early to have a lot of visibility because right now, we, along with other companies, we don't have a long backlog because of the fact that customers have short lead times, and that's just the nature of what happens, the lead times do get shorter.

James Schneider - Goldman Sachs Group Inc., Research Division

That's helpful. And maybe can you address, you sort of touched on the distributor inventory levels being very, very low. I think that's common throughout the industry at this point. Can you talk about 2 things. Number one is, what the difference is between the bookings you've seen from your direct OEM customers and distributors? And then maybe comment on what distributors are telling you in terms of their willingness to carry more inventory or start to restock as we see demand improve?

Steven A. Laub

So right now, what we're seeing is we're seeing, I'd say, good bookings from both, OEM as well as distribution. I would say actually OEM is probably a little bit stronger than we're seeing from distribution. With respect to distis, I don't see them building up a lot of inventory right now. If I look at what their orders are on the books for, as compared to what the sort of POS sell-through we expect and that they're projecting, it's pretty imbalanced. So I do not expect to see a big pickup in inventories in distribution for this quarter.

James Schneider - Goldman Sachs Group Inc., Research Division

Got it. And then maybe I want to shift to a topic of key investor interests relative to Atmel and that's the touch business. Last year was kind of a challenging year. I think your sales in touch were down a little more than 15%, and that's despite pretty healthy unit growth in smartphone and tablet end markets. So maybe kind of walk us through what drove that decline, how much of it was pricing, how much was market share? And can you maybe comment on whether the competitive environment you think has stabilized at this point or remains pretty challenging?

Steven A. Laub

So I'll talk about probably 2 things: One, touch business, I think the investors either care or should care also about the general micro business as well. With respect to the touch business, last year was a soft year, actually, for the industry overall. Unit growth was very strong. One thing that impacted, clearly, the beginning of the year was that we had done a lot of business in the sort of larger screen area in 2011 that was driven by multiple chips solutions. And so what happened is toward the end of 2011, we moved more toward a single chip solution for a lot of tablet-type implementations and so forth. That in and of itself, independent of the units, took down the content of touch within a sort of tablet significantly, well over half. And so that impacted us because we're the leader in that part of the marketplace. So there was some impact that drove because of that. We have seen, particularly in the last 6 months, very strong growth in the larger green area, both in tablets, a lot of Android tablets that were shipped, as well as the introduction of Windows 8, both for tablets and for, I would say, Ultrabooks, notebooks and so forth, which began to ship in Q4. So that has driven a very significant part of that business. Our share in that part of the business, while difficult to know exact numbers, does appear to be somewhere between sort of 60% to 75% in the larger screen area. With respect to the smartphones, very significant view growth. We also, from a unit standpoint, grew very nicely in that marketplace. We did see some come down on the revenue side as the ASPs also did decline in that part of the marketplace as well. But overall, I actually feel good about the market. We expect to grow in the touch market in 2013. One thing I do want to comment on is a big part of our investments really have been in the general microcontroller area. I mean, our core business, our biggest business in the company, is the general microcontrollers. We've been experiencing -- we had very large growth there for a very long period of time. We did have some softness this past year, really due to, I would say, a transition in some industrial customers that occurred toward the end of 2011. You may know we grew, I think for 3 years directly, and sort of outpaced the market for that period. We did experience growth through our general micro business every quarter last year sequentially. And in fact, I feel very good about the growth of that business in 2013.

James Schneider - Goldman Sachs Group Inc., Research Division

Yes, and I definitely want to dive into the general-purpose MCUs a little bit later. Just maybe if I could, a couple more on touch. You've talked about your focus on the high-end smartphone market and then especially your focus in terms of large screen tablets, Ultrabooks, et cetera. Can you maybe talk about why you think that advantage that you have in large screens is differentiated and then why you think it's kind of sustainable in terms of your ability to hold pricing or share better than the other areas?

Steven A. Laub

The investments to make into large screen as compared to, I would say, the smaller screen of the smartphone, fundamentally, one of the things that's important is architectural. What you'll find is a number of suppliers that are in the smaller screen area, including domestic suppliers, have been very successful, or have had some different elements [ph] of success in smartphones, have not made that leap, that natural extension into the larger screen area primarily because the approaches you have to take, the architecture you have to use and so forth, are fundamentally different. And the investments therefore, are significantly greater when you want to participate and compete in both, which is our intention, to be compete and succeed in both parts of the marketplace. That's one thing. So one, it's a very significant investment to make and takes a lot of persistence on that to be successful. I like larger screens because fundamentally, you have many things that are very positive in that. One, you have a very large, sort of much more diverse customer base to sell to. Unlike in smartphones, where you have fundamentally, a very concentrated customer base today. In the large screens, you have many more suppliers, much more share with respect to their marketplaces, their market shares. And so the differentiation you can provide and their desire for different types of solutions is significantly greater. The ability because of the fact that screen sizes vary dramatically, anywhere between 7 inches, eventually today up to, let's say, 15.6 inches in the sort of largest Ultrabooks, but even the all-in-one machines, which are 20-plus inches, also are requiring touch to be part of Windows 8. And so there's a long, long-term growth opportunities in the larger screen area. The differentiation we can do, whether it be with integration of say, sensor hub type of functions, stylus capabilities and so forth, and things you can do to really impact the stackup and solution overall, again, lend themselves in the larger green area, much more difficult to achieve that kind of differentiation in the smaller screen area. So these are the reasons why we like it, why we made those investments. And now with again, with the adoption of Windows 8 and now the mandate from Intel that all their Haswell machines going forward will require touch as part of being called an Ultrabook, is the kind of thing that only bodes well for long-term growth in that opportunity.

James Schneider - Goldman Sachs Group Inc., Research Division

And I want to ask you a question on penetration rate within the PC space, because I think one of the challenges we saw last year in the market is, you put a touch panel in, that adds $150 or roughly, to the build materials of the PC. And so that kind of segments the touch-enabled part of the market up in the price stack a little bit. So what are your customers telling you about how far touch penetration could penetrate Ultrabooks, say, by the end of this year?

Steven A. Laub

So I'm not going to give a number because I'm sure whatever people predict, it will be wrong. It'll be a lot greater than it was at the end of last year. That I'm assured. As I mentioned previously, the fact that Intel had mentioned at CES, that their Haswell machines will require touch to be called an Ultrabook, only enhances the attach rates. And in fact, the projected attach rates of touch into that marketplace have been going up. If you look at different analyst reports, market research reports, everyone's anticipation of the attach rate of touch is significantly going higher each time. And so we feel very good about that. So my expectation is you'll see that, it'll be a multiple year type of expansion and added to the attach rates. With respect to our customers, we are seeing more and more designs that are incorporating touch, more and more platforms incorporating touch. Clearly, one of the things we're working on with them is long-term paths to drive down the cost of touch into that, because obviously, if you're paying $100 more or $150 more, as an end user, the adoption to touch is only going to be more rapid to the extent that $100 comes down to $75 or whatever it is. And so those are things that we're very aware of and things that we're also working on as well.

James Schneider - Goldman Sachs Group Inc., Research Division

Got it. A couple of technology questions, also, if I might, on touch. There's been some speculation in the trade press over the past several months about whether some smartphone makers would actually include a feature that people call gesture recognition, not just touching, but also being able to move your hand without actually touching the screen physically and using that as a way to control your smartphone. Can you maybe talk about whether any of your products enable that technology, in terms of gestures without contact? And then how that plays into your larger touch control strategy?

Steven A. Laub

So there is a discussion, there's a lot of rumor about such things as gestures. I think it's actually called, it's called hover capability. And in fact, our latest product that we've just introduced, which we call the 540S does have a hover capability to it. So that is something that allows kind of the sort of gestures above the phone to be recognized and so forth. It's uncertain to the level of customer adoption of that. But nevertheless, it is something that has been recognized as potentially something that people would find useful.

James Schneider - Goldman Sachs Group Inc., Research Division

Does that work -- is that a camera-based technology or does that work by sensing the capacitance of your hand above the screen, much in the way that touch traditionally does?

Steven A. Laub

It's the latter, it's really sensing the capacitance above the screen.

James Schneider - Goldman Sachs Group Inc., Research Division

Got it.

Steven A. Laub

And by the way, what it does also is it creates challenges if people are using an in-cell technology. Because the ability to drive capacitance above the screen is much more challenging if you're driving an in-cell technology further deep into the stackup.

James Schneider - Goldman Sachs Group Inc., Research Division

That's helpful, thanks. And then maybe switch to one of your own technologies called XSense. You talked quite a bit about this going back to last year, you made some technology announcements. Can you maybe just update us on what XSense is and to what extent it replaces the current ITO-based technologies and kind of what the advantages are?

Steven A. Laub

Sure. So in the stackup that's used within any type of touch product, whether it be a smartphone, a tablet, an Ultrabook or other types of products, within that entire stackup, there's not just obviously the touch controller and the panel, but there is also what's called the sensor. And there has -- there's a sensor in every single one. And the sensors today are made of a material that's called ITO or indium tin oxide. And virtually 100% of what's being shipped or has been shipped historically has been based on that. We began, a few years ago, say, about between 2 and 3 years ago, of pursuing an alternative technology to ITO for the sensor marketplace using a metal mesh. It's a film-based technology with metal within that film. It's using a copper metal, actually, within that film. And the advantages of the film-based technologies is, one, fundamentally, it is a lower-cost technology than is ITO. It is a technology that allows you to use more of the space on the borders, for example, around a tablet or an Ultrabook. If you notice the bezel and the spacing around that, you can eliminate those borders to a great extent by using this kind of technology. It's a technology that also allows you to bend as well. So for example, you may have heard some other display manufacturers, Samsung has announced recently curved displays. This is very natural for people who want to do curved displays and incorporate touch because of the fact that film is very easy to bend and to curve and so forth. So it provides the type of leading-edge technologies that allow for leading-edge products to be used by our customers. In addition, it actually enhances the touch experience, because what's happening with ITO today is a very high resistance technology, which actually impacts the actual linearity of the touch, whether it be with your finger or a stylus. With XSense, you actually get a much tighter, much more finer, much more true touch onto the product, much more accurate touch, much more linear touch. So it's for these reasons why we felt it would be compelling. Now the thing about the market is the bigger the touch controller market is, the sensor market is far larger. Even though the units are fundamentally the same, the pricing is very, very different. So at a smartphone area, the price for a sensor is probably not that much different than the price of the controller. It's completely dependent upon screen size. But when you get to a screen size that's at a tablet level, let's say a 10-inch tablet level, you may be talking about a cost or a price to a customer that's close to $10. And so fundamentally, it has real upsides and real advantages as you move into, sort of tablets, Ultrabooks and these larger screens. So what we're seeing is we're seeing a lot of interest, we're seeing design-ins, and now design wins, in the tablet area, Ultrabook area, not so much in smartphone, because we're pursuing, actually, tablet and Ultrabook. We think that's a natural sweet spot for this technology. We have qualified the technology -- we introduced it, qualified it and we're actually -- our first production shipments are this quarter. We've announced that ASUS has designed it into one of their tablets, which is being introduced this quarter and that's our first sort of Tier 1 customer. We've also had other Tier 1 customers -- another Tier 1 customer, just design into multiple programs. So this is now on its way. Our job is to make sure we birth it properly. And ship and ramp, and our plan is to ramp this in the second half of this year.

James Schneider - Goldman Sachs Group Inc., Research Division

Right. And then earlier, you talked about the fact that you expect, you're targeting at least $50 million of XSense revenue in the second half of this year. Can you maybe talk about what's required to get there? And what stage you are in terms of design wins with customers to kind of get you to that point and what's your level of confidence of hitting or beating that target?

Steven A. Laub

So it is our target, we targeted $50 million, we announced that in mid last year when we announced the technology. Obviously, a large part of that is getting the designs and then their ramps. So there's a lot of -- the design activity is actually going quite well. We also have to make sure that we bring up the manufacturing capability. This is custom manufacturing equipment. This isn't like adding equipment like a wafer fab and I'm buying a piece of lithography. This is something where we ourselves, working with our partner, have the equipment in the light, inside and then it's also being customized and ramped as part of that with them. So it's installing, it's driving that and driving designs. Design activities actually have been very good. A large part of it is going to be dependent upon how quickly the customers' programs also go with it, what level they achieve on that. But we still feel today that the target of $50 million is a good target to have. We think it could be higher, it could be lower, but that's the right target right now.

James Schneider - Goldman Sachs Group Inc., Research Division

Fair enough. And now I kind of want to switch gears and talk about core MCUs for a little while. From 2008 until 2010, I think it's pretty clear that if you just look at the headline market share numbers, you gained a heck of a lot of momentum in the core MCU space. I think the numbers we had went from 3.8% aggregate market share to over 5% in 2010. That seems to have kind of leveled off in 2011 and 2012. So I was wondering if you could -- and clearly, we talked about some of the volatility in the touch part of the market. So can you maybe help us frame how we should think about the growth in core MCUs and whether you still have gained share or what your expectation is over the next year or 2 years in terms of your share building to do that and where the growth comes from?

Steven A. Laub

So in the core MCU portion, actually -- I believe actually we grew not just 2008 to 2010. If you go back before 2008, we were getting shares through all those years as well, but also through 2011. I think the core business for us grew through 2011. It did soften in the Q4 of that year and it was soft in 2012. Fundamentally, the softness was driven by the industrial markets. The largest end market for our core MCUs is the industrial marketplace. That has been soft now for about a year for us, I think not just for us, but for the market generally. We did see some other people probably a little more of a strengthen in that business last year. To a great extent, that was recovery of automotive. So a large part of what the other people experienced was growth of their automotive MCUs after having, I think, a pretty difficult time prior to that in the automotive portion. So I think that the industrial markets now, my expectation is that this year, they'll be better than they were last year. And I expect that our core MCU business will actually grow very nicely this year, particularly in that 32-bit space. And in fact, the 32-bit market for us, we grew about 20% sequentially in Q4, over 60% year-over-year, so Q4 to Q4. So I actually feel very good about the business. We've introduced a number of new products in the last 6 months, actually, 4 new 32-bit product families, more than -- more new products in that market than we have in the history of the company. So we're investing very heavily in that. There'll be new introductions also in the first half of this year into that marketplace as well. And we've also invested very heavily with our design tools. We have a very comprehensive design environment. We introduced, in the middle of last year, the ability to design both our proprietary AVR architecture, and ARM products of ours, in the same environment. No one's ever done that, where they've put ARM with their proprietary products. And since we have such an enormous customer base, this has lends itself -- it's very attractive to these customers. And we've had, roughly, it's a number that I had the guys check 3x or 4x, because I didn't believe it, but since we've launched that new, we call it Atmel Studio 6, we've had nearly 0.5 million downloads of licenses for that. And so that's far and above anything we've experienced in the past. So these all bode well indicators for continued growth in the business.

James Schneider - Goldman Sachs Group Inc., Research Division

Yes, and you mentioned the 32-bit focus, maybe if we could just look backward for a second, sometimes it's hard for people to understand what's been going on in the 8 versus 32-bit segments because I think 8-bit last year was down something like 28% in aggregate, but it's obviously worse than the market, but 32-bit actually grew, I think, it was 8% for the full year. So can you help us understand how much of that was driven by the fact that you moved your touch customers from 8-bit solutions to 32-bit solutions and then kind of what the, maybe the underlying growth in the core 32-bit MCU business was?

Steven A. Laub

So it is a little bit confused, I think, for people externally because it combines all of our microcontroller business together, and I do appreciate that. And we did do some transitions of 8- to 32-bit on our touch solutions last year. But so -- but what I can tell you is that fundamentally, the growth predominantly -- so the growth in the 8-bit core was a lot better than what you see externally because of the combination in that. And in fact, we're expecting to see some growth. We're seeing the underlying growth in that business right now. But it's really being driven, again, by the industrial marketplace, and so it's going to mirror what happens in industrial with respect to that. The 32-bit business is a business that is growing. And we see growth from that business this year, independent of anything that happens in touch. It's just fundamentally, that's where our investments are. We're seeing it grow across a number of different end markets. We see it growing in industrial, we see it growing, for example, smart energy, those type of areas, we're seeing it growing in point-of-sale terminals, we're seeing it growing in some of the sensor hub products that we've released and so forth.

James Schneider - Goldman Sachs Group Inc., Research Division

And can you maybe talk about your strategy in terms of the ARM standard architecture versus your own AVR proprietary architecture? How much of the new 32-bit programs are all on ARM versus what opportunities you still see for growth in AVR and maybe kind of what the balance of the trade-offs look like.

Steven A. Laub

So we as a company, we have a propriety AVR architecture which is fundamentally the vast majority of our shipments in the 8-bit space. It's been extremely successful there, continues, I think, to be very successful in that space. In the 32-bit space, we also have an AVR architecture, we call AVR32, and we have the ARM architecture. And what we've done is we have pursued more of that in the vertical markets. For example, sensor hub market, in the touch market, for example, where customizing the architecture allows us to have unique advantage and where the customers don't even -- they don't care what the core is, from their standpoint, it's all about what the solution is, we're using the AVR32, because we can get a better solution that way than by using a standard core. In the general market, while our core -- we feel the AVR32 core also provides some specific advantages, we're going after certain verticals, for example, audio, which is particularly well tuned for that. However, in some of the general purpose stuff, we find that ARM has a certain popularity with customers, where people may care about "the ARM core" and in that particular parts of the market, we are pursuing with ARM products. So it's really more of a general purpose, complete general purpose, as compared to some verticals, where we're making that differentiation. And where the core, we can provide unique value with the core, that we use our own, otherwise we're using ARM.

James Schneider - Goldman Sachs Group Inc., Research Division

Got it. Maybe just switching over to the financial side for a second. Every semi investor's favorite questions, gross margin. So I have a question on there. Your gross margins are down pretty substantially. I think they peaked in 52% back in 2011, and now we're kind of about 12 points off that, I believe. Part of the impact is lower utilization, certainly. Part of the impact you've also talked about is the take-or-pay agreement with one of your foundry partners. As that expires at the end of it's -- Q2 of this year, can you talk about what are the different levers of getting your gross margins back up to the, I think, 52% -- sorry, 54% target level you talked about exiting 2014? Do you think that's an achievable target? And kind of how should we expect the progression to go through?

Steven A. Laub

So probably no one is as frustrated as I am about the current level of gross margin, because I do expect some of the impacts we've had, the take-or-pay agreements, which we didn't anticipate a year ago, have been typically frustrating as we work through those. So if I think about what the progression taking the gross margin say, to the 54% target we have for Q4 of next year. So just to give people a sense, our -- we have 1 fab left, we had 5 of them 6 years ago, we have 1 today. It accounts for over half of our wafer requirements today. And its utilization is probably around sort of in the low 70 percentile. And that impact to us as a company is somewhere between 500 and 600 basis points on our gross margin. We have our take-or-pay agreements. We've sold 2 of the fabs that we no longer have. Two of them were sold off. They're both located in Europe. As part of the selling of those fabs, it was necessary for us to make take-or-pay agreements. As the downturn hit the industry toward the end of 2011, both of those fabs faced a more difficult sort of economic time. And so both of them required us to renegotiate with them the take-or-pay agreements that we have. The impact of that is that we now have to source -- we've had to source from them at a higher wafer price than if we actually bought the product from foundries, for example, in Asia, or bring it into our own internal fab. And we had to do that to keep them going, to a great extent, because we were still dependent upon them. We did not plan on transitioning away from them as quickly. We have now put ourselves in a position with respect to the -- our Asian -- our, the European foundries, that by the end of these agreements, we'll be in a good position with respect to both our transfer of technologies and products to other foundries, whether it be our own or whether it be the foundries in Asia, as well as inventories that we specifically built up for certain customers [indiscernible] we're not transferring, to be able to be in a good position. However, we've had to source at a higher cost wafer because of that. And as wafer prices are going down, and they are going down in the marketplace, we're not able to take advantage of that for these particular products. And that impact to us has been probably a little bit over 300 basis points for that. So that will go away. Now it won't go -- while the sourcing of those wafers, we will be seeing a decline in what we receive from them beginning in Q2 and then we'll eventually have all the wafers, as part of the agreements, completely coming in by end of Q3. We'll have a lot of sort of called high cost inventory from those customers. So we're not going to see an immediate impact because of that. So it will be more of a gradual impact and then it will pick up faster in the first part of 2014. And then generally, at a lower revenue level, you're underutilizing other manufacturing assets, you're underutilizing your testers, you're underutilizing handlers, you're underutilizing your overhead and so forth. As business recovers and we expect business to recover throughout this year, we'll be getting the advantages back on that as well, with some additional manufacturing initiatives we put in place. We have a new Senior Vice President of Operations. He's very focused on that. So we actually feel the 54% target is an achievable target. That is our internal goal that we're being held to, and we feel is bound to get up there. So we feel good about that.

James Schneider - Goldman Sachs Group Inc., Research Division

Got it. And that's very helpful. And this last one, I would have is just in terms of your product portfolio, you've done a pretty good job of pruning that, you divested the Smart Card business back in 2010, the Serial Flash business at the end of last year. But you still have a chunk of memory business, you have RF and Automotive and you have ASIC, which we haven't even really touched on. So can you maybe talk about the relative importance or strategic importance of those businesses for Atmel? And whether there's any kind of possibility you might look to kind of further pruning the product portfolio as you go forward?

Steven A. Laub

So we don't typically talk about any type of M&A, whether it be coming or going, in advance of actually doing it. There are -- I think we've gotten rid of most of the nonstrategic businesses in the company. What we're spending more attention on is obviously driving the growth in our businesses, improving the margins of our businesses and doing more tuck-in acquisitions. For example, we acquired a company at the end of Q4 in the area of WiFi direct, recognizing that wireless technologies, particularly wireless technologies that now are moving to the ability to have, what I call, our peripheral devices connecting to the Internet. It's something that has been talked about. It's something that is, I think, now moving into very much a reality. And so that so called "Internet of things" and that capability just positions us for that kind of growth. We'll be doing those kind of acquisitions, whether or not I'm doing any kind of further divestitures, I just won't announce, because you can appreciate that internally, it wouldn't go over well with the people involved on those type of activities. But we continue to look at our portfolio, continue to evaluate our portfolio as to whether or not this makes sense and the kind of company that we are today and want to be.

James Schneider - Goldman Sachs Group Inc., Research Division

Fair enough. And last one I'll just ask on capital allocation, which is, you've actually been very aggressive, as kind of the business turned for the worst last year, about buying back your stock quite a bit in terms of the buyback program. Can you maybe talk about as the business comes back and as the cash flow starts to get a lot better, maybe talk about your view on any kind of targets you have in terms of returning cash to shareholders via buybacks and at some point, could we actually look forward to the possibility of a dividend?

Steven A. Laub

So I think we have been, I think, very good about returning cash to shareholders through buyback for the last couple of years, at least. My expectation is we will continue to do that as long as we recognize and believe that the value of the company is below what we think it should be and so forth and at a minimum, we've always said we want to eliminate any dilutive impact of any type of equity programs for the employees. We don't want our shareholders to see that impact and they appreciate that. I can't tell you today whether or not we will or won't do a dividend. We do appreciate that other people have. We do appreciate that it may or may not be having a positive impact on their equity value. We're very committed to returning cash to shareholders one way or another. This is a decision for the board as to whether or not they think that's the right way to do it. I can tell you that we do evaluate that on a frequent basis. So we do look at that. It is something that, when business is softer, you're glad you are not. I've seen some of our competitors put themselves in the position of having to take out debt to pay their dividend. That is not something I think is in the best interest of a company long term. So as things do return, we'll be having, I'm sure, much more conversations internally with the board about that.

James Schneider - Goldman Sachs Group Inc., Research Division

Great. I think with that, we're out of time, but Steve, thanks very much for coming and joining us today.

Steven A. Laub

Jim, thanks to you, it's great to be here.

James Schneider - Goldman Sachs Group Inc., Research Division

The breakout for Atmel is in the Presidio room that's upstairs. Thanks very much.

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Source: Atmel Corporation Presents at Goldman Sachs Technology & Internet Conference 2013, Feb-14-2013 09:00 AM
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