To many, Atmel (ATML) remains an undiscovered secret within the technology sector, yet recent exclusive semiconductor manufacturing deals with the likes of LG, Nokia (NOK), and Motorola (MMI), have begun to spur interest. This is a company that is well positioned both technically and fundamentally in order to reach new 52-week highs as the company reported last Wednesday that its profit more than quadrupled, with revenue climbed well beyond analyst estimates.
Within the first quarter of 2011, it went on to earn $74.6 million, which translates to 16 cents per share in the first three months of the year. That compares very favorably with $16.6 million, or 4 cents per share, in the year-ago quarter. Analysts polled by FactSet expected 15 cents per share in the latest quarter. Revenue also jumped 32 percent to $461.4 million, while analysts were expecting $453.2 million. Atmel followed that up by announcing a $300 million dollar stock repurchase program due to increasing demand for its chips and touchscreen technology, boosting confidence in its outlook.
Despite these amazing results, some investment analysts took the opportunity to slam the stock, which seems like nothing more than an opportunity for longs to load up on more shares. A report on Reuters claimed that Atmel gave a “weak second quarter revenue outlook,” with Capstone Investment analyst Jeff Schreiner writing in a note, “We believe one potential reason for less-than-stellar guidance could be some smart phone shipments occurring during the second half versus prior estimated linear acceleration through out 2011." Despite this being far from the truth, the news item dropped the stock to $14 intraday, rocking investors' appetites before closing near the $15 mark the next day. This is largely due to the fact that this analyst’s claims have no merit.
First, we can take a look at the latest analyst claims and estimates which focus on the strong growth and demand of the Android (GOOG) platform coupled with the Atmel maXTouch touchscreen controllers.
[Click all to enlarge]
From the above chart, we can clearly see that the Android app market has, by far, the strongest growth among competitors with 861.5%. Additionally, LG, Samsung (GM:SSNLF), Nokia, HTC and Motorola were among the growing list of cell phone companies that recently reported record revenues on increasing demand, as their products dominated the top 10 cell phones list by PCWorld -- eight of which have exclusive deals with Atmel.
The positive developments also spurred Canaccord analysts to increase their price target on the stock to $20 per share. Those analysts claim, “We reiterate our rating and price target on shares of Atmel following a big beat and raise last night. While the bears may focus on inventory growth and sequential 'noise' for touch revenues, we believe management is credible when calling for strong H2 growth on continuing MCU and touch momentum. Importantly, increased 2011 touch guidance (up from roughly $280M to greater than $300M) looks conservative considering the expected portion from tablets is unchanged from an excessively cautious ~$30M to $45M.”
UBS also stepped in and guided the stock's performance higher for the second half of the year with a $19 price target. “UBS reiterates a ‘Buy’ on Atmel, raises PT from $18 to $19. UBS analyst says, 'Even as Atmel s +1-4% q/q 2Q sales guidance was below our +5.9% estimate, the company highlighted expected strong 2H11 touchscreen controller sales growth …. For 2Q11, we lower our sales estimate by 1% to $478.1m on lingering inventory rebalancing and a more 2H weighted touchscreen controller revenue profile. On higher than expected gross margin, we raise our 2Q EPS estimate $0.01 to $0.18. For 2011, we raise our sales/EPS estimates by 1%/4% to $1,990m/$0.78, as we raise our sales estimates for both 32-bit microcontrollers and non-volatile memory.”
Going forward, according to Yahoo Estimates, the company’s revenues are projected to increase 19.1% year-over-year to 1.96B, with 2.19B expected by the end of 2012. This high growth thesis is supported by record first quarter 2011 gross margin of 51% is the highest level achieved since the company went public in 1991.The first quarter’s gross margin of 51% was a 150 basis points improvement from the 49.5% it reported last quarter and ahead of its guidance range of 48.5% to 49.5%.
Furthermore, in April, Gartner Research forecasted smart phone sales to increase from 297 million units in 2010 to 468 million in 2011, a 58% increase. It's forecasting smart phone shipments to exceed 1.1 billion units in 2015 as more consumers and enterprise users turn in their feature phones for smart phones with more advanced features.
Technically speaking, Atmel is currently in an uptrend channel that looks to be heading towards a price target of $16.5 should the upper resistance be met. After the earnings report which saw a minor bear raid, the stock bounced off the middle of the Bolinger Band and began a renewed positive shift. The Relative Strength Index also curved back and remained above the pivotal 50 mark, as buying pressure in the stock dominated the sellers. With a positive MACD divergence and full stochastic helping support the bullish scenario, look for Atmel to test and potentially break its 52-week high of $16.80 in the near future.