For all of the market excitement that has been created among the semiconductors such as Intel (INTC) and Qualcomm (QCOM), I can't deny that I continue to be enamored by one company that has not garnered the same level of respect, in Atmel (ATML). The question is why? Atmel is one company (among many) that has caught my attention for no other reason than its association with a famous "fruit company" that produce iPhones and tablets, I think you've heard of it. It's that famed "ecosystem" that makes anything in its proximity an immediate success. So it stands to reason that Atmel, which will be in a great majority of that company's products, should model its level of success accordingly - at least that's the idea.
However, for Atmel, there is yet some skepticism that still remains from its somewhat disappointing end of 2011. However, so far in 2012, it seems that it has taken on some new life. And yet even at its current valuation, it looks like a steal considering it is trading below its book value. But for many investors, the question continues to be, what's the big deal? Though I have pointed out its ecosystem benefit due to the tablet phenomenon, Atmel is also gaining share in several other products as well - especially in the gadget market with its line of maXTouch controllers which basically run the touch-screen interfaces on several devices from Nokia (NOK) as well as Google (GOOG) and to a lesser extent HTC. However, as promising as things look from the standpoint of its partnerships, the company has recently demonstrated that it deserves respect from the standpoint of its own performance.
In its recent quarter, Atmel all but affirmed my long thesis by meeting or exceeding expectations on several of its key metrics. The company reported full year 2011 revenue that arrived at $1.8 billion compared to a $1.64 billion for 2010. This figure represented a 10% increase over the prior year. Actually full year revenue would have increased by 15% when excluding the smart card divestiture, which occurred during the first quarter of 2010. In the fourth quarter, gross margin arrived at 48.1% - slightly above the midpoint of the company's guidance of 48%.
It also reported non-GAAP gross margin of 48.7%. The sequential decrease in gross margin was due primarily to lower factory utilization as a result of decreased revenues due to the downturn. Despite this softness in the semi cycle, the company said its fab-lite operating model showed much better performance when compared to past downturns - particularly in the periods of 2009 where it reached the low 30% level. Overall, the full year 2011, gross margin of 50.4% represented a record for the company and was a significant improvement from the 2010 gross margin of 44.3%.
It's hard not to have been impressed by these numbers - a performance that should serve as some assurance to investors that the company had indeed turned things around from its disappointing Q3 results which sent the stock downward. The reality is Atmel has been and will continue to be a great name in the semiconductor space for quite some time and as Apple and other smart phone/device manufacturers continue to produce the types of products that consumers can't live without, Atmel is well positioned for more robust growth - one that has yet to truly reach its peak. I continue to be curious as to how it will throw off competition from the other names in the sector such as ARM Holdings (ARMH) and Texas Instruments (TXN) - two dominant names that are vying for the same market.
I think the company will do just fine regardless of what the competition does. Atmel is a good example of the rewards that can come when patient shareholders and committed management intersect. From a fundamental standpoint, one can argue that it has outpaced its peers over the past several quarters - a trend that appears to want to continue. I continue to encourage that Atmel is a name that value investors need to have on their radar because this stock will likely not trade at such a discount for very long. For this reason $16 remains my target.