Earnings Preview: Atmel Corporation

Elizabeth Pate of FBR Research wrote a note to clients on Atmel Corporation (ATML) in her latest overview of the semiconductor components sector. Excerpts follow:

Atmel Corp: Outperform, $6 Price Target

4Q earnings preview:
We currently forecast 4Q07 revenues and EPS of $424 million and a loss of $0.02 (including stock options expense), respectively, versus the consensus estimates of $423 million and a gain of $0.01. We think Microcontroller sales continued to grow in 4Q... The firm's North Tyneside facility divestiture... should benefit 1Q08 gross margins.

1Q guidance expectations:
We currently forecast 1Q08 revenues and EPS of $408 million and $0.01, respectively, slightly below consensus estimates of $412 million and $0.04. With the Microcontroller market being so strong for Atmel in recent quarters, we think this business could take a breather in 1Q08. We think the firm could guide sales to decline by 4%-6% QOQ, a bit worse than the consensus estimate.

Atmel investment thesis:
We rate Atmel Corporation an Outperform with a 12-month price target of $6 per share. We think Atmel can and will pursue various strategic actions to unlock shareholder value in coming quarters, including (1) driving a richer mix of high-margin microcontroller [MCU] products, (2) reducing exposure to expensive manufacturing sites, and (3) rationalizing product development on its most profitable opportunities.

Atmel valuation methodology:
Shares of ATML trade at 1.1x to 1.2x EV/S, offering solid downside protection from current levels. The stock also trades at 13x our forward (2H08 and 1H09) EPS estimates. Our $6 price target is based on a 18x multiple of our forward EPS estimate, adjusted for net cash and interest income. Historically, ATML has traded within a range of 14x to 24x forward-12-month EPS estimates.