Atmel: The Turnaround Story

| About: Atmel Corporation (ATML)

If you look at Atmel's (NASDAQ:ATML) charts it shows a somber story of decreased revenue and margins on a year to year and quarter to quarter basis but if you look at its stock value you will see an extremely optimistic story. Atmel's stock value has broken above its 365 day high and continues to increase in high volume. What is going on?

What is happening is that Atmel's European foundry contract that was holding Atmel's margins below the industry average (around 20% under) is about to end in June. Atmel expects better foundry costs will push its margins above 50%. Also the end of Atmel's foundry contract take-or-pay agreement will allow Atmel to better utilize its own foundry manufacturing facilities and to quickly adapt to changing market conditions. Lower foundry expenses will also help Atmel to become more competitive and regain lost market share.

Even with higher foundry costs Atmel has been holding well on its own and has achieved growth in its micro-controller sector. Atmel has been actively engaged in acquiring new technologies to stay on top of the game. Atmel recently acquired Ozmo Inc. to penetrate the ultra-low power Wi-Fi Direct Internet-of-Things market. Atmel also licensed ZigBee stack technology from Exigen and acquired IDT's smart-metering product line to penetrate the emerging smart metering market; a market expected to reach $15.2 billion by 2016.

Atmel has also aggressively engaged the Windows 8 touch market and has become its top supplier. Atmel touch controllers have achieved Windows 8 certification on 70 different tablets and Ultrabooks and Atmel is currently engaged in over 100 different Windows 8 programs. Also because Intel has mandated that all PCs must have touch screens in order to meet Intel's new Ultrabook design standard, sales of touch enabled PCs are expected to increase exponentially. In fact IHS expects Ultrabooks sales to quadruple this year to 44 million units.

Lastly Atmel has partnered with Carclo PLC (OTCPK:CCEGF) to introduce a new metal-mesh based touch sensor solution called XSense that is significantly cheaper and provides better performance than current ITO based touch sensors. The sensor was introduced last January on some models of the Asus' Vivo Tab and has achieved multiple design wins with multiple tier one OEMs. Atmel expects to achieve at least $15 million of revenue from XSense this year and at least quadruple that amount to $100 million on 2014. In order to meet these revenue targets Atmel and Carclo need to achieve projected capacity by summer to meet customer orders. Atmel XSense manufacturing facility in Colorado was expected to achieve certification in May and Carclo's new XSense manufacturing facility in Cambridge U.K. was expected also to become operational in May. Currently all XSense manufacturing has been accomplished by Carclo in its XSense pilot line.

Atmel and Carclo plan to continue to develop XSense to become integrated into display manufacturing to achieve in-cell XSense touch solutions in the future. Achieving this would significantly help Atmel to re-penetrate the smart phone touch industry.

Conclusion

Atmel is about to begin new period of increased revenues and margins. All of Atmel's targeted markets segments are growing and Atmel has taken a leading role in introducing new technologies on each of these emerging markets segments. Atmel is an aggressive long term investment for many years to come. That's why investors are jumping early into this promising opportunity and that is why Atmel is soaring above its 365 day high average.

Disclosure: I am long ATML. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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