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Atmel Reports Second Quarter 2008 Financial Results

Microcontroller Revenues Reach New Record Rise 9% Sequentially and 29% Compared to the Year-Ago Quarter

SAN JOSE, Calif., July 30 /PRNewswire-FirstCall/ -- Atmel(R) Corporation (NASDAQ: ATML) today announced financial results for the quarter ended June 30, 2008.

Revenues for the second quarter of 2008 were $420.9 million, a 2.4% increase compared to $411.2 million for the first quarter of 2008 and a 4.1% increase compared to $404.2 million for the second quarter ended June 30, 2007. Microcontrollers, a core business, continued to deliver solid revenue growth rising 9% sequentially and 29% compared to the year-ago quarter, driven by the Company's proprietary AVR(R), standard ARM(R) and touch sensing products.

Net loss for the second quarter of 2008 totaled $(4.9) million or $(0.01) per diluted share. This compares to net income of $6.8 million or $0.02 per diluted share for the first quarter of 2008 and net income of $0.7 million or $0.00 per diluted share for the year-ago quarter.

Non-GAAP net income for the second quarter of 2008 totaled $17.3 million or $0.04 per diluted share compared to $13.3 million or $0.03 per diluted share for the first quarter of 2008 and $1.3 million or $0.00 per diluted share for the year-ago quarter. Non-GAAP net income excludes charges (credits) related to restructuring activities, acquisitions, grant repayments, and stock-based compensation, as well as the loss (gain) on sale of assets and the income tax effect of these excluded items. A reconciliation of GAAP results to non-GAAP results is included following the financial statements below.

"We are pleased to have reached the upper end of our revenue guidance in spite of the challenging macroeconomic environment," said Steven Laub, Atmel's President and Chief Executive Officer. "In addition to achieving record microcontroller revenues, gross profit continued to increase. The restructuring initiatives and manufacturing disciplines we've implemented are enabling Atmel to drive technological leadership with innovative and cost- effective products that offer the best opportunity for profitable growth."

Gross profit, as a percent of revenue, was 36.5% for the second quarter of 2008. This compares to gross profit of 35.5% for the first quarter of 2008 and 35.0% for the year-ago quarter. Gross profit for the second quarter of 2008 was influenced by a favorable mix of higher margin core products as well as improved wafer fab utilization following the closure of the North Tyneside, United Kingdom manufacturing facility.

Operating profit was $0.2 million for the second quarter of 2008, or 0.1% of revenue, which includes charges of $16.5 million primarily related to restructuring and charges resulting from the Quantum Research Group acquisition completed in March of this year. This compares to an operating profit of $15.4 million for the first quarter of 2008 and $7.1 million for the second quarter of 2007. Included in the prior period operating results were net charges of $0.7 million for the first quarter related to the North Tyneside restructuring and Quantum Research acquisition and a benefit of $2.6 million for the second quarter of 2007 for restructuring related adjustments. Stock-based compensation expense was $6.4 million for the second quarter of 2008, compared to $6.3 million for the first quarter of 2008 and $3.3 million for the year-ago quarter.

Income tax provision was $4.3 million for the second quarter of 2008. This compares to an income tax provision of $3.2 million for the first quarter of 2008 and $7.1 million for the second quarter of 2007.

Combined cash balances (cash and cash equivalents plus short-term investments) totaled $375.8 million at the end of the second quarter of 2008, an increase of $39.0 million from the end of the prior quarter and a $54.2 million decrease from $429.9 million at December 31, 2007. Cash provided from operations totaled approximately $50.0 million for the second quarter of 2008 compared to cash used in operations of $40.2 million for the first quarter of 2008 and $1.5 million for the second quarter of 2007. In the first quarter of 2008, cash used in operations included approximately $54.0 million of cash used for repayment of grants and for restructuring charges that required cash payments related to the closure of North Tyneside. Also, in the first quarter of 2008, the Company received approximately $82.0 million of proceeds from the sale of North Tyneside fabrication equipment, which was classified as proceeds from investing activities.

The Company's effective average exchange rate in the second quarter of 2008 was approximately $1.56 to the euro, compared to $1.47 to the euro in the first quarter of 2008 and $1.35 to the euro in the year-ago period. A $0.01 increase in the dollar/euro exchange rate reduced operating income by approximately $0.5 million during the second quarter of 2008, which was an improvement over the $1.0 million impact to operating income at the end of 2007 as a result of the dollar/euro exchange rate.

    Second Quarter 2008 and Recent Highlights
    -- Achieved Highest Level of Gross Profit Since the First Quarter of 2001
    -- Appointed Stephen Cumming as Vice President Finance and Chief Financial
       Officer
    -- Introduced a Touch Controller for Slider and Buttons with Integrated
       LED Control and GPIO Functions
    -- Introduced a Family of AVR Microcontrollers for Automotive LIN
       Networking Applications
    -- Introduced picoPower tinyAVR Microcontrollers for Battery-based and
       Cost-sensitive Applications
    -- Won Reader's Choice Award in Indian Electronics Magazine for AVR
       Microcontrollers
    -- Introduced 800/900 MHz IEEE 802.15.4 Compliant Transceiver for Zigbee
    -- Won the Electron d'Or Award for CAP Customizable Microcontroller

Business Outlook

To better manage distribution resources, on July 1, 2008 Atmel implemented a change in revenue recognition with regards to its independent distributors in Europe converting from a sell-in to a sell-through revenue model. As a result, the Company expects that there will be a one time revenue reduction of approximately $28 million to $34 million to third quarter revenues. Including this one time accounting adjustment, third quarter 2008 revenues are expected to be down 3% to 7% sequentially. Exclusive of this change and consistent with business seasonality and macro economic trends, the Company anticipates third quarter 2008 revenues would be up 1% to 4% on a sequential basis.

Atmel is continuing to evaluate ways to safeguard its ability to compete in the market. In this context, the French management is commencing a consultation procedure with the works councils in France in relation to potential redundancies in the operations in Rousset and Nantes, France. Atmel is also continually reviewing potential changes in its business and asset portfolio throughout its worldwide operations, including those located in Europe in order to enhance its overall competitiveness and viability.

Conference Call

Atmel will hold a teleconference at 2:00 p.m. PT today to discuss the second quarter 2008 financial results. The conference call will be webcast live and can also be monitored by dialing 1-800-374-0405 or 1-706-634-5185. The conference ID number is 55624651 and participants are encouraged to initiate their calls at least 10 minutes in advance of the 2:00 p.m. PT start time to ensure a timely connection. The webcast can be accessed at http://www.atmel.com/ir/ and will be archived for 12 months.

A replay of the July 30, 2008 conference call will be available today at approximately 5:00 p.m. PT and will run for 48 hours. The replay access numbers are 1-800-642-1687 within the U.S. and 1-706-645-9291 for all other locations. The access code is 55624651.

About Atmel

Atmel is a worldwide leader in the design and manufacture of microcontrollers, advanced logic, mixed-signal, nonvolatile memory and radio frequency (RF) components. Leveraging one of the industry's broadest intellectual property (IP) technology portfolios, Atmel provides the electronics industry with complete system solutions focused on consumer, industrial, security, communications, computing and automotive markets.

Safe Harbor for Forward-Looking Statements

Information in this release regarding Atmel's forecasts, outlook, expectations and beliefs are forward-looking statements that involve risks and uncertainties. These statements include statements about new product introductions, markets for our products, restructuring initiatives, manufacturing disciplines, strategies and third quarter business outlook. All forward-looking statements included in this release are based upon information available to Atmel as of the date of this release, which may change, and we assume no obligation to update any such forward-looking statements. These statements are not guarantees of future performance and actual results could differ materially from our current expectations. Factors that could cause or contribute to such differences include general economic conditions, the impact of competitive products and pricing, timely design acceptance by our customers, timely introduction of new products and technologies, ability to ramp new products into volume production, industry wide shifts in supply and demand for semiconductor products, industry and/or Company overcapacity, effective and cost efficient utilization of manufacturing capacity, financial stability in foreign markets and the impact of foreign exchange rates, the inability to realize the anticipated benefits of our recent strategic transactions, restructuring plans and other initiatives in a timely manner or at all, unanticipated costs and expenses or the inability to identify expenses which can be eliminated, the market price of our common stock and other risks detailed from time to time in Atmel's SEC reports and filings, including our Form 10-K for the year ended December 31, 2007, filed on February 29, 2008, and our subsequent Form 10-Q reports.

     Investor Contact:                  Media Contact:
     Robert Pursel                      Barrett Golden / Sharon Stern
     Director of Investor Relations     Joele Frank, Wilkinson Brimmer Katcher
     408-487-2677                       212-355-4449



                              Atmel Corporation
                    Condensed Consolidated Balance Sheets
                                (In thousands)
                                 (Unaudited)

                                             June 30,   March 31, December 31,
                                               2008        2008        2007
    Current assets
    Cash and cash equivalents                $354,003    $308,365    $374,130
    Short-term investments                     21,786      28,455      55,817
    Accounts receivable, net                  220,956     223,615     209,189
    Inventories                               336,415     348,603     357,301
    Assets held for sale                            -      47,414           -
    Prepaids and other current assets          94,215      99,665      88,781
    Total current assets                    1,027,375   1,056,117   1,085,218
    Fixed assets, net                         471,569     499,717     579,566
    Goodwill and intangible assets, net       109,395     112,623      19,552
    Other assets                               42,118      45,150      18,417
    Total assets                           $1,650,457  $1,713,607  $1,702,753

    Current liabilities
    Current portion of long-term debt        $133,654    $135,558    $142,471
    Trade accounts payable                    127,596     113,335     191,856
    Accrued and other liabilities             227,225     291,885     266,987
    Deferred income on shipments to
     distributors                              19,541      21,334      19,708
    Total current liabilities                 508,016     562,112     621,022
    Long-term debt less current portion        18,641      20,251      20,408
    Other long-term liabilities               245,738     253,809     237,844
    Total liabilities                         772,395     836,172     879,274

    Stockholders' equity                      878,062     877,435     823,479
    Total liabilities and stockholders'
     equity                                $1,650,457  $1,713,607  $1,702,753




                                  Atmel Corporation
                   Condensed Consolidated Statements of Operations
                        (In thousands, except per share data)
                                     (Unaudited)

                                 Three Months Ended         Six Months Ended
                              June 30,  March 31, June 30,  June 30, June 30,
                                2008      2008      2007      2008      2007


    Net revenues             $420,908  $411,237  $404,247  $832,145  $795,560

    Operating expenses
    Cost of revenues          267,382   265,183   262,605   532,565   513,981
    Research and development   68,218    66,377    69,266   134,595   136,565
    Selling, general and
     administrative            68,573    63,562    67,881   132,135   125,940
    Acquisition-related
     charges                    6,709     3,711         -    10,420         -
    Charges for (credit
     from) grant repayments       292      (119)        -       173         -
    Restructuring charges
     (credits)                  8,676    27,908    (2,640)   36,584      (858)
    Loss (gain) on sale of
     assets                       810   (30,758)        -   (29,948)        -
    Total operating expenses  420,660   395,864   397,112   816,524   775,628
    Income from operations        248    15,373     7,135    15,621    19,932

    Interest and other
     (expense) income, net       (859)   (5,387)      610    (6,246)    1,589
    (Loss) income from
     continuing operations
     before income taxes         (611)    9,986     7,745     9,375    21,521
    Provision for income
     taxes                     (4,296)   (3,198)   (7,067)   (7,494)    8,097
    Net (loss) income         $(4,907)   $6,788      $678    $1,881   $29,618

    Basic net (loss) income
     per share:
    Net (loss) income          $(0.01)    $0.02     $0.00     $0.00     $0.06
    Weighted-average shares
     used in basic net
     (loss) income per share
     calculations             445,793   444,670   488,916   445,225   488,879
    Diluted net (loss)
     income per share:
    Net (loss) income          $(0.01)    $0.02     $0.00     $0.00     $0.06
    Weighted-average shares
     used in diluted net
     (loss) income per share
     calculations             445,793   447,643   494,244   450,337   494,285




                              Atmel Corporation
       Reconciliation of GAAP Net (Loss) Income to Non-GAAP Net Income
                    (In thousands, except per share data)
                                 (Unaudited)

                                     Three Months Ended     Six Months Ended
                                June 30, March 31, June 30, June 30, June 30,
                                  2008     2008      2007     2008     2007


    GAAP net (loss) income     $(4,907)   $6,788     $678    $1,881   $29,618

    Special items:
    Stock-based
     compensation expense        6,353     6,307    3,310    12,660     6,620
    Acquisition-related charges  6,709     3,711        -    10,420         -
    Charges for (credit from)
     grant repayments              292      (119)       -       173         -
    Restructuring charges
     (credits)                   8,676    27,908   (2,640)   36,584      (858)
    Loss (gain) on sale
     of assets                     810   (30,758)       -   (29,948)        -
    Income tax effect of
     non-GAAP items               (658)     (500)       -    (1,158)     (300)
    Total special items         22,182     6,549      670    28,731     5,462
    Non-GAAP net income        $17,275   $13,337   $1,348   $30,612   $35,080

    Diluted non-GAAP net
     income per share:
    Net income                   $0.04     $0.03    $0.00     $0.07     $0.07

Notes to Non-GAAP Financial Measures

To supplement its consolidated financial results presented in accordance with GAAP, Atmel uses non-GAAP financial measures, including non-GAAP net income and non-GAAP net income per diluted share, which are adjusted from the most directly comparable GAAP financial measures to exclude certain items, as shown above and described below. Management believes that these non-GAAP financial measures reflect an additional and useful way of viewing aspects of Atmel's operations that, when viewed in conjunction with Atmel's GAAP results, provide a more comprehensive understanding of the various factors and trends affecting Atmel's business and operations.

Atmel uses each of these non-GAAP financial measures for internal purposes and believes that these non-GAAP measures provide meaningful supplemental information regarding operational and financial performance. Management uses these non-GAAP measures for strategic and business decision making, internal budgeting, forecasting and resource allocation processes.

Atmel believes that providing these non-GAAP financial measures, in addition to the GAAP financial results, is useful to investors because the non-GAAP financial measures allow investors to see Atmel's results "through the eyes" of management as these non-GAAP financial measures reflect Atmel's internal measurement processes. Management believes that these non-GAAP financial measures enable investors to better assess changes in each key element of Atmel's operating results across different reporting periods on a consistent basis. Thus, management believes that each of these non-GAAP financial measures provides investors with another method for assessing Atmel's operating results in a manner that is focused on the performance of its ongoing operations. In addition, these non-GAAP financial measures facilitate comparisons to Atmel's historical operating results and to competitors' operating results.

There are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. In addition, non-GAAP financial measures may be limited in value because they exclude certain items that may have a material impact upon Atmel's reported financial results. Management compensates for these limitations by providing investors with reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP financial measures. The non-GAAP financial measures supplement, and should be viewed in conjunction with, GAAP financial measures. Investors should review the reconciliations of the non-GAAP financial measures to their most directly comparable GAAP financial measures as provided in above.

As presented in the "Reconciliation of GAAP Net (Loss) Income to Non-GAAP Net Income" tables above, each of the non-GAAP financial measures excludes one or more of the following items:

-- Stock-based compensation expense.

Stock-based compensation expense relates primarily to equity awards such as stock options and restricted stock units. Stock-based compensation is a non-cash expense that varies in amount from period to period and is dependent on market forces that are often beyond Atmel's control. As a result, management excludes this item from Atmel's internal operating forecasts and models. Management believes that non-GAAP measures adjusted for stock-based compensation provide investors with a basis to measure Atmel's core performance against the performance of other companies without the variability created by stock-based compensation as a result of the variety of equity awards used by other companies and the varying methodologies and assumptions used.

-- Acquisition-related charges.

Acquisition-related charges include: (1) in-process research and development, which relates to projects in process as of the acquisition date that have not reached technological feasibility and are immediately expensed, (2) amortization of intangibles, which include acquired intangibles such as customer relationships, backlog, core developed technology, trade name and non-compete agreement, and (3) contingent compensation expense, which include compensation resulting from the employment retention of certain key employees established in accordance with the terms of the acquisitions. In most cases, these acquisition-related charges are not factored into management's evaluation of potential acquisitions or Atmel's performance after completion of acquisitions, because they are not related to Atmel's core operating performance. In addition, the frequency and amount of such charges can vary significantly based on the size and timing of acquisitions and the maturities of the businesses being acquired. Excluding acquisition-related charges from non-GAAP measures provides investors with a basis to compare Atmel against the performance of other companies without the variability caused by purchase accounting.

-- Charges for (credit from) grant repayments.

Grant repayments primarily relate to contractual obligations to repay incentive amounts received from various government entities recorded in prior periods (including interest) as a result of restructuring activity. Atmel excludes these amounts from non-GAAP financial measures primarily because these costs are not incurred on an on-going basis, consistent with restructuring charges and other non-recurring types of charges included in the condensed consolidated statements of operations.

-- Restructuring charges (credits).

Restructuring charges (credits) primarily relate to expenses necessary to make infrastructure-related changes to Atmel's operating costs. Restructuring charges (credits) are excluded from non-GAAP financial measures because they are not considered core operating activities and such costs have not historically occurred in each year. Although Atmel has engaged in various restructuring activities in the past, each has been a discrete event based on a unique set of business objectives. Management believes that it is appropriate to exclude restructuring charges (credits) from Atmel's non-GAAP financial measures, as it enhances the ability of investors to compare Atmel's period-over-period operating results from continuing operations.

-- Loss (gain) on sale of assets.

Atmel recognizes losses (gains) resulting from the sale of certain non- strategic business assets that no longer align with Atmel's long-term operating plan. Atmel excludes these items from its non-GAAP financial measures primarily because these losses (gains) are one-time in nature and generally not reflective of the ongoing operating performance of Atmel's business and can distort the period-over-period comparison.


    -- Income tax effect of non-GAAP items.

Atmel adjusts for the income tax effect resulting from the non-GAAP adjustments as described above.

Web site: http://www.atmel.com/