A BIR Research Provider Report May 29, 2009
Atmel Corp.
HOLD
NASDAQ: ATML, $3.81 United States
Downgraded 5/9/09
Columbine Capital’s Investment Conclusion The Columbine research team projects that Atmel will perform in line with the market over the next 6 to 12 months. The team has ranked it Neutral and recommends that investors maintain any existing position, but do not add to it.
Most Favorable Favorable Neutral Unfavorable Most Unfavorable
Buy Hold Sell Current Recommendation (5/9/09) Previous Recommendation (3/14/09)
Neutral Favorable
BIR Stock Classifications North American Technology Semiconductors Large-Cap Blend Above Average Risk Below Average Quality
Region Sector Industry Asset Class Investment Style Risk Profile Rank Financial Quality
Tax Benefit Saves Atmel from Plunging into Loss
Company Fundamentals $1.7 NA 18.7x 2.12x Nil NEG NEG 17% 0.92
Market Capitalization (Billions) Price/Earnings Ratio (MRFY) Price/Cash Flow Ratio (TTM) Price/Book Ratio (MRQ) Dividend Yield (Indicated) Net Profit Margin (TTM) Return on Equity (TTM) Debt/Equity (MRQ) Beta
Revenues ($ in Millions) FY Ends:
2006
2007
2008
2009
Mar. 31
400.8
391.3
411.2
271.5
--
Jun. 30
429.5
404.2
420.9
279.3
--
Sep. 30
431.7
418.1
400.0
295.4
--
Dec. 31
408.9
425.6
334.6
309.9
--
2010
1,670.9 1,639.2 1,566.8 1,156.1 1,308.9 GAAP revenues; BIR consensus estimates in italics. The fiscal year consensus BIR estimates are not the sum of individual quarters.
Full FY
Earnings Per Share ($ diluted) FY Ends:
2006
2007
2008
2009
2010
Mar. 31
0.00
0.06
0.02
0.01
--
Jun. 30
0.01
0.00
-0.01
-0.05
--
Sep. 30
0.05
0.03
-0.01
-0.03
--
-0.05
-0.01
--
Dec. 31
-0.25
0.00
-0.08 0.12 GAAP EPS; BIR consensus estimates in italics. The fiscal year consensus BIR estimates are not the sum of individual quarters.
Full FY
-0.20
0.10
May 15, 2009 -- Best Independent Research -- Atmel Corp. (ATML) designs, develops, manufactures and markets a range of semiconductor devices. Its portfolio includes microcontrollers, programmable logic devices (PLDs), application-specific integrated circuits (ASSICs), non-volatile memory, as well as mixed-signal and radio frequency components. These are sold directly to original equipment manufacturers and indirectly to distributors in the consumer, industrial, automotive, medical, computers, networking, communications and aerospace industries. The San Jose, CA-based firm competes with Microchip Technology, O N Semiconductor and Freescale for its share of the market.
-0.06
The firm’s net income for the first quarter of fiscal year 2009, ended March, dived to $3.6 million or 1 cent per share from $6.8 million or 2 cents per share in the year-ago period. The results, however, beat analyst estimates. Revenues plummeted 34% to $271.5 million as the global economic downturn adversely impacted sales of semiconductor chips and equipment. As a result, gross margin shrank 37 basis points to 35.1%. At the operating level, Atmel incurred a loss of $20.5 million, unlike an income of $15.4 million in the prior-year quarter, on account of hefty charges. Apart from higher acquisition related charges, the firm recorded a grant payment expense in the current quarter. Nevertheless, the bottom line remained in the red, thanks to the $27.7 million tax benefit.
Microchip Determined to Buy Out Atmel In October, Atmel’s management rejected a $2.3
In Restructuring Mode The semiconductor company is doing its best to trim operating costs amid deteriorating market conditions. Moreover, with various market research firms forecasting a dull year in 2009 — iSuppli projects 20% year-over-year drop in the semiconductor industry’s revenues this year — it is imperative for Atmel to streamline its operations. In tune with this scenario, the firm has announced the elimination of 180 and 30 jobs at its Rousset and Nantes manufacturing plants, respectively. The facility in Nantes, France, will eventually focus on only R&D functions. In addition to the job cuts, Atmel is consolidating its manufacturing footprint and has even found a buyer for its wafer fabrication facility in Heilbronn, Germany. The company has been restructuring itself since August 2006 when it first adopted the fab-lite manufacturing strategy.
Modest Growth Anticipated Atmel forecasts revenues for the second quarter ranging between $274.2 million and $282.4 million — slightly lower than analyst estimates of $296.8 million.
December FY
$10
$5
$2
Price Range Revenues (M) EPS (Diluted) Dividend Declared Book Value/Share
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billion joint-takeover bid by rivals Microchip and O N Semiconductor on the grounds that the value offered was inadequate, conditions were unfavorable, and deal structure was complex. Microchip, however, is very keen on the acquisition as it believes that the deal will add to its scale, trim costs, and increase its share of the global microcontroller (MCU) market. Moreover, Atmel's microcontroller unit, which generates annual sales of approximately $513 million, will inflate Microchip's revenues over 50% a year. Therefore, though O N Semiconductor has backed out of the deal, Microchip refuses to budge. Instead, Microchip has launched a proxy battle against Atmel’s management and revealed that it owns a 4.1% stake in the California firm. It also claims that it has clearance to acquire its smaller rival under the Hart-Scott-Rodino Antitrust Improvements Act. However, Atmel seems to be safe for the time being given O N’s U-turn and the fact that Microchip may find it tough to raise money for the buyout in these conditions.
5-Year Monthly Price Range and 52-Week Moving Average logarithmic scale
52-Week Moving Average $1 Prices: CY, Financials: FY 2004
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3-8 1,552.4 -0.01 Nil 2.14
2005 2-4 1,561.1 -0.10 Nil 1.90
2006 3-6 1,670.9 -0.20 Nil 2.06
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2007 4-6 1,639.2 0.10 Nil 1.94
2008 3-5 1,566.8 -0.06 Nil 1.92
2009 3-4
1,156.1 -0.08 -1.79 BIR consensus estimates in italics
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A BIR Research Provider Report May 29, 2009
Atmel Corp. NASDAQ: ATML
Columbine Recommendation Buy Hold Sell
Median Return Expected
Most Favorable Favorable Neutral Unfavorable Most Unfavorable
Current Recommendation (5/9/09) Previous Recommendation (3/14/09)
Neutral Favorable
Investment Philosophy Columbine Capital Services believes that winning investment strategies are based on facts, not theories. Columbine has been conducting original studies into the historical sources of stock returns for decades. This hard-earned knowledge provides the foundation for a disciplined, step-by-step analytical process that allows direct comparisons between one company and another, the key to superior investment results. Research Process The analytical measures on the right represent the criteria that our historical studies have identified as having the greatest impact on the future market performance of companies in this sector. (Additional measures included in our analysis are omitted here for reasons of space.) We evaluate each company’s current status on all of these criteria and compare the company to its peers. A sector-specific analytical framework defines how much importance we attach to each component in assessing the company’s market potential. A stock may be attractive enough on some components to outweigh neutral or negative ratings on others.
Columbine evaluated Atmel by comparing the company to its peers on a series of individual analytical tools that represent proven measures of a firm’s business value, its long-term growth characteristics, and the behavior of its investors. These criteria are the building blocks we use to construct our decisions. The particular measures reported below are some of those that Columbine’s historical studies show to have the greatest impact on this company’s future market performance. We present the individual measures in order of their significance to our recommendation. The conclusions from each of the criteria are synthesized into an overall ranking of Atmel’s return potential relative to the rest of the market according to an analytic framework that is specific to this economic sector. This disciplined, consistent evaluation process has a proven track record of investment success.
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company may be even better than expected. Falling short of the expectation (a negative “disappointment”) is often punished by investors. Atmel’s EPS announcement for the latest quarter matched the consensus expectation.
Cash Flow is Neutral Positive cash flow gives a company funds for internal expansion, acquisitions, dividend payments, etc. Our evaluation looks at a company’s cash flow over the past four quarters. Stocks favored by this measure have the highest cash flow available for their price. Atmel, with a price-to-cash flow ratio of 8.3 is about the same as the median company.
Recent EPS Change is Neutral Many investors in this sector react strongly to shortterm changes in company earnings. We relate a company’s change in EPS over the last quarter to its current stock price. This measure favors companies that have produced recent advances in earnings at reasonable stock prices. Over the last quarter, Atmel’s earnings declined by $0.33, about the same as the median company on this measure.
Recommendation Decision: Hold
Reported Earnings Yield is Unattractive
Based on its current status on all the criteria for this sector, Columbine ranks Atmel Neutral and recommends that investors maintain any existing position, but do not add to it.
Undervalued companies, with relatively high earnings for their market price, represent profit opportunities in this sector. We compute an earnings yield by dividing the company’s most recent four quarters of reported earnings by its current stock price. With an earnings yield of 4.2%, we consider Atmel to be slightly overvalued on this measure.
Price Action is Neutral The Columbine methodology likes to see confirmation from relative strength when buying in any sector. As long as other measures are in accord, these companies should continue to perform well over the next year. The Columbine measure makes a risk-adjusted comparison of a stock’s performance with that of the market. Over the past twelve months Atmel has experienced a price change of -13%, versus the market’s return of -34%.
Estimate Revisions are Neutral In this sector companies that are the subject of increasingly improving earnings forecasts tend to find favor with investors. We evaluate recent changes in Wall Street analysts’ estimates of a company’s future earnings on three different metrics. Over the past sixty days the changes in the estimates of Atmel’s future EPS have been about the same as the median company.
Forecast Earnings Yield is Very Unattractive The expected return (in earnings per share) for the purchase price of a company’s stock is one of the most basic measures of a firm’s intrinsic value. By comparing the consensus earnings estimates from Wall Street’s analysts with the current stock price we can focus our evaluation on the firm’s potential earning power. This is the most important valuation measure in this sector. At its current price of $3.81, we consider Atmel greatly over-valued.
Recent Earnings were Neutral Exceeding Wall Street’s earnings expectations (a positive “surprise”) suggests that prospects for the Relative Strength Rank (RS Rank): ATML & the BIR Semiconductors Industry Top Quartile
ATML RS Rank in BIR USETS Universe BIR Semiconductors Industry: Average RS Rank
Average
Bottom Quartile ATML is a Large-Cap Stock, with a Blend investment style.
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A rising line means large-cap stocks are outperforming small-cap stocks. A rising line means value stocks are outperforming growth stocks.
2005
2006
2007
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2008
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2009
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A BIR Research Provider Report May 29, 2009
Atmel Corp. NASDAQ: ATML
Semiconductors Industry
BIR Stock Classifications Region Sector Industry Sub-Industry
North American Technology Semiconductors Semi Diversified
52-Week Sector Performance Order Past Order Median (Mos. Ago) Price Rel. St. Current 3 6 12 BIR Sector Return Rank 1
1
3
9
Utilities
-27%
33
2
2
1
7
Consumer Staples -27%
34
3
13 10 19 Retail
-31%
38
4
4
6
13 Healthcare
-32%
40
5
5
5
10 Insurance
-35%
44
6
8 17 14 Technology
-36%
46
7
3
4
3
Aerospace
-37%
47
8
6
14
8
Telecom
-38%
48
9
12 16 15 Services
-40%
51
10
16 15 20 Building
-41%
52
11
7
7
4
Chemicals
-42%
55
12
11 11
6
Industrial
-44%
57
13
20 19 18 Consumer Durables -46%
59
14
14
2
12 Banking
-47%
61
15
10
9
11 Transport
-47%
61
16
9
8
2
Energy
-49%
65
17
17 13
5
Capital Goods -51%
18
18 12 17 Finance
-51%
66
19
19 18 16 Forest Products -52%
67
20
15 20
69
1
Metals
66
-53%
Apr. 5, 2009 -- Best Independent Research -- The semiconductor industry has one basic principle — "smaller, faster, and cheaper." Industry players vie to develop the most advanced technology at the lowest possible cost. The industry, which traces its origins to 1947 when Bell Labs first invented a transistor, has four segments — memory, microprocessor, commodity integrated circuit (IC), and System-on-Chip (SoC). These are used in a wide range of products such as electronic, telecommunication, computer, industrial equipment, medical, and automotive system. The global semiconductor industry — dominated by Taiwan, Korea, China, Japan, and the U.S. — posted sales of $256 billion in 2007.
Poor Results on Consumer Market Slump As the sales of electronics and consumer goods fell drastically amid the recession, OEMs tightened their capex budgets, which hurt the top lines of semiconductor equipment makers. While Intel slipped on dwindling demand from the computer market, Texas Instruments suffered on the sharp decline in its wireless products arm. Orders for toolmakers — including Applied Material, Verigy, and Advantest— dived primarily because of the memory market weakness. Hefty restructuring expenses added to the industry’s woes. As a result, bottom lines either slipped in high-double digits or lurked in the red. PV cell producers were the only bright spot as they prospered on robust demand from the solar products market. ADRs too performed well, with Infineon narrowing its losses and ARM Holdings flourishing on robust markets. Battling the Downturn in Their Own Ways The recent quarter saw semiconductor companies scrambling to realign their costs in sync with changing market dynamics. While Asyst slashed its workforce 15%, Advantest announced the
elimination of 21% of its workforce. Similarly, National Semiconductor announced a 25% job cut over the next three months. Other moves to contain costs included business unit mergers, salary cuts, suspension of hikes and incentives, facility closures, and reductions in capex budgets. For instance, Brooks Automation consolidated its vacuum pump and robotics product groups into a single division, National Semi permanently closed an assembly and test plant in China and a wafer fabrication plant in Texas, and Micron lowered its capex budget for fiscal year 2009 to $650-$700 million from its earlier estimate of $1 billion. On a similar note, Micron and Nanya are eyeing a share in the Taiwan Government’s bailout package. Meanwhile, despite their attempts, Qimonda and Spansion succumbed to their operational woes and filed for bankruptcy protection.
Growth Uninterrupted The two biggest solar-industry research bodies — the European Photovoltaic Industry Association (EPIA) and the Solar Energy Industries Association (SEIA) — paint a sunny outlook for the solar cell industry in 2009. In fact, the EPIA forecasts that the global PV installed capacity will reach 22 GW by 2013 — way above 2008’s 15 GW. However, Spain and Germany might lose their leadership positions due to their recent restrictions on incentive programs. On the other hand, the U.S. Government has extended its solar Investment Tax Credit for eight more years and eliminated prohibitions on the use of the Credit. Additionally, under its American Recovery and Reinvestment Act, the U.S. is boosting renewable energy projects — especially solar PV conversion to electricity. Markets Unlikely to Recuperate in 2009 Semiconductor bigwigs anticipate no respite from the downturn before 2010. However, they are optimistic that their cost-cutting and inventory management measures will minimize the impact of the slowdown. While most chipmakers are forecasting losses in the coming quarter, solar cell companies believe programs like the Green Revolution will buoy growth.
Comparing Atmel to its Sub-Industry Peers (Medians)
Market Cap. ($) 864.34M 570.29M 1.03B 1.72B 874.27M 1.14B 4.67B 606.92M 1.23B 177.18M 925.68M
Price ($)
Sources: BIR consensus estimates; Reuters
BIR USETS Universe: Over 3,000 U.S. exchange-traded stocks, both domestic & international
BIR USETS UNIVERSE BIR Semiconductors Peer Group 3.81 ATML Atmel Corp. 7.06 FCS Fairchild Semiconductor Int'l 23.48 TSRA Tessera Technologies Inc 7.40 SPIL Siliconware Precision (ADR) 15.15 CHRTD Chartered Semicondr (ADR) 8.60 CY Cypress Semiconductor 2.37 SIMG Silicon Image Inc 5.60 IDTI Integrated Device Tech
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52-Week Price Return & Rel. Strength Rank -37% -41% -32% -13% -52% 14% -12% -63% 103% -66% -52%
51 57 43 18 71 5 17 83 1 86 71
Estimated PE Ratios & Relative Rankings Cur. Year Next Year
Estimated EPS Growth & Relative Rankings Cur. Year Next Year
EPS Revisions (3 mos) & Relative Rankings Cur. Year Next Year
15.1 35.0 25.0 NA NA 25.0 37.0 NA NA NA 8.8
-4% -71% -66% -33% -99% 199% 199% -99% -99% -99% -33%
-2% 7% 43% -5% 45% 82% 429% 41% 49% -16% -73%
51 13.4 51 87 25.0 85 79 39.5 93 NA 31.8 90 NA 235.3 100 79 21.0 79 88 23.1 83 NA NA NA NA 45.3 94 NA 39.5 93 13 62.2 96
51 84 83 71 100 6 6 100 100 100 71
16% 71% 83% 199% 105% 19% 60% 40% 163% 150% -86%
51 19 17 7 13 46 22 29 8 9 99
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51 22 7 58 7 4 1 7 6 74 91
-2% 9% 12% -6% 123% -1% 25% 45% 194% -312% -56%
51 17 14 61 3 45 9 5 2 99 93
Estimated P/Sales Ratios & Relative Rankings Cur. Year Next Year 1.0 1.8 1.7 1.5 0.8 4.1 3.2 0.5 2.0 1.0 2.0
51 70 69 65 45 90 86 28 73 50 73
0.9 1.5 1.5 1.3 0.7 4.4 2.7 0.4 1.8 1.0 1.8
51 68 69 63 43 93 84 24 73 52 73
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A BIR Research Provider Report May 29, 2009
Atmel Corp.
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Disclosures
NASDAQ: ATML
Columbine uses the BIR Report Format to communicate its research recommendations. Columbine Capital Services, Inc. delivers its investment advice using an effecient research report designed and maintained by Best Independent Research. This report building environment enables Columbine to document the logic supporting its recommendations with clear explanations of the decisions made at each step of its analytical process. BIR has no influence on Columbine’s recommendations. Best Independent Research LLC This BIR report format is a joint effort of five veteran equity research firms to create a state-of-the-art research report. Each firm uses this report format when issuing their individual research recommendations. BIR is not a research organization and does not make recommendations. Its role is to provide innovative ways to highlight the research firm’s message with a report investors enjoy and find valuable. BIR professionals maintain proprietary stock risk ranks, financial quality ratings, company and industry descriptions and consensus revenue and earnings estimates. None of the five research firms utilize this data in making their recommendation decisions. Columbine Capital Services, Inc. Columbine has been conducting original studies into the historical sources of stock return for decades. This provides the foundation for a disciplined, step-by-step analytical process that allows direct comparisons between companies. The analytical measures presented in this report represent the criteria that our historical studies identified as having the greatest impact on the future market performance of stocks in their sector. A sector-specific analytical framework defines the importance we attach to each measure in assessing the company’s return potential. A stock’s attractiveness in some areas often outweighs neutral or negative ratings in others.
Glossary Glossary BIR Stock Coverage and Market Indices The BIR USETS© (US exchange-traded stocks) universe and indexes include over 3000 of the largest domestic and international stocks that trade in the United States. BIR’s stock classifications (BIR’s GIC) reflect their membership in the firm’s industry and country indices. BIR Asset Class and Investment Style large-caps are the largest 1000 US stocks by capitalization; the remainder are small-caps. Non-US stocks are separated using the same breakpoint. Value, blend and growth styles are set using a blend of valuation ratios and growth rates. BIR Risk Profile Rank This rank reflects the stability of the company’s business and its stock’s price volatility. Risk ranks do not project price direction. BIR Financial Quality This measure of a company’s creditworthiness reflects BIR’s assessment of its working capital, debt ratios, business risk and potential legal liabilities. BIR Consensus Sales & Earnings Estimates These are complied by BIR weekly using fresh estimates from a select number of Wall Street security analysts. Chart pg 2: Relative Strength Rank A stock’s RS Rank is its 52-week return ranked from 1 (best) to 99 within the BIR USETS universe. This chart shows that a stock’s price may be influenced by the popularity of its industry, asset class or investment style. An industry RS Rank is the average RS Rank of the stocks in that industry. Large vs. Small and Value vs. Growth performance is presented to enable observation of their influence.
This report offers equity recommendations and related return estimates from Columbine Capital Services, Inc. to investors and their advisors. It uses a three-class Buy-Hold-Sell rating system. This is a consolidated version of the firm’s fiveclass rating system: most favorable and favorable ratings are buys; neutral ratings are holds and the categories unfavorable and most unfavorable are sells. Stock Ratings The firm uses the terms below to rate a stock’s relative 12-month performance: Buy: Expected to outperform the S&P 500 producing above average returns. Hold: Expected to perform in line with the S&P 500 with average returns. Sell: Expected to underperform the S&P 500 producing below-average returns. As of March 31, 2009, Columbine Capital Services had Buy ratings on 36.2% of their recommendations, Hold ratings on 39.2% and Sell ratings on 24.6%. All investment conclusions and the discussions explaining these decisions are from Columbine Capital Services, Inc. They accurately reflect the responsible research professional’s personal views regarding any and all the subject securities or issuers. No part of analyst compensation was, is, or will be directly or indirectly, related to the specific views or recommendations expressed in this research report. Columbine and BIR prohibit their employees from buying equity securities and from being officers or directors of listed companies. Columbine employees do not advise any investment companies or investment advisory accounts. Neither Columbine nor BIR offer brokerage or investment banking services. They both adhere to professional standards and abide by formal codes of ethics that put the interests of clients ahead of their own. Their compliance officers monitor adherence to these standards.
Disclaimer Past performance is not a guarantee of future results. The material is based upon information Columbine and BIR considers reliable, but neither warrant its completeness or accuracy, and it should not be relied upon as such. Assumptions, opinions, and estimates constitute our judgment as of the date of this report, and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of securities mentioned herein. The material does not take into account your particular financial situations, objectives, or needs, and is not intended as a personal recommendation. Before acting on recommendations in this material, you should consider whether it is appropriate for your particular situation, and, if necessary, seek professional advice. ©2005 Best Independent Research LLC Certain additional market and financial data is provided by Ford Equity Research, San Diego, CA and Reuters.
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