But before delving into Atmel’s future, let’s take a look at its past and see how it performed in the previous quarter.
Down, but not out
Atmel posted revenue of $329 million in the first quarter, down 8% from last year but it exceeded the higher end of the company’s own guidance issued in February. Non-GAAP earnings came in at $13.6 million, or $0.03 per share, down from $35.3 million, or $0.08 per share, in the year-ago quarter. Atmel Corporation (NASDAQ:ATML) beat the Street’s scaled down version of the revenue forecast as it had guided lower last time, and met on earnings.
The year over year readings aren’t encouraging as Atmel is clearly struggling with declines in revenue, earnings, and gross margin. However, management’s belief that it can’t get worse from here and there are improvements ahead seems to have encouraged Atmel bulls, as the stock is trading around 4% up as of this writing. But before we get too excited, let’s take a look what could drive Atmel going forward.
Finally, the party begins
The company derives almost two-thirds of its revenue from its microcontroller business, and it seems like this business is finally turning around. Atmel had waited for a long, long time for Android tablets to succeed. However, as Apple Inc. (NASDAQ:AAPL)’s iPad was the dominant force in this sector, Atmel failed to record significant gains. However, that wasn’t the end of the world and Atmel started looking at other avenues.
If Apple wasn’t a possibility, Atmel Corporation (NASDAQ:ATML) worked its way inside its challenger, landing a design win in the Samsung Galaxy S4. It supplies the sensor hub to Samsung’s latest flagship and this is undoubtedly a huge win, as the device has taken the Android world by storm and the company is probably looking to manufacture 10 million units a month, which is really good news for Atmel.
Thus, Atmel is now finally placing content inside a popular device and its relationship with Samsung seems to be budding as it had also supplied the sensor for the popular Galaxy Note II. Going forward, the company says that it has multiple design wins with Samsung, and is also poised to spread its wings in the rapidly growing Chinese smartphone market through product placements inside ZTE and Xiaomi’s phones. And also, it should be noted that Atmel is a supplier to Amazon.com, Inc. (NASDAQ:AMZN) for the latest Kindle Fire, which is one of the most successful Android tablets.
In addition, Atmel also added another marquee customer in the form of Research In Motion Ltd (NASDAQ:BBRY), to which it supplied its famous maXTouch controller for the Q10. Expectations from the Canadian smartphone maker’s QWERTY device based on the new operating system are high, as it is expected to bring back Research In Motion Ltd (NASDAQ:BBRY) loyalists who had migrated to other platforms.
And the opening hasn’t been too bad either, as the Q10 has been selling in decent numbers in Toronto and Britain. If Research In Motion Ltd (NASDAQ:BBRY)’s new OS indeed clicks (I think it might), then it would certainly be great news for Atmel Corporation (NASDAQ:ATML) if it can hold onto this account going forward.
Adding another dimension
But Atmel hasn’t stopped here. The company has further expanded its addressable market by adding Microsoft Corporation (NASDAQ:MSFT) Windows 8-powered touch devices. While this might evoke mixed reactions, it should be kept in mind that this is an addition to Atmel’s business and the declining sales of PCs shouldn’t be brought up in this context. Atmel Corporation (NASDAQ:ATML) has a wide presence inside Windows 8 devices, as it is certified for “70 different tablets and Ultrabooks” and is involved in more than a 100 other Windows 8 programs.
Atmel accepts the fact that initial sales of Windows 8 have been slow. However, it expects that the introduction of Haswell chips from Intel Corporation (NASDAQ:INTC) will lead to better sales of large touchscreens in the second half of the year. Moreover, Atmel could look forward to the second generation of the Microsoft Corporation (NASDAQ:MSFT) Surface as another revenue driver. While the previous Surface couldn’t do much in terms of sales, it still made up for half of Windows 8 devices sold.
Also, analysts expect that if Microsoft Corporation (NASDAQ:MSFT) ventures into the 7-9 inch tablet realm with the next Surface, which it might, then adoption of the device would increase further. Thus, Atmel Corporation (NASDAQ:ATML)’s newly found market could receive another boost if Microsoft’s latest operating system and touch devices find some traction as analysts expect.
Apart from microcontrollers, Atmel’s radio frequency (RF) and automotive business is also witnessing some momentum, as it grew 7% from the year-ago period. The company’s solutions in this business, such as ultra-low power Wi-Fi solution and high-voltage products, are gaining strength. Also, the ASIC (Application Specific Integrated Circuit) business, which declined 18% in the previous quarter, is expected to be in recovery mode this quarter onwards.
What now?
Atmel has a strong order backlog and it expects better times going ahead. This fact is hit home by Atmel Corporation (NASDAQ:ATML)’s second-quarter guidance, which calls for revenue between $339 million to $355 million, almost at the mid-point of the consensus estimate of $348 million (according to Yahoo! Finance). Its gross margin is expected to get better as well. Thus, it’s quite possible that the company has indeed bottomed, and the stock might head higher.
Its business is improving; it has some solid clients and is spreading its wings wide, and as such Atmel might get better going forward.
The article This Stock Has Bottomed and Is Headed Higher originally appeared on Fool.com and is written by Harsh Chauhan.
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