Investors Have Faith in This Chip Company, So Should You: Atmel Corporation (ATML)

The signs of a turnaround in Atmel Corporation (NASDAQ:ATML)’s business were quite evident, but even then, one wouldn’t have expected the stock to appreciate over 40% in the past three months. The company was in dire straits last year as revenue declined and margins contracted, which makes the rally a bit surprising. Hence, a sharp snapback was on the cards after Atmel disappointed investors with a lowly outlook for the first-quarter of fiscal 2013.

Going down

Also, Atmel’s performance in the previous quarter wasn’t noteworthy either. Although revenue was slightly better than estimates, it was 10% lower than the prior-year quarter. Non-GAAP gross margin dropped from 48.7% last year to 41.6% in the quarter and adjusted earnings fell almost 57%. Moreover, expected revenue of $311 million to $328 million for the current quarter is some way off the $332.8 million consensus.

Thus, a fascinating rally came to an end for Atmel investors. Still, Canaccord Genuity analyst Bobby Burleson is of the opinion that Atmel’s business has reached its cyclical bottom and the company would do better later this year, driven by increased demand for its touchscreen microcontrollers.

But back with a bang

But, a day later, Atmel’s rally was back on track as the stock gained close to 7% on the back of optimism about its business and prospects. Atmel’s microcontroller business has exhibited solid growth in the last one year and it is expected to get better, driven by the growing number of touch based devices.

Atmel sees touchscreen laptops and notebooks on Microsoft Corporation (NASDAQ:MSFT)’s Windows 8 as a huge opportunity. Touch devices are a vital cog in Microsoft’s strategy of pushing sales of Windows 8 as the software giant looks to fight against MacBooks, iPads and tablets running Android. And Atmel is at the center of Microsoft’s Windows 8 touch strategy.

It supplied the controller for the Surface tablet, and has been certified for Windows 8 by 40 different Ultrabooks and tablets. The company has landed design wins at computer makers such as ASUS, Dell, Hewlett-Packard Company (NYSE:HPQ), Lenovo, Samsung etc. Atmel is a part of more than fifty Windows 8 programs. It has reference designs covering the entire spectrum of Windows 8, partnering with companies such as Intel Corporation (NASDAQ:INTC), NVIDIA Corporation (NASDAQ:NVDA) and QUALCOMM, Inc. (NASDAQ:QCOM).

Playing on another front

Windows 8 is Atmel’s primary growth driver, but it has made some friends at the other end of the spectrum as well. The company landed a vital spot in Amazon.com, Inc. (NASDAQ:AMZN)’s 7-inch Kindle Fire HD tablet, which was the most gifted item of the holiday season on the online retailer’s website. Also, reports suggest that the tablet has kept its strong sales momentum intact this year as well, which is great news for Atmel since it indicates a fruitful partnership with the ecommerce giant.   

In addition, Atmel also provides the controller for the acclaimed Google Inc (NASDAQ:GOOG) Nexus 10 tablet. The potent Google-Samsung partnership, along with Amazon, is driving market share of Android tablets north, and this bodes well for Atmel since it doesn’t have the backing of the Apple Inc. (NASDAQ:AAPL) iPads to drive sales.