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conference date: February 1, 2007
for quarter ending: December 31, 2006 (4th quarter)
Overview: Still no GAAP results due to stock-based compensation and other accounting issues. Revenues down sequentially but up 4% over year-earlier.
Basic data:
Revenues were $408.9 million, down 5% sequentially but up 4% from Q4 2005. Excludes former Grenoble subsidiary.
Cash and short-term investments were $466.7 million, down from $484 million at the end of Q3.
Guidance:
Likely to see a decline of about 4 to 8% sequentially in Q1 2007 as customers continue to work through current inventory levels.
Conference Highlights:
Atmel hit by same inventory correction as rest of industry. Restructuring to enhance profitability and growth. Focussing on high-growth and high margin products. Moving to fab-lite strategy. Fabs at North Tyneside, U.K. and Heilbronn Germany are up for sale.
New products include AT91SAM7SE 32 bit flash MCU; a new family of automotive high-temperature chips; a secure MCU for government applications and one for the French national health card.
Q4 was challenging as customers reduced ordering in order to reduce inventories near the end of the quarter.
All outstanding convertible debt has been redeemed.
Revenues by segment: ASICs $124 million for 30% of revenues; microcontrollers $101 million or 25%; non-violatile memories $93 million or 23%; RF and automotive $91 million or 22% of revenues.
Revenues by geography: Asia 52%; Europe 35%; North America 13%. Europe grew, Asia and America declined.
Capital expenditures were $24 million.
Microcontroller revenue was up 17% year-over-year but down 7% sequentially. AVR products responsible for most of growth. Expects growth to resume in Q1 2007.
RF and automotive was down 3% year-over-year and down 13% sequentially. Almost all the decline came from drop of foundry business. But keyless entry and GPS products experienced robust growth.
ASIC was up 5% over Q4 2005 and up 2% sequentially. ARM based microcontroller products and security products were basis for growth.
Non-volatile memory was down 2% sequentially. Weakness in parallel flash.
Q&A:
Color on gross margin direction? Q1 2006 was 32.4%. Expected to increase by 80 basis points per quarter for full year. Upper 30s by end of 2007 are achievable if climate favorable.
Length of downturn? Expects Q1 2006 should see stabilization. Expects growth to resume in Q2. But a particularly large foundry customer will be reducing demand through 2008, when it will be half of 2007 revenue, which was 8 to 9% of sales of 2006.
AVR? Did experience some decline in Q4, but 2006 was up 60% over 2005. In January seeing growth and in microcontroller business. Was down 14% sequentially.
Smartcards? Sequentially flat.
RF business? Lacks visibility.
Business reductions: Wireless LAN, VoIP, mobile phone bases, memory chip modules, and USB products. They generated little revenue, so getting cost reductions with little revenue loss. Developed products will continue generating revenue; cutting back R&D.
Charges for restructuring going forward? Does not anticipate more charges in 2007, but situation could change.
Depreciation changes from sale of fabs? 2006 was $230 million. 2007 looks like $130 to $135 million.
ASIC guidance? Single digit declines.
Inventories? Up sequentially for Q4 2006.
Backlog coverage? Was 70% entering Q4, higher entering Q1.
MCU final test offshoring? On schedule for completion by mid-year.
Chips for handheld devices, industrial, automotive will show strength. Too early for 32 bit AVR revenue.
Cap ex for 2007? $75 million.
Staff reductions? Most are outside North America. Making progress. Headcount under 8,000.
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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but its possible. Before making or terminating an investment you should always verify any factual basis of your decision.
Copyright 2007 William P. Meyers