Atmel Still On Target for a Takeout
Our take on Atmel: We believe the potential to be an acquisition target remains on the table.
While second-quarter results and guidance missed, Atmel (ticker: ATML ) is not alone, seeing similar headwinds as its peers. We are encouraged that Atmel continues to show financial discipline reining in expenses, guiding operating expenses to be flat quarter-over-quarter and that it expects the fourth quarter to be above seasonal.
Despite the big miss, shares were down only 6% in after-hours trading [Tuesday] as the potential for Atmel to be a merger and acquisition takeout looks to be providing a floor to the stock. We think the direction of the board is to sell the company and the new chief executive that the board appoints to replace President and CEO Steven Laub when he retires at the end of August will take Atmel in that direction. Our new 12-month price target of $10 (down from $12) is based upon about a 2.8 times (from 3.5 times) 2016 enterprise value (EV)/revenue estimate of $1.236 billion (from $1.377 billion).
[We reduce our 2015 earnings-per-share estimate to 36 cents from 45 cents and reduce our 2016 EPS estimate to 44 cents from 57 cents.]
Atmel reported second-quarter results that missed Wall Street estimates and provided third-quarter revenue outlook of down 1% to down 8% quarter-over-quarter that was well below expectations (up 11% quarter-over-quarter). Atmel’s tune on the miss and guide down was a familiar one and has been echoed by several of its peers: impacted by macro weakness and exchange-rate headwinds that were being compounded by an inventory realignment of MaxTouch and inventory work through of crypto at two of its leading original equipment manufacturers.
Third-quarter revenue guide of $283 million to $303 million (down 8% to down 1% quarter-over-quarter) was below the Street estimate ($340 million) and our estimate ($331 million) estimate with microcontrollers (MCUs) expected to be down slightly (core MCUs to increase mid-single-digits while maXTouch to be down high teens/low twenties), Auto down low-single-digits, Memory down low-double-digits and Multi-Market & Other down midteens.
Atmel guided third-quarter pro forma gross margin to be up about 50 basis points quarter-over-quarter to 47.5% plus/minus 100 basis points and operating expenses to be $104 million, plus or minus $2 million. We estimate implied third-quarter pro forma EPS at the midpoint to be about seven cents to eight cents below the Street (12 cents) and our estimate.
-- Betsy Van Hees
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