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TheStreet Open House

The Touch of Atmel Should Thrill Investors

NEW YORK ( TheStreet) -- Anyone that doubts that touch capabilities are here to stay is not paying enough attention to the smartphone and tablet markets. Consumers demonstrate everyday with their spending habits that they want more of it.

For this reason, I have been an unabashed cheerleader of semiconductor giant Atmel (ATML). Its touch technology and, in particular, its controllers have become vital to the rising popularity of these mobile devices.

On the other hand, that the company's stock has lost 40% of its value so far this year suggests that investors don't care. On the heels of the third quarter earnings report, a closer look reveals that it just might be time for them to reconsider Atmel's market position

Not a Great Q3, but Far From Terrible

For the third quarter, Atmel reported revenue of $361 million, which represented declines of 2% sequentially and 25% year-over-year. Net income arrived at $21.6 million, or 5 cents per share. While that figure shows a considerable decline year-over-year, net income from Q3 2011 included a gain of $33 million from the sale of the company's former corporate headquarters. Nonetheless, the company still beat street EPS estimates by a penny.

Though margins arrived better than expected, it continues to be a challenge for the company. For the third quarter, gross margin registered at 43.1% -- shedding almost 1% sequentially and 7% year-over year. Investors didn't rush to applaud the company for its performance, but things could have been much worse.

Clearly Atmel's Q3 results were adversely impacted by what has been a weak period for the overall semiconductor industry. Q4 doesn't look too promising either.

Atmel is projecting revenue of $328 million to $352 million for the fourth quarter. Not entirely optimistic, considering Q3 revenue arrived at $361 million. Likewise, margins are expected to come in slightly lower to flat at 43%. Obviously, the company has decided to take a cautious approach with respect to outlook, which is understandable. But that's where investors have to be willing to look beyond the numbers to fully appreciate the possibilities that lie ahead.

Moving Forward

In a recent article, I talked about how Atmel does not need tech giant Apple (AAPL) in order to survive. Although competition continues to ramp up from the likes of Qualcomm (QCOM) and Texas Instruments (TXN), Atmel has remained steadfast in its commitment to pushing forward the capabilities of touch beyond conventional understanding.

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