As I noted in my opening, touch is here to stay. While smartphones and tablets continue to be the major drivers of the touch market, Atmel is much more than that as the industrial side of its business continues to be underestimated. A good portion of the company's microcontroller revenue actually comes from "non-tech" areas such as motors -- devices that operate things we take for granted within the automobile such as rolling up your window or just locking your doors.
Similarly, another area where the company is likely to generate future growth is in capacitive touch where home appliances will soon begin to migrate toward more touch functionality. These include washer, dryers, refrigerators etc. This is on top of the company's pursuit of markets such as aerospace and defense.
These initiatives continue to set Atmel apart from many rivals that continue to enjoy the lion share of market attention. But that is not because Atmel forgets from where its bread and butter comes.
The company's maXTouch controller recently earned design wins in Samsung's Galaxy SIII Mini as well as having been selected by Microsoft (MSFT) to power its Surface tablet. Likewise, maXTouch powers several Google (GOOG) Android devices including Amazon's (AMZN) Kindle Fire HD. It also powers Parrot's Asteroid in-car entertainment system as Atmel continues to expand further inside the automobile.
Can The Company Grow Amid Competitive Pressures?Making an investment in Atmel today necessitates not only answering this question, but doing so with conviction. Understandably, investors have some doubts as to whether or not the company can withstand competitive pressures -- particularly as revenues and margins continue to decline. Aside from the prominent rivals such as TI and Broadcom (BRCM), there is also Cypress (CY) and Maxim (MXIM), which continue to make meaningful strides. On the other hand, the company's considerable number of design wins helps offset some of these fears. Investors want to see that more phone designers embrace the touch controller as a central component to the devices. Though the design wins would suggest the level of respect that phone manufactures have for Atmel's technology, Atmel is not the cheapest supplier either. Price might eventually become an issue. And how that plays into Atmel's margins going forward is something that weighs on the mind of investors. Still, Atmel's microcontroller business represents over 60% of the company's revenue and grew for two consecutive quarters, suggesting Atmel just might be in the early stages of a turnaround. But investors have to appreciate that it's going to take some time as the company is repositioning its business for future growth. I think in the coming quarters, investors should also be excited about the potential growth impact of Windows 8 and new partnerships with Samsung.
Bottom LineThere's a lot to like with Atmel today as a company and a stock. What stood out from the company's third-quarter earnings report was that management continues to make the best out of what has been a very difficult situation for the entire sector. That said, for the stock to truly work, Atmel must figure out a way to get revenue and margins heading again in the right direction. Nonetheless, at current levels the stock still looks incredibly cheap. As noted, the shares have lost 40% of its value so far this year, flipping the risk/reward ratio to the side of the reward. At $4.89 and price-to-earnings ratio of 10, growth investors looking for a solid turnaround play should really consider Atmel. Growth to $10 in 2013 is not out of the question. Atmel has invested heavily into its touch business and I think for patient investors this is an investment that will eventually pay off. At the time of publication, the author held no position in any of the stocks mentioned. Follow @rsaintvilus This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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