Atmel Corporation Presents At Barclays Capital Global Technology, Media And Telecommunications Conference, May-22-2012 03:45 PM

Atmel Corporation (ATML)

May 22, 2012 3:45 pm ET


Stephen Cumming - Chief Financial Officer and Vice President of Finance


Stephen Cumming

The company has been primarily focused on the areas of embedded microcontrollers, but we've been particularly successful in the areas of capacitive [ph] touch, and I'll talk a little bit about that a little bit more later on. So today, I'll discuss Atmel's business strategy, the overall operations, and the transformation of the company and the significant impact that had on the financial results of the company. Okay. Before I do that, I'd like to draw your attention to the Safe Harbor statement. During the course of this presentation, I may be making forward-looking projections about Atmel's business outlook. Actual results may differ materially from those expressed in this presentation due to a number of risks and uncertainties, and those risks and uncertainties can be found in our 10-Q and 10-K filings. I urge you to read them whenever you get a chance. There's a lot of interesting stuff in there.

So turning to a discussion on Atmel, many of you are probably familiar with the transformation of Atmel, but for those of you that are new to the story, I'll just address that a little bit in the summary form. Approximately 5 years ago, we put in place, to make a lot of changes at the company. The changes we pursued were actually relatively simple, but the impact they've had on the overall operations and the financials of the company have been substantial. We focused on 3 key main areas. First and foremost, we recognized that the most valuable, most important part of the business with the highest growth opportunity and margin expansion was our Microcontroller business. We made ourselves a microcontroller-focused organization. We redeployed R&D resources. We redeployed sales and marketing resources over to microcontrollers. We also went into acquisition mode over the last 4 years. We've acquired a number of companies that have build out the IP and technology around microcontrollers, some of which you may be familiar, Quantum Research back in March of 2008, to gain us media access into the capacity of touch sensing market. We acquired ZigBee company, to allow us to play in the high-growth, high-margin smart-power metering areas, and more recently, a power line communications company. On top of the acquisitions, we also went through a fairly substantial transformation in terms of businesses we divested and shut down. We actually shut down or sold about 21 non-core businesses as part of the transformation.

The second area of the strategy was to adopt a fab-lite strategy. About 5 years ago, we had 5 fabs. Many of those fabs were in the higher cost regions of Europe. We had about 95% of our capacity manufactured in-house. Over the last few years, we shut or sold 4 of those fabs. We roughly, as of 2011, had about 50% of our manufacturing going through third-party boundaries. The other third leg of the transformation of the company was really a change in the culture and the management team, and so we've -- over the last 4 years, it's pretty much a new management team. We've actually significantly cut our costs. We reduced our headcount by about 35% and moved ourselves to a position of potential profitability.

We've done a lot of rewiring of the company, but I think the biggest catalyst to the improvement of Atmel has really come from the microcontroller business. As this chart shows the shift of our mix in favor of our higher-margin Microcontroller business, Microcontrollers are up from 24% of revenues in 2006 to about 62% of revenues in 2011, a substantial increase in just a 5-year period. We also made a lot of changes in the other areas of the business. Our Non-Volatile Memory has gone from 22% to 14% of revenues. Our ASIC business declined from 31% to 13% of revenues, largely as a result of the Smart Card divestiture that we did in Q3 of 2010. Our RFA business declined from about 23% to 11% of revenues, again, as we exit some of the foundry business there. In our most recent quarter, Q1 of this year, our Microcontroller business represented 61% of the company's revenue.

For the full year of 2011, our revenues grew, year-over-year, about 10%. And if I exclude the Smart Card business that we divested back in Q3 of 2010, we grew something over -- a little over 15%. So it's a pretty substantial growth in the year for the semiconductor industry, which I think grew less than 0.5 point. A lot of this growth has been driven from the Microcontroller business and that's really attributable to our proprietary AVR architecture. Since we entered the market back in the mid-90s, we've seen growth in this business and I would say probably, explosive growth in this area over the last 5 or 6 years. And this growth has really come from a number of key milestones. We started off with the standard 8051 architecture. We developed our own proprietary AVR architecture for micros. We became licensees to ARM over the last few years. We've also, as I said earlier, made a number of key strategic acquisitions. We acquired IP to play in the ZigBee space to address the smart power metering market, which has been tremendous growth for us over the last few years. We also acquired Quantum Research, which allowed us to combine with our proprietary AVR hardware for microcontrollers, to come and become the #1 touchscreen provider in the market today with over 40% market share.

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