Atmel Q3 '96
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Atmel Q3 '96
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(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Atmel Corp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ATML)") else Response.Write("(NASDAQ: ATML)") end if %> UNION CITY, Ca., October 19, 1996/FOOLWIRE/ --- Atmel released third quarter 1996 results recently. Revenues were $280.3 million, an increase of 66% compared to the year ago quarter and a sequential increase of 4.3% from Q2. Net income was $52.9 million compared to $31.2 million last year and $50.3 million in the previous quarter. This translates to a net margin of 18.9% for the quarter, compared to 18.5% in the year ago quarter and 18.7% in Q2. Earnings per share of $0.53 compared to $0.31 per share in the year ago quarter and $0.50 in Q2 1996.
REVENUE BREAKDOWN BY MAJOR AREA. Reprogrammable memories was 43%, EPROMs was 17%, logic 23%, microperipherals was 17%. Gross margin for the quarter was 49.5% compared to 49% in the year ago quarter. Increased output from the fabs, combined with good yields and product mix shifts offset price declines during the quarter. Gross margin increases were driven by good performance by the fabs in both output and yields, strong expense controls, product mix shift, and die shrinks of some of ther non-volatile memory products. Operating margin was 28.9% compared to 28.8% in the prior quarter due to lower SG&A spending.
SIGNIFICANT BALANCE SHEET ITEMS. Cash and investments grew to $259.6 million, of which $88 million were in long-term investments. Receivables grew to $158.9 million due to increase in shipments. This represents 52 days sales outstanding compared to 47 days sales outstanding in Q3 1995 and 44 days last quarter.
Inventory was at $65.5 million increased by $500,000 from last quarter due to increased production activity. Inventory days dropped to 42 days compared to 44 days last quarter.
Capital additions in the quarter totalled approximately $143 million. Depreciation for the quarter was $29 million compared to $26.3 million in the prior quarter. The company increased borrowings in the third quarter by approximately $60 million by drawing on its bank lines of credit and lease financing for its equipment purchases in the fabs. Long-term debt to equity increased to 33% in the third quarter, up from 28% in the prior quarter.
Average headcount in Q3 was 3,776 and revenue per employee was $74,200. In the third quarter, return on equity was 28.5% and return on assets was 15.6%.
GENERAL BUSINESS TRENDS. The third quarter continued to be a quarter of growth for Atmel with revenues and profits all reaching new highs. Bookings in the quarter fell below that of the prior quarter due to the weakness and increased competition in the EPROM business, the seasonally slow Summer period, and short term window in booking orders by their customers. However, bookings increased sequentially each month during the quarter.
PRODUCT GROUPS. Programmable memories was 43% of revenue. The flash NA2 remains steady with good demand in the telecommunications and consumer markets for many of their low voltage and low density products. Declining prices were offset by lower manufacturing costs and better yields. They introduced two new flash families of products capable of read and write at 2.5 volts. This new design is significantly smaller die size and will enable Atmel to participate in the PC buyers, computer peripherals, networking, set up parts, and many other market segments.
EPROMs were 17% of revenues. The EPROM business experienced weakness during Q3 due to slowing demand in the CD-ROM drives and modems. In addition, many PC buyers for modem applications have switched from EPROMs to flash. They believe that the recent introduction of their new flash families will enable them to recapture the lost EPROM business. On a positive note, the EPROM bookings grew sequentially after hitting their low in June. On a worldwide basis, Atmel is now the second largest EPROM supplier.
Microperipherals were 17% of revenue. The filial EEPROM business grew steadily as demand in the consumer and automotive markets remained stable. The SPI family is enjoying a good market acceptance. Microcontrollers also experienced solid demand in the quarter while increasing their wafer allocation in this area to meet the increased demand. They have introduced microcontrollers with flash and EEPROMs on board and the RISC-based flash microcontrollers, AVR and ARM, are expected to come out in the next quarter. Customer response for these products is excellent.
The logic area was 23% of revenue, up from 21% last quarter. The ASIC products, particularly their non-volatile ASICs enjoyed some growth in communications and smart card applications in Asia and Europe. With the combination of Atmel's basic capabilities and AS2 cell-based technology, they have achieved several design wins in the networking and PC peripheral areas which will contribute to revenue in 1997. Their end-market demand in most sectors is showing steady growth. The PC peripheral market has improved after the weak Summer.
CAPACITY. Wafer output grew about 10% in the quarter to approximately 12,500 wafers per week. They have approved the expansion of fab 5 in Colorado Springs to increase capacity from 6,500 wafers per week to 9,500 wafers per week which will come online in the first half of 1997. Fab 7 in France is presently scheduled for completion at the end of this year. The equipment installation will begin in January with qualification expected by June 1997. Production runs will begin in the second half of 1997.
In conclusion, they have shown steady growth in all their product lines except EPROMs. They have introduced major product families in flash, microcontrollers, and the logic areas which should help them continue their growth in 1997. They have taken steps to limit spending in the fourth quarter to maintain their profitability. They invested about $140 million in capital to increase capacity and install CMP capabilities in their Colorado facilities in Q3 and they will invest approximatley $75 million in Q4 and estimate about $400 million investment in 1997 for increased capacity.
In general, Atmel is trying to transition away from too much dependence on EEPROMs. They will maintain a strong presence with strong products so they can maintain the company's margins, but they are essentially trying to transition the company over the next year towards a broader line of flash offerings that allows them to compete in a number of different markets and also their microcontroller family. The guidance going forward was given to enable them to manage through this transition.
To a large degree their ability to resume sequential growth will depend on the acceptance of the flash family. The flash market is the fastest growing sector of the non-volatile memory area. People are projecting market growth at a rate of 35-40% compound. They think with Atmel's diversified offering of products, it will open up some new markets they are not participating in. With the new flash families, it opens up approximately $750 million in the near term in the GSN, set top box, networking and PD buyers market.
The company was asked if they saw a danger of flash prices dropping dramatically given the incredible amount of flash production capacity that is coming online in the industry. They responded that they didn't, primarily because if you look at the flash market, it is growing extremely rapidly -- not only in dollars but particularly in density size. There is a significant shift toward 8 and 16 meg. So, a lot of the capacity that Intel and AMD are bringing on is focusing at the high density market. They think that, looking at flash bit growth for next year, it will probably be in the 80-100% range which is a significant amount that needs to be absorbed. They think the substantial price drops have already happened this year and that we will probably see more stable pricing next year to overall meet the demand in the market. There are several new big applications that are flash-driven that took place this year. Clearly the GSM phones are all going to much higher densities. The PC buyers are going towards flash. The digital camera market is ramping up. The networking products are going up in density. The set top box market is starting to open up. So there are a lot of new high-growth markets that are moving towards flash. So, it is clearly a question of how well everyone executes their manufacturing strategy. The history of Atmel's flash strategy has been in the EEPROM-based technology, the dual transistor cell, which was predominantly driven by their telecommunication customer base. In the past year and a half they have developed a single transistor cell flash with slightly less features but smaller die size that allows them to compete in some of the other market. The new products will be 1, 2, 4, and 8 meg.
Japan's phone business appears to be strengthening (the PHP market) and in Q4 they think their consumer business will be quite good. Taiwan is recovering from the over-inventory situation but they think the PC peripheral market should be quite strong in Q4. China continues to ramp quite rapidly especially in the smart card area. Europe is still a little weak principally because of the GSM phone business and the fact that they are not participating in a big way in the GSM market right now.
The company was asked about inventory levels in the distribution channel. Distribution inventories are probably running at about 3 months. They haven't seen a big change. It looks like inventories are finally starting to come down and they probably had a little bit of a build in the second quarter, particularly in EEPROMs. Most other product areas, they don't see a big inventory problem in the distribution channel except EEPROMs.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.
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Transmitted: 10/20/96 * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |