AG Edwards report continued:
Regarding the rest of our discussion with Atmel's CEO, it is apparent that visibility is still very poor for Atmel and for the rest of the industry. Atmel does not expect the EPROM business, which was a major cause of the revenue falloff in Q298, to pick up in the foreseeable future, and the company is therefore, curtailing any further investment in capital and management resources in this area. The company is continuing its cost cutting program and will cut about 650 to 700 heads (mostly in Colorado Springs and France) by year end and expects to be profitable in the third quarter. Until we see signs of a recovery in the semiconductor market, we are not raising our hopes and continue to forecast a modest loss for the quarter. We expect to see the full effect (about $30 million in savings) of the cost reduction efforts during the fourth quarter.
George Perlegos spent quite a bit of time discussing Temic's silicon germanium capability, which is expected to eventually yield communications semiconductor devices that will operate at speeds up to 6 GHZ at 0.35 Micron (2 GHZ using the 0.5 Micron capability currently in production.) Right now, most communications devices operate in the 2 GHZ range with gallium arsenide, which is the maximum frequency for GAAS. Atmel's silicon germanium is 1/3 the cost of gallium arsenide and Atmel is one of very few companies with real production capability in Silicon Germanium. We believe Atmel currently has several design wins with large international telecom companies. However, the majority of these wins have not yet turned into production orders yet due to slow demand for consumer electronic products (such as cell phones), but the company does appear to be well positioned for a turn in the cycle. Atmel is targeting 20% net operating profit for Temic by Q498, which is up from break even in Q298.
What will it take to start the stock upward again? A better outlook for the semiconductor area and better financial results. We don't believe the stock will rebound substantially in the near term because of poor industry conditions, but we do believe that the company's product position has improved in the last six months and that Atmel will be well positioned when the market begins to rebound. Again, we are not expecting a bounce back until the fourth quarter, at the earliest, but we continue to believe that Atmel is undervalued a the current $10 level. We recommend that patient, aggressive investors with at least an 18 month time frame should consider Atmel as a small percentage of a well diversified portfolio. We would suggest that investors unwilling to wait at least 6 months invest their available funds outside the semiconductor sector.
-----------------------------------------------
I will post additional updates as they become available.
Greg J.
|
