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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Ex-INTCfan who wrote (31961)	2/26/2001 2:54:23 PM
From: im a survivor	Respond to of 65232

From Individual Investor: Research Analyst: Will Frankenhoff (2/26/01) Tech companies of all shapes and sizes have been absolutely crushed over the past 12 months, be they dead dot.coms (Pets.com comes to mind), formerly high-flying large-cap darlings like Nortel Networks (NYSE: NT) or industry stalwarts such as Microsoft (NASDAQ: MSFT) or Dell Computers (NASDAQ: DELL). The notoriously cyclical semiconductor industry has also taken it on the proverbial chin with the Philadelphia Semiconductor Index (SOX) falling approximately 37% in the past year, led by a 57% decline in Texas Instruments (NYSE: TXN) and a 47% drop in Intel Corp. (NASDAQ: INTC). While the ongoing carnage is painful to individual and institutional investors alike, the sheer magnitude of the decline has left a number of companies looking extremely attractive on a risk-reward basis. Atmel (NASDAQ: ATML), a major supplier of nonvolatile memory products, is one such company. Investors might think we're crazy for recommending a semiconductor company in the current environment but our feeling is that at a current price of $11.50 per share, Amtel represents a good investment given the company's recent performance, the bullish guidance given by management and its valuation. First, let's take a quick look at Atmel's performance. The company has now posted six consecutive quarters with top-line growth averaging better than 44% and earnings growth averaging better than 225%. In the most recent quarter ended December 31, 2000, Atmel reported record revenues of $574.3 million, 48% above last year's quarter and up 8% sequentially. This growth has been driven by strength in the SmartCard chip business (up 95% year-over-year and 50% sequentially) and flash-based microcontrollers. Earnings of $0.18 per diluted share represented a 125% increase over the $0.08 per share reported in the fourth quarter of 1999. Gross margins came in at 45%, up from 37.8% in last year's quarter and operating margins showed even better improvement at 23.1% compared with 14.6% a year ago. But in this market, it's not about how well a company has performed recently but what the outlook for business is like. Well, unlike many other semiconductor companies that have warned of slowing growth, including Motorola (NYSE: MOT), Texas Instruments (NYSE: TXN) and Applied Materials (NASDAQ: AMAT), Atmel's management team remains bullish on the company's prospects in 2001. The company expects revenue to grow between 3% to 6% sequentially in the first quarter of 2001 with R&D spending coming in around 11% of sales and SG&A expense at 9%, down 121 basis points and 70 basis points, respectively, sequentially. Throwing in management's expectations of $65 million in depreciation and about 498 million shares outstanding (up 2 million sequentially) and a tax rate of 36%, this equates to diluted earnings of approximately $0.18 per diluted share on estimated revenue of close to $600 million. If this guidance and our assumptions are correct (and we think they are considering the company already has 90% of the quarter's projected revenue already booked), this would represent top-line growth of 40% and earnings growth of 100%, quite impressive results. For the entire year, Atmel's management expects revenue to grow at a 35% clip driven by a pick up of sequential growth to better than 10% in the second half of the year. Gross margins are expected to increase to the 47%-48% range by the fourth quarter of 2001 as higher margin products such as SmartCard chips and microcontrollers make up a bigger percentage of sales. With R&D and SG&A expenditures expected each to represent 10% of sales, management expects that its operating margins will expand to 27% to 28%. Coupled with capital expenditures of $900 to $1 billion, an increase in share count of 4 to 8 million and depreciation of $360 to $370 million, earnings should come in around $0.86 per share to $0.88 per share (up 56% from 2000) on revenue of approximately $2.6 to $2.7 billion. Given the company's recent performance and this bullish forecast, we believe Atmel's valuation is extremely attractive as its shares currently trade at 14 times our conservative fiscal 2001 estimate of $0.86 per share. Also, the company has close to $2 per share in cash. Bottom Line: We realize that investors are skittish about technology companies at the present time. However, we believe that shares of Atmel have very little downside risk at current levels and serious upside potential. Even if we apply a 50% discount to its growth rate due to the current environment of uncertainty, shares of Atmel should trade at 27 times fiscal 2001 estimates of $0.86 per share, or $23, in the next twelve months.