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Technology Stocks : Atmel - the trend is about to change -- Ignore unavailable to you. Want to Upgrade?

To: Mang Cheng who wrote (8553)	7/1/1998 11:42:00 PM
From: Greg Jenkins	Respond to of 13565

Here is the latest form A G Edwards and Sons: 7-1-98 Q298 Below expectations; reiterating buy on price, restructuring after the market closed on Tuesday. Atmel announced that it would fall short of the street's expectations and begin a corporate restructuring to better align its cost structure with industry conditions. The news of the shortfall is very disappointing, as we were expecting the company to earn $0.20-0.21 for the quarter. However, high turns business characterized the quarter, visibility was poor and EPROM sales basically fell off a cliff in the second half of June. In addition, flash memory is beginning to see price pressure rear its ugly head again, which is bound to pressure sales growth going forward. The only good news to be found here is that the company continues to make progress toward transitioning its product line to more proprietary, higher margin itergrated microcontrollers, and every product line except EPROM, was up sequentially. This suggests to us that the EPROM shortfall was approximately $25 million. As flash pricing has come down so much over the last few quarters, disk drive and modem manufacturers are now using flash as a replacement for EPROM, but unfortunately ATMEL has not been winning all of these EPROM sockets. Top line revenue growth is now expected to be about 10-12% for the second quarter. We are now expecting revenues in the neighborhood of $285 million to $290 million, where we had previously been expecting $312 million. Gross margin, which was 37% in the first quarter of 1998 will probably be close to 27% in the second quarter compared to our estimate of a flat gross margin. Due to the high fixed cost nature of the business, gross margin is extremely sensitive to revenue growth, on the upside and on the downside. In this case, because the company's infrastructure had been built for higher revenue , the shortfall puts extreme pressure on earnings. For the second half we are going to assume a very conservative gross margin and 10% revenue growth each quarter. While we had been expecting Q298 to be the most challenging quarter of the year, the rapid falloff in EPROM was a surprise and we have concerns that ATMEL will be able to fill the void in the near term, especially considering the poor state of the industry. Continued on next post.

To: Mang Cheng who wrote (8553)	7/1/1998 11:53:00 PM
From: Greg Jenkins	Read Replies (3) \| Respond to of 13565

A G Ewards and Sons (continued) To better align its cost with slow industry conditions, ATMEL also disclosed that it would take a $70 million restructuring charge in the second quarter, related exclusively to 10% headcount reduction (650 people) and the write down of old FAB capacity (anything over 0.5 micron). More specifically, the company will be shutting down its 0.5 micron and greater lines in Colorado Springs and converting most of the remaining 0.5 micron capacity to 0.35 micron and 0.25 micron production. The company expects to realize $30 million in quarterly cost savings from these efforts by the end of 1998. Therefore, we expect the majority of the gross margin improvement to be realized in 1999. Looking into the rest of this year and next, we are pulling our estimates down significantly and lowering our 12-18 month price objective to $20 from $30. While we had prevously been expecting ATMEL to pull out of the industry slump due to it's precsence in the rapidly growing communications and consumer electronics markets, we now are tempering our enthusiasm until the market as a whole shows improvement which we believe will happen in 1999. With the announced restructuring and corresponding cost savings, we believe that ATMEL will be will positioned when the industry begins to improve. At this point, we believe ATMEL represents a good value. However, we don't believe this value is likely to be realized until the semiconductor environment begins to improve, probably during the fourth quarter at best. We would exercise caution when considering averaging down, because the current operating environment is still very uncertain. -------------------------------------------------------------------- Just thought everyone may be interested in this opinion. Greg J.