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Is This Chipmaker A Buy?

March 24, 2014 | About:
Vinay Singh

vinaysingh

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Touchscreen controller maker Atmel (ATML) has been very popular and profitable for investors in the last few months. Let us take a closer look at the company’s prospects and see where it stands.

The company primarily supplies its touchscreen controllers to Apple iPad rivals such as Samsung, HTC and Nokia and was on a song, seeing its revenue climb for ten consecutive quarters.

Impressive moves

Atmel’s maXTouch touchscreen controllers are seeing rapid growth. These touchscreen controllers are the foremost reason which provides me with hope that Atmel can script a turnaround story in coming months. Atmel’s engineers are pushing the maXTouch line of products pretty hard and the results are quite impressive. These controllers will be found across Samsung’s phones.

In addition, the company reported that it had added another smartphone maker to its clientele in the form of LG along with others in the Korean and the Japanese market. Furthermore, Atmel is taking huge strides in China, one of the fastest growing mobile markets in the world, and has added customers such as ZTE, Xiaomi and OPPO Electronics among others.

And the story of the company’s prospects doesn’t end here. Its partnership with Microsoft (MSFT) for Windows 8 based tablets, convertible PCs and Ultrabooks could see Atmel record some good gains when these products are launched and find momentum among consumers. From a venture with NVIDIA for developing Tegra designs for Android Ice Cream Sandwich devices to supplying Sony with touchscreen controllers for the Playstation, Atmel seemingly has a brilliant lineup to show for.

The company derives almost two-thirds of its revenue from its microcontroller business, and it seems like this business is finally turning around. Atmel had waited for a long, long time for Android tablets to succeed. However, as Apple’s iPad was the dominant force in this sector, Atmel failed to record significant gains. However, that wasn’t the end of the world and Atmel started looking at other avenues.

If Apple wasn’t a possibility, Atmel worked its way inside its challenger, landing a design win in the Samsung Galaxy S4. It supplies the sensor hub to Samsung’s flagship.

Thus, Atmel is now finally placing content inside a popular device and its relationship with Samsung seems to be budding as it had also supplied the sensor for the popular Galaxy Note II. Going forward, the company says that it has multiple design wins with Samsung, and is also poised to spread its wings in the rapidly growing Chinese smartphone market through product placements inside ZTE and Xiaomi’s phones. And also, it should be noted that Atmel is a supplier to Amazon for the latest Kindle Fire, which is one of the most successful Android tablets.

Microsoft as a catalyst

But Atmel hasn’t stopped here. The company has further expanded its addressable market by adding Microsoft Windows 8-powered touch devices. While this might evoke mixed reactions, it should be kept in mind that this is an addition to Atmel’s business and the declining sales of PCs shouldn’t be brought up in this context. Atmel has a wide presence inside Windows 8 devices, as it is certified for “70 different tablets and Ultrabooks” and is involved in more than a 100 other Windows 8 programs.

Atmel accepts the fact that initial sales of Windows 8 have been slow. However, it expects that the introduction of Haswell chips from Intel will lead to better sales of large touchscreens in the second half of the year. Moreover, Atmel could look forward to the second generation of the Microsoft Surface as another revenue driver. While the previous Surface couldn’t do much in terms of sales, it still made up for half of Windows 8 devices sold.

Conclusion

Atmel has a strong order backlog and it expects better times going ahead. Its gross margin is expected to get better as well. Thus, the stock might head higher in the future.


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