Chipmaker Atmel (NASDAQ:ATML) has enjoyed a resurgence of sorts since the past three months. Despite a mixed performance of Atmel in its last reported Q3 its shares have gained close to 25% primarily due to an increase in the share repurchase program. Atmel investors were excited by the company announcement of adding $300 million to its stock repurchase authorization, and this actually shadowed its mixed quarterly performance.
The expected jump in sales of Microsoft’s Windows 8- and Windows 8.1-based devices increases the probability that Atmel could turn in a positive outlook for the year. In addition, the increasing sales of Android-based tablets, especially by Samsung, could be another driver for Atmel.
The aggressive share repurchase program of Atmel ensures that the company is seeing bottom-line growth. At the end of quarter three, its total repurchase authorization was at $1 billion. However, investors might be expecting organic earnings growth and a pick-up in revenue from Atmel since it supplies chips for consumer electronics devices.
- Warning! GuruFocus has detected 5 Warning Signs with ATML. Click here to check it out.
- ATML 15-Year Financial Data
- The intrinsic value of ATML
- Peter Lynch Chart of ATML
Prospects in the Market
Atmel primarily sells microcontrollers, which account for around 63% of its revenue. Various touchscreen applications, including smartphones, tablets and personal computers use these microcontrollers. Now, Atmel expects some positive developments in the end markets that could drive its revenue higher in the future.
Atmel has extremely high expectations with the Internet of Things. This could be a big boon in the future as it claims to have the most complete portfolio of IoT technologies. Atmel targets at markets such as home and building automation, industrial machine to machine communications, wearable technology, etc., for driving IoT growth. According to IDC, Internet of Things is expected to be worth $8.9 trillion in 2020, so Atmel definitely has huge opportunity in this market going forward.
Going forward, Atmel is also optimistic about touchscreen-based PCs gaining momentum. Atmel forecasts that Microsoft's Windows 8.1 software will lead to stronger demand for touch-based Windows PCs. Also, Atmel is supplying its MaXTouch touchscreen controller for Microsoft’s Surface Pro 2 and Surface RT devices. The re-bounce in the Sales of these two devices is good news for Atmel.
A solid outlook for the ongoing quarter could be attributed to the pick-up in the sales of the Surface devices. In addition, Atmel can take advantage from the fact that tablets powered by Android have gained good ground of late, especially Samsung. According to IDC, Samsung’s tablet shipments grew almost 86% year over year, catapulting it to second place in the tablet market with 18.8% share.
Samsung’s tablets such as the latest Galaxy Note 10.1 is the main driving factor for Atmel as it provides components to the electronics major. Moreover, Atmel has also entered into a partnership with Xiaomi to provide its controller for the Mi3 smartphone. This particular smartphone is hugely popular in China, selling 100,000 units in just 86 seconds after launch, then 220,000 smartphones in three minutes, and then again 150,000 units in a 10-minute flash sale.
Finally, it can be said that Atmel is on the right track as far as clients are concerned, so the company might demonstrate a better performance this year as compared to 2013. Going forward, an increase in sales of Windows and Android tablets, along with the increasing applications of the Internet of Things are good signs for Atmel that makes it a good long-term bet.