Atmel Corp. Q4 2008 Earnings Call Transcript

Atmel Corp. (ATML) , Q4 2008 Earnings Call ,January 5, 2009, 5:00 pm ET

Executives

Robert Pursel - Director of IR

Steve Laub - President and CEO

Stephen Cumming - VP of Finance and CFO

Analysts

Craig Hettenbach - Goldman Sachs

Steve Eliscu – UBS

Kevin Rottinghaus - Cleveland Research

Hans Mosesmann - Raymond James

Edwin Mok - Needham

Suji De Silva - Kaufman Brothers

Pick Hover - FBR Capital Markets

Doug Freedman - BPSG

Presentation

Operator :

At this time, I would like to welcome everyone to the Atmel Fourth Quarter and Fiscal Year 2008 Conference Call. All lines have been place on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions)

Thank you. Mr. Pursel, you may begin your conference.

Robert Pursel

Thank you. Good afternoon and thank you for joining us for Atmel's conference call. In addition to our fourth quarter earnings release, Atmel also had announced that it is pursuing strategic alternatives to the company’s ASIC business and related manufacturing assets. Copies of the press release issued today are available on our website. A 48 hour telephone replay of this call will be after 5:00 PM today, Pacific Time.

The replay phone numbers are 800-642-1687 in the US and 706-645-9291 for all other locations. The access code is 81448211. The webcast will be archived on the Atmel website for one year.

Joining us on the call today are Steve Laub, Atmel's President and CEO; and Stephen Cumming, Vice President of Finance and Chief Financial Officer. Stephen will begin the call with a review of our Q4 financial results and Steve will then provide a business update. At the conclusion of Steve’s remarks, Stephen will discuss our internal financial targets for the first quarter of 2009 and then open the call for your questions.

During the course of this conference call, we may make forward-looking statements about Atmel's business outlook, including statements regarding our expectation for revenues, target growth and operating margins, as well as cost savings for 2009 and beyond. Our forward-looking statement and all other statements that are not historical facts reflect our belief and predictions as of today and therefore are subject to risks and uncertainties, as described in the Safe Harbor discussions found in today's press release.

During the call we will also discuss non-GAAP financial measures. The non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's press release.

I would now like to turn the call over to Steven Cumming for a discussion of our fourth quarter financial result. Stephen?

Stephen Cumming

Thank you, Robert. Let me provide some details of our statement of operations. Revenues for the fourth quarter of 2008 were $335 million, a 16% decrease compared to $400 million for the third quarter of 2008 and a 21% decrease compared to the $426 million for the fourth quarter ended December 31, 2007.

Revenues for 2008 were $1.57 billion compared to $1.64 billion for 2007 and were impacted by the slowdown in demand, particularly of non-volatile memory and automotive product shipments in the fourth quarter. Also during 2008, Atmel exited the RF-CDMA foundry business, which resulted in a revenue decline of approximately $50 million from 2007.

Gross profit, as a percent of revenue was 39.7% for the fourth quarter of 2008. This compares to gross profit of 39.5% in the third quarter of 2008 and 35.2% for the year-ago quarter. Included in the gross profit for the fourth quarter, was a one-time pension related benefit of approximately $4 million from the sale of our Heilbronn fab.

For the full-year 2008 gross profit was 37.7%, a 230 basis point improvement over the 35.4% reported for 2007. The improvements to gross profit have been primarily driven by our strategic restructuring initiatives, which included the closure of our North Tyneside fab, processing cost improvements in our Rousset fab and a stronger mix of higher margin microcontroller and other core products.

R&D expense was $62 million for the fourth quarter. This was $2 million less than $64 million for the third quarter and $10 million lower than the $72 million reported for the year ago period. The sequential decrease in R&D spending resulted primarily from stricter controls over our discretionary spending and a favorable dollar to Euro exchange rate.

SG&A expense was $77 million for the fourth quarter. This was an increase of $13 million compared to the $64 million for the third quarter and a $19 million increase compared to the $58 million for the year ago quarter.

SG&A expense was up in the fourth quarter to primarily to a bad debt provision of approximately $12 million that we took for an Asian distributor write-off, as well as unanticipated one time legal settlements and unsolicited M&A expenses. Excluding these one-time charges SG&A expenses would have been $61 million, $3 million less than the prior quarter.

Stock based compensation expense was $9 million for the fourth quarter of 2008 compared to $7 million for the third quarter and $5 million for the year ago quarter. For the full year 2008 stock based compensation was $29 million compared to $17 million for 2007.

Operating loss was $18.2 million for the fourth quarter of 2008 or 5% of revenue. This compares to an operating loss of $11.3 million for the third quarter of 2008 and an operating profit of $6.4 million for the fourth quarter of 2007.

Included in the fourth quarter 2008, operating loss was $12.2 million of net charges related to restructuring gain on loss of assets, acquisition and grant repayments. For the full year 2008, operating loss was $13.9 million compared to operating profit of $51.7 million reported for 2007.

Included in the full year operating results were net charges of $71 million for 2008 and $13.6 million for 2007, respectively, related to restructuring asset impairments acquisition gain on sale of assets and grant repayments.