Give a Thought to this Distressed Chipmaker, it Might Bounce Back
Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There are a number of companies, suppliers of components to be precise, riding this smartphone and tablet revolution. But some are finding the ride easy while for some, it has been a rocky one. The fate of these component suppliers depends on which camp they belong to.
On one side, we have the likes of Cirrus Logic (NASDAQ: CRUS), a manufacturer of audio chips which recently blazed the Street with its astronomical guidance. Cirrus supplies audio codecs to none other than Apple (NASDAQ: AAPL), which is its largest customer. Around, two-thirds of Cirrus’ top line is made up of Apple’s purchases, and with the next version of the iPhone a stone’s throw away, Cirrus expects an 80% jump in revenue in the next quarter. Apple’s millions of iPhones and iPads have driven Cirrus towards the sky this year, a trend which looks more or less set to continue as Apple readies the next iteration of the iPhone for launch.
Not quite lucky!
But all are not lucky, especially those who don’t count the Cupertino-based giant on their client rolls. One such company is Atmel (NASDAQ: ATML), which recently posted a mixed quarter and sounded out a disappointing outlook. Atmel primarily makes microcontrollers, nonvolatile memories and radio frequency (RF) components. However, the microcontroller business is the one which deserves special attention as it makes most of the money for Atmel.
The company supplies its touchscreen controllers to a number of non-Apple devices. Its notable customers are Amazon (NASDAQ: AMZN), Samsung, HTC, and Motorola, among others. The company’s chips have been used in the Kindle Fire, which was once second on the podium in the tablet race, and Samsung’s Galaxy Note and the 7.7-inch Galaxy Tab. While these haven’t been as remotely successful as Apple’s iPad or the iPhone so far, one shouldn’t simply ignore Atmel on this ground.
Atmel has found its way inside devices made by a plethora of manufacturers. They range from the ones mentioned earlier to Lenovo, Acer, Toshiba, Nokia, Fujitsu, Huawei and others. These names might not be fancy, but this demonstrates Atmel’s cutting-edge technology being adopted by a wide range of customers. Its technology is indeed worth noting. Take a look at XSense for example, which is a flexible and thin touch sensor that can help device makers eliminate the bezel from the devices altogether.
Now, when you have the capability of making such products, you can expect customers to come to you in due course. Its growing ties with Samsung can be cited as an example as Atmel once again featured in a number of phones by the Korean giant. Although these aren’t as well known as the Galaxy, Atmel certainly has the required technology to catapult itself to the next level.
Moreover, a design win in the next version of the Kindle Fire might also help Atmel see better days. The rumor mill has it that Atmel might possibly win the touchscreen controller spot in the Amazon’s next installment of its 7-inch tablet, which the online retailer is expected to launch this year. Also, Atmel is counting on Microsoft’s Windows 8. Atmel CEO Steven Laub says that Windows 8 is “built for Touch,” and we all know that. As we see more touchscreen-enabled devices, including laptops, Ultrabooks and notebook computers, Atmel’s addressable market will receive a huge boost.
Atmel has “been working closely with them (i.e. Microsoft) and leading PC OEMs in preparation for the Windows 8 launch,” in the words of the CEO Laub. The company has an engineering partnership with Microsoft for Touch and Windows 8, which would probably act as a tailwind going forward.
The bottom line
Atmel might have disappointed with its outlook and stock performance so far this year. However, its big list of clients, budding ties with Apple’s arch-nemesis, the next Kindle Fire, and Windows 8 are growth drivers that I’m counting on. The stock trades at a huge discount when compared to the industry average and the company has some strong catalysts going forward, which simply can’t and shouldn’t be ignored. In such circumstances, you might think of getting some Atmel for your portfolio.
TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, and Cirrus Logic. Motley Fool newsletter services recommend Amazon.com and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.