Can This Stock “Touch” Glory?

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Not all smartphone component suppliers are riding smartphone growth successfully, a fact which is well represented by the year-to-date stock price performance of Atmel (NASDAQ: ATML). The maker of touchscreen microcontrollers has lost more than 40% so far this year, and seems like it isn’t going to do too well in the near-future either.

In its recently-reported third quarter, Atmel posted mixed results. The company saw a massive 25% drop in revenue from the year-ago period while the bottom line also took a body blow. To make things worse, Atmel’s outlook was far from satisfactory. The company expects a slight decline in revenue in the fourth quarter, projecting revenue between $328 million to $352 million. However, Atmel does have some drivers that can help it stage a turnaround.

A Series of Crucial Wins are Atmel’s Probable Catalysts

The company derives around 61% of its revenue by selling touchscreen microcontrollers, but it looks like they will take some time before powering Atmel higher. Atmel has recorded good design wins in the form of Amazon.com’s (NASDAQ: AMZN) 7” Kindle Fire HD and Microsoft’s (NASDAQ: MSFT) Surface Tablet. In addition, it has also won spots in some of Samsung’s phones.

Hence, we would have to wait for quite some time before Atmel’s customers can help it in rescuing its microcontroller business that declined 25% year-over-year, but has been improving on a sequential basis. While sequential improvement is a positive, the fact that Atmel is not supplying to the best selling tablet of the day, the Apple (NASDAQ: AAPL) iPad is certainly a point of concern.

But, it remains to be seen how Amazon’s latest offering would perform against the iPad mini and the Nexus 7, and the initial signs are a bit confusing. The Kindle Fire HD had its best day at the office after the launch of the iPad mini, suggesting that many were put off by the steep premium that Apple charged on the mini. However, Apple’s small tablet has probably got off to a strong start, and the holiday period will tell us how much water the Kindle Fire HD held in front of it.

Windows 8, Samsung, and Some More

The success of the Kindle will undoubtedly be important for Atmel, and so will the success of Microsoft’s Surface. It is expected that consumers looking for a cheap PC will instead opt for the Surface, and would drive sales. Initial sales of the Surface seem to be pointing in the right direction, and if Microsoft hits gold with the Surface down the line, Atmel would most probably experience great gains.

Atmel also saw an improvement in sales of tablets, e-readers and Ultrabooks after Windows 8 was launched by Microsoft. The company is counting a lot on Windows 8 to drive its future. Atmel is currently Windows 8 certified for around 20 tablets and Ultrabooks, and is partnering with companies such as Dell, Asus, Acer, Lenovo, and Sony among others.

And then, there’s Samsung. Atmel scored a design win in the Galaxy Note II, which sold 3 million units in 37 days. Apart from this, Atmel is supplying microcontrollers for the Galaxy Note 10.1 and the S III mini. These point towards a budding relationship with Samsung as all these products are recent design wins. Thus, Atmel is gradually increasing its presence in the Samsung camp.

But Atmel should find growth beyond mobile computing devices as well. The company expects home appliances to drive its growth as well. Atmel’s QTouch became the first to receive the Class C UL product certification, which is a standard used by most home appliance makers. In addition, XSense started shipping to customers in October and Atmel expects their sales to ramp up heavily later next year.

The Takeaway

Atmel has been knocked down heavily this year, but is displaying signs of a gradual turnaround in its main business. Its products are gaining traction at Samsung, and the company also stands to benefit from sales of the Surface and the Kindle Fire HD. With the stock trading pretty close to its 52-week low, it might not be a bad idea to pick up some Atmel for your portfolio, as it might turn out to be a good investment for the long-term.

If you are still skeptical, you can add Atmel to your Watchlist by clicking here for the latest news and analysis, and keep track of the company’s turnaround.

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TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, and Microsoft. Motley Fool newsletter services recommend Apple, Amazon.com, and Microsoft. 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.

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