Earlier this month, Atmel Corp. (ATML) reported revenues of $284.5 million in its second quarter, up 5% sequentially but down 32% year over year.

Revenues reported in the quarter were negatively impacted by reduced demand resulting from the global economic weakness experienced in all electronic markets since the fourth quarter. In addition, reduced inventory levels held by distributors also resulted in low shipments levels compared to prior periods.

Gross margin declined to 32.3% from 35.1% in the previous quarter and 36.5% in the year-ago quarter, mainly due to a planned reduction in factory utilization in two of the company’s wafer fabrication facilities.

On a GAAP basis, net loss was $12.4 million or 3 cents per share, compared to a net income of $3.6 million or 1 cent per share in the previous quarter and a net loss of $4.9 million or 1 cent per share in the year-ago quarter. On a non-GAAP basis, the company reported a net loss of $0.6 million or a break-even per share, easily beating the Zacks Consensus Estimate of a loss of 5 cents per share.

Management stated that though visibility remains limited, order patterns are beginning to normalize across all product lines. The company expects revenues to grow by 4% – 8% sequentially in the third quarter. This implies revenue guidance within the range of $296 million and $307 million.

Atmel had earlier announced that it plans to dispose off its Application Specific Integrated Circuits (ASIC) business. This division is a leading provider of high-performance, customer-specific integrated circuits and security solutions to the industrial, military, aerospace and consumer markets. However, the business is no longer consistent with the company’s long-term strategy of building a micro-controller base company. Management is planning to transform Atmel into a microcontroller-based company, which it expects will improve the cost structure and unlock value.

Although there are a number of positives attesting to the potential benefits of Atmel’s ongoing restructuring program (selling non-core wafer fabrication operations, consolidating or eliminating numerous product lines and reducing the workforce by nearly 25%), it is not yet clear if these steps will be successfully implemented and lead to added investor value. While focusing at improving its cost structure, Atmel must struggle with price erosion in key product markets and face the challenges of manufacturing new products on advanced technologies.

The company competes with bigwigs like in LSI Corp. (LSI) and Microchip Technology Inc. (MCHP) in the IC market. With inventory correction almost over in the semiconductor industry, we expect margins to improve in the second half of 2009.

Based in San Jose, California, Atmel designs, develops, manufactures, and markets a range of semiconductor integrated circuits (IC) products for communication, consumer electronics, and the computer market.

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