Atmel Corp.’s (ATML) fiscal third-quarter revenues stood at $317.7 million, up 12% sequentially but down 21% year over year. The sequential growth was broad based. In particular, sales of microcontrollers grew 18% sequentially.

Gross margin declined to 31.1% from 32.3% in the previous quarter and 39.5% for the year-ago quarter, primarily due to a reduction in factory utilization at the two wafer fabrication facilities.

Loss per share of one cent was better than the Zacks Consensus Estimate of a loss of 2 cents .

During the quarter, the company generated $59.4 million of cash from operating activities. Atmel ended the quarter with cash and equivalents of $446.2 million, an increase of $26.8 million from the end of the prior quarter. Inventories decreased by $27 million to $190.8 million.

Going forward, management expects revenues will increase by 3% to 7% on a sequential basis. The company remains excited by the production release of its maXTouch(TM) products, a leading family of capacitive touchscreen controllers, which it stated are now being designed for use at top-tier OEMs.

Atmel is aggressively marketing its new maxTouchTM technology. Touch-sensing technology is the fastest growing area in Atmel’s microcontroller business and it is expected to remain a major growth driver in the coming quarters.

The company recently undertook a restructuring program wherein it disposed off its non-core wafer fabrication operations, consolidated or eliminated numerous product lines and reducing the workforce by nearly 25%.

Atmel also plans to dispose off its Application Specific Integrated Circuits (ASIC) business as management is planning to transform Atmel into a microcontroller-based company, which it expects will improve the cost structure and unlock value.

While focusing on 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. Nevertheless, with the inventory correction almost over in the semiconductor industry, we expect demand to pick up going forward.

However, given the sluggish nature of the company’s growth, our long-term recommendation for Atmel is Neutral.

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