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(B)(N) ATML Atmel Corporation

October 27, 2013

Drama. Atmel Corporation is stepping up to the earnings plate next week. The company manufacturers custom-designed microprocessors in every power range from low to high that drive consumer and industrial products such as touch-screens, wireless communications, security and smart-energy devices. It’s a $3 billion company by market value with revenues of about $1.5 billion per year.

MaxtouchT Series

MaxtouchT Series
Courtesy: Atmel Corporation

Its stock price – like its products – is also managed by a “Power Law”, [SF] = [P/E] × EPS, and earnings per share (EPS) of $0.30 per share will support the current stock price of $6; EPS of less will likely have small effect, unless really “less”; and earnings of more or the promise of more will likely boost the stock price, possibly to $8 or more for reasons that we’ll explain below.

It’s not “quantum mechanics” but it makes sense to investors. (Please see our recent Post, Lumber Liquidators, for additional information.)

3d human with a red question mark

The Power Law
[SF] = [P/E] x EPS

It also makes sense to us in more than one way and we also like simple rules when we can find them because we then know when a “situation” is less simple and we might have to work a bit harder to appreciate it.

The Power Law

The Power Law
Courtesy: Atmel Corporation

Moreover, with remarkable candor and concern for its investors, Atmel supports this information on its website as well as a great deal more because the company seems to really care about its stock price and who its investors are.

And all of this is very refreshing in a world that often seems to be dominated by buccaneers, pirates and bushwhackers. For example, based on the consensus earnings expectations (please see the chart on the left), analysts expect earnings of $0.29 per share which would suggest a [P/E]-multiple of 22.50× which we prefer to think of as a 4.4% yield on the stock price, similar to the yield on a discounted bond. On the other hand, if the company delivers expected earnings per share of $0.58 next year (in 2014), the yield increases to 8.8% if the stock price remains the same at $6. Hence, we should expect the stock price to increase so that the yield remains within the domain of the ordinary and not the extraordinary. QED.

Certain other information is helpful. The company is still 30% owned by just four institutional investors, two of whom have lightened up considerably and one who has taken the load, and 50% owned by just ten. The price of risk is currently $8 and steady (please see Exhibit 1 below, Black line) and above the ambient stock prices of $6 to $7, a situation that could change this week.

The company does not pay a dividend so that investors can only make money from a rising stock price which, as we have indicated, hopes for increasing earnings per share. Our estimate of the downside in the stock price due to the demonstrated volatility is minus ($1) per share so that we would expect the company’s stock to trade from the current $7 to between $6 and $8 without surprise.

Exhibit 1: (B)(N) ATML Atmel Corporation – Risk Price Chart

(B)(N) ATML Atmel Corporation

(B)(N) ATML Atmel Corporation

Atmel Corporation designs, develops and supplies microcontrollers, which are self-contained computers-on-a-chip.

(Please Click on the Chart to make it larger if required.)

From the Company: Atmel Corporation designs, develops, manufactures, and sells semiconductor integrated circuit (IC) products. The company’s Microcontrollers segment provides various proprietary and non-proprietary solutions, such as Atmel’s capacitive touch products, including maXTouch and QTouch, AVR 8-bit and 32-bit products, ARM-based products, Atmel’s 8051 8-bit products, as well as XSense products. Its Nonvolatile Memories segment offers serial interface electrically erasable programmable read-only memory, and electrically erasable programmable read-only and erasable programmable read-only memory devices; and products for military and aerospace applications. The company’s Radio Frequency and Automotive segment provides automotive electronics, as well as wireless and wired devices for industrial, consumer, and automotive applications. This segment also offers foundry services. Its Application Specific Integrated Circuit segment provides custom application specific ICs designed to meet specialized single-customer requirements of high performance devices in a range of specific applications. This segment provides hardware security for embedded digital systems; and products for military and aerospace applications, as well as develops application specific standard products for space applications, power management, and secure crypto memory products. The company sells its products directly, as well as through distributors to original equipment manufacturers. It has operations in the United States, Asia, Europe, South Africa, and Central and South America. Atmel Corporation was founded in 1984, has 5,000 employees and is headquartered in San Jose, California.

For more information on the Chart Elements, please see our recent Post, The RiskWerk Company Glossary.

For more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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