Chipmaker Atmel Looks Like a Sound Long-Term Bet

A strong product portfolio and important customers can take Atmel to new highs.

Apr 15, 2014 at 9:00PM

Semiconductor company Atmel (NASDAQ:ATML) is primarily known for its microcontrollers that are used in various touchscreen applications. The company's chips are used in Microsoft (NASDAQ:MSFT) and Samsung's (NASDAQOTH:SSNLF) products, which is why it has a big market to tap into on the back of growth in mobile devices and Windows 8.1 systems. 

Atmel has been continually upgrading its product portfolio. It has recorded a number of design wins and certifications to strengthen its chances of benefiting from different opportunities going forward. Let's take a look at how the company is positioned and if it is a good long-term investment.

A strong product portfolio
Atmel has increased its market share in the core microcontroller business, achieving strong momentum with its new products. The introduction of a record number of new 32-bit core microcontroller products has helped Atmel strengthen its position in the market.

Atmel's new touch product portfolio, including the new T series of touchscreen controllers, should enable it to benefit from large-screen applications and gain market share in smartphones and small to mid-sized tablets. Also, Atmel's XSense metal mesh sensors are now in volume production and are being shipped to multiple customers, including Tier 1 OEMs such as HP and Asus. 

Atmel is focused on making its products more efficient. For example, its new SAMA5D3 devices are small and can take higher temperatures while maintaining a high level of performance and low-power operations. The device is used in industrial applications, including home and building automation, medical electronics, and consumer applications.

Atmel's latest ARM Cortex-M4-based microcontrollers combine high performance and ultra-low power in a small form factor. The company is targeting battery-powered consumer applications such as smartphones, tablets, and ultrabooks, along with wearables and audio devices with these solutions. Further, Atmel has expanded its sensor partner program with the addition of Hillcrest Labs to develop turnkey sensor hub solutions to drive demand in the smartphone category.

Key customers to drive growth
Atmel had recorded a key design win in mobile devices last year with Samsung. The company provided its microcontroller for the Galaxy S4 Mini. This year, Samsung plans to release a mini version of its latest Galaxy S5 phone as well. Given that Atmel provides cheap and low-power components, it might win a spot in the Galaxy S5 Mini this year since it is a cheaper device.

In addition, Samsung's growing clout in the tablet market should also help Atmel benefit from growth in tablet shipments. According to ZDNet, Samsung's worldwide tablet market share in the first quarter increased to 23%, with the company shipping 14 million tablets. Samsung is targeting both emerging markets and developed countries with its tablet portfolio this year, and it aims to become the market leader by overtaking Apple. This is great news for a Samsung supplier such as Atmel.

On the other hand, in the large-screen windows device market, Atmel is actively engaged in well over 225 different Windows 8 and Windows 8.1 programs. It has won multiple designs and is expanding its presence in the tablet market, driven by the superior performance of its new T series products.

Atmel had supplied the two chips for Microsoft's Surface 2 tablet. This could be a big boost for Atmel since Microsoft's Surface sales had more than doubled on a sequential basis last quarter. The Windows tablet raked in $893 million in sales in the holiday season.  

The sharp uptick in Surface sales is a positive indicator for Microsoft, and the same can be said about Atmel. In addition, since support for Windows XP devices has been ended, and the Windows 8.1 operating system is gradually gaining momentum, Atmel can expect a boost in sales of touchscreen computing systems. 

Bottom line
Atmel has a lot of good stuff going for it. The company's new products are gaining momentum, and the growth in sales of customers such as Samsung and Microsoft should help expand its addressable market. The stock might have underperformed the NASDAQ index in the last year, with gains of just 17%, but it still looks like a good investment considering the prospects. 

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Ayush Singh has no position in any stocks mentioned. The Motley Fool owns shares of 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.

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