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Microchip's (MCHP) Bid for CSR Puts Atmel (ATML) In Play - Needham & Company

August 29, 2014 6:55 AM EDT
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Price: $8.14 --0%

Rating Summary:
    9 Buy, 9 Hold, 1 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 20 | Down: 14 | New: 22
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Needham & Company analyst Rajvindra Gill said Microchip Technology's (NASDAQ: MCHP) bid for CSR bolsters Atmel's (NASDAQ: ATML) position in IoT and as a potential acquisition candidate.

Gill commented, "MCHP's bid to acquire CSR yesterday (possibly for $3BN or ~3x EV/sales) represents the most recent in a string of acquisitions that have taken place in the semiconductor market spanning the past 12-24 months. The majority of the M&A activity has occurred in the small-cap and mid-cap segments in semis with bid premiums in the range of 30-60%. Given the favorable interest rate environment, relatively reasonable valuations and positive industry conditions, we expect additional M&A. We think that, given ongoing consolidation in the sector, ATML, among others (e.g., CODE, SIMG, OVTI, ISSI, ENTR, SIMO) could represent a compelling and relatively inexpensive acquisition (trading at 11x P/E ex-cash, 2x EV/sales on 2015 estimates). ATML has an excellent MCU portfolio of 8-bit and 32-bit products (72% of sales, non-touch MCUs account for ~50% of sales) in our view and is the fifth largest supplier of 8-bit and 32-bit MCUs, according to Gartner, with 10% and 6% market share, respectively. More importantly, in our opinion AMTL has been acquiring the right building blocks, specifically in connectivity (acquisitions of Newport Media, Ozmo), to compete effectively in the nascent IoT market. We think there are opportunities for a potential acquirer to divest some non-core assets, such as memory or ASIC, and glean significant manufacturing and operational synergies."

Potential acquirers could range from large-cap cellular modem/application companies (QCOM, MRVL), handset OEMs (Samsung), microprocessors (INTC) or large-cap analog/MCU (TXN, LLTC, ADI, MXM, STM, MCHP, FSL).

The firm maintained a Buy rating and price target of $10 on ATML.

For an analyst ratings summary and ratings history on Atmel click here. For more ratings news on Atmel click here.

Shares of Atmel closed at $8.58 yesterday.



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