SAN FRANCISCO—A Wall Street analyst Monday (Aug. 8) upgraded his firm's rating on Atmel Corp.'s stock while simultaneously downgrading Texas Instruments Inc., citing Atmel's broad microcontroller product line and stockpile of cash on hand.
Craig Berger, an analyst with FBR Capital markets, upgraded his firm's rating on Atmel 's stock to "outperform" from "market perform." Berger simultaneously cut his rating on TI's stock to "market perform" from "outperform."
"While some may question the wisdom of exiting a defensive stock like [TI] too soon (before the market decline has ended), we note that [TI] actually is taking on debt to finance its now seemingly expensive National acquisition, making it less 'safe' than it was before," Berger wrote in a report circulated Monday. "Atmel is a relatively 'safe' stock too given its $450M of net cash on hand, no debt, high margins, and improving cash generation abilities."
TI announced in April it would acquire rival National Semiconductor Corp. for about $6.5 billion. The company has subsequently said it has obtained regulatory approval from all countries except China, where the company is still working to secure approval. TI expects the National acquisition to close by the end of the year.
Berger said FBR believes that Atmel's stock will have more upside than TI's once chip stocks move higher early next month. Berger said FBR likes Atmel's broad based microcontroller portfolio, AVR architecture, increasing R&D investments and the market position of its maXTouch line of touch screen controllers.
"We think the firm has technology leadership, and think Atmel can continue to grow maXTouch into a sizable business in coming years as it drives growth beyond smartphones into feature phones, non-Apple tablets, digital cameras, printers, game consoles, industrial applications, white goods and others," Berger wrote. "While touchscreen competition is growing, this should be a sizable and broad-based market."
Berger said FBR remains optimistic about Atmel's ability to grow its 32-bit microcontroller business.
In a separate report, Berger said FBR is not bearish on TI's business or stock prospects, but that believes Atmel's stock offers a better risk/reward proposition.
"We still see some industrial ship-ahead risks for TI and other industrial-exposed chip firms (including Atmel) that could still weigh upon sales and gross margins in 2H11 as take-rates and inventories are adjusted lower," Berger wrote.
FBR maintains a price target for TI's stock of $36 and a price target for Atmel's stock of $17. TI traded at $26.29 Monday afternoon, down 3 percent from Friday's close, while Atmel traded at $9.31, down 5 percent from Friday's close.