Note: This Report Contains Substantially New Material. Subsequent Reports Will Have Changes

7 July 10, 2007 Research Associate: Priti Dhanuka,M.Fin.,M.Com. Zacks Research Digest Editor: Jyoti Lakhotia, Rahul Bagri M.Fin. [email protected] Sr.Editor: Ian Madsen CFA: [email protected]: 1-800-767-3771:x9417

www.zackspro.com 111 N. Canal Street, Suite 1101 Chicago, IL 60606 Atmel Corporation (ATML-NASDAQ) $5.74 Note: This report contains substantially new material. Subsequent reports will have changes highlighted.

Reason for Report: 1Q07 Results. Previous Edition: June 15, 2007

Recent Events-Summary

July 09: ATML announced the industry’s first 128K-bit Serial EEPROM device.

June 27: ATML reported full financial results for 1Q07.

June 12: ATML announced the availability of the highly integrated AM/FM antenna amplifier IC ATR4251.

April 16: Atmel’s largest individual shareholder and former Chief Executive proposed the semiconductor maker to bring in a new board, hire a new CEO and buy back up to $1.0 billion worth of shares.

Overview

Analysts have identified the following investment merits and drawbacks for ATML:

Key Positive Arguments Key Negative Arguments Technology advancement: Atmel has broadened its Currency fluctuations: Atmel is prone to currency technology focus by developing expertise in designing fluctuations from international sales. and manufacturing high frequency RF products. Cost cutting: Atmel has undertaken cost-cutting Competitive threats: Analysts believe Atmel measures in order to streamline its cost structure. operates in an intensely competitive market as the Analysts believe this will improve operating margins. industry is marked by rapid technological change, evolving standards, short product life cycles, and decreasing prices. Capacity expansion: Atmel expects to utilize outside Inventories pile-up: Pricing pressure and continued foundries to expand capacity in the future. Also, the inventories are expected to plague the business in Company expects to enter into strategic alliances through the near future. 2007.

California-based Atmel Corporation (ATML or the Company) designs, develops, manufactures, and sells integrated circuit (IC) products. ATML develops and commercializes non-volatile memory that continues to store information after power is turned off. Atmel combines non-volatile memory with microcontrollers, digital signal processors, and other logic to meet the needs of its customers. These complex, system-on- a-chip solutions for various markets are manufactured with multiple process technologies, including

© Copyright 2007, Zacks Investment Research. All Rights Reserved. complementary metal oxide semiconductor (CMOS), double-diffused metal oxide semiconductor, logic, CMOS logic, bipolar, bipolar CMOS (BiCMOS), silicon germanium (SiGe), SiGe BiCMOS, analog, bipolar double-diffused CMOS, and radiation-tolerant process technologies. More information can be found at the Company’s website: www.atmel.com .

NOTE: The Company’s fiscal year coincides with the calendar year end.

Recent Events-Details

On July 09, 2007, ATML announced the industry’s first 128K-bit Serial EEPROM device in an 8-pin ultra thin MLP (2 x 3mm) leadless package with overall height of 0.60mm.

On June 27, 2007, ATML reported full financial results for 1Q07. Total revenue was $391.3 million, down 2.0% y/y and 4.0% sequentially. The GAAP net income was $28.9 million or $0.06 per diluted share, including a tax benefit of $15.0 million.

On June 12, 2007, ATML announced the availability of the highly integrated AM/FM antenna amplifier IC ATR4251, which enables outstanding AM/FM car-radio reception when used with designer antennas, such as windshield, roof, or bumper antennas. The ATR4251's impedance matching amplifier helps to compensate for signal losses resulting from the smaller dimensions of modern antennas and the longer cables to the car radio.

On April 16, 2007, Atmel’s largest individual shareholder and former Chief Executive proposed the semiconductor maker to bring in a new board, hire a new CEO and buy back up to $1.0 billion worth of shares. Atmel is due to hold its annual meeting on July 25, 2007.

Revenue

In 1Q07, total revenue as compiled by the Zacks Digest was $391.2 million, down 10.4% y/y and 4.3% sequentially.

ATML reported 1Q07 total revenue (excluding Grenoble) of $391.3 million (approximately in line with the Zacks Digest report), down 2.0% versus $400.8 million (as restated) in 1Q06, and 4.0% versus $408.9 million reported in 4Q06. The revenue results surpassed the consensus estimate of $384.7 million. According to management, revenue in the first quarter achieved the high end of the guidance as business continued to strengthen throughout the period, especially for proprietary products.

According to analysts, microcontroller revenue (comprising 27.5% of revenue) was up 9.0% sequentially and 19.0% y/y, driven by the proprietary AVR microcontroller products, which grew 17.0% sequentially. The microcontroller revenue was offset by weakness in the RF and Automotive business (comprising 22.1% of revenue), which was down 4.0% sequentially. Further, ASICs (comprising 28.4% of revenue) were also down 13.0% sequentially, and Memory (comprising 22.0% of revenue) was down 7.0% sequentially. According to one analyst (Wedbush), growth drivers by end market included Industrial, Auto, Communication, and Smart Battery Applications.

Outlook

The Company anticipates second quarter 2007 revenue to be up 1.0% to 4.0% on a sequential basis.

Management expects AVR to be one of ATML's primary revenue contributors in 2Q07, and throughout 2007 as well. AVR 8 bit products have applications in the Industrial, Automotive, and Handheld device end-markets. In 2008, as 32 bit products are introduced, these will have applications more geared toward the Multimedia end-market.

Zacks Investment Research Page 2 www.zacks.com For 2Q07, one firm (Wedbush) expects continued strength in microcontrollers and Auto, and believes ASICs will be flattish as the SmartCard business remains challenging. It further anticipates Memory will be flattish with some growth in EEPROM, likely offset by price declines in NOR flash chips. It foresees RF should be down double digits again as QUALCOMM continues to shift business to RF CMOS providers.

Provided below is a summary of revenues as compiled by Zacks Research Digest:

Total Revenues (millions) 3Q06A 4Q06A 2006A 1Q07A 2Q07E 2007E 2008E Digest High $432.0 $409.0 $1,671.0 $391.3 $405.0 $1,646.0 $1,783.0 Digest Low $431.7 $408.9 $1,670.9 $391.0 $401.3 $1,627.7 $1,695.0 Digest Average $431.8 $408.9 $1,670.9 $391.2 $402.8 $1,635.7 $1,747.5 Digest YoY growth 3.2% -3.8% -0.3% -10.4% -6.2% -2.1% 6.8% Digest sequential growth 0.5% -5.3% -4.3% 3.0%

Highlights from the above chart are as follows:

 2007 forecasts (7 total) range from $1,627.7 million to $1,646.0 million; the average is $1,635.7 million.  2008 forecasts (7 total) range from $1,695.0 million to $1,783.0 million; the average is $1,747.5 million.

For more details on revenues by individual analysts, refer to the ‘Consensus’ tab of the Atmel spreadsheet.

Margins

In 1Q07, gross margin as compiled by Zacks Digest, was 35.8% (in line with the Company’s results), up 30 basis points sequentially and 350 basis points y/y. According to analysts, the increase in margin was mainly attributed to a more favorable mix of higher margin products, higher factory utilization rates, improved manufacturing yields, and a lower depreciation expense. The operating margin was 4.2%, down 120 basis points y/y, but up 190 basis points sequentially.

Outlook

One analyst (Cathay Financial) expects gross margin expansion, particularly in the second half of 2007, attributable to the previously announced sale of manufacturing facilities by the Company.

Another analyst (Needham) continues to believe gross margin will expand to 39.0% in FY07, and to 42.0% in FY08.

Provided below is a summary of Margins as compiled by Zacks Research Digest:

Margins 3Q06A 4Q06A 2006A 1Q07A 2Q07E 2007E 2008E Gross 35.2% 35.5% 33.5% 35.8% 36.0% 37.0% 39.9% Operating 6.2% 2.3% 3.6% 4.2% 3.6% 6.1% 10.2% Pre-Tax 6.8% 1.7% 2.9% 4.8% 4.5% 6.5% 11.1% Net 5.2% -0.1% 1.4% 4.5% 2.8% 5.4% 9.2%

For more details on margins by individual analysts, refer to the ‘Consensus’ tab of the spreadsheet.

Zacks Investment Research Page 3 www.zacks.com Earnings per Share

In 1Q07, pro forma EPS as compiled by Zacks Digest was $0.03, up 37.5% y/y and 925.0% sequentially. The GAAP EPS was recorded at $0.06, up 200.0% y/y and 129.7% sequentially.

In 1Q07, the Company reported GAAP net income of $28.9 million or $0.06 per diluted share versus net income of $4.7 million or $0.01 per diluted share in 1Q06 (as restated) and a net loss of $122.6 million or $0.25 per share in 4Q06. During the first quarter of 2007, a tax benefit of $20.0 million was recognized from the receipt of French research and development tax credits related to prior tax years, which resulted in a net tax benefit of $15.0 million in the reported quarter.

Outlook

Analysts remain positive with ATML’s expanding earnings opportunity in 2007 and 2008, particularly based on increasing confidence in restructuring execution of the Company.

Provided below is a summary of EPS as compiled by Zacks Research Digest:

Pro forma EPS 3Q06A 4Q06A 2006A 1Q07A 2Q07E 2007E 2008E Zacks Consensus $0.02 $0.19 $0.31 Digest High $0.05 $0.00 $0.06 $0.03 $0.03 $0.19 $0.38 Digest Low $0.05 ($0.01) $0.04 $0.02 $0.01 $0.16 $0.32 Digest Average $0.05 ($0.00) $0.05 $0.03 $0.03 $0.17 $0.34 Digest YoY growth 0.0% -111.1% 137.5% 37.5% 150.0% 228.6% 97.1% Digest sequential growth 400.0% -106.7% 925.0% -9.1%

Highlights from the above chart are as follows:

 2007 forecasts (4 total) range from $0.16 to $0.19; the average is $0.17.  2008 forecasts (4 total) range from $0.32 to $0.38; the average is $0.34.

For more details on earnings per share, refer to the ‘EPS’ tab of the Atmel spreadsheet.

Target Price/Valuation

Target prices for ATML range from a low of $4.75 (Zacks Investment Research) to a high of $7.50 (American Technology, Needham), with an average of $6.32 ( by $0.31 from the previous Zacks Digest report).

The analyst (Zacks Investment Research) at the low end has used 26.4x 2007 EPS estimate for target price valuation. One analyst (American Technology) at the high end has used 22 x CY08 EPS estimates, while the other analyst (Needham) used sum of parts analysis for valuation of target price.

Provided below is a summary of valuations and ratings as compiled by Zacks Research Digest:

Rating Distribution

Zacks Investment Research Page 4 www.zacks.com Positive 57.1% Neutral 14.3% Negative 28.6% Avg. Target Price $6.32 Max. Target Price $7.50 Min. Target Price $4.75

Metrics detailing current Management Effectiveness are as follows: Company Industry S&P 500 Return on Assets (ROA) -3.63% 11.51% 8.29% Return on Equity (ROE) -6.95% 15.42% 20.66% Return on Invested Capital -5.24% 14.04% 12.20% (ROIC) Risks to the target price on ATML include exposure to commodity pricing, particularly Memory; volatile results from channel inventory fluctuations; limited success in shifting the mix toward higher-margin programmable products; and execution of the Company’s production rationalization/restructuring efforts.

For more details on valuation & ratings by individual analysts, refer to the ‘Valuations’ tab of the ATML spreadsheet.

Capital Structure/Solvency/Cash Flow/Governance/Other

Balance Sheet

In 1Q07, Atmel's balance sheet remained strong, according to analysts. Cash, cash equivalents and short-term investments were $478.7 million, an increase of $11.9 million over the $466.8 million in 4Q06. The net cash position increased to $332.0 million. The long-term debt decreased to $146.4 million in 1Q07, from $169.0 million in 4Q06.

Restructuring

Management announced back in December that it would take action to reduce costs and accelerate the Company's growth, while increasing shareholder value. Among the initiatives mentioned were refocusing resources on the microcontroller product line, while terminating development of non-core and less- profitable products. According to analysts, management followed through on these initiatives, and has been focusing on the microcontroller products. Along with its focus on the profitable product lines, Atmel has sold off its Irving, Texas, fab for $38.0 million, and is continuing to look for more parties interested in acquiring other fabs as well, according to analysts. In terms of personnel, Atmel announced it has achieved two-thirds of its 300 non-manufacturing personnel reduction target. Management announced Atmel is on track in achieving a cost-savings of $70.0-$80.0 million in 2007, and $80.0-$90.0 million starting in 2008. Analysts stated the Company has also hired five new executives to help continue to drive its profitability forward, and indicated there will be more strategic initiatives that will be announced throughout 2007. According to one analyst (Wedbush), the restructuring plan will prove to be significantly positive for investors in the long term.

Stock Option Update

On June 27, 2007, the Company announced its full results for the quarter ended March 31, 2007, and has filed with the Securities and Exchange Commission (SEC) its quarterly report on Form 10-Q for the same period. With this filing and those previously filed on June 8, 2007, the Company is current with its SEC filings, and expects to regain compliance with NASDAQ's continued listing requirements.

Zacks Investment Research Page 5 www.zacks.com Potentially Severe Problems

There are none other than those discussed in other sections of this report.

Long-Term Growth

According to analysts, the Company’s forte lies in its ability to leverage expertise in non-volatile memory, with microcontrollers and other logic to produce a wide variety of devices that can be tailored to meet customer needs. The Company has concentrated on a wide range of process technologies to control the quality of products, such as, CMOS, bipolar CMOS, and silicon geranium. However, the Company’s long-term growth prospects face several risks, according to analysts.

Analysts note Atmel has a strong lineup of new products and technologies in the wireless and RF space, including WiMAX for portable wireless consumer devices and ZigBee for home networking. According to analysts, while the markets for these products in portable and automotive applications have yet to emerge, Atmel has made good progress in technology development by offering leading edge, yet cost- effective products. As these markets become more mature, analysts believe Atmel is well-positioned to deliver high volume solutions at low costs, fitting comfortably within its niche.

Upcoming Events

On August 01, 2007, the Company is expected to release 2Q07 results.

Individual Analyst Opinions

POSITIVE RATINGS (57.1%)

American Technology – Buy ($7.50 – Target Price): 06/28/07: The firm reiterated a Buy rating and target price of $7.50. INVESTMENT SUMMARY: The firm believes Atmel shares remain undervalued in relative to the potential for gross margin expansion, divestitures, and accretive share repurchases. It opines Atmel is well positioned to take market share in higher margin verticals, attributed to the use of developed technology that prior management failed to fully capitalize on.

Needham – Buy ($7.50 – Target Price): 06/28/07: The firm reiterated a Buy rating, but increased the target price from $6.50 to $7.50, attributed to completion of filing of 1Q07 results. INVESTMENT SUMMARY: The firm would continue to buy ATML shares at current levels based on plans to accelerate the restructuring strategy, which could increase operating leverage and unlock shareholder value.

Wedbush – Buy ($7.00 – Target Price): 06/27/07: The firm reiterated a Buy rating. INVESTMENT SUMMARY: The firm opines the stock is undervalued as compared to its peers, and is in a transformational stage. It also pointed out there are opportunities for margin expansion, product cost reductions, and other restructuring actions in 2007 and 2008.

NEUTRAL RATINGS (14.3%)

Zacks Investment Research Page 6 www.zacks.com Deutsche Bank – Hold ($5.50 – Target Price): 06/28/07: The firm reiterated a Hold rating and the target price of $5.50. INVESTMENT SUMMARY: The firm believes the stock is fairly valued at the current level and trades near its SoTP valuation, and sees little upside potential.

NEGATIVE RATINGS (28.6%)

Zacks Investment Research – Sell ($4.75 – Target Price): 07/02/07. INVESTMENT SUMMARY: The firm is maintaining Sell rating and target price of $4.75, based on its concerns over pricing pressures in the Company’s memory and ASIC businesses.

DROPPED COVERAGE

MorganStanley – 03/23/07: The firm discontinued coverage of ATML due to the reallocation of resources.

Research Associate: Priti Dhanuka Reviewed by: Copy Editor: Oindrila Banerjee Content Ed.: Jyoti Lakhotia

Zacks Investment Research Page 7 www.zacks.com