Atmel Corporation Business Information, Profile, and History

Company Perspectives:

Atmel's products provide extra value to the user such as innovative new designs and superior features that improve the performance of each of their products--ultimately enabling the user to gain a competitive advantage. Throughout its increasing growth, Atmel has remained true to its essential belief that the Company's own success depends solely on the success of its customers.

History of Atmel Corporation

One of the fastest growing semiconductor companies in the United States, Atmel Corporation designs, develops, and manufactures programmable logic devices, application-specific integrated circuits, and memory and microcontroller devices. During the 1980s and 1990s, the company built its reputation and its business on the design of nonvolatile memory chips, which do not lose their programmed instructions while system power is turned off. In 1989, after five years of existence strictly as a designer, the company entered the manufacturing fray by acquiring a chip-making facility in Colorado Springs. During the first half of the 1990s, as annual sales soared from $60 million to nearly $700 million, Atmel strengthened its manufacturing capabilities, establishing two additional manufacturing plants in Colorado Springs and another in Rousset, France. Catering to a worldwide market, Atmel served customers--mostly large corporations--involved in the computer, communications, consumer goods, industrial, and military industries.

Origins

While he was working for Intel Corp. during the late 1970s and early 1980s, George Perlegos noted the potential for a promising product in the semiconductor market. What interested Perlegos, who was working for Intel as a design engineer, were nonvolatile memory chips and the innumerable applications for the chips in commercial and military markets. During the 1980s, nonvolatile memory chips, once placed in microprocessors, enabled a vast range of products such as toasters, dishwashers, automobiles, portable telephones, and microwaves to "remember" instructions even while power was off. Anticipating the widespread demand for these soon-to-be invaluable chips and the lucrative opportunities open to a small and savvy nonvolatile memory chip designer, Perlegos resolved during the early 1980s to forgo the security of working for Intel and start his own company. In a few short years, the result would be Atmel, one of the fastest growing semiconductor companies in the United States during the 1980s and 1990s.

Before Perlegos found himself facing the career change that would lead to the establishment of Atmel, he acquired the experience that would distinguish him as one of the most successful leaders in the semiconductor industry. Born in Greece, where his father made his living as a grape farmer, Perlegos moved to the United States when he was 12 years old. After earning a master's degree in electrical engineering at Stanford University, Perlegos entered the employment ranks and spent seven years as a subordinate member of the corporate world at Intel. Following the relinquishment of his engineering job at Intel in 1981, Perlegos co-founded a memory chip manufacturer named Seeq Technology. After a short stay at Seeq he laid the groundwork for Atmel, an acronym for Advanced Technology for Memory and Logic.

From its inception in 1984, Perlegos's startup venture excelled at targeting lucrative market niches and quickly designing superior memory chips for those markets. Being small had its advantages, enabling the company to develop chips quickly to meet the demand in specific markets before larger competitors could respond. Perhaps more important to Atmel's early success was the strong engineering talent the company employed. As the years progressed, Atmel consistently delivered memory chips to market that used less battery power than most other memory chips, an enviable trait of Atmel chips that meant batteries lasted longer and chips stayed cooler, improving the performance of portable products.

Before this hallmark of Atmel chips became known to blue-chip consumer corporations throughout the country, the company cleared the most intimidating obstacle facing a startup semiconductor designer. Entering the chip business typically required considerable capital, but Perlegos was able to get Atmel off the ground with a $30,000 investment thanks largely to a $5.1 million design contract with General Instrument. Perlegos and the company's handful of other semiconductor specialists designed Atmel's chips and contracted with General Instrument to fabricate the wafers in exchange for an ownership stake in Atmel. The arrangement with General Instrument was followed by a similar agreement with Sanyo Semiconductor, enabling Atmel to get into the business strictly as a designer without the typically massive capital costs incurred from launching a memory chip venture.

Mid-1980s Growth

During the mid-1980s, the qualities that defined Atmel's position in the semiconductor industry and drove its growth emerged. Perlegos and the rest of Atmel's work force succeeded by keeping costs low, identifying lucrative market niches, and supplying those small but lucrative markets with high-performance chips that undercut the power consumption of competing memory chips. The company moved nimbly, made decisions quickly, and responded with superior products that soon attracted a core customer base consisting of large corporations such as Motorola, Nokia, and Ericsson, as well as manufacturers producing military equipment. One of the chief reasons Atmel was able to attract its deep-pocketed clientele was its talent for responding and catering to the needs of its customers, something the management structure of the company encouraged. Though he held sway as president and chief executive officer, Perlegos stood atop a corporate hierarchy that was essentially flat, with no employee more than two positions removed from the top managerial post. Without layers and layers of management, decision making was expedited enormously, giving the entire company the freedom to move in any direction that appeared lucrative.

Atmel's egalitarian management structure created a corporate environment that encouraged initiative, something Perlegos had learned during his stay at Intel where the divisions separating top management from the lowest paid employees were kept to a minimum. Perlegos, in fact, had patterned Atmel's management structure after the managerial system used at Intel, but in one particular area the two companies differed. As Atmel was beginning to gain momentum during the mid-1980s, Intel was on its way toward becoming a leader in nonvolatile memories. Intel, however, decided to concentrate on a technology called flash memory, which worked well in laptop computers but was not right for appliances. Flash memories allowed customers to erase only large amounts of data, whereas the customers Perlegos had targeted required memory chips that could erase small amounts of data, byte by byte. Accordingly, Atmel focused its design work on a specific type of memory chip called Eeprom, short for electrically erasable programmable read only memory.

Customers like Motorola, Nokia, and Ericsson were drawn to Atmel because of the efficiency of the San Jose-based designer's chips in cellular telephones, which, in turn, allowed cellular customers to change just one telephone number in autodial memory. Eeprom chips paved the way for reprogramming one preset station on a car radio and for reprogramming sundry "smart" appliances that relied on microprocessors to perform various functions, providing Atmel with numerous market niches to penetrate.

Buoyed by this business, Atmel was profitable from its inaugural year to the end of the 1980s. The only mark on its otherwise unblemished record came in the form of a lawsuit filed in 1987 by Intel against Atmel for patent infringement, forcing the company to redesign its chips around the Intel patent. The lawsuit helped Atmel, however, at least according to Perlegos, who explained that the money invested in redesigning its chips gave the company a technological lead over its competitors, further strengthening Atmel's reputation as an elite memory chip designer. Shortly after Intel filed its patent infringement suit, Atmel launched what the business press perceived as a counterattack against Intel by introducing a flash memory chip, thereby entering one of Intel's chief markets. Atmel's flash memory chip stored data faster than Intel's and consumed less battery power, giving Perlegos and his designers a new product line to fuel the company's growth and enhancing the company's reputation as one of the leading memory chip designers in the country.

Manufacturing Begins in 1989

By 1989, Atmel was well on its way toward dominance in the memory chip business, although the company's most prolific growth was yet to be recorded. During its first five years of business, Atmel had recorded a profit every year, and sales had grown exponentially. By the end of 1989, sales for the year would eclipse $60 million, but by the time the year's financial figures were announced, Atmel had completed the first step towards its transformation into a leading manufacturer of memory chips. From 1984 to 1988, the company derived all of its business from designing chips, opting to contract out the manufacture of them. In 1989, however, the company's future course was altered when Perlegos convinced venture capitalists to finance Atmel's entry into the manufacturing side of the semiconductor industry. The company paid $60 million for Honeywell, Inc.'s chip factory in Colorado Springs, Colorado, and then invested more than $30 million in upgrading the facility.

In the years ahead, Colorado Springs would become the chief location of Atmel's manufacturing operations, adding a new geographic base to the San Jose-based company. During the years separating the acquisition of its first manufacturing facility and the establishment of others, Perlegos continued to focus his attention on finding new applications for Atmel's memory and logic chips. By the end of 1990, sales had climbed to $76.9 million, as the company continued to pour a sizable percentage of its revenues into research and development, intent on exploring all the opportunities available in the chip market. With more than a third of its annual sales earmarked for research and development activities, the company was in need of capital to devote to expansion, particularly the capital required to establish or acquire additional manufacturing facilities. To provide for a quick infusion of cash, Perlegos converted to public ownership in 1991, when the company made its initial public offering in March of 5.175 million shares at $13 per share, yielding Atmel more than $65 million to fund its expansion in the coming years.

1990s Expansion

As the company moved forward from the early 1990s into the mid-1990s, considerably more would be spent on expansion than the money gained from the 1991 public offering. In 1993, Atmel acquired Concurrent Logic, a manufacturer of field programmable gate arrays (a user-programmable chip) and announced plans for establishing a second manufacturing facility in Colorado Springs. After considering buying or building a new production plant in New Mexico, Arizona, or Texas, Perlegos decided to remain in Colorado Springs, selecting a 47-acre site for the company's anticipated $200 million expansion. At the end of the year, before any financial gains were realized from the new chip-making facility in Colorado Springs, Atmel's annual sales totaled $222 million, and its net income stood at $30 million. The financial figures represented astounding growth, up substantially from the $77 million in sales generated in 1990 and the $4.2 million posted in net income. Still more robust growth was yet to come, as the ceaseless effort to locate and saturate lucrative niches within the semiconductor market with high-performance chips continued.

In 1994, when the new facility in Colorado Springs began production, Atmel's earnings doubled, reaching $59.5 million, and its sales shot up 69 percent, jumping to $375 million. As for the previous ten years, growth was fueled by developing faster chips that used less power--ideal attributes for chips used in portable electronics. The company's ability to continue designing and manufacturing products that represented the vanguard of chip technology was largely attributable to its steadfast commitment to funding research and development activities. In 1994, the company devoted nearly 50 percent of its revenues to research and development and new capital equipment, compared with the industry average of 35 percent.

After acquiring Seeq Technology in 1994, Atmel ranked as the largest manufacturer of Eeprom chips, having ascended to the top of the market exactly ten years after its founding. Aside from this enviable market position, however, there was much more to support the company's business. In 1995, Atmel produced a dozen product lines, each tailored for and targeted to specific market niches. A third of the company's product lines were still in the developmental stage during the mid-1990s, providing the means for financial growth during the latter half of the decade.

In 1995 and 1996, Atmel expanded aggressively as the company's rate of financial growth continued unabated. Sales in 1995 rose to $634.2 million, recording another 69 percent gain, and net income soared to $113.7 million, registering a more prolific 91 percent increase. During the year, Atmel moved on the international front by acquiring a French chip maker named European Silicon Structures, which was renamed Atmel-ES2. On the domestic front, the company began building a new chip fabrication plant near its headquarters in San Jose.

In 1996, Atmel increased its presence in France by acquiring Digital Research in Electronic Acoustics and Music S.A. (DREAM), a computer chip company specializing in semiconductors that produced sound in multimedia computers, musical instruments, and karaoke machines. Following the purchase of this French company based in Semur-en-Auxois, Atmel began to formulate plans for the late 1990s and the completion of its second decade of business, intent on maintaining its remarkable rate of financial growth by continuing to penetrate new markets. During late 1996, Perlegos, who continued to serve as the company's president and chief executive officer, was looking to establish another manufacturing plant in Colorado Springs to give Atmel the capability to meet the mounting demand for its widely esteemed chips and further advance the company's transformation into a large-scale manufacturer.

Principal Subsidiaries: Atmel-ES2; Atmel Japan.