Atmel Is Touching Bottom and Ready to Rebound

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NEW YORK ( TheStreet) -- There's no denying that 2012 is a year Atmel (ATML) wants to forget.

But although the semiconductor giant has lost roughly half of its value over the past three quarters, the company's performance has not been that bad relative to the Street's expectations.

Even though Atmel disappointed investors with its downward guidance in the third quarter, it was in line with projections made by the group's high flyers such as Qualcomm (QCOM) and Broadcom (BRCM) . So far, it appears investors are now beginning to make this connection. But is it too late?

Since reaching a 52-week low of $4.37 a month ago, Atmel shares have soared 30%. This leads me to believe the stock has touched bottom. As I've noted previously, upon the release of the company's third-quarter results, there's still plenty of growth opportunities.

Again, as evident by the stock's recent movement, the Street agrees. On the other hand, there's a lot that needs to go right for Atmel for that value to be realized. Unfortunately, some of these requirements are outside of the company's control.

For instance, although Atmel's management did what it had to do to get controllers inside both Microsoft's (MSFT) Surface tablet and Amazon's (AMZN) Kindle Fire, it doesn't appear as if these devices are flying off store shelves, according to published estimates.

Likewise, even though the Kindle Fire continues to gain traction in the tablet market, Apple's (AAPL) iPad is still regarded as the standard. Complicating matters further is the strong demand for Apple's new iPad mini. Though it is not yet clear how the lower-end tablet market will be divided when the quarter's results are released, according to current sales data Apple remains the leader in overall sales.

Still, working in Atmel's favor is its technology is far superior to that of its rivals, which is why the company's products tend to cost more. This very fact brings up another concern. Granted, it is a huge benefit to Atmel to have scored wins with Microsoft, Amazon and Samsung but it also presents the risk that at any point these companies might decide to look for cheaper alternatives.

In the meantime, Atmel has the competitive advantage from an up-market standpoint. This is because average selling prices (ASPs) are higher which helps the company's margins. In my opinion, signs of improved profitability are what it's going to take to compel the Street to believe.

In that regard, the company is making some good strides, but it remains a challenge. Though management was able to make the best out of what has been a difficult economic environment, that gross margins shed almost 1% sequentially and 7% year-over year in the third quarter was discouraging.