Atmel Corp, the San Jose, California-based chip manufacturer, announced late on Tuesday that it will make a $70m pre-tax charge against its second quarter earnings for the cost of laying off 650 staff, around 10% of the workforce, while simultaneously reducing its production capacity. The company singled out low demand for EPROM’s and depressed prices for Flash memory as the major culprits. Atmel’s CEO, George Perlegos, said, The industry over capacity has not yet abated, and Atmel’s inventory levels are already high. And we will therefore scale back production in our fab operations given current market conditions. The $70m charge will take Atmel into the red by approximately $70m, with the reorganization costs comprising severance charges and the write down of assets that the company claims are associated with older technologies. In other words, Atmel will not spread the cost of purchasing its expensive fabrication equipment across numerous quarters, but instead will sweep any amounts still to be amortized into a one off charge, pushing the costs through unnoticed in a quarter already ruined by job losses. The end result being increased earnings in future periods. And against a background of never ending profits warning all across the semiconductor industry, the consensus of opinion amongst financial analysts who follow Atmel was that the company would earn $0.21 per share this quarter.
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