UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 30, 2012

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                     

Commission file number 0-19032

ATMEL CORPORATION

(Registrant)

Delaware  (State or other jurisdiction of incorporation or organization) 77-0051991  (I.R.S. Employer Identification Number)

1600 Technology Drive, San Jose, California 95110

(Address of principal executive offices)

(408) 441-0311

(Registrant’s telephone number)

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes xNo o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YesxNoo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting filer o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

On October 31, 2012, the Registrant had 439,650,566 outstanding shares of Common Stock.

ATMEL CORPORATION

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2012

	Page
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)	3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011	3
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011	4
CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2012 AND DECEMBER 31, 2011	5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011	6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	34
ITEM 4. CONTROLS AND PROCEDURES	35
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	35
ITEM 1A. RISK FACTORS	35
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	49
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	50
ITEM 4. MINE SAFETY DISCLOSURES	50
ITEM 5. OTHER INFORMATION	50
ITEM 6. EXHIBITS	50
SIGNATURES	51
EXHIBITS	52

2

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Atmel Corporation

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
	(in thousands, except per share data)
Net revenue	$	360,990		$	479,375		$	1,087,027		$	1,419,444
Operating expenses
Cost of revenue	205,464			238,984			617,247			695,868
Research and development	59,966			64,160			192,647			191,984
Selling, general and administrative	68,036			68,467			208,881			209,593
Acquisition-related charges	1,530			1,019			5,442			3,069
Restructuring (credit) charges	(1,404		)	—			12,950			21,210
Credit from reserved grant income	—			—			(10,689		)	—
Gain on sale of assets	—			(33,428		)	—			(35,310		)
Total operating expenses	333,592			339,202			1,026,478			1,086,414
Income from operations	27,398			140,173			60,549			333,030
Interest and other income (expense), net	153			(264		)	(3,787		)	918
Income before income taxes	27,551			139,909			56,762			333,948
Provision for income taxes	(5,915		)	(23,203		)	(13,985		)	(51,819		)
Net income	$	21,636		$	116,706		$	42,777		$	282,129
Basic net income per share:
Net income per share	$	0.05		$	0.25		$	0.10		$	0.62
Weighted-average shares used in basic net income per share calculations	430,845			457,721			434,894			456,992
Diluted net income per share:
Net income per share	$	0.05		$	0.25		$	0.10		$	0.60
Weighted-average shares used in diluted net income per share calculations	433,295			466,862			438,232			467,040

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3

Atmel Corporation

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
	(in thousands)
Net income	$	21,636		$	116,706		$	42,777		$	282,129
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	3,514			(10,024		)	1,533			(8,309		)
Actuarial losses related to defined benefit pension plans	(93		)	(2,261		)	(1,213		)	(1,284		)
Unrealized (losses) gain on investments	(7		)	(58		)	(723		)	181
Other comprehensive income (loss)	3,414			(12,343		)	(403		)	(9,412		)
Total comprehensive income	$	25,050		$	104,363		$	42,374		$	272,717

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

4

Atmel Corporation

Condensed Consolidated Balance Sheets

(Unaudited)

	September 30, 2012		December 31, 2011
	(in thousands, except par value)
ASSETS
Current assets
Cash and cash equivalents	$	287,006	$	329,431
Short-term investments	2,136		3,079
Accounts receivable, net of allowance for doubtful accounts of $11,844 and $11,833, respectively	248,173		212,929
Inventories	335,751		377,433
Prepaids and other current assets	85,163		116,929
Total current assets	958,229		1,039,801
Fixed assets, net	232,085		257,070
Goodwill	69,243		67,662
Intangible assets, net	13,782		20,594
Other assets	146,607		141,471
Total assets	$	1,419,946	$	1,526,598
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Trade accounts payable	$	92,394	$	76,445
Accrued and other liabilities	181,229		207,118
Deferred income on shipments to distributors	35,435		47,620
Total current liabilities	309,058		331,183
Other long-term liabilities	92,113		112,971
Total liabilities	401,171		444,154
Commitments and contingencies (Note 6)
Stockholders’ equity
Preferred stock; par value $0.001; Authorized: 5,000 shares; no shares issued and outstanding	—		—
Common stock; par value $0.001; Authorized: 1,600,000 shares;
Shares issued and outstanding: 429,840 at September 30, 2012 and 442,389 at December 31, 2011	430		442
Additional paid-in capital	889,116		995,147
Accumulated other comprehensive income	9,045		9,448
Retained earnings	120,184		77,407
Total stockholders’ equity	1,018,775		1,082,444
Total liabilities and stockholders’ equity	$	1,419,946	$	1,526,598

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5

Atmel Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	September 30, 2012			September 30, 2011
	(in thousands)
Cash flows from operating activities
Net income	$	42,777		$	282,129
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	57,236			56,270
Non-cash losses (gains) on sale of fixed assets, net	264			(36,333		)
Other non-cash gains, net	(7		)	(6,526		)
Provision for doubtful accounts receivable	11			94
Accretion of interest on long-term debt	775			570
Stock-based compensation expense	56,038			49,604
Excess tax benefit on stock-based compensation	(1,897		)	(22,328		)
Non-cash acquisition-related and other charges	1,690			—
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable, net	(35,409		)	(12,325		)
Inventories	23,211			(103,562		)
Current and other assets	20,424			10,169
Trade accounts payable	24,394			(28,809		)
Accrued and other liabilities	(55,255		)	1,191
Deferred income on shipments to distributors	(12,185		)	(12,368		)
Net cash provided by operating activities	122,067			177,776
Cash flows from investing activities
Acquisitions of fixed assets	(31,823		)	(74,944		)
Proceeds from the sale of business	25,000			1,597
Proceeds from the sale of fixed assets	—			47,250
Acquisition of businesses, net of cash	—			(819		)
Acquisitions of intangible assets	(3,000		)	(3,000		)
Sales or maturities of marketable securities	4,450			15,242
Decrease in long-term restricted cash	5,000			—
Net cash used in investing activities	(373		)	(14,674		)
Cash flows from financing activities
Principal payments on debt	—			(85		)
Repurchase of common stock	(163,404		)	(169,083		)
Proceeds from issuance of common stock	14,643			26,588
Tax payments related to shares withheld for vested restricted stock units	(15,161		)	(64,999		)
Excess tax benefit on stock-based compensation	1,897			22,328
Net cash used in financing activities	(162,025		)	(185,251		)
Effect of exchange rate changes on cash and cash equivalents	(2,094		)	(1,251		)
Net decrease in cash and cash equivalents	(42,425		)	(23,400		)
Cash and cash equivalents at beginning of the period	329,431			501,455
Cash and cash equivalents at end of the period	$	287,006		$	478,055

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6

Atmel Corporation

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These unaudited interim condensed consolidated financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary to state fairly, in all material respects, the financial position of Atmel Corporation (the “Company” or “Atmel”) and its subsidiaries as of September 30, 2012 and the results of operations and comprehensive income (loss) for the three and nine months ended September 30, 2012 and 2011 and cash flows for the nine months ended September 30, 2012 and 2011. All intercompany balances have been eliminated. Because all of the annual disclosures required by U.S. generally accepted accounting principles are not included, as permitted by the rules of the Securities and Exchange Commission (the “SEC”), these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The December 31, 2011 year-end balance sheet data was derived from the Company’s audited consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 and do not include all of the disclosures required by U.S. generally accepted accounting principles ("GAAP"). The condensed consolidated statements of operations for the periods presented are not necessarily indicative of results to be expected for any future period, or for the entire year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates in these financial statements include provisions for excess and obsolete inventory, sales reserves and allowances, stock-based compensation expense, allowances for doubtful accounts receivable, estimates for useful lives associated with long-lived assets, recoverability of goodwill and intangible assets, restructuring charges, liabilities for uncertain tax positions and deferred tax asset valuation allowances. Actual results could differ materially from those estimates.

Inventories

Inventories are stated at the lower of cost (on a first-in, first-out basis) or market. Market is based on estimated net realizable value. Determining market value of inventories involves numerous judgments, including estimating average selling prices and sales volumes for future periods. The Company establishes provisions for lower of cost or market and excess and obsolescence write-downs, which are charged to cost of revenue. The Company makes a determination regarding excess and obsolete inventory on a quarterly basis. This determination requires an estimation of the future demand for the Company’s products and involves an analysis of historical and forecasted sales levels by product, competitiveness of product offerings, market conditions, product lifecycles, as well as other factors. Excess and obsolete inventory write-downs are recorded when the inventory on hand exceeds management’s estimate of future demand for each product and are charged to cost of revenue.

The Company’s inventories include parts that have a potential for rapid technological obsolescence and are sold in a highly competitive industry. The Company writes down inventory that is considered excess or obsolete. When the Company recognizes a loss on such inventory, it establishes a new, lower-cost basis for that inventory, and subsequent changes in facts and circumstances will not result in the restoration or increase in that newly established cost basis. If inventory with a lower-cost basis is subsequently sold, it will result in higher gross margin for the products making up that inventory.

Inventories are comprised of the following:

	September 30, 2012		December 31, 2011
	(in thousands)
Raw materials and purchased parts	$	19,493	$	23,415
Work-in-progress	214,118		251,933
Finished goods	102,140		102,085
	$	335,751	$	377,433

As a result of the sale of the Company's serial flash product lines on September 28, 2012 to an affiliate of Adesto Technologies Corporation ("Adesto"), inventories were reduced by $25.6 million. The Company has also granted Adesto an exclusive option, exercisable prior to November 15, 2012, to purchase the Company's remaining $7.0 million of serial flash inventory. The Company has, therefore, classified the remaining $7.0 million of serial flash inventory as assets held-for-sale, which are presented as part of other current assets on the Company's condensed consolidated balance sheet at September 30, 2012.

7

Grant Recognition

From time to time, the Company receives economic incentive grants and allowances from European governments, agencies and research organizations targeted at preserving employment at specific locations. The subsidy grant agreements typically contain economic incentive, headcount, capital and research and development expenditures and other conditions that must be met to receive and retain grant benefits. Noncompliance with the conditions of the grants could result in the forfeiture of all or a portion of any future amounts to be received, as well as the repayment of all or a portion of amounts previously received. In addition, the Company may need to record charges to reverse grant benefits recorded in prior periods as a result of changes to its plans for headcount, project spending, or capital investment at any of these specific locations. If the Company is unable to comply with any of the conditions in the grant agreements, the Company may face adverse actions from the government agencies providing the grants. If the Company were required to repay grant benefits, its results of operations and financial position could be materially adversely affected by the amount of such repayments.

In March 2012, the Greek government executed a ministerial decision related to an outstanding state grant previously made to a Greek subsidiary of the Company. Based on the execution of the ministerial decision and the subsequent publication of that decision by the Greek government, the Company determined that its Greek subsidiary would not be required to repay the full amount of that grant. As a result, the Company recognized a benefit of $10.7 million in its results for the three-month period ended March 31, 2012 resulting from the reversal of a reserve previously established for that grant.

Note 2 INVESTMENTS

Investments at September 30, 2012 and December 31, 2011 primarily include corporate equity securities, U.S. and foreign corporate debt securities and auction-rate securities.

All marketable securities are deemed by management to be available-for-sale and are reported at fair value, with the exception of certain auction-rate securities as described below. Net unrealized gains and losses that are deemed to be temporary are reported within stockholders’ equity on the Company’s condensed consolidated balance sheets as a component of accumulated other comprehensive income. Unrealized losses that are deemed to be other than temporary are recorded in the condensed consolidated statement of operations in the period such determination is made. Gross realized gains or losses are recorded based on the specific identification method. For each of the three and nine months ended September 30, 2012 and 2011, the Company's gross realized gains and losses on short-term investments were insignificant. The Company’s investments are further detailed in the table below:

	September 30, 2012					December 31, 2011
	Adjusted Cost			Fair Value		Adjusted Cost			Fair Value
	(in thousands)
Corporate equity securities	$	3,936		$	2,136	$	—		$	—
Auction-rate securities	983			1,066		2,220			2,251
Corporate debt securities and other obligations	—			—		3,099			3,079
	$	4,919		$	3,202	$	5,319		$	5,330
Unrealized gains	83					31
Unrealized losses	(1,800		)			(20		)
Net unrealized (losses) gains, excluding taxes of $1,005 and $0, respectively	(1,717		)			11
Fair value	$	3,202				$	5,330
Amount included in short-term investments				$	2,136				$	3,079
Amount included in other assets				1,066					2,251
				$	3,202				$	5,330

In September 2010, in connection with the sale of the Company’s smart card business in France to INSIDE Secure (“INSIDE”), the Company received an equity interest in INSIDE, which was privately-held at the time of the investment.  In February 2012, INSIDE successfully completed an initial public offering on the NYSE Euronext stock exchange in Paris.  As a result of that public offering, the Company reclassified its investment in INSIDE to short-term investments from other assets and now accounts for this investment as available for sale. Accordingly, based on the recent trading prices for shares in INSIDE, the Company recorded an unrealized loss of $1.8 million in accumulated other comprehensive income at September 30, 2012. The Company's intent is to hold this investment until the value recovers.

For the nine months ended September 30, 2012, the Company redeemed a portion of its auction-rate securities in the open market, resulting in an insignificant gain. The Company concluded that its remaining $1.0 million (adjusted cost) of auction-rate securities are unlikely to be liquidated within the next twelve months and classified these securities as long-term investments,

8

which are included in other assets on the condensed consolidated balance sheets.

Contractual maturities (at adjusted cost) of available-for-sale debt securities as of September 30, 2012, were as follows:

	(in thousands)
Due within one year	$	—
Due in 1-5 years	—
Due in 5-10 years	—
Due after 10 years	983
Total	$	983

Atmel has classified all investments with original maturity dates of 90 days or more as short-term as it has the ability and intent to liquidate them within the year, with the exception of the Company’s remaining auction-rate securities, which have been classified as long-term investments and included in other assets on the condensed consolidated balance sheets.

Note 3 FAIR VALUE OF ASSETS AND LIABILITIES

Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price)”. The accounting standard establishes a consistent framework for measuring fair value and expands disclosure requirements regarding fair value measurements. This accounting standard, among other things, requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The table below presents the balances of investments measured at fair value on a recurring basis at September 30, 2012:

	September 30, 2012
	Total		Level 1		Level 2		Level 3
	(in thousands)
Assets
Cash
Money market funds	$	1,029	$	1,029	$	—	$	—
Short-term investments
Corporate equity securities	2,136		2,136		—		—
Total short-term investments	2,136		2,136		—		—
Other assets
Auction-rate securities	1,066		—		—		1,066
Investment funds - Deferred compensation plan assets
Institutional money market funds	1,500		1,500		—		—
Fixed income	2,977		2,977		—		—
Marketable equity securities	470		470		—		—
Total institutional funds - Deferred compensation plan	4,947		4,947		—		—
Total other assets	6,013		4,947		—		1,066
Total	$	9,178	$	8,112	$	—	$	1,066

9

The table below presents the balances of investments measured at fair value on a recurring basis at December 31, 2011:

	December 31, 2011
	Total		Level 1		Level 2		Level 3
	(in thousands)
Assets
Cash
Money market funds	$	18,164	$	18,164	$	—	$	—
Short-term investments
Corporate debt securities	3,079		—		3,079		—
Total short-term investments	3,079		—		3,079		—
Other assets
Auction-rate securities	2,251		—		—		2,251
Investment funds - Deferred compensation plan assets
Institutional money market funds	549		549		—		—
Fixed income	1,613		1,613		—		—
Marketable equity securities	2,737		2,737		—		—
Total institutional funds - Deferred compensation plan	4,899		4,899		—		—
Total other Assets	7,150		4,899		—		2,251
Total	$	28,393	$	23,063	$	3,079	$	2,251

The Company’s investments, with the exception of auction-rate securities, are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities and money market securities. Such instruments are generally classified within Level 1 of the fair value hierarchy. The types of instruments valued based on other observable inputs include corporate debt securities and other obligations. Such instruments are generally classified within Level 2 of the fair value hierarchy.

Auction-rate securities are classified within Level 3 because significant assumptions for such securities are not observable in the market. The total amount of assets measured using Level 3 valuation methodologies represented less than 1% of the Company's total assets as of September 30, 2012. The Company redeemed one auction rate security in the open market at book value of $1.2 million in the nine months ended September 30, 2012.

There were no changes in Level 3 assets measured at fair value on a recurring basis for the three and nine months ended September 30, 2012 and the year ended December 31, 2011. There were no transfers between Level 1 and 2 hierarchies for the three and nine months ended September 30, 2012.

10

Note 4 STOCKHOLDERS’ EQUITY

Stock-Based Compensation

The following table summarizes stock-based compensation included in operating results for the three and nine months ended September 30, 2012 and 2011:

	Three Months Ended						Nine Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
	(in thousands)
Cost of revenue	$	2,154		$	1,143		$	6,723		$	5,783
Research and development	4,925			5,557			17,568			16,325
Selling, general and administrative	11,150			9,758			31,747			27,496
Total stock-based compensation expense, before income taxes	18,229			16,458			56,038			49,604
Tax benefit	(2,403		)	(2,776		)	(6,624		)	(7,853		)
Total stock-based compensation expense, net of income taxes	$	15,826		$	13,682		$	49,414		$	41,751

Stock Options, Restricted Stock Units and Employee Stock Purchase Plan

In May 2005, Atmel’s stockholders initially approved Atmel’s 2005 Stock Plan (as amended, the “2005 Stock Plan”). As of September 30, 2012, 133.0 million shares were authorized for issuance under the 2005 Stock Plan. Under the 2005 Stock Plan, Atmel may issue common stock directly, grant options to purchase common stock or grant restricted stock units payable in common stock to employees, consultants and directors of Atmel. Options, which generally vest over four years, are granted at fair market value on the date of the grant and generally expire ten years from that date.

11

Activity under Atmel’s 2005 Stock Plan is set forth below:

			Outstanding Options			Weighted-
					Exercise	Average
	Available for Grant		Number of Options		Price per Share	Exercise Price per Share
	(in thousands, except per share data)
Balances, December 31, 2011	16,523		8,217		$1.68-$10.01	$	4.26
Restricted stock units issued	(210	)	—		—	—
Plan adjustment for restricted stock units issued	(128	)	—		—	—
Performance-based restricted stock units issued	(200	)	—		—	—
Plan adjustment for performance-based restricted stock units issued	(122	)	—		—	—
Restricted stock units cancelled	405		—		—	—
Plan adjustment for restricted stock units cancelled	301		—		—	—
Performance-based restricted stock units cancelled	75		—		—	—
Plan adjustment for performance-based restricted stock units cancelled	46		—		—	—
Options cancelled/expired/forfeited	78		(78	)	$2.11-$8.89	4.36
Options exercised	—		(495	)	$1.80-$8.89	4.58
Balances, March 31, 2012	16,768		7,644		$1.68-$10.01	$	4.24
Restricted stock units issued	(632	)	—		—	—
Plan adjustment for restricted stock units issued	(386	)	—		—	—
Performance-based restricted stock units issued	(98	)	—		—	—
Plan adjustment for performance-based restricted stock units issued	(60	)	—		—	—
Restricted stock units cancelled	228		—		—	—
Plan adjustment for restricted stock units cancelled	171		—		—	—
Performance-based restricted stock units cancelled	70		—		—	—
Plan adjustment for performance-based restricted stock units cancelled	43		—		—	—
Options cancelled/expired/forfeited	26		(26	)	$2.11-$7.76	5.12
Options exercised	—		(130	)	$1.77-$6.28	4.05
Balances, June 30, 2012	16,130		7,488		$1.68-$10.01	$	4.24
Restricted stock units issued	(6,283	)	—		—	—
Plan adjustment for restricted stock units issued	(3,833	)	—		—	—
Restricted stock units cancelled	456		—		—	—
Plan adjustment for restricted stock units cancelled	328		—		—	—
Performance-based restricted stock units cancelled	75		—		—	—
Plan adjustment for performance-based restricted stock units cancelled	46		—		—	—
Options cancelled/expired/forfeited	21		(21	)	$2.11-$6.28	4.71
Options exercised	—		(258	)	$1.68-$5.75	3.31
Balances, September 30, 2012	6,940		7,209		$1.68-$10.01	$	4.27

Restricted stock units are granted from the pool of options available for grant. As the result of an amendment and restatement of the 2005 Stock Plan in May 2011, every share underlying restricted stock, restricted stock units (including performance based restricted stock units), or stock purchase rights issued on or after May 18, 2011 (the date on which the amendment and restatement became effective) is counted against the numerical limit for options available for grant as 1.61 shares in the table above, as reflected in the line items for "Plan adjustments", except that restricted stock units (including performance based restricted stock units), and stock purchase rights issued prior to May 18, 2011, continue to be governed by an earlier amendment to the 2005 Stock Plan that provided for a numerical limit of 1.78 shares. If shares issued pursuant to any restricted stock, restricted stock unit, and stock purchase right agreements granted on or after May 18, 2011 are cancelled, forfeited or repurchased by the Company or would otherwise return to the 2005 Stock Plan, 1.61 times the number of those shares will return to the 2005 Stock Plan and will again become available for issuance. The Company issued 14.2 million shares of restricted stock units from May 18, 2011 to September 30,

12

2012 (net of cancellations) resulting in a reduction, based on a 1.61 to 1.0 ratio, of 22.7 million shares available for grant under the 2005 Stock Plan from May 18, 2011 to September 30, 2012. As of September 30, 2012, there were 6.9 million shares available for issuance under the 2005 Stock Plan, or 4.3 million shares after giving effect to the 1.61 to 1.0 ratio applicable under the 2005 Stock Plan for issuances of restricted stock units made on or after May 18, 2011.

Restricted Stock Units

Activity related to restricted stock units is set forth below:

	Number of Units		Weighted-Average Grant Date Fair Value
	(in thousands, except per share data)
Balance, December 31, 2011	23,471		$	8.99
Restricted stock units issued	210		10.20
Restricted stock units vested	(1,225	)	6.99
Restricted stock units cancelled	(405	)	8.11
Performance-based restricted stock units issued	200		10.73
Performance-based restricted stock units cancelled	(75	)	14.00
Balance, March 31, 2012	22,176		$	9.12
Restricted stock units issued	632		7.43
Restricted stock units vested	(2,378	)	6.31
Restricted stock units cancelled	(228	)	8.06
Performance-based restricted stock units issued	98		7.48
Performance-based restricted stock units cancelled	(70	)	14.00
Balance, June 30, 2012	20,230		$	9.39
Restricted stock units issued	6,283		5.95
Restricted stock units vested	(1,926	)	5.78
Restricted stock units cancelled	(456	)	8.28
Performance-based restricted stock units cancelled	(75	)	13.90
Balance, September 30, 2012	24,056		$	8.78

In the three and nine months ended September 30, 2012, 1.9 millionand 5.5 million restricted stock units vested, respectively, including 0.7 million and 2.0 million units withheld for taxes, respectively. These vested restricted stock units had a weighted-average grant date fair value of $5.78 and $6.28 per share for the three and nine months ended September 30, 2012, respectively. As of September 30, 2012, total unearned stock-based compensation related to unvested restricted stock units previously granted (including performance-based restricted stock units) was approximately $161.0 million, excluding forfeitures, and is expected to be recognized over a weighted-average period of 2.57 years.

In the three and nine months ended September 30, 2011, 1.9 million and 3.8 million restricted stock units vested, respectively, including 0.8 million and 1.5 million units withheld for taxes, respectively. These vested restricted stock units had a weighted-average grant date fair value of $4.93 and $4.84 per share for the three and nine months ended September 30, 2011, respectively.

Until restricted stock units are vested, they do not have the voting rights of common stock and the shares underlying such restricted stock units are not considered issued and outstanding. Upon vesting of restricted stock units, shares withheld by the Company to pay taxes are retired.

Performance-Based Restricted Stock Units

In May 2011, the Company adopted the 2011 Long-Term Performance Based Incentive Plan (the “2011 Plan”), which provides for the grant of restricted stock units to eligible employees. Vesting of restricted stock units granted under the 2011 Plan is subject to the satisfaction of performance metrics tied to revenue growth and operating margin over the designated performance periods. The performance periods for the 2011 Plan run from January 1, 2011 through December 31, 2013 and consist of threeone-year performance periods (calendar years 2011, 2012 and 2013) and a three year cumulative performance period. The Company did not issue any performance-based restricted stock units in the three months ended September 30, 2012. The Company issued 0.3 million performance-based restricted stock units in the nine months ended September 30, 2012. The Company recorded total stock-based compensation expense related to performance-based restricted stock units of $3.3 million and $11.0 million under the 2011 Plan in the three and nine months ended September 30, 2012, respectively. The Company issued 3.4 million performance-based restricted stock units in May 2011. The Company recorded total stock-based compensation expense related to performance-

13

based restricted units of $3.7 million and $4.3 million in the three and nine months ended September 30, 2011, respectively.

The 2011 Plan performance metrics include revenue growth rankings for the Company relative to a semiconductor peer group or a microcontroller peer group, as determined by the Compensation Committee. In addition, in order for a participant to receive credit for a performance period the Company must achieve a minimum operating margin during such performance period, measured on a non-GAAP basis as defined in the 2011 Plan, subject to adjustment by the Compensation Committee. Management evaluates, on a quarterly basis, the likelihood of the Company meeting its performance metrics in determining stock-based compensation expense for performance share plans.

Stock Option Awards

No options were granted in the three and nine months ended September 30, 2012 or 2011.

As of September 30, 2012, total unearned compensation expense related to unvested stock options was approximately $2.2 million, excluding forfeitures, and is expected to be recognized over a weighted-average period of 1.32 years .

Employee Stock Purchase Plan

Under the 1991 Employee Stock Purchase Plan (“1991 ESPP”) and 2010 Employee Stock Purchase Plan (“2010 ESPP” and, together with the 1991 ESPP, the “Company’s ESPPs”), qualified employees are entitled to purchase shares of Atmel’s common stock at the lower of 85% of the fair market value of the common stock at the date of commencement of the six month offering period or 85% of the fair market value on the last day of the offering period. Purchases are limited to 10% of an employee’s eligible compensation. There were 1.1 million and 1.8 million shares purchased under the 2010 ESPP for the three and nine months ended September 30, 2012, respectively, at an average price per share of $4.94 and $6.64, respectively. There were 0.7 million shares purchased under the 2010 ESPP for the three months ended September 30, 2011 at an average price per share of $8.56. There were 0.8 million shares purchased under the 1991 ESPP for the nine months ended September 30, 2011 at an average price per share of $4.85. The 1991 ESPP was superseded by the 2010 ESPP in the three months ended March 31, 2011. Of the 25.0 million shares authorized for issuance under the 2010 ESPP, 22.5 million shares were available for issuance at September 30, 2012.

The fair value of each purchase under the Company’s ESPPs is estimated on the date of the beginning of the offering period using the Black-Scholes option-pricing model. The following assumptions were utilized to determine the fair value of the Company’s ESPPs shares:

	Three Months Ended				Nine Months Ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Risk-free interest rate	0.15	%	0.07	%	0.15	%	0.12	%
Expected life (years)	0.50		0.50		0.50		0.50
Expected volatility	50	%	51	%	53	%	46	%
Expected dividend yield	—		—		—		—

The weighted-average fair value of the rights to purchase shares under the Company’s ESPPs for purchase periods beginning in the nine months ended September 30, 2012 and 2011 was $1.77 and $2.70, respectively. Cash proceeds from the issuance of shares under the Company’s ESPPs were $10.9 million and $6.2 million for the nine months ended September 30, 2012 and 2011, respectively.

Common Stock Repurchase Program

Over the past several years, Atmel’s Board of Directors authorized an aggregate of $700.0 million of funding for the Company’s stock repurchase program. The repurchase program does not have an expiration date, and the number of shares repurchased and the timing of repurchases are based on the level of the Company’s cash balances, general business and market conditions, regulatory requirements, and other factors, including alternative investment opportunities. As of September 30, 2012, $143.4 million remained available for repurchasing common stock under this program.

During the three and nine months ended September 30, 2012, Atmel repurchased 3.8 million and 19.4 million shares, respectively, of its common stock on the open market at an average repurchase price of $5.98 and $8.44 per share, respectively, excluding commission, and subsequently retired those shares. Common stock and additional paid-in capital were reduced by $22.8 million and $163.4 million, excluding commission, for the three and nine months ended September 30, 2012, respectively, as a result of the stock repurchases.

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Note 5 ACCUMULATED OTHER COMPREHENSIVE INCOME

Comprehensive income is defined as a change in equity of a company during a period, from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. The primary difference between net income and comprehensive income for the Company arises from foreign currency translation adjustments, actuarial gains related to defined benefit pension plans and net unrealized (losses) gains on investments. The components of accumulated other comprehensive income at September 30, 2012 and December 31, 2011, net of tax, are as follows:

	September 30, 2012			December 31, 2011
	(in thousands)
Foreign currency translation adjustments	$	9,258		$	7,725
Actuarial gains related to defined benefit pension plans	499			1,712
Net unrealized (losses) gains on investments	(712		)	11
Total accumulated other comprehensive income	$	9,045		$	9,448

Note 6 COMMITMENTS AND CONTINGENCIES

Commitments

Indemnification

As is customary in the Company’s industry, the Company’s standard contracts provide remedies to its customers, such as defense, settlement, or payment of judgment for intellectual property claims related to the use of the Company’s products. From time to time, the Company will indemnify customers against combinations of loss, expense, or liability arising from various trigger events related to the sale and the use of the Company’s products and services, usually up to a specified maximum amount. In addition, as permitted under state laws in the United States, the Company has entered into indemnification agreements with its officers and directors and certain employees, and the Company’s bylaws permit the indemnification of the Company’s agents. In the Company’s experience, the estimated fair value of the liability is not material.

Purchase Commitments

At September 30, 2012, the Company, or its affiliates, had certain non-cancellable commitments which were not included on the condensed consolidated balance sheet at that date. These include outstanding capital purchase commitments of approximately $9.3 million, wafer purchase commitments of approximately $28.8 million under a supply agreement with Telefunken Semiconductors International LLC ("Telefunken") and wafer purchase commitments of approximately $68.4 million under a supply agreement with LFoundry Rousset SAS ("LFoundry").

Contingencies

Legal Proceedings

The Company is party to various legal proceedings. Management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on its financial position, results of operations and statement of cash flows. If, however, an unfavorable ruling were to occur in any of the legal proceedings described below or other legal proceedings that were not deemed material as of September 30, 2012, there exists the possibility of a material adverse effect on the Company’s financial position, results of operations and cash flows. The Company has accrued for losses related to the litigation described below that it considers probable and for which the loss can be reasonably estimated. In the event that a probable loss cannot be reasonably estimated, it has not accrued for such losses. As the Company continues to monitor these matters, its determination could change, however, and the Company may decide, at some future date, to establish an appropriate reserve. With respect to each of the matters below, except where noted otherwise, management has determined a potential loss is not probable at this time and, accordingly, no amount has been accrued at September 30, 2012. Management makes a determination as to when a potential loss is reasonably possible based on relevant accounting literature and then includes appropriate disclosure of the contingency. Except as otherwise noted, management does not believe that the amount of loss or a range of possible losses is reasonably estimable.

Infineon Litigation.  On April 11, 2011, Infineon Technologies A.G. and Infineon Technologies North America Corporation (collectively, “Infineon”) filed a patent infringement lawsuit against the Company in the United States District Court for the District of Delaware. Infineon alleges that the Company is infringing 11 Infineon patents and seeks a declaration that three of the Company’s patents are either invalid or not infringed. On July 5, 2011, the Company answered Infineon’s complaint, and filed counterclaims seeking a declaration that each of the 11 asserted Infineon patents is invalid and not infringed. The Company also counterclaimed for infringement of six of the Company’s patents and breach of contract related to Infineon’s breach of a confidentiality agreement. On July 29, 2011, Infineon answered these counterclaims and sought a declaration that the Company’s patents were either invalid or not infringed. On March 13, 2012, the Company filed amended counterclaims that alleged Infineon’s infringement of four additional

15

Atmel patents. On March 31, 2012, Infineon answered these counterclaims and sought a declaration that the Company’s newly asserted patents were either invalid or not infringed. On August 12, 2012, each party agreed to withdraw, without prejudice, four patents from the pending litigation. Trial of these matters currently is scheduled to commence in early 2014.  The Company intends to prosecute its claims and defend vigorously against Infineon’s claims.

From time to time, the Company is notified of claims that its products may infringe patents, or other intellectual property, issued to other parties. The Company periodically receives demands for indemnification from its customers with respect to intellectual property matters. The Company also periodically receives claims relating to the quality of its products, including claims for additional labor costs, costs for replacing defective parts, reimbursement to customers for damages incurred in correcting their defective products, costs for product recalls or other damages. Receipt of these claims and requests occurs in the ordinary course of the Company’s business, and the Company responds based on the specific circumstances of each event. The Company undertakes an accrual for losses relating to those types of claims when it considers those losses “probable” and when a reasonable estimate of loss can be determined.

Other Contingencies

In October 2008, officials of the European Union Commission (the “Commission”) conducted an inspection at the offices of one of the Company’s French subsidiaries. The Company was informed that the Commission was seeking evidence of potential violations by Atmel or its subsidiaries of the European Union’s competition laws in connection with the Commission’s investigation of suppliers of integrated circuits for smart cards. On September 21, 2009 and October 27, 2009, the Commission requested additional information from the Company, and the Company responded to the Commission’s requests. The Company continues to cooperate with the Commission’s investigation and has not received any specific findings, monetary demand or judgment through the date of filing this Form 10-Q. As a result, the Company has not recorded any provision in its financial statements related to this matter.

Product Warranties

The Company accrues for warranty costs based on historical trends of product failure rates and the expected material and labor costs to provide warranty services. The Company’s products are generally covered by a warranty typically ranging from 30 days to three years.

The following table summarizes the activity related to the product warranty liability for the three and nine months ended September 30, 2012 and 2011.

	Three Months Ended						Nine Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
	(in thousands)
Balance at beginning of period	$	5,665		$	5,107		$	5,746		$	4,019
Accrual for warranties during the period, net of change in estimate	443			1,593			3,066			5,450
Actual costs incurred	(1,146		)	(1,355		)	(3,850		)	(4,124		)
Balance at end of period	$	4,962		$	5,345		$	4,962		$	5,345

Product warranty liability is included in accrued and other liabilities on the condensed consolidated balance sheets.

Guarantees

During the ordinary course of business, the Company provides standby letters of credit or other guarantee instruments to certain parties as required for certain transactions initiated by either the Company or its subsidiaries. The Company has not recorded any liability in connection with these guarantee arrangements. Based on historical experience and information currently available, the Company believes it will not be required to make any payments under these guarantee arrangements.

Note 7 INCOME TAXES

The Company estimates its annual effective tax rate at the end of each quarter. In making these estimates, the Company considers, among other things, annual pre-tax income, the geographic mix of pre-tax income and the application and interpretations of tax laws, treaties and judicial developments, in collaboration with its tax advisors, and possible outcomes of audits.

16

The following table presents the provision for income taxes and the effective tax rates:

	Three Months Ended						Nine Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
	(in thousands, except for percentages)
Income before income taxes	$	27,551		$	139,909		$	56,762		$	333,948
Provision for income taxes	(5,915		)	(23,203		)	(13,985		)	(51,819		)
Effective tax rate	21.47		%	16.58		%	24.64		%	15.52		%

The Company’s effective tax rate for the three and nine months ended September 30, 2012 and 2011 was lower than the statutory federal income tax rate of 35%, primarily due to income recognized in lower tax rate jurisdictions.

The Company files U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. The Company's 2001 through 2011 tax years generally remain subject to examination by federal and most state tax authorities. For significant foreign jurisdictions, the 2001 through 2011 tax years generally remain subject to examination by the respective tax authorities.

Currently, the Company has tax audits in progress in various foreign jurisdictions. To the extent the final tax liabilities are different from the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations. While the Company believes that the resolution of these audits will not have a material adverse impact on the Company’s results of operations, the outcome is subject to uncertainty.

At September 30, 2012 and December 31, 2011, the Company had $32.1 million and $25.2 million of unrecognized tax benefits, respectively, which, if recognized, would affect the effective tax rate. Also at September 30, 2012 and December 31, 2011, the Company had $45.0 million and $42.8 million of unrecognized tax benefits, respectively, which, if recognized, would result in adjustments to other tax accounts, primarily deferred tax assets.

Increases or decreases in unrecognizable tax benefits could occur over the next 12 months due to tax law changes, unrecognized tax benefits established in the normal course of business, or the conclusion of ongoing tax audits in various jurisdictions around the world. While it is reasonably possible that some or all of these events may occur within the next 12 months, the Company is not able to estimate accurately the range of any potential change in unrecognized tax benefits that would result from the occurrence of such events. The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations. The Company regularly assesses its tax positions in light of legislative, bilateral tax treaty, regulatory and judicial developments in the countries in which the Company does business.

Note 8 PENSION PLANS

The Company sponsors defined benefit pension plans that cover substantially all of its French and German employees. Plan benefits are provided in accordance with local statutory requirements. Benefits are based on years of service and employee compensation levels. The plans are unfunded. Pension liabilities and charges are based upon various assumptions, updated annually, including discount rates, future salary increases, employee turnover, and mortality rates.

The Company’s French pension plan provides for termination benefits paid to covered French employees only at retirement, and consists of approximately one to five months of salary. The Company’s German pension plan provides for defined benefit payouts for covered German employees following retirement.

The aggregate net pension expense relating to these two plans are as follows:

	Three Months Ended				Nine Months Ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
	(in thousands)
Service costs	$	311	$	275	$	943	$	904
Interest cost	348		285		1,074		936
Amortization of actuarial loss	12		—		9		68
Settlement and other related gains	—		—		—		(726		)
Net pension period cost	$	671	$	560	$	2,026	$	1,182

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Settlement and other related gain of $0.7 million for the nine months ended September 30, 2011 related to restructuring activity in the Company’s Rousset, France operations initiated in the second quarter of 2010.

The Company’s net pension period cost for 2012 is expected to be approximately $2.8 million. Cash funding for benefits paid was insignificant for the three and nine months ended September 30, 2012. The Company expects total contribution to these plans to be approximately $0.3 million in 2012.

Note 9 OPERATING AND GEOGRAPHICAL SEGMENTS

The Company designs, develops, manufactures and sells semiconductor integrated circuit products. The Company’s segments represent management’s view of the Company’s businesses and how it allocates Company resources and measures performance of its major components. Each segment consists of product families with similar requirements for design, development and marketing. Each segment requires different design, development and marketing resources to produce and sell products. Atmel’s four operating and reportable segments are as follows:

• Microcontrollers. This segment includes Atmel’s capacitive touch products, including maXTouch and QTouch, AVR 8-bit and 32-bit products, ARM-based products and Atmel’s 8051 8-bit products.

• Nonvolatile Memories.  This segment includes serial interface electrically erasable programmable read-only memory (“SEEPROM”), parallel interface Flash memory, electrically erasable programmable read-only memory (“EEPROM”) and erasable programmable ready-only memory (“EPROM”) devices. This segment also includes products with military and aerospace applications.

• Radio Frequency (“RF”) and Automotive.  This segment includes automotive electronics, wireless and wired devices for industrial, consumer and automotive applications and foundry services for radio frequency products designed for mobile telecommunications markets.

• Application Specific Integrated Circuit (“ASIC”).  This segment includes custom application specific integrated circuits designed to meet specialized single-customer requirements for their high performance devices in a broad variety of specific applications, including products that provide hardware security for embedded digital systems, products with military and aerospace applications and application specific standard products for space applications, power management and secure cryptographic memory products.

The Company evaluates segment performance based on revenue and income or loss from operations excluding acquisition-related charges, restructuring (credits) charges, credit from reserved grant income and gain on sale of assets. Interest and other (expenses) income, net, foreign exchange gains and losses and income taxes are not measured by operating segment. Because the Company’s segments reflect the manner in which management reviews its business, they necessarily involve subjective judgments that management believes are reasonable in light of the circumstances under which they are made. These judgments may change over time or may be modified to reflect new facts or circumstances. Segments may also be changed or modified to reflect products, technologies or applications that are newly created, or that change over time, or other business conditions that evolve, each of which may result in reassessing specific segments and the elements included within each of those segments.

Segments are defined by the products they design and sell. They do not make sales to each other. The Company’s net revenue and segment income from operations for each reportable segment for the three and nine months ended September 30, 2012 and 2011 are as follows:

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Information about Reportable Segments

	Micro- Controllers		Nonvolatile Memories		RF and Automotive			ASIC		Total
	(in thousands)
Three Months Ended September 30, 2012
Net revenue from external customers	$	226,125	$	43,948	$	43,289		$	47,628	$	360,990
Segment income (loss) from operations	11,545		6,415		(327		)	9,891		27,524
Three Months Ended September 30, 2011
Net revenue from external customers	$	301,275	$	65,922	$	52,021		$	60,157	$	479,375
Segment income from operations	70,084		15,211		5,036			17,433		107,764
Nine Months Ended September 30, 2012
Net revenue from external customers	$	663,993	$	138,871	$	134,363		$	149,800	$	1,087,027
Segment income (loss) from operations	21,255		16,792		(1,141		)	31,346		68,252
Nine Months Ended September 30, 2011
Net revenue from external customers	$	897,293	$	200,557	$	155,445		$	166,149	$	1,419,444
Segment income from operations	219,341		44,999		15,843			41,816		321,999

The Company does not allocate assets by segment, as management does not use asset information to measure or evaluate a segment’s performance.

Reconciliation of Segment Information to Condensed Consolidated Statements of Operations

	Three Months Ended						Nine Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
	(in thousands)
Total segment income from operations	$	27,524		$	107,764		$	68,252		$	321,999
Unallocated amounts:
Acquisition-related charges	(1,530		)	(1,019		)	(5,442		)	(3,069		)
Restructuring credit (charges)	1,404			—			(12,950		)	(21,210		)
Credit from reserved grant income	—			—			10,689			—
Gain on sale of assets	—			33,428			—			35,310
Consolidated income from operations	$	27,398		$	140,173		$	60,549		$	333,030

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Geographic sources of revenue were as follows:

	Three Months Ended				Nine Months Ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
	(in thousands)
United States	$	49,757	$	57,254	$	146,340	$	192,109
Germany	39,773		58,669		137,186		178,068
France	4,998		6,350		22,728		23,769
Japan	13,331		15,342		37,796		44,895
China, including Hong Kong	121,513		157,284		326,772		427,956
Singapore	10,762		11,626		31,796		34,915
South Korea	43,536		67,544		143,474		170,449
Taiwan	14,615		30,943		49,870		124,837
Rest of Asia-Pacific	18,885		17,890		50,879		52,246
Rest of Europe	37,447		48,859		118,189		149,920
Rest of the World	6,373		7,614		21,997		20,280
Total net revenue	$	360,990	$	479,375	$	1,087,027	$	1,419,444

Net revenue is attributed to regions based on ship-to locations.

One customer accounted for more than 10% of net revenue in the three months ended September 30, 2012. Two customers accounted for more than 10% of net revenue in the nine months ended September 30, 2012. One customer accounted for more than 10% of net revenue in the three months ended September 30, 2011 and no single customer accounted for more than 10% of net revenue in the nine months ended September 30, 2011. No single customer accounted for more than 10% of accounts receivable at September 30, 2012. Two distributors accounted for 15% and 14%, respectively, of accounts receivable at December 31, 2011.

Physical locations of tangible long-lived assets as of September 30, 2012 and December 31, 2011 were as follows:

	September 30, 2012		December 31, 2011
	(in thousands)
United States	$	85,657	$	81,777
Philippines	63,558		71,332
Germany	18,552		20,681
France	25,875		30,277
Asia-Pacific	46,274		59,906
Rest of Europe	10,641		10,534
Total	$	250,557	$	274,507

Excluded from the table above are auction-rate securities of $1.1 million and $2.3 million at September 30, 2012 and December 31, 2011, respectively, which are included in other assets on the condensed consolidated balance sheets. Also excluded from the table above as of September 30, 2012 and December 31, 2011 are goodwill of $69.2 million and $67.7 million, respectively, intangible assets, net of $13.8 million and $20.6 million, respectively, and deferred income tax assets of $127.1 million and $121.4 million, respectively.

Note 10 SALE OF ASSETS

Sale of Assets

Serial Flash Product Lines

On September 28, 2012, the Company completed the sale of its serial flash product lines to Adesto. Under the terms of the sale agreement, the Company transferred certain assets to Adesto, and Adesto assumed certain liabilities, in return for cash consideration of $25.0 million. The Company has also granted Adesto an exclusive option, exercisable prior to November 15, 2012, to purchase the Company's remaining $7.0 million of serial flash inventory. The Company has, therefore, classified the remaining

20

$7.0 million of serial flash inventory as assets held-for-sale, which are presented as part of other current assets on the Company's condensed consolidated balance sheet at September 30, 2012. As a result, the Company has recorded a deferred gain of $4.4 million, which is presented as part of accrued liabilities on the Company's condensed consolidated balance sheet as of September 30, 2012.

Gain on Sale of Assets

Sale and Leaseback of San Jose Corporate Headquarters

On August 30, 2011, the Company completed the sale of its San Jose corporate headquarters and adjacent parcels of land to Ellis Partners LLC for an aggregate sale price of $48.5 million. The net book value of the properties sold was approximately $12.3 million on the closing date and the Company recorded a gain of $33.4 million in the three months ended September 30, 2011.

Note 11 RESTRUCTURING CHARGES

The following table summarizes the activity related to the accrual for restructuring charges detailed by event for the three and nine months ended September 30, 2012 and 2011.

	Third quarter of 2008			Second quarter of 2010			Second quarter of 2012
	Employee termination costs			Employee termination costs			Employee termination costs			Total 2012 activity
	(in thousands)
January 1, 2012	$	301		$	1,846		$	—		$	2,147
Charges	—			—			—			—
Payments	—			(741		)	—			(741		)
Foreign exchange gain	—			(226		)	—			(226		)
March 31, 2012	301			879			—			1,180
Charges	—			1,138			13,216			14,354
Payments	(301		)	—			—			(301		)
Foreign exchange gain	—			(9		)	(301		)	(310		)
June 30, 2012	—			2,008			12,915			14,923
Charges (credits), net of change in estimate	—			43			(1,447		)	(1,404		)
Payments	—			(158		)	(1,767		)	(1,925		)
Foreign exchange (gain) loss	—			(194		)	263			69
September 30, 2012	$	—		$	1,699		$	9,964		$	11,663

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	Third quarter of 2002		Second quarter of 2008		Third quarter of 2008			Fourth quarter of 2009			Second quarter of 2010
	Termination of contract with supplier		Employee termination costs		Employee termination costs			Other restructuring charges			Employee termination costs			Total 2011 activity
	(in thousands)
January 1, 2011	$	1,592	$	3	$	460		$	136		$	1,286		$	3,477
Charges	—		—		—			—			21,210			21,210
Payments	—		—		—			(45		)	(1,972		)	(2,017		)
Currency translation adjustment	—		—		16			—			735			751
March 31, 2011	1,592		3		476			91			21,259			23,421
Charges	—		—		—			—			—			—
Payments	—		—		—			(46		)	(3,428		)	(3,474		)
Currency translation adjustment	—		—		11			—			430			441
June 30, 2011	1,592		3		487			45			18,261			20,388
Charges	—		—		—			—			—			—
Payments	—		—		(12		)	(45		)	(1,808		)	(1,865		)
Foreign exchange gain	—		—		—			—			(1,166		)	(1,166		)
September 30, 2011	$	1,592	$	3	$	475		$	—		$	15,287		$	17,357

2012 Restructuring Charges

During the nine months ended September 30, 2012, the Company implemented cost reduction actions, including actions related to labor costs. The Company recorded a net restructuring credit of $1.4 million related to these restructuring actions in the three months ended September 30, 2012. The Company recorded restructuring charges, including applicable severance costs, of $13.0 million related to these restructuring actions in the nine months ended September 30, 2012. The Company has $11.7 million accrued at September 30, 2012 and expects to pay this within the next 12 months.

2011 Restructuring Charges

During the nine months ended September 30, 2011, the Company implemented cost reduction actions, including actions related to labor costs. Although the Company did not incur restructuring charges in the three months ended September 30, 2011, it incurred restructuring charges of $21.2 million in the nine months ended September 30, 2011 related to the restructuring actions taken in the second quarter of 2010.

Note 12 NET INCOME PER SHARE

Basic net income per share is calculated by using the weighted-average number of common shares outstanding during that period. Diluted net income per share is calculated giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental common shares issuable upon exercise of stock options and vesting of restricted stock units for all periods and accrued issuance of shares under employee stock purchase plans.

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A reconciliation of the numerator and denominator of basic and diluted net income per share is as follows:

	Three Months Ended				Nine Months Ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
	(in thousands, except per share data)
Net income	$	21,636	$	116,706	$	42,777	$	282,129
Weighted-average shares - basic	430,845		457,721		434,894		456,992
Dilutive effect of incremental shares and share equivalents	2,450		9,141		3,338		10,048
Weighted-average shares - diluted	433,295		466,862		438,232		467,040
Net income per share:
Basic
Net income per share - basic	$	0.05	$	0.25	$	0.10	$	0.62
Diluted
Net income per share - diluted	$	0.05	$	0.25	$	0.10	$	0.60

The following table summarizes securities which were not included in the “Weighted-average shares — diluted” used for calculation of diluted net income per share, as their effect would have been anti-dilutive:

	Three Months Ended		Nine Months Ended
	September 30, 2012	September 30, 2011	September 30, 2012	September 30, 2011
	(in thousands)
Employee stock options and restricted stock units outstanding	9,991	1,999	7,739	1,030

Note 13 INTEREST AND OTHER INCOME (EXPENSE), NET

Interest and other income (expense), net, are summarized in the following table:

	Three Months Ended						Nine Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
	(in thousands)
Interest and other income (expense)	$	439		$	(231	)	$	(1,089	)	$	(120	)
Interest expense	(971		)	(1,667		)	(3,162		)	(5,281		)
Foreign exchange transaction gains	685			1,634			464			6,319
Total	$	153		$	(264	)	$	(3,787	)	$	918

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with the Condensed Consolidated Financial Statements and related Notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to review and consider carefully the various disclosures made by us in this Quarterly Report on Form 10-Q and in our other reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2011. Atmel’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to such reports are available, free of charge, through the “Investors” section of www.atmel.com. We make these reports available as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. The SEC also maintains a website located at www.sec.gov that contains Atmel’s reports filed with, or furnished to, the SEC. The information disclosed on our website is not incorporated herein and does not form a part of this Quarterly Report on Form 10-Q.

This discussion contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, particularly statements regarding our outlook for fiscal 2012 and beyond, the expansion of the market for microcontrollers, revenue for our maXTouch™ products, expectations for our new XSense™ products, our gross margin, anticipated revenue by geographic area, operating expenses and capital expenditures, cash flow and liquidity measures, factory utilization, new product introductions, access to independent foundry capacity and the quality issues associated with the use of third party foundries, the effects of our strategic transactions and restructuring efforts, estimates related to the amount and/or timing of expensing unearned stock-based compensation expense and similar estimates related to our performance-based restricted stock units, our expectations regarding tax matters, the outcome of litigation (including intellectual property litigation in which we may be involved or in which our customers may be involved, especially in the mobile device sector) and the effects of exchange rates and our ongoing efforts to manage exposure to exchange rate fluctuation. Our actual results could differ materially from those projected in any forward-looking statements as a result of a number of factors, risks and uncertainties, including the risk factors set forth in this discussion and in Part II Item 1A — Risk Factors, and elsewhere in this Quarterly Report on Form 10-Q. Generally, the words “may,” “will,” “could,” “should,” “would,” “anticipate,” “expect,” “intend,” “believe,” “seek,” “estimate,” “plan,” “view,” “continue,” the plural of such terms, the negatives of such terms, or other comparable terminology and similar expressions identify forward-looking statements. The information included in this Quarterly Report on Form 10-Q is provided as of the filing date with the Securities and Exchange Commission and future events or circumstances could differ significantly from the forward-looking statements included herein. Accordingly, we caution readers not to place undue reliance on such statements. We undertake no obligation to update any forward-looking statements in this Quarterly Report on Form 10-Q.

OVERVIEW

We are one of the world’s leading designers, developers and suppliers of microcontrollers, which are self-contained computers-on-a-chip. Microcontrollers are generally less expensive, consume less power and offer enhanced programming capabilities compared to traditional microprocessors. Our microcontrollers and related products are used in many of the world’s leading smart phones, tablet devices, e-readers and other consumer and industrial electronics to provide core functionality for touch sensing, sensor management, security, wireless and communication applications and battery management. We offer an extensive portfolio of capacitive touch products that integrate our microcontrollers with fundamental touch-focused intellectual property ("IP") we have developed and we continue to leverage our market and technology advantages to expand our product portfolio within the touch-related eco-system. Toward that end, and as a natural extension of our touch controller business, earlier this year we announced our XSense products, a new type of touch sensor based on proprietary metal mesh technologies. We also design and sell products that are complementary to our microcontroller business, including nonvolatile memory and flash memory products, radio frequency and mixed-signal components and application specific integrated circuits. Our semiconductors also enable applications in many other fields, such as smart-metering for utility monitoring and billing, LED based lighting systems, buttons, sliders and wheels found on the touch panels of appliances, various aerospace, industrial, and military products and systems, and electronic-based automotive components, such as keyless ignition, access, engine control, lighting and entertainment systems, for standard and hybrid vehicles. Over the past several years, we transitioned our business to a “fab-lite” model, lowering our fixed costs and capital investment requirements, and we currently own and operate one wafer manufacturing facility in Colorado Springs, Colorado.

Net revenue was lower in the three and nine months ended September 30, 2012, compared to net revenue in the three and nine months ended September 30, 2011, as we were adversely affected by a slowdown in the global economy and excess inventories held by our distributors, particularly in Asia. Lower sales resulted in lower utilization rates for our Colorado Springs wafer facility, which increased our wafer costs and, as a consequence, adversely affected our gross margin. In response to lower sales, we implemented cost reductions throughout our business in the second quarter of 2012, including labor cost reductions. We expect to continue to monitor our cost structure to ensure that it is properly aligned with global economic conditions.

During the three and nine months ended September 30, 2012, we repurchased 3.8 million and 19.4 million shares of our common stock, respectively, in the open market and subsequently retired those shares under our existing stock repurchase program. As of September 30, 2012, $143.4 million remained available for repurchasing common stock under this program.

On September28, 2012, we completed the sale of our serial flash product lines to Adesto. Under the terms of the sale agreement, we transferred certain assets to Adesto, and Adesto assumed certain liabilities, in return for cash consideration of $25.0

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million. We also granted Adesto an exclusive option, exercisable prior to November 15, 2012, to purchase our remaining $7.0 million of serial flash inventory. Revenue for our serial flash product lines was $61.9 million for the nine months ended September30, 2012 compared to $113.9 million for the nine months ended September30, 2011.

RESULTS OF OPERATIONS

	Three Months Ended										Nine Months Ended
	September 30, 2012					September 30, 2011					September 30, 2012					September 30, 2011
	(in thousands, except percentage of net revenue)
Net revenue	$	360,990		100	%	$	479,375		100	%	$	1,087,027		100	%	$	1,419,444		100	%
Gross profit	155,526			43	%	240,391			50	%	469,780			43	%	723,576			51	%
Research and development	59,966			17	%	64,160			13	%	192,647			18	%	191,984			14	%
Selling, general and administrative	68,036			19	%	68,467			14	%	208,881			19	%	209,593			15	%
Acquisition-related charges	1,530			—	%	1,019			—	%	5,442			1	%	3,069			—	%
Restructuring (credit) charges	(1,404		)	—	%	—			—	%	12,950			1	%	21,210			1	%
Credit from reserved grant income	—			—	%	—			—	%	(10,689		)	(1	)%	—			—	%
Gain on sale of assets	—			—	%	(33,428		)	(7	)%	—			—	%	(35,310		)	(2	)%
Income from operations	$	27,398		8	%	$	140,173		29	%	$	60,549		6	%	$	333,030		23	%

Net Revenue

Our net revenue totaled $361.0 million for the three months ended September 30, 2012, a decrease of 25%, or $118.4 million, from $479.4 million in net revenue for the three months ended September 30, 2011. Net revenue was $1,087.0 million for the nine months ended September 30, 2012, a decrease of 23%, or $332.4 million, from $1,419.4 million for the nine months ended September 30, 2011. Revenue for the three and nine months ended September 30, 2012 was lower than the comparable periods for 2011 primarily as a result of lower sales throughout our distribution channel, particularly in Asia. We also continued to see softer global demand in the consumer and industrial markets, as the economic slowdown affected our customers and their purchasing requirements.

Net revenue denominated in Euros was 16% and 19% of total net revenue for the three months ended September 30, 2012 and 2011, respectively, and 20% and 21% for the nine months ended September 30, 2012 and 2011, respectively. Average exchange rates utilized to translate foreign currency revenues and expenses in Euros were approximately 1.24 and 1.43 Euro to the dollar for the three months ended September 30, 2012 and 2011, respectively, and 1.29 and 1.38 Euro to the dollar for the nine months ended September 30, 2012 and 2011, respectively. Our net revenue for the three months ended September 30, 2012 would have been approximately $9.2 million higher had the average exchange rate in the current quarter remained the same as the average exchange rate in effect for the three months ended September 30, 2011. Our net revenue for the nine months ended September 30, 2012 would have been approximately $18.4 million higher had the average exchange rate in the current nine-month period remained the same as the rate in effect for the nine months ended September 30, 2011.

Net Revenue — By Operating Segment

Our net revenue by operating segment is summarized as follows:

	Three Months Ended
	September 30, 2012		September 30, 2011		Change			% Change
	(in thousands, except for percentages)
Microcontroller	$	226,125	$	301,275	$	(75,150	)	(25	)%
Nonvolatile Memory	43,948		65,922		(21,974		)	(33	)%
RF and Automotive	43,289		52,021		(8,732		)	(17	)%
ASIC	47,628		60,157		(12,529		)	(21	)%
Total net revenue	$	360,990	$	479,375	$	(118,385	)	(25	)%

25

	Nine Months Ended
	September 30, 2012		September 30, 2011		Change			% Change
	(in thousands, except for percentages)
Microcontroller	$	663,993	$	897,293	$	(233,300	)	(26	)%
Nonvolatile Memory	138,871		200,557		(61,686		)	(31	)%
RF and Automotive	134,363		155,445		(21,082		)	(14	)%
ASIC	149,800		166,149		(16,349		)	(10	)%
Total net revenue	$	1,087,027	$	1,419,444	$	(332,417	)	(23	)%

Microcontroller

Microcontroller segment net revenue decreased 25% to $226.1 million for the three months ended September 30, 2012 from $301.3 million for the three months ended September 30, 2011. Microcontroller segment net revenue decreased 26% to $664.0 million for the nine months ended September 30, 2012 from $897.3 million for the nine months ended September 30, 2011. Revenue decreased primarily due to weaker demand in industrial and consumer markets, with ARM and maXTouch products most affected. Microcontroller net revenue represented 63% and 61% of total net revenue for the three and nine months ended September 30, 2012, respectively, compared to 63% of total net revenue for both the three and nine months ended September 30, 2011. Inventory held by distributors of our microcontroller products decreased significantly for the three and nine months ended September 30, 2012 as compared to the three and nine months ended September 30, 2011.

Nonvolatile Memory

Nonvolatile Memory segment net revenue decreased 33% to $43.9 million for the three months ended September 30, 2012 from $65.9 million for the three months ended September 30, 2011. Nonvolatile Memory segment net revenue decreased 31% to $138.9 million for the nine months ended September 30, 2012 from $200.6 million for the nine months ended September 30, 2011. The decline in our memory business resulted primarily from reduced market demand, a weaker pricing environment and the end of life for several flash products, including Serial EE and Serial Flash products, which saw revenue decrease by 26% and 38%, respectively, for the three months ended September 30, 2012 compared to the same period in 2011. Revenue from Serial EE and Serial Flash products decreased by 22% and 46%, respectively, for the nine months ended September 30, 2012 compared to the same period in 2011. On September 28, 2012 we sold our serial flash product lines to Adesto and discontinued those products. Revenue for our serial flash product lines was $61.9 million for the nine months ended September 30, 2012 compared to $113.9 million for the nine months ended September 30, 2011.

RF and Automotive

RF and Automotive segment net revenue decreased 17% to $43.3 million for the three months ended September 30, 2012 from $52.0 million for the three months ended September 30, 2011. RF and Automotive segment net revenue decreased 14% to $134.4 million for the nine months ended September 30, 2012 from $155.4 million for the nine months ended September 30, 2011. This decrease was primarily related to continued decline in demand for our non-core radio frequency products within this segment during the first nine months of 2012, related generally to adverse macro-economic conditions and seasonality effects within the automotive sector, partially offset by an increase of 7% in net revenue from sales of our high voltage products, which are used primarily in automotive applications.

ASIC

ASIC segment net revenue decreased 21% to $47.6 million for the three months ended September 30, 2012 from $60.2 million for the three months ended September 30, 2011. ASIC segment net revenue decreased 10% to $149.8 million for the nine months ended September 30, 2012 from $166.1 million for the nine months ended September 30, 2011. Our military and aerospace business revenue, which is approximately 21% of overall ASIC revenue, decreased approximately 26% during the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 primarily from reduced market demand.

Net Revenue by Geographic Area

Our net revenue by geographic area for the three and nine months ended September 30, 2012, compared to the same period in 2011, is summarized in the table below. Revenue is attributed to regions based on the location to which we ship. See Note 9 of Notes to Condensed Consolidated Financial Statements for further discussion.

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	Three Months Ended
	September 30, 2012		September 30, 2011		Change			% Change
	(in thousands, except for percentages)
Asia	$	222,642	$	300,629	$	(77,987	)	(26	)%
Europe	82,218		113,878		(31,660		)	(28	)%
United States	49,757		57,254		(7,497		)	(13	)%
Other*	6,373		7,614		(1,241		)	(16	)%
Total net revenue	$	360,990	$	479,375	$	(118,385	)	(25	)%

	Nine Months Ended
	September 30, 2012		September 30, 2011		Change			% Change
	(in thousands, except for percentages)
Asia	$	640,587	$	855,298	$	(214,711	)	(25	)%
Europe	278,103		351,757		(73,654		)	(21	)%
United States	146,340		192,109		(45,769		)	(24	)%
Other*	21,997		20,280		1,717			8	%
Total net revenue	$	1,087,027	$	1,419,444	$	(332,417	)	(23	)%

_________________________________________

*  Primarily includes South Africa, and Central and South America

Net revenue outside the United States accounted for 86% and 88% of our net revenue for the three months ended September 30, 2012 and 2011, respectively, and 87% and 86% for the nine months ended September 30, 2012 and 2011, respectively.

Our net revenue in Asia decreased $78.0 million, or 26%, for the three months ended September 30, 2012, compared to the same period in 2011, and decreased $214.7 million, or 25%, for the nine months ended September 30, 2012, compared to the same period in 2011. The decrease in this region for the three months and the six months ended September 30, 2012, compared to the three months and nine months ended September 30, 2011 was primarily due to lower shipments of our microcontroller products as result of weaker demand in industrial and consumer markets, with ARM and maXTouch products most affected. In the three months ended September 30, 2012 our distributors in Asia reduced their inventory of our products by 30% as compared to the three months ended June 30, 2012. Net revenue for the Asia region was 62% and 59% of total net revenue for the three months and nine months ended September 30, 2012, respectively, compared to 63% and 60% of total net revenue for the three months and nine months ended September 30, 2011, respectively.

Our net revenue in Europe decreased $31.7 million, or 28%, for the three months ended September 30, 2012, comparedto the three months ended September 30, 2011 and decreased $73.7 million, or 21% for the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011. The decrease in this region for the three and nine months ended September 30, 2012, compared to the three and nine months ended September 30, 2011 was primarily a result of the continued decline in industrial markets. Net revenue for the Europe region was 23% and 26% of total net revenue for the three and nine months ended September 30, 2012, respectively, compared to 24% and 25% of total net revenue for the three and nine months ended September 30, 2011, respectively.

Our net revenue in the United States decreased by $7.5 million, or 13%, for the three months ended September 30, 2012, compared to the three months ended September 30, 2011 and decreased by $45.8 million, or 24%, for the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011. This decrease resulted from a continued decline in industrial markets, primarily in the markets for energy related products. Net revenue for the United States region was 14% and 13% of total net revenue for the three and nine months ended September 30, 2012, respectively, compared to 12% and 14% of total net revenue for the three months and nine months ended September 30, 2011, respectively.

Revenue and Costs — Impact from Changes to Foreign Exchange Rates

Changes in foreign exchange rates have historically had an effect on our net revenue and operating costs. Net revenue denominated in foreign currencies was 16% and 19% of our total net revenue for the three months ended September 30, 2012 and 2011, respectively, and 20% and 21% of our total net revenue for the nine months ended September 30, 2012 and 2011, respectively.

Costs denominated in foreign currencies were 15% and 18% of our total costs for the three months ended September 30, 2012 and 2011, respectively, and 20% and 19% of our total costs for the nine months ended September 30, 2012 and 2011,

27

respectively.

Average exchange rates utilized to translate foreign currency revenue and expenses in Euros were approximately 1.24 and 1.43 Euros to the dollar for the three months ended September 30, 2012 and 2011, respectively, and 1.29 and 1.38 Euros to the dollar for nine months ended September 30, 2012 and 2011, respectively.

For the three months ended September 30, 2012, changes in foreign exchange rates had an unfavorable overall effect on our operating results. Our net revenue and operating expenses for the three months ended September 30, 2012 would have been approximately $9.2 million higher and $5.7 million higher, respectively, had the average exchange rate in the current year remained the same as the average rate in effect for the three months ended September 30, 2011. Our income from operations would have been approximately $3.5 million higher had the average exchange rate in the three months ended September 30, 2012 remained the same as the average exchange rate in the three months ended September 30, 2011.

For the nine months ended September 30, 2012, changes in foreign exchange rates had an unfavorable overall effect on our operating results. Our net revenue and operating expenses for the nine months ended September 30, 2012 would have been approximately $18.4 million higher and $13.1 million higher, respectively, had the average exchange rate in the current year remained the same as the average rate in effect for the nine months ended September 30, 2011. Our income from operations would have been approximately $5.3 million higher had the average exchange rate in the nine months ended September 30, 2012 remained the same as the average exchange rate in the nine months ended September 30, 2011.

There remains ongoing uncertainty regarding the future of the Euro as a common currency and the Eurozone. While we continue to monitor the situation, the elimination of the Euro as a common currency, the withdrawal of member states from the Eurozone or other events affecting the liquidity, volatility or use of the Euro could have a significant effect on our revenue and operations.

Gross Margin

Gross margin declined to 43.1% and 43.2% for the three and nine months ended September 30, 2012, respectively, compared to 50.1% and 51.0% for the three and nine months ended September 30, 2011, respectively. Gross margin in the three and nine months ended September 30, 2012 was adversely affected by lower sales, which resulted in lower utilization rates at our Colorado Springs wafer facility, and a weaker pricing environment.

Inventory decreased to $335.8 million at September 30, 2012 from $377.4 million at December 31, 2011 primarily related to the sale of our serial flash product lines to Adesto. Our inventory levels, and related write-downs, may require further adjustments during the remainder of 2012 to reflect revised demand forecasts or product lifecycles. Inventory adjustments, if undertaken, may affect our results of operations, including gross margin, depending on the nature of those adjustments. If the demand for certain semiconductor products declines or does not materialize as we expect, we could be required to record additional write-downs, which would adversely affect our gross margin.

For the nine months ended September 30, 2012, we manufactured approximately 57% of our products in our own wafer fabricationfacility compared to 51% for the nine months ended September 30, 2011.

Our cost of revenue includes the costs of wafer fabrication, assembly and test operations, inventory write-downs, royalty expense, freight costs and stock compensation expense. Our gross margin as a percentage of net revenue fluctuates depending on product mix, manufacturing yields, utilization of manufacturing capacity, reserves for our excess and obsoleteinventory, and average selling prices, among other factors.

Research and Development

Research and development (“R&D”) expenses decreased 7%, or $4.2 million, to $60.0 million for the three months ended September 30, 2012 from $64.2 million for the three months ended September 30, 2011. Research and development (“R&D”) expenses remained relatively flat at $192.6 million for the nine months ended September 30, 2012 compared to $192.0 million for the nine months ended September 30, 2011.

R&D expenses for the three months ended September 30, 2012 decreased compared to the three months ended September 30, 2011 primarily due to reduced stock-based compensation expense as well as lower product development staffing related costs. In addition, R&D expenses for the three months ended September 30, 2012, were favorably affected by approximately $3.1 million due to foreign exchange rate fluctuations, compared to rates in effect and the related expenses for the three months ended September 30, 2011.

R&D expenses for the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011 increased slightly, primarily due to higher employee related expenses related to product development staffing and increased stock-based compensation expense, offset by an increase in R&D grants. In addition, R&D expenses for the nine months ended September 30, 2012, were favorably affected by approximately $8.2 million due to foreign exchange rate fluctuations, compared to rates in effect and the related expenses incurred for the nine months ended September 30, 2011.

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As a percentage of net revenue, R&D expenses totaled 17% and 18% for the three and nine months ended September 30, 2012, respectively, compared to 13% and 14% for the three and nine months ended September 30, 2011, respectively.

 Our internally developed process technologies are an important part of new product development. We continue to invest in developing process technologies emphasizing wireless, high voltage, analog, digital, and embedded memory manufacturing processes. Our technology development groups, in partnership with certain external foundries, are developing new and enhanced fabrication processes, including architectures utilizing advanced processes at the 65 nanometer line width node. We believe this investment allows us to bring new products to market faster, add innovative features and achieve performance improvements. We believe that continued strategic investments in process technology and product development are essential for us to remain competitive in the markets we serve.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expenses remained relatively flat for the three and nine months ended September 30, 2012, compared to the three and nine months ended September 30, 2011.

SG&A expenses for the three months ended September 30, 2012 were favorably affected by approximately $1.6 million due to foreign exchange rate fluctuations, compared to rates in effect and the related expenses incurred for the three months ended September 30, 2011. In addition, SG&A expenses for the nine months ended September 30, 2012 were favorably affected by approximately $3.7 million due to foreign exchange rate fluctuations, compared to rates in effect and the related expenses incurred for the nine months ended September 30, 2011.

As a percentage of net revenue, SG&A expenses totaled 19% for both the three and nine months ended September 30, 2012 compared to 14% and 15% for the three and nine months ended September 30, 2011, respectively.

Stock-Based Compensation

We primarily issue restricted stock units to our employees as equity compensation. Employees may also participate in an Employee Stock Purchase Program that offers the ability to purchase stock through payroll withholdings at a discount to market price.

Stock-based compensation cost for stock options is based on the fair value of the award at the measurement date (grant date). The compensation amount for those options is calculated using a Black-Scholes option valuation model. For restricted stock unit awards, the compensation amount is determined based upon the market price of our common stock on the grant date. Stock-based compensation for restricted stock units, other than performance-based units described below, is recognized as an expense over the applicable vesting term for each employee receiving restricted stock units.

The recognition as expense of the fair value of performance-related stock-based awards is determined based upon management’s estimate of the probability and timing for achieving the associated performance criteria, utilizing the fair value of the common stock on the grant date. Stock-based compensation for performance-related awards is recognized over the estimated performance period, which may vary from period to period based upon management’s estimates of the timing to achieve the related performance goals. These awards vest once the performance criteria are met.

The following table summarizes stock-based compensation included in operating results for the three and nine months ended September 30, 2012 and 2011:

	Three Months Ended						Nine Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
	(in thousands)
Cost of revenue	$	2,154		$	1,143		$	6,723		$	5,783
Research and development	4,925			5,557			17,568			16,325
Selling, general and administrative	11,150			9,758			31,747			27,496
Total stock-based compensation expense, before income taxes	18,229			16,458			56,038			49,604
Tax benefit	(2,403		)	(2,776		)	(6,624		)	(7,853		)
Total stock-based compensation expense, net of income taxes	$	15,826		$	13,682		$	49,414		$	41,751

In May 2011, we adopted the 2011 Long-Term Performance Based Incentive Plan (the “2011 Plan”), which provides for the grant of restricted stock units to eligible employees. Vesting of restricted stock units granted under the 2011 Plan is subject to

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the satisfaction of specified performance metrics tied to relative revenue growth rankings and operating margin over the designated performance periods. The performance periods for the 2011 Plan run from January 1, 2011 through December 31, 2013 and consist of three one-year performance periods (calendar years 2011, 2012 and 2013) and a three year cumulative performance period. We did not issue any performance-based restricted stock units in the three months ended September 30, 2012; we issued 0.3 million performance-based restricted stock units in the nine months ended September 30, 2012.  We recorded total stock-based compensation expense related to performance-based restricted stock units of $3.3 million and $11.0 million under the 2011 Plan in the three and nine months ended September 30, 2012, respectively. We recorded total stock-based compensation expense related to performance-based restricted units of $3.7 million and $4.3 million under the 2011 Plan in the three and nine months ended September 30, 2011, respectively.

The 2011 Plan performance metrics include revenue growth rankings for us relative to a semiconductor peer group or a microcontroller peer group, as determined by the Compensation Committee. In addition, in order for a participant to receive credit for a performance period, we must achieve a minimum operating margin during such performance period, measured on a pro forma basis, subject to adjustment by the Compensation Committee. We evaluate, on a quarterly basis, the likelihood of meeting our performance metrics in determining stock-based compensation expense for performance share plans.

We recorded total stock based compensation expense related to performance based restricted stock units of $6.5 million under the 2008 Plan in the nine months ended September 30, 2011. No charges were incurred under the 2008 Plan for the three months ended September 30, 2011 since the 2008 Plan ended in May 2011.

Until restricted stock units are vested, they do not have the voting rights of common stock and the shares underlying the awards are not considered issued and outstanding.

Acquisition-Related Charges

We recorded total acquisition-related charges of $1.5 million and $5.4 million for the three and nine months ended September 30, 2012, respectively, related to our acquisitions of Advanced Digital Design and Quantum Research Group Ltd., compared to $1.0 million and $3.1 million for the three and nine months ended September 30, 2011, respectively, related to our acquisition of Quantum Research Group Ltd., associated with customer relationships, developed technology, trade name, non-compete agreements, backlog and deferred compensation arrangements. We estimate amortization of intangibles and deferred compensation arrangements will be approximately $1.8 million for the remainder of 2012.

Restructuring Charges

The following table summarizes the activity related to the accrual for restructuring charges detailed by event for the three and nine months ended September 30, 2012 and 2011:

	Third quarter of 2008			Second quarter of 2010			Second quarter of 2012
	Employee termination costs			Employee termination costs			Employee termination costs			Total 2012 activity
	(in thousands)
January 1, 2012	$	301		$	1,846		$	—		$	2,147
Charges	—			—			—			—
Payments	—			(741		)	—			(741		)
Foreign exchange gain	—			(226		)	—			(226		)
March 31, 2012	301			879			—			1,180
Charges	—			1,138			13,216			14,354
Payments	(301		)	—			—			(301		)
Foreign exchange gain	—			(9		)	(301		)	(310		)
June 30, 2012	—			2,008			12,915			14,923
Charges (credits), net of change in estimate	—			43			(1,447		)	(1,404		)
Payments	—			(158		)	(1,767		)	(1,925		)
Foreign exchange (gain) loss	—			(194		)	263			69
September 30, 2012	$	—		$	1,699		$	9,964		$	11,663

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	Third quarter of 2002		Second quarter of 2008		Third quarter of 2008			Fourth quarter of 2009			Second quarter of 2010
	Termination of contract with supplier		Employee termination costs		Employee termination costs			Other restructuring charges			Employee termination costs			Total 2011 activity
	(in thousands)
January 1, 2011	$	1,592	$	3	$	460		$	136		$	1,286		$	3,477
Charges	—		—		—			—			21,210			21,210
Payments	—		—		—			(45		)	(1,972		)	(2,017		)
Currency translation adjustment	—		—		16			—			735			751
March 31, 2011	1,592		3		476			91			21,259			23,421
Charges	—		—		—			—			—			—
Payments	—		—		—			(46		)	(3,428		)	(3,474		)
Currency translation adjustment	—		—		11			—			430			441
June 30, 2011	1,592		3		487			45			18,261			20,388
Charges	—		—		—			—			—			—
Payments	—		—		(12		)	(45		)	(1,808		)	(1,865		)
Foreign exchange gain	—		—		—			—			(1,166		)	(1,166		)
September 30, 2011	$	1,592	$	3	$	475		$	—		$	15,287		$	17,357

2012 Restructuring Charges

During the nine months ended September 30, 2012, we implemented cost reduction actions, including actions related to labor costs. We recorded a net restructuring credit of $1.4 million related to these restructuring actions in the three months ended September 30, 2012. We recorded restructuring charges, including applicable severance costs, of $13.0 million related to these restructuring actions in the nine months ended September 30, 2012.

2011 Restructuring Charges

During the nine months ended September 30, 2011, we implemented cost reduction actions, including actions related to labor costs. Although we did not incur restructuring charges in the three months ended September 30, 2011, we incurred restructuring charges of $21.2 million in the nine months ended September 30, 2011 related to the restructuring actions noted in the table above.

Credit from Reserved Grant Income

In March 2012, the Greek government executed a ministerial decision related to an outstanding state grant previously made to a Greek subsidiary of ours. Consequently, we recognized a benefit of $10.7 million in our results for the three months ended March 31, 2012 resulting from the reversal of a reserve previously established for that grant.

Interest and Other Income (Expense), Net

	Three Months Ended						Nine Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
	(in thousands)
Interest and other income (expense)	$	439		$	(231	)	$	(1,089	)	$	(120	)
Interest expense	(971		)	(1,667		)	(3,162		)	(5,281		)
Foreign exchange transaction gains	685			1,634			464			6,319
Total	$	153		$	(264	)	$	(3,787	)	$	918

Interest and other income, net, for the three months ended September 30, 2012 resulted in income when compared to the same period in 2011, which resulted in an expense, primarily due to lower interest expense. Interest and other expense, net, for the nine months ended September 30, 2012 resulted in an expense when compared to the same period in 2011, which resulted in income, primarily due to a loss resulting from a private company investment of $1.9 million and was further impacted by foreign exchange losses. We continue to have balance sheet exposures in foreign currencies subject to exchange rate fluctuations and may incur further gains or losses in the future as a result of such exposures.

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Provision for Income Taxes

We recorded a provision for income taxes of $5.9 million and $14.0 million for the three and nine months ended September 30, 2012, respectively, and we recorded a provision for income taxes of $23.2 million and $51.8 million for the three and nine months ended September 30, 2011, respectively.

We estimate our annual effective tax rate at the end of each quarter. In making these estimates, we, in consultation with our tax advisors, consider, among other things, annual pre-tax income, the geographic mix of pre-tax income and the application and interpretations of tax laws, treaties and judicial developments and the possible outcomes of audits.

Our effective tax rate for the three and nine months ended September 30, 2012 and 2011 was lower than the statutory federal income tax rate of 35%, primarily due to income recognized in lower tax rate jurisdictions.

We file U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. Our 2001 through 2011 tax years generally remain subject to examination by federal and most state tax authorities. For significant foreign jurisdictions, the 2001 through 2011 tax years generally remain subject to examination by their respective tax authorities.

Currently, we have tax audits in progress in various foreign jurisdictions. To the extent the final tax liabilities are different from the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations. While we believe that the resolution of these audits will not have a material adverse impact on our results of operations, the outcome is subject to uncertainty.

At September 30, 2012 and December 31, 2011, we had $32.1 million and $25.2 million of unrecognized tax benefits, respectively, which, if recognized, would affect the effective tax rate. Also at September 30, 2012 and December 31, 2011, we had $45.0 million and $42.8 million of unrecognized tax benefits, respectively, which, if recognized, would result in adjustments to other tax accounts, primarily deferred tax assets.

Increases or decreases in unrecognizable tax benefits could occur over the next 12 months due to tax law changes, unrecognized tax benefits established in the normal course of business, or due to the conclusion of ongoing tax audits in various jurisdictions around the world. While it is reasonably possible that some or all of these events may occur within the next 12 months, we are not able to estimate accurately the range of any potential change in unrecognized tax benefits that would result from the occurrence of such events. The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations. We regularly assess our tax positions in light of legislative, bilateral tax treaty, regulatory and judicial developments in the countries in which we do business.

Liquidity and Capital Resources

At September 30, 2012, we had $289.1 million of cash, cash equivalents and short-term investments, compared to $332.5 million at December 31, 2011. Our current asset to liability ratio, calculated as total current assets divided by total current liabilities, was 3.10 at September 30, 2012 compared to 3.14 at December 31, 2011. Working capital, calculated as total current assets less total current liabilities, decreased to $649.2 million at September 30, 2012, compared to $708.6 million at December 31, 2011. Cash provided by operating activities was $122.1 million and $177.8 million for the nine months ended September 30, 2012 and 2011, respectively, and capital expenditures totaled $31.8 million and $74.9 million for the nine months ended September 30, 2012 and 2011, respectively, with the decrease resulting primarily from a reduction in the purchase of testing equipment in the 2012 fiscal year.

As of September 30, 2012, of the $289.1 million aggregate cash and cash equivalents and short-term investments held by us, the amount of cash and cash equivalents held by our foreign subsidiaries was $227.3 million. If the funds held by our foreign subsidiaries were needed for our operations in the United States, the repatriation of some of these funds to the United States could require payment of additional U.S. taxes.

Operating Activities

Net cash provided by operating activities was $122.1 million for the nine months ended September 30, 2012, compared to $177.8 million for the nine months ended September 30, 2011. Net cash provided by operating activities for the nine months ended September 30, 2012 was determined primarily by adjusting net income of $42.8 million for certain non-cash charges for depreciation and amortization of $57.2 million and stock-based compensation charges of $56.0 million.

Accounts receivable increased by 17% or $35.2 million to $248.2 million at September 30, 2012, from $212.9 million at December 31, 2011. The average number of days of accounts receivable outstanding increased to 63 days for the three months ended September 30, 2012 from 51 days for the three months ended December 31, 2011. The increase in receivable balances is related to larger shipments toward the end of the quarter and lower collections during the period.

Inventories decreased to $335.8 million at September 30, 2012 from $377.4 million at December 31, 2011. Inventories consist of raw wafers, purchased foundry wafers, work-in-process and finished units. Our number of days of inventory decreased

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to 149 days for the three months ended September 30, 2012 from 173 days for the three months ended December 31, 2011. As a result of the sale of our serial flash product lines to Adesto, inventories were reduced by $25.6 million, of which $18.6 million was transferred to Adesto. We have also granted Adesto an exclusive option, exercisable prior to November 15, 2012, to purchase the remaining $7.0 million of serial flash inventory. We have, therefore, classified that remaining $7.0 million of our serial flash inventory as assets held-for-sale, which are presented as part of other current assets on the condensed consolidated balance sheet at September 30, 2012. Our inventory levels, and related reserves, may require further adjustments during the remainder of 2012 to reflect revised demand forecasts or product lifecycles.

Investing Activities

Net cash provided by investing activities was $0.4 million for the nine months ended September 30, 2012, compared to net cash used in investing activities of $14.7 million for the nine months ended September 30, 2011. For the nine months ended September 30, 2012, we paid $31.8 million for acquisitions of fixed assets as compared to $74.9 million in the nine months ended September 30, 2011 resulting principally from reduced purchases of testing equipment. We also received $25.0 million in cash from the sale of our serial flash product lines in the nine months ended September 30, 2012.

We anticipate expenditures for capital purchases for the remainder of 2012 to be in the range of $5 million to $10 million, depending on business levels. We expect to use those investments principally to maintain existing manufacturing operations and to expand manufacturing capacity for our XSense products.

Financing Activities

Net cash used in financing activities was $162.0 million and $185.3 million for the nine months ended September 30, 2012 and 2011, respectively. The cash used was primarily related to stock repurchases of $163.4 million in the nine months ended September 30, 2012, compared to stock repurchases of $169.1 million in the nine months ended September 30, 2011 and tax payments related to shares withheld for vested restricted stock units of $15.2 million for the nine months ended September 30, 2012, compared to $65.0 million for the nine ended September 30, 2011. During the nine months ended September 30, 2012, we repurchased 19.4 million shares of our common stock in the open market and subsequently retired those shares under our existing stock repurchase program.  As of September 30, 2012, $143.4 million remained available for repurchases under this program. Proceeds from the issuance of common stock in respect of stock options and our employee stock purchase plan totaled $14.6 million and $26.6 million for the nine months ended September 30, 2012 and 2011, respectively.

We believe our existing balances of cash, cash equivalents and short-term investments, together with anticipated cash flow from operations, available equipment lease financing, and other short-term and medium-term bank borrowings that we believe would be available to us, will be sufficient to meet our liquidity and capital requirements over the next twelve months.

Since a substantial portion of our operations are conducted through our foreign subsidiaries, our cash flow, ability to service debt, and payments to vendors are partially dependent upon the liquidity and earnings of our subsidiaries as well as the distribution of those earnings, or repayment of loans or other payments of funds by those subsidiaries, to us. Our foreign subsidiaries are separate and distinct legal entities and may be subject to local legal or tax requirements, or other restrictions that may limit their ability to transfer funds to other group entities including the U.S. parent entity, whether by dividends, distributions, loans or other payments.

During the next twelve months, we expect our operations to continue to generate positive cash flow. However, a portion of cash balances may be used to make capital expenditures, repurchase common stock, or make acquisitions. Remaining debt obligations totaled $5.2 million at September 30, 2012. During the remainder of 2012 and in future years, our ability to make necessary capital investments or strategic acquisitions will depend on our ability to continue to generate sufficient cash flow from operations and to obtain adequate financing if necessary. We believe we have sufficient working capital to fund operations with $289.1 million in cash, cash equivalents and short-term investments as of September 30, 2012 together with expected future cash flows from operations.

Off-Balance Sheet Arrangements (Including Guarantees)

See the paragraph under the heading “Guarantees” in Note 6 of Notes to Condensed Consolidated Financial Statements for a discussion of off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our Condensed Consolidated Financial Statements, which we have prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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We believe that the estimates, assumptions and judgments involved in provisions for revenue, excess and obsolete inventory, sales reserves and allowances, stock-based compensation expense, allowances for doubtful accounts receivable, estimates for useful lives associated with long-lived assets, recoverability of goodwill and intangible assets, restructuring charges, liabilities for uncertain tax positions, deferred tax asset valuation allowances and litigation have the greatest potential impact on our Condensed Consolidated Financial Statements, so we consider these to be our critical accounting policies. Historically, our estimates, assumptions and judgments relative to our critical accounting policies have not differed materially from actual results, although there can be no assurance that results will not differ in the future. The critical accounting estimates associated with these policies are described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” of our Annual Report on Form 10-K filed with the SEC on February 28, 2012.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We maintain investment portfolio holdings of various issuers, types and maturities whose values are dependent upon short-term interest rates. We generally classify these securities as available-for-sale, and consequently record them on the condensed consolidated balance sheet at fair value with unrealized gains and losses being recorded as a separate part of stockholders’ equity. We do not currently hedge these interest rate exposures. Given our current profile of interest rate exposures and the maturities of our investment holdings, we believe that an unfavorable change in interest rates would not have a significant negative impact on our investment portfolio or statements of operations through September 30, 2012.

Foreign Currency Risk

When we take an order denominated in a foreign currency we will receive fewer dollars, and lower revenue, than we initially anticipated if that local currency weakens against the dollar before we ship our product. Conversely, revenue will be positively impacted if the local currency strengthens against the dollar before we ship our product. Costs may also be affected by foreign currency fluctuation. For example, in Europe, where we have costs denominated in European currencies, costs will decrease if the local currency weakens. Conversely, all costs will increase if the local currency strengthens against the dollar. This impact is determined assuming that all foreign currency denominated transactions that occurred for the three and nine months ended September 30, 2012 were recorded using the average foreign currency exchange rates in the three and nine months ended September 30, 2011. We do not use derivative instruments to hedge our foreign currency risk.

Changes in foreign exchange rates have historically had an effect on our net revenue and operating costs. Net revenue denominated in foreign currencies was 16% and 19% of our total net revenue for the three months ended September 30, 2012 and 2011, respectively, and 20% and 21% in the nine months ended September 30, 2012 and 2011, respectively.

Costs denominated in foreign currencies were 15% and 18% of our total costs for the three months ended September 30, 2012 and 2011, respectively and 20% and 19% of our total costs in nine months ended September 30, 2012 and 2011, respectively.

Average exchange rates utilized to translate foreign currency revenue and expenses in Euros were approximately 1.24 and 1.43 Euros to the dollar for the three months ended September 30, 2012 and 2011, respectively, and 1.29 and 1.38 Euros to the dollar for the nine months ended September 30, 2012 and 2011, respectively.

For the three months ended September 30, 2012, changes in foreign exchange rates had an unfavorable overall effect on our operating results. Our net revenue for the three months ended September 30, 2012 would have been approximately $9.2 million higher had the average exchange rate in the current year remained the same as the average rate in effect for the three months ended September 30, 2011. In addition, for the three months ended September 30, 2012, our operating expenses would have been approximately $5.7 million higher. Our income from operations would have been approximately $3.5 million higher had the average exchange rate in the three months ended September 30, 2012 remained the same as the average exchange rate in the three months ended September 30, 2011.

For the nine months ended September 30, 2012, changes in foreign exchange rates had an unfavorable overall effect on our operating results. Our net revenue for the nine months ended September 30, 2012 would have been approximately $18.4 million higher had the average exchange rate in the current year remained the same as the average rate in effect for the nine months ended September 30, 2011. In addition, for the nine months ended September 30, 2012, our operating expenses would have been approximately $13.1 million higher. Our income from operations would have been approximately $5.3 million higher had the average exchange rate in the nine months ended September 30, 2012 remained the same as the average exchange rate in the nine months ended September 30, 2011.

We also face the risk that our accounts receivable denominated in foreign currencies will be devalued if such foreign currencies weaken quickly and significantly against the dollar. Approximately 14% and 23% of our accounts receivable were denominated in foreign currency as of September 30, 2012 and December 31, 2011, respectively.

Similarly, we face the risk that our accounts payable and debt obligations denominated in foreign currencies will increase

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if such foreign currencies strengthen quickly and significantly against the dollar. Approximately 7% of our accounts payable were denominated in foreign currencies at both September 30, 2012 and December 31, 2011. All of our debt obligations were denominated in foreign currencies at both September 30, 2012 and December 31, 2011. We have not historically sought to hedge our foreign currency exposure, although we may determine to do so in the future.

There remains ongoing uncertainty regarding the future of the Euro as a common currency and the Eurozone. While we continue to monitor the situation, the elimination of the Euro as a common currency, the withdrawal of member states from the Eurozone or other events affecting the liquidity, volatility or use of the Euro could have a significant effect on our revenue and operations.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Effectiveness of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, under the supervision of our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as such terms are defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities and Exchange Act of 1934. Based on this evaluation our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that information we are required to disclose in reports that we file or submit under the Securities and Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Limitations on the Effectiveness of Controls

Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Atmel have been detected.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are party to various legal proceedings. Our management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position, results of operations and statement of cash flows. If an unfavorable ruling were to occur in any of the legal proceedings described in Note 6 of Notes to Condensed Consolidated Financial Statements, there exists the possibility of a material adverse effect on our financial position, results of operations and cash flows. For more information regarding certain of these proceedings, see Note 6 of Notes to Condensed Consolidated Financial Statements, which is incorporated by reference into this Item. We have accrued for losses related to litigation described in Note 6 of Notes to Condensed Consolidated Financial Statements that we consider probable and for which the loss can be reasonably estimated. In the event that a loss cannot be reasonably estimated, we have not accrued for such losses. As we continue to monitor these matters or other matters that were not deemed material as of September 30, 2012, our determination could change, however, and we may decide, at some future date, to establish an appropriate reserve. With respect to each of the matters described in Note 6 of Notes to Condensed Consolidated Financial Statements, except where noted otherwise, management has determined a potential loss is not probable at this time and, accordingly, no amount has been accrued at September 30, 2012. Our management makes a determination as to when a potential loss is reasonably possible based on relevant accounting literature and then includes appropriate disclosure of the contingency. Except as otherwise noted in Note 6 of Notes to Condensed Consolidated Financial Statements, our management does not believe that the amount of loss or a range of possible losses is reasonably estimable.

ITEM 1A. RISK FACTORS

In addition to the other information contained in this Quarterly Report on Form 10-Q, we have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition, or results of operations. Investors should carefully consider the risks described below before making an investment decision. The trading price of our common stock

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could decline due to any of these risks, and investors may lose all or part of their investment. In addition, these risks and uncertainties may affect the “forward-looking” statements described elsewhere in this Form 10-Q and in the documents incorporated herein by reference. They could also affect our actual results of operations, causing them to differ materially from those expressed in “forward-looking” statements.

OUR REVENUE AND OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO A VARIETY OF FACTORS.

Our future operating results will be subject to quarterly variations based upon a variety of factors, many of which are not within our control. As further discussed in this “Risk Factors” section, factors that could affect our operating results include:

• uncertain global macroeconomic conditions, especially in Europe and Asia, and the fiscal and election related uncertainties in the United States;

• the success of our customers’ end products, our ability to introduce new products into the market and our ability to improve and implement new manufacturing technologies and reduce manufacturing costs;

• the cyclical nature of the semiconductor industry;

• disruption to our business caused by our increased dependence on outside foundries, and the financial instability of those foundries in some cases;

• our dependence on selling through independent distributors and our ability to obtain accurate sell-through information from these distributors;

• the complexity of our revenue reporting and dependence on our management’s ability to make judgments and estimates regarding inventory write-downs, future claims for returns and other matters affecting our financial statements;

• our reliance on non-binding customer forecasts and the impact from customer changes to forecasts and actual demand;

• our dependence on international sales and operations and the complexity of international laws and regulations relating to those sales and operations;

• the effect of fluctuations in currency exchange rates;

• the capacity constraints of our independent assembly contractors;

• business disruptions caused by our disposal or restructuring activities and the impact of our related take-or-pay supply agreements if wafer prices decrease over time;

• the effect of intellectual property and other litigation on us and our customers, and our ability to protect our intellectual property rights;

• the highly competitive nature of our markets and our ability to keep pace with technological change;

• information technology system failures or network disruptions and disruptions caused by our financial system integration efforts;

• business interruptions, natural disasters, terrorist acts or similar unforeseen events or circumstances;

• our ability to maintain relationships with our key customers, the absence of long-term supply contracts with most of our customers, and product liability claims our customers may bring;

• unanticipated changes to environmental, health and safety regulations or related compliance issues;

• our dependence on certain key personnel;

• the anti-takeover effects in our certificate of incorporation and bylaws;

• the unfunded nature of our foreign pension plans;

• the effect of acquisitions we may undertake, including our ability to effectively integrate acquisitions into our operations;

• disruptions in the availability of raw materials;

• the complexity of our global legal entity structure, the effect of intercompany loans within this structure, and the occurrence and outcome of income tax audits for these entities; and

• our receipt of economic grants in various jurisdictions, which may require repayment if we are unable to comply with the terms of such grants.

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Any unfavorable changes in any of these factors could harm our operating results and may result in volatility or a decline in our stock price.

UNCERTAIN GLOBAL MACRO-ECONOMIC CONDITIONS, ESPECIALLY IN EUROPE AND ASIA, AND THE ANTICIPATED “FISCAL CLIFF” AND OTHER ELECTION-RELATED UNCERTAINTIES IN THE UNITED STATES CONTINUE TO AFFECT OUR BUSINESS.

Slowing economic growth throughout the world, and continued uncertainty regarding macro-economic conditions in Europe and Asia, have adversely affected demand for our products. Continued adverse economic conditions, and general uncertainty about economic recovery, are likely to continue to affect our business prospects. The anticipated “fiscal cliff” in the United States, which may occur if the United States Congress and the President of the United States do not take action prior to January 1, 2013, are also likely to adversely affect general business conditions in the United States. Uncertainties related to the November Presidential election in the United States may also lead to further economic volatility. Slow global growth, and continued economic uncertainty, are likely to adversely affect business conditions throughout the world, and, as a result, may also affect our business and opportunities for growth.

WE DEPEND SUBSTANTIALLY ON THE SUCCESS OF OUR CUSTOMERS’ END PRODUCTS, OUR INTRODUCTION OF NEW PRODUCTS INTO THE MARKET AND OUR ABILITY TO REDUCE MANUFACTURING COSTS OF OUR PRODUCTS OVER TIME.

We believe that our future sales will depend substantially on the success of our customers’ end products, our ability to introduce new products into the market, and our ability to reduce the manufacturing costs of our products over time. Our new products are generally incorporated into our customers’ products or systems at their design stage. However, design wins can precede volume sales by a year or more. In addition, we may not be successful in achieving design wins or design wins may not result in future revenue, which depend in large part on our customers’ ability to sell their end products or systems within their respective markets.

Rapid innovation within the semiconductor industry also continually increases pricing pressure, especially on products containing older technology. We experience continuous pricing pressure, just as many of our competitors do. Product life cycles in our industry are relatively short, and as a result, products tend to be replaced by more technologically advanced substitutes on a regular basis. In turn, demand for older technology falls, causing the price at which such products can be sold to drop, often quickly. As a result, the average selling price of each of our products usually declines as individual products mature and competitors enter the market. To offset average selling price decreases and to continue profitably supplying our products, we rely primarily on reducing costs to manufacture our products, improving our process technologies and production efficiency, increasing product sales to absorb fixed costs and introducing new, higher priced products that incorporate advanced features or integrated technologies to address new or emerging markets. Our operating results could be harmed if such cost reductions, production improvements, increased product sales and new product introductions do not occur in a timely manner.

THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY CREATES FLUCTUATIONS IN OUR OPERATING RESULTS AND MAY ALSO AFFECT JUDGMENTS, ESTIMATES AND ASSUMPTIONS WE APPLY IN PREPARING OUR FINANCIAL STATEMENTS.

The semiconductor industry has historically been cyclical, characterized by annual seasonality and wide fluctuations in product supply and demand. The semiconductor industry has also experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles and declines in general economic conditions.

Our operating results have been adversely affected in the past by industry-wide fluctuations in the demand for semiconductors, which resulted in under-utilization of our manufacturing capacity and declining gross margin. Our business may be harmed in the future by cyclical conditions in the semiconductor industry as a whole and by conditions within specific markets served by our products. These fluctuations in demand may also affect inventory write-downs we take or other items in our financial statements. Our inventories are stated at the lower of cost (on a first-in, first-out basis) or market. Determining market value for our inventories involves numerous judgments, estimates and assumptions, including assessing average selling prices and sales volumes for each of our products in future periods. The competitiveness of each product, market conditions and product lifecycles may change over time, resulting in a change in the judgments, estimates and assumptions we apply to establish inventory write-downs. The judgments, estimates and assumptions we apply in evaluating our inventory write-downs, including, for example, shortening or extending the anticipated life of our products, may have a material effect on our financial statements. If we overestimate demand, we may experience excess inventory levels. Inventory adjustments, based on the judgments, estimates and assumptions we make, may affect our results of operations, including our gross margin, in a positive or negative manner, depending on the nature of the adjustment.

A significant portion of our revenue comes from sales to customers supplying consumer markets and from international sales. As a result, our business may be subject to seasonally lower revenue in particular quarters of our fiscal year. The semiconductor industry has also been affected by significant shifts in consumer demand due to economic downturns or other factors, which can exacerbate the cyclicality within the industry and result in further diminished product demand and production over-capacity. We have, in the past, experienced substantial quarter-to-quarter fluctuations in revenue and operating results and expect in the future

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to continue to experience short term period-to-period fluctuations in operating results due to general industry and economic conditions.

WE COULD EXPERIENCE DISRUPTION OF OUR BUSINESS DUE TO INCREASED DEPENDENCE ON OUTSIDE FOUNDRIES.

After selling several manufacturing facilities over the past several years, we currently operate a single wafer fabrication facility in Colorado Springs, Colorado. As a result, we rely substantially on independent third party foundry manufacturing partners to manufacture products for us. As part of this fab-lite strategy, we have expanded and will continue to expand our foundry relationships by entering into new agreements with third party foundries. If we cannot obtain sufficient capacity commitments, if our foundry partners suffer financial instability affecting their ability to manufacture our products, or if our foundry partners experience production delays for other reasons, the supply of our products could be disrupted, which could harm our business. In addition, difficulties in production yields can often occur when transitioning manufacturing processes to a new third party foundry.  If our foundry partners fail to deliver quality products and components on a timely basis, our business could be harmed. For the nine months ended September 30, 2012, we manufactured approximately 57% of our products in our own wafer fabrication facility compared to 51% for the nine months ended September 30, 2011. We expect over time that an increasing portion of our wafer fabrication will be undertaken by third party foundries.

Our fab-lite strategy exposes us to the following risks:

• reduced control over delivery schedules and product costs;

• financial instability, or liquidity issues, affecting our foundry partners;

• manufacturing costs that are higher than anticipated;

• inability of our manufacturing subcontractors to develop manufacturing methods appropriate for our products and their unwillingness to devote adequate capacity to produce our products;

• possible abandonment of key fabrication processes by our foundry subcontractors for products that are strategically important to us;

• decline in product quality and reliability;

• inability to maintain continuing relationships with our foundries;

• restricted ability to meet customer demand when faced with product shortages or order increases; and

• increased opportunities for potential misappropriation of our intellectual property.

If any of the above risks occur, we could experience an interruption in our supply chain or an increase in costs, which could delay or decrease our revenue and adversely affect our business.

We attempt to mitigate these risks with a strategy of qualifying multiple foundry subcontractors. However, there can be no guarantee that this or any other strategy will eliminate or significantly reduce these risks. Additionally, since most independent foundries are located in foreign countries, we are subject to risks generally associated with contracting with foreign manufacturers, including currency exchange fluctuations, political and economic instability, trade restrictions, changes in tariff and freight rates and import and export regulations. Accordingly, we may experience problems maintaining expected timelines and the adequacy or quality of product deliveries, any of which could have a material adverse effect on our results of operations.

We closely monitor the financial condition of our foundry partners, especially those in Europe with which we have take-or-pay contracts, and we believe that we have adequate secondary sources for our products if those companies reduce or discontinue their business activities. Nonetheless, while we do not believe that any financial distress, or any other material adverse financial event affecting those foundries, would be likely to have a material adverse effect on our business, the financial instability of a foundry partner does require an investment of significant management time, may require additional changes in operational planning as conditions develop, and could have other unexpected effects on our business.

The terms on which we will be able to obtain wafer production for our products, and the timing and volume of such production, will be substantially dependent on future agreements to be negotiated with independent foundries. We cannot be certain that the agreements we reach with such foundries will be on favorable terms. For example, any future agreements with independent foundries may be short-term in duration, may not be renewable, and may provide inadequate certainty regarding the future supply and pricing of wafers for our products.

If demand for our products increases significantly, we have no assurances that our third party foundries will be able to increase their manufacturing capacity to a level that meets our requirements, potentially preventing us from meeting our customer demand and harming our business and customer relationships. Also, even if our independent foundries are able to meet our increased demand, those foundries may decide to charge significantly higher wafer prices to us. That could reduce our gross margin

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or require us to offset the increased prices by increasing prices to our customers, either of which could harm our business and operating results.

OUR REVENUE IS DEPENDENT TO A LARGE EXTENT ON SELLING TO END CUSTOMERS THROUGH INDEPENDENT DISTRIBUTORS. THESE DISTRIBUTORS MAY HAVE LIMITED FINANCIAL RESOURCES TO CONDUCT THEIR BUSINESS OR TO REPRESENT OUR INTERESTS EFFECTIVELY AND THEY MAY TERMINATE OR MODIFY THEIR RELATIONSHIPS WITH US IN A MANNER THAT ADVERSELY AFFECTS OUR SALES.

Sales through distributors accounted for 51% and 53% of our net revenue for the three and nine months ended September 30, 2012, respectively, and 58% and 59% for the three and nine months ended September 30, 2011, respectively. We are dependent on our distributors to supplement our direct marketing and sales efforts. Our agreements with independent distributors can generally be terminated for convenience by either party upon relatively short notice. Generally, these agreements are non-exclusive and also permit our distributors to offer our competitors’ products.

If any significant distributor or a substantial number of our distributors terminated their relationship with us, decided to market our competitors’ products in preference to our products, were unable to sell our products or were unable to pay us for products sold for any reason, our ability to bring our products to market could be adversely affected, we could have difficulty in collecting outstanding receivable balances, or we could incur other loss of revenue, charges or other adjustments, any of which could have a material adverse effect on our revenue and operating results. In some cases, our distributors in Asia may also have more limited financial resources and constrained balance sheets. If these distributors are unable effectively to finance their operations, or to represent our interests aggressively because of financial constraints, our business could also be adversely affected.

OUR REVENUE REPORTING IS HIGHLY DEPENDENT ON RECEIVING ACCURATE SELL-THROUGH INFORMATION FROM OUR DISTRIBUTORS. IF WE RECEIVE INACCURATE OR LATE INFORMATION FROM OUR DISTRIBUTORS, OUR FINANCIAL REPORTING COULD BE MISSTATED.

Our revenue reporting is highly dependent on receiving pertinent, accurate and timely data from our distributors. As our distributors resell products, they provide us with periodic data regarding the products sold, including prices, quantities, end customers, and the amount of our products they still have in stock. Because the data set is large and complex and because there may be errors in the reported data, we may use estimates and apply judgments to reconcile distributors’ reported inventories to their end customer sales transactions. Actual results could vary unfavorably from our estimates, which could affect our operating results and adversely affect our business.

OUR REVENUE REPORTING IS COMPLEX AND DEPENDENT, IN PART, ON OUR MANAGEMENT’S ABILITY TO MAKE JUDGMENTS AND ESTIMATES REGARDING FUTURE CLAIMS FOR RETURNS. IF OUR JUDGMENTS OR ESTIMATES ABOUT THESE MATTERS ARE INCORRECT OR INACCURATE, OUR REVENUE REPORTING COULD BE ADVERSELY AFFECTED.

Our revenue reporting is highly dependent on judgments and estimates that our management is required to make when preparing our financial statements. We currently recognize revenue for our distributors based in the United States and Europe in a different manner from the method we use for our distributors based in Asia (excluding Japan).

For sales to certain distributors (primarily based in the U.S. and Europe) with agreements allowing for price protection and product returns, we do not have the ability to estimate future claims at the point of shipment, and given that price is not fixed or determinable at that time, revenue is not recognized until the distributor sells the product to its end customer.

For sales to independent distributors in Asia, excluding Japan, we invoice these distributors at full list price upon shipment and issue a rebate, or “credit,” once product has been sold to the end customer and the distributor has met certain reporting requirements. After reviewing the pricing, rebate and quotation-related terms, we concluded that we could reliably estimate future claims, therefore, we recognize revenue at the point of shipment for our Asian distributors, assuming all of the other revenue recognition criteria are met, utilizing amounts invoiced, less estimated future claims.

If, however, our judgments or estimates are incorrect or inaccurate regarding future claims, our revenue reporting could be adversely affected. In addition, the fact that we recognize revenue differently in the United States and Europe than in Asia (excluding Japan) makes the preparation of our financial statements more complicated, and, therefore, potentially more susceptible to inaccuracies over time.

WE BUILD SEMICONDUCTORS BASED, FOR THE MOST PART, ON NON-BINDING FORECASTS FROM OUR CUSTOMERS. AS A RESULT, CHANGES TO FORECASTS FROM ACTUAL DEMAND MAY RESULT IN EXCESS INVENTORY OR OUR INABILITY TO FILL CUSTOMER ORDERS ON A TIMELY BASIS, WHICH MAY HARM OUR BUSINESS.

We schedule production and build semiconductor devices based primarily on non-binding forecasts from customers and our own internal forecasts. Typically, customer orders, consistent with general industry practices, may be cancelled or rescheduled with short notice to us. In addition, our customers frequently place orders requesting product delivery in a much shorter period than

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our lead time to fully fabricate and test devices. Because the markets we serve are volatile and subject to rapid technological, price and end-user demand changes, our forecasts of unit quantities to build may be significantly incorrect. Changes to forecasted demand from actual demand may result in us producing unit quantities in excess of orders from customers, which could result in additional expense for the write-down of excess inventory and negatively affect our gross margin and results of operations.

Our forecasting risks may increase as a result of our fab-lite strategy because we will have less control over modifying production schedules to match changes in forecasted demand. If we commit to order foundry wafers and cannot cancel or reschedule our commitment without significant costs or cancellation penalties, we may be forced to purchase inventory in excess of demand, which could result in a write-down of inventories and negatively affect our gross margin and results of operations.

Conversely, failure to produce or obtain sufficient wafers for increased demand could cause us to miss revenue opportunities and could affect our customers’ ability to sell products, which could adversely affect our customer relationships and thereby materially adversely affect our business, financial condition and results of operations. For example, for the year ended December 31, 2011, shipments of our ASIC and memory products were unfavorably affected by limited production capacity, as we temporarily allocated wafers to microcontroller customers in an effort to meet significantly increased demand for those products during 2011. In order to improve support to our ASIC and memory customers in 2011, we increased orders for wafers from independent foundries, which returned to prior levels by the end of the year.

OUR INTERNATIONAL SALES AND OPERATIONS ARE SUBJECT TO COMPLEX LAWS RELATING TO TRADE, EXPORT CONTROLS, FOREIGN CORRUPT PRACTICES AND ANTI-BRIBERY LAWS AMONG MANY OTHER SUBJECTS. A VIOLATION OF, OR CHANGE IN, THESE LAWS COULD ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS.

For hardware, software or technology exported from, or otherwise subject to the jurisdiction of, the United States, we are subject to U.S. laws and regulations governing international trade and exports, including, but not limited to, the International Traffic in Arms Regulations (“ITAR”), the Export Administration Regulations (“EAR”) and trade sanctions against embargoed countries and destinations administered by the U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”). Hardware, software and technology exported from, or otherwise subject to the jurisdiction of, other countries may also be subject to non-U.S. laws and regulations governing international trade and exports. Under these laws and regulations, we are responsible for obtaining all necessary licenses and approvals for exports of hardware, software and technology, as well as the provision of technical assistance. In many cases, a determination of the applicable export control laws and related licensing requirements depends on design intent, the source and origin of a specific technology, the nationalities and localities of participants involved in creating, marketing, selling or supporting that technology, the specific technical contributions made by individuals to that technology and other matters of an intensely factual nature. We are also required to obtain all necessary export licenses prior to transferring technical data or software to foreign persons. In addition, we are required to obtain necessary export licenses prior to the export or re-export of hardware, software and technology to any person identified on the U.S. Department of Commerce Denied Persons or Entity List, the U.S. Department of Treasury’s Specially Designated Nationals or Blocked Persons List, or the Department of State’s Debarred List. Products for use in space, satellite, military, nuclear, chemical/biological weapons, rocket systems or unmanned air vehicle applications are also subject to the laws and regulations of many jurisdictions, including the United States, governing international trade and exports, may also require similar export licenses and involve many of the same complexities and risks of non-compliance.

We continually seek to enhance our export compliance program, including ongoing analysis of historical and current product shipments and technology transfers. We also work with, and assist, government officials, when requested, to ensure compliance with applicable export laws and regulations, and we continue to develop additional operational procedures to improve our compliance efforts. However, export laws and regulations are highly complex and vary from jurisdiction to jurisdiction; a determination by U.S. or other governments that we have failed to comply with any export control laws or trade sanctions, including failure to properly restrict an export to the persons or countries set forth on government restricted party lists, could result in significant civil or criminal penalties, including the imposition of significant fines, denial of export privileges, loss of revenue from certain customers or damages claims from any customers adversely affected by such penalties, and exclusion from participation in U.S. government contracts. As we review or audit our import and export practices, from time to time, we may discover previously unknown errors in our compliance practices that require corrective actions, which actions could include voluntary disclosures of those matters to appropriate government agencies, discontinuance or suspension of product sales pending a resolution of any reviews, or other adverse interim or final actions. Further, a change in these laws and regulations could restrict our ability to export to previously permitted countries, customers, distributors, foundries or other third parties. For example, in the past, one of our distributors was added to the U.S. Department of Commerce Entity List, resulting in our terminating our relationship with that distributor. Any one or more of these compliance errors, sanctions or a change in law or regulations could have a material adverse effect on our business, financial condition and results of operations.

We are also subject to complex laws that seek to regulate the payment of bribes or other forms of compensation to foreign officials or persons affiliated with companies or organizations in which foreign governments may own an interest or exercise control. The Foreign Corrupt Practices Act in the United States requires United States companies to comply with an extensive legal framework to prevent bribery of foreign officials. The laws are complex and require that we closely monitor local practices of our overseas offices. The United States Department of Justice has recently heightened enforcement of these laws. In addition, other countries continue to implement similar laws that may have extra-territorial effect. The United Kingdom, for example, where we have operations, has enacted the U.K. Bribery Act, which could impose significant oversight obligations on us and could be applicable to our operations

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outside of the United Kingdom. The costs for complying with these and similar laws may be substantial and could reasonably be expected to require significant management time and focus. Any violation of these or similar laws, intentional or unintentional, could have a material adverse effect on our business, financial condition or results of operations.

WE ARE EXPOSED TO FLUCTUATIONS IN CURRENCY EXCHANGE RATES THAT COULD NEGATIVELY AFFECT OUR FINANCIAL RESULTS AND CASH FLOWS, AND REVENUE AND COSTS DENOMINATED IN FOREIGN CURRENCIES COULD ADVERSELY AFFECT OUR OPERATING RESULTS AS A RESULT OF FOREIGN CURRENCY MOVES AGAINST THE DOLLAR. THE ELIMINATION OF THE EURO AS A COMMON CURRENCY OR THE WITHDRAWAL OF MEMBER STATES FROM THE EUROPEAN UNION COULD ALSO ADVERSELY AFFECT OUR BUSINESS AND INTRODUCE UNCERTAINTIES WITH RESPECT TO PAYMENT TERMS IN OUR CONTRACTS.

Because a significant portion of our business is conducted outside the United States, we face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could have a material adverse effect on our financial results and cash flows. Our primary exposure relates to revenue and operating expenses in Europe (denominated in Euros).

When we take an order denominated in a foreign currency, we will receive fewer dollars, and lower revenue, than we initially anticipated if that local currency weakens against the dollar before we ship our product. Conversely, revenue will be positively impacted if the local currency strengthens against the dollar before we ship our product. Costs may also be impacted by foreign currency fluctuation. For example, in Europe, where we have costs denominated in European currencies, costs will decrease if the local currency weakens against the dollar. Conversely, costs will increase if the local currency strengthens against the dollar. Our income from operations would have been approximately $3.5 million higher had the average exchange rate in the three months ended September 30, 2012 remained the same as the average exchange rate in the three months ended September 30, 2011. Our income from operations would have been approximately $5.3 million higher had the average exchange rate in the nine months ended September 30, 2012 remained the same as the average exchange rate in the nine months ended September 30, 2011.

We also face the risk that our accounts receivable denominated in foreign currencies will be devalued if such foreign currencies weaken quickly and significantly against the dollar. Similarly, we face the risk that our accounts payable and debt obligations denominated in foreign currencies will increase if such foreign currencies strengthen quickly and significantly against the dollar. We have not historically utilized hedging instruments to offset our foreign currency exposure, although we may determine to do so in the future.

Because we conduct business in Europe, we may have additional exposure to currency fluctuations if the Euro is eliminated as a common currency within the Eurozone, or if individual countries determine to stop using that currency. In any of those events, we would have to address exchange rate and conversion issues affecting the Euros we then held and the payments that we expected to receive, or to make, in Euros. There is no certainty regarding the potential economic effect of these Euro currency risks, nor is there any certainty regarding the effect on payment terms included within outstanding sales contracts if the Euro were eliminated or not accepted in some countries as legal tender. Because of those uncertainties, we are not able to assess fully, as of the date of this Quarterly Report, the potential effect on our business or financial condition if the Eurozone were to disband, if a member state determined to substitute a new currency for the Euro within its borders, or if the Euro became generally less accepted as a global currency.

WE DEPEND ON INDEPENDENT ASSEMBLY CONTRACTORS THAT MAY NOT HAVE ADEQUATE CAPACITY TO FULFILL OUR NEEDS OR TO MEET OUR QUALITY AND DELIVERY REQUIREMENTS.

After wafer testing, we ship wafers to various independent assembly contractors, where the wafers are separated into die, packaged and, in some cases, further tested. Our reliance on independent contractors to assemble, package and test our products may expose us to significant risks, including the following:

• reduced control over quality and delivery schedules;

• the potential lack of adequate capacity;

• discontinuance or phase-out of our contractors’ assembly processes;

• inability of our contractors to develop and maintain assembly and test methods and equipment that are appropriate for our products;

• lack of long-term contracts and the potential inability to secure strategically important service contracts on favorable terms, if at all;

• increased opportunities for potential misappropriation of our intellectual property; and

• financial instability, or liquidity issues, affecting our subcontractors.

In addition, our independent contractors may not continue to assemble, package and test our products for a variety of

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reasons. Moreover, because most of our independent assembly contractors are located in foreign countries, we are subject to certain risks generally associated with contracting with foreign suppliers, including currency exchange fluctuations, political and economic instability, trade restrictions, including export controls, and changes in tariff and freight rates. Accordingly, we may experience problems with the time, adequacy or quality of product deliveries, any of which could have a material adverse effect on our results of operations.

WE MAY FACE BUSINESS DISRUPTION RISKS, AS WELL AS THE RISK OF SIGNIFICANT UNANTICIPATED COSTS, AS WE CONSIDER, OR AS A RESULT OF, CHANGES IN OUR BUSINESS AND ASSET PORTFOLIO.

We are continually reviewing potential changes in our business and asset portfolio throughout our worldwide operations in order to enhance our overall competitiveness and viability. Disposal and restructuring activities that we have undertaken, and may undertake in the future, can divert significant time and resources, involve substantial costs and lead to production and product development delays and may fail to enhance our overall competitiveness and viability as intended, any of which can negatively impact our business. Our disposal activities have in the past and may, in the future, trigger restructuring, impairment and other accounting charges and/or result in a loss on sale of assets. Any of these charges or losses could cause the price of our common stock to decline.

We have in the past and may, in the future, experience labor union or workers’ council objections, or labor unrest actions (including possible strikes), when we seek to reduce our manufacturing or operating facilities in Europe and other regions. Many of our operations are located in countries and regions that have extensive employment regulations that we must comply with in order to reduce our workforce, and we may incur significant costs to complete such exercises. Any of those events could have an adverse effect on our business and operating results.

We continue to evaluate existing restructuring accruals related to restructuring plans previously implemented. As a result, there may be additional restructuring charges or reversals or recoveries of previous charges. We may incur additional restructuring and asset impairment charges in connection with additional restructuring plans adopted in the future. Any such restructuring or asset impairment charges recorded in the future could significantly harm our business and operating results. During the three months ended June 30, 2012, we implemented cost reduction actions, including actions related to labor costs. We recorded restructuring charges, including applicable severance costs, of $14.4 million related to those restructuring actions at that time. As of September 30, 2012, we have $11.7 million of restructuring charges accrued for severance and expected to be paid out in the next twelve months.

WE HAVE IN THE PAST ENTERED INTO “TAKE-OR-PAY” SUPPLY AGREEMENTS WITH BUYERS OF OUR WAFER MANUFACTURING OPERATIONS. IF THE CONTRACTUAL PRICING FOR THOSE WAFERS EXCEEDS THE PRICES WE COULD HAVE OTHERWISE OBTAINED IN THE OPEN MARKET, WE MAY INCUR A CHARGE TO OUR OPERATING RESULTS.

In the past we have entered into supply agreements with certain buyers of our wafer manufacturing operations under which we have committed to purchase wafers from these buyers on a “take-or-pay” basis for a number of years.  For example, in connection with the sale of our manufacturing operations in Rousset, France in June 2010, one of our subsidiaries entered into a manufacturing services agreement that, as amended, requires this subsidiary to purchase wafers from LFoundry Rousset SAS until June 2013 on a “take-or-pay” basis. Similarly, in connection with the sale of our manufacturing operations in Heilbronn, Germany, one of our subsidiaries entered into a wafer supply agreement that, as amended, required this subsidiary to purchase wafers from Telefunken Semiconductors GmbH & Co. KG (“TSG”) through August 2012 on a “take-or-pay” basis. In addition, in September 2012, one of our subsidiaries entered into a new wafer supply agreement that requires this subsidiary to purchase wafers from Telefunken Semiconductors International LLC, the parent of TSG, through May 2013 on a "take-or-pay" basis. If the purchase price of the wafers under any of our “take-or-pay” supply agreements is higher than the fair value of the wafers at the time of purchase, based on the pricing we could have obtained from third party foundries, we would be required to take a charge to our financial statements to reflect the above-market price we have agreed to pay. In addition to the direct financial effects that these “take-or-pay” arrangements may have, they may also cause us, in some cases, to acquire inventory at times when we do not need additional inventory based on demand forecasts.

IF WE ARE UNABLE TO IMPLEMENT NEW MANUFACTURING TECHNOLOGIES OR FAIL TO ACHIEVE ACCEPTABLE MANUFACTURING YIELDS, OUR BUSINESS WOULD BE HARMED.

Whether demand for semiconductors is rising or falling, we are constantly required by competitive pressures in the industry to successfully implement new manufacturing technologies in order to reduce the geometries of our semiconductors and produce more integrated circuits per wafer. We are developing processes that support effective feature sizes as small as 65 nanometers.

Fabrication of our integrated circuits is a highly complex and precise process, requiring production in a tightly controlled, clean environment. Minute impurities, difficulties in the fabrication process, defects in the masks used to print circuits on a wafer or other factors can cause a substantial percentage of wafers to be rejected or numerous die on each wafer to be nonfunctional. Whether through the use of our foundries or third party manufacturers, we may experience problems in achieving acceptable yields in the manufacture of wafers, particularly during a transition in the manufacturing process technology for our products or with respect to manufacturing of new products.

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We have previously experienced production delays and yield difficulties in connection with earlier expansions of our wafer fabrication capacity or transitions in manufacturing process technology. Production delays or difficulties in achieving acceptable yields at our fabrication facility or at the fabrication facilities of our third party manufacturers could materially and adversely affect our operating results. We may not be able to obtain the additional cash from operations or external financing necessary to fund the implementation of new manufacturing technologies.

WE MAY, DIRECTLY AND INDIRECTLY, FACE THIRD PARTY INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT COULD BE COSTLY TO DEFEND, DISTRACT OUR MANAGEMENT TEAM AND EMPLOYEES, AND RESULT IN LOSS OF SIGNIFICANT RIGHTS.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which have on occasion resulted in significant and often protracted and expensive litigation. From time to time we receive communications from third parties asserting patent or other intellectual property rights covering our products or processes. In order to avoid the significant costs associated with our defense in litigation involving such claims, we may license the use of the technologies that are the subject of these claims from such companies and make regular corresponding royalty payments, which may harm our cash position and operating results.

We have in the past been involved in intellectual property infringement lawsuits, which adversely affected our operating results. In addition to patent infringement lawsuits in which we may be directly involved and named as a defendant, we also may assist our customers, in many cases at our own cost, in defending intellectual property lawsuits involving technologies that are combined with our technologies. See Part II, Item 1 of this Quarterly Report on Form 10-Q. The cost of defending against intellectual property lawsuits, responding to subpoenas, preparing our employees to testify, or assisting our customers in defending against such lawsuits, in terms of management time and attention, legal fees and product delays, can be substantial. If such infringement lawsuits are successful, we may be prohibited from using the technologies at issue in the lawsuits, and if we are unable to obtain a license on acceptable terms, license a substitute technology or design new technology to avoid infringement, our business and operating results may be significantly harmed.

Many of our new and existing products and technologies are intended to address needs in specialized and emerging markets. Given the aggressive pursuit and defense of intellectual property rights that are typical in the semiconductor industry, we expect to see an increase in intellectual property litigation in many of the key markets that our products and technologies serve. An increase in infringement lawsuits within these markets generally, even if they do not involve us, may divert management’s attention and resources, which may seriously harm our business, results of operations and financial condition.

As is customary in the semiconductor industry, our standard contracts provide remedies to our customers, such as defense, settlement, or payment of judgments for intellectual property claims related to the use of our products. From time to time, we will indemnify customers against combinations of loss, expense, or liability related to the sale and the use of our products and services. Even if claims or litigation against us are not valid or successfully asserted, defending these claims could result in significant costs and diversion of the attention of management and other key employees.

IF WE ARE UNABLE TO PROTECT OR ASSERT OUR INTELLECTUAL PROPERTY RIGHTS, OUR BUSINESS AND RESULTS OF OPERATIONS MAY BE HARMED.

Our future success will depend, in part, upon our ability to protect and assert our intellectual property rights. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as nondisclosure agreements and other methods, to protect our proprietary technologies. We also enter into confidentiality or license agreements with our employees, consultants and business partners, and control access to and distribution of our documentation and other proprietary information. It is possible that competitors or other unauthorized third parties may obtain, copy, use or disclose our proprietary technologies and processes, despite our efforts to protect them.

We hold numerous U.S. and foreign patents. We can provide no assurance, however, that these, or any of our future patents, will not be challenged, invalidated or circumvented in ways that detract from their value. Changes in laws may also result in us having less intellectual property protection than we may have experienced historically.

If our patents do not adequately protect our technology, competitors may be able to offer products similar to our products more easily. Our competitors may also be able to design around our patents, which would harm our business, financial position and results of operations.

SIGNIFICANT PATENT LITIGATION IN THE MOBILE DEVICE SECTOR MAY ADVERSELY AFFECT SOME OF OUR CUSTOMERS. UNFAVORABLE OUTCOMES IN SUCH PATENT LITIGATION COULD AFFECT OUR CUSTOMERS’ ABILITY TO SELL THEIR PRODUCTS AND, AS A RESULT, COULD ULTIMATELY AFFECT THEIR ABILITY TO PURCHASE OUR PRODUCTS IF THEIR MOBILE DEVICE BUSINESS DECLINES.

There is significant ongoing patent litigation throughout the world involving many of our customers, especially in the mobile device sector. The outcome of these disputes is uncertain. While we may not have a direct involvement in these matters, an adverse

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outcome that affects the ability of our customers to ship or sell their products could ultimately have an adverse effect on our business. That could happen if these customers reduce their business exposure in the mobile device sector, are prevented from selling their products in certain markets, seek to reduce their cost structures to help fund the payment of unanticipated licensing fees or are required to take other actions that slow or hinder their market penetration.

OUR MARKETS ARE HIGHLY COMPETITIVE, AND IF WE DO NOT COMPETE EFFECTIVELY, WE MAY SUFFER PRICE REDUCTIONS, REDUCED REVENUE, REDUCED GROSS MARGIN AND LOSS OF MARKET SHARE.

We operate in markets that are intensely competitive and characterized by rapid technological change, product obsolescence and price decline. Throughout our product line, we compete with a number of large semiconductor manufacturers, such as Cypress, Freescale, Fujitsu, Hitachi, Infineon, Intel, Microchip, NXP Semiconductors, ON Semiconductor, Renesas, Samsung, Spansion, STMicroelectronics, Synaptics, and Texas Instruments. Some of these competitors have substantially greater financial, technical, marketing and management resources than we do. As we introduce new products, we are increasingly competing directly with these companies, and we may not be able to compete effectively. We also compete with emerging companies that are attempting to sell products in specialized markets that our products address. We compete principally on the basis of the technical innovation and performance of our products, including their speed, density, power usage, reliability and specialty packaging alternatives, as well as on price and product availability. During the last several years, we have experienced significant price competition in several business segments, especially in our nonvolatile memory segment for EPROM, Serial EEPROM and Flash memory products, as well as in our commodity microcontrollers. Competitive pressures in the semiconductor market from existing competitors, new entrants, new technology and cyclical demand, among other factors, can result in declining average selling prices for semiconductor products.  To the extent that such price declines effect our products, our revenue and margin could decline.

In addition to the factors described above, our ability to compete successfully depends on a number of factors, including the following:

• our success in designing and manufacturing new products that implement new technologies and processes;

• our ability to offer integrated solutions using our advanced nonvolatile memory process with other technologies;

• the rate at which customers incorporate our products into their systems;

• product introductions by our competitors;

• the number and nature of our competitors in a given market;

• our ability to minimize production costs by outsourcing our manufacturing, assembly and testing functions;

• our ability to improve our process technologies and production efficiency; and

• general market and economic conditions.

Many of these factors are outside of our control, and may cause us to be unable to compete successfully in the future, which would materially harm our business.

WE MUST KEEP PACE WITH TECHNOLOGICAL CHANGE TO REMAIN COMPETITIVE.

Our future success substantially depends on our ability to develop and introduce new products that compete effectively on the basis of price and performance and that address customer requirements. We are continually designing and commercializing new and improved products to maintain our competitive position. These new products typically are more technologically complex than their predecessors, and thus have increased potential for delays in their introduction or producing acceptable yields.

The success of new product introductions is dependent upon several factors, including timely completion and introduction of new product designs, achievement of acceptable fabrication yields and market acceptance. Our development of new products and our customers’ decisions to design them into their systems can take as long as three years, depending upon the complexity of the device and the application. Accordingly, new product development requires a long-term forecast of market trends and customer needs, and the successful introduction of our products may be adversely affected by competing products or other technologies serving the markets addressed by our products. Our qualification process involves multiple cycles of testing and improving a product’s functionality to ensure that our products operate in accordance with design specifications. If we experience delays in the introduction of new products, our future operating results could be adversely affected.

In addition, new product introductions frequently depend on our development and implementation of new process technologies, and our future growth will depend in part upon the successful development and market acceptance of these process technologies. Our integrated solution products require more technically sophisticated sales and marketing personnel to market these products successfully to customers. We are developing new products with smaller feature sizes and increased functionality, the fabrication of which will be substantially more complex than fabrication of our current products. If we are unable to design, develop, manufacture, market and sell new products successfully, our operating results will be harmed. Our new product

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development, process development or marketing and sales efforts may not be successful, our new products may not achieve market acceptance, and price expectations for our new products may not be achieved, any of which could significantly harm our business.

OUR OPERATING RESULTS ARE HIGHLY DEPENDENT ON OUR INTERNATIONAL SALES AND OPERATIONS, WHICH EXPOSES US TO VARIOUS RISKS.

Net revenue outside the United States accounted for 86% and 88% of our net revenue for the three months ended September 30, 2012 and 2011, respectively, and 87% and 86% of our net revenue for the nine months ended September 30, 2012 and 2011, respectively. We expect that revenue derived from international sales will continue to represent a significant portion of net revenue. International sales and operations are subject to a variety of risks, including:

• greater difficulty in protecting intellectual property;

• reduced flexibility and increased cost of staffing adjustments;

• foreign labor conditions and practices;

• adverse changes in tax laws;

• credit and collectibility risks on our trade receivables with customers in certain jurisdictions;

• longer collection cycles;

• legal and regulatory requirements, including antitrust laws, import and export regulations, trade barriers, tariffs and tax laws, and environmental and privacy regulations and changes to those laws and regulations;

• negative effects from fluctuations in foreign currency exchange rates;

• international trade regulations, including duties and tariffs;

• cash repatriation restrictions;

• impact of natural disasters on local infrastructures, including those of our distributors and end-customers; and

• general economic and political conditions in these foreign markets.

Some of our distributors, independent foundries, independent assembly, packaging and test contractors and other business partners also have international operations and are subject to the risks described above. Even if we are able to manage the risks of international operations successfully, our business may be adversely affected if our distributors, independent foundries and contractors, and other business partners are not able to manage these risks successfully.

WE MAY BE SUBJECT TO INFORMATION TECHNOLOGY SYSTEM FAILURES OR NETWORK DISRUPTIONS THAT COULD DAMAGE OUR REPUTATION, BUSINESS OPERATIONS AND FINANCIAL CONDITION.

We rely on our information technology infrastructure and certain critical information systems for the effective operation of our business. These information systems are subject to damage or interruption from a number of potential sources, including natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or electronic break-ins, cyber attacks, sabotage, vandalism, or similar events or disruptions. Our security measures or those of our third party service providers may not detect or prevent such security breaches. Any such compromise of our information security could result in the unauthorized publication of our confidential business or proprietary information, result in the unauthorized release of customer or employee data, result in a violation of privacy or other laws, expose us to a risk of litigation or damage our reputation. In addition, our inability to use or access these information systems at critical points in time could unfavorably impact the timely and efficient operation of our business, which could negatively affect our business and operating results.

OUR OPERATIONS AND FINANCIAL RESULTS COULD BE HARMED BY BUSINESS INTERRUPTIONS, NATURAL DISASTERS, TERRORIST ACTS OR OTHER EVENTS BEYOND OUR CONTROL.

Our operations are vulnerable to interruption by fire, earthquake, volcanoes, power loss, public health issues, geopolitical uncertainties, telecommunications failures and other events beyond our control. Our headquarters, some of our manufacturing facilities, the manufacturing facilities of third party foundries and some of our major suppliers’ and customers’ facilities are located near major earthquake faults and in potential terrorist target areas. We do not have a comprehensive disaster recovery plan.

In the event of a major earthquake, or other natural or manmade disaster, we could experience loss of life of our employees, destruction of facilities or other business interruptions. The operations of our suppliers could also be affected by natural disasters and other disruptions, which could cause shortages and price increases in various essential materials. We use third party freight firms for nearly all our shipments from vendors and our manufacturing facilities and for shipments to customers of our final product. We maintain property and business interruption insurance, but there is no guarantee that such insurance will be available or adequate

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to protect against all costs associated with such disasters and disruptions.

In recent years, based on insurance market conditions, we have relied to a greater degree on self-insurance. If a major earthquake, other disaster, or a terrorist act affects us and insurance coverage is unavailable for any reason, we may need to spend significant amounts to repair or replace our facilities and equipment, we may suffer a temporary halt in our ability to manufacture and transport products, and we could suffer damages that could materially adversely harm our business, financial condition and results of operations.

WE MAY EXPERIENCE PROBLEMS WITH KEY CUSTOMERS THAT COULD HARM OUR BUSINESS.

Our ability to maintain close, satisfactory relationships with large customers is important to our business. Our customers may vary order levels significantly from period to period, and customers may not continue to place orders with us in the future at the same levels as in prior periods.  A reduction, delay, or cancellation of orders from our large customers would harm our business. Similarly, the loss of one or more of our key customers, or reduced orders by any of our key customers, could harm our business and results of operations. Our business is organized into four operating segments (see Note 9 of Notes to the Condensed Consolidated Financial Statements for further discussion). The principal customers in each of our markets are described in Item 1 “Business — Principal Markets and Customers” in our Annual Report on Form 10-K for the year ended December 31, 2011.

WE ARE NOT PROTECTED BY LONG-TERM SUPPLY CONTRACTS WITH OUR CUSTOMERS.

We do not typically enter into long-term supply contracts with our customers, and we cannot be certain as to future order levels from our customers. When we do enter into a long-term contract, the contract is generally terminable at the convenience of the customer. In the event of an early termination by one of our major customers, it is unlikely that we will be able to rapidly replace that revenue source, which would harm our financial results.

WE ARE SUBJECT TO ENVIRONMENTAL, HEALTH AND SAFETY REGULATIONS, WHICH COULD IMPOSE UNANTICIPATED REQUIREMENTS ON OUR BUSINESS IN THE FUTURE. ANY FAILURE TO COMPLY WITH CURRENT OR FUTURE ENVIRONMENTAL REGULATIONS MAY SUBJECT US TO LIABILITY OR SUSPENSION OF OUR MANUFACTURING OPERATIONS.

We are subject to a variety of environmental laws and regulations in each of the jurisdictions in which we operate governing, among other things, air emissions, wastewater discharges, the use, handling and disposal of hazardous substances and wastes, soil and groundwater contamination, and employee health and safety. We could incur significant costs as a result of any failure by us to comply with, or any liability we may incur under, environmental, health, and safety laws and regulations, including the limitation or suspension of production, monetary fines or civil or criminal sanctions, clean-up costs or other future liabilities in excess of our reserves. We are also subject to laws and regulations governing the recycling of our products, the materials that may be included in our products, and our obligation to dispose of our products at the end of their useful lives. For example, the European Directive 2002/95/EC on restriction of hazardous substances (RoHS Directive) bans the placing on the European Union market of new electrical and electronic equipment containing more than specified levels of lead and other hazardous compounds. As more countries enact requirements like the RoHS Directive, and as exemptions are phased out, we could incur substantial additional costs to convert the remainder of our portfolio to comply with such requirements, conduct required research and development, alter manufacturing processes, or adjust supply chain management. Such changes could also result in significant inventory obsolescence. In addition, compliance with environmental, health and safety requirements could restrict our ability to expand our facilities or require us to acquire costly pollution control equipment, incur other significant expenses or modify our manufacturing processes. We also are subject to cleanup obligations at properties that we currently own or at facilities that we may have owned in the past or at which we conducted operations. In the event of the discovery of new or previously unknown contamination, additional requirements with respect to existing contamination, or the imposition of other cleanup obligations at these or other sites for which we are responsible, we may be required to take remedial or other measures that could have a material adverse effect on our business, financial condition and results of operations.

THE LOSS OF ANY KEY PERSONNEL ON WHOM WE DEPEND MAY SERIOUSLY HARM OUR BUSINESS.

Our future success depends in large part on the continued service of our key technical and management personnel and on our ability to continue to attract and retain qualified employees, particularly those highly skilled design, process and test engineers involved in the manufacture of existing products and in the development of new products and processes. The competition for such personnel is intense, and the loss of key employees, none of whom is subject to an employment agreement for a specified term or a post-employment non-competition agreement, could harm our business.

ACCOUNTING FOR OUR PERFORMANCE-BASED RESTRICTED STOCK UNITS IS SUBJECT TO JUDGMENT AND MAY LEAD TO UNPREDICTABLE EXPENSE RECOGNITION. THE IMPLEMENTATION OF THE PLAN UNDER WHICH THOSE RESTRICTED STOCK UNITS WERE ISSUED MAY ALSO AFFECT THE DEDUCTIBILITY OF SOME COMPENSATION PAID TO OUR NAMED EXECUTIVE OFFICERS.

We have issued, and may in the future continue to issue, performance-based restricted stock units to eligible employees, entitling those employees to receive restricted stock if they, and we, meet designated performance criteria established by our

46

compensation committee. For example, in May 2011, we adopted the 2011 Long-Term Performance-Based Incentive Plan (the “2011 Plan”), which provides for the grant of restricted stock units to eligible employees, subject to the satisfaction of specified performance metrics. The performance periods for the 2011 Plan run from January 1, 2011 through December 31, 2013. We recorded total stock-based compensation expense related to performance-based restricted stock units of $3.3 million and $11.0 million under the 2011 Plan for the three and nine months ended September 30, 2012, respectively.

We recognize the stock-based compensation expense for performance-based restricted stock units when we believe it is probable that we will achieve the specified performance criteria. If achieved, the award vests. If the performance goals are not met, no compensation expense is recognized and any previously recognized compensation expense is reversed. The expected cost of each award is reflected over the service period and is reduced for estimated forfeitures. We are required to reassess this probability at each reporting date, and any change in our forecasts may result in an increase or decrease to the expense recognized. As a result, our expense recognition for performance based restricted stock units could change over time, requiring adjustments to our financial statements to reflect changes in our judgment regarding the probability of achieving the performance goals.  The implementation of our 2011 Plan may also affect our ability to receive federal income tax deductions for compensation in excess of $1 million paid, during any fiscal year, to our named executive officers.  To the extent that aspects of a performance-based compensation plan such as ours are adjusted in the discretion of a compensation committee, the exercise of that discretion, notwithstanding that it is expressly permitted by the terms of a plan, may result in plan compensation awarded to named executive officers not being deductible.  Our compensation committee has retained the discretion to implement our 2011 Plan, notwithstanding any potential loss of deductibility, in the manner that it believes most effectively achieves the objectives of our compensation philosophies.

SYSTEM INTEGRATION DISRUPTIONS COULD HARM OUR BUSINESS.

We periodically make enhancements to our integrated financial and supply chain management systems. The enhancement process is complex, time-consuming and expensive. Operational disruptions during the course of such processes or delays in the implementation of such enhancements could impact our operations. Our ability to forecast sales demand, ship products, manage our product inventory and record and report financial and management information on a timely and accurate basis could be impaired while we are making these enhancements.

PROVISIONS IN OUR RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS MAY HAVE ANTI-TAKEOVER EFFECTS.

Certain provisions of our Restated Certificate of Incorporation, our Bylaws and Delaware law could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. Our board of directors has the authority to issue up to five million shares of preferred stock and to determine the price, voting rights, preferences and privileges, and restrictions of those shares without the approval of our stockholders. The rights of the holders of common stock will be subject to, and may be harmed by, the rights of the holders of any shares of preferred stock that may be issued in the future. The issuance of preferred stock may delay, defer or prevent a change in control, by making it more difficult for a third party to acquire a majority of our stock. In addition, the issuance of preferred stock could have a dilutive effect on our stockholders. We have no present plans to issue shares of preferred stock.

OUR FOREIGN PENSION PLANS ARE UNFUNDED, AND ANY REQUIREMENT TO FUND THESE PLANS IN THE FUTURE COULD NEGATIVELY AFFECT OUR CASH POSITION AND OPERATING CAPITAL.

We sponsor defined benefit pension plans that cover substantially all of our French and German employees. Plan benefits are managed in accordance with local statutory requirements. Benefits are based on years of service and employee compensation levels. Pension benefits payable totaled $33.3 million at September 30, 2012 and $29.8 million at December 31, 2011. The plans are unfunded, in compliance with local statutory regulations, and we have no immediate intention of funding these plans. Benefits are paid when amounts become due, commencing when participants retire. We expect to pay approximately $0.3 million in 2012 for benefits earned. Should legislative regulations require complete or partial funding of these plans in the future, it could negatively affect our cash position and operating capital.

FUTURE ACQUISITIONS MAY RESULT IN UNANTICIPATED ACCOUNTING CHARGES OR MAY OTHERWISE ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND RESULT IN DIFFICULTIES IN INTEGRATING THE OPERATIONS, PERSONNEL, TECHNOLOGIES, PRODUCTS AND INFORMATION SYSTEMS OF ACQUIRED COMPANIES OR BUSINESSES, OR BE DILUTIVE TO EXISTING STOCKHOLDERS.

A key element of our business strategy includes expansion through the acquisition of businesses, assets, products or technologies that allow us to complement our existing product offerings, expand our market coverage, increase our skilled engineering workforce or enhance our technological capabilities. We continually evaluate and explore strategic opportunities as they arise, including business combination transactions, strategic partnerships, and the purchase or sale of assets, including tangible and intangible assets such as intellectual property.

Acquisitions may require significant capital infusions, typically entail many risks and could result in difficulties in assimilating and integrating the operations, personnel, technologies, products and information systems of acquired companies or businesses.

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We have in the past experienced and may in the future experience delays in the timing and successful integration of an acquired company’s technologies, products and product development plans as a result of unanticipated costs and expenditures, changing relationships with customers, suppliers and strategic partners, difficulties ramping up volume production, or contractual, intellectual property or employment issues. In addition, key personnel of an acquired company may decide not to stay with us post-acquisition. The acquisition of another company or its products and technologies may also require us to enter into a geographic or business market in which we have little or no prior experience. These challenges could disrupt our ongoing business, distract our management and employees, harm our reputation and increase our expenses. These challenges are magnified as the size of the acquisition increases. Furthermore, these challenges would be even greater if we acquired a business or entered into a business combination transaction with a company that was larger and more difficult to integrate than the companies we have historically acquired.

Acquisitions may require large one-time charges and can result in increased debt or contingent liabilities, adverse tax consequences, additional stock-based compensation expense and the recording and later amortization of amounts related to certain purchased intangible assets, any of which items could negatively impact our results of operations. In addition, we may record goodwill in connection with an acquisition and incur goodwill impairment charges in the future. Any of these charges could cause the price of our common stock to decline.

Acquisitions or asset purchases made entirely or partially for cash may reduce our cash reserves. We may seek to obtain additional cash to fund an acquisition by selling equity or debt securities. Any issuance of equity or convertible debt securities may be dilutive to our existing stockholders.

We cannot assure you that we will be able to consummate any pending or future acquisitions or that we will realize any anticipated benefits or synergies from any of our historic or future acquisitions. We may not be able to find suitable acquisition opportunities that are available at attractive valuations, if at all. Even if we do find suitable acquisition opportunities, we may not be able to consummate the acquisitions on commercially acceptable terms, and any decline in the price of our common stock may make it significantly more difficult and expensive to initiate or consummate additional acquisitions.

We are required under U.S. GAAP to test goodwill for possible impairment on an annual basis and at any other time that circumstances arise indicating the carrying value of our goodwill may not be recoverable. At September 30, 2012, we had $69.2 million of goodwill. We completed our annual test of goodwill impairment in the fourth quarter of 2011 and concluded that we did not have any impairment at that time. However, if we continue to see deterioration in the global economy and the current market conditions in the semiconductor industry worsen, the carrying amount of our goodwill may no longer be recoverable, and we may be required to record a material impairment charge, which would have a negative impact on our results of operations.

DISRUPTIONS TO THE AVAILABILITY OF RAW MATERIALS CAN AFFECT OUR ABILITY TO SUPPLY PRODUCTS TO OUR CUSTOMERS, WHICH COULD SERIOUSLY HARM OUR BUSINESS.

The manufacture of semiconductor devices requires specialized raw materials, primarily certain types of silicon wafers. We generally utilize more than one source to acquire these wafers, but there are only a limited number of qualified suppliers capable of producing these wafers in the market. In addition, the raw materials, which include specialized chemicals and gases, and the equipment necessary for our business, could become more difficult to obtain as worldwide use of semiconductors in product applications increases. We have experienced supply shortages and price increases from time to time in the past, and on occasion our suppliers have told us they need more time than expected to fill our orders. Any significant interruption of the supply of raw materials or increase in cost of raw materials could harm our business.

WE COULD FACE PRODUCT LIABILITY CLAIMS THAT RESULT IN SIGNIFICANT COSTS AND DAMAGE TO OUR REPUTATION WITH CUSTOMERS, WHICH WOULD NEGATIVELY AFFECT OUR OPERATING RESULTS.

All of our products are sold with a limited warranty. However, we could incur costs not covered by our warranties, including additional labor costs, costs for replacing defective parts, reimbursement to customers for damages incurred in correcting their defective products, costs for product recalls or other damages. These costs could be disproportionately higher than the revenue and profits we receive from the sales of our products.

Our products have previously experienced, and may in the future experience, manufacturing defects, software or firmware bugs, or other similar quality problems. If any of our products contain defects or bugs, or have reliability, quality or compatibility problems, our reputation may be damaged and customers may be reluctant to buy our products, which could materially and adversely affect our ability to retain existing customers and attract new customers. In addition, any defects, bugs or other quality problems could interrupt or delay sales or shipment of our products to our customers.

We have implemented significant quality control measures to mitigate these risks; however, it is possible that products shipped to our customers will contain defects, bugs or other quality problems. Such problems may divert our technical and other resources from other development efforts. If any of these problems are not found until after we have commenced commercial production of a new product, we may be required to incur significant additional costs or delay shipments, which would negatively affect our business, financial condition and results of operations.

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THE OUTCOME OF CURRENTLY ONGOING AND FUTURE AUDITS OF OUR INCOME TAX RETURNS, BOTH IN THE U.S. AND IN FOREIGN JURISDICTIONS, COULD HAVE AN ADVERSE EFFECT ON OUR NET INCOME AND FINANCIAL CONDITION.

We are subject to continued examination of our income tax returns by the Internal Revenue Service and other foreign and domestic tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. While we believe that the resolution of these audits will not have a material adverse effect on our results of operations, the outcome is subject to significant uncertainties. If we are unable to obtain agreements with the tax authority on the various proposed adjustments, there could be an adverse material impact on our results of operations, cash flows and financial position.

OUR LEGAL ENTITY ORGANIZATIONAL STRUCTURE IS COMPLEX, WHICH COULD RESULT IN UNANTICIPATED UNFAVORABLE TAX OR OTHER CONSEQUENCES, WHICH COULD HAVE AN ADVERSE EFFECT ON OUR NET INCOME AND FINANCIAL CONDITION. WE CURRENTLY HAVE OVER 40 ENTITIES GLOBALLY AND INTERCOMPANY LOANS BETWEEN ENTITIES.

We currently operate legal entities in countries where we conduct manufacturing, design, and sales operations around the world. In some countries, we maintain multiple entities for tax or other purposes. Changes in tax laws, regulations, and related interpretations in the countries in which we operate may adversely affect our results of operations.

We also have unsettled intercompany balances that could result in adverse tax or other consequences affecting our capital structure, intercompany interest rates and legal structure.

FROM TIME TO TIME WE RECEIVE GRANTS FROM GOVERNMENTS, AGENCIES AND RESEARCH ORGANIZATIONS. IF WE ARE UNABLE TO COMPLY WITH THE TERMS OF THOSE GRANTS, WE MAY NOT BE ABLE TO RECEIVE OR RECOGNIZE GRANT BENEFITS OR WE MAY BE REQUIRED TO REPAY GRANT BENEFITS PREVIOUSLY PAID TO US AND RECOGNIZE RELATED CHARGES, WHICH WOULD ADVERSELY AFFECT OUR OPERATING RESULTS AND FINANCIAL POSITION.

From time to time, we receive economic incentive grants and allowances from European governments, agencies and research organizations targeted at increasing employment at specific locations. The subsidy grant agreements typically contain economic incentive, headcount, capital and research and development expenditure and other covenants that must be met to receive and retain grant benefits and these programs can be subjected to periodic review by the relevant governments. Noncompliance with the conditions of the grants could result in the forfeiture of all or a portion of any future amounts to be received, as well as the repayment of all or a portion of amounts received to date.

CURRENT AND FUTURE LITIGATION AGAINST US COULD BE COSTLY AND TIME CONSUMING TO DEFEND.

We are subject to legal proceedings and claims that arise in the ordinary course of business. See Part II, Item 1 of this Form 10-Q.  Litigation may result in substantial costs and may divert management’s attention and resources, which may seriously harm our business, results of operations, financial condition and liquidity.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information about the repurchase of our common stock during the three months ended September 30, 2012, pursuant to our Stock Repurchase Program. See Note 4 to our Condensed Consolidated Financial Statements in Part I to this Quarterly Report on Form 10-Q for further discussion.

Period	Total Number of Shares Purchased	Average Price Paid per Share ($) (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (3)
July 1 - July 31	—	—		—	$	166,174,561
August 1 - August 31	3,411,456	$	6.00	3,411,456	$	145,714,203
September 1 - September  30	395,700	$	5.86	395,700	$	143,396,174

 _________________________________________

(1)Represents the average price paid per share ($) exclusive of commissions.

(2)Represents shares purchased in open-market transactions under the stock repurchase plan approved by the Board of Directors.

(3)These amounts correspond to a plan announced in August 2010 whereby the Board of Directors authorized the repurchase of up to $200 million of our common stock. In May 2011, Atmel’s Board of Directors authorized an additional $300 million to the Company’s existing repurchase program.  In April 2012, Atmel’s Board of Directors authorized an additional $200 million to the Company’s existing repurchase program.  The repurchase program does not have an expiration date. Shares repurchased

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under the program have been and will be retired. Amounts remaining to be purchased are exclusive of commissions.

We did not sell unregistered securities during the three months ended September 30, 2012.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The following Exhibits have been filed with, or incorporated by reference into, this Report:

31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

  _________________________________________

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

	ATMEL CORPORATION (Registrant)
November 7, 2012	/s/ STEVEN LAUB
	Steven Laub
	President & Chief Executive Officer
	(Principal Executive Officer)
November 7, 2012	/s/ STEPHEN CUMMING
	Stephen Cumming
	Vice President Finance & Chief Financial Officer
	(Principal Financial Officer)
November 7, 2012	/s/ JAMIE SAMATH
	Jamie Samath
	Vice President & Corporate Controller
	(Principal Accounting Officer)

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EXHIBIT INDEX

31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

_________________________________________

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