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, 2001

OR

[   ]  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)

2325 Orchard Parkway
San Jose, California 95131
(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 [X]     No [   ]

On November 8, 2001, Registrant had outstanding 465,543,328 shares of Common Stock.

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION
	Item 1. Financial Statements
		Condensed Consolidated Balance Sheets
		Condensed Consolidated Statements of Operations
		Condensed Consolidated Statements of Cash Flows
		Condensed Consolidated Statements of Comprehensive (Loss) Income
		Notes to Condensed Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosure about Market Risk
PART II OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 5: Other Information
	Item 6: Exhibits and Reports on Form 8-K
SIGNATURES

ATMEL CORPORATION

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2001

TABLE OF CONTENTS

			Page
Part I:	Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets at September 30, 2001 and December 31, 2000	1
		Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2001 and September 30, 2000	2
		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and September 30, 2000	3
		Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2001 and September 30, 2000	4
		Notes to Condensed Consolidated Financial Statements	5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Part II:	Other Information
	Item 1.	Legal Proceedings	30
	Item 2.	Changes in Securities and Use of Proceeds	30
	Item 5.	Other Information	30
	Item 6.	Exhibits and Reports on Form 8-K	30
Signatures			31

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

Atmel Corporation
Condensed Consolidated Balance Sheets
(In thousands)

			September 30, 2001			December 31, 2000
			(unaudited)
Current assets
	Cash and cash equivalents		$	332,078		$	448,281
	Short term investments			309,350			514,263
	Accounts receivable			218,025			392,384
	Inventories			321,690			289,054
	Other current assets			139,927			148,212
		Total current assets		1,321,070			1,792,194
	Fixed assets, net			1,698,140			1,927,817
	Other assets			176,347			53,876
	Cash — restricted			—			51,000
		Total assets	$	3,195,557		$	3,824,887
Current liabilities
	Current portion of long-term debt		$	205,185		$	173,866
	Trade accounts payable			204,892			655,450
	Accrued liabilities and other			397,979			326,352
	Deferred income on shipments to distributors			27,911			33,703
		Total current liabilities		835,967			1,189,371
	Convertible notes			341,629			122,700
	Long-term debt less current portion			444,632			545,803
	Other long term liabilities			42,273			72,156
		Total liabilities		1,664,501			1,930,030
Stockholders’ equity
	Common stock			465			462
	Additional paid in capital			1,241,182			1,226,412
	Accumulated other comprehensive loss			(45,259	)		(53,465	)
	Retained earnings			334,668			721,448
		Total stockholders’ equity		1,531,056			1,894,857
		Total liabilities and stockholders’ equity	$	3,195,557		$	3,824,887

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Atmel Corporation
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

			Three Months Ended						Nine Months Ended
			September 30,						September 30,
			2001			2000			2001			2000
Net revenues			$	294,752		$	530,393		$	1,187,692		$	1,438,337
Expenses
	Cost of revenues			261,944			294,899			826,636			818,328
	Research and development			65,340			57,929			203,809			182,458
	Selling, general and administrative			47,404			57,044			147,846			154,587
	Restructuring charges			481,296			—			481,296			—
		Total operating expenses		855,984			409,872			1,659,587			1,155,373
Operating (loss) income				(561,232	)		120,521			(471,895	)		282,964
Interest and other expenses, net				(9,717	)		(960	)		(11,580	)		(2,190	)
(Loss) income before taxes				(570,949	)		119,561			(483,475	)		280,774
Income tax benefit (provision)				128,186			(43,042	)		96,695			(101,078	)
Net (loss) income			$	(442,763	)	$	76,519		$	(386,780	)	$	179,696
Basic net (loss) income per share			$	(0.95	)	$	0.17		$	(0.83	)	$	0.40
Diluted net (loss) income per share			$	(0.95	)	$	0.16		$	(0.83	)	$	0.38
Shares used in basic net (loss) income per share calculations				465,032			461,678			464,184			447,033
Shares used in diluted net (loss) income per share calculations				465,032			494,034			464,184			490,127

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Atmel Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

			Nine Months Ended September 30,
			2001			2000
Cash from operating activities
Net (loss) income			$	(386,780	)	$	179,696
Items not requiring or generating cash:
	Depreciation and amortization			232,629			172,868
	Restructuring charge			481,296			—
	Deferred tax benefit of net loss			(111,589	)		—
	Loss on sales of fixed assets			5,404			327
	Provision for doubtful accounts receivable			9,681			6,103
	Other			11,332			6,814
Changes in operating assets and liabilities
	Accounts receivable			162,522			(65,365	)
	Inventories			(37,327	)		(4,678	)
	Prepaid taxes and other assets			(6,321	)		(23,119	)
	Trade accounts payable and other accrued liabilities			(23,775	)		235,131
	Income taxes payable			(46,848	)		83,800
	Deferred income on shipments to distributors			(5,792	)		1,291
		Net cash provided by operating activities		284,432			592,868
Cash from investing activities
	Acquisition of fixed assets			(755,954	)		(712,291	)
	Sales of fixed assets			1,533			2,848
	Acquisitions			—			(12,869	)
	Purchase of investments			(144,417	)		(182,970	)
	Sale or maturity of investments			351,897			88,886
		Net cash used in investing activities		(546,941	)		(816,396	)
Cash from financing activities
	Issuance of notes payable			9,146			25,980
	Proceeds from issuance of convertible notes			200,027			—
	Proceeds from capital leases and notes			100,685			290,577
	Principal payments on capital leases and notes			(181,450	)		(124,068	)
	Issuance of common stock			14,773			691,979
		Net cash provided by financing activities		143,181			884,468
Effect of foreign currency translation adjustment				3,125			(29,682	)
Net (decrease) increase in cash				(116,203	)		631,258
Cash and cash equivalents at beginning of period				448,281			251,272
Cash and cash equivalents at end of period			$	332,078		$	882,530
Interest paid			$	20,162		$	25,585
Income taxes paid			$	67,648		$	35,006
Fixed asset purchases in accounts payable			$	78,390		$	128,031

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Atmel Corporation
Condensed Consolidated Statements of Comprehensive (Loss) Income
(In thousands)
(Unaudited)

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2001			2000			2001			2000
Net (loss) income		$	(442,763	)	$	76,519		$	(386,780	)	$	179,696
Other comprehensive income (loss):
	Foreign currency translation adjustments		48,455			(37,116	)		4,442			(50,469	)
	Unrealized gain on securities		434			1,738			3,764			935
	Other comprehensive (loss) income		48,889			(35,378	)		8,206			(49,534	)
Comprehensive (loss) income		$	(393,874	)	$	41,141		$	(378,574	)	$	130,162

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Atmel Corporation
Notes to Condensed Consolidated Financial Statements
September 30, 2001
(Unaudited)

1. Basis of Presentation and Accounting Policies

These unaudited interim financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly, in all material respects, the financial position of Atmel Corporation (Company or Atmel) and its subsidiaries as of September 30, 2001, and the results of operations, comprehensive income and cash flows for the three and nine month periods ended September 30, 2001 and 2000. All material intercompany balances have been eliminated. Because all of the disclosures required by generally accepted accounting principles are not included, these interim statements should be read in conjunction with the audited financial statements and accompanying notes in our Annual Report to Shareholders filed on Form 10-K for the year ended December 31, 2000. The year-end condensed balance sheet data was derived from the audited financial statements and does not include all of the disclosures required by generally accepted accounting principles. The statements of operations for the periods presented are not necessarily indicative of results to be expected for any future period, nor for the entire year. Prior year amounts have been reclassified to conform with current presentation.

2. Inventories

Inventories are stated at the lower of cost (first-in, first-out for raw materials and purchased parts; and average cost for work in progress) or market, and comprise the following:

(In thousands)	September 30, 2001		December 31, 2000
Raw materials and purchased parts	$	25,883	$	26,671
Finished goods		88,390		78,938
Work in progress		207,417		183,445
Total	$	321,690	$	289,054

3. Short term investments

Short term investments at September 30, 2001 and December 31, 2000 comprise debt securities consisting primarily of US government and municipal agency securities, US and foreign corporate debt securities, commercial paper, auction rate preferred stock, certificates of deposit, and overnight deposits.

All marketable securities are deemed by management to be available for sale and are reported at fair value with net unrealized gains or losses reported within stockholders’ equity.

5

4. Net (Loss) Income Per share

A reconciliation of the numerator and denominator of basic and diluted net income per share is provided in the following table. All shares have been restated to reflect the 2-for-1 stock split effected in August 2000.

		Three Months Ended					Nine Months Ended
		September 30					September 30
(In thousands, except per share data)		2001			2000		2001			2000
Basic net (loss) income [numerator]		$	(442,763	)	$	76,519	$	(386,780	)	$	179,696
Interest saved on convertible bonds, net of taxes			—			1,128		—			5,644
Diluted net (loss) income [numerator]		$	(442,763	)	$	77,647	$	(386,780	)	$	185,340
Shares used in basic net income per share calculations [denominator]:
	Weighted average shares of common stock outstanding (basic)		465,032			461,678		464,184			447,033
Dilutive effect of stock options			—			13,324					14,672
Dilutive effect of convertible bonds			—			19,032		—			28,422
Shares used in diluted net income per share calculations [denominator]:
	Weighted average shares of common stock outstanding (diluted)		465,032			494,034		464,184			490,127
Basic net income per share		$	(0.95	)	$	0.17	$	(0.83	)	$	0.40
Diluted net income per share		$	(0.95	)	$	0.16	$	(0.83	)	$	0.38

For the three months ended September 30, 2001, 40,074 shares of common stock relating to outstanding options and convertible bonds were excluded from the computation of diluted net loss per share because they were anti-dilutive. For the nine months ended September 30, 2001, 37,428 shares of common stock relating to outstanding options and convertible bonds were excluded from the computation of diluted net income per share because they were anti-dilutive.

5. Segment Reporting

We have four reportable segments: Application Specific Integrated Circuits (ASIC), Logic, Nonvolatile Memories (NVM) and Atmel Wireless and Microcontroller Group (WMG). Each segment requires different design, development and marketing resources to produce and sell semiconductor integrated circuits.

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Information about segments (in thousands):

	ASIC			Logic			NVM			WMG		Total
Three Months ended September 30, 2001
Net revenues	$	86,692		$	35,766		$	110,838		$	61,456	$	294,752
Segment operating income (loss)		(14,072	)		(3,674	)		(35,320	)		7,310		(45,756	)
Three Months ended September 30, 2000
Net revenues	$	130,124		$	42,196		$	281,716		$	76,357	$	530,393
Segment operating income		24,602			14,075			86,887			12,864		138,428

	ASIC		Logic		NVM		WMG		Total
Nine Months ended September 30, 2001
Net revenues	$	327,210	$	131,944	$	521,478	$	207,060	$	1,187,692
Segment operating income		23,170		23,413		27,933		28,468		102,984
Nine Months ended September 30, 2000
Net revenues	$	348,820	$	107,400	$	761,588	$	220,529	$	1,438,337
Segment operating income		67,955		28,370		212,122		33,375		341,822

Reconciliations of segment information to financial statements (in thousands):

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2001			2000			2001			2000
Total income for reportable segments		$	(45,756	)	$	138,428		$	102,984		$	341,822
Unallocated amounts:
	Corporate R&D		(10,399	)		(6,094	)		(31,369	)		(38,094	)
	Start up expenses		(18,541	)		(8,587	)		(54,173	)		(13,754	)
	Corporate expenses		(5,240	)		(3,226	)		(8,041	)		(7,010	)
	Restructuring charge		(481,296	)		—			(481,296	)
Consolidated operating income before interest and taxes		$	(561,232	)	$	120,521		$	(471,895	)	$	282,964

Certain costs which are not specifically identifiable to segments such as corporate R & D and start up costs associated with new wafer manufacturing facilities are reported as unallocated amounts. However, all segments benefit from these corporate activities and if allocation of these costs were feasible, segment results would be correspondingly reduced.

6. Restructuring Charges

During the Company’s third quarter 2001 a restructuring plan was announced that included the consolidation of manufacturing operations in both the United States and Europe and a projected 2500 person work force reduction. The restructuring charges include a $462,769 asset impairment charge and an $18,527 charge related to reductions of force in Europe.

The asset impairment charge relates primarily to the manufacturing assets in the fabrication facilities in Colorado Springs, Colorado, Rousset, France and Nantes, France. The Company determined that due to excess capacity, the future undiscounted cash flows related to these facilities will not be sufficient to recover the carrying value of the manufacturing equipment in those facilities. The carrying values of these assets were written down to the Company’s estimate of fair market value and will continue to be depreciated over their remaining useful lives. The estimate of fair market value was based on an outside appraisal that assumed the assets would continue in use at their current locations.

7

The charges related to the US reduction in force have been and will be expensed upon finalization of detailed plans and communications to employees, which has generally been in the periods in which the employees have been terminated. The European reduction in force charges are based on legal requirements and are expected to be paid over the next 12 months. At September 30, 2001, none of the European reduction in force costs had been paid.

7. Recent Pronouncements

SFAS 133

In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133). SFAS No. 133 requires that an entity recognizes all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at fair value. It further provides criteria for derivative instruments to be designated as fair value, cash flow and foreign currency hedges and establishes respective accounting standards for reporting changes in the fair value of the instruments. The statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000 pursuant to the issuance of SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities — Deferral of the Effective Date of FASB Statement No. 133,” which deferred the effective date of SFAS No. 133 by one year. In June 2000, the FASB issued SFAS Statement No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” SFAS No. 138 amends certain terms and conditions of SFAS 133. We have adopted SFAS No. 133 and 138 in the quarter ending March 31, 2001. The adoption of the statements did not have a significant effect on our results of operations.

SFAS 141 and SFAS 142

In July 2001, the Financial Accounting Standards Board (FASB) issued FASB Statements Nos. 141 and 142 (SFAS 141 and SFAS 142), “Business Combinations” and “Goodwill and Other Intangible Assets.” SFAS 141 replaces APB 16 and eliminates pooling-of-interests accounting prospectively. It also provides guidance on purchase accounting related to the recognition of intangible assets and accounting for negative goodwill. SFAS 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Under SFAS 142, goodwill will be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired. SFAS 141 and SFAS 142 are effective for all business combinations completed after June 30, 2001. Upon adoption of SFAS 142, amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 will cease, and intangible assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under SFAS 141 will be reclassified to goodwill. Companies are required to adopt SFAS 142 for fiscal years beginning after December 15, 2001. We will adopt SFAS 142 on January 1, 2002, the beginning of fiscal 2002. In connection with the adoption of SFAS 142, the Company will be required to perform a transitional goodwill impairment assessment. The Company has not yet determined the impact these standards will have on its results of operations and financial position.

SFAS 144

8

In October 2001, the FASB issued Statement of Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). SFAS 144 supercedes SFAS 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations — Discontinued Events and Extraordinary Items”. SFAS 144 develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. Additionally, SFAS 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS 144 is effective for the Company for all financial statements issued in calendar 2002.

8. Zero Coupon Convertible Subordinated Notes

In May 2001, we completed an offering of $511,500 in aggregate principal amount at maturity of our Zero Coupon Convertible Debentures due 2021. The initial purchasers of the debentures were Morgan Stanley & Co. Incorporated, Credit Lyonnais Securities (USA) Inc. and Needham & Company, Inc. From the aggregate offering price of approximately $200,027, we received approximately $194,026 in net proceeds from the offering after deducting the aggregate initial purchasers’ discount, which was approximately $6,000. The offer and sale of the debentures was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Rule 144A promulgated thereunder. The debentures are convertible, at the option of the holder, into the Company’s common stock at the rate of 22.983 shares per $1 (one thousand dollars) principal amount at maturity of the debentures. The effective interest rate of the debentures is 4.75 percent per annum. The debentures will be redeemable for cash, at our option, at any time on or after May 23, 2006 in whole or in part at redemption prices equal to the issue price plus accrued original issue discount. At the option of the holders as of May 23, 2006, 2011 and 2016, we may be required to redeem the debt at prices equal to the issue price plus accrued original issue discount through date of repurchase. We may, at our option, elect to pay the repurchase price in cash, in shares of our common stock or in any combination of the two.

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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 Report. 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 carefully review and consider the various disclosures made by us in this Report and in our other reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2000. In this report, all share numbers and per share amounts have been retroactively adjusted to reflect our 2-for-1 stock split in the form of a 100% stock dividend to stockholders of record as of August 11, 2000.

Forward Looking Statements

     Investors are cautioned that certain statements in this Form 10-Q are forward looking statements that involve risks and uncertainties. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward looking statements which include, but are not limited to, statements in “Net Revenues by Segment” regarding future prices of our products, in “Cost of Revenues and Gross Margin” regarding our capital expenditures and the impact on our business of the current downturn in the semiconductor industry, in “Research and Development” regarding our continued investments in process technology and product development, in “Restructuring Charges” regarding our asset impairment and work force reduction charges, in “Liquidity and Capital Resources” regarding collection of our receivables and in “Cash Flow” regarding our meeting our liquidity and capital requirements. These statements are based on current expectations and projections about the semiconductor industry and assumptions made by the management and are not guarantees of future performance. Therefore, actual events and results may differ materially from those expressed or forecasted in the forward looking statements due to factors such as the effects on demand for our products of the terrorist attacks in the United States and any related conflicts or similar events worldwide; the effect of changing economic conditions; material changes in currency exchange rates; political instability in countries where we manufacture and/or sell our products; disruptions in production or conditions in the overall semiconductor market (including the historic cyclicality of the industry); risks associated with product demand and market acceptance risks; the impact of competitive products and pricing; delays in new product development, manufacturing capacity utilization, product mix and technological risks and other risk factors identified in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K. The Company undertakes no obligation to update any forward looking statements in this Form 10-Q.

Results of Operations

     The following table sets forth for the periods indicated certain operating data as a percentage of net revenues:

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		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2001			2000			2001			2000
Net revenues			100	%		100	%		100	%		100	%
Expenses
	Cost of sales		89			56			70			57
	Research and Development		22			11			17			13
	Selling, general and administrative		16			11			12			11
	Restructuring charges		163			—			41			—
Total expenses			290			78			140			81
Operating (loss) income			(190	)		22			(40	)		19
Interest and other income (expenses), net			(3	)		—			(1	)		—
(Loss) income before taxes			(193	)		22			(41	)		19
Income tax benefit (provision)			43			(8	)		8			(7	)
Net (loss) income			(150	)%		14	%		(33	)%		12	%

Net Revenues

     Revenues for the first three quarters 2001 decreased $251 million, or 17% from the comparable period of 2000. Revenues in the third quarter 2001 totaled $295 million, a decrease of 44% from the same quarter in 2000. Beginning late in the fourth quarter 2000, the global semiconductor industry began to experience a downturn which has continued through the third quarter 2001. Our business has been impacted by this downturn, with the effect that our net revenues of $295 million in the third quarter 2001 declined by $72 million, or 20%, from $367 million in the second quarter 2001. This decrease in revenues is primarily due to a decline in customer end-demand for semiconductor products, particularly in the Flash market and our North American distribution business and an overall decrease in average selling prices. At present we cannot predict with any degree of certainty when business conditions will improve.

Net Revenues — By Segment

     Our business currently has four segments: application specific integrated circuits (ASIC), Logic, nonvolatile memory (NVM), and Atmel Wireless and Microcontroller Group (WMG). We announced on October 18, 2001 a reorganization of the company into four business groups which will be: ASIC, Radio Frequency (RF) products, NVM, and Microcontrollers.

     The following discussion is based upon the current segments before the reorganization.

     Our revenues for the first three quarters of 2001 decreased by 17% from the same period in 2000, with declines in all segments except for the Logic segment. Revenues in every segment decreased in the third quarter 2001 compared to the same quarter last year. The largest decrease was in the NVM segment.

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     The Company’s net revenues by segment are summarized as follows (in thousands):

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
					Increase							Increase
Segment	2001		2000		(Decrease)			2001		2000		(Decrease)
ASIC	$	86,692	$	130,124	$	(43,432	)	$	327,210	$	348,820	$	(21,610	)
Logic		35,766		42,196		(6,430	)		131,944		107,400		24,544
NVM		110,838		281,716		(170,878	)		521,478		761,588		(240,110	)
WMG		61,456		76,357		(14,901	)		207,060		220,529		(13,469	)
Total	$	294,752	$	530,393	$	(235,641	)	$	1,187,692	$	1,438,337	$	(250,645	)

     ASIC segment revenues decreased by $22 million in the first three quarters 2001 compared to the same period in 2000. This decrease resulted from lower volumes partially offset by stronger prices and by the inclusion of Atmel Grenoble’s revenues under this segment for the entire nine months 2001 compared to only five months of 2000. We acquired Atmel Grenoble in May 2000.

     ASIC revenues decreased by $43 million in the third quarter 2001 over the same period in 2000 due principally to lower unit shipments offset by higher average selling prices. ASIC revenues decreased by $11 million in the third quarter 2001 compared to the second quarter 2001 due to lower unit shipments and lower average selling prices

     Logic segment revenues increased by $25 million in the first three quarters 2001 compared to the same period in 2000 as the result of higher unit shipments offset by lower average selling prices.

     Logic revenues decreased $6 million in the third quarter 2001 compared to the same quarter in 2000 because of lower average selling prices, offset by higher unit shipments. Revenues decreased by $8 million in the third quarter 2001 compared to the second quarter 2001 as the result of lower average selling prices, offset by higher unit shipments.

     NVM segment revenues decreased $240 million in the first three quarters 2001 compared to the same period in 2000. The decrease was due to significantly lower unit shipments and lower average selling prices.

     NVM revenues decreased $171 million in the third quarter 2001 compared to the same period in 2000, as a result of lower unit shipments and lower average selling prices. Revenues also decreased $47 million in the third quarter 2001 compared to the second quarter 2001 due to a combination of lower unit shipments and lower average selling prices. Because NVM products are commodity oriented, they are subject to greater declines in average selling prices than other product areas within our company. The commodity memory portion of the semiconductor industry has suffered from excess capacity since late in the fourth quarter 2000, and previously during all of 1998 through the first quarter 1999, which led and may be leading to greater than normal price erosion during these and subsequent periods.

     WMG segment revenues in the first three quarters 2001 decreased $13 million from the same period in 2000 as a result of lower unit volumes offset by higher average selling prices.

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     WMG revenues decreased $15 million in the third quarter 2001 compared to the same period in 2000 primarily as a result of lower unit volumes, offset by higher average selling prices. Revenues decreased $5 million in the third quarter 2001 compared to the second quarter 2001 as the result of lower unit shipments and lower average selling prices.

     We normally expect a steady, predictable rate of price decline throughout a product’s life cycle. However, the semiconductor industry historically has been cyclical and characterized by wide fluctuations in product supply and demand. As a result, the industry experiences significant downturns from time to time, as it did in 1998, and as it is currently experiencing. These downturns are marked by diminished product demand, production overcapacity and consequent accelerated erosion of average selling prices.

Net Revenues — By Geographic Area

     The Company’s net revenues by geographic areas are summarized as follows (in thousands):

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
					(Decrease)							(Decrease)
Region	2001		2000		Increase			2001		2000		Increase
North America	$	61,005	$	188,719	$	(127,714	)	$	300,685	$	502,175	$	(201,490	)
Europe		95,405		166,557		(71,152	)		397,271		447,837		(50,566	)
Asia		127,750		162,630		(34,880	)		443,920		467,693		(23,773	)
Other		10,592		12,487		(1,895	)		45,816		20,632		25,184
Total	$	294,752	$	530,393	$	(235,641	)	$	1,187,692	$	1,438,337	$	(250,645	)

     For the first three quarters 2001, sales declined in the three largest regions when compared to the same period in 2000. Sales in all regions declined in the third quarter 2001 compared to the same period in 2000.

     Revenues from North America in the first three quarters 2001 declined $201 million or 40% from the same period in 2000. The decrease occurred principally in the second and third quarters 2001 with a combined decline of $202 million from the same two quarters in 2000. Third quarter 2001 revenues declined $32 million or 35% from the second quarter 2001.

     Revenues from Europe decreased $51 million or 11% in the first three quarters 2001 compared to the same period in 2000. Third quarter 2001 revenues from Europe were $71 million less than in the same period last year, a decline of 43%. Third quarter 2001 revenues declined $26 million or 22% from the second quarter 2001.

     Revenues from Asia decreased $24 million or 5% in the first three quarters 2001 compared to the same period in 2000. Third quarter 2001 revenues declined $35 million or 21% from the same quarter in 2000. Third quarter 2001 revenues declined $8 million or 6% from the second quarter 2001.

     In both the first three quarters and the third quarter 2001, approximately 21% of sales were denominated in foreign currencies, which compares to 24% and 22% in the same periods in

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2000. Had exchange rates in the first three quarters 2001 remained the same as in 2000 our reported revenues would have been approximately $13 million higher.

Cost of Revenues and Gross Margin

     Our cost of revenues as a percentage of net revenues increased to 89% in the third quarter 2001, compared to 56% in the third quarter 2000, and to 70% in the first three quarters 2001, from 57% in the corresponding period of 2000. Gross margin was 11% for the third quarter 2001 and 30% for the first three quarters 2001, compared to 44% and 43% in the same periods of 2000. The decline was caused by lower unit sales volumes over which to spread fixed manufacturing costs and higher charges for excess and obsolete inventories due to reduction in demand.

     In 2001 we expect capital expenditures to be about $900 million, compared to $961 million in 2000. These expenditures are focused on developing leading edge manufacturing capacity.

     During the second and third quarters 2001 we implemented several cost reduction measures. In addition, in the third quarter 2001 we recorded an asset impairment charge of $462 million, which will reduce depreciation expense by approximately $28 million per quarter. However, if the current downturn in the semiconductor industry which began late in the fourth quarter 2000 continues or worsens, our wafer fabrication capacity would continue to be underutilized, and our inability to quickly reduce fixed costs such as the remaining depreciation and other fixed operating expenses necessary to operate our wafer manufacturing facilities would further harm our operating results. If our net revenues do not increase sufficiently in future periods to meet these costs, our business could be harmed.

Research and Development

     Research and development costs increased 12% in the first three quarters 2001 from the same period in 2000. As a percentage of net revenues, research and development cost increased to 22% in the third quarter 2001 from 11% in the third quarter 2000. We continue our investment in advancing our wafer manufacturing technology to produce integrated circuits with 0.18 micron and 0.13 micron line widths, enhancing our mature products, developing new products, developing new process technologies such as those which use silicon germanium to produce faster integrated circuits, and making improvements to manufacturing efficiencies. We believe that continued investments in process technology and product development are essential for us to remain competitive in the markets we serve, and we are committed to high levels of expenditures for research and development. At the same time, we are taking appropriate steps in an effort to keep fixed costs in this area in line with market conditions.

Selling, General and Administrative (SG&A)

     Selling, general and administrative expenses decreased $7 million in the first three quarters 2001 compared to the same period in 2000 due to a decline in selling commissions related to lower sales and cost reductions due to reduced general and administrative activities. SG&A expenses decreased $10 million in the third quarter 2001 compared to the same quarter in 2000, also due to lower selling costs and the results of cost control measures in general and administrative expenses.

Interest and Other Expenses

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     We reported $(12) million of net interest and other expenses for the first three quarters 2001 compared to $(2) million net interest and other expenses for the same period in 2000. For the third quarter 2001 interest and other expenses were $(10) million, compared to interest and other expenses of $(1) million for the same quarter last year. The increase in net interest and other expenses in the current three and nine month periods is primarily due to lower interest income from lower invested balances and higher interest expense from additional borrowings made in 2001.

Restructuring Charges

     During the third quarter 2001, the Company recorded a $462 million asset impairment charge related to certain of its fabrication facilities and an $19 million charge related to a headcount reduction in Europe. The charges are part of a restructuring plan that includes a projected 2500 person work force reduction and the consolidation of manufacturing operations in both the U.S. and Europe.

     During the period from fiscal 1998 to fiscal 2000, our sales volume grew significantly, from $1.1 billion to $2.0 billion. As business conditions improved during this time, the Company took steps to significantly expand its manufacturing capacity. In March 1998 we acquired the integrated circuit business Temic Telefunken Microelectronic, including its two fabrication facilities in Heilbronn, Germany and Nantes, France. In May 2000 we acquired Thomson-CSF Semiconducteurs Specifique in Grenoble, France. In addition, during 2000 we acquired fabrication facilities in Texas and North Tyneside, U.K. The Company also invested in its fabrication facilities to upgrade technology. During the period January 1998 to September 2001, we spent approximately $2.0 billion for acquisitions of property and equipment in anticipation of significant growth in our business during 2001, 2002 and beyond from the historical levels achieved in 2000.

     During 2001, business conditions in the semiconductor industry deteriorated rapidly. Global semiconductor sales declined from $18.4 billion in September 2000 to $10.2 billion in September 2001. Our quarterly revenues have also declined rapidly from $574 million in the fourth quarter 2000 to $295 million in the third quarter 2001 and our plants are currently operating at significantly below their capacity. We do not expect a rapid improvement in market conditions. In response to these conditions, the Company has announced plans to cease volume manufacturing at two of its 6 inch fabrication facilities.

     As a result of the difficult operating conditions that now exist in the semiconductor industry, we performed an asset impairment review of our fixed assets. In assessing the impairment, we grouped manufacturing assets at the lowest level from which there were identifiable cash flows that were largely independent of the cash flows of other groups of assets. We determined that currently projected production volumes and related cash flows from the fabrication facilities in Colorado Springs, Colorado, Rousset, France and Nantes, France would not be sufficient to recover the carrying value of those facilities. We concluded that these assets are impaired and have written down the carrying values of these facilities to our estimate of their fair market value. Our estimate of fair market value was based on an outside appraisal that assumed the assets would continue in use at their current locations. The assets will continue to be depreciated over their remaining useful lives, and none of the assets affected by this action are currently held for sale.

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     The difficult operating conditions have also caused us to take actions to reduce our work force. We are in the process of reducing our work force globally by a projected 2500. We have already taken actions during the year to reduce our work force in the United States and have included these charges at the time the actions were taken. We expect to incur more costs in the U.S. in the fourth quarter 2001 related to further reductions in force. We have also included $19 million in restructuring charges related to our reduction in force in Europe, none of which had been paid as of September 30, 2001. These amounts will be paid as legally required in Europe. If business conditions do not improve, the Company may take actions to further reduce its workforce which will result in additional restructuring charges.

Income Tax Provision

     The Company’s effective tax rate benefit for the three and nine months ended September 30, 2001 was 22% and 20%, respectively. The effective tax rate for both the three and nine months ended September 30, 2000 was 36%.

Net Income

     We reported a net loss of $443 million for the third quarter 2001 compared to net income of $77 million in the same quarter 2000. The third quarter 2001 net loss includes a pretax restructuring charge of $481 million, of which $462 million represents a charge for impaired assets and $19 million represents a charge for reducing employment levels in Europe. The balance of the pretax loss is $90 million and is due primarily to the significant decline in our net revenues while significant fixed costs such as depreciation and other fixed operating expenses necessary to operate our wafer manufacturing facilities have remained stable. We were unable to reduce such costs as quickly as net revenues declined.

Liquidity and Capital Resources

     At September 30, 2001 we had $332 million of cash and cash equivalents, compared to $448 million at December 31, 2000. Total current assets exceeded total current liabilities by 1.6 times, compared to 1.5 times at December 31, 2000. Short term investments decreased from $514 million to $309 million over the same period as funds have been used to help reduce trade accounts payable to $205 million at September 30, 2001 from $655 million at December 31, 2000. Our working capital decreased by $118 million to $485 million in the first nine months of 2001 due to a variety of factors including a $174 million decrease in accounts receivable plus a $72 million increase in accrued liabilities offset by a $33 million increase in inventory.

     The Company’s accounts receivable decreased 44% to $218 million at September 30, 2001 from $392 million at December 31, 2000. The average days of accounts receivable outstanding was 67 days at the end of the third quarter 2001 compared to 69 days in the second quarter 2001 and 62 days in the fourth quarter 2000. Average days outstanding could increase during the most recent downturn in the semiconductor industry, which began late in the fourth quarter 2000. We monitor collection risks and provide an adequate allowance for doubtful accounts related to these risks. While there can be no guarantee of collecting these receivables, we believe that substantially all net receivables will be collected given customers’ current credit ratings.

     Inventories increased by $33 million to $322 million at September 30, 2001 from $289 million at December 31, 2000. Days sales in inventory were 112 days at the end of the third quarter 2001 compared to 83 days at

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December 31, 2000. Shipments slowed faster than we were able to reduce production rates and fixed manufacturing costs during the first three quarters 2001. Inventories at September 30, 2001 decreased by $6 million from $328 million at June 30, 2001 because of higher charges for excess and obsolete inventory. We are continuing to take measures to reduce manufacturing costs in line with reduced demand, but the fixed nature of many manufacturing costs limits our ability to respond as quickly as demand for our products changes.

Cash Flow

From Operating Activities: During the nine months ended September 30, 2001, net cash provided by operating activities was $284 million, compared to $593 million in the same period of 2000, a decrease of $309 million, or 52%. The decrease in cash provided by operating activities is primarily due to reduced net income and because cash was used to reduce liabilities and pay income taxes, offset by cash provided from collections of accounts receivable. Depreciation and amortization, a cost not requiring cash, increased $60 million compared to the same period of 2000.

Used in Investing Activities: Cash used in investing activities was $547 million during the first nine months of 2001, compared to $816 million during the comparable period of 2000, a decrease of $269 million. This decrease in cash used in investing activities was primarily due to an increase of $263 million of cash flow generated by the sale or maturity of investments which was used in part to settle trade accounts payable arising from the acquisition of fixed assets.

From Financing Activities: Net cash flows generated by financing activities totaled $143 million in the first three quarters 2001 compared with $884 million in the same period last year. The principal reason for the decline was our receipt of $612 million in net proceeds from the stock offering in the first quarter 2000, an event not repeated in 2001. Additionally, we engaged in lease financing of $101 million in the first three quarters 2001 compared to $291 million in the same period last year, a decrease of $190 million.

     In the second quarter of 2001 we completed a convertible debt offering from which we obtained $194 million in net proceeds. See Note 8 (Zero Coupon Convertible Subordinated Notes) in Notes to Condensed Consolidated Financial Statements.

     We believe that our existing sources of liquidity, together with cash flow from operations, lease financing on equipment, and other short- and medium-term bank borrowings, will be sufficient to meet our liquidity and capital requirements through 2002. We may, however, seek additional equity or debt financing to fund the expansion of our wafer fabrication capacity or other projects, and the timing and amount of such capital requirements cannot be precisely determined at this time. If we seek such financing it may not be available in sufficient amounts or upon acceptable terms.

Other Factors That May Affect Operations

     Investors should carefully consider the risks described below, in addition to the other information contained in this report and in our other filings with the SEC, including our annual report on Form 10-K for the year ended December 31, 2000. The risks and uncertainties described below are not the only ones facing our Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations. If any of these risks actually occur they could seriously harm our business, financial

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condition or results of operations. In that event, the market price for our common stock could decline and you may lose all or part of your investment.

Our revenues and operating results fluctuate significantly due to a variety of factors, which may result in volatility or a decline in our stock price.

     Our future operating results will be subject to quarterly variations based upon a wide variety of factors, many of which are not within our control. These factors include:

• the cyclical nature of both the semiconductor industry and the markets addressed by our products

• fluctuations in manufacturing yields

• the timing of introduction of new products

• the timing of customer orders

• price erosion

• changes in mix of products sold

• the extent of utilization of manufacturing capacity

• product obsolescence

• availability of supplies and raw materials

• price competition and other competitive factors, and

• fluctuations in currency exchange rates.

     Any unfavorable changes in any of these factors could harm our operating results.

     Beginning late in the fourth quarter 2000, the semiconductor industry began to experience a downturn. Our business has been impacted by this recent downturn, with the effect that our net revenues of $1,188 million in the first three quarters 2001 declined by $251 million, or 17%, from $1,438 million in the same period 2001. Many of the business conditions we experienced in the 1998 downturn are again present in our business, and at present we cannot predict with any degree of certainty when business conditions will improve. In the current quarter we recorded a $462 million charge to recognize an impairment in value of our manufacturing equipment in Colorado Springs, Colorado, Rousset, France and Nantes, France. In addition, we recorded a $19 million charge for the costs of reducing our workforce in our European manufacturing operations. If the current downturn is worse than we currently expect, it would continue to harm our results of operations.

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     We believe that our future sales will depend substantially on the success of our new products. Our new products are generally incorporated into our customers’ products or systems at the design stage. However, design wins may precede volume sales by a year or more. We may not be successful in achieving design wins or any design win may not result in future revenues, which depend in large part on the success of the customer’s end product or system. We expect the average selling price of each of our products to decline as individual products mature and competitors enter the market. To offset average selling price decreases, we rely primarily on reducing costs in the manufacturing of those products, increasing unit sales to absorb fixed costs and introducing new, higher priced products which incorporate advanced features or integrated technologies to address new or emerging markets. To the extent that such cost reductions and new product introductions do not occur in a timely manner, our operating results could be harmed. From time to time, our quarterly revenues and operating results can become more dependent upon orders booked and shipped within a given quarter and, accordingly, our quarterly results can become less predictable and subject to greater variability.

     In addition, our future success will depend in large part on the resurgence of various electronics industries that use semiconductors, including manufacturers of computers, telecommunications equipment, automotive electronics, industrial controls, consumer electronics, data networking equipment and military equipment, and economic growth generally. Our successful return to profitability will also depend upon a better supply and demand balance within the semiconductor industry.

The cyclical nature of the semiconductor industry creates fluctuations in our operating results.

     The semiconductor industry has historically been cyclical, characterized by wide fluctuations in product supply and demand. From time to time, the industry has also experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles and declines in general economic conditions. The industry is currently experiencing this type of downturn and experienced a similar downturn as recently as 1998. These downturns have been characterized by diminished product demand, production overcapacity and accelerated decline of average selling prices, and in some cases have lasted for more than a year. Our business would be further harmed by this industry-wide fluctuation if the recent downturn continues, or in the future. The commodity memory portion of the semiconductor industry, from which we derived 44% of our revenues in the first three quarters 2001, compared to 52% of our revenues in 2000, 46% of our revenues in 1999, and approximately half of our revenues in 1998, suffered from excess capacity in 1998 and the third quarter 2001, which led to substantial price reductions during those periods. While conditions improved after the 1998 downturn in 1999 and 2000, at present we cannot predict with any degree of certainty when the current downturn will subside.

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During the current downturn and in the past, our operating results have also been harmed by industry-wide fluctuations in the demand for semiconductors, which resulted in under-utilization of our manufacturing capacity and declining gross margins. If the current downturn continues it may result in our having to recognize additional asset impairment, excess inventory or other charges. Our business may be harmed in the future not only by cyclical conditions in the semiconductor industry as a whole but also by slower growth in any of the markets served by our customer products.

If we are unable to effectively utilize our wafer manufacturing capacity and fail to achieve acceptable manufacturing yields, our business would be harmed.

     The 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. We may experience problems in achieving acceptable yields in the manufacture of wafers, particularly in connection with the expansion of our manufacturing capacity and related transitions. The interruption of wafer fabrication or the failure to achieve acceptable manufacturing yields at any of our wafer fabrication facilities would harm our business.

     In 2000 and to date in 2001, we made substantial capital expenditures to increase our wafer fabrication capacity at our facilities in Colorado Springs, Colorado and Rousset, France, and acquired two wafer fabrication facilities in Irving, Texas, and North Tyneside, UK. In 2001, our gross margin declined significantly as a result of the increase in fixed costs and operating expenses related to this expansion of capacity, and lower unit sales over which to spread these costs.

     If the most recent downturn in the semiconductor industry experienced since the fourth quarter 2000 continues into the fourth quarter 2001 or worsens, our wafer fabrication capacity would continue to be under-utilized, and our inability to quickly reduce fixed costs such as depreciation and other fixed operating expenses necessary to operate our wafer manufacturing facilities would continue to harm our operating results. If net revenues do not increase sufficiently in future periods to meet these costs, our business could be harmed. We have previously experienced production delays and yield difficulties in connection with earlier expansions of our wafer fabrication capacity. Production delays, difficulties in achieving acceptable yields at any of our fabrication facilities or overcapacity could materially and adversely affect our operating results.

Our markets are highly competitive, and if we do not compete effectively, we may suffer price reductions, reduced revenues, reduced gross margins, and loss of market share.

     We compete 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 AMD, Fujitsu, Hitachi, Intel, LSI Logic, Microchip, Sharp and STMicroelectronics. Some of these competitors have substantially greater financial, technical, marketing and management resources than we do. As we have introduced our 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

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products, including their speed, density, power usage, reliability and specialty packaging alternatives, as well as on price and product availability. We are experiencing significant price competition in our nonvolatile memory business and especially for EPROM and Flash products. We expect continuing competitive pressures in our markets from existing competitors and new entrants, and declining demand which, among other things, will likely maintain the recent trend of declining average selling prices for our products.

     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, and

• general market and economic conditions.

     Many of these factors are outside of our control, and we may not be able to compete successfully in the future.

If we do not successfully adjust our manufacturing capacity in line with demand, our business could be harmed.

     During periods of economic downturn within the semiconductor industry, such as the current downturn that began in the fourth quarter of 2000, we need to reduce our manufacturing capacity to a level that meets market demand in order to achieve and maintain profitability. Expensive manufacturing machinery must be underutilized or even sold off at significantly discounted prices, and employee and other manufacturing costs must be reduced.

     We currently manufacture our products at our wafer fabrication facilities located in Colorado Springs, Colorado; Heilbronn, Germany; Nantes, France; and Rousset, France. We have two additional facilities in Irving, Texas, and in North Tyneside, UK, at which we are not yet producing wafers. We have announced and are implementing ceasing high volume production at two of our wafer fabrication facilities located in Colorado Springs, Colorado and Nantes, France. We have also announced that the planned ramp-up of our North Tyneside fabrication facility, previously scheduled for the fourth quarter of 2001, has been suspended.

     Reducing our wafer fabrication capacity involves significant risks, including approvals and requirements of governmental and judicial bodies and loss of governmental subsidies. We may experience labor union or other difficulties implementing our current steps to reduce capacity and additional downsizing that we may be required to make if the current downturn continues or gets worse. Any difficulties that we experience could involve significant additional costs or reduce our anticipated revenues, which may harm our business.

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     If a rebound occurs in the worldwide semiconductor industry and we cannot expand our capacity on a timely basis, we could experience significant capacity constraints that would prevent us from meeting customer demand.

     Expanding our wafer fabrication capacity involves significant risks, including shortages of materials and skilled labor and unavailability of semiconductor manufacturing and testing equipment. Any one of these risks could delay the building, equipping and production start-up of a new facility or the expansion of an existing facility, and could involve significant additional costs or reduce our anticipated revenues. In addition, the depreciation and other expenses that we incur in connection with the expansion of our manufacturing capacity may continue to reduce our gross margins in future periods.

     Whether demand 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 in order to produce more integrated circuits per wafer. Currently we are working towards reducing the geometries of our semiconductors to 0.18 micron and 0.13 micron line widths. If the current downturn continues or worsens, our efforts to implement these new technologies while reducing costs consistent with demand may be significantly impaired.

     The cost of expanding our manufacturing capacity at our existing facilities or implementing new manufacturing technologies is typically funded through a combination of available cash resources, cash from operations and additional lease, debt or equity financing. We may not be able to obtain the additional financing necessary to fund the expansion of our manufacturing facilities or the implementation of new manufacturing technologies.

We must keep pace with technological change to remain competitive.

     The average selling prices of our products historically have decreased over the products’ lives and are expected to continue to do so. As a result, our future success depends on our ability to develop and introduce new products which compete effectively on the basis of price and performance and which address customer requirements. We are continually in the process of designing and commercializing new and improved products to maintain our competitive position. 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’ decision 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 technologies serving 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 harmed.

     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 will require more technically sophisticated sales and marketing personnel to

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market these products successfully to customers. We are developing new products with smaller feature sizes, 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 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 harm our business.

Our operating results are highly dependent on our international sales and operations, which exposes us to various political and economic risks.

     Sales to customers outside North America accounted for approximately 75%, 64% and 65% of net revenues in the first three quarters 2001, and in all of 2000 and 1999. We expect that revenues derived from international sales will continue to represent a significant portion of net revenues. In recent years we have significantly expanded our international operations, most recently through our acquisitions of a wafer fabrication facility in North Tyneside, UK in September 2000, and Atmel Grenoble in May 2000. International sales and operations are subject to a variety of risks, including:

• greater difficulty in protecting intellectual property

• greater difficulty in staffing and managing foreign operations

• reduced flexibility in staffing adjustments

• greater risk of uncollectible accounts

• longer collection cycles

• potential unexpected changes in regulatory practices, including export license requirements, trade barriers, tariffs and tax laws

• sales seasonality, and

• general economic and political conditions in these foreign markets.

     Further, we purchase a significant portion of our raw materials and equipment from foreign suppliers, and we incur labor and other operating costs in foreign currencies, particularly at our French and German manufacturing facilities. As a result, our costs will fluctuate along with the currencies and general economic conditions in the countries in which we do business, which could harm our operating results.

     Approximately 79%, 75% and 78% of our sales in the first three quarters 2001, and in all of 2000 and 1999 were denominated in U.S. dollars. During these periods our products became less price competitive in countries with currencies declining in value against the dollar. In 1998, business conditions in Asia were severely affected by banking and currency issues that adversely affected our operating results. While these conditions stabilized in 1999 and 2000, the continuance or worsening of adverse business and financial conditions in Asia, where 37% of our

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revenues were generated in the first three quarters 2001, and 34% in the full years 2000 and 1999, would likely harm our operating results.

When we take foreign orders denominated in local currencies, we risk receiving fewer dollars when these currencies weaken against the dollar, and may not be able to adequately hedge against this risk.

     When we take a foreign order denominated in a local currency we will receive fewer dollars than we initially anticipated if that local currency weakens against the dollar before we collect our funds. In addition to reducing revenues, this risk will negatively affect our operating results. In Europe, where our significant operations have costs denominated in European currencies, these negative impacts on revenues can be partially offset by positive impacts on costs. However, in Japan, while our yen denominated sales are also subject to exchange rate risk, we do not have significant operations with which to counterbalance our exposure. Sales denominated in euros and yen were 10% and 5% of our revenues in the first three quarters 2001, compared to 4% and 6% in 2000. Sales denominated in foreign currencies were 21% in the first three quarters 2001, compared to 25% in all of 2000. We also face the risk that our accounts receivables denominated in foreign currencies will be devalued if such foreign currencies weaken quickly and significantly against the dollar.

If we fail to maintain satisfactory relationships with key customers, our business may be harmed.

     Our ability to maintain close, satisfactory relationships with large customers is important to our business. A reduction, delay, or cancellation of orders from our large customers would harm our business. 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. Moreover, 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.

We are not protected by long-term contracts with our customers.

     We do not typically enter into long-term 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.

Our failure to successfully integrate businesses or products we have acquired could disrupt or harm our ongoing business.

     We have from time to time acquired complementary businesses, products and technologies. Achieving the anticipated benefits of an acquisition depends, in part, upon whether the integration of the acquired business, products or technology is accomplished in an efficient and effective manner. Moreover, successful acquisitions in the semiconductor industry may be more difficult to accomplish than in other industries because such acquisitions require, among other things, integration of product offerings, manufacturing operations and coordination of sales and marketing and research and development efforts. The difficulties of such integration may be increased by the need to coordinate geographically separated organizations, the complexity of the

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technologies being integrated, and the necessity of integrating personnel with disparate business backgrounds and combining two different corporate cultures. The integration of operations following an acquisition requires the dedication of management resources that may distract attention from the day-to-day business, and may disrupt key research and development, marketing or sales efforts. The inability of management to successfully integrate any future acquisition could harm our business. Furthermore, products acquired in connection with acquisitions may not gain acceptance in our markets, and we may not achieve the anticipated or desired benefits of such transactions.

We may face third party intellectual property infringement claims that could be costly to defend 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. We have from time to time received, and may in the future receive, communications from third parties asserting patent or other intellectual property rights covering our products or processes. In the past, we have received specific allegations from major companies alleging that certain of our products infringe patents owned by such companies. 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 be required to make corresponding royalty payments, which may harm our operating results.

     We have in the past been involved in intellectual property infringement lawsuits, which harmed our operating results. Although we intend to vigorously defend against any such lawsuits, we may not prevail given the complex technical issues and inherent uncertainties in patent and intellectual property litigation. Moreover, the cost of defending against such litigation, in terms of management time and attention, legal fees and product delays, could be substantial, whatever the outcome. If any patent or other intellectual property claims against us are successful, we may be prohibited from using the technologies subject to these claims, 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.

     We have several cross-license agreements with other companies. In the future, it may be necessary or advantageous for us to obtain additional patent licenses from existing or other parties, but these license agreements may not be available to us on acceptable terms, if at all.

Our long-term debt could harm our ability to obtain additional financing, and our ability to meet our debt obligations will be dependent upon our future performance.

     As of September 30, 2001, our convertible notes and long term debt less current portion was $786 million compared to $669 million at December 31, 2000, and $654 million at December 31, 1999. An increase in our debt-to-equity ratio could materially and adversely affect our ability to obtain additional financing for working capital, acquisitions or other purposes and could make us more vulnerable to industry downturns and competitive pressures. Our ability to meet our debt obligations will depend upon our future performance, which will be subject to the financial, business and other factors affecting our operations, many of which are beyond our control.

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     Since a substantial portion of our operations are conducted through our subsidiaries, the cash flow and the consequent ability to service debt are partially dependent upon the earnings of our subsidiaries and the distribution of those earnings, or upon loans or other payments of funds by those subsidiaries, to us. These subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to our long-term debt or to make any funds available therefor, whether by dividends, distributions, loans or other payments. In addition, the payment of dividends or distributions and the making of loans and advances to us by any of our subsidiaries could in the future be subject to statutory or contractual restrictions and other various business considerations and contingent upon the earnings of those subsidiaries. Any right held by us to receive any assets of any of our subsidiaries upon its liquidation or reorganization will be effectively subordinated to the claims of that subsidiary’s creditors, including trade creditors, except to the extent that we are recognized as a creditor of such subsidiary, in which case our claims would still be subordinate to any security interest in the assets of such subsidiary and any indebtedness of such subsidiary senior to that held by us.

We may need to raise additional capital that may not be available.

     Semiconductor companies that maintain their own fabrication facilities have substantial capital requirements. We made capital expenditures of approximately $756 million in the first three quarters 2001, compared to $961 million in all of 2000 and $172 million in 1999. We intend to continue to make capital investments to support business growth and achieve manufacturing cost reductions and improved yields. Currently, we expect our 2001 capital expenditures to be relatively level with 2000 at approximately $900 million. We may seek additional equity or debt financing to fund further expansion of our wafer fabrication capacity or to fund other projects. The timing and amount of such capital requirements cannot be precisely determined at this time and will depend on a number of factors, including demand for products, product mix, changes in semiconductor industry conditions and competitive factors. Additional debt or equity financing may not be available when needed or, if available, may not be available on satisfactory terms.

We depend on independent assembly contractors which may not have adequate capacity to fulfill our needs and which may not meet our quality and delivery objectives.

     We manufacture wafers for our products at our fabrication facilities, and the wafers are then sorted and tested at our facilities. After wafer testing, we ship the wafers to one of our independent assembly contractors located in China, Malaysia, the Philippines, South Korea, Taiwan and Thailand where the wafers are separated into die, packaged and, in some cases, tested. Our reliance on independent contractors to assemble, package and test our products involves significant risks, including reduced control over quality and delivery schedules, the potential lack of adequate capacity and discontinuance or phase-out of the contractors’ assembly processes. These independent contractors may not continue to assemble, package and test our products for a variety of reasons. Moreover, because our 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 and changes in tariff and freight rates. Accordingly, we may experience problems in timelines and the adequacy or quality of product deliveries, any of which could have a material adverse effect on our results of operations.

We are subject to environmental regulations, which could impose unanticipated requirements on our business in the future. Any failure to comply with current or future

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environmental regulations may subject us to liability or suspension of our manufacturing operations.

     We are subject to a variety of federal, state and local governmental regulations related to the discharge or disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing processes. Increasing public attention has been focused on the environmental impact of semiconductor operations. Although we have not experienced any material adverse effect on our operations from environmental regulations, any changes in such regulations or in their enforcement may impose the need for additional capital equipment or other requirements. If for any reason we fail to control the use of, or to restrict adequately the discharge of, hazardous substances under present or future regulations, we could be subject to substantial liability or our manufacturing operations could be suspended.

We depend on certain key personnel, and the loss of any key personnel 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 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.

Failure to manage fluctuations in demand may seriously harm our business.

     Our business has experienced a downturn since the fourth quarter of 2000. Prior to this downturn, our business experienced significant growth since the prior downturn in 1998 and early 1999. Our business experienced a period of significant growth prior to that downturn. Future growth cycles may cause a significant strain on our network infrastructure and internal systems. To manage these cycles of downturn and growth effectively, we must continue to improve and expand our management information systems. Our success depends to a significant extent on the management skills of our executive officers. If we are unable to manage our business cycles effectively, our results of operations will be harmed.

Business interruptions could harm our business.

     Our operations are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure and other events beyond our control. We do not have a detailed disaster recovery plan. Our facilities in the State of California are currently subject to electrical blackouts as a consequence of a shortage of available electrical power. In the event these blackouts continue or increase in severity, they could disrupt the operations of our affected facilities. In addition, business interruption insurance may not be enough to compensate us for losses that may occur and any losses or damages incurred by us as a result of business interruptions could significantly harm our business.

Provisions in our amended and restated certificate of incorporation and preferred shares rights agreement may have anti-takeover effects.

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     Our board of directors has the authority to issue up to 5,000,000 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.

     We also have a preferred shares rights agreement with BankBoston, N.A., as rights agent, dated as of September 4, 1996 and amended and restated on October 18, 1999, which gives our stockholders certain rights that would likely delay, defer or prevent a change of control of Atmel in a transaction not approved by our board of directors.

Our stock price has fluctuated in the past and may continue to fluctuate in the future.

     The market price of our common stock has experienced significant fluctuations and may continue to fluctuate significantly. The market price of our common stock may be significantly affected by factors such as the announcement of new products or product enhancements by us or our competitors, technological innovations by us or our competitors, quarterly variations in our results of operations, changes in earnings estimates by market analysts and general market conditions or market conditions specific to particular industries. Statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to the market in which we do business or relating to us specifically could result in an immediate and adverse effect on the market price of our stock. In addition, in recent years the stock market has experienced extreme price and volume fluctuations. These fluctuations have had a substantial effect on the market prices for many high technology companies, often unrelated to the operating performance of the specific companies.

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Item 3. Quantitative and Qualitative Disclosure about Market Risk

Market Risk Sensitive Instruments

     We do not use derivative financial instruments in our operations.

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 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 statement of operations through December 31, 2001.

     Atmel has short term debt, long term debt and capital leases totaling $991 million at September 30, 2001. Approximately $754 million of these borrowings have fixed interest rates. Approximately $237 million of floating rate debt is based on the Euro and EuroYen interest rates. We do not hedge either of these interest rates and could be negatively affected should either of these rates increase significantly. A hypothetical 100 basis point increase in both of these interest rates would have a $1 million adverse impact on income before taxes on Atmel’s Consolidated Statements of Operations for the remainder of 2001. While there can be no assurance that both of these rates will remain at current levels, we believe these rates will not increase significantly (defined as an increase of more than 100 basis points) and cause any harm to our operations and financial position.

Foreign Currency Risk

     When we take a foreign order denominated in a local currency we will receive fewer dollars than we initially anticipated if that local currency weakens against the dollar before we collect our funds. In addition to reducing revenue, this would negatively affect our operating results. In Europe, where our significant operations have costs denominated in European currencies, these negative impacts on revenue can be partially offset by positive impacts on costs. However, in Japan, while our yen denominated sales are also subject to exchange rate risk, we do not have significant operations with which to counterbalance our exposure. Sales denominated in yen were 5% of our revenue in the first three quarters 2001, compared to 6% in the first three quarters 2000. Sales denominated in foreign currencies were 21% in the first three quarters 2001, compared to 24% in the same period 2000. We also face the risk that our accounts receivables denominated in foreign currencies will be devalued if such foreign currencies weaken quickly and significantly against the dollar.

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PART II OTHER INFORMATION

Item 1. Legal Proceedings

     We are not a party to any legal proceedings that management believes could have a material adverse effect on our operating results.

Item 2. Changes in Securities and Use of Proceeds

     None

Item 5: Other Information

Stockholder Proposals Due for Our 2002 Annual Meeting

     Stockholder proposals intended to be presented at our 2002 annual meeting of stockholders must be received by our Vice President and General Counsel not later than November 21, 2001 in order to be included in our proxy statement and form of proxy relating to the 2002 annual meeting. (Our Address: 2325 Orchard Parkway; San Jose, CA 95131, Attn: Mike Ross, Vice President and General Counsel)

Item 6: Exhibits and Reports on Form 8-K

(A)	None
(B)	Reports on Form 8-K:

A report on Form 8-K was filed on October 4, 2001 to report our September 28, 2001 press release which provided an update to our previously announced restructuring plan. Among other items, the press release announced our decision to consolidate manufacturing operations in both the U.S. and in Europe, and our decision to implement a projected 26%, or 2500 person headcount reduction, which together would result in a pre-tax charge of $450 to $500 million.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ATMEL CORPORATION

(Registrant)

November 12, 2001	/s/ GEORGE PERLEGOS
	George Perlegos President, Chief Executive Officer (Principal Executive Officer)

November 12, 2001	/s/ DONALD COLVIN
	Donald Colvin Chief Financial Officer and Vice President, Finance (Principal Financial and Accounting Officer)

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