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 MARCH 31, 2002

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)

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 May 8, 2002, Registrant had outstanding 467,571,330 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 MARCH 31, 2002

TABLE OF CONTENTS

			Page
Part I:	Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets at March 31, 2002 and December 31, 2001	1
		Condensed Consolidated Statements of Operations for the three months ended March 31, 2002 and March 31, 2001	2
		Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and March 31, 2001	3
		Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2002 and March 31, 2001	4
		Notes to Condensed Consolidated Financial Statements	5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Part II:	Other Information
	Item 1.	Legal Proceedings	28
	Item 2.	Changes in Securities and Use of Proceeds	28
	Item 5.	Other Information	28
	Item 6.	Exhibits and Reports on Form 8-K	28
Signatures			29

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

Atmel Corporation

Condensed Consolidated Balance Sheets
(In thousands)

			March 31, 2002			December 31, 2001
			(unaudited)
Current assets
	Cash and cash equivalents		$	270,300		$	333,131
	Short term investments			216,121			259,877
	Accounts receivable			192,392			186,558
	Inventories			299,679			301,591
	Other current assets			67,647			107,966
		Total current assets		1,046,139			1,189,123
	Fixed assets, net			1,595,203			1,651,475
	Other assets			181,005			183,599
		Total assets	$	2,822,347		$	3,024,197
Current liabilities
	Current portion of long-term debt		$	166,826		$	255,742
	Trade accounts payable			107,827			147,315
	Accrued liabilities and other			304,969			307,400
	Deferred income on shipments to distributors			21,701			24,296
		Total current liabilities		601,323			734,753
	Long-term debt less current portion			334,861			347,294
	Convertible notes			350,262			345,918
	Other long-term liabilities			109,353			109,705
		Total liabilities		1,395,799			1,537,670
Stockholders’ equity
	Common stock			469			466
	Additional paid in capital			1,251,310			1,245,399
	Accumulated other comprehensive loss			(83,998	)		(62,438	)
	Retained earnings			258,767			303,100
		Total stockholders’ equity		1,426,548			1,486,527
		Total liabilities and stockholders’ equity	$	2,822,347		$	3,024,197

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
			March 31
			2002			2001
Net revenues			$	275,773		$	525,944
Expenses
	Cost of revenues			223,469			314,750
	Research and development			63,174			69,195
	Selling, general and administrative			30,305			55,149
		Total operating expenses		316,948			439,094
Operating (loss) income				(41,175	)		86,850
Interest and other expenses, net				(8,084	)		672
(Loss) income before taxes				(49,259	)		87,522
Income tax benefit (provision)				4,926			(31,508	)
Net (loss) income			$	(44,333	)	$	56,014
Basic net (loss) income per share			$	(0.09	)	$	0.12
Diluted net (loss) income per share			$	(0.09	)	$	0.12
Shares used in basic net (loss) income per share calculations				466,782			463,400
Shares used in diluted net (loss) income per share calculations				466,782			494,013

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

2

Atmel Corporation

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

			Three Months Ended
			March 31
			2002			2001
Cash from operating activities
Net (loss) income			$	(44,333	)	$	56,014
Items not requiring or generating cash:
	Depreciation and amortization			56,695			72,353
	(Gain) loss on sales of fixed assets			363			(1,086	)
	Provision for doubtful accounts receivable			(244	)		1,160
	Accrued interest on zero coupon convertible debt			4,344			1,763
	Other			2,232			(162	)
Changes in operating assets and liabilities
	Accounts receivable			(6,968	)		34,025
	Inventories			941			(15,944	)
	Other assets			37,607			(23,208	)
	Trade accounts payable and other accrued liabilities			2,807			(21,597	)
	Federal, state, local and foreign taxes			(4,116	)		17,494
	Deferred income on shipments to distributors			(2,570	)		2,305
		Net cash provided by operating activities		46,758			123,117
Cash from investing activities
	Acquisition of fixed assets			(48,729	)		(332,719	)
	Sales of fixed assets			88			1,180
	Purchase of investments			(19,748	)		(49,114	)
	Sale or maturity of investments			61,456			236,839
		Net cash used by investing activities		(6,933	)		(143,814	)
Cash from financing activities
	Proceeds from capital leases and notes			5,233			40,474
	Principal payments on capital leases and notes			(112,187	)		(61,767	)
	Issuance of common stock			5,914			7,795
		Net cash used by financing activities		(101,040	)		(13,498	)
Effect of foreign currency translation adjustment				(1,616	)		8,346
Net (decrease) increase in cash				(62,831	)		(25,849	)
Cash and cash equivalents at beginning of period				333,131			448,281
Cash and cash equivalents at end of period			$	270,300		$	422,432
Supplemental cash flow disclosures
Interest paid			$	8,631		$	3,726
Income taxes paid (refunded)			$	(28,469	)	$	14,369
Fixed asset purchases in accounts payable			$	37,869		$	318,070

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

3

Atmel Corporation

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

		Three Months Ended
		March 31
		2002			2001
Net (loss) income		$	(44,333	)	$	56,014
Other comprehensive (loss) income:
	Foreign currency translation adjustments		(19,712	)		(23,396	)
	Unrealized (loss) gain on securities		(1,848	)		2,976
	Other comprehensive (loss) income		(21,560	)		(20,420	)
Comprehensive (loss) income		$	(65,893	)	$	35,594

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

4

Atmel Corporation

Notes to Condensed Consolidated Financial Statements
March 31, 2002
(In thousands, except per share data)
(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 fairly state, in all material respects, the financial position of Atmel Corporation (Company or Atmel) and its subsidiaries as of March 31, 2002, and the results of operations, comprehensive income and cash flows for the three month periods ended March 31, 2002 and 2001. 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, 2001. 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)	March 31, 2002		December 31, 2001
Raw materials and purchased parts	$	19,131	$	19,692
Finished goods		88,510		93,873
Work in progress		192,038		188,026
Total	$	299,679	$	301,591

3. Short term investments

     Short term investments at March 31, 2002 and December 31, 2001 comprise debt securities consisting primarily of US government and municipal agency securities, US and foreign corporate debt securities, commercial paper, and guaranteed variable annuities.,

     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.

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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.

		Three Months Ended
		March 31
(In thousands, except per share data)		2002			2001
Basic net (loss) income [numerator]		$	(44,333	)	$	56,014
Interest saved on convertible bonds, net of taxes			—			1,159
Diluted net (loss) income [numerator]		$	(44,333	)	$	57,173
Shares used in basic net income per share calculations [denominator]:
	Weighted average shares of common stock outstanding (basic)		466,782			463,400
Dilutive effect of stock options			—			11,583
Dilutive effect of convertible bonds			—			19,030
Shares used in diluted net income per share calculations [denominator]:
	Weighted average shares of common stock outstanding (diluted)		466,782			494,013
Basic net (loss) income per share		$	(0.09	)	$	0.12
Diluted net (loss) income per share		$	(0.09	)	$	0.12

     For the three months ended March 31, 2002, 50,664 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

5. Segment Reporting

     We have four reportable segments: Application Specific Integrated Circuits (ASIC), Microcontrollers, Nonvolatile Memories (NVM) and RF and Automotive. Each segment requires different design, development and marketing resources to produce and sell semiconductor integrated circuits.

Information about segments (in thousands):

				Micro-					RF and
	ASIC			controller		NVM			Automotive		Total
Three Months ended March 31, 2002
Net revenues	$	85,524		$	54,343	$	84,023		$	51,883	$	275,773
Segment operating income (loss)		(4,758	)		6,937		(25,550	)		267		(23,104	)
Three Months ended March 31, 2001
Net revenues	$	107,135		$	82,027	$	248,748		$	88,034	$	525,944
Segment operating income (loss)		(2,650	)		22,852		61,743			22,721		104,666

6

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

		Three Months Ended
		March 31,
		2002			2001
Total (loss) income for reportable segments		$	(23,104	)	$	104,666
Unallocated amounts:
	Start up expenses		(18,071	)		(17,816	)
Consolidated operating (loss) income before interest and taxes		$	(41,175	)	$	86,850

     Certain costs which are not specifically identifiable to segments such as 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 included an $18,527 charge related to reductions of force in Europe.

     The charges related to the US reduction in force have been and are being 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 March 31, 2002, approximately 144 employees have been terminated and $6,800 of the European reduction in force costs have been paid.

7. Recent Pronouncements

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 adopted SFAS 142 on

7

January 1, 2002, the beginning of fiscal 2002. The implementation of these standards did not have a material impact on the Company’s results of operations. Goodwill amortization during 2001 was $2,747 and at March 31, 2002 the balance of goodwill was $2,195.

     SFAS 144

     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

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, 2001.

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,” “views,” and variations of such words and similar expressions are intended to identify such forward looking statements. These statements are based on current expectations and projections about our business and 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 risk factors identified in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the section entitled “Trends, Uncertainties and Risks” on page 15, and similar discussions in our other 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.

OVERVIEW

     Beginning late in the fourth quarter 2000 the global semiconductor industry began to experience a downturn that has continued through the first quarter 2002. Our net revenues of $276 million for the first quarter 2002 decreased $250 million, or 48% from the comparable period of 2001. Our first quarter 2002 revenues declined by $9 million, or 3% from our fourth quarter 2001 revenues. These decreases in revenues are primarily due to a decline in customer end-demand for semiconductor products, particularly in the Flash market and an overall decrease in average selling prices.

     The large decline in revenue from first quarter 2001 to first quarter 2002 adversely impacted our profitability in first quarter 2002 because a significant portion of our costs are fixed. A combination of lower average selling prices and lower unit shipments in first quarter 2002 made it difficult to achieve the economies of high volume production that we enjoyed in the first quarter 2001.

9

RESULTS OF OPERATIONS

     The following table sets forth for the periods indicated our Condensed Consolidated Statements of Operations expressed as percentages of net revenues:

		Three Months Ended
		March 31,
		2002			2001
Net revenues			100	%		100	%
Expenses
	Cost of sales		81			60
	Research and Development		23			13
	Selling, general and administrative		11			10
Total expenses			115			83
Operating (loss) income			(15	)		17
Interest and other income (expenses), net			(3	)		—
(Loss) income before taxes			(18	)		17
Income tax benefit (provision)			2			(6	)
Net (loss) income			(16	)%		11	%

Net Revenues — By Segment

     Atmel reorganized its structure during the fourth quarter 2001 to better manage future growth and increase related results. Atmel’s operating segments now comprise: (1) application specific integrated circuits (ASICs); (2) microcontroller products (Microcontroller); (3) commodity oriented nonvolatile memory products (Nonvolatile Memory); and (4) radio frequency and automotive products (RF and Automotive). As a result, operating segments have changed from prior quarters and the prior year comparative quarter has been restated to reflect the new organization.

     Revenues in every segment decreased in the first quarter 2002 compared to the same quarter last year. The largest decrease was in the Nonvolatile Memory segment.

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

	Three Months Ended
	March 31,
Segment	2002		2001		Decrease
ASIC	$	85,524	$	107,135	$	(21,611	)
Microcontrollers		54,343		82,027		(27,684	)
Nonvolatile Memory		84,023		248,748		(164,725	)
RF and Automotive		51,883		88,034		(36,151	)
Total	$	275,773	$	525,944	$	(250,171	)

10

     ASIC

     ASIC revenues decreased by $22 million in the first quarter 2002 over the same period in 2001 principally due to lower unit shipments.

     ASIC revenues increased by $13 million in the first quarter 2002 compared to the fourth quarter 2001 primarily due to higher unit shipments.

     Microcontroller

     Microcontroller revenues decreased $28 million in the first quarter 2002 compared to the same quarter in 2001 because of lower average selling prices and lower unit shipments.

     Revenues were approximately the same in the first quarter 2002 compared to the fourth quarter 2001. Average selling prices declined from the fourth quarter 2001 to the first quarter 2002, but the decline was offset by higher unit shipments.

     Nonvolatile Memory

     Nonvolatile Memory revenues decreased $165 million in the first quarter 2002 compared to the same period in 2001, primarily as a result of lower average selling prices.

     Revenues also decreased $21 million in the first quarter 2002 compared to the fourth quarter 2001 due to lower average selling prices, offset by higher unit shipments.

     Because Nonvolatile Memory products are commodity oriented, they are subject to greater declines in average selling prices than other product areas within our company.

     RF and Automotive

     RF and Automotive revenues decreased $36 million in the first quarter 2002 compared to the same period in 2001 as a result of lower unit volumes and lower average selling prices.

     Revenues remained approximately the same in the first quarter 2002 compared to the fourth quarter 2001 as the result of comparable unit shipments and average selling prices.

Net Revenues — By Geographic Area

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

11

	Three Months Ended
	March 31,
Region	2002		2001		Decrease
North America	$	58,973	$	146,301	$	(87,328	)
Europe		96,786		180,242		(83,456	)
Asia		111,982		180,058		(68,076	)
Other		8,032		19,343		(11,311	)
Total	$	275,773	$	525,944	$	(250,171	)

     Sales in all regions declined in the first quarter 2002 compared to the same period in 2001.

     Revenues from North America in the first quarter 2002 declined $87 million or 60% from the same period in 2001. First quarter 2002 revenues declined $12 million or 17% from the fourth quarter 2001.

     Revenues from Europe decreased $83 million or 46% in the first quarter 2002 compared to the same period in 2001. First quarter 2002 revenues declined $3 million or 3% from the fourth quarter 2001.

     Revenues from Asia decreased $68 million or 38% in the first quarter 2002 compared to the same period in 2001. First quarter 2002 revenues increased $9 million or 9% from the fourth quarter 2001.

     In the first quarter 2002, approximately 22% of sales were denominated in foreign currencies, which compares to 20% in the same period in 2001 and 21% in the fourth quarter 2001. Had exchange rates in the first quarter 2002 remained the same as in the first quarter 2001 our reported revenues would have been approximately $4 million higher.

Cost of Revenues and Gross Margin

     Our cost of revenues as a percentage of net revenues increased to 81% in the first quarter 2002, compared to 60% in the first quarter 2001. Gross margin was 19% for the first quarter 2002, compared to 40% in the first quarter 2001. The decline was caused by lower average selling prices and lower unit sales volumes over which to spread fixed manufacturing costs.

     Our cost of revenues and gross margins in the first quarter 2002 at 81% and 19%, respectively, remained the same as in the fourth quarter 2001.

     At present it is not certain how long the downturn in business, which began late in the fourth quarter 2000, will continue or when market conditions will improve sufficiently to permit us to more fully utilize our wafer fabrication capacity. Increases in fixed costs and operating expenses that we put in place during 2000 to increase manufacturing capacity may continue to harm our gross margins and operating results if net revenues do not increase or we are unable to reduce our costs sufficiently in future periods.

Research and Development

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     As a percentage of net revenues, research and development cost increased to 23% in the first quarter 2002 from 13% in the first quarter 2001. However, in absolute dollar terms our expenditures for R&D declined to $63 million in the first quarter 2002 from $69 million in the first quarter 2001. The decrease in R&D expenditures is primarily the result of our cost control efforts during the second half 2001 and the first quarter 2002.

     First quarter 2001 research and development costs declined $1 million from the fourth quarter 2001 but remained at 23% of net revenues.

     We believe that continued strategic investments in process technology and product development are essential for us to remain competitive in the markets we serve and we are committed to appropriate levels of expenditures for research and development.

Selling, General and Administrative (SG&A)

     SG&A expenses decreased $25 million in the first quarter 2002 compared to the same quarter in 2001 and were 11% and 10% of net revenues, respectively.

     SG&A expenses decreased $4 million in the first quarter 2002 compared to the fourth quarter 2001 and were 11% and 12% of net revenues, respectively.

     Both decreases were primarily due to declines in selling commissions related to lower sales and cost reductions due to reduced general and administrative activities.

Interest and Other Expenses

     We reported $8 million of net interest and other expenses for the first quarter 2002 compared to $1 million net interest income for the same quarter in 2001. The increase in net interest and other expenses is primarily due to lower interest income from lower invested balances and lower interest rates.

     Net interest and other expenses increased to $8 million in the first quarter 2002 from $3 million in the fourth quarter 2001 primarily because we recognized $5 million less foreign exchange gains in the first quarter 2002 than in the fourth quarter 2001.

Income Tax Provision

     We recorded a tax benefit on our loss before taxes for the three months ended March 31, 2002 at a rate of 10%. The tax benefit rate is impacted by foreign net operating losses and other deferred tax assets, the tax benefit of which is not assured. Consequently, we have not recorded the full tax benefit of these deferred tax assets.

     In the quarter ended March 31, 2001, we recorded income tax expense at an effective tax rate of 36% on pretax profit of $88 million. For the year ended December 31, 2001, we recorded the tax benefit at an annual effective tax rate of 21% on an overall pretax loss of $531 million.

13

Net Income

     We reported a net loss of $44 million for the first quarter 2002 compared to net income of $56 million in the same quarter 2001. The net loss is primarily due 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.

     Our net loss of $44 million in the first quarter 2002 is $12 million greater than our net loss of $32 million in the fourth quarter 2001. The decline is primarily due to recognition of a lower income tax benefit in the first quarter 2002, a difference of $11 million.

Liquidity and Capital Resources

     At March 31, 2002 we had $270 million of cash and cash equivalents, compared to $333 million at December 31, 2001. Total current assets exceeded total current liabilities by 1.7 times, compared to 1.6 times at December 31, 2001. Short term investments decreased from $260 million to $216 million over the same period as funds have been used to help reduce trade accounts payable to $108 million at March 31, 2002 from $147 million at December 31, 2001. Our working capital decreased by $10 million during the first quarter 2002 to $445 million.

     The Company’s accounts receivable increased 3% to $192 million at March 31, 2002 from $187 million at December 31, 2001. The average days of accounts receivable outstanding was 64 days at the end of the first quarter 2002 compared to 60 days at December 31, 2001. 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 declined by $2 million to $300 million at March 31, 2002 from $302 million at December 31, 2001. Days sales in inventory were 122 days at the end of the first quarter 2002 compared to 119 days at December 31, 2001. Shipments slowed faster than we were able to reduce production rates and fixed manufacturing costs during 2001 and the first quarter 2002. 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.

     We have $70 million of debt obligations that require compliance with certain financial covenants and additionally approximately $50 million of debt obligations with cross default provisions. Approximately $74 million of other debt that also required compliance with certain financial covenants was repaid in the first quarter 2002. With the economic downturn, we were required to renegotiate and amend certain of these covenants with the lenders as of December 31, 2002. We were in compliance with our covenants at March 31, 2002. If we need to renegotiate any of these covenants in the future, and the lenders refuse and we are unable to comply with the covenants, then we may immediately be required to repay the loans concerned. In the event we are required to repay these loans ahead of their due dates, we believe we have the resources to make such repayments.

Cash Flow

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From Operating Activities: During the three months ended March 31, 2002, net cash provided by operating activities was $47 million, compared to $123 million in the same period of 2001, a decrease of $76 million, or 62%. The decrease in cash provided by operating activities is primarily due to a net loss compared to net income in the same period of 2001. Depreciation and amortization, a cost not requiring cash, declined $16 million compared to the same period of 2001 as a result of an asset impairment charge recorded in the third quarter 2001, offset by additional depreciation on new assets. Our net cash provided from operating activities was favorably impacted by a decrease in other assets arising from cash receipts on various receivables at December 31, 2001, primarily VAT receivables in Europe.

Used in Investing Activities: Cash used in investing activities was $7 million during the first quarter 2002, compared to $144 million during the comparable period of 2001, a decrease of $137 million. This decrease in cash used in investing activities was due to a decline in our cash expenditures for fixed assets in the first quarter 2002 compared to the same period in 2001.

From Financing Activities: Net cash used by financing activities totaled $101 million in the first quarter 2002 compared with $13 million in the same period last year. The principal reason for the increase in cash used by financing activities was our retirement of approximately $74 million of long term debt in the first quarter 2002, an event not duplicated in the first quarter 2001. Additionally, we obtained $5 million of debt financing in the first quarter 2002, whereas we borrowed $40 million in the first quarter 2001.

     Whenever possible, capacity improvements and expansions have been funded from our operating results. In 2001 and the first quarter 2002 gross margins came under pressure because we sold fewer units and generated less revenue while many costs we put in place during 2000 continued at their previous levels, harming our results.

     Cash flow from operations is a principal source of our liquidity and our funding for capacity expansion and it will decrease if our revenues decline, as occurred in 2001 and the first quarter 2002. Our ability to borrow funds on favorable terms is reduced when our operating cash flow declines. We believe that our existing balance of cash, cash equivalents and short term investments, together with cash flow from operations, equipment lease financing, and other short- and medium-term bank borrowings, will be sufficient to meet our liquidity and capital requirements through 2002.

Trends, Uncertainties and Risks

     Keep these trends, uncertainties and risks in mind when you read “forward-looking” statements elsewhere in this Form 10-Q and in the documents incorporated herein by reference. They could affect our actual results of operations, causing them to differ materially from those expressed in “forward-looking” statements.

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:

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• 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 $1,472 million in 2001 declined by $541 million, or 27%, from $2,013 million in 2000. Our revenues of $276 million for the first quarter 2002 declined by $250 million from the first quarter of 2001 and by $9 million from the fourth quarter 2001. We cannot predict with any degree of certainty when business conditions will improve. If the current downturn continues our results of operations would be further harmed.

     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 design wins 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. Our operating results could be harmed if such cost reductions and new product introductions do not occur in a timely manner. 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.

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     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. The semiconductor industry has the ability to supply more product than demand requires. Our successful return to profitability will 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. 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. If the current downturn continues our results of operations would be further harmed. The commodity memory portion of the semiconductor industry, from which we derived 30% of our revenues in the first quarter of 2002, compared to 42% of our revenues in 2001, and 37% of our revenues in the fourth quarter 2001 suffered from excess capacity in 1998 and again in the second half of 2001 and first quarter of 2002, which led to substantial price reductions during those periods. While conditions improved after the 1998 downturn from the second quarter 1999 through the third quarter 2000, at present we cannot predict with any degree of certainty when the current downturn will improve.

     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 asset impairment charges additional to the $463 million charge that we took in 2001 or 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 DO NOT SUCCESSFULLY ADJUST OUR MANUFACTURING CAPACITY IN LINE WITH DOWNTURNS IN OUR INDUSTRY OR INCREASES IN DEMAND, OUR BUSINESS COULD BE HARMED.

     In 2000 and 2001, we made substantial capital expenditures to increase our wafer fabrication capacity at our facilities in Colorado Springs, Colorado and Rousset, France. We also currently manufacture our products at our facilities in Heilbronn, Germany and Nantes, France.

     During periods of economic downturn within the semiconductor industry, such as the current downturn that began late in the fourth quarter 2000, we need to suspend or reduce our manufacturing capacity to a level that meets demand for our products in order to achieve and maintain profitability. Expensive manufacturing machinery must be underutilized or even sold off at significantly discounted prices, although we continue to be liable to make payments on the debt that financed its purchase. At the same time, employee and other manufacturing costs must be reduced.

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     In 2001, our gross margin declined significantly as a result of the increase in fixed costs and operating expenses related to the expansion of capacity in 2000 and 2001 and lower unit sales over which to spread these costs. If the most recent downturn in the semiconductor industry continues into the second quarter of 2002 or worsens, our inability to reduce fixed costs, such as depreciation, and employee and other expenses necessary to maintain and operate our wafer manufacturing facilities would further harm our operating results.

     We announced in the third quarter 2001 that we are ceasing high volume production at one of our two wafer fabrication facilities in Colorado Springs, Colorado and at our facility in Nantes, France. We currently do not anticipate that production at our Irving, Texas and North Tyneside, UK plants will commence until late 2002.

     Reducing our wafer fabrication capacity involves significant potential costs and delays, including requirements and approvals of governmental and judicial bodies and losses of governmental subsidies. We may experience labor union or other difficulties implementing any additional downsizing that we may be required to make if the current downturn continues or worsens. Any such difficulties that we experience would harm our business and operating results.

     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 increased customer demand, which would also harm our business.

     Expanding our wafer fabrication capacity involves significant risks, including shortages of materials and skilled labor, unavailability of semiconductor manufacturing and testing equipment, and requirements and approvals of governmental and judicial bodies. 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.

     The cost of expanding our manufacturing capacity at our existing facilities, acquiring additional facilities, maintaining existing or additional 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 maintenance or expansion of our manufacturing facilities or the implementation of new manufacturing technologies.

IF WE ARE UNABLE TO EFFECTIVELY UTILIZE OUR WAFER MANUFACTURING CAPACITY AND 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. Currently we are working towards reducing the geometries of our semiconductors to 0.18 micron and 0.13 micron line widths.

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     Within each manufacturing technology, 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 when we expand our manufacturing capacity or during a transition in the manufacturing process technology that we use.

     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 any of our fabrication facilities 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.

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 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, 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

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• 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.

WE MUST KEEP PACE WITH TECHNOLOGICAL CHANGE AND INCREASING COMPLEXITY IN ORDER 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. These new products typically are more technologically complex than their predecessors, and thus have increased potential for delays in their introduction.

     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 by 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 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 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 2001, 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

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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 and increased cost of staffing adjustments, particularly in France and Germany

• 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, German and UK 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 2001, 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 2000 and 1999, the continuance or worsening of adverse business and financial conditions in Asia, where 38%, 34% and 34% of our revenues were generated in 2001, 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 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 European currencies and yen were 16% and 5% of our revenues in 2001, compared to 19% and 6% in 2000. 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.

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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, and may in the future acquire additional, 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 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 on occasion, have 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

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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 March 31, 2002, our convertible notes and long term debt less current portion was $685 million compared to $693 million at December 31, 2001, and $669 million at December 31, 2000. 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. If we are unable to meet debt obligations or otherwise are obliged to repay any debt prior to its due date, our available cash would be depleted, perhaps seriously, and our ability to fund operations harmed. Since a substantial portion of our operations are conducted through our subsidiaries, our cash flow and 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.

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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 $818 million in 2001, compared to $961 million in 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 2002 capital expenditures to be approximately $175 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, Hong Kong, Japan, Malaysia, the Philippines, South Korea, or Taiwan 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 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.

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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 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.

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. 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.

     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 Equiserve Trust Company, N.A., as rights agent, dated as of September 4, 1996, amended and restated on October 18, 1999 and amended as of November 7, 2001, 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

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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 $852 million at March 31, 2002. Approximately $667 million of these borrowings have fixed interest rates. Approximately $147 million of floating rate debt is based on Euro interest rates. We do not hedge this interest rate and could be negatively affected should this rate increase significantly. A hypothetical 100 basis point increase in this interest rate would have a $1 million adverse impact on income before taxes on Atmel’s Consolidated Statements of Operations for the remainder of 2002. While there can be no assurance that this rate will remain at current levels, we believe this rate 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 3% of our revenue in the first quarter 2002, compared to 5% in all of 2001. Sales denominated in foreign currencies were 22% in the first quarter 2002, compared to 21% in all of 2001. 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 2003 Annual Meeting

     Stockholder proposals intended to be presented at our 2003 annual meeting of stockholders must be received by our Vice President and General Counsel not later than November 21, 2002 in order to be included in our proxy statement and form of proxy relating to the 2003 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) None

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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)

 

May 14, 2002 /s/ GEORGE PERLEGOS
George Perlegos
President, Chief Executive Officer
(Principal Executive Officer)

 

May 14, 2002 /s/ DONALD COLVIN
Donald Colvin
Chief Financial Officer and Vice President, Finance
(Principal Financial and Accounting Officer)

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