Atmel 10Q 2011 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q


ý		QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarter ended June 30, 2011
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 ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

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


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

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

On July 31, 2011, the Registrant had 465,546,690 outstanding shares of Common Stock.

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ATMEL CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 2011

			Page

PART I: FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)		3
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010	3
		CONDENSED CONSOLIDATED BALANCE SHEETS AT JUNE 30, 2011 AND DECEMBER 31, 2010	4
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010	5
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	6
	ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		25
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		41
	ITEM 4. CONTROLS AND PROCEDURES		42
PART II: OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS		43
	ITEM 1A. RISK FACTORS		43
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		63
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES		63
	ITEM 4. (REMOVED AND RESERVED)		63
	ITEM 5. OTHER INFORMATION		63
	ITEM 6. EXHIBITS		64
SIGNATURES			65
EXHIBITS			66

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PART I: FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

Atmel Corporation

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended						Six Months Ended

	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010
	*(in thousands, except per share data)*
Net revenues	$	478,642		$	393,361		$	940,069		$	741,910
Operating expenses
Cost of revenues		230,842			233,715			456,884			448,490
Research and development		65,441			62,589			127,824			120,898
Selling, general and administrative		70,340			67,187			141,126			128,668
Acquisition-related charges (credits)		1,019			1,167			2,050			(734	)
Restructuring charges		-			1,614			21,210			2,583
Asset impairment charges		-			11,922			-			11,922
Loss (gain) on sale of assets		-			94,052			(1,882	)		94,052

Total operating expenses		367,642			472,246			747,212			805,879

Income (loss) from operations		111,000			(78,885	)		192,857			(63,969	)
Interest and other (expense) income, net		(1,309	)		2,784			1,182			7,126

Income (loss) before income taxes		109,691			(76,101	)		194,039			(56,843	)
(Provision for) benefit from income taxes		(18,821	)		39,658			(28,616	)		37,015

Net income (loss)	$	90,870		$	(36,443	)	$	165,423		$	(19,828	)

Basic net income (loss) per share:
Net income (loss)	$	0.20		$	(0.08	)	$	0.36		$	(0.04	)

Weighted-average shares used in basic net income (loss) per share calculations		456,753			460,249			456,622			458,508

Diluted net income (loss) per share:
Net income (loss)	$	0.19		$	(0.08	)	$	0.35		$	(0.04	)

Weighted-average shares used in diluted net income (loss) per share calculations		469,882			460,249			470,141			458,508

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

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Atmel Corporation
Condensed Consolidated Balance Sheets
(Unaudited)

	June 30, 2011			December 31, 2010

	*(in thousands, except par value)*
ASSETS
Current assets
Cash and cash equivalents	$	443,862		$	501,455
Short-term investments		9,479			19,574
Accounts receivable, net of allowances for doubtful accounts of $11,951 and $11,847, respectively		242,684			231,876
Inventories		366,670			276,650
Prepaids and other current assets		111,115			123,620

Total current assets		1,173,810			1,153,175
Fixed assets, net		281,463			260,124
Goodwill		57,199			54,676
Intangible assets, net		14,057			17,603
Other assets		161,887			164,464

Total assets	$	1,688,416		$	1,650,042

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable		152,565			160,011
Accrued and other liabilities		217,074			217,985
Deferred income on shipments to distributors		64,832			66,708

Total current liabilities		434,471			444,704
Other long-term liabilities		130,293			152,282

Total liabilities		564,764			596,986

Commitments and contingencies (Note 6)
Stockholders' equity
Preferred stock; par value $0.001; Authorized: 5,000 shares; no shares issued and outstanding		-			-
Common stock; par value $0.001; Authorized: 1,600,000 shares; Shares issued and outstanding: 459,228 at June 30, 2011 and 456,788 at December 31, 2010		459			457
Additional paid-in capital		1,176,093			1,273,853
Accumulated other comprehensive income		19,260			16,329
Accumulated deficit		(72,160	)		(237,583	)

Total stockholders' equity		1,123,652			1,053,056

Total liabilities and stockholders' equity	$	1,688,416		$	1,650,042

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
(Unaudited)

			Six Months Ended

			June 30, 2011			June 30, 2010
			*(in thousands)*
Cash flows from operating activities
Net income (loss)			$	165,423		$	(19,828	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
	Depreciation and amortization			36,952			31,820
	Non-cash portion of loss on sale of Rousset manufacturing operations			-			(33,043	)
	Gain on sale of business and assets			(1,696	)		-
	Asset impairment charges			-			11,922
	Other non-cash gains, net			(5,393	)		(8,535	)
	Allowance for (recovery of) doubtful accounts receivable			104			(112	)
	Accretion of interest on long-term debt			387			315
	Stock-based compensation expense			33,146			28,557
	Excess tax benefit on stock-based compensation			(20,367	)		-
Changes in operating assets and liabilities
	Accounts receivable			(10,809	)		(18,904	)
	Inventories			(91,517	)		17,139
	Current and other assets			17,769			(32,887	)
	Trade accounts payable			13,455			9,910
	Accrued and other liabilities			(18,905	)		135,756
	Deferred income on shipments to distributors			(1,876	)		(2,498	)

		Net cash provided by operating activities		116,673			119,612

Cash flows from investing activities
Acquisitions of fixed assets				(55,145	)		(28,398	)
Proceeds from the sale of business, net of cash				1,597			-
Proceeds from the sale of fixed assets				913			652
Acquisition of business				(819	)		-
Acquisitions of intangible assets				(2,000	)		(2,000	)
Purchases of marketable securities				-			(11,129	)
Sales or maturities of marketable securities				10,339			24,308

		Net cash used in investing activities		(45,115	)		(16,567	)

Cash flows from financing activities
Principal payments on debt				(85	)		(10,813	)
Proceeds from issuance of common stock				19,248			5,792
Repurchase of common stock				(112,812	)		-
Tax payments related to shares withheld for vested restricted stock units				(57,411	)		(2,211	)
Excess tax benefit on stock-based compensation				20,367			-

		Net cash used in financing activities		(130,693	)		(7,232	)

Effect of exchange rate changes on cash and cash equivalents				1,542			(6,434	)

Net (decrease) increase in cash and cash equivalents				(57,593	)		89,379

Cash and cash equivalents at beginning of the period				501,455			437,509

Cash and cash equivalents at end of the period			$	443,862		$	526,888

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
(In thousands, except per share data, employee data, and where otherwise indicated)
(Unaudited)

Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These unaudited interim condensed consolidated financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary to state fairly, in all material respects, the financial position of Atmel Corporation (the "Company" or "Atmel") and its subsidiaries as of June 30, 2011 and the results of operations for the three and six months ended June 30, 2011 and 2010 and cash flows for the three and six months ended June 30, 2011 and 2010. All intercompany balances have been eliminated. Because all of the disclosures required by U.S. generally accepted accounting principles are not included, as permitted by the rules of the Securities and Exchange Commission (the "SEC"), these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010. The December 31, 2010 year-end condensed balance sheet data was derived from the Company's audited consolidated financial statements, which are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010 and does not include all of the disclosures required by U.S. generally accepted accounting principles. The condensed consolidated statements of operations for the periods presented are not necessarily indicative of results to be expected for any future period, or for the entire year.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include provisions for excess and obsolete inventory, sales return reserves, stock-based compensation expense, allowances for doubtful accounts receivable, warranty reserves, estimates for useful lives associated with long-lived assets, recoverability of goodwill and intangible assets, restructuring charges, accrued liabilities and income taxes and income tax valuation allowances. Actual results could differ materially from those estimates.

In the three months ended June 30, 2011, the Company recorded an out of period adjustment to reverse test and assembly subcontractor accruals for $6,908, related to cost of revenues for the three month periods ended March 31, 2011, December 31, 2010, September 30, 2010 and June 30, 2010. In addition, in the three months ended June 30, 2011, the Company corrected excess depreciation for certain fixed assets for $1,731, related to research and development for the three month periods ended March 31, 2011 and December 31, 2010. The correction of these errors resulted in an increase to the Company's net income of $8,639 for the three months ended June 30, 2011. Management assessed the impact of these errors and concluded that the amounts are not material, either individually or in the aggregate, to any of the prior periods' annual or interim financial statements, nor is the impact of the errors in the three months ended June 30, 2011 expected to be material to the full year 2011 financial statements. On that basis, the Company has recorded the correction to all periods in the three months ended June 30, 2011.

Inventories

Inventories are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis for raw materials and purchased parts; and an average-cost basis for work in progress and finished goods) or market. Market is based on estimated net realizable value. The Company establishes provisions for lower of cost or market and excess and obsolescence write-downs. The determination of

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obsolete or excess inventory requires an estimation of the future demand for the Company's products and these reserves are recorded when the inventory on hand exceeds management's estimate of future demand for each product. Once the inventory is written down, a new cost basis is established and these inventory reserves are not released until the related inventory has been sold or scrapped.

Inventories are comprised of the following:

	June 30, 2011		Revised March 31, 2011		December 31, 2010

	*(in thousands)*
Raw materials and purchased parts	$	28,497	$	24,553	$	12,689
Work-in-progress		230,649		168,264		158,599
Finished goods		107,524		125,711		105,362

	$	366,670	$	318,528	$	276,650

As of March 31, 2011, the Company had incorrectly reported work-in progress and finished goods as $125,711 and $168,264, respectively, which had no impact to ending inventories on the condensed consolidated balance sheet. The accurate amounts for work-in-progress and finished goods in the period ended March 31, 2011 are $168,264 and $125,711, respectively, as shown in the table above.

Recent Accounting Pronouncements

In June 2011, the FASB issued ASU No. 2011-05,Comprehensive Income (ASC Topic 220) — Presentation of Comprehensive Income. The amendments from this update will result in more converged guidance on how comprehensive income is presented under U.S. GAAP and International Financial Reporting Standards ("IFRS"). With this update to ASC 220, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income, nor does it affect how earnings per share is calculated or presented. Current U.S. GAAP allows reporting entities three alternatives for presenting other comprehensive income and its components in financial statements. One of those presentation options is to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. This update eliminates that option. The amendments in this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this guidance is not anticipated to have a material impact on the Company's condensed consolidated financial position, results of operations or cash flows.

In May 2011, the FASB issued ASU No. 2011-04,Fair Value Measurement (ASC Topic 820) — Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this ASU result in common fair value measurement and disclosure requirements under U.S. GAAP and IFRS. Consequently, the amendments describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements as well as improving consistency in application across jurisdictions to ensure that U.S. GAAP and IFRS fair value measurement and disclosure requirements are described in the same way. The ASU also provides for certain changes in current GAAP disclosure requirements, for example with respect to the measurement of level 3 assets and for measuring the fair value of an instrument classified in a reporting entity's shareholders' equity. The amendments in this ASU are to be applied prospectively. For

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public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. The adoption of this guidance is not anticipated to have a material impact on the Company's condensed consolidated financial position, results of operations or cash flows.

Note 2 INVESTMENTS

Investments at June 30, 2011 and December 31, 2010 are primarily comprised of corporate equity securities, U.S. and foreign corporate debt securities and auction-rate securities.

All marketable securities are deemed by management to be available-for-sale and are reported at fair value, with the exception of certain auction-rate securities as described below. Net unrealized gains or losses that are not deemed to be other than temporary are reported within stockholders' equity on the Company's condensed consolidated balance sheets as a component of accumulated other comprehensive income. Gross realized gains or losses are recorded based on the specific identification method. For the three and six months ended June 30, 2011, the Company's gross realized gains or losses on short-term investments were not material. For the three and six months ended June 30, 2010, the Company recorded gross realized gains of $2,155 from the sale of short-term investments, which are included in interest and other (expense) income, net in the condensed consolidated statements of operations. The Company's investments are further detailed in the table below:

	June 30, 2011					December 31, 2010

	Adjusted Cost			Fair Value		Adjusted Cost			Fair Value
	*(in thousands)*
Corporate equity securities	$	60		$	127	$	87		$	158
Auction-rate securities		2,220			2,251		2,220			2,251
Corporate debt securities and other obligations		9,379			9,352		19,686			19,416

	$	11,659		$	11,730	$	21,993		$	21,825

Unrealized gains		98					126
Unrealized losses		(27	)				(294	)

Net unrealized gains (losses)		71					(168	)

Fair value	$	11,730				$	21,825

Amount included in short-term investments				$	9,479				$	19,574
Amount included in other assets					2,251					2,251

				$	11,730				$	21,825

For the three and six months ended June 30, 2011, auctions for auction-rate securities held by the Company have continued to fail and as a result these securities continued to be illiquid. The Company concluded that $2,220 (adjusted cost) of these securities are unlikely to be liquidated within the next twelve months and classified these securities as long-term investments, which are included in other assets on the condensed consolidated balance sheets.

Contractual maturities (at adjusted cost) of available-for-sale debt securities as of June 30, 2011, were as follows:

	*(in thousands)*

Due within one year	$	7,296
Due in 1-5 years		2,083
Due in 5-10 years		-
Due after 10 years		2,220

Total	$	11,599

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

Note 3 FAIR VALUE OF ASSETS AND LIABILITIES

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

The table below presents the balances of investments measured at fair value on a recurring basis at June 30, 2011:

		June 30, 2011

		Total		Level 1		Level 2		Level 3
		*(in thousands)*
*Assets*
Cash
	Money market funds	$	11,716	$	11,716	$	-	$	-
Short-term investments
	Corporate equity securities		127		127		-		-
	Corporate debt securities, including government-backed securities		9,352		-		9,352		-
Other assets									-
	Auction-rate securities		2,251		-		-		2,251
	Deferred compensation plan assets		4,753		4,753		-		-

	Total	$	28,199	$	16,596	$	9,352	$	2,251

The table below presents the balances of investments measured at fair value on a recurring basis at December 31, 2010:

		December 31, 2010

		Total		Level 1		Level 2		Level 3
		*(in thousands)*
*Assets*
Cash
	Money market funds	$	-	$	-	$	-	$	-
Short-term investments
	Corporate equity securities		158		158		-		-
	Corporate debt securities, including U.S. government-backed securities		19,416		-		19,416		-
Other assets									-
	Auction-rate securities		2,251		-		-		2,251
	Deferred compensation plan assets		3,783		3,783		-		-

	Total	$	25,608	$	3,941	$	19,416	$	2,251

The Company's investments, with the exception of auction-rate securities, are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer

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quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, sovereign government obligations, and money market securities. Such instruments are generally classified within Level 1 of the fair value hierarchy. The types of instruments valued based on other observable inputs include corporate debt securities and other obligations. Such instruments are generally classified within Level 2 of the fair value hierarchy.

Auction-rate securities are classified within Level 3 as significant assumptions that are not observable in the market. The total amount of assets measured using Level 3 valuation methodologies represented less than 1% of total assets as of June 30, 2011 and December 31, 2010.

A summary of the changes in Level 3 assets measured at fair value on a recurring basis is as follows:

		Balance at January 1, 2011		Total Unrealized Gains		Sales and Other Settlements		Balance at June 30, 2011

		*(in thousands)*
Auction-rate securities		$	2,251	$	-	$	-		2,251

	Total	$	2,251	$	-	$	-	$	2,251

		Balance at January 1, 2010		Total Unrealized Gains		Sales and Other Settlements			Balance at December 31, 2010

		*(in thousands)*
Auction-rate securities		$	5,392	$	9	$	(3,150	)		2,251

	Total	$	5,392	$	9	$	(3,150	)	$	2,251

Note 4 STOCKHOLDERS' EQUITY

Stock-Based Compensation

The following table summarizes the distribution of stock-based compensation expense related to employee stock options, restricted stock units, performance-based restricted stock units and employee stock purchases for the three and six months ended June 30, 2011 and 2010:

	Three Months Ended					Six Months Ended

	June 30, 2011			June 30, 2010		June 30, 2011			June 30, 2010
	*(in thousands)*
Cost of revenues	$	2,347		$	2,187	$	4,640		$	3,864
Research and development		4,786			6,301		10,768			9,585
Selling, general and administrative		7,124			13,162		17,738			18,173

Total stock-based compensation expense, before income taxes		14,257			21,650		33,146			31,622
Tax benefit		(2,433	)		-		(5,077	)		-

Total stock-based compensation expense, net of income taxes	$	11,824		$	21,650	$	28,069		$	31,622

The table above excludes stock-based compensation (credit) of $0 and $(3,065) for the three and six months ended June 30, 2010, respectively, which are classified within acquisition-related charges (credits) in the condensed consolidated statements of operations.

Non-employee stock-based compensation expense for the three and six months ended June 30, 2011 and 2010 was not material.

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Stock Options, Restricted Stock Units and Employee Stock Purchase Plan

The 2005 Stock Plan was approved by stockholders on May 11, 2005. On May 18, 2011, at the Company's 2011 Annual Stockholder Meeting, the Company's stockholders approved an amendment and restatement of the 2005 Stock Plan, and, in connection with that amendment and restatement, added 19,000 shares to the 2005 Stock Plan. As of June 30, 2011, 133,000 shares were authorized for issuance under the 2005 Stock Plan, and 23,639 shares of common stock remained available for grant. Under Atmel's 2005 Stock Plan, Atmel may issue common stock directly, grant options to purchase common stock or grant restricted stock units payable in common stock to employees, consultants and directors of Atmel. Options, which generally vest over four years, are granted at fair market value on the date of the grant and generally expire ten years from that date.

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

				Outstanding Options

				Outstanding Options					Weighted- Average Exercise Price per Share
	Available for Grant			Number of Options			Exercise Price per Share		Weighted- Average Exercise Price per Share
	*(in thousands, except per share data)*
Balances, December 31, 2010		11,463			12,660		$	1.68-$14.94	$	4.35
Restricted stock units issued		(642	)		-			-		-
Adjustment for restricted stock units issued		(501	)		-			-		-
Performance-based restricted stock units issued		(9	)		-			-		-
Adjustment for performance-based restricted stock units issued		(7	)		-			-		-
Restricted stock units cancelled		152			-			-		-
Adjustment for restricted stock units cancelled		119			-			-		-
Options cancelled/expired/forfeited		22			(22	)	$	3.59-$14.94		6.68
Options exercised		-			(2,467	)	$	1.80-$13.77		4.61

Balances, March 31, 2011		10,597			10,171		$	1.68-$13.77	$	4.28
Additional shares authorized		19,000			-			-	��	-
Restricted stock units issued		(461	)		-			-		-
Adjustment for restricted stock units issued		(332	)		-			-		-
Performance-based restricted stock units issued		(3,409	)		-			-		-
Adjustment for performance-based restricted stock units issued		(2,079	)		-			-		-
Restricted stock units cancelled		172			-			-		-
Adjustment for restricted stock units cancelled		134			-			-		-
Options cancelled/expired/forfeited		17			(17	)	$	2.11-4.92		3.58
Options exercised		-			(1,008	)	$	1.80-13.77		4.28

Balance, June 30, 2011		23,639			9,146		$	1.68-$10.01	$	4.28

Restricted stock units are granted from the pool of options available for grant. As a result of the amendment and restatement of the 2005 Stock Plan, every share underlying restricted stock, restricted stock units (including performance-based restricted stock units), and stock purchase rights issued on or after May 18, 2011 (the date on which the amendment and restatement became effective) is counted against the numerical limit for options available for grant as 1.61 shares in the table above, except that restricted stock, restricted stock units (including performance-based restricted stock units), and stock purchase rights issued prior to May 18, 2011, continue to be governed by an earlier amendment to the 2005 Stock Plan undertaken in 2008, which provided for a numerical limit of 1.78 shares. If shares issued pursuant to any restricted stock, restricted stock unit, and stock purchase right agreements granted on or after May 18, 2011 are cancelled, forfeited or repurchased by the Company and would otherwise return to

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the 2005 Stock Plan, 1.61 times the number of those shares will return to the 2005 Stock Plan and will again become available for issuance. The Company issued 3,573 shares of restricted stock units from May 18, 2011 to June 30, 2011 (net of cancellations) resulting in a reduction of 5,751 shares available for grant under the 2005 Stock Plan.

The Company issued 36,098 restricted stock units from May 14, 2008 to May 17, 2011 (net of cancellations), resulting in a reduction of 64,254 shares available for grant under the 2005 Stock Plan, based on the 1.78 numerical limit in effect until May, 18, 2011.

In the three and six months ended June 30, 2011, 952 and 1,877 restricted stock units vested, respectively, including 316 and 704 units withheld for taxes, respectively. These vested restricted stock units had a weighted-average fair value of $14.68 and $15.29 per share, on the vesting dates, respectively. As of June 30, 2011, total unearned stock-based compensation related to nonvested restricted stock units previously granted (including performance-based restricted stock units) was approximately $136,760, excluding forfeitures, and is expected to be recognized over a weighted-average period of 2.94 years.

In the three and six months ended June 30, 2010, 539 and 1,122 restricted stock units vested, respectively, including 194 and 376 units withheld for taxes, respectively. These vested restricted stock units had a weighted-average fair value of $5.28 and $5.11 per share on the vesting dates, respectively.

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

Performance-Based Restricted Stock Units

In the three months ended June 30, 2011, 8,476 performance-based restricted stock units issued under the Company's 2008 Incentive Plan (the "2008 Plan") vested upon board of director approval on May 23, 2011 as a result of the Company achieving all of the performance criteria as of March 31, 2011. A total of 5,127 shares were issued to participants, net of withholding taxes, which represented all remaining shares available under the 2008 Plan. These vested performance-based restricted stock units had a weighted average value of $14 per share on the vesting date. The Company recorded total stock-based compensation expense related to performance-based restricted stock units of $14,058 and $15,044 in the three and six months ended June 30, 2010, respectively, and $6,511 in the six months ended June 30, 2011.

In May 2011, the Company adopted the 2011 Long-Term Performance-Based Incentive Plan (the "2011 Plan"), which provides for the grant of restricted stock units to eligible employees; vesting of these restricted stock units is subject to the satisfaction of specified performance metrics over the designated performance periods. The performance periods for the 2011 Plan run from January 1, 2011 through December 31, 2013, consisting of three one year performance periods (calendar years 2011, 2012 and 2013) and a three year cumulative performance period. The Company issued 3,409 performance-based restricted stock units under the 2011 Plan and recorded stock based compensation expense related to these performance-based restricted stock units of $624 in the three months ended June 30, 2011.

Stock Option Awards

No stock options were granted during the three and six months ended June 30, 2011. In the three and six months ended June 30, 2010, 82 and 239 stock options were granted, respectively.

As of June 30, 2011, total unearned compensation expense related to unvested stock options was approximately $7,597, excluding forfeitures, and is expected to be recognized over a weighted-average period of 0.98 years.

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Employee Stock Purchase Plan

Under the 1991 Employee Stock Purchase Plan ("1991 ESPP"), qualified employees are entitled to purchase shares of Atmel's common stock at the lower of 85% of the fair market value of the common stock at the date of commencement of the six-month offering period or at 85% of the fair market value on the last day of the offering period. Purchases are limited to 10% of an employee's eligible compensation. There were no purchases in the three months ended June 30, 2011 and 2010. There were 835 and 1,048 shares purchased under the 1991 ESPP for the six months ended June 30, 2011 and 2010, respectively, at an average price per share of $4.85 and $3.28, respectively. The remaining 1,888 shares available under the 1991 plan expired in the three months ended March 31, 2011. In 2010, the Company's stockholders approved a new 2010 Employee Stock Purchase Plan ("2010 ESPP") and authorized 25,000 shares for issuance under the 2010 ESPP. The 2010 ESPP became effective for the current offering period. The 1991 ESPP and the 2010 ESPP are collectively referred to as the "Company ESPPs."

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

	Three Months Ended						Six Months Ended

	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010
Risk-free interest rate		0.17	%		0.18	%		0.17	%		0.18	%
Expected life (years)		0.50			0.50			0.50			0.50
Expected volatility		41	%		41	%		41	%		41	%
Expected dividend yield		-			-			-			-

The weighted-average fair value of the rights to purchase shares under the Company ESPPs for offering periods started for the six months ended June 30, 2011 and the six months ended June 30, 2010 was $3.16 and $0.77, respectively. Cash proceeds for the issuance of shares under the Company's ESPPs was $4,054 and $3,437 for the six months ended June 30, 2011 and 2010, respectively.

Common Stock Repurchase Program

In August 2010, Atmel's Board of Directors announced a $200,000 stock repurchase program. In May 2011, Atmel's Board of Directors announced the addition of another $300,000 to the Company's existing repurchase program. The repurchase program does not have an expiration date, and the number of shares repurchased and the timing of repurchases are based on the level of the Company's cash balances, general business and market conditions, regulatory requirements, and other factors, including alternative investment opportunities.

During the three and six months ended June 30, 2011, Atmel repurchased 2,031 and 7,731 shares of its common stock on the open market at an average repurchase price of $13.64 and $14.59 per share, respectively, excluding commission, and subsequently retired those shares. Common stock and additional paid-in capital were reduced by $27,695 and $112,812, excluding commission, for the three and six months ended June 30, 2011, respectively, as a result of the stock repurchases. As of June 30, 2011, $297,972 remained available for repurchase under this program.

Note 5 ACCUMULATED OTHER COMPREHENSIVE INCOME

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

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accumulated other comprehensive income at June 30, 2011 and December 31, 2010, net of tax, are as follows:

	June 30, 2011		December 31, 2010

	*(in thousands)*
Foreign currency translation adjustments	$	16,303	$	14,588
Actuarial gains related to defined benefit pension plans		2,886		1,909
Net unrealized gain (loss) on investments		71		(168	)

Total accumulated other comprehensive income	$	19,260	$	16,329

The components of comprehensive income (loss) in the three and six months ended June 30, 2011 and 2010 are as follows:

		Three Months Ended					Six Months Ended

		June 30, 2011		June 30, 2010			June 30, 2011		June 30, 2010
		*(in thousands)*
Net income (loss)		$	90,870	$	(36,443	)	$	165,423	$	(19,828	)

Other comprehensive income (loss):
	Foreign currency translation adjustments		1,595		(19,311	)		1,715		(36,746	)
	Release of currency translation adjustment		-		(97,367	)		-		(97,367	)
	Actuarial gains (losses) related to defined benefit pension plans		433		(423	)		977		(1,296	)
	Unrealized gains (losses) on investments		73		(2,116	)		239		(2,053	)

Other comprehensive income (loss)			2,101		(119,217	)		2,931		(137,462	)

Total comprehensive income (loss)		$	92,971	$	(155,660	)	$	168,354	$	(157,290	)

Note 6 COMMITMENTS AND CONTINGENCIES

Commitments

Indemnification

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

Purchase Commitments

At June 30, 2011, the Company had certain commitments which were not included on the condensed consolidated balance sheet at that date. These include outstanding capital purchase commitments of $9,809, wafer purchase commitments of approximately $11,336 under the Company's supply agreement with Telefunken Semiconductors GmbH & Co. KG and wafer purchase commitments of approximately $290,825 under the Company's supply agreement with LFoundry GmbH ("LFoundry").

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Contingencies

Legal Proceedings

The Company is party to various legal proceedings. Management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on its financial position, results of operations and statement of cash flows. If, however, an unfavorable ruling were to occur in any of the legal proceedings described below, there exists the possibility of a material adverse effect on the Company's financial position, results of operations and cash flows. The Company has accrued for losses related to the litigation described below that it considers probable and for which the loss can be reasonably estimated. In the event that a loss cannot be reasonably estimated, it has not accrued for such losses. The Company continues to monitor these matters; its determination could change, however, and the Company may decide, at some future date, to establish an appropriate reserve. With respect to each of the matters below, except where noted otherwise, management has determined a potential loss is not probable at this time and, accordingly, no amount has been accrued at June 30, 2011. Management makes a determination as to when a potential loss is reasonably possible based on relevant accounting literature and then includes appropriate disclosure of the contingency. Except as otherwise noted, management does not believe that the amount of loss or a range of possible losses is reasonably estimable.

Matheson Litigation. On September 28, 2007, Matheson Tri-Gas ("MTG") filed suit against the Company in Texas state court in Dallas County. Plaintiff alleges claims for: (1) breach of contract for the Company's alleged failure to pay minimum payments under a purchase requirements contract; (2) breach of contract under a product supply agreement; and (3) breach of contract for failure to execute a process gas agreement. MTG seeks unspecified damages, pre- and post-judgment interest, attorneys' fees and costs. In late November 2007, the Company filed its answer denying liability. In July 2008, the Company filed an amended answer, counterclaim and cross claim seeking among other things a declaratory judgment that a termination agreement cut off any claim by MTG for additional payments. In an Order entered on June 26, 2009, the Court granted the Company's motion for partial summary judgment dismissing MTG's breach of contract claims relating to the requirements contract and the product supply agreement. The parties dismissed the remaining claims and, on August 26, 2009, the Court entered a Summary Judgment Order and Final Judgment. MTG filed a Motion to Modify Judgment and Notice of Appeal on September 24, 2009. On July 27, 2011, the Texas Court of Appeals affirmed the trial court's judgment. The Company does not know yet whether MTG will seek a rehearing by the Court of Appeals or appeal the decision to the Supreme Court of Texas. The Company intends to continue vigorously defending the case, and has accrued for estimated potential losses, which amount is not material.

Distributor Litigation. On June 3, 2009, the Company filed an action in Santa Clara County Superior Court against three of its now-terminated Asia-based distributors, NEL Group Ltd. ("NEL"), Nucleus Electronics (Hong Kong) Ltd. ("NEHK") and TLG Electronics Ltd. ("TLG"). The Company seeks, among other things, to recover $8,500 owed it, plus applicable interest and attorneys fees. On June 9, 2009, NEHK separately sued Atmel in Santa Clara County Superior Court, alleging that Atmel's suspension of shipments to NEHK on September 23, 2008 — one day after TLG appeared on the Department of Commerce, Bureau of Industry and Security's Entity List — breached the parties' International Distributor Agreement. NEHK also alleges that Atmel libeled it, intentionally interfered with contractual relations and/or prospective business advantage, and violated California Business and Professions Code Sections 17200et seq. and 17500et seq. Both matters now have been consolidated. On July 29, 2009, NEL filed a cross-complaint against Atmel that alleges claims virtually identical to those NEHK has alleged. NEL and NEHK are seeking damages of up to $50,000. On March 28, 2011, the Court entered an order requiring that NEL (and/or certain of its subsidiaries, including NEHK) deposit $2,900 in a court-administered account until final disposition of the litigation or a further court order. The Court ordered the funds deposited after it found this amount to be the current "gain" realized from certain restructuring transactions NEL and NEHK completed in violation of the Court's October 22, 2009 preliminary injunction prohibiting such restructuring. Despite the order, to date, no funds have been deposited with

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the Court. On June 3, 2011, both NEL and NEHK's counsel withdrew from the case and, as of the date of this Form 10-Q, have not been replaced. No trial date has yet been set and discovery is not yet complete. Should the case continue, Atmel intends to prosecute its claims and defend the NEHK/NEL claims vigorously. TLG did not answer, and the Court entered a default judgment of $2,697 on November 23, 2009.

French Labor Litigation. On July 24, 2009, 56 former employees of Atmel's Nantes facility filed claims in the First Instance labour court, Nantes, France against the Company and MHS Electronics claiming that (1) the Company's sale of the Nantes facility to MHS (XbyBus SAS) in 2005 did not result in the transfer of their labor agreements to MHS, and (2) these employees should still be considered Atmel employees, with the right to claim related benefits from Atmel. Alternatively, each employee seeks damages of at least 45 Euros and court costs. Five of the original 56 plaintiffs later dropped out of the case — leaving 51 remaining plaintiffs. A ruling is expected on September 21, 2011. These claims are similar to those filed in the First Instance labour court in October 2006 by 47 other former employees of Atmel's Nantes facility (MHS was not named a defendant in the earlier claims). On July 24, 2008, the judge hearing the earlier claims issued an oral ruling in favor of the Company, finding that there was no jurisdiction for those claims by certain "protected employees," and denying the claims as to all other employees. Forty of those earlier plaintiffs appealed, and on February 11, 2010, the Court of Appeal of Rennes, France affirmed the lower court's ruling. Plaintiffs' time to appeal has expired and the earlier litigation now is concluded.

Azure Litigation. On December 22, 2010, Azure Networks, LLC, a non-practicing entity, and Tri-County Excelsior Foundation, a non-profit organization, sued Atmel and several other semiconductor companies for patent infringement in the United States District Court for the Eastern District of Texas. In a First Amended Complaint filed on April 18, 2011, Plaintiffs alleged that Atmel makes, uses, offers for sale, sells, and/or imports into or within the United States RF transceivers that, when integrated with certain Zigbee-compliant software that Atmel provides, allegedly induce the infringement of United States Patent Number 7,020,501 (entitled "Energy Efficient Forwarding in Ad-Hoc Wireless Networks"). On May 5, 2011, Atmel filed counterclaims seeking a declaration that the '501 patent is invalid and not infringed. On July 11, 2011, the Court granted Atmel and plaintiffs' joint motion to dismiss without prejudice all claims and counterclaims, resulting in the conclusion of this matter.

Infineon Litigation. On April 11, 2011, Infineon Technologies A.G. and Infineon Technologies North America Corporation (collectively, "Infineon") filed a patent infringement lawsuit against Atmel in the United States District Court for the District of Delaware. Infineon alleges that Atmel is infringing 11 Infineon patents and seeks a declaration that three Atmel patents are either invalid or not infringed. On July 5, 2011, Atmel answered Infineon's complaint, and filed counterclaims seeking a declaration that each of the 11 asserted Infineon patents is invalid and not infringed. Atmel also counterclaimed for infringement of six Atmel patents and breach of contract related to Infineon's breach of a confidentiality agreement. On July 29, 2011, Infineon answered Atmel's counterclaims and sought a declaration that Atmel's newly-asserted patents were either invalid or not infringed. The Company intends to prosecute its claims and defend vigorously against Infineon's claims.

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

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claims when it considers those losses "probable" and when a reasonable estimate of loss can be determined.

Other Contingencies

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

Product Warranties

The Company accrues for warranty costs based on historical trends of product failure rates and the expected material and labor costs to provide warranty services. The Company's products are generally covered by a warranty typically ranging from 90 days to two years.

The following table summarizes the activity related to the product warranty liability for the three and six months ended June 30, 2011 and 2010.

	Three Months Ended						Six Months Ended

	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010
	*(in thousands)*
Balance at beginning of period	$	4,908		$	4,394		$	4,019		$	4,225
Accrual for warranties during the period, net of change in estimates		1,653			493			3,857			2,166
Actual costs incurred		(1,454	)		(778	)		(2,769	)		(2,282	)

Balance at end of period	$	5,107		$	4,109		$	5,107		$	4,109

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

Guarantees

During the ordinary course of business, the Company provides standby letters of credit or other guarantee instruments to certain parties as required for certain transactions initiated by either the Company or its subsidiaries. As of June 30, 2011, the maximum potential amount of future payments that the Company could be required to make under these guarantee agreements was $1,850. The Company has not recorded any liability in connection with these guarantee arrangements. Based on historical experience and information currently available, the Company believes it will not be required to make any payments under these guarantee arrangements.

Note 7 INCOME TAXES

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

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The following table presents the (provision for) benefit from income taxes and the effective tax rates:

	Three Months Ended						Six Months Ended

	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010
	*(in thousands, except for percentages)*
Income (loss) before income taxes	$	109,691		$	(76,101	)	$	194,039		$	(56,843	)
(Provision for) benefit from income taxes		(18,821	)		39,658			(28,616	)		37,015
Effective tax rate		17.16	%		-52.11	%		14.75	%		-65.12	%

The Company's effective tax rate for the three and six months ended June 30, 2011 is lower than the statutory federal income tax rate of 35% primarily due to tax rate benefits of certain earnings from the Company's operations in jurisdictions with lower tax rates than the U.S. These benefits result primarily from a global restructuring implemented during the quarter ended March 31, 2011. The effective tax rate for the three months and six months ended June 30, 2010 was substantially lower than the statutory federal income tax rate of 35% primarily due to the recognition of certain refundable R&D credits and a net discrete income tax benefit associated with the sale of the Company's wafer manufacturing operations in Rousset, France, as management determined that this benefit will more likely than not be realized.

The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The Company's 2000 through 2010 tax years generally remain subject to examination by federal and most state tax authorities. For significant foreign jurisdictions, the 2007 through 2010 tax years generally remain subject to examination by their respective tax authorities.

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

At June 30, 2011 and December 31, 2010, the Company had $66,726 and $63,593 of unrecognized tax benefits, respectively. It is reasonably possible that the total amount of unrecognized tax benefits will decrease in the next 12 months. Such changes could occur based on the conclusion of ongoing tax audits in various jurisdictions around the world. During the three months ended June 30, 2011, the Company released reserves of $2,525 related to effective audit settlement of refundable R&D credits for the tax years 2008-2009. The Company expects to release additional reserves due to the expiration of statutes of limitation and potential adjustments of unrecognized tax benefits from audits in the range of $1,000 to $7,000 during the remainder of the year ending December 31, 2011. The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations. Management regularly assesses our tax positions in light of legislative, bilateral tax treaty, regulatory and judicial developments in the countries in which we do business.

Note 8 PENSION PLANS

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

Retirement plans consist of two types of plans. The first plan type covers the Company's French employees and provides for termination benefits paid to employees only at retirement, and consists of approximately one to five months of salary. The second plan type covers the Company's German

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employees and provides for defined benefit payouts for the employee's post-retirement life, and covers the Company's German employees.

The aggregate net pension expense relating to the two plan types are as follows:

	Three Months Ended					Six Months Ended

	June 30, 2011		June 30, 2010			June 30, 2011			June 30, 2010
	*(in thousands)*
Service costs	$	311	$	149		$	629		$	573
Interest cost		326		219			651			595
Amortization of actuarial loss (gain)		14		(5	)		68			(4	)
Settlement and other related losses (gains)		-		907			(726	)		907

Net pension expense	$	651	$	1,270		$	622		$	2,071

Settlement and other related gains of $726 for the six months ended June 30, 2011 related to restructuring activity in the Company's Rousset, France operations initiated in the second quarter of 2010.

The Company's net pension cost for 2011 is expected to be approximately $2,591. Cash funding for benefits paid was $43 and $76 for the three and six months ended June 30, 2011. Cash funding for benefits to be paid for 2011 is expected to be approximately $417.

Note 9 OPERATING AND GEOGRAPHICAL SEGMENTS

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

•: Microcontrollers. This segment includes Atmel's capacitive touch products, including maXTouch and QTouch, AVR 8-bit and 32-bit products, ARM-based products, and Atmel's 8051 8-bit products.
•: Nonvolatile Memories. This segment includes serial interface electrically erasable programmable read-only memory ("SEEPROM"), serial and parallel interface Flash memory, and electrically erasable programmable read-only memory ("EEPROM") and erasable programmable ready-only memory ("EPROM") devices. This segment also includes products with military and aerospace applications.
•: Radio Frequency ("RF") and Automotive. This segment includes automotive electronics, wireless and wired devices for industrial, consumer and automotive applications and foundry services for radio frequency products designed for mobile telecommunications markets.
•: Application Specific Integrated Circuit ("ASIC"). This segment includes custom application specific integrated circuits designed to meet specialized single-customer requirements for their high performance devices in a broad variety of specific applications, including products that provide hardware security for embedded digital systems, products with military and aerospace applications and ASSPs for space applications, power management and secure crypto memory products.

The Company evaluates segment performance based on revenues and income from operations excluding acquisition-related charges (credits), restructuring charges, asset impairment charges, and loss (gain) on sale of assets. Interest and other (expense) income, net, foreign exchange gains and losses and income taxes are not measured by operating segment. Because the Company's segments reflect the manner

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in which management reviews its business, they necessarily involve subjective judgments that management believes are reasonable in light of the circumstances under which they are made. These judgments may change over time or may be modified to reflect new facts or circumstances. Segments may also be changed or modified to reflect products, technologies or applications that are newly created, or that change over time, or other business conditions that evolve, each of which may result in management reassessing specific segments and the elements included within each of those segments. Recent events may affect the manner in which the Company presents segments in the future.

Segments are defined by the products they design and sell. They do not make sales to each other. The Company's net revenues and segment income (loss) from operations for each reportable segment for the three and six months ended June 30, 2011 and 2010 are as follows:

Information about Reportable Segments

	Micro- Controllers		Nonvolatile Memories		RF and Automotive		ASIC			Total

	*(in thousands)*
Three months ended June 30, 2011
Net revenues from external customers	$	302,192	$	71,263	$	52,571	$	52,616		$	478,642
Segment income from operations		75,450		16,171		5,397		15,001			112,019
Three months ended June 30, 2010
Net revenues from external customers		197,601		73,554		45,282		76,924			393,361
Segment income (loss) from operations		24,335		8,134		3,068		(5,667	)		29,870
Six months ended June 30, 2011
Net revenues from external customers	$	596,018	$	134,635	$	103,424	$	105,992		$	940,069
Segment income from operations		149,257		29,788		10,807		24,383			214,235
Six months ended June 30, 2010
Net revenues from external customers		348,508		151,054		91,755		150,593			741,910
Segment income (loss) from operations		35,694		12,423		2,424		(6,687	)		43,854

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

Reconciliation of Segment Information to Condensed Consolidated Statements of Operations

		Three Months Ended						Six Months Ended

		June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010
		*(in thousands)*
Total segment income from operations		$	112,019		$	29,870		$	214,235		$	43,854
Unallocated amounts:
	Acquisition-related (charges) credits		(1,019	)		(1,167	)		(2,050	)		734
	Restructuring charges		-			(1,614	)		(21,210	)		(2,583	)
	Asset impairment charges		-			(11,922	)		-			(11,922	)
	(Loss) gain on sale of assets		-			(94,052	)		1,882			(94,052	)

Consolidated income (loss) from operations		$	111,000		$	(78,885	)	$	192,857		$	(63,969	)

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Geographic sources of revenues were as follows:

		Three Months Ended				Six Months Ended

		June 30, 2011		June 30, 2010		June 30, 2011		June 30, 2010
		*(in thousands)*
United States		$	65,328	$	63,363	$	134,855	$	125,384
Germany			59,169		50,060		119,399		98,815
France			8,424		17,071		17,419		33,517
Japan			14,697		10,371		29,553		19,537
China, including Hong Kong			143,530		124,013		270,672		225,259
Singapore			12,129		11,260		23,289		20,758
South Korea			51,690		27,965		102,905		42,597
Taiwan			52,235		22,384		93,894		43,744
Rest of Asia-Pacific			13,560		16,919		34,356		31,024
Rest of Europe			50,521		43,146		101,061		88,608
Rest of the World			7,359		6,809		12,666		12,667

	Total net revenues	$	478,642	$	393,361	$	940,069	$	741,910

Net revenues are attributed to countries based on the locations to where the Company ships.

No single customer accounted for more than 10% of net revenues in any of the three or six months ended June 30, 2011 and 2010. Two distributors accounted for approximately 11% and 17% of accounts receivable at June 30, 2011. Two distributors accounted for approximately 14% and 12% of accounts receivable at December 31, 2010.

Locations of long-lived assets as of June 30, 2011 and December 31, 2010 were as follows:

		2011		2010

		*(in thousands)*
United States		$	95,711	$	106,052
Germany			19,821		18,963
France			30,363		30,674
Philippines			75,332		65,049
Asia-Pacific			66,593		47,524
Rest of Europe			9,073		13,513

	Total	$	296,893	$	281,775

Excluded from the table above are auction-rate securities of $2,251 as of both June 30, 2011 and December 31, 2010, which are included in other assets on the condensed consolidated balance sheets. Also excluded from the table above as of June 31, 2011 and December 31, 2010 are goodwill of $57,199 and $54,676, respectively, intangible assets, net of $14,057 and $17,603, respectively, and deferred income tax assets of $144,206 and $140,562, respectively.

Note 10 LOSS (GAIN) ON SALE OF ASSETS AND ASSET IMPAIRMENT CHARGES

Dream

Gain on Sale of Assets

On February 15, 2011, the Company sold its legacy "DREAM" business, including its French subsidiary, Digital Research in Electronics, Acoustics and Music SAS (DREAM), which sold custom-designed ASIC chips for karaoke and other entertainment machines, for 1,700 Euros. The Company

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recorded a gain of $1,882, which is reflected in gain on sale of assets in the condensed consolidated statements of operations.

Rousset, France

Loss on Sale of Assets

On June 23, 2010, the Company closed the sale of its manufacturing operations in Rousset, France to LFoundry GmbH ("LFoundry"). Under the terms of the agreement, the Company transferred manufacturing assets and related liabilities (valued at $61,646) to the buyer in return for nominal cash consideration. In connection with the sale, the Company entered into certain other ancillary agreements, including a Manufacturing Services Agreement ("MSA") under which the Company will purchase wafers from LFoundry for four years following the closing on a "take-or-pay" basis. Upon closing of this transaction, the Company recorded a loss on sale of $94,052, which is summarized in the following table:

		Three Months Ended

*(in thousands)*		June 30, 2010
Net assets transferred		$	61,646
Fair value of Manufacturing Services Agreement			92,417
Currency translation adjustment			(97,367	)
Severance cost liability			27,840
Transition services			4,746
Selling costs			3,173
Other related costs			1,597

	Loss on Sale of Assets	$	94,052

As future wafer purchases under the MSA were negotiated at pricing above their fair value, the Company recorded a liability in conjunction with the sale, representing the present value of the unfavorable purchase commitment. The Company obtained current market prices for wafers from unaffiliated, well-known third party foundries, taking into consideration minimum volume requirements as specified in the contract, process technology, industry pricing trends and other factors. The Company determined that the difference between the contract prices and the market prices over the term of the agreement totaled $103,660 as of June 30, 2010. The present value of this liability totaled $92,417 (discount rate of 7%) and is included in loss on sale of assets in the consolidated statements of operations. The discount rate was determined based on publicly-traded debt for companies comparable to the Company. The present value of the liability will be recognized as a credit to cost of revenues over the term of the MSA as the wafers are purchased and the present value discount of $11,243 will be recognized as interest expense over the same term. In the three and six months ended June 30, 2011 the Company reduced the liability by approximately $7,854 and $15,708, respectively, offset in part by interest expense of approximately $1,250 and $2,500, respectively.

The sale of the Rousset, France manufacturing operations resulted in the substantial liquidation of the Company's investment in its European manufacturing facilities, and accordingly, the Company recorded a gain of $97,367 related to currency translation adjustments that was previously recorded within stockholders' equity, as the Company concluded, based on guidance related to foreign currency, that it should similarly release all remaining related currency translation adjustments.

As part of the sale, the Company agreed to reimburse LFoundry for specified severance costs expected to be incurred subsequent to the sale. The Company entered into an escrow agreement in which the Company agreed to remit funds to LFoundry for the required benefits and payments to those employees who are determined to be part of the approved departure plan. The Company recorded a liability of $27,840 as a component of the loss on sale. This amount was paid to the escrow account in the first quarter of 2011.

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As part of the sale of the manufacturing operations, the Company incurred $4,746 in software/hardware and consulting costs to set up a separate, independent IT infrastructure for LFoundry. These costs were incurred to facilitate, and as a condition of, the sale to LFoundry; the IT infrastructure provided no benefit to the Company and the costs related to those efforts would not have been incurred if the Company were not selling the manufacturing operations. Therefore, the direct and incremental consulting costs associated with these services were recorded as part of the loss on sale. The Company also incurred $1,597 of other costs related to the sale, including performance-based bonuses of $497 for non-executive Company employees responsible for assisting in the completion of the sale to LFoundry.

The Company also incurred direct and incremental consulting costs of $3,173, which represented broker commissions and legal fees associated with the sale to LFoundry.

The Company has retained a minority equity interest in the manufacturing operations ("the entity") sold to LFoundry. This equity interest provides limited protective rights to the Company, but no decision-making rights that are significant to the economic performance of the entity. The Company is an equity holder that is shielded from economic losses and does not participate fully in the entity's residual economics; accordingly, the Company has concluded that its interest in the entity is a variable interest entity ("VIE"). A VIE must be consolidated into the Company's financial statements if the Company is its primary beneficiary; a primary beneficiary means an entity having the power to direct the activities that most significantly impact the VIE's economic performance or having the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. In determining whether the Company is the primary beneficiary, it identified the significant activities of the VIE and the parties that have the power to direct them, determined the equity, profit and loss participation, and reviewed the funding and operating agreements. Based on the above factors, the Company determined that it is not the primary beneficiary and hence will not consolidate the VIE. As part of the sale, the Company entered into a wafer supply agreement, an arrangement to reimburse specified employee severance costs that LFoundry may incur, and has leased land and a building to LFoundry. The Company's maximum exposure related to these arrangements is not expected to be significantly in excess of the amounts recorded and it does not intend to provide any other support to the VIE, financial or otherwise.

Asset Impairment Charges

The asset disposal group the Company initially expected to transfer to LFoundry was determined as of December 31, 2009 when the Company reclassified $83,260 in long-term assets as held for sale. Following negotiation with LFoundry, the Company determined that certain assets should instead remain with the Company. As a result, the Company reclassified property and equipment to held and used in the quarter ended June 30, 2010. In connection with this reclassification, the Company assessed the fair value of these assets to be retained and concluded that the fair value of the assets was lower than its carrying value less depreciation expense that would have been recognized had the assets been continuously classified as held and used. As a result, the Company recorded an asset impairment charge of $11,922 in the three months ended June 30, 2010.

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Note 11 RESTRUCTURING CHARGES

The following table summarizes the activity related to the accrual for restructuring charges detailed by event for the three and six months ended June 30, 2011 and 2010.

		January 1, 2011 Accrual		Charges		Payments			Currency Translation Adjustment		March 31, 2011 Accrual		Charges		Payments			Currency Translation Adjustment		June 30, 2011 Accrual

		*(in thousands)*
Third quarter of 2002
	Termination of contract with supplier	$	1,592	$	-	$	-		$	-	$	1,592	$	-	$	-		$	-	$	1,592	(2)
Second quarter of 2008
	Employee termination costs		3		-		-			-		3		-		-			-		3
Third quarter of 2008
	Employee termination costs		460		-		-			16		476		-		-			11		487
First quarter of 2009
	Other restructuring charges		136		-		(45	)		-		91		-		(46	)		-		45
Second quarter of 2010
	Employee termination costs		1,286		21,210		(1,972	)		735		21,259		-		(3,428	)		430		18,261

Total 2011 activity		$	3,477	$	21,210	$	(2,017	)	$	751	$	23,421	$	-	$	(3,474	)	$	441	$	20,388	(1)

(1): Accrued restructuring charges are classified within accrued and other liabilities on the condensed consolidated balance sheets and are expected to be paid prior to June 30, 2012.
(2): Relates to a contractual obligation, which is currently subject to litigation.

		January 1, 2010 Accrual		Charges		Payments			Currency Translation Adjustment			March 31, 2010 Accrual		Charges		Payments			Currency Translation Adjustment			June 30, 2010 Accrual

		*(in thousands)*
Third quarter of 2002
	Termination of contract with supplier	$	1,592	$	-	$	-		$	-		$	1,592	$	-	$	-		$	-		$	1,592
Second quarter of 2008
	Employee termination costs		4		-		-			(1	)		3		-		-			-			3
Third quarter of 2008
	Employee termination costs		557		-		-			(37	)		520		-		-			(30	)		490
First quarter of 2009
	Employee termination costs		-		969		(398	)		-			571		11		(184	)		(39	)		359
	Other restructuring charges		318		-		(46	)		-			272		-		(45	)		-			227
Second quarter of 2010			-		-		-			-			-		-					-			-
	Employee termination costs		-		-		-			-			-		1,603		-			(76	)		1,527

Total 2010 activity		$	2,471	$	969	$	(444	)	$	(38	)	$	2,958	$	1,614	$	(229	)	$	(145	)	$	4,198

2011 Restructuring Charges

In the six months ended June 30, 2011, the Company implemented cost reduction actions, primarily targeting reduction of labor costs. The Company incurred no restructuring charges in the three months ended June 30, 2011 and incurred restructuring charges of $21,210 in the six months ended June 30, 2011 related to severance costs resulting from involuntary termination of 89 employees at the Company's Rousset, France subsidiary. Employee severance costs were recorded in accordance with the accounting standard related to costs associated with exit or disposal activities.

2010 Restructuring Charges

In the three and six months ended June 30, 2010, the Company incurred restructuring charges of $1,614 and $2,583, respectively, related to severance costs resulting from involuntary termination of employees. Employee severance costs were recorded in accordance with the accounting standard related to costs associated with exit or disposal activities.

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Note 12 NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is calculated by using the weighted-average number of common shares outstanding during that period. Diluted net income (loss) per share is calculated giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental common shares issuable upon exercise of stock options, upon vesting of restricted stock units, contingent issuable shares for all periods and accrued issuance of shares under employee stock purchase plan. No dilutive potential common shares were included in the computation of any diluted per share amount when a loss from continuing operations was reported by the Company.

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

	Three Months Ended					Six Months Ended

	June 30, 2011		June 30, 2010			June 30, 2011		June 30, 2010
	*(in thousands, except per share data)*
Net income (loss)	$	90,870	$	(36,443	)	$	165,423	$	(19,828	)

Weighted-average shares - basic		456,753		460,249			456,622		458,508
Incremental shares and share equivalents		13,129		-			13,519		-

Weighted-average shares - diluted		469,882		460,249			470,141		458,508

Net income (loss) per share:
Basic
Net income (loss) per share - basic	$	0.20	$	(0.08	)	$	0.36	$	(0.04	)

Diluted
Net income (loss) per share - diluted	$	0.19	$	(0.08	)	$	0.35	$	(0.04	)

The Company's anti-dilutive shares for the three and six months ended June 30, 2011 and 2010 were not material.

Note 13 INTEREST AND OTHER (EXPENSE) INCOME, NET

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

	Three Months Ended						Six Months Ended

	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010
	*(in thousands)*
Interest and other (expense) income	$	(279	)	$	2,078		$	111		$	2,585
Interest expense		(1,913	)		(1,109	)		(3,614	)		(2,357	)
Foreign exchange transaction gains		883			1,815			4,685			6,898

Total	$	(1,309	)	$	2,784		$	1,182		$	7,126

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

You should read the following discussion and analysis in conjunction with the Condensed Consolidated Financial Statements and related Notes thereto contained elsewhere in this Quarterly Report. 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 Quarterly Report and in our other reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2010. Atmel's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and

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amendments to such reports are available, free of charge, through the "Investors" section of www.atmel.com. We make them available as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC also maintains a website located at www.sec.gov that contains Atmel's SEC filings.

You should read the following discussion in conjunction with our Condensed Consolidated Financial Statements and the related "Notes to Condensed Consolidated Financial Statements", and "Financial Statements and Supplementary Data" included in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, particularly statements regarding our outlook for fiscal 2011, the expansion of the market for microcontrollers, revenues for our maXTouch products, our gross margins, anticipated revenues by geographic area, operating expenses and capital expenditures, cash flow and liquidity measures, factory utilization, new product introductions, access to independent foundry capacity and the quality issues associated with the use of third party foundries, the effects of our strategic transactions and restructuring efforts, estimates related to the amount and/or timing of the expensing of unearned stock-based compensation expense and similar estimates related to our performance-based restricted stock units, our expectations regarding tax matters, the outcome of litigation (and the expenses involved) in which we are involved, the effects of exchange rates and our ongoing efforts to manage exposure to exchange rate fluctuation. Our actual results could differ materially from those projected in any forward-looking statements as a result of a number of factors, risks and uncertainties, including the risk factors set forth in this discussion and in Part II. Item 1A — Risk Factors, and elsewhere in this Quarterly Report on Form 10-Q. Generally, the words "may," "will," "could," "should," "would," "anticipate," "expect," "intend," "believe," "seek," "estimate," "plan," "view," "continue," the plural of such terms, the negatives of such terms, or other comparable terminology and similar expressions identify forward-looking statements. The information included in this Quarterly Report on Form 10-Q is provided as of the filing date with the Securities and Exchange Commission and future events or circumstances could differ significantly from the forward-looking statements included herein. Accordingly, we caution readers not to place undue reliance on such statements. Atmel undertakes no obligation to update any forward-looking statements in this Quarterly Report on Form 10-Q.

OVERVIEW

We are one of the world's leading designers, developers and suppliers of microcontrollers. We offer an extensive portfolio of capacitive touch products that integrate our microcontrollers with fundamental touch-focused intellectual property, or IP, we have developed. We also design and sell products that are complementary to our microcontroller business, including nonvolatile memory and Flash memory products, radio frequency and mixed-signal components and application specific integrated circuits. Our microcontrollers, which are self-contained computers-on-a-chip, and related products are used today in many of the world's leading smartphones, tablet devices and other consumer and industrial electronics to provide core functionality for touch sensing, security, wireless and battery management. Our semiconductors also enable applications in many other fields, such as smart-metering for utility monitoring and billing, buttons, sliders and wheels found on the touch panels of appliances, various aerospace, industrial and military products and systems, and electronic-based automotive components, like keyless ignition, access, engine control, lighting and entertainment systems, for standard and hybrid vehicles. Over the past several years, we successfully transitioned our business to a "fab-lite" model, lowering our fixed costs and capital investment requirements, and we currently own and operate just a single manufacturing facility.

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microcontrollers. Our Microcontroller segment revenues increased 53% to $302 million for the three months ended June 30, 2011 compared to revenues of $198 million for the three months ended June 30, 2010. Our Microcontroller segment revenues increased 71% to $596 million for the six months ended June 30, 2011 compared to revenues of $349 million for the six months ended June 30, 2010.

Gross margin rose to 51.8% and 51.4% for the three and six months ended June 30, 2011, respectively, compared to 40.6% and 39.5% for the three and six months ended June 30, 2010, respectively. Gross margin in the three and six months ended June 30, 2011 was positively impacted by higher overall shipment levels, a more favorable mix of higher margin microcontroller products and lower manufacturing costs on a per unit basis resulting from higher production volumes along with continued cost reduction activities.

Provision for income taxes totaled $19 million and $29 million for the three and six months ended June 30, 2011, respectively, compared to benefit from income taxes totaling $40 million and $37 million for the three and six months ended June 30, 2010, respectively. The tax provision recorded for the three and six months ended June 30, 2011 is primarily related to increased profitability from higher revenues and improved gross margin, which resulted in additional taxable income. While the provision for income taxes increased over the prior comparable period, we benefited from earnings generated in lower tax jurisdictions than would have occurred prior to a global tax restructuring, which we implemented as of January 1, 2011.

Cash provided by operating activities was $117 million and $120 million for the six months ended June 30, 2011 and 2010, respectively. Our cash, cash equivalents and short-term investments decreased to $453 million at June 30, 2011, compared to $521 million at December 31, 2010. Payments for capital expenditures totaled $55 million for the six months ended June 30, 2011, compared to $28 million for the six months ended June 30, 2010. On May 2, 2011 our Board of Directors authorized an additional $300 million of funding for our existing stock repurchase program. We repurchased approximately 8 million shares of our common stock in the six months ended June 30, 2011, using approximately $113 million under our existing stock repurchase program.

In the three months ended June 30, 2011, we recorded an out of period adjustment to reverse test and assembly subcontractor accruals for $7 million, related to cost of revenues for the three month periods ended March 31, 2011, December 31, 2010, September 30, 2010 and June 30, 2010. In addition, in the three months ended June 30, 2011, we corrected excess depreciation for certain fixed assets for $2 million, related to research and development for the three month periods ended March 31, 2011 and December 31, 2010. The correction of these errors resulted in an increase to our net income of $9 million for the three months ended June 30, 2011. We assessed the impact of these errors and concluded the amounts are not material, either individually or in the aggregate, to any of the prior periods' annual or interim financial statements, nor is the impact of the errors in the three months ended June 30, 2011 expected to be material to the full year 2011 financial statements. On that basis, we have recorded the correction to all prior periods in the three months ended June 30, 2011.

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RESULTS OF CONTINUING OPERATIONS

	Three Months Ended									Six Months Ended

	June 30, 2011				June 30, 2010					June 30, 2011					June 30, 2010
	*(in thousands, except percentage of net revenues)*
Net revenues	$	478,642	100.0	%	$	393,361		100.0	%	$	940,069		100.0	%	$	741,910		100.0	%
Gross profit		247,800	51.8	%		159,646		40.6	%		483,185		51.4	%		293,420		39.5	%
Research and development		65,441	13.7	%		62,589		15.9	%		127,824		13.6	%		120,898		16.3	%
Selling, general and administrative		70,340	14.7	%		67,187		17.1	%		141,126		15.0	%		128,668		17.3	%
Acquisition-related charges (credits)		1,019	0.2	%		1,167		0.3	%		2,050		0.2	%		(734	)	-0.1	%
Restructuring charges		-	0.0	%		1,614		0.4	%		21,210		2.3	%		2,583		0.3	%
Asset impairment charges		-	0.0	%		11,922		3.0	%		-		0.0	%		11,922		1.6	%
Loss (gain) on sale of assets		-	0.0	%		94,052		23.9	%		(1,882	)	-0.2	%		94,052		12.7	%

Income (loss) from operations	$	111,000	23.2	%	$	(78,885	)	-20.1	%	$	192,857		20.5	%	$	(63,969	)	-8.6	%

Net Revenues

Our net revenues totaled $479 million for the three months ended June 30, 2011, an increase of 22%, or $86 million, from $393 million in net revenues for the three months ended June 30, 2010. Net revenues increased to $940 million in the six months ended June 30, 2011 from $742 million in the six months ended June 30, 2010, an increase of $198 million or 27%. Revenues for the second quarter of 2011 increased primarily due to strong demand for our 32-bit ARM-based microcontrollers, and our maXTouch microcontrollers. Our Microcontroller segment revenues increased 53% to $302 million for the three months ended June 30, 2011 compared to revenues of $198 million for the three months ended June 30, 2010. Our Microcontroller segment revenues increased 71% to $596 million for the six months ended June 30, 2011 compared to revenues of $349 million for the six months ended June 30, 2010.

Net revenues denominated in Euros were 22% and 19% for the three months ended June 30, 2011 and 2010, respectively, and 22% and 20% in the six months ended June 30, 2011 and 2010, respectively. Average exchange rates utilized to translate foreign currency revenues and expenses in Euro were approximately 1.43 and 1.31 Euro to the dollar in the three months ended June 30, 2011 and 2010, respectively, and 1.38 and 1.36 Euro to the dollar in the six months ended June 30, 2011 and 2010. Our net revenues for the three months ended June 30, 2011 would have been approximately $9 million lower had the average exchange rate in the current quarter remained the same as the average exchange rate in effect in the three months ended June 30, 2010. Our net revenues for the six months ended June 30, 2011 would have been approximately $4 million lower had the average exchange rate in the current six-month period remained the same as the rate in effect in the six months ended June 30, 2010.

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Net Revenues — By Operating Segment

Our net revenues by operating segment are summarized as follows:

		Three Months Ended

		June 30, 2011		June 30, 2010		Change			% Change
		(in thousands, except for percentages)
Microcontroller		$	302,192	$	197,601	$	104,591			53	%
Nonvolatile Memory			71,263		73,554		(2,291	)		-3	%
RF and Automotive			52,571		45,282		7,289			16	%
ASIC			52,616		76,924		(24,308	)		-32	%

	Total net revenues	$	478,642	$	393,361	$	85,281			22	%

		Six Months Ended

		June 30, 2011		June 30, 2010		Change			% Change
		(in thousands, except for percentages)
Microcontroller		$	596,018	$	348,508	$	247,510			71	%
Nonvolatile Memory			134,635		151,054		(16,419	)		-11	%
RF and Automotive			103,424		91,755		11,669			13	%
ASIC			105,992		150,593		(44,601	)		-30	%

	Total net revenues	$	940,069	$	741,910	$	198,159			27	%

Microcontroller

Microcontroller segment net revenues increased 53% to $302 million for the three months ended June 30, 2011 from $198 million for the three months ended June 30, 2010. Microcontroller segment net revenues increased 71% to $596 million for the six months ended June 30, 2011 from $349 million for the six months ended June 30, 2010. Revenues for the three and six months ended June 30, 2011 increased primarily due to strong demand for our 32-bit ARM-based microcontrollers, and our maXTouch microcontrollers. Industrial applications remained our largest end market for microcontrollers, followed by smartphones and other consumer-based products. Microcontroller net revenues represented 63% of total net revenues for both the three and six months ended June 30, 2011.

Nonvolatile Memory

Nonvolatile Memory segment net revenues decreased 3% to $71 million for the three months ended June 30, 2011 from $74 million for the three months ended June 30, 2010. Nonvolatile Memory segment net revenues decreased 11% to $135 million for the six months ended June 30, 2011 from $151 million for the six months ended June 30, 2010. This decrease is primarily related to lower shipments of Serial EE memory products, which declined 22% and 29%, compared to the three and six months ended June 30, 2010, respectively. While demand for memory products remained strong during the three and six months ended June 30, 2011, shipments of memory products (primarily Serial EE family products) were unfavorably affected by limited production capacity resulting from wafer allocation to our microcontroller customers to satisfy the significant increase in demand in that segment.

RF and Automotive

RF and Automotive segment net revenues increased 16% to $53 million for the three months ended June 30, 2011 from $45 million for the three months ended June 30, 2010. RF and Automotive segment net revenues increased 13% to $103 million for the six months ended June 30, 2011 from $92 million for the six

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months ended June 30, 2010. This increase was primarily related to improved demand in automotive markets for the three and six months ended June 30, 2011. Our identification and high voltage products increased 125% and 24%, respectively for the three months ended June 30, 2011 over the same period last year and increased 87% and 20%, respectively for the six months ended June 30, 2011 over the same period last year, driven by higher shipments for vehicle networking products (LIN/IVN applications). In addition, revenues increased 24% and 32% for foundry products sourced from our Colorado Springs fabrication facility for the three and six months ended June 30, 2011, respectively, offset by a reduction of 9% and 12% in sales of our mixed signal products for the three and six months ended June 30, 2011, respectively.

ASIC

ASIC segment net revenues decreased 32% to $53 million for the three months ended June 30, 2011 from $77 million for the three months ended June 30, 2010. ASIC segment net revenues decreased 30% to $106 million for the six months ended June 30, 2011 from $151 million for the six months ended June 30, 2010. The decrease in revenues for the ASIC segment primarily reflects the impact of the sale of the SMS business which occurred in the second half of 2010. ASIC segment net revenues were also unfavorably affected by limited production capacity, resulting from wafer allocation to support increased demand for our microcontroller customers in the three and six months ended June 30, 2011. Aerospace business revenues which are also included within this segment increased approximately 25% and 23% for the three and six months ended June 30, 2011, respectively, compared to the same period in 2010, primarily due to space products.

Net Revenues by Geographic Area

Our net revenues by geographic areas in the three and six months ended June 30, 2011 compared to the three and six months ended June 30, 2010 are summarized as follows (revenues are attributed based on the locations to where we ship products; see Note 9 of Notes to Condensed Consolidated Financial Statements for further discussion):

		Three Months Ended

		June 30, 2011		June 30, 2010		Change		% Change
		(in thousands, except for percentages)
Asia		$	287,841	$	212,912	$	74,929		35	%
Europe			118,114		110,277		7,837		7	%
United States			65,328		63,363		1,965		3	%
Other*			7,359		6,809		550		8	%

	Total net revenues	$	478,642	$	393,361	$	85,281		22	%

		Six Months Ended

		June 30, 2011		June 30, 2010		Change			% Change
		(in thousands, except for percentages)
Asia		$	554,669	$	382,919	$	171,750			45	%
Europe			237,879		220,940		16,939			8	%
United States			134,855		125,384		9,471			8	%
Other*			12,666		12,667		(1	)		0	%

	Total net revenues	$	940,069	$	741,910	$	198,159			27	%

*: Primarily includes South Africa, and Central and South America

Net revenues outside the United States accounted for 86% of our net revenues for both the three and six months ended June 30, 2011, compared to 84% and 83% in the three and six months ended June 30,

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2010, respectively. Net revenues through distribution channels totaled 62% and 60% for the three and six months ended June 30, 2011, respectively, compared to 58% for both the three and six months ended June 30, 2010, respectively.

Our net revenues in Asia increased $75 million, or 35%, for the three months ended June 30, 2011, compared to the three months ended June 30, 2010, and increased by $172 million, or 45% in the six months ended June 30, 2011 compared to the six months ended June 30, 2010. The increase in this region for the three and six months ended June 30, 2011, compared to the three and six months ended June 30, 2010 was primarily due to higher shipments of our microcontroller products as a result of improved demand in customer end markets for smartphone and other consumer-based products. Net revenues for the Asia region were 60% and 59% of total net revenues in the three and six months ended June 30, 2011, respectively, compared to 54% and 52% of total net revenues in the three and six months ended June 30, 2010, respectively.

Our net revenues in Europe increased $8 million, or 7%, for the three months ended June 30, 2011, compared to the three months ended June 30, 2010, and increased by $17 million, or 8% for the six months ended June 30, 2011 compared to the six months ended June 30, 2010. The increase in this region for the three and six months ended June 30, 2011, compared to the three and six months ended June 30, 2010, resulted primarily from improved automotive and industrial markets, partially offset by the sale of our SMS business and declining demand for our Cell Based Integrated Circuit, or CBIC, products. Net revenues for the Europe region were 25% of total net revenues for both the three and six months ended June 30, 2011, respectively, compared to 28% and 30% of total net revenues for the three and six months ended June 30, 2010, respectively.

Our net revenues in the United States region increased by $2 million, or 3%, for the three months ended June 30, 2011, compared to the three months ended June 30, 2010, and increased by $9 million, or 8% for the six months ended June 30, 2011 compared to the six months ended June 30, 2010. The increase in this region for the three and six months ended June 30, 2011, compared to the three and six months ended June 30, 2010 resulted primarily from higher demand for smart metering and consumer-based products. Net revenues for the United States region were 14% of total net revenues for both the three and six months ended June 30, 2011, respectively, compared to 16% and 17% of total net revenues in the three and six months ended June 30, 2010, respectively.

We expect that net revenues in the Asia region will continue to grow more rapidly than other regions in the future driven by the growth of the electronics industry within Asia and the continued outsourcing of production to that region by large North American and European original equipment manufacturers (OEMs).

Cost of Revenues and Gross Margin

Gross margin rose to 51.8% and 51.4% for the three and six months ended June 30, 2011, respectively, compared to 40.6% and 39.5% for the three and six months ended June 30, 2010, respectively. Gross margin in the three and six months ended June 30, 2011 were positively impacted by higher overall shipment levels, a more favorable mix of higher margin microcontroller products and lower manufacturing costs on a per unit basis resulting from higher production volumes along with continued cost reduction activities.

In the six months ended June 30, 2011, we manufactured approximately 51% of our products in our own wafer fabrication facilities compared to 86% for the six months ended June 30, 2010, with the decline resulting primarily from the sale of our Rousset, France fabrication facility in 2010.

Our cost of revenues includes the costs of wafer fabrication, assembly and test operations, changes in inventory reserves, royalty expense, freight costs and stock compensation expense. Our gross margin as a

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percentage of net revenues fluctuates depending on product mix, manufacturing yields, utilization of manufacturing capacity, and average selling prices, among other factors.

Research and Development

Research and development ("R&D") expenses increased 5%, or $3 million, to $65 million in the three months ended June 30, 2011 from $62 million in the three months ended June 30, 2010. R&D expenses increased 6%, or $7 million, to $128 million in the six months ended June 30, 2011 from $121 million in the six months ended June 30, 2010.

R&D expenses in the three months ended June 30, 2011, compared to the three months ended June 30, 2010, increased primarily due to higher employee payroll related expenses of $6 million related to increased headcount offset by decreased stock-based compensation expense of $2 million. Including items described above, the three months ended June 30, 2011 were unfavorably affected by approximately $3 million due to foreign exchange rate fluctuations, compared to rates in effect for the three months ended June 30, 2010.

R&D expenses in the six months ended June 30, 2011, compared to the six months ended June 30, 2010, increased primarily due to increased employee payroll related expenses of $7 million due to increased headcount, and increased stock-based compensation expense of $1 million. Including items described above, the six months ended June 30, 2011 were unfavorably affected by approximately $1 million due to foreign exchange rate fluctuations, compared to rates in effect for the six months ended June 30, 2010.

As a percentage of net revenues, R&D expenses totaled 14% for both the three and six months ended June 30, 2011, respectively, compared to 16% for both the three and six months ended June 30, 2010, respectively.

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

Selling, General and Administrative

Selling, general and administrative ("SG&A") expenses increased 5%, or $3 million, to $70 million in the three months ended June 30, 2011 from $67 million in the three months ended June 30, 2010. SG&A expenses increased 10%, or $12 million, to $141 million in the six months ended June 30, 2011 from $129 million in the six months ended June 30, 2010.

SG&A expenses increased in the three months ended June 30, 2011, primarily due to higher employee payroll related expenses of $9 million as a result of increased headcount, higher legal fees of $2 million, partly offset by decreased stock-based compensation expense of $6 million and outside services of $2 million. Including the items described above, SG&A expenses for the three months ended June 30, 2011, were unfavorably affected by approximately $1 million due to foreign exchange rate fluctuations, compared to rates in effect for the three months ended June 30, 2010.

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SG&A expenses increased in the six months ended June 30, 2011, primarily due to increased employee payroll related expenses of $9 million due to increased headcount and increased travel and training expenses of $4 million. Including the items described above, SG&A expenses for the six months ended June 30, 2011, were unfavorably affected by approximately $1 million due to foreign exchange rate fluctuations, compared to rates in effect and the related expenses for the six months ended June 30, 2010.

As a percentage of net revenues, SG&A expenses totaled 15% of net revenues for both the three and six months ended June 30, 2011, respectively, compared to 17% for both the three and six months ended June 30, 2010, respectively.

Stock-Based Compensation

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

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

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

The following table summarizes the distribution of stock-based compensation expense related to employee stock options, restricted stock units and employee stock purchases for the three and six months ended June 30, 2011 and 2010:

	Three Months Ended					Six Months Ended

	June 30, 2011			June 30, 2010		June 30, 2011			June 30, 2010
	*(in thousands)*
Cost of revenues	$	2,347		$	2,187	$	4,640		$	3,864
Research and development		4,786			6,301		10,768			9,585
Selling, general and administrative		7,124			13,162		17,738			18,173

Total stock-based compensation expense, before income taxes		14,257			21,650		33,146			31,622
Tax benefit		(2,433	)		-		(5,077	)		-

Total stock-based compensation expense, net of income taxes	$	11,824		$	21,650	$	28,069		$	31,622

The table above excludes a stock-based compensation credit of $3 million for the six months ended June 30, 2010, which is classified within acquisition-related charges (credits) in the condensed consolidated statements of operations.

Non-employee stock-based compensation expense for the three and six months ended June 30, 2011 and 2010 was not significant.

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In the three months ended June 30, 2011, 8 million performance-based restricted stock units issued under the 2008 Plan vested upon board of director approval on May 23, 2011 as a result of the Company achieving all of the performance criteria as on March 31, 2011. 5 million shares were issued to participants, net of withholding taxes, which represented all remaining shares available under the plan. These vested performance-based restricted stock units had a weighted average value of $14 per share on the vesting date. We recorded total stock-based compensation expense related to performance-based restricted stock units of $14 million and $15 million in the three and six months ended June 30, 2010, respectively, and $7 million in the six months ended June 30, 2011.

In May 2011, we adopted the 2011 Long-Term Performance-Based Incentive Plan (the "2011 Plan"), which provides for the grant of restricted stock units to eligible employees; vesting of these restricted stock units is subject to the satisfaction of specified performance metrics over the designated performance periods. The performance periods for the 2011 Plan run from January 1, 2011 through December 31, 2013, consisting of three one year performance periods (calendar years 2011, 2012 and 2013) and a three year cumulative performance period. We issued 3 million performance-based restricted stock units and recorded stock-based compensation expense related to these performance-based restricted stock units of $1 million in the three months ended June 30, 2011.

Segment Income (Loss)

		Three Months Ended					Six Months Ended

		June 30, 2011		June 30, 2010			June 30, 2011		June 30, 2010
Microcontroller		$	75,450	$	24,335		$	149,257	$	35,694
Nonvolatile Memory			16,171		8,134			29,788		12,423
RF and Automotive			5,397		3,068			10,807		2,424
ASIC			15,001		(5,667	)		24,383		(6,687	)

	Total operating income	$	112,019	$	29,870		$	214,235	$	43,854

Microcontroller

For the three months ended June 30, 2011, Microcontroller segment operating income was $75 million, compared to $24 million for three months ended June 30, 2010. For the six months ended June 30, 2011, Microcontroller segment operating income was $149 million, compared to $36 million for six months ended June 30, 2010. These period over period increases resulted principally from significantly higher shipment levels, lower manufacturing costs on a per unit basis from higher manufacturing volumes along with a more favorable mix of higher margin products included in net revenues within this segment.

Nonvolatile Memory

For the three months ended June 30, 2011, Nonvolatile Memory segment operating income was $16 million, compared to $8 million for three months ended June 30, 2010. For the six months ended June 30, 2011, Nonvolatile Memory segment operating income was $30 million, compared to $12 million for six months ended June 30, 2010. Despite reduced revenues, operating results in this segment improved significantly compared to same period last year as a result of lower production costs related to improved factory loading.

RF and Automotive

For the three months ended June 30, 2011, RF and Automotive segment operating income was $5 million, compared to $3 million for the three months ended June 30, 2010. For the six months ended June 30, 2011, RF and Automotive segment operating income was $11 million, compared to $2 million for

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the six months ended June 30, 2010. These period over period increases resulted primarily from increased shipments and lower manufacturing costs on a per unit basis from higher manufacturing volumes.

ASIC

For the three months ended June 30, 2011, ASIC segment operating income (loss) was $15 million, compared to $(6) million for the three months ended June 30, 2010. For the six months ended June 30, 2011, ASIC segment operating income (loss) was $24 million, compared to $(7) million for the six months ended June 30, 2010. Despite reduced revenues, operating results in this segment improved significantly compared to the same period last year as a result of improved pricing conditions and lower production costs associated with improved factory loading.

Acquisition-Related Charges

We recorded total acquisition-related charges (credits) of $1 million for both the three months ended June 30, 2011 and 2010, and $2 million and $(1) million in the six months ended June 30, 2011 and 2010, respectively, related to the acquisition of Quantum Research Group Ltd. in 2008.

We recorded amortization of intangible assets of $1 million for both the three months ended June 30, 2011 and 2010, and $2 million for both the six months ended June 30, 2011 and 2010 associated with customer relationships, developed technology, trade name, non-compete agreements and backlog. We estimate charges related to amortization of intangible assets will be approximately $2 million for the remainder of 2011.

Gain on Sale of Assets

Dream

On February 15, 2011, we sold our legacy "DREAM" business, including our French subsidiary, Digital Research in Electronics, Acoustics and Music SAS (DREAM), which sold custom-designed ASIC chips for karaoke and other entertainment machines, for 2 million Euros. We recorded a gain of $2 million, which is reflected in gain on sale of assets in the condensed consolidated statements of operations.

Loss on Sale of Assets

Rousset, France

On June 23, 2010, we closed the sale of our manufacturing operations in Rousset, France to LFoundry GmbH ("LFoundry"). Under the terms of the agreement, we transferred manufacturing assets and related liabilities (valued at $62 million) to LFoundry in return for nominal cash consideration. In connection with the sale, we entered into certain other ancillary agreements, including a Manufacturing Services Agreement ("MSA") under which we will purchase wafers from LFoundry for four years following

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the closing on a "take-or-pay" basis. Upon closing of this transaction, we recorded a loss on sale of $94 million, which is summarized in the following table:

		Three Months Ended

*(in thousands)*		June 30, 2010
Net assets transferred		$	61,646
Fair value of Manufacturing Services Agreement			92,417
Currency translation adjustment			(97,367	)
Severance cost liability			27,840
Transition services			4,746
Selling costs			3,173
Other related costs			1,597

	Loss on Sale of Assets	$	94,052

As future wafer purchases under the MSA were negotiated at pricing above their fair value, we recorded a liability in conjunction with the sale, representing the present value of the unfavorable purchase commitment. We obtained current market prices for wafers from unaffiliated, well-known third party foundries, taking into consideration minimum volume requirements as specified in the contract, process technology, industry pricing trends and other factors. We determined that the difference between the contract prices and the market prices over the term of the agreement totaled $104 million as of June 30, 2010. The present value of this liability totaled $92 million (discount rate of 7%) and is included in loss on sale of assets in the consolidated statements of operations. The discount rate was determined based on publicly-traded debt for companies comparable to us. The gross value of the MSA will be recognized as a credit to cost of revenues over the term of the MSA as the wafers are purchased and the present value discount of $11 million will be recognized as interest expense over the same term. In the three and six months ended June 30, 2011 we reduced the liability by approximately $8 million and $16 million, respectively, offset in part by interest expense of approximately $1 million and $3 million, respectively.

The sale of the Rousset, France manufacturing operations resulted in the substantial liquidation of our investment in our European manufacturing facilities, and accordingly, we recorded a gain of $97 million related to currency translation adjustments that was previously recorded within stockholders' equity, as we concluded, based on guidance related to foreign currency, that we should similarly release all remaining related currency translation adjustments.

As part of the sale, we agreed to reimburse LFoundry for specified severance costs expected to be incurred subsequent to the sale. We entered into an escrow agreement in which we agreed to remit funds to LFoundry for the required benefits and payments to those employees who are determined to be part of the approved departure plan. We recorded a liability of $28 million as a component of the loss on sale, which represented our best estimate of the severance amount payable under this arrangement. This amount was paid to the escrow account in the first quarter of 2011.

As part of the sale of the manufacturing operations, we incurred $5 million in software/hardware and consulting costs to set up a separate, independent IT infrastructure for LFoundry. These costs were incurred to facilitate, and as a condition of, the sale to LFoundry; the IT infrastructure provided no benefit to us and the costs related to those efforts would not have been incurred if we were not selling the manufacturing operations. Therefore, the direct and incremental consulting costs associated with these services were recorded as part of the loss on sale. We also incurred $2 million of other costs related to the sale, including performance-based bonuses of $0.5 million for non-executive Company employees responsible for assisting in the completion of the sale to LFoundry.

We also incurred direct and incremental consulting costs of $3 million, which represented broker commissions and legal fees associated with the sale to LFoundry.

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Asset Impairment Charges

The asset disposal group we initially expected to transfer to LFoundry was determined as of December 31, 2009 when we reclassified $83 million in long-term assets as held for sale. Following negotiation with LFoundry, we determined that certain assets should instead remain with us. As a result, we reclassified property and equipment to held and used in the quarter ended June 30, 2010. In connection with this reclassification, we assessed the fair value of these assets to be retained and concluded that the fair value of the assets was lower than its carrying value less depreciation expense that would have been recognized had the assets been continuously classified as held and used. As a result, we recorded an asset impairment charge of $12 million in the three months ended June 30, 2010.

Restructuring Charges

The following table summarizes the activity related to the accrual for restructuring charges detailed by event for the three months ended June 30, 2011 and 2010.

		January 1, 2011 Accrual		Charges		Payments			Currency Translation Adjustment		March 31, 2011 Accrual		Charges		Payments			Currency Translation Adjustment		June 30, 2011 Accrual

		*(in thousands)*
Third quarter of 2002
	Termination of contract with supplier	$	1,592	$	-	$	-		$	-	$	1,592	$	-	$	-		$	-	$	1,592
Second quarter of 2008
	Employee termination costs		3		-		-			-		3		-		-			-		3
Third quarter of 2008
	Employee termination costs		460		-		-			16		476		-		-			11		487
First quarter of 2009
	Other restructuring charges		136		-		(45	)		-		91		-		(46	)		-		45
Second quarter of 2010
	Employee termination costs		1,286		21,210		(1,972	)		735		21,259		-		(3,428	)		430		18,261

Total 2011 activity		$	3,477	$	21,210	$	(2,017	)	$	751	$	23,421	$	-	$	(3,474	)	$	441	$	20,388

		January 1, 2010 Accrual		Charges		Payments			Currency Translation Adjustment			March 31, 2010 Accrual		Charges		Payments			Currency Translation Adjustment			June 30, 2010 Accrual

		*(in thousands)*
Third quarter of 2002
	Termination of contract with supplier	$	1,592	$	-	$	-		$	-		$	1,592	$	-	$	-		$	-		$	1,592
Second quarter of 2008
	Employee termination costs		4		-		-			(1	)		3		-		-			-			3
Third quarter of 2008
	Employee termination costs		557		-		-			(37	)		520		-		-			(30	)		490
First quarter of 2009
	Employee termination costs		-		969		(398	)		-			571		11		(184	)		(39	)		359
	Other restructuring charges		318		-		(46	)		-			272		-		(45	)		-			227
Second quarter of 2010			-		-		-			-			-		-					-			-
	Employee termination costs		-		-		-			-			-		1,603		-			(76	)		1,527

Total 2010 activity		$	2,471	$	969	$	(444	)	$	(38	)	$	2,958	$	1,614	$	(229	)	$	(145	)	$	4,198

2011 Restructuring Charges

In the three months ended June 30, 2011, we implemented cost reduction actions, primarily targeting reduction of labor costs. There were no restructuring charges incurred for the three months ended June 30, 2011 and, for the six months ended June 30, 2011, we incurred restructuring charges of $21 million related to severance costs resulting from involuntary termination of 89 employees at our Rousset, France subsidiary. Employee severance costs were recorded in accordance with the accounting standard related to costs associated with exit or disposal activities.

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2010 Restructuring Charges

In the three and six months ended June 30, 2010, we incurred restructuring charges of $2 million and $3 million, respectively, related to severance costs resulting from involuntary termination of employees. Employee severance costs were recorded in accordance with the accounting standard related to costs associated with exit or disposal activities.

Interest and Other (Expense) Income, Net

	Three Months Ended						Six Months Ended

	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010
	*(in thousands)*
Interest and other (expense) income	$	(279	)	$	2,078		$	111		$	2,585
Interest expense		(1,913	)		(1,109	)		(3,614	)		(2,357	)
Foreign exchange transaction gains		883			1,815			4,685			6,898

Total	$	(1,309	)	$	2,784		$	1,182		$	7,126

Interest and other (expense) income, net, resulted in an expense of $(1) million in the three months ended June 30, 2011, compared to an income of $3 million in the three months ended June 30, 2010, and an income of $1 million in the six months ended June 30, 2011, compared to an income of $7 million in the six months ended June 30, 2010. These changes are primarily due to our foreign exchange exposures from intercompany balances between our subsidiaries compared to the three and six months ended June 30, 2010, offset by higher interest expense for the three and six months ended June 30, 2011. We continue to have exposure to exchange rate fluctuations of foreign currency balances of assets and liabilities, and may incur further gains or losses in the future.

Provision for Income Taxes

We recorded a provision for income taxes of $(19) million and $(29) million for the three and six months ended June 30, 2011, respectively, compared to income tax benefit of $40 million and $37 million for the three and six months ended June 30, 2010, respectively.

Our effective tax rate for the three and six months ended June 30, 2011 was 17.16% and 14.75%, respectively, compared to the effective tax rate for the three and six months ended June 30, 2010 of (52.11)% and (65.12)%, respectively. Our effective tax rate for the three and six months ended June 30, 2011 is lower than the statutory federal income tax rate of 35% primarily due to tax rate benefits of certain earnings from operations in jurisdictions with lower tax rates than the US. These benefits result primarily from our global tax restructuring, implemented during the quarter ended March 31, 2011.

Our effective tax rate for the three months and six months ended June 30, 2010 was substantially lower than the statutory federal income tax rate of 35% primarily due to the recognition of certain refundable R&D credits and a net discrete income tax benefit associated with the sale of our wafer manufacturing operations in Rousset, France, as management determined that this benefit will more likely than not be realized.

Our global tax restructuring, implemented on January 1, 2011, was designed to more effectively align our corporate structure and transaction flows with changes in our geographic business operations.

To reflect the shift of our business and revenue to the Asia/Pacific region, our tax restructuring included the implementation of a cost sharing arrangement designed to enhance cost-efficiencies resulting from operations transitioning to countries such as Malaysia and the Philippines. In connection with those efforts, we also implemented several functional changes to our internal organization, including the creation of new legal entities, realignment of existing legal entities, intercompany sales of intellectual property and

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non-US inventory and fixed assets across different tax jurisdictions, elimination of previous Switzerland-based intellectual property licensing and royalty arrangements, and creation of new cost-sharing and intellectual property royalty agreements between our U.S. and Bermuda entities.

At June 30, 2011 and December 31, 2010, we had $67 million and $64 million of unrecognized tax benefits, respectively.

It is reasonably possible that the total amount of unrecognized tax benefits will increase or decrease in the next 12 months. Such changes could occur based on the conclusion of ongoing tax audits in various jurisdictions around the world. During the three months ended June 30, 2011, we released reserves of $3 million related to the effective audit settlement of refundable R&D credits for the tax years 2008-2009. We expect to release additional reserves due to the expiration of statutes of limitation and potential adjustments of unrecognized tax benefits from audits in the range of $1 million to $7 million during the remainder of the year ending December 31, 2011. The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations. We regularly assess our tax positions in light of legislative, bilateral tax treaty, regulatory and judicial developments in the countries in which we do business.

Liquidity and Capital Resources

At June 30, 2011, we had $453 million of cash, cash equivalents and short-term investments, compared to $521 million at December 31, 2010. Our current ratio, calculated as total current assets divided by total current liabilities, was 2.70 at June 30, 2011, compared to 2.59 at December 31, 2010. Working capital, calculated as total current assets less total current liabilities, increased to $739 million at June 30, 2011, compared to $708 million at December 31, 2010. Cash provided by operating activities was $117 million and $120 million for the six months ended June 30, 2011 and 2010, respectively, and capital expenditures totaled $55 million and $28 million for the six months ended June 30, 2011 and 2010, respectively.

Operating Activities

Net cash provided by operating activities was $117 million for the six months ended June 30, 2011, compared to $120 million for the six months ended June 30, 2010. Net cash provided by operating activities for the six months ended June 30, 2011 was primarily due to improved operating results, adjusting net income of $165 million to exclude certain non-cash charges for depreciation and amortization of $37 million, and stock-based compensation charges of $33 million partly offset by excess tax benefit on stock-based compensation of $20 million. Operating cash flows were reduced by increased inventory of $92 million during the six months ended June 30, 2011.

Accounts receivable increased by 5% or $11 million to $243 million at June 30, 2011, from $232 million at December 31, 2010. The average days of accounts receivable outstanding ("DSO") was 46 days at both June 30, 2011 and December 31, 2010. Inventories increased by using $92 million of operating cash flows for the six months ended June 30, 2011 compared to a decrease in inventories resulting in $17 million of operating cash flows for the six months ended June 30, 2010. Our days of inventory increased to 145 days at June 30, 2011 from 109 days at December 31, 2010. We increased inventory levels during the period primarily to support higher increased demand within our Microcontroller business and to enable us to deliver products more expeditiously. Inventories consist of raw wafers, purchased foundry wafers, work-in-process and finished units. We expect inventory levels to continue to rise modestly throughout 2011 in anticipation of higher shipment levels in future periods, as the need to maintain competitive lead times and the desire to support ongoing customer product introductions.

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Investing Activities

Net cash used in investing activities was $45 million for the six months ended June 30, 2011, compared to $17 million for the six months ended June 30, 2010. For the six months ended June 30, 2011, we paid $55 million for acquisitions of fixed assets, $2 million for intangible assets and $1 million from the purchase of business assets in Europe, which was partially offset by $2 million in net proceeds from our sale of our DREAM business and proceeds of $10 million of net proceeds from the sale of short-term investments. In the six months ended June 30, 2010, we paid $28 million for acquisitions of fixed assets and $2 million for intangible assets, offset in part by net proceeds of $13 million from the sale of short-term investments.

We expect total cash payments for capital purchases of between $30 million and $35 million in the third quarter of 2011, which will be used primarily to maintain existing manufacturing operations and provide additional testing capacity.

Financing Activities

Net cash used in financing activities was $131 million and $7 million for the six months ended June 30, 2011 and 2010, respectively. Proceeds from the issuance of common stock totaled $19 million and $6 million for the six months ended June 30, 2011 and 2010, respectively. We utilized $113 million in cash to repurchase 8 million shares of our common stock in the first six months of 2011, following the authorizations by our Board of Directors in August 2010 and May 2011 to repurchase up to a total of $500 million of our common stock in the open market depending upon market conditions and other factors. As of June 30, 2011, approximately $298 million of the authorized $500 million remained available to repurchase our common stock.

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

During the next twelve months, we expect our operations to continue generating positive cash flow. However, a portion of cash balances may be used to make capital expenditures, repurchase common stock, or make acquisitions. Remaining debt obligations totaled $5 million at June 30, 2011. We made $55 million in cash payments for capital equipment in the six months ended June 30, 2011, and we expect total cash payments for capital expenditures of $30 million to $35 million in the third quarter of 2011. We paid $3 million in restructuring payments, primarily for employee severance, in the six months ended June 30, 2011. We expect to pay out approximately $20 million in additional restructuring and disposition related payments over the next twelve months. During 2011 and in future years, our ability to make necessary capital investments or strategic acquisitions will depend on our ability to continue to generate sufficient cash flow from operations and on our ability to obtain adequate financing if necessary. We believe we have sufficient working capital to fund operations with $453 million in cash, cash equivalents and short-term investments as of June 30, 2011 together with expected future cash flows from operations. Cash flows from operations totaled $117 million for the six months ended June 30, 2011.

Off-Balance Sheet Arrangements (Including Guarantees)

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

Recent Accounting Pronouncements

See Note 1 of Notes to Condensed Consolidated Financial Statements for information regarding recent accounting pronouncements.

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Critical Accounting Policies and Estimates

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

We believe that the estimates, assumptions and judgments involved in revenue recognition, allowances for doubtful accounts and sales returns, accounting for income taxes, valuation of inventories, fixed assets, stock-based compensation, restructuring charges and litigation have the greatest potential impact on our Condensed Consolidated Financial Statements, so we consider these to be our critical accounting policies. Historically, our estimates, assumptions and judgments relative to our critical accounting policies have not differed materially from actual results, although there can be no assurance that results may, in the future, differ. The critical accounting estimates associated with these policies are described in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operation" of our Annual Report on Form 10-K filed with the SEC on March 1, 2011.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We maintain investment portfolio holdings of various issuers, types and maturities whose values are dependent upon short-term interest rates. We generally classify these securities as available for sale, and consequently record them on the condensed consolidated balance sheet at fair vale with unrealized gains and losses being recorded as a separate part of stockholders' equity. We do not currently hedge these interest rate exposures. Given our current profile of interest rate exposures and the maturities of our investment holdings, we believe that an unfavorable change in interest rates would not have a significant negative impact on our investment portfolio or statements of operations through June 30, 2011.

Foreign Currency Risk

When we take an order denominated in a foreign currency we will receive fewer dollars than we initially anticipated if that local currency weakens against the dollar before we ship our product, which will reduce revenue. Conversely, revenues will be positively impacted if the local currency strengthens against the dollar. In Europe, where our significant operations have costs denominated in European currencies, costs will decrease if the local currency weakens. Conversely, costs will increase if the local currency strengthens against the dollar.

Net revenues denominated in Euro were 22% and 19% in the three months ended June 30, 2011 and 2010, respectively, and 22% and 20% in the six months ended June 30, 2011 and 2010, respectively. Costs denominated in Euro were 13% and 31% of our total costs in the three months ended June 30, 2011 and 2010, respectively, and 14% and 31% in the six months ended June 30, 2011 and 2010, respectively.

Net revenues included 74 million Euro and 56 million Euro in the three months ended June 30, 2011 and 2010, respectively, and 153 million Euro and 109 million Euro in the six months ended June 30, 2011 and 2010, respectively. Operating expenses included 34 million Euro and 80 million Euro in the three months ended June 30, 2011 and 2010, respectively, and 72 million Euro and 161 million Euro in the six months ended June 30, 2011 and 2010, respectively.

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Average exchange rates utilized to translate foreign currency revenues and expenses in Euro were approximately 1.43 and 1.31 Euro to the dollar in the three months ended June 30, 2011 and 2010, respectively, and 1.38 and 1.36 Euro to the dollar in the six months ended June 30, 2011 and 2010.

In the three months ended June 30, 2011, changes in foreign exchange rates had a favorable impact to our operating results. Our net revenues for the three months ended June 30, 2011 would have been approximately $9 million lower had the average exchange rate in the current quarter remained the same as the average exchange rate in effect in the three months ended June 30, 2010. In addition, in the three months ended June 30, 2011 our operating expenses would have been approximately $5 million lower (consisting of a decrease in cost of revenues of $1 million, a decrease in research and development expenses of $3 million, and a decrease in sales, general and administrative expenses of $1 million). Therefore, income from operations in the three months ended June 30, 2011 would have been approximately $4 million lower had the average exchange rates of 1.43 in the three months ended June 30, 2011 remained unchanged from the average exchange rates of 1.31 in the three months ended June 30, 2010.

In the six months ended June 30, 2011, changes in foreign exchange rates had a favorable impact to our operating results. Our net revenues for the six months ended June 30, 2011 would have been approximately $3 million lower had the average exchange rate in the current six-month period remained the same as the rate in effect in the six months ended June 30, 2010. However, in the six months ended June 30, 2011 our operating expenses would have been approximately $2 million lower (relating to a decrease in research and development expenses of $1 million and a decrease in sales, general and administrative expenses of $1 million). Therefore, income from operations in the six months ended June 30, 2011 would have been approximately $1 million lower had exchange rates in the six months ended June 30, 2011 remained unchanged from the six months ended June 30, 2010.

We may take actions in the future to reduce our exposure to exchange rate fluctuations, including hedging, derivative or other financial transactions designed to mitigate exchange rate risk.

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. Approximately 32% and 33% of our accounts receivables were denominated in foreign currencies as of June 30, 2011 and December 31, 2010.

We also face the risk that our accounts payable and debt obligations denominated in foreign currencies will increase if such foreign currencies strengthen quickly and significantly against the dollar. Approximately 10% of our accounts payable were denominated in foreign currencies as of both June 30, 2011 and December 31, 2010. Approximately 100% and 98% of our debt obligations were denominated in foreign currencies as of June 30, 2011 and December 31, 2010, respectively.

Liquidity and Valuation Risk

Approximately $2 million of our investment portfolio at June 30, 2011 and December 31, 2010 were invested in auction-rate securities.

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Effectiveness of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, under the supervision of our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as such terms are defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities and Exchange Act of 1934. Based on this evaluation our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that information we are

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required to disclose in reports that we file or submit under the Securities and Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Limitations on the Effectiveness of Controls

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

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

We are party to various legal proceedings. Our management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position, results of operations and statement of cash flows. If an unfavorable ruling were to occur in any of the legal proceedings described in Note 6 of Notes to Condensed Consolidated Financial Statements, there exists the possibility of a material adverse effect on our financial position, results of operations and cash flows. For more information regarding certain of these proceedings, see Note 6 of Notes to Condensed Consolidated Financial Statements, which is incorporated by reference into this Item. We have accrued for losses related to litigation described in Note 6 of Notes to Condensed Consolidated Financial Statements that we consider probable and for which the loss can be reasonably estimated. In the event that a loss cannot be reasonably estimated, we have not accrued for such losses. As we continue to monitor these matters our determination could change, however, and we may decide, at some future date, to establish an appropriate reserve. With respect to each of the matters described in Note 6 of Notes to Condensed Consolidated Financial Statements, except where noted otherwise, management has determined a potential loss is not probable at this time and, accordingly, no amount has been accrued at June 30, 2011. Our management makes a determination as to when a potential loss is probable based on relevant accounting literature and then includes appropriate disclosure of the contingency. Except as otherwise noted in Note 6 of Notes to Condensed Consolidated Financial Statements, our management does not believe that the amount of loss or a range of possible losses is reasonably estimable.

ITEM 1A.RISK FACTORS

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

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"forward-looking" statements described elsewhere in this Form 10-Q and in the documents incorporated herein by reference. They could also affect our actual results of operations, causing them to differ materially from those expressed in "forward-looking" statements.

OUR REVENUES AND OPERATING RESULTS MAY 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 variety of factors, many of which are not within our control. In addition to the other factors discussed in this "Risk Factors" section, factors that could affect our operating results include:

•: the success of end products marketed by our customers and our ability to effectively reduce the prices for the products we sell into those end products;
•: the cyclical nature of both the semiconductor industry and the markets addressed by our products;
•: our transition to a fab-lite strategy;
•: our dependence on selling through distributors;
•: our increased dependence on independent foundries and their ability to meet our volume, quality and delivery objectives;
•: compliance with U.S. and international antitrust, trade and export laws and regulations by us and our distributors;
•: fluctuations in currency exchange rates and revenues and costs denominated in foreign currencies, which can adversely affect our operating margins;
•: ability of independent assembly contractors to meet our volume, quality and delivery objectives;
•: success with disposal or restructuring activities;
•: implementation of new manufacturing technologies and fluctuations in manufacturing yields;
•: third party intellectual property infringement claims;
•: significant patent litigation in the mobile device sector;
•: the highly competitive nature of our markets and our ability to keep pace with technological change;
•: our dependence on international sales and operations;
•: natural disasters, terrorist acts or similar unforeseen events or circumstances;
•: assessment of internal controls over financial reporting;
•: our ability to maintain good relationships, and our contract terms with our customers and suppliers;
•: our compliance with international, federal and state environmental regulations;
•: personnel changes;
•: accounting for our performance-based restricted stock units;
•: anti-takeover effects in our certificate of incorporation and bylaws;
•: the unfunded nature of our foreign pension plans and that any requirement to fund these plans could negatively impact our cash position;

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•: acquisitions we may undertake and the effects on those acquisitions on our operations and financial performance;
•: utilization of our manufacturing capacity;
•: disruptions in the availability of raw materials which could impact our ability to supply products to our customers;
•: product liability claims that may arise, which could result in significant costs and damage to our reputation;
•: audits of our income tax returns, both in the U.S. and in foreign jurisdictions;
•: global economic and political conditions, especially in light of the recent global economic recession that continues to affect countries throughout the world; and
•: costs associated with, and the outcome of, any litigation to which we are, or may become, a party;

Any unfavorable changes in any of these factors could harm our operating results and may result in volatility or a decline in our stock price. In addition, from time to time, our annual revenues and operating results can become increasingly dependent upon orders booked and shipped within a given quarter and, accordingly, our annual results can become less predictable and subject to greater variability.

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

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

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

THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY CREATES FLUCTUATIONS IN OUR OPERATING RESULTS.

The semiconductor industry has historically been cyclical, characterized by annual seasonality and wide fluctuations in product supply and demand. The semiconductor industry has also experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles and declines in general economic conditions. Global semiconductor sales decreased 3% to $249 billion in 2008 and 9% to $226 billion in 2009. Global semiconductor sales increased 32% from 2009 to $298 billion in 2010.

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Our operating results have been adversely affected in the past by industry-wide fluctuations in the demand for semiconductors, which resulted in under-utilization of our manufacturing capacity and declining gross margins. In the past, we have recorded significant charges to recognize impairment in the value of our manufacturing equipment, the cost to reduce our workforce, and other restructuring costs. Our business may be harmed in the future by cyclical conditions in the semiconductor industry as a whole and also by any slower growth in any of the specific markets served by our products.

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

WE COULD EXPERIENCE DISRUPTION OF OUR BUSINESS WITH OUR FAB-LITE STRATEGY AND INCREASED DEPENDENCE ON INDEPENDENT FOUNDRIES, BECAUSE THOSE FOUNDRIES MAY NOT HAVE ADEQUATE CAPACITY TO FULFILL OUR NEEDS AND MAY NOT MEET OUR QUALITY AND DELIVERY OBJECTIVES OR MAY ABANDON FABRICATION PROCESSES THAT WE REQUIRE.

As part of our fab-lite strategy, we have reduced the number of manufacturing facilities we own. We currently operate only one manufacturing facility in Colorado Springs, Colorado and we increasingly rely on independent third-party foundry manufacturing partners to manufacture certain products. As part of this strategy, we have expanded and will continue to expand our foundry relationships by entering into new agreements with third-party foundries. If these agreements are not completed on a timely basis, or the transfer of production is delayed for other reasons, the supply of certain products could be disrupted, which could harm our business. In addition, difficulties in production yields can often occur when transitioning to a new third-party foundry. If our foundries fail to deliver quality products and components on a timely basis, our business could be harmed. For the six months ended June 30, 2011, we manufactured approximately 51% of our products in our own wafer fabrication facilities compared to 86% for the six months ended June 30, 2010. We expect over time that an increasing portion of our wafer fabrication, especially as we seek to expand capacity, will be undertaken by third party foundries.

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

•: reduced control over delivery schedules and product costs;
•: manufacturing costs that are higher than anticipated;
•: inability of our manufacturing subcontractors to develop manufacturing methods appropriate for our products and their unwillingness to devote adequate capacity to produce our products;
•: possible abandonment of key fabrication processes by our foundry subcontractors for products that are strategically important to us;
•: decline in product quality and reliability;
•: inability to maintain continuing relationships with our foundries;
•: restricted ability to meet customer demand when faced with product shortages; and
•: increased opportunities for potential misappropriation of our intellectual property.

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

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

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

If demand for our product increases significantly, we may not be able to guarantee that our third party foundries will be able to increase their manufacturing capacity to a level that meets our requirements, thereby preventing us from meeting our customer demand and potentially harming our business and customer relationships. Also, even if our independent foundries are able to meet our increased demand, those foundries may decide to charge significantly higher wafer prices to us. That could reduce our gross margins or require us to offset the increased prices by increasing corresponding prices to our customers, either of which could harm our business and operating results.

THE 2011 EARTHQUAKE IN JAPAN HAD A SIGNIFICANT EFFECT ON THE JAPANESE ECONOMY AND SEMICONDUCTOR INDUSTRY. ALTHOUGH WE HAVE NOT SUFFERED ANY NEAR-TERM DISRUPTION OF OUR SUPPLY CHAIN, OR OTHER MATERIAL ADVERSE EFFECT ON OUR BUSINESS FROM THE EARTHQUAKE, THERE REMAINS SIGNIFICANT UNCERTAINTY ABOUT THE LONGER-TERM EFFECTS OF THIS NATURAL DISASTER, WHICH COULD, DIRECTLY OR INDIRECTLY, AFFECT OUR BUSINESS IN SOME WAYS.

A 9.0 magnitude earthquake struck northern Japan in March 2011. The earthquake, and related tsunami, caused severe and extensive human and economic damage within Japan. Many companies within the semiconductor industry were adversely affected by this natural disaster, including several companies with manufacturing facilities in the devastated region. There continue to be significant threats of nuclear fallout from damaged nuclear reactors and ongoing issues with the availability of power supplies to industries throughout Japan (which, for example, have caused severe disruptions to automobile production). There are many other significant matters affecting human health and industry that the Japanese government is attempting to address. While we do not have any manufacturing facilities in Japan, and have not, as of the date of this Quarterly Report on Form 10-Q, suffered any near-term adverse effect on our supply-chain from this disaster, there remain uncertainties about the longer-term effects that this disaster may have on the global economy, the electronics industry and other sectors. If these longer-term effects are not adequately addressed, or if additional unfavorable events occur in Japan, they could, directly or indirectly, adversely affect our business.

OUR REVENUES ARE DEPENDENT TO A LARGE EXTENT ON SELLING THROUGH THIRD PARTY DISTRIBUTORS.

Sales through distributors accounted for 62% and 55% of our net revenues for the three months ended June 30, 2011 and 2010, respectively, and 60% and 55% in the six months ended June 30, 2011 and 2010, respectively. We are dependent on our distributors to supplement our direct marketing and sales efforts. Our agreements with third-party distributors can generally be terminated for convenience by either party upon relatively short notice. These agreements are non-exclusive and also permit our distributors to offer our competitors' products.

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If any significant distributor or a substantial number of our distributors terminated their relationship with us, decided to market our competitors' products in preference to our products, were unable to sell our products or were unable to pay us for products sold for any reason, our ability to bring our products to market could be adversely affected, we could have difficulty in collecting outstanding receivable balances, or we could incur other charges or adjustments, any of which could have a material adverse effect on our revenues and operating results. For example, in the three months ended December 31, 2008, we recorded a onetime bad-debt charge of $12 million related to outstanding invoices after one of our Asian distributors appeared on the U.S. Department of Commerce Entity List.

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

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

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

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

For sales to certain distributors (primarily based in the U.S. and Europe) with agreements allowing for price protection and product returns, we do not have the ability to estimate future claims at the point of shipment, and given that price is not fixed or determinable at that time, revenue is not recognized until the distributor sells the product to its end customer. During 2010, we negotiated new sales terms with our independent distributors in Asia, excluding Japan. Under the terms of those arrangements, we invoice those distributors at full list price upon shipment and issue a rebate, or "credit," once product has been sold to the end customer and the distributor has met certain reporting requirements. We had historically recognized revenue for our Asia distributors at the point of shipment as the price was fixed or determinable and all other revenue recognition criteria were met at the point of shipment. After implementing our new sales agreements, and reviewing the pricing, rebate and quotation-related terms, we concluded that we could reliably estimate future claims. Therefore, we continue to recognize revenue at the point of shipment for our Asian distributors, utilizing amounts invoiced, less estimated future claims, as we have the ability to estimate future claims at that time. If, however, our judgments or estimates are incorrect or inaccurate regarding future claims, our revenue reporting could be adversely affected. In addition, the fact that we recognize revenue differently in the United States and Europe than Asia (excluding Japan) makes the preparation of our financial statements more complicated, and, therefore, more susceptible, possibly, to inaccuracies over time.

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IN SOME CASES, WE PROVIDE PRICE PROTECTION TO OUR DISTRIBUTORS ON THE INVENTORY THEY CARRY. SIGNIFICANT DECLINES IN THE VALUE OF THAT INVENTORY, OR OTHER PRICE DECLINES IN OUR PRODUCTS, MAY REQUIRE US TO UNDERTAKE INVENTORY WRITE-DOWNS OR OTHER EXPENSES TO REIMBURSE OUR DISTRIBUTORS FOR THOSE CHANGES IN VALUE.

Distributors typically maintain an inventory of our products. For certain distributors, we have signed agreements that protect the value of their inventory of our products against price reductions, as well as provide for rights of return under specific conditions. Certain agreements with our distributors also contain standard stock rotation provisions permitting limited levels of product returns. We defer the gross margins on our sales to these distributors until the applicable products are re-sold by the distributors and reported to us. However, in the event of an unexpected significant decline in the price of our products or significant return of unsold inventory, we may experience inventory write-downs, charges to reimburse costs incurred by distributors, or other charges or adjustments, any of which could result in a material adverse impact to our revenues and operating results.

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

We schedule production and build semiconductor devices based primarily on non-binding forecasts from customers and our own internal forecasts. Typically, customer orders, consistent with general industry practices, may be cancelled or rescheduled with short notice to us. In addition, our customers frequently place orders requesting product delivery in a much shorter period than our lead time to fully fabricate and test devices. Because the markets we serve are volatile and subject to rapid technological, price and end user demand changes, our forecasts of unit quantities to build may be significantly incorrect. Changes to forecasted demand from actual demand may result in us producing unit quantities in excess of orders from customers, which could result in the need to record additional expense for the write-down of inventory and negatively affect our gross margins and results of operations.

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

Conversely, failure to produce or obtain sufficient wafers for increased demand could cause us to miss revenue opportunities and could affect our customers' ability to sell products, which could adversely affect our customer relationships and thereby materially adversely affect our business, financial condition and results of operations. For example, for the year ended December 31, 2010 and the three and six months ended June 30, 2011, shipments of our ASIC and memory products were unfavorably affected by limited production capacity, as we allocated wafers to microcontroller customers in an effort to meet significantly increased demand for those products during 2010 and 2011. In order to support our ASIC and memory customers in 2011, we have increased orders for wafers from independent foundries.

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

For hardware, software or technology exported from, or otherwise subject to the jurisdiction of, the United States, we are subject to U.S. laws and regulations governing international trade and exports,

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

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

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

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similar laws, intentional or unintentional, could have a material adverse effect on our business, financial condition or results of operations.

WE ARE EXPOSED TO FLUCTUATIONS IN CURRENCY EXCHANGE RATES THAT COULD NEGATIVELY AFFECT OUR FINANCIAL RESULTS AND CASH FLOWS, AND REVENUES AND COSTS DENOMINATED IN FOREIGN CURRENCIES COULD ADVERSELY AFFECT OUR OPERATING RESULTS AS A RESULT OF FOREIGN CURRENCY MOVES AGAINST THE DOLLAR.

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

When we take an order denominated in a foreign currency, we will receive fewer dollars than we initially anticipated if that local currency weakens against the dollar before we ship our product. This reduces our revenue. Conversely, revenues will be positively impacted if the local currency strengthens against the dollar. For example, in Europe, where we have costs denominated in European currencies, costs will decrease if the local currency weakens. Conversely, all costs will increase if the local currency strengthens against the dollar. The net effect of average exchange rates in the three and six months ended June 30, 2011, compared to the average exchange rates in the three and six months ended June 30, 2010, would have resulted in a decrease in income from operations of $4 million and $1 million, respectively. This impact is determined assuming that all foreign-currency-denominated transactions that occurred for the three and six months ended June 30, 2011 were recorded using the average foreign currency exchange rates in the same period in 2010.

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. Similarly, we face the risk that our accounts payable and debt obligations denominated in foreign currencies will increase if such foreign currencies strengthen quickly and significantly against the dollar. We have not historically sought to hedge our foreign currency exposure, although we may determine to do so in the future.

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.

After wafer testing, we ship the wafers to one of our independent assembly contractors primarily located in China, Indonesia, Japan, Malaysia, the Philippines, South Korea, Taiwan or Thailand where the wafers are separated into die, packaged and, in some cases, further tested. In some cases, we also use contractors located in France, Germany, Netherlands, Singapore and the United States. Our reliance on independent contractors to assemble, package and test our products may expose us to significant risks, including the following:

•: reduced control over quality and delivery schedules;
•: the potential lack of adequate capacity;
•: discontinuance or phase-out of our contractors' assembly processes;
•: inability of our contractors to develop and maintain assembly and test methods and equipment that are appropriate for our products;
•: lack of long-term contracts and the potential inability to secure strategically important service contracts on favorable terms, if at all; and
•: increased opportunities for potential misappropriation of our intellectual property.

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In addition, our independent contractors may not continue to assemble, package and test our products for a variety of reasons. Moreover, because our independent contractors are located in foreign countries, we are subject to certain risks generally associated with contracting with foreign suppliers, including currency exchange fluctuations, political and economic instability, trade restrictions, including export controls, and changes in tariff and freight rates. Accordingly, we may experience problems with the time, adequacy or quality of product deliveries, any of which could have a material adverse effect on our results of operations.

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

We are continually reviewing potential changes in our business and asset portfolio throughout our worldwide operations in order to enhance our overall competitiveness and viability. Disposal and restructuring activities that we have taken, and may take in the future, can divert significant time and resources, can involve substantial costs and lead to production and product development delays and may fail to enhance our overall competitiveness and viability as intended, any of which can negatively impact our business. Since 2008, we have sold three manufacturing facilities and completed one other significant asset sale.

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

We continue to evaluate the existing restructuring accruals related to restructuring plans previously implemented. As a result, there may be additional restructuring charges or reversals or recoveries of previous charges. However, we may incur additional restructuring and asset impairment charges in connection with additional restructuring plans adopted in the future. Any such restructuring or asset impairment charges recorded in the future could significantly harm our business and operating results.

OUR PERIODIC DISPOSAL ACTIVITIES HAVE IN THE PAST AND MAY, IN THE FUTURE, TRIGGER IMPAIRMENT CHARGES AND/OR RESULT IN A LOSS ON SALE OF ASSETS.

Our disposal activities have in the past and may, in the future, trigger restructuring, impairment and other accounting charges and/or result in a loss on sale of assets. Any of these charges or losses could cause the price of our common stock to decline.

For example, in the fourth quarter of 2009, we announced that we entered into an exclusivity agreement with LFoundry GmbH for the purchase of our manufacturing operations in Rousset, France. As a result of this agreement, the asset disposal group we initially expected to transfer to LFoundry was determined as of December 31, 2009 when we reclassified $83 million in long-term assets as held for sale. Following negotiation with LFoundry, we determined that certain assets should instead remain with us. As a result, we reclassified property and equipment to held and used in the quarter ended June 30, 2010. In connection with this reclassification, we assessed the fair value of these assets to be retained and concluded that the fair value of the assets was lower than its carrying value less depreciation expense that would have been recognized had the assets been continuously classified as held and used. As a result, we recorded an asset impairment charge of $12 million in the three months ended June 30, 2010.

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TO OBTAIN CAPACITY, WE MAY SOMETIMES ENTER INTO "TAKE-OR-PAY" AGREEMENTS WITH WAFER MANUFACTURERS. IF THE PRICING FOR THOSE WAFERS EXCEEDS THE PRICES WE COULD HAVE OTHERWISE OBTAINED IN THE OPEN MARKET, WE MAY INCUR A CHARGE TO OUR OPERATING RESULTS.

In connection with the sale of our manufacturing operations in Rousset, France in June 2010, we entered into a manufacturing services agreement pursuant to which we will purchase wafers from LFoundry until 2014 on a "take-or-pay" basis. If the purchase price of the wafers under that type of agreement is higher than the fair value of the wafers at the time of purchase, based on the pricing we could have obtained from third-party foundries, we would be required to take a charge to our financial statements to reflect the above market price we have agreed to pay. In 2010, we recorded a charge of $92 million for the three months ended June 30, 2010 to reflect above market wafer prices that we were required to pay under our LFoundry agreement.

Similarly, in connection with the sale of our manufacturing operations in Heilbronn, Germany in December 2008, we entered into a wafer supply agreement pursuant to which we will purchase wafers from Telefunken Semiconductors GmbH & Co. KG. Under the supply agreement, we purchase wafers at cost in Euro, which represents their fair value at the time of purchase. This commitment is equivalent to approximately 8 million Euro as of June 30, 2011.

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

Whether demand for semiconductors is rising or falling, we are constantly required by competitive pressures in the industry to successfully implement new manufacturing technologies in order to reduce the geometries of our semiconductors and produce more integrated circuits per wafer. We are developing processes that support effective feature sizes as small as 0.13-microns, and we are studying how to implement advanced manufacturing processes with even smaller feature sizes such as 0.065-microns.

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

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 or at the fabrication facilities of our third-party manufacturers could materially and adversely affect our operating results. We may not be able to obtain the additional cash from operations or external financing necessary to fund the implementation of new manufacturing technologies.

WE MAY 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 IP rights or positions, which have on occasion resulted in significant and often protracted and expensive litigation. From time to time we receive communications from third parties asserting patent or other IP rights covering our products or processes. In order to avoid the significant costs associated with our defense in litigation involving such claims, we may license the use of the technologies that are the subject of these claims from such companies and make regular corresponding royalty payments, which may harm our operating results.

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

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

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

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

There is significant ongoing patent litigation throughout the world involving many of our customers, especially in the mobile device sector. The outcome of these disputes is uncertain. While we may not have a direct involvement in these matters, an adverse outcome that affects the ability of our customers to ship or sell their products could ultimately have an adverse effect on our business. That could happen if these customers reduce their business exposure in the mobile device sector, seek to reduce their cost structures to help fund the payment of unanticipated licensing fees or take other actions that slow or hinder their market penetration.

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

We operate in markets that are intensely competitive and characterized by rapid technological change, product obsolescence and price decline. Throughout our product line, we compete with a number of large semiconductor manufacturers, such as Cypress, Freescale, Fujitsu, Hitachi, Infineon, Intel, Microchip, NXP Semiconductors, ON Semiconductor, Renesas, Samsung, Spansion, STMicroelectronics, Synaptics and Texas Instruments. Some of these competitors have substantially greater financial, technical, marketing and management resources than we do. As we introduce new products we are increasingly competing directly with these companies, and we may not be able to compete effectively. We also compete with emerging companies that are attempting to sell products in specialized markets that our products address. We compete principally on the basis of the technical innovation and performance of our products, including their speed, density, power usage, reliability and specialty packaging alternatives, as well as on

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price and product availability. During the last several years, we have experienced significant price competition in several business segments, especially in our nonvolatile memory segment for EPROM, Serial EEPROM and Flash memory products, as well as in our commodity microcontrollers. We expect continuing competitive pressures in our markets from existing competitors, new entrants, new technology and cyclical demand, among other factors, 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;
•: our ability to minimize production costs by outsourcing our manufacturing, assembly and testing functions; and
•: general market and economic conditions.

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

WE MUST KEEP PACE WITH TECHNOLOGICAL CHANGE TO REMAIN COMPETITIVE.

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

The success of new product introductions is dependent upon several factors, including timely completion and introduction of new product designs, achievement of acceptable fabrication yields and market acceptance. Our development of new products and our customers' decisions to design them into their systems can take as long as three years, depending upon the complexity of the device and the application. Accordingly, new product development requires a long-term forecast of market trends and customer needs, and the successful introduction of our products may be adversely affected by competing products or 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 adversely affected.

In addition, new product introductions frequently depend on our development and implementation of new process technologies, and our future growth will depend in part upon the successful development and market acceptance of these process technologies. Our integrated solution products require more technically sophisticated sales and marketing personnel to market these products successfully to customers. We are developing new products with smaller feature sizes, 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 significantly harm our business.

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

Net revenues outside the United States accounted for 86% of our net revenues for both the three and six months ended June 30, 2011, respectively, compared to 84% and 83% in the three and six months ended June 30, 2010, respectively. We expect that revenues derived from international sales will continue to represent a significant portion of net revenues. International sales and operations are subject to a variety of risks, including:

•: greater difficulty in protecting intellectual property;
•: reduced flexibility and increased cost of staffing adjustments;
•: longer collection cycles;
•: legal and regulatory requirements, including antitrust laws, import and export regulations, trade barriers, tariffs and tax laws, and environmental and privacy regulations and changes to those laws and regulations;
•: impact of natural disasters on local infrastructures, including those of our distributors and end-customers; and
•: general economic and political conditions in these foreign markets.

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

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

Our operations are vulnerable to interruption by fire, earthquake, volcanoes, power loss, telecommunications failure and other events beyond our control. We do not have a comprehensive 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.

In recent years, based on insurance market conditions, we have relied to a greater degree on self-insurance. Our headquarters, some of our manufacturing facilities, the manufacturing facilities of third party foundries and some of our major suppliers' and customers' facilities are located near major earthquake faults and in potential terrorist target areas. If a major earthquake, other disaster or a terrorist act affects us and insurance coverage is unavailable for any reason, we may need to spend significant amounts to repair or replace our facilities and equipment, we may suffer a temporary halt in our ability to manufacture and transport products, and we could suffer damages that could materially adversely harm our business, financial condition and results of operations.

A LACK OF EFFECTIVE INTERNAL CONTROL OVER FINANCIAL REPORTING COULD RESULT IN AN INABILITY TO ACCURATELY REPORT OUR FINANCIAL RESULTS, WHICH COULD LEAD TO A LOSS OF INVESTOR CONFIDENCE IN OUR FINANCIAL REPORTS AND HAVE AN ADVERSE EFFECT ON OUR STOCK PRICE.

Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed. We

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have in the past discovered, and may in the future discover, deficiencies in our internal controls. Evaluations of the effectiveness of our internal controls in the future may lead our management to determine that internal control over financial reporting is no longer effective. Such conclusions may result from our failure to implement controls for changes in our business or from deterioration in the degree of compliance with our policies or procedures.

A failure to maintain effective internal control over financial reporting, including a failure to implement effective new controls to address changes to our business, could result in a material misstatement of our condensed consolidated financial statements or could cause us to fail to meet our financial reporting obligations. Any material misstatement of our condensed consolidated financial statements could cause us to fail to meet our financial reporting obligations and could result in a loss of investor confidence in the accuracy and completeness of our financial reports, either of which could have an adverse effect on our stock price. In addition, any material misstatement of our condensed consolidated financial statements could cause us to fail to meet our financial reporting obligations and subject us to significant civil or criminal actions and increased U.S. regulatory focus, all of which would divert management's time and our resources and could harm our business and reputation.

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

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. Our business is organized into four operating segments (see Note 9 of Notes to the Condensed Consolidated Financial Statements for further discussion). The principal customers in each of our markets are described in Item 1 "Business — Principal Markets and Customers" in our Annual Report on Form 10-K for the year ended December 31, 2010.

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

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

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

We are subject to a variety of environmental laws and regulations in each of the jurisdictions in which we operate governing, among other things, air emissions, wastewater discharges, the use, handling and disposal of hazardous substances and wastes, soil and groundwater contamination and employee health and safety. We could incur significant costs as a result of any failure by us to comply with, or any liability we may incur under, environmental, health and safety laws and regulations, including the limitation or suspension of production, monetary fines or civil or criminal sanctions, clean-up costs or other future liabilities in excess of our reserves. We are also subject to laws and regulations governing the recycling of our products, the materials that may be included in our products, and our obligation to dispose of our products at the end of their useful life. For example, the European Directive 2002/95/Ec on restriction of hazardous substances (RoHS Directive) bans the placing on the European Union market of new electrical and electronic equipment containing more than specified levels of lead and other hazardous compounds.

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As more countries enact requirements like the RoHS Directive, and as exemptions are phased out, we could incur substantial additional costs to convert the remainder of our portfolio, conduct required research and development, alter manufacturing processes, or adjust supply chain management. Such changes could also result in significant inventory obsolescence. In addition, compliance with environmental, health and safety requirements could restrict our ability to expand our facilities or require us to acquire costly pollution control equipment, incur other significant expenses or modify our manufacturing processes. We also are subject to cleanup obligations at properties that we currently own or at facilities that we may have owned in the past or at which we conducted operations. In the event of the discovery of new or previously unknown contamination, additional requirements with respect to existing contamination, or the imposition of other cleanup obligations at these or other sites for which we are responsible, we may be required to take remedial or other measures that could have a material adverse effect on our business, financial condition and results of operations.

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.

WE ISSUE PERFORMANCE-BASED RESTRICTED STOCK UNITS TO OUR EMPLOYEES FROM TIME TO TIME. ACCOUNTING FOR THOSE EQUITY AWARDS IS TYPICALLY SUBJECT TO SIGNIFICANT JUDGMENT AND MAY LEAD TO UNPREDICTABLE EXPENSE RECOGNITION IF THOSE JUDGEMENTS CHANGE OVER TIME.

We have issued, and may in the future continue to issue, performance-based restricted stock units to eligible employees, entitling those employees to receive restricted stock if they, and we, meet designated performance criteria established by our compensation committee. For example, in 2008 we issued performance-based restricted stock units that vested on May 23, 2011 upon achievement of the specified performance criteria (our "2008 Plan"). We recorded total stock-based compensation expense related to performance-based restricted stock units of $14 million and $15 million in the three and six months ended June 30, 2010; and $7 million in the six months ended June 30, 2011, related to the 2008 Plan.

Similarly, in May 2011, we adopted the 2011 Long-Term Performance-Based Incentive Plan (the "2011 Plan"), which provides for the grant of restricted stock units to eligible employees, subject to the satisfaction of specified performance metrics. The performance periods for the 2011 Plan run from January 1, 2011 through December 31, 2013. We recorded a total stock-based compensation expense related to performance-based restricted stock units of $1 million in the three months ended June 30, 2011.

We recognize the stock-based compensation expense for performance-based restricted stock units when we believe it is probable that we will achieve the specified performance criteria. If achieved, the award vests. If the performance goals are not met, no compensation expense is recognized and any previously recognized compensation expense is reversed. The expected cost of each award is reflected over the service period and is reduced for estimated forfeitures. We are required to reassess this probability at each reporting date, and any change in our forecasts may result in an increase or decrease to the expense recognized. As a result, our expense recognition for performance based restricted stock units could change over time, requiring adjustments to our financial statements to reflect changes in our judgment regarding the probability of achieving the performance goals.

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SYSTEM INTEGRATION DISRUPTIONS COULD HARM OUR BUSINESS.

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

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

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

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

We sponsor defined benefit pension plans that cover substantially all of our French and German employees. Plan benefits are managed in accordance with local statutory requirements. Benefits are based on years of service and employee compensation levels. Pension benefits payable totaled $29 million at June 30, 2011 and $27 million at December 31, 2010. The plans are non-funded, in compliance with local statutory regulations, and we have no immediate intention of funding these plans. Benefits are paid when amounts become due, commencing when participants retire. We expect to pay approximately $0.4 million in 2011 for benefits earned. Should legislative regulations require complete or partial funding of these plans in the future, it could negatively affect our cash position and operating capital.

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

A key element of our business strategy includes expansion through the acquisition of businesses, assets, products or technologies that allow us to complement our existing product offerings, expand our market coverage, increase our skilled engineering workforce or enhance our technological capabilities. Between January 1, 1999 and June 30, 2011, we acquired four companies and assets of six other businesses. We continually evaluate and explore strategic opportunities as they arise, including business combination transactions, strategic partnerships, and the purchase or sale of assets, including tangible and intangible assets such as intellectual property.

Acquisitions may require significant capital infusions, typically entail many risks and could result in difficulties in assimilating and integrating the operations, personnel, technologies, products and information systems of acquired companies or businesses. We have in the past experienced and may in the future experience, delays in the timing and successful integration of an acquired company's technologies

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

Acquisitions may require large one-time charges and can result in increased debt or contingent liabilities, adverse tax consequences, additional stock-based compensation expense and the recording and later amortization of amounts related to certain purchased intangible assets, any of which items could negatively impact our results of operations. In addition, we may record goodwill in connection with an acquisition and incur goodwill impairment charges in the future. Any of these charges could cause the price of our common stock to decline. Effective January 1, 2009, we adopted an amendment to the accounting standard on business combinations. The accounting standard will have an impact on our condensed consolidated financial statements, depending upon the nature, terms and size of the acquisitions we consummate in the future.

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

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

We are required under U.S. GAAP to test goodwill for possible impairment on an annual basis and at any other time that circumstances arise indicating the carrying value may not be recoverable. At June 30, 2011, we had $57 million of goodwill. We completed our annual test of goodwill impairment in the fourth quarter of 2010 and concluded that we did not have any impairment at that time. However, if we continue to see deterioration in the global economy and the current market conditions in the semiconductor industry worsen, the carrying amount of our goodwill may no longer be recoverable, and we may be required to record a material impairment charge, which would have a negative impact on our results of operations.

WE MAY NOT BE ABLE TO EFFECTIVELY UTILIZE ALL OF OUR MANUFACTURING CAPACITY, WHICH MAY NEGATIVELY IMPACT OUR BUSINESS.

The manufacture and assembly of semiconductor devices requires significant fixed investment in manufacturing facilities, specialized equipment, and a skilled workforce. If we are unable to fully utilize our own fabrication facilities due to decreased demand, significant shift in product mix, obsolescence of the manufacturing equipment installed, lower than anticipated manufacturing yields, or other reasons, our operating results will suffer. Our inability to produce at anticipated output levels could include delays in the recognition of revenue, loss of revenue or future orders or customer-imposed penalties for failure to meet contractual shipment deadlines.

If we are unable to operate our manufacturing facilities at optimal production levels, our operating costs will increase and gross margin and results from operations will be negatively affected.

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

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

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

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

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

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

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

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

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

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

We also have significant unsettled intercompany balances that could result in adverse tax or other consequences affecting our capital structure, intercompany interest rates and legal structure. We initiated a program in 2010 to reduce the complexity of our legal entity structure, reduce our potential tax exposure in many jurisdictions and reduce our intercompany loan balances. Despite these efforts, we may incur additional income tax or other expense related to our global operations, loan settlements or loan restructuring activities, or incur additional costs related to legal entity restructuring or dissolution efforts.

In addition, in light of ongoing discussions within the United States legislative and executive branches regarding debt reduction programs and plans, we expect that proposals may be made to change U.S. tax laws in various respects. The President, in his 2012 budget, recently proposed modifications of the United States tax code that would change the tax treatment associated with the transfer of intangibles offshore. Proposals of a similar nature have been made in the past, but have not been enacted into law. If these proposals were enacted, they could materially affect how U.S. corporations are taxed on foreign earnings, including us. Although we cannot predict whether, or in what form, changes in tax laws may take, especially in light of debt reduction efforts, significant changes to tax foreign earnings, or other significant changes in taxation policy, could have a material adverse effect impact on our tax expense and cash flows.

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

From time to time, we receive economic incentive grants and allowances from European governments, agencies and research organizations targeted at increasing employment at specific locations. The subsidy grant agreements typically contain economic incentive, headcount, capital and research and development expenditure and other covenants that must be met to receive and retain grant benefits and these programs can be subjected to periodic review by the relevant governments. Noncompliance with the conditions of the grants could result in the forfeiture of all or a portion of any future amounts to be received, as well as the repayment of all or a portion of amounts received to date. For example, in the three months ended March 31, 2008, we repaid $40 million of government grants as a result of closing our North Tyneside manufacturing facility. In addition, we may need to record charges to reverse grant benefits recorded in prior periods as a result of changes to our plans for headcount, project spending, or capital investment relative to target levels agreed with government agencies at any of these specific locations. If we are unable to comply with any of the covenants in the grant agreements we may face adverse actions from the government agencies providing the grants and our results of operations and financial position could be materially adversely affected.

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

We are subject to legal proceedings and claims that arise in the ordinary course of business. See Part II, Item 1 of this Form 10-Q. Litigation may result in substantial costs and may divert management's

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attention and resources, which may seriously harm our business, results of operations, financial condition and liquidity.

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

The following table provides information about the repurchase of our common stock in open-market transactions during the three months ended June 30, 2011. See Note 4 to our Condensed Consolidated Financial Statements in Part 1 to this Quarterly Report on Form 10-Q for further discussion.

Period		Average Price Paid per Share ($) (1)			Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (3)

April 1 - April 30	-		-	-		-
May 1 - May 31	-		-	-		-
June 1 - June 30	2,030,620	$	13.64	2,030,620	$	297,972,176

(1): Represents the average price paid per share ($) exclusive of commissions.
(2): Represents shares purchased in open-market transactions under the stock repurchase plan approved by the Board of Directors.
(3): These amounts correspond to a plan announced in August 2010 whereby the Board of Directors authorized the repurchase of up to $200 million of our common stock. In May 2011, Atmel's Board of Directors authorized an additional $300 million to the Company's existing repurchase program. The repurchase program does not have an expiration date. Shares repurchased under the program have been and will be retired. Amount remaining to be purchased is exclusive of commissions.

We did not sell unregistered securities during the three or six months ended June 30, 2011.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5.OTHER INFORMATION

None.

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ITEM 6.EXHIBITS

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


	10.1+		Description of Fiscal 2011 Executive Bonus Plan (which is incorporated herein by reference to Item 5.02 to the Registrant's Current Report on Form 8-K (Commission File No. 0-19032) filed on April 4, 2011)..
	10.2+		2005 Stock Plan, as amended (which is incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (Commission File No. 0-19032) filed on May 20, 2011).
	10.3+		Description of 2011 Long-Term Performance-Based Incentive Plan (which is incorporated herein by reference to Item 5.02 to the Registrant's Current Report on Form 8-K (Commission File No. 0-19032) filed on May 27, 2011).
	31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
	31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
	32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101.INS†		XBRL Instance Document
	101.SCH†		XBRL Taxonomy Extension Schema
	101.CAL†		XBRL Taxonomy Extension Calculation Linkbase
	101.DEF†		XBRL Taxonomy Definition Linkbase
	101.LAB†		XBRL Taxonomy Extension Label Linkbase
	101.PRE†		XBRL Taxonomy Extension Presentation Linkbase

†: The financial information contained in these XBRL documents is unaudited and is furnished, not filed with the Commission.
+: Indicates management compensatory plan, contract or arrangement.

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SIGNATURES

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


		ATMEL CORPORATION (Registrant)
August 9, 2011		/s/ STEVEN LAUB Steven Laub President & Chief Executive Officer (Principal Executive Officer)
August 9, 2011		/s/ STEPHEN CUMMING Stephen Cumming Vice President Finance & Chief Financial Officer (Principal Financial Officer)
August 9, 2011		/s/ DAVID MCCAMAN David McCaman Vice President Finance & Chief Accounting Officer (Principal Accounting Officer)

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EXHIBIT INDEX


10.1+		Description of Fiscal 2011 Executive Bonus Plan (which is incorporated herein by reference to Item 5.02 to the Registrant's Current Report on Form 8-K (Commission File No. 0-19032) filed on April 4, 2011).
10.2+		2005 Stock Plan, as amended (which is incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (Commission File No. 0-19032) filed on May 20, 2011).
10.3+		Description of 2011 Long-Term Performance-Based Incentive Plan (which is incorporated herein by reference to Item 5.02 to the Registrant's Current Report on Form 8-K (Commission File No. 0-19032) filed on May 27, 2011).
31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS†		XBRL Instance Document
101.SCH†		XBRL Taxonomy Extension Schema
101.CAL†		XBRL Taxonomy Extension Calculation Linkbase
101.DEF†		XBRL Taxonomy Definition Linkbase
101.LAB†		XBRL Taxonomy Extension Label Linkbase
101.PRE†		XBRL Taxonomy Extension Presentation Linkbase

†: The financial information contained in these XBRL documents is unaudited and is furnished, not filed with the Commission.
+: Indicates management compensatory plan, contract or arrangement.

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Good

Atmel (ATML) 10-Q2011 Q2 Quarterly report

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