San Jose, Calif. -- Simmering strategic and tactical tensions cracked wide open last week at controller and memory vendor Atmel Corp., as direct- ors engaged in a fierce struggle that left the chairman and CEO, his brother and two other executives jobless. The CEO, George Perlegos, immediately returned fire by suing the company he had led for 22 years.
The boardroom battle was perhaps unsurprising, given Atmel's fiscal and other struggles in recent years. But its suddenness and soap-operatic quality elevated it a notch above the typical Silicon Valley conflicts. And it leaves a big scar on a com- pany with a long history of quiet technological achievement.
On its face, the story plays as a power struggle aimed at bringing the $1.7 billion, publicly traded Atmel private and shaking up its management team. "Suffice it to say that [the team has been] one of the stranger lineups Silicon Valley is likely to see for a while," said a former Atmel manager who declined to be quoted by name. "The board has had enough and is looking for any way to terminate current leadership."
But below the surface, the story speaks volumes about the increasing frustration among investors in semiconductor companies as the industry matures and once-robust returns moderate.
Another wrinkle occurred late last week, when an Oklahoma City law firm said a shareholder lawsuit had been filed in U.S. District Court in San Francisco against certain Atmel officers and directors. Federman & Sherwood, a boutique firm specializing in securities litigation, said the complaint alleges violations of the Securities Exchange Act of 1934, including allegations of price manipulation through the backdating of stock options.
Roots of the conflict
In the late 1980s and early 1990s, Atmel was a rising power in semiconductors, reporting healthy growth year over year in EPROMs and E2PROMs, edging into flash memory and chasing what was then the nascent market of RFID. But the 1990s found the San Jose company stagnating even as it hit $1 billion in sales. After the 2001 downturn, rival Microchip Technology Inc. rebounded; Atmel continued to slide. Last week, Atmel was trading at around $5 a share, Microchip at $32.
In 2005, a robust year for the chip industry overall, Atmel lost $32 million on sales of $1.7 billion. That May, RDG Capital offered $5.50 a share for Atmel stock, then trading at $5. Perlegos rejected the bid. Russell Glass, managing member of RDG and the former president of corporate raider Carl Icahn's Icahn Associates Corp., said last week he hopes to resume buyout discussions with the new management team.
Seeking to get costs under control, Perlegos sold Atmel's Nantes, France, fab to XbyBus last October. Around that time, the stock started to rebound. In February, Steven Laub, a former executive with Lattice Semiconductor and Silicon Image, joined the Atmel board.
But things turned sour in July, when the board announced it was investigating the company's stock options practices. (Atmel has stated that last week's actions were unrelated to the options probe).
The public meltdown began on Saturday, Aug. 5, when Perlegos called a stockholders meeting for Oct. 5 to remove board members Laub, Pierre Fougere, T. Peter Thomas, Chaiho Kim and David Sugishita. The reason is unknown, but observers speculated that the CEO may have suspected a coup was afoot and wanted to get rid of the perpetrators.
The next day, those five directors reportedly elected Sugishita as chairman and canceled the stockholders meeting Perlegos had called. Claiming a misuse of corporate travel funds for family members' personal use, the board fired Perlegos and his brother Gust Perlegos, Atmel's executive vice president, and named Laub CEO. The board also dismissed vice president and general counsel Michael Ross and vice president of planning and information technology Mikes N. Sisois.
