UNITED STATES SECURITIES AND EXCHANGE COMMISSION

OR

Commission File Number 0-19032

ATMEL CORPORATION

2325 Orchard Parkway
San Jose, California 95131
(Address of principal executive offices)

(408) 441-0311
Registrant’s telephone number

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o

On July 21, 2004, Registrant had 475,613,550 outstanding shares of Common Stock.

ATMEL CORPORATION

FORM 10-Q

QUARTER ENDED JUNE 30, 2004

INDEX

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

Atmel Corporation

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

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Atmel Corporation

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

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Atmel Corporation

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

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Atmel Corporation

1. Summary of Significant Accounting Policies

     Basis of Presentation

     These unaudited interim financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly, in all material respects, the financial position of Atmel Corporation (“the Company” or Atmel) and its subsidiaries as of June 30, 2004 and the results of operations for the three and six month periods ended June 30, 2004 and 2003 and the cash flows for the six month periods ended June 30, 2004 and 2003. All material intercompany balances have been eliminated. Because all of the disclosures required by generally accepted accounting principles are not included, these interim statements should be read in conjunction with the audited financial statements and accompanying notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. The December 31, 2003 year-end condensed balance sheet data was derived from the audited financial statements and does not include all of the disclosures required by generally accepted accounting principles. The statements of operations for the periods presented are not necessarily indicative of results to be expected for any future period, nor for the entire year. Certain prior year and period amounts have been reclassified to conform to current presentations and such reclassifications did not have any effect on the prior periods’ net loss.

     Stock Based Compensation

     Atmel has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (SFAS No.123), Accounting for Stock Based Compensation. Accordingly, no compensation cost has been recognized for the 1986 Incentive Stock Option Plan or 1996 Stock Plan or for grants made under the 1991 Employee Stock Purchase Plan (ESPP). If the compensation cost for the 1986 Plan, the 1996 Plan and the ESPP had been determined based on the fair value at the grant date consistent with the provisions of SFAS No.123, Atmel’s net income (loss) and net income (loss) per share for the three and six months ended June 30, 2004 and 2003 would have been adjusted to the pro forma amounts indicated below:

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     The fair value of each option grant for both the 1986 Plan and the 1996 Plan is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

     The fair value of each purchase under the ESPP is estimated on the date at the beginning of the offering period using the Black-Scholes option-pricing model with substantially the same assumptions as the option plans but with expected lives of 0.5 years. The weighted average fair values of ESPP purchases during the first six months of 2004 and 2003 were $1.68 and $0.93, respectively. The weighted average fair values of ESPP purchases during the second quarter of 2004 and 2003 were $3.02 and $0.76, respectively.

     The effects of applying SFAS No.123 on the pro forma disclosures for the three and six months ended June 30, 2004 and 2003 are not likely to be representative of the effects on pro forma disclosures in future periods.

     Derivatives

     The Company uses derivative instruments to manage exposures to foreign currency. The Company’s policy is to use derivatives to minimize the volatility of earnings and cash flows associated with changes in foreign currency. Certain forecasted transactions and foreign currency assets and liabilities expose the Company to foreign currency risk. The Company enters into foreign exchange forward contracts to minimize the short-term impact of currency fluctuations on existing as well as anticipated foreign currency assets and liabilities.

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     For a derivative instrument designated as a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income (loss) and subsequently reclassified into earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately. For derivative instruments not designated as a FAS No. 133 cash flow hedge, the gain or loss is recognized in earnings in the period of the change, offsetting the gain or loss from revaluation.

     Recent Accounting Pronouncements:

     In December 2003, the FASB issued FIN 46R. FIN 46R is applicable in financial statements of public entities that have interests in variable interest entities or potential variable interest entities commonly referred to as special-purpose entities for periods ending after December 15, 2003. Application by public entities (other than small business issuers) for all other types of entities is required in financial statements for periods ending after March 15, 2004. The adoption of this standard did not have a material impact on the Company’s results of operations or financial condition.

     At its November 2003 meeting, the Emerging Issues Task Force, or EITF, reached a consensus on disclosure guidance previously discussed under EITF 03-01. The consensus provided for certain disclosure requirements that were effective for fiscal years ending after December 15, 2003. The Company will adopt the disclosure requirements during its fiscal year ending December 31, 2004. The Company does not believe that this consensus on the disclosure guidance will have a significant impact on its financial position or results of operations.

     At its March 2004 meeting, the EITF reached a consensus on recognition and measurement guidance previously discussed under EITF 03-01. The consensus clarifies the meaning of other-than-temporary impairment and its application to investments classified as either available-for-sale or held-to-maturity under SFAS No. 115 and investments accounted for under the cost method or the equity method. The recognition and measurement guidance for which the consensus was reached in the March 2004 meeting is to be applied to other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. The Company does not believe that this consensus on the recognition and measurement guidance will have a significant impact on its financial position or results of operations.

     In April 2004, the Emerging Issues Task Force reached a consensus on Issue No. 03-06, (EITF 03-06), “Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share”. EITF 03-06 addresses a number of questions regarding the computation of earnings per share by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company when, and if, it declares dividends on its common stock. The issue also provides further guidance in applying the two-class method of calculating earnings per share, clarifying what constitutes a participating security and how to apply the two-class method of computing earnings per share once it is determined that a security is participating, including how to allocate undistributed earnings to such a security. EITF 03-06 is effective for fiscal periods beginning after March 31, 2004. The adoption of EITF 03-06 did not have a material effect on Atmel’s results of operations or financial position.

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2. Inventories

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

     Inventory reserves at June 30, 2004 and December 31, 2003 were $104,553 and $100,686 respectively.

     The Company’s policy is to write down its raw materials, work in progress and finished goods to the lower of cost or market at the close of a period. The Company’s inventory represents high technology integrated circuits that are subject to rapid technological obsolescence and are sold in a highly competitive industry. If actual product demand or selling prices are less favorable than the Company’s estimate, the Company may be required to take additional inventory write-downs. Alternatively, if the Company sells more inventory or achieves better pricing than the Company’s forecast, future margins may be higher.

3. Short Term Investments

     Short term investments at June 30, 2004 and December 31, 2003 are primarily comprised of US government and municipal agency debt securities, US and foreign corporate debt securities, commercial paper, and guaranteed variable annuities.

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

4. Intangible Assets

     Intangible assets as of June 30, 2004 are included in other assets in the condensed consolidated balance sheet and consisted of the following:

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     Intangible assets as of December 31, 2003 consisted of the following:

     Intangible amortization expense for the three months ended June 30, 2004 and 2003 totaled $2,954 and $3,592, respectively. Intangible amortization expense for the six months ended June 30, 2004 and 2003 totaled $6,183 and $6,444, respectively. The following table presents the estimated future amortization of net intangible assets:

5. Income Taxes

     For the three and six months ended June 30, 2004, the Company recorded an estimated income tax expense of $4,094 and $7,962, respectively, primarily related to income from certain foreign subsidiaries and has utilized net operating losses carried forward from prior years to offset the current income of profitable subsidiaries where such losses are available.

     For the three and six months ended June, 2003, the Company recorded an estimated income tax expense of $3,000 and $6,000, respectively, primarily related to income from certain foreign subsidiaries and has provided a full valuation allowance against the deferred tax benefit of its net operating losses.

6. Net Income (Loss) Per Share

     Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed 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, warrants and convertible securities for all periods.

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     The following table summarizes antidilutive securities which were not included in the calculation of diluted net income (loss) per share:

     As disclosed in Note 8 of the Notes to Condensed Consolidated Financial Statements, the convertible bond holders have the right to put the notes back to the Company at specific future dates, in which case the Company may elect to settle the notes in shares or cash. In accordance with EITF Topic D-72, the calculation of the number of common stock equivalent shares associated with the convertible notes assumes that the notes will be settled in shares at the then fair value. As a result, the number of common stock equivalent shares associated with convertible notes is computed by dividing the total outstanding balance (principal plus interest) of the convertible notes by the average closing sales price of the Company’s common stock for the applicable period.

     This calculation assumes the Company would repurchase the convertible notes using only common stock at the average stock price for the related period and no cash. In the event of redemption of the convertible notes, the actual conversion price will depend on future market conditions.

7. Segment Reporting

     The Company has four reportable segments: Application Specific Integrated Circuits (ASIC), Microcontrollers, Nonvolatile Memories (NVM) and Radio Frequency (RF) and Automotive. Each segment requires different design, development and marketing resources to produce and sell semiconductor integrated circuits. The Company does not allocate assets by segment as management does not use the information to measure or evaluate a segment’s performance.

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Information about segments: