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National Semiconductor Down

Posted on Monday, Sep 8th 2008

National Semiconductor (NYSE: NSM) reported its Q1 fiscal year 2009 results on September 5. In stark contrast to the previous quarter when the company beat analyst estimates and also gave a strong forecast, Q1 results were below expectations.

Part of the disappointing performance can be attributed to the effective tax rate of 32.3% compared with rates of 26.4% in Q4 2008 and 30.2% in Q1 2008. While National expected revenue between $460 and $475 million for Q1 2009, actual sales were $465.6 million, up 1% q-o-q and down 1% y-o-y. The GAAP net income at $79.6 million was down 4.5% q-o-q and 7% y-o-y. EPS at $0.33 per diluted share was more than $0.30 in Q1 2008, but was down by a cent compared with the previous quarter, when it was $0.34. The buy-back of approximately 5 million shares worth $105 million during the quarter helped shore up EPS. 

As I anticipated last year, wireless and consumer product categories grew while the analog building block portfolio declined. Riding on smartphone growth, National’s sales in mobile phones and other personal mobile devices market grew between 3% and 4% q-o-q and by a similar figure y-o-y. At 14% growth y-o-y, communications and networking customers—China-based wireless infrastructure customers and GSM Edge infrastructure builds in China and India—were another major growth area. National expects a stronger Q2 2009 performance with sales between $470 million and $480 million. 

National is poised to enter an interesting phase. On one hand, Nokia, Samsung, and LG, among the largest customers of National, have revised their estimates downwards. On the other hand, Smartphones as a product segment looks promising with new players joining the fray.

While sales might not have been robust this quarter, National was able to improve its operating margins to a record 66%.  Their fab utilization remained at 70%, indicating room for growth and further optimization. National is also relatively unharmed by the US economic slowdown with 80% of its sales coming from regions outside America; Asia Pacific takes the largest share at 49% of total sales.

The stock reflected investors’ disappointment, dropping 2.7%, or $0.52 to close at $18.95 on Friday, when the company declared Q1 2009 results. It is currently trading at $18.85.

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