* Expects Q3 revenue "roughly flat" from previous qtr
* Shares slip nearly 3 pct in after-hours trading
(Adds executive comments, more analyst comments, stock move)
By Ian Sherr
SAN FRANCISCO, Dec 10 National Semiconductor
Corp's (NSM.N) quarterly forecast and results beat estimates as
demand bounced back and margins recovered, but its stock slid
nearly 3 percent on worries about its ability to regain market
Analysts said investors in the volatile semiconductor
sector were particularly concerned about intensifying
competition from the likes of Texas Instruments Inc TXN.N, as
well as higher than expected expenses.
Twice on the company's earnings conference call, analysts
asked executives why its revenues were down 25 percent from their
historic peak when competitors were down 15 percent on average.
"As good as the numbers were, they weren't good enough,"
Broadpoint Amtech analyst Doug Freedman said, adding that
investors would have liked to see the company bounce back faster
and regain market share as the sector begins recovery. "They have
restructured to a high-margin mix of product, and clearly they
exited a portion of the market as a result."
The company's shares, which have risen 18 percent since the
start of November, also headed south as the results on Thursday
failed to meet the even higher expectations of some investors.
National Semi forecast revenue to be roughly flat in the
fiscal 2010 third quarter compared with the second quarter's
$345 million, noting that the weakness was seasonal. Wall
Street, on average, had been expecting revenue of $331
"We will definitely not sacrifice margins to grow,"
National Semiconductor's Executive Chairman Brian Halla told
Reuters. "All of the key strategic initiatives have a goal to beat
or exceed the current margin goals of the company and we think
that's entirely possible."
Analysts including Canaccord Adams analyst Robert Burleson
had taken the company's bullish comments about revenue growth
as an indicator of lost focus on margins.
National Semi's new chief executive, Don Macleod, said that
because the company manufacture's virtually all of its products
in-house, 80 percent to 85 percent of every dollar falls
through to profitability.
"Our fixed costs are covered, our margins are great and the
incremental fall-through is very positive here," he said,
adding the company is currently running at 40 percent to 50
percent capacity. "When you look at that in the context of
economically where we are at this point, potentially, we are
the beginning of a recovery in the global economy and a
recovery in the semiconductor business."
He added that National Semi could double its business
without adding to capital expenditure.
OUT OF THE HOLE?
Analysts expect semiconductor makers to have fared well in
general in the quarter, as the market and U.S. economy began to
show signs of life, but investors await clearer signs on the
outlook for 2010.
Many had also bet that the chip maker, whose analog chips
are used in everything from cars to cell phones such as Apple
Inc's (AAPL.O) iPhone and Palm Inc's PALM.O Pre smartphone,
would offer a strong forecast for the current quarter.
Macleod said that typically the company sees a decline of 4
percent to 6 percent in the current quarter. This year is
expected to remain flat, he said, because sales of National
Semi's industrial products were growing faster than the
seasonal decline for its consumer products.
Still, shares of the company slipped almost 3 percent in
The company said net income rose to $47.0 million, or 20
cents a share, in the fiscal second quarter ended Nov. 29, up
29.5 percent from $36.3 million, or 16 cents a share, in the
That result surpassed analysts' average estimate of 14
cents a share, according to Thomson Reuters I/B/E/S.
Sales for National Semi fell 18.3 percent to $344.6 million
from $421.6 million a year ago.
Its closely watched gross margins bounced to 65.3 percent
from 61.1 percent in the fiscal quarter.
After an 18 percent run-up since the beginning of November,
shares of the Santa Clara-based company fell to $14.84 in extended
trading after closing down 22 cents at $15.28 on the New York
(Reporting by Ian Sherr; Editing by Richard Chang, Phil