December 6, 2007 / 9:49 PM / 11 years ago

UPDATE 2-National Semi 2nd-qtr net falls; sees sales drop

(Recasts first paragraph, adds CEO comment, updates share movement; adds byline)

By Philipp Gollner

SAN FRANCISCO, Dec 6 (Reuters) - National Semiconductor Corp NSM.N posted a drop in quarterly profit on Thursday and forecast a greater-than-expected seasonal sales decline as demand for consumer gadgets drops after the holidays, sending shares down 3 percent.

The company, whose microchips help run cell phones and digital TV displays, said consumer devices such as phones, global positioning systems and flat-screen displays accounted for about one-third of sales in its second quarter, up 30 percent from a year earlier.

That shift makes National Semiconductor more vulnerable when consumer sales decline after the holiday buying season, Chief Executive Brian Halla said.

“When you have a significant amount of business going into mobile devices, the build after Christmas tends to slow down,” Halla told Reuters in an interview.

“When you look at where our growth comes from, it’s typically adding the features on the feature-rich phones,” Halla said.

Second-quarter net income slipped to $90.6 million, or 33 cents per share, in the second quarter ended Nov. 25, from $91.4 million, or 27 cents per share, a year earlier. Sales dipped to $499 million from $501.6 million.

But profitability increased from the first quarter, helped by strong growth in demand for cell phones and personal electronics, such as Apple Inc’s (AAPL.O) iPhone. Gross profit margin rose to 64.4 percent in the second quarter from 63 percent in the first period.

Analysts, on average, expected second-quarter earnings of 31 cents per share on revenue of $498.5 million, according to Reuters Estimates. Net income in the second quarter was reduced by a $3.3 million charge to resolve a legal matter.

The company expects the gross margin to decline in the third period as sales decrease in a range of 1 percent to 5 percent from the second quarter. That would put sales in a range of $474 million to $494 million.

Analysts, on average, expect fiscal third-quarter sales of $495.5 million, according to Reuters Estimates.

The drop compares with an average 2 percent to 3 percent seasonal decline from the second to third quarters in past years.

National Semiconductor cited the “seasonally slower holiday period” for the projected sales decline.

National Semiconductor, based in Santa Clara, California, forecast operating expenses in the third quarter to be “relatively comparable” to second-quarter levels.

The stock fell to $22.81 in extended trading after closing up 58 cents, or 2.5 percent, at $23.51 on the New York Stock Exchange. (Reporting by Philipp Gollner; Editing by Leslie Gevirtz/Jeffrey Benkoe)

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