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National Semi warns
December 7, 2000: 1:53 p.m. ET

Chip maker tops 2Q forecast but sees problems with next quarter's results
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NEW YORK (CNNfn) - National Semiconductor Corp. reported Thursday fiscal second-quarter earnings that beat Wall Street's expectations but warned that its third-quarter results will fall short of estimates because of inventory buildups at its customers and weakness in the PC market.

National Semi (NSM: Research, Estimates) reported earnings of $106.7 million, or 56 cents per share, for the quarter ended Nov. 26, up from $70.4 million, or 37 cents per share, in the year-ago period. The mean of analysts' estimates for the period was 51 cents per share, according to First Call. graphic

The company's revenue increased 16 percent to $595 million from $513.9 million a year ago, in line with analysts' estimates.

"National had a respectable quarter with increases of 16 percent in revenues and 52 percent in earnings over last year, despite the impact of inventory corrections by some of our customers in the mobile phone market and slower demand in the PC market," President and CEO Brian L. Halla said.

National Semi derives about 70 percent of its revenue from analog chips, which translate digital strings of ones and zeroes into analog signals, such as light or sound. They are used in a wide array of devices, including cell phones, power controls, and audio amplifiers.

Many semiconductor companies have previously warned of a sales slowdown over the next three months because end users have accumulated too much inventory. Earlier in the year, cell phone companies and other users of communications chips bought all the chips they could find because of shortage fears. When no shortage materialized, they stopped ordering new components until their inventories return to normal levels.

National Semi reported that during the second quarter new orders from the distribution channel fell significantly as distributors adjusted their inventories. Orders for traditional personal computer products, including motherboards and PC peripherals, also were down in the quarter, reflecting slower than expected fourth calendar quarter sales in the PC market.

Issues third-quarter warning

Looking forward to the February quarter, National Semi now expects to see the impact of continued inventory adjustments in the distribution channel, a gradual stabilization of sales in the mobile phone market, and seasonal weakness in the PC and peripherals market.

These factors could result in a third-quarter sales decline of up to 10 percent from the quarter just ended, the company said. Gross margins may drop to 47 to 48 percent from the current 50 percent, with a resulting decline in earnings per share. The company didn't provide an earnings per share estimate for the quarter.

National Semi said market conditions should improve after the end of the calendar year, as its wireless handset customers and distributor partners meet their year-end inventory goals.

"As a result, we are now expecting overall sales for the current fiscal year, which ends May 27, 2001, to improve in the range of 10 percent over last year," Halla said. The company also is targeting gross margins of 50 percent for the full fiscal year.

The announcement had little impact on the company's stock price, possibly because investors have been aware of inventory buildups in the industry for more than a month. Its shares dropped $1.06 to $18.94 in afternoon trading, placing them 78 percent below their 52-week high. graphic