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iPhone Component Ecosystem: National Semiconductor

Posted on Monday, Jul 23rd 2007

In this post, we will be analyzing National Semiconductor as part of the series on the major players in the iPhone’s component ecosystem. In the iPhone, National Semiconductor supplies the 24-bit RGB serial display interface which connects the display to the graphics controller.

National Semiconductor (NYSE: NSM), with a market cap of $8.60 billion, is a leading analog company based in Santa Clara, California. Its main products include power management circuits, display drivers, audio and operational amplifiers, communication interface products, and data conversion solutions. Its operations are organized in two groups: the Power Management Group and the Analog Signal Path Group as well as three other business units that address displays, device connectivity, and ASIC & telecom. In fiscal 2006, approximately 86% of its revenues were generated from analog-based products. In June 2005, to focus on its core analog businesses, the company sold its cordless business unit in Europe to HgCapital.

On the financial front, in Q4 2007, National reported net income of $90.1 million, or 28 cents per share, on sales of $455.9 million. This is an increase of 5.8% from the previous quarter, which saw sales of $431.0 million and earnings of 22 cents per share. However, it is a year-on-year decline of 20.4% compared to Q4 2006 sales of $572.6 million and earnings of 34 cents per share.

The annual sales in fiscal 2007 were $1.93 billion, a 10.6% decline compared to $2.16 billion in fiscal 2006. Net income was $375.3 million including $111.5 million of pre-tax stock compensation expenses. Earnings per share for fiscal 2007 were $1.12 compared to $1.26 in the previous year. The company expects sales in Q1 2008 to increase by 1 to 4% over Q4 2007.

At its Q4 2007 filing on June 7, the company’s directors authorized a new program to repurchase $2 billion of National’s common stock. This brought the total approved repurchase programs to about $2.4 billion. The announcement showed that the company was confident of its business model and growth prospects. National’s stock shot up from $25.75 to $29.54 immediately after the filing.

When the teardown reports of iPhone hit the market on 2nd Jul, its stock fell a cent to $28.26. It is currently trading at $27.73. According to iSuppli’s teardown report, National’s part in the iPhone costs just $1.50, less than 1% of total product cost. However, it signifies a major breakthrough for its Mobile Pixel Link standard in the high-profile mobile devices platform.

I believe, National’s real prospects lies not in the iPhone, but in the increasing thrust in Analog chips in most part of the semiconductor business that are major growth prospects, namely, wireless, and consumer.

National Semiconductor Corp. (NSM)

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