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National Semiconductor Also Looks Cheap

Posted on Tuesday, Mar 18th 2008

National Semiconductor (NYSE: NSM) on March 6 reported its financial results for Q3 fiscal 2008. Earlier coverage is available here and here.

Revenue was $453.4 million, down 9.1% q-o-q and up 5.2% y-o-y. Bookings declined 14% sequentially mostly from a decline in Asian and European bookings. Net income, including $19.6 million of pre-tax severance and restructuring expenses related to factory modernization efforts, was $71.2 million, or 28 cents per share, down 15% q-o-q and up 27% y-o-y. Analysts had estimated a profit of 23 cents per share on revenue of $457.4 million.

Gross margin percentage was 64.3%, down from 64.4% in Q2 and up from 59.8% in Q3 last year, driven by higher-value product mix as well as manufacturing efficiencies. During the quarter, National Semiconductor bought back approximately $120 million of its stock. It declared a cash dividend of $0.06 per outstanding share of common stock.

The 9% sequential decline in revenue was mainly driven by lower-than-expected shipments into the wireless handset and personal mobile device markets. However, sales to mobile phone customers were up about 20% y-o-y. Sales to the networking market and shipments to large flat panel display and PC customers were flat sequentially, while sales to industrial and other market customers were down slightly.

During the quarter, National Semiconductor’s RF power management solution had a design win from Qualcomm. Ericsson mobile platform’s 3G reference design containing National’s RF detector and RF power management devices has also been received well. To add to this, it has been developing technology in exciting new areas, such as photovoltaic and noise suppression technology.

For the fourth quarter, the economic uncertainty has led National to be conservative in its revenue estimate of $440 million to $460 million. It will continue to focus on high value, differentiated products. It is also on full steam in its 6-inch to 8-inch wafer conversion program which is expected to bring down chip cost substantially in the August quarter.

The stock is currently trading around $18 after hitting a 52-week low of $16.21 on March 6. Market cap is around $4.5 billion. Like its other chip compatriots, National Semiconductor also looks cheap, and it would be worthwhile digging deeper to see what is the real value of the company, as we have done with Qualcomm, Broadcom, and Interdigital.

Chart for National Semiconductor Corp. (NSM)

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