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National Semiconductor Reports Results for Third Quarter Fiscal 2007

Q3 revenues were $431.0 million, down 14% from Q2 of fiscal 2007

Gross margin percentage was 59.8%, up from 58.9% in Q2

Q3 earnings per share were 22 cents, down from 27 cents in Q2

Q3 bookings were up 3% over Q2

Revenue outlook for Q4 of fiscal 2007 expected to be up 3 to 6% sequentially

Mar 8, 2007

March 8, 2007 -- National Semiconductor Corporation (NYSE:NSM) today reported net income of $71.5 million, or 22 cents per share, on revenues of $431.0 million for the third quarter of fiscal 2007, which ended February 25, 2007. 

On a sequential basis, National’s third quarter fiscal 2007 revenues declined 14 percent from the second quarter, when the company reported $501.6 million in revenues and earnings of 27 cents per share.  The sequential revenue decline was driven by a combination of seasonality (as customers reduced their build rates following the holidays) and inventory reductions in the supply chain as distributors lowered their inventory balances during the quarter.  Also, as originally projected, National had approximately $10 million less in foundry revenues related to previously sold Cordless and Super I/O businesses.  Year over year, National’s third quarter sales decreased 21 percent from the third quarter of fiscal 2006, when the company reported sales of $547.7 million and earnings of 37 cents per share.

Gross margin in National’s third quarter of fiscal 2007, including the impact of $6.5 million in stock compensation expenses, was 59.8 percent.  This was higher than last quarter’s gross margin of 58.9 percent, which included $6.6 million in stock compensation expenses.  The increase in gross margin percentage in the third quarter was driven by ongoing improvement in National’s product mix, while wafer fab utilization and inventory balances both declined slightly  compared to the prior quarter.  Gross margin percentage one year ago in the third quarter of fiscal 2006 was 60.7 percent when wafer fab utilization was over 85 percent.  Although wafer fab utilization was down significantly in the third quarter of fiscal 2007 compared to last year’s third quarter, the relatively small decline in gross margin percentage reflects the year-over-year improvement in National’s analog product portfolio.

“Bookings from our customers and distributors improved through the latter part of our third quarter,” said Brian L. Halla, National’s chairman and CEO.  “This suggests that the inventory correction may well be behind us, and we anticipate revenues to rise modestly in the fourth quarter.”

Bookings for Q3, Fiscal 2007

National’s total company bookings in the third quarter of fiscal 2007 increased by 3 percent sequentially over the second quarter.  Regionally, the third quarter bookings improvement was driven by particularly strong activity in Europe.  From a product perspective, new orders for interface and power management products grew at a much higher rate than the overall company average.  Total company bookings exceeded billings in the third quarter. 

Notable Items in Q3, Fiscal 2007 Results
National’s third quarter fiscal 2007 results included $29.5 million in pre-tax stock compensation expenses accounted for under FASB Statement 123(R), a $6.1 million charge for in-process research and development related to the acquisition of Xignal Technologies as well as approximately $8.5 million of tax benefits, primarily attributable to the restoration of the federal R&D tax credit which was enacted into law during the quarter.

Outlook for Q4, Fiscal 2007
Based upon current business conditions, National anticipates that revenues in the fourth quarter of fiscal 2007 will increase 3 to 6 percent over the third quarter.  Gross margin percentage is also expected to improve slightly, and operating expenses are projected to increase following the holiday season.

Company Declares Dividend
The company today announced that the Board of Directors has declared a cash dividend of $0.04 per outstanding share of common stock.  This dividend will be paid April 9, 2007 to shareholders of record at the close of business on March 19, 2007.

Board Authorizes Additional Stock Buy-Back Program
National also announced today that the Board has approved an additional $500 million to buy back National’s common stock beyond previously approved stock-repurchase programs.  The company repurchased $141 million of common stock during the third quarter and ended the third quarter with approximately $50 million remaining available for repurchases (prior to the new approval announced today).  The diluted weighted average shares outstanding for Q3 fiscal 2007 was 330.1 million shares.

Special Note
This release contains forward-looking statements dependent on a number of risks and uncertainties pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  These factors include, but are not restricted to, new orders received and shipped during the quarter, the degree of factory utilization, the sale of inventories at existing prices, and the ramp up and sale of new analog products.  Other risk factors are included in the Company's 10-K for the year ended May 28, 2006 (see Outlook and Risk Factors sections of Management's Discussion and Analysis of Financial Conditions and Results of Operations) and the 10-Q for the quarter ended November 26, 2006.

About National Semiconductor
National Semiconductor, the industry's premier analog company, creates high-value analog devices and subsystems.  National's leading-edge products include power management circuits, display drivers, audio and operational amplifiers, interface products and data conversion solutions. National's key analog markets include wireless handsets, displays and a variety of broad electronics markets, including medical, automotive, industrial, and test and measurement applications. Headquartered in Santa Clara, Calif., National reported sales of $2.16 billion for fiscal 2006, which ended May 28, 2006.  Additional company and product information is available at www.national.com.

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