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National Semiconductor Reports Results for Second Quarter Fiscal 2007

Q2 revenues were $501.6 million, down 7.4% from Q1 of fiscal 2007

Gross margin percentage was 58.9%, down from 61.7% in Q1

Q2 earnings per share was 27 cents, down from 35 cents in Q1

Revenue outlook for Q3 of fiscal 2007 expected to be down 8 to 11% sequentially

Dec 7, 2006

December 7, 2006 - National Semiconductor Corporation (NYSE:NSM) today reported net income of $91.4 million, or 27 cents per share, on revenues of $501.6 million for the second quarter of fiscal 2007, which ended November 26, 2006.  National’s second quarter of fiscal 2007 results included $33.2 million in pre-tax stock compensation expenses accounted for under FASB Statement 123(R).

On a sequential basis, National’s second quarter of fiscal 2007 revenues declined 7.4 percent from the first quarter, when the company reported $541.4 million in revenues and earnings of 35 cents per share.  The sequential revenue decline was mainly due to two key factors: lower shipments to distributors who, despite experiencing flat resales of National’s products, reduced their inventories during the quarter and, secondly, an approximately $21 million decrease in foundry revenues for previously sold Cordless and PC Super I/O businesses as originally projected.  Year over year, National’s second quarter sales decreased 7.8 percent from the second quarter of fiscal 2006, when the company reported sales of $544.0 million and earnings of 32 cents per share.

Gross margin in National’s second quarter of fiscal 2007 was 58.9 percent.  This was lower than last quarter’s gross margin of 61.7 percent but was an increase over the 57.2 percent gross margin posted one year ago in the second quarter of fiscal 2006. 

The sequential decline in gross margin percentage was due to lower manufacturing volume, as the company reduced its wafer fabrication utilization and lowered its inventory by nearly $18 million during the second quarter. 

"While customer end demand did not demonstrate the seasonal uptick we usually see this time of year, the revenue decline this quarter was driven by inventory reductions at our distributors and some of our customers," said Brian L. Halla, National’s chairman and CEO.  "Responding to this, we were able to bring down our inventories and still hold gross margins at almost 59 percent."

Noteworthy Items
National’s second-quarter results included $33.2 million in pre-tax stock compensation expenses under FASB Statement 123(R) of which $6.6 million was included in cost of sales, and the remainder was included in operating expenses.  National began accounting for stock compensation expenses under FASB Statement 123(R) in the first quarter of fiscal 2007.  Total pre-tax stock compensation expenses in the first quarter were $23.9 million.

Booking Patterns for Q2, Fiscal 2007
National's total company bookings in the second quarter of fiscal 2007 declined by 16 percent sequentially.  This decrease was driven by lower orders from OEM customers and contract manufacturers.  Bookings from distributors also decreased in the quarter but to a lesser extent.  Total company billings exceeded bookings in the second quarter.

Outlook for Q3, Fiscal 2007
National anticipates that revenues in the third quarter of fiscal 2007 will decrease approximately 8 to 11 percent from second-quarter levels.  At these sales levels, gross margin percentage is anticipated to decline slightly in the third quarter.

Company to Pay Dividend
As announced on October 6, 2006, National declared a cash dividend of $0.04 per outstanding share of common stock, an increase from the prior quarterly cash dividend of $0.03 per share.  This dividend will be paid January 8, 2007 to shareholders of record at the close of business on December 18, 2006. 

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 August 27, 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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