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National Semiconductor Posts 10 Percent Sequential Revenue Growth and Earnings of 32 Cents Per Share for Second Quarter of FY 2006

Q2 FY06 revenues were $544 million, up 10% from Q1 FY06 and up 21% from last year’s Q2

GAAP net income was $114.7 million, or 32 cents per share

Gross margin was 57.2%, up from 56.2% in Q1 FY06 and 50.6% in Q2 FY05

Revenue outlook for Q3 FY06 is sequentially flat to down 3%

Announcing additional $400 million stock buyback program

Dec 8, 2005

December 8, 2005 --  National Semiconductor Corporation (NYSE:NSM) today reported GAAP net income of $114.7 million, or 32 cents per share, on revenues of $544.0 million for the second quarter of fiscal 2006, which ended November 27, 2005. 

National’s second quarter revenues were 10 percent higher than the first quarter of fiscal 2006, and 21 percent higher than the year-ago Q2 revenues of fiscal 2005.  The sequential revenue growth was driven by strong demand from National’s wireless handset customers as well as the broader markets served through the distribution channel.

In the first quarter of fiscal 2006, National posted revenues of $493.8 million, net income of $85.6 million and earnings of 24 cents per share.  Those first quarter results included a $28 million pre-tax charge for severances, a $24.3 million pre-tax gain from the sale of a business, and $5 million of additional one-time income tax expense.

A year ago, in the second quarter of FY2005, National recorded sales of $448.9 million and net income of $90.0 million, or 24 cents per share.  Last year’s Q2 results included an $8.8 million pre-tax gain from the sale of assets, a $10.0 million pre-tax gain related to litigation, and a $4.2 million benefit from an income tax matter.

The Company’s second quarter FY06 gross margin was 57.2 percent, a new record for the company.  This Q2 gross margin is 1.0 percentage point higher than the first quarter gross margin and 6.6 percentage points higher than last year’s second quarter gross margin of 50.6 percent.  The improvement in gross margin has been driven by the company’s focus on growing its higher-value Analog product portfolio.

“The wireless and handheld consumer electronics markets are strong,” said Brian L. Halla, National’s chairman and CEO.  “Analog technology, such as our leading-edge power management products, makes these electronic devices possible.  That’s what’s driving our growth right now.”

Bookings Increased Sequentially in Q2
National's total company bookings in Q2 fiscal 2006 increased 6 percent sequentially from Q1.  Within the Analog Standard Linear product categories, new orders for interface and data conversion products grew at a much higher rate than the overall company average.

Regionally, bookings increased in North America, Europe and Japan.  Bookings from distributors also increased sequentially in Q2 from Q1.  Bookings associated with foundry services for two recently divested businesses decreased in Q2 compared to Q1. 

Total company bookings exceeded billings in the second quarter.

Outlook for Q3, Fiscal 2006
Based on turns expectations and considering typical seasonal patterns, National anticipates that revenues will be sequentially flat to down 3 percent in the third quarter of fiscal 2006. Assuming this revenue range, gross margin percentage is expected to increase slightly in Q3 FY06.

Stock Buyback and Dividends
Today, the company also announced that National’s Board of Directors has authorized a new program to buy back an additional $400 million of National’s common stock beyond what previously has been approved. During Q2, the company bought back $275 million of common stock under a previously approved repurchase program.  The diluted weighted-average shares outstanding for Q2 FY06 were 356.7 million shares.

During the second quarter, at National’s Annual Shareholders Meeting on September 30, 2005, the company also announced a cash dividend of $0.03 per outstanding share of common stock.  This represents a 50 percent increase from the prior quarterly cash dividend of $0.02 per share.  This new dividend will be paid January 9, 2006 to shareholders of record at the close of business on December 19, 2005.

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 29, 2005 (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 28, 2005. 

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, communication 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, California, National reported sales of $1.91 billion for fiscal 2005, which ended May 29, 2005.  Additional company and product information is available at www.national.com.