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National Semiconductor Reports 5.7% Sequential Revenue Increase, Record 56.2% Gross Margin for First Quarter FY06

• Q1 revenues are $493.8 million, up from $467 million in Q4 of Fiscal 2005

• Q1 GAAP net profit is $85.6 million and earnings are 24 cents per share

• Analog focus drives 1.5 percentage-point gain in gross margin for Q1

• Bookings increased 18 percent sequentially and exceeded billings in Q1

• Revenue outlook for Q2 of Fiscal 2006 is approximately 5 percent growth from Q1

Sep 8, 2005

September 8, 2005 - National Semiconductor Corporation (NYSE:NSM) today reported GAAP net income of $85.6 million, or 24 cents per share, on revenues of $493.8 million for the first quarter of fiscal 2006, which ended August 28, 2005. 

On a sequential basis, National’s Q1 revenues rose 5.7 percent from the fourth quarter, when the company reported $467 million in revenues and earnings of 36 cents per share.  Year over year, National’s first quarter sales declined 10 percent from the first quarter of fiscal 2005, when the company reported sales of $548 million, net income of $117.7 million and earnings of 31 cents per share.

First quarter gross margin rose 1.5 percentage points to a record 56.2 percent on the strength of increased sales of National’s higher-value analog products.  This compares to the 54.7 percent gross margin reported in Q4 and 52.7 percent gross margin reported in Q3.

“Our business was stronger than expected in the first quarter,” said Brian L. Halla, National’s chairman and CEO.  “Sales were up, bookings were up and our backlog was up going into the second quarter.  Overall, we’re seeing strong demand for analog products, particularly from our wireless and flat panel display customers.”

Noteworthy Items Included in GAAP Net Income
National’s Q1 net results included several noteworthy pre-tax financial events, including a $28 million charge (primarily for severance) related to the in-progress closure of National’s assembly and test plant in Singapore; and a $24.3 million gain related to the sale of National’s cordless business unit in Europe.  National’s income tax expense in Q1 also included additional one-time provisions of approximately $5 million of expense relating to notable items in the quarter.

National’s Q4 2005 net results included several notable financial items, including an $86.1 million write-off of goodwill; a $51.1 million gain from the sale of National's PC Super /IO business; and a $2.6 million charge for cost reduction actions; all of these on a pre-tax basis.  In addition, the company's income tax provision was a net tax benefit of $55.9 million, primarily related to deferred tax assets.

Bookings Increased Sequentially in Q1 from Q4
National's Q1 worldwide bookings increased 18 percent sequentially from Q4. Excluding bookings that came from two recently divested businesses, bookings grew 13 percent.  The bookings rate in Q1 benefited from higher-than-anticipated turns orders.  Total company bookings exceeded billings in the first quarter.

Bookings for National’s analog standard linear products grew 14 percent sequentially.  New orders for portable power management and audio products grew much higher than the company average due primarily to strong demand from customers in the mobile phone and flat panel display markets.

Regionally, bookings increased in North America and Asia Pacific.  The majority of the bookings increase came from National’s OEM customers.  Bookings from major distributors in Q1 were consistent with the prior quarter. Distributor resales of National products to end customers increased in North America and Asia Pacific but were seasonally lower in Europe.

Analog Focus Generates Results
National continued its repositioning towards a richer analog portfolio by divesting itself of businesses that do not align with the company’s business model.  In May 2005, the company sold its PC Super I/O business to Winbond Electronics.  In June, the company sold its cordless business unit in Europe to HgCapital.  And in July, the company announced that it would close its assembly and test plant in Singapore in a phased shutdown.  The Singapore plant had specialized in high pin-count packages.

“Our actions are consistent with National’s ongoing program to maximize resources and support for National’s core analog business,” Halla said.  “They also demonstrate our commitment to increase the return on invested capital for our shareholders.”

Outlook for Q2, Fiscal 2006
National anticipates that revenues in the second quarter will increase approximately 5 percent from first-quarter levels. The company also anticipates that gross margin in Q2 will be similar to or slightly higher than Q1’s gross margin.

National Declares Dividend
In addition to announcing first-quarter earnings, National today declared a cash dividend of 2 cents per outstanding share of common stock.  The dividend is payable October 11, 2005 to stockholders of record at the close of business on September 20, 2005.

Board of Directors Approves New $400 Million Stock Repurchase Program
National’s Board of Directors has authorized a new program to buy back an additional $400 million of National’s stock.  During Q1, the company purchased $275 million worth of National’s stock authorized under a prior buy-back program.

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).

Summary of Results
 
For 3 months ended
 
        August 28, 2005
        August 29, 2004
Net sales              $493.8              $548.0
Net income              $  85.6              $117.7
Earnings per diluted share              $    0.24               $    0.31

About National Semiconductor
National Semiconductor, the industry's premier analog company, creates high-performance 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