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National Semiconductor Reports $80 Million Profit, 50.6% Gross Margin for Second Quarter Fiscal 2005

Q2 revenues were $448.9 million, down 18% from Q1 and 5% from Q2FY04

GAAP earnings are 21 cents per share, up from 17 cents a year ago

Q2 earnings included 3 cents per share in special gains and credits

Revenue outlook for Q3 of fiscal 2005 is flat to slightly down

Dec 9, 2004

December 9, 2004 - National Semiconductor Corporation (NYSE:NSM) today reported a GAAP profit of $80 million, or 21 cents per share, on revenues of $448.9 million for the second quarter of fiscal 2005, which ended November 28, 2004.  National's second quarter 2005 results included $8.8 million in a special gain from the sale of assets and a $4.2 million benefit from the resolution of a tax matter.  Without these two items, National's Q2 earnings would have been approximately 18 cents per share. 

National's second quarter sales were 5 percent lower than Q2 of fiscal 2004, when the Company reported sales of $473.5 million and earnings of 17 cents per share. (Historical per share amounts have been adjusted for the Company's 2-for-1 stock split that occurred in May 2004.) Sequentially, National's Q2 revenues decreased 18 percent from the Q1 revenues of $548 million, which generated earnings of 31 cents per share. 

Second quarter gross margin was 50.6 percent, down from 55 percent in the first quarter, but higher than the 50.1 percent recorded in last year's second quarter.  The sequentially lower gross margin was primarily due to reduced production volume as the Company lowered its fab capacity utilization percentage from the mid-90s to the mid-60s.

"Obviously, revenues fell significantly in Q2 as we dealt with ongoing inventory reductions in the distribution channel," said Brian L. Halla, National's chairman, president and CEO.  "But with our focus on higher-value analog products and by controlling costs, we were able to keep gross margins above 50 percent in Q2.  I am also pleased that, even with lower year-over-year revenues, we were able to increase earnings per share.  This reinforces that our business model is working."

Bookings Declined in Q2
National's Q2 worldwide bookings declined 16 percent from Q1 and 31 percent compared to last year's fiscal second quarter.  Orders decreased broadly across National's varied product lines as distributors and OEM customers continued their efforts to reduce inventory levels and adjust backlog heading into the post-holiday period.  In particular, the Company experienced slower order rates from various Asian wireless handset customers and flat-panel display customers.  However, orders for portable power management products were the most positive development with over 25 percent growth year-to-year and flat sequentially.  This year-to-year growth was driven primarily by portable power management applications such as mobile phone handsets, MP3 players and game systems.  Total Company billings exceeded bookings in Q2.

Outlook for Q3, FY2005
National Semiconductor anticipates Q3 revenues to be flat or slightly down compared to Q2 levels.  Gross margin percentage is anticipated to be similar to Q2's gross margin.

 "Most of the inventory reductions in the distribution channel are behind us," Halla said. "That, combined with the typical seasonality we see from our major OEM customers, is why we are guiding that third-quarter revenues will be flat to slightly down from the second quarter."

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 of recently introduced products.  Other risk factors are included in the Company's 10-K for the year ended May 30, 2004 (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 29, 2004.


Summary of Results
For 3 months ended
        Nov. 28, 2004
        Nov. 23, 2003
Net sales              $448.9              $473.5
Net income              $  80.0              $  65.8
Earnings per share, diluted              $    0.21               $    0.17
Net income excluding a special gain
and tax benefit in fiscal 2005 and
special charges in fiscal 2004 
             $  68.8              $  71.1
Earnings per share excluding a special gain and tax benefit in fiscal 2005 and special charge in fiscal 2004              $    0.18               $    0.18

All figures in millions of dollars, except for per share amounts

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 markets include wireless handsets, displays, PCs and laptops.  The company's analog products are also optimized for numerous applications in a variety of electronics markets, including medical, automotive, industrial, and test and measurement.  Headquartered in Santa Clara, California, National reported sales of $1.98 billion for fiscal 2004, which ended May 30, 2004.  Additional company and product information is available at www.national.com

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