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National Semiconductor Reports $117.7 Million Profit for First Quarter, 29% Revenue Growth Year-to-Year and Record Gross Margin

Q1, FY05 earnings are 31 cents per share, up from 8 cents in Q1, FY04

Gross margin hit new all-time high of 55%, compared to 47% a year ago

Revenues were $548 million, compared to $424.8 million last year

Company provides cautious outlook for Q2; sales may decline 8-10% from Q1

Sep 9, 2004

September 9, 2004 - National Semiconductor Corporation (NYSE:NSM) today reported a GAAP profit of $117.7 million, or 31 cents per share, on revenues of $548 million for the first quarter of fiscal 2005, which ended August 29, 2004.  National’s first quarter sales were 29 percent higher than the first quarter of fiscal 2004, when the company reported sales of $424.8 million and earnings of 8 cents per share.  Sequentially, National’s Q1 revenues were 4 percent lower than the fourth quarter of fiscal 2004, when the company recorded revenues of $571 million and earnings of 24 cents per share.  National’s fourth quarter 2004 results included a $30 million pre-tax special charge for a litigation matter.

In the first quarter of fiscal 2005, National achieved a new record in gross margin of 55 percent, up from 54.4 percent in the prior quarter.  For the first quarter of fiscal 2004, National’s gross margin was 47 percent.

“National’s business over the summer was affected by slower orders than we originally anticipated, particularly from our distribution channel,” said Brian L. Halla, National’s chairman, president and CEO. “However, we continued to show positive results from our analog focus and we’re pleased that we were able to increase gross margin in a seasonally slow quarter.  As a result of our continued focus on selling higher-value, higher margin analog products, we provided shareholders with a 28 percent return on invested capital (ROIC) in Q1.”

Bookings Patterns for Q1
National's worldwide bookings in Q1 were 5 percent higher than last year’s Q1.  But on a sequential basis, bookings declined 29 percent from the fourth quarter of fiscal 2004.

The decline in bookings was attributed to a combination of factors, including seasonally slower demand, shorter lead times --- which prompted distributors and OEM customers to reduce backlog coverage --- and supply chain corrections from flat panel display customers and some wireless handset customers in Asia.

The sequential decline in revenues for Q1 was directly related to lower-than-anticipated turns orders, which were driven by these same global market developments.  Turns orders are orders requested for delivery within the same quarter.

From a geographic market perspective, Q1 bookings declined sequentially in all regions.  Bookings in Europe and Japan were generally stronger than in the United States and Asia Pacific.  Weekly bookings improved slightly during the month of August compared to July.  Billings exceeded bookings in the first quarter.

Guidance for Q2, FY2005
National expects distributors and some customers to continue adjusting order backlog and inventories in Q2.  As a result, the Company anticipates revenues may decline 8 to 10 percent sequentially during Q2.  This revenue range may be accompanied by gross margin of approximately 51 percent.  Operating expenses, meanwhile, are expected to be comparable to Q1.

“As we work through these inventory adjustments, National will continue to drive a proven business model that focuses on high-value analog products,” Halla said. ”This slowdown won’t distract us from pursuing National’s long-term objectives to create the best returns for our shareholders.”

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 first quarter, the degree of factory utilization, the successful start up of production in National’s Suzhou assembly and test facility, 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).

Summary of Results
For 3 months ended
August 29, 2004
August 24, 2003
Net sales             $548.0            $424.8
Net income             $117.7            $  29.7
Earnings per share, diluted             $   0.31            $   0.08

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, and data conversion solutions. National's key markets include wireless handsets, displays, PCs, networks and a broad range of portable applications. With headquarters 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.