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National Semiconductor Second Quarter Revenues Increase 8 Percent from First Quarter to $366.5 Million

Dec 6, 2001

December 6, 2001 - National Semiconductor Corporation (NYSE:NSM) today reported revenues of $366.5 million for the second quarter of fiscal 2002, an increase of 8 percent from the first quarter. The company recorded a net loss of 26 cents per share for the quarter, which ended November 25, 2001, compared with a first quarter loss of 31 cents per share on revenues of $339.3 million. In last year's second quarter National reported net income of $106.7 million, or 56 cents per share, on revenues of $595.0 million.

"Despite a tough environment during the second quarter, we grew sales 8 percent and continued making progress on gaining incremental business from our major customers in the handset and display markets," said Brian L. Halla, National's chairman, president and chief executive officer. "National's analog portfolio continues to position us well in the right markets with the right partners." 

Summary of results
3 months ended: November 25, 2001 November 26, 2000
Net sales
Net earnings (loss)
Earnings (loss) per share
$ 366.5
$  (46.6)
  $   (0.26)
$595.0
$106.7
  $   0.56
All figures in millions of dollars except per share amounts

National's "turns orders" (those requested for delivery within the same quarter) continued to strengthen throughout the second quarter. This factor, combined with a strong analog product mix and efficient manufacturing, enabled the company to increase gross margins by 3 percentage points to 35.3 percent. National also reduced its inventories and increased its cash reserves to $811 million, while maintaining an essentially debt-free balance sheet.

Quarterly Bookings
National's worldwide second quarter bookings grew by 5 percent over the summer quarter. Most of the increase came from improvements in orders for analog products used in wireless handsets and from seasonal orders in personal computer markets. Bookings increased sequentially in all regions except Japan. Year-to-year, overall bookings declined by 34 percent.

Outlook for Q3
National's guidance is for third quarter revenues to be comparable with the second quarter levels, in the range of $350 to $370 million. Gross margins and operating expenses are also targeted to be in line with second quarter results.

"In the current environment, National is highly focused on driving new incremental revenue programs with our key customers," Halla said.  "As broad-based demand returns, these programs and the leverage we get from our world class manufacturing will accelerate National's growth."

This outlook contains forward looking statements dependent on a number of risks and uncertainties including such factors as, but not restricted to, new orders received and shipped during the remainder of the third quarter, the degree of factory utilization, the successful sale of existing inventories at existing prices, and the ramp up of recently introduced products. Other risk factors are included in the company's 10-Q from the first quarter ended August 26, 2001 and the 10-K for the year ended May 27, 2001 (see the Outlook section of Management's Discussion and Analysis of Results of Operations and Financial Conditions) and the Annual Report dated May 27, 2001.

National Semiconductor is the premier analog company driving the information age. Combining real-world analog and state-of-the-art digital technology, the company is focused on the fast growing markets for wireless handsets; displays; information appliances; and information infrastructure. With headquarters in Santa Clara, California, National reported sales of $2.1 billion for its last fiscal year and has about 9,800 employees worldwide. Additional company and product information is available on the World Wide Web at www.national.com.


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NATIONAL SEMICONDUCTOR CORPORATION                      
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except per share amounts)

                                Three Months Ended     Six Months Ended
                                ------------------    -------------------
                                 Nov. 25,  Nov. 26,    Nov. 25,   Nov. 26,
                                  2001      2000        2001       2000
                                 -------   -------     --------  --------
Net sales                        $ 366.5   $ 595.0     $  705.8  $1,235.8
Operating costs and expenses:
  Cost of sales                    237.0     294.3        466.2     595.7
  Research and development         110.4     112.1        219.4     215.8
  Selling, general and 
    Administrative                  68.1      78.8        132.3     179.4
  Special items                      -         -            1.1       6.4
                                 -------   -------     --------  --------
Total operating costs
  and expenses                     415.5     485.2        819.0     997.3
                                 -------   -------     --------  --------
Operating income(loss)             (49.0)    109.8       (113.2)    238.5
Interest income, net                 5.5      15.2         12.5      29.3
Other income(expense), net          (0.6)      8.4          4.5      45.9
                                 -------   -------     --------  --------
Income(loss)before income taxes    (44.1)    133.4        (96.2)    313.7
Income tax expense                   2.5      26.7          5.0      62.8
                                 -------   -------     --------  --------
Net income(loss)                 $ (46.6)  $ 106.7     $ (101.2) $  250.9
                                 =======   =======     ========  ========
Earnings(loss) per share: 
         Basic                   $ (0.26)  $  0.60     $  (0.58)  $  1.41
         Diluted                 $ (0.26)  $  0.56     $  (0.58)  $  1.29

Selected income statement ratios as a percentage of sales:
Gross margin                       35.3%     50.5%        33.9%     51.8%
Research and development
  (excluding in-process 
   R&D charge)                     30.1%     18.8%        31.1%     17.5%
Selling, general and              
  Administrative                   18.6%     13.2%        18.7%     14.5%
Net income(loss)                  (12.7%)    17.9%       (14.3%)    20.3%
Effective tax rate                  N/A      20.0%         N/A      20.0% 
NATIONAL SEMICONDUCTOR CORPORATION             
CONDENSED CONSOLIDATED BALANCE SHEETS  (Unaudited) 
(in millions)
                                                   Nov. 25,      May 27,
                                                     2001         2001   
ASSETS                                             --------     --------
Current assets:
  Cash and cash equivalents                       $  708.2      $  817.8
  Short-term marketable investments                     -            5.0
  Receivables, net                                   104.2         123.4
  Inventories                                        172.4         195.5
  Deferred tax assets                                 97.2          97.2
  Other current assets                                44.8          36.1
                                                   --------     --------
  Total current assets                             1,126.8       1,275.0
Net property, plant and equipment                    778.6         815.7
Long-term marketable debt investments                102.7          46.6
Other assets                                         266.3         225.0
                                                   --------     --------
Total assets                                      $2,274.4      $2,362.3
                                                   ========     ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Short-term borrowings and current 
    portion of long-term debt                     $   13.0      $   29.4
  Accounts payable                                   106.4         126.4
  Accrued expenses                                   230.1         262.9
  Income taxes                                        74.9          53.1
                                                   --------     --------
  Total current liabilities                          424.4         471.8
Long-term debt                                        23.8          26.2
Other non-current liabilities                        101.0          96.4
                                                   --------     --------
  Total liabilities                                  549.2         594.4
                                                   --------     --------
Commitments and contingencies
Shareholders' equity:
  Common stock                                         88.8         86.9
  Additional paid-in capital                        1,349.7      1,280.8
  Retained earnings                                   331.2        432.4
  Accumulated other comprehensive loss                (44.5)       (32.2)
   --------     --------
  Total shareholders' equity                        1,725.2      1,767.9
                                                   --------     --------
Total liabilities and shareholders' equity         $2,274.4     $2,362.3
                                                   ========     ========

NATIONAL SEMICONDUCTOR CORPORATION 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)    
                                                      Six Months Ended
                                                   ----------------------
                                                    Nov. 25,     Nov. 26,
                                                      2001         2000 
                                                    -------      -------
Cash flows from operating activities:
Net income(loss)                                    $(101.2)     $ 250.9
Adjustments to reconcile net income(loss)
  with net cash provided by operations:
  Depreciation and amortization                       114.8        118.0
  Gain on investments                                  (5.4)       (38.8)
  Loss on disposal of equipment                         1.6          1.3
  Donation of equity securities                          -          20.5
  Non-cash special items                                1.1          6.4
  Other, net                                            0.2          0.3
  Changes in certain assets and liabilities, net:
    Receivables                                        20.3         45.2
    Inventories                                        23.1         (8.9)
    Other current assets                               (8.7)        (2.7)
    Accounts payable and accrued expenses             (52.2)       (87.4)
    Current and deferred income taxes                  21.8          6.1
    Other liabilities                                   4.6          4.0
                                                    -------      -------
Net cash provided by operating activities              20.0        314.9
                                                    -------      -------
Cash flows from investing activities:
Purchase of property, plant and equipment            (69.7)       (121.2)
Maturity of available-for-sale securities             24.0           7.0
Purchase of available-for-sale securities            (74.6)        (28.0)
Proceeds from sale of equity investments               6.7          29.9
Business acquisitions, net of cash acquired          (27.5)        (24.9)
Purchase of software                                 (15.7)         (4.6)
Restricted cash                                      (14.4)         (2.8)
Other, net                                            (4.3)         (3.8)
                                                    -------      -------
Net cash used by investing activities               (175.5)       (148.4)
                                                    -------      -------
Cash flows from financing activities:
Repayment of debt                                     (8.9)         (8.5)
Issuance of common stock, net                         54.8          35.0
Purchase and retirement of treasury stock               -         (125.8)
                                                    -------      -------
Net cash provided by(used by)financing activities     45.9         (99.3)
                                                    -------      -------
Net change in cash and cash equivalents             (109.6)         67.2
Cash and cash equivalents at beginning of year       817.8         778.8
                                                    -------      -------
Cash and cash equivalents at end of year           $ 708.2       $ 846.0
                                                    =======      =======

PART I.  FINANCIAL INFORMATION
EARNINGS PER SHARE (Unaudited)
(in millions, except per share amounts)

                                 Three Months Ended     Six Months Ended
                                 ------------------     -----------------
                                 Nov. 25,  Nov. 26,    Nov. 25,  Nov. 26,
                                   2001      2000         2001     2000  
                                 -------    -------     -------   -------
Earnings(loss) per share: 
         Basic                    $(0.26)    $ 0.60      $(0.58)   $ 1.41
         Diluted                  $(0.26)    $ 0.56      $(0.58)   $ 1.29
Weighted-average shares: 
         Basic                    176.8      178.1       175.8     178.1
         Diluted                  176.8      191.9       175.8     193.9
   
Income(loss) used in basic and 
   diluted earnings per 
   common share calculation      $(46.6)    $106.7     $(101.2)   $250.9

NOTES TO FINANCIAL STATEMENTS:
(in millions)
                                 Three Months Ended    Six Months Ended
                                 ------------------    -----------------
                                 Nov. 25,   Nov. 26,   Nov. 25,  Nov. 26,
                                   2001       2000       2001     2000   
                                 -------    -------    -------   -------
Special items
-------------
In-process reseach and 
  development charges             $  -       $  -      $  1.1    $  4.1
Restructuring of operation           -          -          -        2.3
                                 -------    -------    -------   -------
  Total special items             $  -       $  -      $  1.1    $  6.4
                                 =======    =======    =======   =======
  
Interest income, net
--------------------
Interest income                   $  6.6     $ 16.4    $ 14.8    $ 31.8
Interest expense                    (1.1)      (1.2)     (2.3)     (2.5)
                                 -------    -------    -------   -------
  Interest income, net            $  5.5     $ 15.2    $ 12.5    $ 29.3
                                 =======    =======    =======   =======
Other income(expense), net
--------------------------
Net intellectual property income  $  0.4     $  3.1     $  1.7   $  4.5
Gain(loss) on investments, net      (0.4)       5.3        3.4     41.4
Other                               (0.6)       -         (0.6)     -
                                 -------    -------    -------   -------
  Total other income
    (expense), net                $ (0.6)    $  8.4     $  4.5   $ 45.9
                                 =======    =======    =======   =======