Foolish Forecast: Gloomy National Semi

Broad-line semiconductor designer National Semiconductor (NYSE: NSM) is set to report third-quarter 2007 earnings on Thursday. Let's see what grand designs the company has in store for us this time.

What analysts say:

• Buy, sell, or waffle? Twenty-four Wall Street analysts follow National Semi these days. Eight of them are buying, two are selling, and the other 14 prefer to hold for now. In our Motley Fool CAPS community, it's a two-star stock based on 74 player ratings.
• Revenues. On average, the analysts expect about $434 million of sales, down 21% from the $548 million produced last year. It's well below the original company guidance, but slightly above the revised outlook published in February.
• Earnings. Net income is expected to take a dive, too. The mean (average, not ill-tempered) forecast calls for $0.20 per share, compared to $0.37 per share a year ago.

What management says:
The lowered outlook comes from slow sales into the distribution channel, as customers across the world ordered fewer chips than expected over the holiday season. That weakness was especially noticeable in the Asia-Pacific region. It's not a problem unique to National Semi, as competitors like Texas Instruments (NYSE: TXN) and Analog Devices (NYSE: ADI) reported similar sell-through patterns for their unseasonably anemic December quarters.

What management does:
Management expects the strong gross margin performance to continue, albeit just below the 60% line this time. There's not much to complain about in the general margin trends, and the company is certainly putting its assets and equity balance to work better than it has in recent history -- and better than its main competitors. It's particularly troubling to see the expected revenue shortfall against a rather uninspiring year-ago period, though. It there a holiday jinx here, or something?

One Fool says:
Once again, National Semi fills in our visibility of the semiconductor sector in between earnings seasons. I recently ruminated on the possibility that the industry-wide turndown might be ending, when Analog Devices told us that January was a very good month. But National's management seems to disagree, perhaps making Analog a standout performer in a weak field.

I'm hoping to hear that the downward revision was overly cautious, but the proof is, as always, in the plum pudding. Tune in on Friday for the real story.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is always on the up--and-up.