National Calls the Market Bottom
By
Anders Bylund
June 6, 2008
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"Well, it looks like we weathered through the bottom of this cycle pretty well." Thus said National Semiconductor (NYSE: NSM) CEO Brian Halla at the start of last night's earnings call, setting the tone for a surprisingly positive report.
National showed us earnings of $0.34 per share on $462 million in sales, up from $0.28 per share and $456 million last year. The revenue improvement may sound modest, but it was actually $2 million above the top end of management's guidance.
"Business conditions improved in the quarter, and we were able to turn this into higher gross margins," said Halla. The big growth driver is National's energy-efficient PowerWise product lines, developed in response to a global need for low-power chips. The opportunities to exploit that strategy are everywhere. From Apple (Nasdaq: AAPL) iPods, Garmin (Nasdaq: GRMN) GPS tools, and other mobile gadgets; to energy-hungry data centers or next-generation electric cars, the need to control the power budget is ubiquitous. And power management systems now make up 47% of National's sales.
The company has experienced a few quarters of "choppy" order bookings, but now says that the order flow is back to its normal, smoother consistency. Distributor inventory is clearing out of a clogged supply system, and the 65.9% gross margin was a company record -- indications of healthy demand for National products.
National's bounce could be an indication of general strength in the semiconductor industry as customers start to place orders with newfound confidence. If so, it's good news for competitors like Texas Instruments (NYSE: TXN) and Analog Devices (NYSE: ADI). But the market is taking National's strength as uniquely National's, as this stock jumped 7% overnight while its rivals dropped about 2%, in line with the broader market.
Semiconductors as economic indicators? It's so crazy, it just might work. Maybe we've seen the worst of the business-to-business slowdown, and the consumers will follow later.
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