National Semiconductor Back in the Black (Breakfast News) September 10, 1999


Friday, September 10, 1999

"Small opportunities are often the beginning of great enterprises."
-- Demosthenes

National Semiconductor Back in the Black

By Brian Graney (TMF Panic)

What a difference a quarter makes. After reporting five consecutive quarters of operating losses, analog chipmaker National Semiconductor (NYSE: NSM) signaled that it is on the road to consistent profitability last night by reporting a fiscal Q1 pretax profit of $1.2 million. Analysts surveyed by First Call had expected another quarterly loss from the firm to the tune of $0.14 per share. The results excluded a one-time $48.4 million gain related to the company's sale of Fairchild Semiconductor (NYSE: FCS) stock during the period.

With the sale of its cash sinkhole Cyrix microprocessor business now a done deal, National Semi is poised to fully benefit from the burgeoning demand for its analog chips, which execute tasks in mobile phones, PCs, and information appliances. Excluding Cyrix, bookings rose 38% in Q1. Backlog is currently 10 percentage points higher than it was at the start of the quarter and four points higher than a year ago, the company reportedly said in a conference call. Looking ahead, revenues from continuing operations in the current second quarter are expected to rise 7% to 9% sequentially. Additionally, gross margin is expected to continue to tick up from Q1's 38.4% on its way toward the firm's goal of a figure in the high 40% area by the end of fiscal 2000.

Even though analysts are quick to dust the company's failed two-year Cyrix experiment under the rug and look ahead to brighter days, it will take more than just one or two quarters to reverse all of the damage that has been done to the company's financials. Thanks to the losses from Cyrix, National Semi's retained earnings account rapidly eroded to a negative $434 million in fiscal 1999 from a positive $605 million in 1997. Consequently, total shareholders' equity took an $848 million hit in just 24 months as the company morphed into a much more debt-dependent operation. Reversing these balance sheet effects -- and winning back the trust of shareholders who helplessly watched their equity in the company evaporate in practically a blink of an eye -- will take many quarters of sustained earnings performance.

News to Go

Engineered components and industrial systems maker Illinois Tool Works (NYSE: ITW) agreed to merge with commercial and consumer products firm Premark International (NYSE: PMI) in a stock swap valued at $3.4 billion. Illinois Tool Works expects the deal to be "modestly accretive" to its earnings.

Outpatient surgery and rehabilitation centers operator Healthsouth Corp. (NYSE: HRC) said it has canceled a plan to separate its business into two parts by spinning off its inpatient operations due to the current "uncertain environment for healthcare providers." Instead, the company will resume repurchasing its shares under a previously announced buyback plan.

United Express operator Atlantic Coast Airlines (Nasdaq: ACAI) announced that it has signed a 10-year deal to operate at least 45 new jets for Delta Air Lines' (NYSE: DAL) Delta Connection regional jet operation on a fee-per-departure basis. Initial service to destinations in the Northeast is scheduled to begin in April 2000.

Quicken and TurboTax financial software developer Intuit (Nasdaq: INTU) set a three-for-one stock split, payable Sept. 30.

Temporary manual labor staffing firm Labor Ready (NYSE: LRW) warned that low August sales will lead to second half revenues and earnings short of analysts expectations. Concurrently, the company also announced a plan to repurchase 2 million shares, or 5% of its outstanding stock.

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