It's an impressive showing from a company facing low demand for its LCD display and cellular handset chips. Next to competitor Analog Devices
This produced a nice margin boost, but also created a bulging inventory channel. Let's imagine that inventory growth had kept pace with sales at 9.6% (more inventory sold) rather than leaping ahead to a 24.6% year-over-year change (less inventory sold). We would have seen another $24 million of revenues from the sales of these now-warehoused items -- and at gross margins somewhere around 60%, that's another $14 million of net earnings. That would've comfortably beaten the company's original guidance and increased earnings to somewhere around $0.39 per diluted share (give or take a couple of pennies), depending on gross margin expectations for that shelved product hoard.
That's just a thought experiment, of course, since it didn't quite happen that way. The upshot of this story is that National decided to stand firm on pricing and sacrifice some volume, and came out looking rather good in the end. But there are many ways to make a profit, and given the exact same circumstances, different companies will go different ways.
For some extreme examples of the high-growth, low-margin strategy, check out fashion retailer Charlotte Russe
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- Find out more about margin hogs and speed demons.
National Semi is paying a dividend these days, which is unusual for a tech company. Does that make it worthy of Income Investor consideration, or is it still missing some part of the magic formula? Try a free 30-day subscription to the service and decide for yourself.
Fool contributor Anders Bylund holds no position in any of the companies discussed here, and he'd look ridiculous in Charlotte Russe gear. You can check out Anders' holdings if you like. Foolish disclosure is always extreme.