National Semiconductor (NYSE:NSM) mostly makes chips that translate data between our analog world and the digital language that computers understand. The chip manufacturer is set to report earnings tomorrow evening for the first quarter of fiscal 2007. Let's have a look at what to expect.

What analysts say:

  • Buy, sell, or waffle? This is a closely followed company, with 27 analysts rating the stock. Eight of them advocate a buy, 18 a hold, and the last one a rebellious "sell!"
  • Revenues. The average revenue estimate hovers at around $541 million, which would represent 9.5% growth over the same period last year.
  • Earnings. The bottom line is expected to look 33% better, at $0.32 per share.

What management says:
The company recently lowered its guidance for the quarter to roughly $538 million, from around $555 million. Analysts haven't exactly followed suit, which might set the Wall Street target up for failure.

In other news, CEO Brian Halla received a $5.3 million performance bonus for his work in fiscal 2006, up from $1.2 million the year before. That could still be seen as a backhanded compliment, though, because he also got $5.2 million worth of stock options last year and none this time around. You be the judge of how the board valued Halla's 2006 efforts.

What management does:
Net margins took a hit recently from restructuring charges related to a plant closing in Singapore. Aside from that blip, margins are trending up across the board, a sign of disciplined cost controls and increasing pricing power. So far, so good.

Margins %

2/05

5/05

8/05

11/05

2/06

5/06

Gross

53.3

53.4

53.6

55.3

57.3

59.0

Op.

24.6

22.4

22.1

25.5

28.5

31.5

Net

18.8

21.7

20.6

20.9

22.4

20.8
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
This company has had a habit of underpromising and overdelivering lately, reporting better than 14% over average analyst targets three out of the last four quarters, and 8% higher in the latest period. This quarter is going up against a rather weak year-ago period, and the forecasted growth from there seems quite attainable. In fact, meeting analyst targets would be a 9% year-over-year retreat in net earnings, and 5% lower earnings compared with last quarter.

I hate to be a doomsayer, but if the results of National Semi's closest competitor, Analog Devices (NYSE:ADI), are any indication, business is slow in the analog circuits market right now and National Semi should feel the pinch as well. The company didn't spell out the reasons for lowering its guidance, but weak demand for wireless handset circuitry led to Analog's shortfall a couple of weeks ago, and that should be an industrywide ailment. Still, meeting the established estimates would nudge net margins back up again, and I don't think we're looking at a company in any kind of crisis here -- just a temporarily tight market.

Competitors:

  • Analog Devices
  • Texas Instruments (NYSE:TXN)
  • STMicroelectronics (NYSE:STM)
  • Marvell Technology (NASDAQ:MRVL)
  • Linear Technology (NASDAQ:LLTC)
  • Fairchild Semiconductor (NYSE:FCS)

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Fool contributor Anders Bylund holds no position in any of the companies discussed here, but probably owns tons of their chips inside his array of gadgetry. You can check out Anders' holdings if you like, and Foolish disclosure is always one step ahead.