If the third time is truly a charm, National Semiconductor (NYSE:NSM) shareholders would be feeling good today. However, investors don't generally find profit warnings charming, and for the third consecutive quarter, National failed to charm its investors by issuing just such a profit warning on Monday. (We already shared last quarter's disappointment with you.)

National's warning follows disappointing results or forecasts from other semiconductor companies, including Lam Research (NASDAQ:LRCX) and Motley Fool Stock Advisor recommendation Silicon Labs (NASDAQ:SLAB).

National Semiconductor had originally guided for revenues to decline 8% to 11% sequentially from the second fiscal quarter, but it now expects a steeper decline of 14% to 15%. Revenues last quarter were $501.6 million, so the new guidance puts revenues in the range from $426.4 million to $431.4 million. Those numbers look even worse when compared with the $548 million in revenue National achieved a year ago.

Unlike the past two warnings, in which handsets played the role of villain, National is this time blaming lower sales to its distributors as well as a slowdown in sales of its display products. Some 51% of National's 2006 net sales were to distributors -- Avnet (NYSE:AVT) and Arrow (NYSE:ARW), to name just a few -- so when big customers such as these experience lower reselling activity, it is definitely going to hurt.

If there is a bright side, it must be that National says gross margins will be unaffected. My guess is that the sales shortfall is due to the company's lower-margin products.

As everyone knows, the semiconductor industry is cyclical. And as this table shows, it looks as though National's business has peaked.

Quarterly Sales (in millions)



















*Midpoint of new guidance.

Although some of the recent decline can be attributed to the sale of a foundry support business, that doesn't account for all of it. The question now is whether the third fiscal quarter will mark the bottom or whether business will continue to deteriorate. If business at National gets worse, it will likely spread to other companies that for now are still managing to do OK.

Motley Fool Stock Advisor is handily beating the market. Check out Tom and David Gardner's recommendations free for 30 days.

Fool contributor Dan Bloom doesn't own shares in any stock mentioned in this column.