National Semiconductor (NYSE: NSM) is raising warning flags about the holiday shopping season.

How can a semiconductor maker possibly know anything about consumer trends? It's simple. Many of National's direct customers build consumer electronics, and fully 25% of the company's sales flow into mobile phones, so when those customers slow down their chip orders, there's something amiss in the consumer world; the gadgets just aren't selling. That's exactly what is happening right now, according to last night's second-quarter report.

That doesn't mean all doom and gloom for the handset market, of course. Two of National's three largest phone customers actually increased their orders in the second quarter, much like National had expected.

Mum's the word on the identities of those two healthy phone businesses and the rotten major player, of course. National's disclosed customer list includes everyone from Apple (Nasdaq: AAPL) to Nokia (NYSE: NOK) to Motorola (NYSE: MOT), as well as less-expected names like Samsung, which also makes some of its own chips. We've seen no sign of a sales slowdown out of Cupertino, so I don't think Apple would be the bad egg in National's basket. Nokia might qualify on shrinking global market share, and we don't know whether Motorola's latest batch of Android phones has lived up to the success of the first generation. Your guess is as good as mine here.

What's clear is that handset demand ain't what you'd expect in advance of a holiday quarter. Some phone builders are working through existing inventories at the moment, according to National. Others have moved major product launches into future quarters. In some cases, slow orders stem from "shortages in display availability," which is almost certainly a comment directed at notoriously low OLED screen supplies until Samsung and LG Display (NYSE: LPL) can get their new factories up and running.

These trends limited National's sales to $390 million, 5% below the previous quarter. Earnings shrank from $0.36 per share last quarter to $0.34 this time, though that's still a hefty improvement over the year-ago period's $0.20 profit per share. Perhaps most ominously for the company, orders dropped 24% from last quarter.

National's stock is suffering today because of all of these warning signs and slower-than-expected results. Do you see a value play or a failing business? For what it's worth, I'm sticking with my "outperform" CAPS rating on the stock. Feel free to discuss in the comments below.

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