Despite a tough market that's hurt other semiconductor companies, National Semiconductor (NYSE:NSM) seems to be on a slow but steady road to recovery.

Revenue in the fourth quarter declined 18% from last year, but grew about 4% from the third quarter. While quarterly net income performance is obscured by a sea of charges, gains, and benefits, gross margins improved, though operating income (excluding charges and gains) fell about 25%.

Bookings dropped 29% on a year-over-year basis, but were up 12% sequentially. Better still, there were disproportionately higher bookings in higher-margin lines like power-management, interface, and data-converter products.

For the full year, National Semiconductor reported a strong balance sheet. Receivables and inventories both declined, and operating cash flow grew nearly 11%. Including capital expenditures, the company posted free cash flow of $432 million for the full fiscal year.

Several statements from management suggest a promising future. First, the company has sold its advanced PC business and plans to sell its cordless business. This could prove to be addition by subtraction, as these lines aren't as appealing from a growth or margin perspective.

Second, management believes that distributor inventories have declined to more-or-less desired levels. Given that much of the industrywide semiconductor morass stems from inventory gluts, that's good news. Future growth should be more tied to actual end-user demand than inventory work-offs.

I have a lot of respect for this company. Despite a tough year, it maintained a return on invested capital of over 20% and a strong balance sheet. What's more, management is clearly focused on gearing the business toward better profitability by jettisoning commodity lines.

That said, I'm not sure what to make of present valuation. With shares trading at an enterprise value-to-free cash flow ratio of about 14, their price seems more or less in line with likely long-term growth. I don't doubt that an eventual recovery in semiconductor companies (and a renewed enthusiasm for the stocks) could take National Semiconductor along for the ride, but the shares seem pretty much fairly valued to me today.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).