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September 9, 2004 9:35 pm

National Semiconductor profit tops view

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Analog chipmaker National Semiconductor Thursday posted better-than-expected quarterly earnings and revenue, as an improved product mix supported strong profit margins, sending its shares up 13 percent.

Net income rose to $117.7 million, or 31 cents per share, for the fiscal first quarter ended Aug. 29, from $29.7 million, or 8 cents a share, a year earlier.

?The quarter was very solid,?? said Tore Svanberg, an analyst at Piper Jaffray Co., pointing to the company?s widening gross profit margin. Revenue rose to $548.0 million from $424.8 million.

Analysts had expected a first-quarter profit of 26 cents a share, on average, on revenue of $545.6 million, according to Reuters Estimates. The company had trimmed its outlook last month.

National Semi joined larger chipmakers Intel Corp.and Texas Instruments Inc. in warning of a slowdown, as some have also cautioned that their inventories were rising.

For its current second quarter, National Semi said it expected distributors and some customers to continue ?adjusting backlog and inventories.? As a result, it expects revenue to decline 8 percent to 10 percent from the first quarter.

The forecast implies revenue of $493.2 million to $504.2 million. The company did not forecast earnings per share.

?The reason for our 8 to 10 percent guidance down (in revenue) is primarily because distributors want to adjust inventories,?? said Chairman and Chief Executive Brian Halla in a telephone interview. ?That?s what most of this is all about.?

Analysts now forecast National Semiconductor to have revenue of $570.4 million in the second quarter, according to Reuters Estimates.

Svanberg called the company?s outlook ?pretty weak,? but he highlighted National Semiconductor?s ability to maintain a gross profit margin of 50 percent or more even as revenue declines from the prior quarter.

?That?s unheard of with National,? Svanberg said, adding that ?their product mix has improved considerably.?

Last month, National Semi had warned of lower-than-expected demand, reversing its previous outlook, which called for revenue to be flat to up 3 percent from the fourth quarter when it posted revenue of $571.2 million.

Chief Financial Officer Lewis Chew said on a conference call that the level of orders and revenue reflected a reduction in backlog as a result of customers holding off on orders, adjustments in customer inventories and a more cautious demand outlook.

Halla said demand from top-tier cell phone makers had remained strong, despite weakness from some Asian handset makers, adding that recent price cuts on flat-panel displays should help to spur demand.

Shares of National Semiconductor rose $1.48 to $13.48 in on Nasdaq. The Philadelphia Stock Exchange Semiconductor Index gained 5.4 pct. National Semi shares have declined 32 percent so far this year, compared with a 27 percent fall in the Philadelphia Stock Exchange Semiconductor Index.

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