May quarter revenue for National Semiconductor Corp. (NSM) was in-line with consensus expectations, although the EPS exceeded. Both order rates and backlog picked up in the last quarter and distributor inventory levels remain low.
Forward revenue guidance is flat-to-up 3% Q1. New higher-margin products continue to grow in the mix, and management has refocused R&D into areas that should sustain these margins and even expand from current levels. Valuation remains attractive in our opinion. Consequently, we are reiterating our Buy rating on NSM shares.
National Semiconductor has refocused its business on supplying higher margin analog integrated circuits (IC) to some of the fastest-growing markets, including wireless handsets, notebooks, networking and flat panel displays. The company is a top provider of power management components and amplifiers.
Overall bookings for NSM were up both sequentially and year-over-year. We estimate that the book-to-bill ratio was around 1.05. The company is generating steady gross margins (in the 60%+ range) and operating margins (in the 30%+ range). A better product mix, higher utilization rate and manufacturing efficiencies will be offsetting factors versus any decline in sales. The balance sheet is highly leveraged.
It is the intention of management to continue only those non-analog products that are able to generate good margins for the company. Over the last two years, National has been engaged in strategic restructurings that have streamlined operations and lowered the cost of operation.
Sejuti Banerjea contributed to the report.
Read the full analyst report on NSM
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