Wednesday, November 08, 2006

Calls of Note Part 1

Several firms are commenting on National Semi (NYSE:NSM) after the co warned for Q4 last night:

- JP Morgan notes NSM is among a long list of HPA companies to cite handsets weakness due to an inventory correction. They expect similar 4Q softness from other companies in their coverage space with significant handsets exposure, namely, SMTC (21%), Maxim (15%), ADI (12%), BRCM (10%), ISIL (8%) and LLTC (7%).

Cutting estimates from $522M/$0.30 to $500M/$0.27. F07E estimates have also changed from $2.143B/$1.33 to $2.067B/$1.23. Firm expects growth to resume in the May-07 quarter once the handsets inventory is worked off and distributors reach desired inventory levels, and the foundry business winds down.

National is currently trading at 17.6x C07E EPS estimate, in-line to the peer group at 17.7x. Maintains Neutral rating on NSM as it underperforms during downturns due to high vertical market exposure.

- Citigroup notes that after witnessing 4Q06 revenue outlooks averaging -4% from LLTC, ISIL, and MXIM, they are not totally surprised with NSM's update. NSM attributed the miss to its handset business, suggesting a $22M shortfall in what is typically 30% of NSM
revenues, or a 14% miss on prior expectations for this business. The firm confirmed
with NSM that weakness was observed across its breadth of tier-1 customers as well as across direct and distribution channels.

On fundamentals, the magnitude of the miss casts new doubt on the strength of handset component demand pull from the supply chain in 4Q06, though does not offer any new news on handset finished goods end demand strength. For NSM's share price, while the revenue outlook is disappointing, the updated guidance suggests that NSM continues to execute well on its margin improvement objectives supporting the central tenet of firm's Buy thesis. Valuation remains inexpensive in absolute terms and relative to other analog names on a P/E basis, making the shares interesting for investors looking for a higher-quality story.
Tgt goes to $28.50 from $29.

Notablecalls: NSM was down around 1% in after hours trading following the news. The mobile phone business is saturated and I must say I see very little growth in the coming yr or so. 3G phones continue to be expensive and difficult to use. Think the thin phones from Motorola have been an important driver of overall demand. That looks to be slowing dramatically. Suspect we will see additional pricing pressure on the component side meaning estimates are likely still too high on many of the semi names. NSM's gross margin is still around 60% which is a lot and will most likely decline over time. I expect NSM stock to be lower over the next months.

1 comment: said...

World's Largest Thanksgiving Dinner to Thank our Troops and Veterans at Thanksgiving.

I am involved in a really great program to thank our troops and all veterans of World War II, Korea, Vietnam, Desert Storm, and the War on Terror. Together, we can send them an awesome expression of support this Thanksgiving. Brian Littrell of The Backstreet Boys is the spokesperson.

All you have to do is register your Thanksgiving Dinner at to be included in the World's Largest Thanksgiving Dinner. On Thanksgiving Day, we will thank all our troops and veterans for protecting us and for protecting our freedom.

We want the young people of America to know that Freedom is not Free, so please register today. There is no charge to register and JUST BY REGISTERING, you will be showing your support of the troops and our veterans. When you register, if you want you can get your own web page to send to friends and family. For more information, go to

There are 24 million veterans in America. Our goal is one million families thanking our troops and veterans this Thanksgiving! You are One in a Million, so please sign up today at

We are losing 1,800 World War II veterans everyday, so let’s all say thanks before it is too late. So, pass this on to anyone and everyone who knows a veteran or one of our troops, or just wants to say thanks. To help reach our goal, put this on as many blog sites as possible, we want everyone in America to have the opportunity to thank and honor our men and women in uniform.

They stand watch for us; here is our chance to say thanks! Please don’t put it off, do it now—thanks!