Friday, December 08, 2006

Color on news: National Semi (NYSE:NSM)

While several firms are commenting on National Semi (NYSE:NSM) following disappointing results announced last night, Wachovia puts it best:

Firm notes that investors who are bullish will likely point to the magnitude of National's lower guidance as so bad that it probably represents the trough. While this may be so, the firm believes that the pace of the recovery will likely prove much slower than what is priced into semiconductor stocks following the recent run up. In their view, one of the main differences between the 2004 and 2006 down cycles is the greater risk of economic slowdown today. They expect to see better entry points for NSM and the semi group in the coming months. Wachovia's FY08 EPS estimate for National has been revised down by 32% since 8/22/06.

With investors mostly focused on the ongoing inventory correction, the firm believes slowing end demand may be overlooked. In their view, National's 16% sequential decline in orders (notably at the OEM and contract manufacturer level) goes beyond just an inventory correction. They believe sluggish turns business (orders booked and shipped in the same quarter) foreshadows a slowing end demand environment. In terms of end markets, National expects a slowdown in wireless handsets, flat panels, and computing in the February quarter, led by continued inventory burn and slow build rates post the holiday season.

Wachovia's new February quarter estimates are $454 million in revenue and $0.27 in EPS, down from $494 million and $0.32. FY07 (May year-end) goes to $1.96 billion and $1.30, down from $2.05 billion and $1.40. FY08 goes to $1.98 billion and $1.26, down from $2.16 billion and $1.47.

Valuation range: $22-$24. Maintains Mkt Perform.

Notablecalls: The stock ended pretty much where it closed. Amazing resilience. Agree with Wach here - don't think it will last.

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