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National Semi reduces estimates further

The maker of chips for computers and communications cuts its third-quarter earnings target for the second time.

National Semiconductor has cut its third-quarter earnings target for the second time.

The maker of chips for computers and communications said after markets closed Thursday that it now sees third-quarter earnings of 20 cents to 22 cents per share, on revenue of $475 million to $480 million.

Analysts surveyed by First Call were predicting a profit of 31 cents a share on revenue of $558.4 million for National Semiconductor's quarter ending Feb. 25.

Immediately after the news, shares of National Semiconductor traded at $25.50 in after-hours activity on the Island ECN. National Semiconductor fell $1.39 to $27.31 in Thursday's regular trading ahead of the announcement.

Gross margins could fall in the range of 47 percent to 48 percent because of lower factory loadings, the company said. National Semiconductor reported a gross margin of 50.5 percent in the second quarter.

Company executives blamed the third-quarter letdown on fewer orders slated for same-quarter delivery. National Semi sees uncertain demand and a glut of product among its distributors and in PC and wireless handset markets.

"These slow turns clearly tell us that our customers and the channel are still working through their inventory reductions," CEO Brian Halla told analysts during a Thursday afternoon conference call.

The company's disappointment comes after a disappointing near-term forecast from cell phone maker Nokia and an announcement from another wireless giant, Ericsson, which plans to stop making handsets.

"The number of handset sales expected by many of our key customers in the fourth quarter (of calendar 2000) did not materialize," Halla said, adding that some of the company's largest clients still have weeks of components to work with.

The PC market is even more uncertain. "There it's not so much inventory as a softness in demand and the whole Christmas market not materializing," Halla said.

About 50 percent of National Semiconductor's business in the previous quarter came from PC motherboards, chips for wireless handsets, and products for imaging devices such as printers, displays and scanners.

National Semiconductor plans to cut its capital spending for the remainder of its fiscal year, which ends in May. The company now expects $275 million of capital spending for the year, down from an earlier target of $350 million.

Thursday's announcement marks the second time the chipmaker has reduced third-quarter expectations. National Semiconductor first lowered third-quarter estimates Dec. 7, when the company reported second-quarter results.