National Semi reports layoffs, income drop

The maker of chips for cell phones and other devices says it may report a loss and will shed 10 percent of its workers.

National Semiconductor on Tuesday warned that its revenue and earnings will fall short of Wall Street estimates and that it will eliminate 1,100 jobs, or about 10 percent of its work force.

National Semi said in a statement that it now expects sales to be between $390 million and $400 million, down 16 percent to 18 percent from the previous quarter. Excluding charges, the company said it expects to post anywhere from a break-even result to a loss of 4 cents a share.

According to First Call, analysts had expected the company to report a profit of 4 cents per share.

National Semi, which makes chips for cell phones and consumer electronics devices, said the job cuts will come through a combination of layoffs, attrition and retirement and affect 800 full-time employees and 128 contractors. The job cuts, along with an effort to reduce other costs, should save the company about $70 million to $80 million a year, National said.

"This was a tough action for us to take, especially because it impacts many people who have served National well," CEO Brian Halla said in the statement. "However, given the continuing weakness in the marketplace, it is necessary to conform our resources to the market in order to maximize National's opportunity for long-term success."

The company said it also expects to take charges of $25 million to $30 million for the cost-reduction program--plus a second charge of $10 million to $12 million for investment writedowns--when it reports fourth-quarter earnings June 7.

Halla said during a conference call with analysts that when the company made its last forecast in March, it expected February would mark a low point. However, orders fell further in March and did not recover in April.

Chief Operating Officer Don Macleod said National Semi is being hurt by a glut of components being held at its main customers, the makers of cell phones and the contract manufacturers that make handsets for the cell phone companies. Macleod said the company's order rates for April also suggest there is not strong recovery in the PC market.

"We're in an environment where we see very cautious order behavior," Macleod said during the conference call. Macleod said cell phone makers are working through the excess inventory and that National Semi is probably three to six months away from seeing more normal orders in its cell phone business.

Tore Svanberg, an analyst at Robertson Stephens, said that while the PC industry is showing some signs of life, the cell phone market continues to be weak. Other factors are compounding a buildup of inventory in both completed handsets and components, he said.

First, a number of cell phone makers are in the process of transitioning from making their own handsets to contracting out the work. Secondly, slow sales and high inventories are prompting cell phone makers to delay introducing new products.

That adds up to continued tough times for companies like National Semi, Svanberg said.

"Maybe we haven't reached bottom yet," he said. "Certainly we are getting closer."