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National Semi stock drops

The company's stock falls as analysts cut earnings estimates for the firm a day after it announced plans to buy Cyrix.

National Semiconductor's (NSM) stock fell today as analysts cut earnings estimates for the company a day after it announced plans to buy Cyrix (CYRX).

Cyrix, on the other hand, saw its share price jump as much as 13.3 percent in morning trading to 26-1/8 before ending the day at 24-15/16, up 1-7/8 over yesterday. Before the merger announcement, made yesterday after the market closed, Cyrix's stock price had been sliding steadily from its 52-week high of 30 in late February.

Under the deal, Cyrix shareholders will exchange each of their shares for .825 of a National share.

National Semiconductor rose as high as 30-1/2 today before closing the day at 31, down 2 points over yesterday. National recently hit a new 52-week high, rising to 37-1/2 on July 16.

A number of analysts lowered their annual earnings estimates for National today, though changes to purchasing recommendations were more of a mixed bag, according to First Call.

"Flip a coin on the recommendations," said Chuck Hill, a First Call spokesman. "Two analysts issued downgrades and two, upgrades."

On the downgrade track, one analyst lowered his recommendation to "buy" from "strong buy," while another went to "neutral" from a "buy."

Another analyst, however, jumped to "strong buy" from "neutral," and yet another moved to "buy" from "neutral," Hill said.

On the earnings front, seven analysts lowered their fiscal 1998 earnings estimates by 5 to 10 cents. Before the changes, the consensus was $1.80 a share for the year. "It's not like it's a major reduction," Hill said.

But the outlook for fiscal 1999 is a toss-up. Two analysts dropped their earnings estimates by 15 to 20 cents, while two raised it by 10 cents, Hill said. The consensus before the acquisition announcement was $2.26 a share for the year.

Analysts had expected National's stock to trade moderately to slightly lower as a result of the merger.

National expects to recognize a one-time charge related to certain acquisition and related expenses in its November quarter, when the deal is expected to close. National said it does not expect to match analysts' expectations for its earnings until 1999.

Cyrix recently reported a shrinking second-quarter loss of $5.3 million, compared with $16.4 million a year ago. And, although revenues climbed to $40 million in the quarter--up from $27.1 million a year ago--Cyrix's revenues fell 50 percent from $75.6 million from the previous quarter, as sales for its older microprocessor chips fell.

The deal is expected to bolster both companies' efforts to design system-on-a-chip technology for the rapidly growing entry-level PC, network computer, and information-appliance markets, where Cyrix has already made headway.

On the entry-level PC front, Compaq is using the Cyrix MediaGX processor in its sub-$1,000 Presario PCs. The MediGX offers the closest thing to a system-on-a-chip in the Intel-compatible PC market to date; it combines a Pentium-class processor with graphics chip capability.

"The unique combination of technologies resulting from the merger gives us all of the building blocks to provide complete system-on-a-chip solutions for sub-$500 PCs and a broad range of low-cost information appliances," National CEO Brian Halla said in a statement.

"Cyrix's family of high-performance and high-integration x86 processors will enable National to drive dramatic market growth for products such as network PCs, handheld PCs, Net browsers, and other information appliances that are becoming extremely affordable," he added.

Analyst C.B. Lee, with Hancock Institutional Equity Services, said yesterday that the merger plans make strategic sense. "National has all the building blocks to do systems-on-a-chip, and this gives them the microprocessor core," he said.

He added that Halla comes from LSI Logic, which is developing system-on-a-chip technology.

"He's after a PC-on-a-chip. I don't fault his vision, but it may take a while to get from point A to point B," Lee said.

National Semiconductor is but the latest entrant into the market for processors that would go into dirt-cheap computers. Computer users and manufacturers alike are beginning to focus less on speed and more on need.

National has been developing its own Pentium-class Intel-compatible processor, dubbed "N7." Plans called for the chip to ultimately cost as little as $30; it had been slated for sub-$500 Net PCs and network computers, National executives told CNET's NEWS.COM in May. Whether this effort will survive the merger remains to be seen.

But one thing is sure: The combined companies will accelerate an assault on the market for full-function computers that cost less than $1,000.

"Cyrix has already started this with MediaGX [systems], which [are] below $1,000. National wants to take this to $500," said Mike Feibus, an analyst at Mercury Research, a marketing research firm based in Arizona.

"This is a good time to start to attack this market. A $1,000 PC today is more than adequate for many people. This leaves them room to bring the price lower," he added.

National, Cyrix, and others are developing new processors that they hope will result in truly cheap PCs and clear away what a rising number of industry observers are calling a widespread but myopic preoccupation with speed.

"For the last ten years, the industry has been totally focused on one parameter--performance. PCs are fast enough," said Dean McCarron, an analyst at Mercury Research.

Feibus added that a National "dream" has been to design a system on a chip, and this was the reason it purchased chipset maker Pico Power from Cirrus Logic.

Maybe most important for Cyrix is that National brings an established name as well as manufacturing capability, two essentials that, to date, Cyrix has not had.

"Top-tier PC vendors are used to dealing with National. [Also], in the long run, to be a big player they'll need manufacturing," Feibus said of Cyrix, which has been relying on IBM for most of its manufacturing to date.

National Semiconductor said earlier this month that it broke ground on a $100 million expansion of its 8-inch wafer manufacturing facility in Santa Clara, California. The facility will be capable of advanced chip manufacturing and able to manufacture advanced Cyrix processors.