National Semiconductor Reports Results for First Quarter Fiscal 2007

National Semiconductor Reports Results for First Quarter Fiscal 2007

• Q1 earnings per share came in at 35 cents compared to 24 cents per share in last year’s Q1    
• Record gross margin percentage improved to 61.7% vs. 56.2% in last year’s Q1    
• Q1 revenues were $541.4 million, down 5.4% from Q4 of Fiscal 2006 but 9.6% higher than Q1 of Fiscal 2006    
• Revenue outlook for Q2 of Fiscal 2007 is down 2 to 5% sequentially mostly due to lower foundry revenues for divested businesses

September 7, 2006 - National Semiconductor Corporation (NYSE:NSM) today reported net income of $120.1 million, or 35 cents per share, on revenues of $541.4 million for the first quarter of fiscal 2007, which ended August 27, 2006.  National’s first quarter of fiscal 2007 results included $23.9 million in pre-tax stock compensation expenses as the company began accounting for stock compensation under FASB Statement 123(R).

On a sequential basis, National’s Q1 revenues declined 5.4 percent from the fourth quarter, when the company reported $572.6 million in revenues and earnings of 34 cents per share.  Year over year, National’s first quarter sales increased 9.6 percent from the first quarter of fiscal 2006, when the company reported sales of $493.8 million and earnings of 24 cents per share.

First quarter gross margin rose to a record 61.7 percent due to the enhanced mix of high-value analog products and included, for the first time, $2.5 million of stock compensation expense accounted for under FASB Statement 123(R).  This compares to the 61.4 percent gross margin reported in Q4 of fiscal 2006 and 56.2 percent gross margin reported in Q1 of fiscal 2006.

“Our sales were impacted by lower-than-expected shipments to wireless handset and LCD flat-panel customers.  As expected, our foundry sales for previously sold businesses were also down in the quarter,” said Brian L. Halla, National’s chairman and CEO.  “In general, demand for our higher-margin standard linear products in the broad market held up in the quarter.  This, along with disciplined expense management, allowed us to increase gross margin percentage and improve earnings per share.”

Noteworthy Items
National’s Q1 results included $23.9 million in pre-tax stock compensation expenses of which $2.5 million was included in cost of sales, and the remainder was included in operating expenses.  This is the first quarter that National has reported stock compensation expensing under FASB Statement 123(R).

Booking Patterns for Q1, Fiscal 2007
National's total company bookings in the first quarter of fiscal 2007 were 13 percent lower than they were in the fourth quarter of fiscal 2006.  This decrease was driven by lower orders from the distribution channel and wireless handset customers as well as from foundry activity supporting previously divested businesses.  Regionally, first quarter bookings declined sequentially in all geographic areas.  Total company billings exceeded bookings in the first quarter.

Outlook for Q2, Fiscal 2007
National anticipates that revenues in the second quarter will decrease approximately 2 to 5 percent from first-quarter levels mostly due to a decline in foundry revenues that support previously sold businesses. The company also anticipates that gross margin percentage in Q2 will be lower than Q1’s gross margin percentage but should remain above 60 percent.

Company Declares Dividend
The Company today declared a cash dividend of $0.03 per outstanding share of common stock.  This dividend will be paid October 10, 2006 to shareholders of record at the close of business on September 18, 2006. 

Special Note
This release contains forward-looking statements dependent on a number of risks and uncertainties pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  These factors include, but are not restricted to, new orders received and shipped during the quarter, the degree of factory utilization, the sale of inventories at existing prices, and the ramp up and sale of new analog products.  Other risk factors are included in the Company's 10-K for the year ended May 28, 2006 (see Outlook and Risk Factors sections of Management's Discussion and Analysis of Financial Conditions and Results of Operations).

About National Semiconductor
National Semiconductor, the industry's premier analog company, creates high-value analog devices and subsystems.  National's leading-edge products include power management circuits, display drivers, audio and operational amplifiers, interface products and data conversion solutions. National's key analog markets include wireless handsets, displays and a variety of broad electronics markets, including medical, automotive, industrial, and test and measurement applications. Headquartered in Santa Clara, Calif., National reported sales of $2.16 billion for fiscal 2006, which ended May 28, 2006.  Additional company and product information is available at www.national.com.

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