Last Update: 7:21 PM ET Mar 10, 2000 Silicon Stocks
Hardware Report
SANTA CLARA, Calif. (CBS.MW) -- Even as Wall Street brokerages came out to defend the stock, shares of National Semiconductor spiraled lower Friday, reversing a lengthy runup for the issue a day after the chipmaker reported strong third-quarter earnings growth.
National Semi (NSM: news, msgs) shares -- which were trading around $85 at the beginning of the week -- dropped 8 3/4 to 70 1/4, after closing at 79 1/8 in the previous session. Even so, the shares are up 60 percent for the year.
Analysts said National Semi now expects its tax rate to be 20 percent in 2001, which is up from its earlier guidance. Additionally, the company's sequential sales growth guidance for May moved down to 6 to 8 percent from the previous outlook of 10 percent or more.
"So you have some selling on the news, numbers that aren't going up drastically, mainly because of the tax rate, which should not be a blemish, but in this environment, it's going to be perceived as one," said David Bujnowski, an analyst at Warburg Dillon Read.
Higher price target
Responding to what it perceived as positive news, Warburg lifted its price target on National Semi to $100 a share from $68 and maintained its "buy" rating on the stock following the earnings report. Analysts Greg Mischou and Bujnowski said National Semi is well positioned in the fast-growing computer and electronics markets, with potential for upside in the information-appliance market.
Likewise, Erika Klauer at Deutsche Banc Alex. Brown increased her 12-month price target on the stock to $110 a share.
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"National's core analog and wireless businesses continue to be the company's primary growth drivers as National remains one quarter ahead of its original earnings recovery plan laid out one year ago," the analyst wrote in a research note.
Meanwhile, although J.P. Morgan expressed some concern about the aforementioned tax rate and sales guidance, the investment firm set a price target of $101 on the stock.
Whatever the views, the stock was under pressure, and investors seemed to believe National Semi's strong earnings news marked a point where its value had gotten too high to last.
The quarter
The Santa Clara, Calif.-based National Semi said Thursday that it earned $99.8 million, or 51 cents a share, excluding net gains from special items. That compared to a loss of $27.2 million, or 16 cents a share, registered in the year-ago period. Analysts polled by First Call expected the semiconductor maker to post a third-quarter profit of 45 cents a share.
Sales for the third quarter hit $548.9 million, a jump of 22 percent from the year-ago quarter's revenue of $500.1 million.
National Semi recorded a $222.3 million gain in the latest period from the sale of its interest in Fairchild Semiconductor (FCS: news, msgs), among other items.
Gross margins widened to 48 percent, up from 45 percent in the fiscal 2000 second quarter. Worldwide bookings for the period rose more than 30 percent from last year's third quarter, the company said, yet slipped from the November 1999 quarter.
Additionally, bookings for its analog products used in mobile phone handsets and communications markets increased more than 40 percent in the third quarter.
National Semi also expects to score improvements in revenue, gross margins and operating earnings in the final quarter of fiscal year 2000 from third-quarter levels.
Janet Haney is a reporter for CBS MarketWatch.
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