National Semiconductor: A Return to Chips Could Be Good in the Long Run

Apr.11.10 | About: National Semiconductor (NSM)

by Eric Wesoff

National Semiconductor (NSM) was founded in 1959 and funded by the Sprague family in what is characterized as the beginning of the era of venture capital. National's founders and contributors have gone on to found or fund many of Silicon Valley's premier technology and venture firms. The firm sold $1.46 billion of analog devices, operational amplifiers and power management circuits in 2009.

In June of 2008, the company, under CEO Brian Halla, entered the photovoltaic market with its SolarMagic DC-boost power optimizer product. It was a departure for the integrated circuit firm to attempt entry into a new market with a higher-ASP subsystem, rather than a chip.

In 2009 National acquired Energy Recommerce, a solar monitoring startup, as well as ACT Solar, a string level Maximum Power Point Tracking startup.

In a FQ3 2009 earnings call, CEO Halla identified the Total Available Market for its product as 2.5 million units.

Unfortunately for National, the company is still only nipping at the margins of the market. National has sold about 1,000 SolarMagic units at an average price of around $150, according to our sources. As a result, National is in the midst of reorganizing its solar business, and a big part of it will involve converting the SolarMagic business into a chip unit. We spoke with inside sources, National employees and recently departed employees, as well as industry folk outside the company. This is some of what we've learned:

  • National will focus on power chip sales
  • The ACT Solar and Energy Recommerce products will be kept intact, for now
  • The unit remains under the management of Andrew Foss, of the ACT Solar acquisition
  • Marketing and business development people are being rechristened as sales people or as former employees

A change in corporate leadership at the company is likely playing a part. Late in 2009, Halla -- a classic Silicon Valley go-go marketing guy -- retired amicably and was replaced by CFO and COO Don Macleod. In a press release, Macleod said, "We are working with one manufacturer in China to integrate electronics onto the back solar panels and this is another $100 million opportunity for us in three years' time."

In the most recent earnings call, the new CEO said:

"We continue to ship our SolarMagic reference design product to demonstrate the role that power management semiconductors can play to improve overall solar power efficiency. Of course, our focus here going forward is to have power management chips integrated into individual solar panels by the panel OEMs and junction-box manufacturers. We’re on track working with large-volume panel manufacturers for them to bring products to the market in the second half of this calendar year."

So, SolarMagic is downgraded to a reference design and the focus shifts to shipping chips.

On the other hand, returning to chips could be good in the long run for National. The company has long specialized in power optimization and has a deeper engineering bench and greater experience than many incumbents in solar. While it looked like its competitors were SolarEdge, Tigo and eIQ in DC-boost products and Enphase, Petra Solar, or SolarBridge in microinverters, from all of its previous marketing efforts and industry panel appearances, it turns out that those firms are now its customers, or at least potential customers. And SolarMagic's competition are actually the power management chip firms TI, ST, Maxim (NASDAQ:MXIM) and NXP. Just like the good old days.

In the words of an ex-employee, "SolarMagic faced a very predictable problem -- an entrepreneurial group within a publicly traded company with short-term revenue-per-person expectations. It could have worked if you have a champion -- but Brian [Halla] left."

National Semiconductor Public Relations responded to our inquiry with this statement:

"National remains committed to the development and sales of its SolarMagic suite of products -- both power optimization and performance monitoring and management. We call this 'Active Power Management,' which is a complete solution for solar installation owners looking to get the maximum power output from their arrays while boosting return on investment. Today, National is in the midst of developing new SolarMagic products that will broaden the range of features, functionality and price points in order to penetrate more segments of the solar market. Our next big product launch is scheduled for June 9 at Intersolar Europe."

Disclosure: No positons