National Semiconductor Corp: Balancing the Current Semi Cycle Top

Many are calling a top in the semiconductor market. Traditionally semiconductors have had four year cycles and from appearances, the top calls are based on this cycle phenomena. Not all semis are affected equally.

National Semiconductor Corp (NSM) has positioned itself as a leading analog player. NSM's products include audio & operational amplifiers, communication interface products, data conversion and power management circuits. NSM's key markets include automotive, display, industrial, medical, test & measurement and wireless applications.

Short term technical analysis shows support at $23.50 and resistance at $26.00. Longer term fundamentals indicate that NSM's top line growth has been clipped and earnings will be hard pressed to mach the previous 12 months. Estimated EPS for FY2007 (May) is $1.10. Estimated EPS for FY2008 is $1.10. Though revenue may slip in FY2008, margins should improve through cost saving measures including the closing of the Singapore test facility.

NSM has maintained a healthy cash position. With over $800M cash on hand (since mid 2005), there has been some speculation that NSM is on the lookout for new acquisitions. To go by past history, NSM may make an acquisition to gain technological know-how and spin-off the acquisition several years down the road. Such was the case with Fairchild. Possible companies in play may not possess analog expertise. A complimentary technology with little to no NSM in house R&D is probably more likely.

NSM 1-yr chart

Disclosure: No conflicts.