National Semiconductor Corp's fiscal third quarter started two weeks ago, and its sales outlook so far prompted Salomon Smith Barney Inc analyst Jonathan Joseph to raise the shares to "buy" from "outperform." The company's forecast wasn't enough for Joseph's peers.
Twelve of the 16 analysts tracked by reporters who follow the maker of chips for cellphones and computers issued reports Friday.
Only Joseph raised his rating.
While National Semiconductor shares fell 2.1 percent, some investors agreed with Joseph's analysis.
"You can't run a computer without a chip," said John Kornitzer, president of Kornitzer Capital Management Inc, which oversees about US$2 billion in Shawnee Mission, Kansas, and owns National Semiconductor shares. "We think long-term the best semiconductor companies, including National, will do well."
National Semiconductor Thursday told investors third-quarter revenue would be US$350 million to US$370 million -- a range of down 4.5 percent from the second quarter to up 1 percent. That was better than Joseph's guess of a quarter-over-quarter decline in revenue of 5 percent.
Joseph, who didn't return calls seeking comment, said in a note to clients that the stock could climb 29 percent over the next 12 months, adding to its 65 percent year-to-date gain. Shares of the Santa Clara, California-based company fell US$0.71 to US$33.89 Friday.
"Though the stock has run some from recent lows, we believe valuations are not overdone," Joseph wrote. National Semiconductor's price-sales ratio of 3.9 is more than three times the industry average of 1.2, though below the high of 7.1 set last year.
What's good for National Semiconductor might also be good for its rivals, said Joseph, the top-ranked chip analyst in Institutional Investor magazine's 2001 survey.
Thanks to the timing of the company's quarter, National Semiconductor's forecast "has tended to be a good leading indicator for the March quarter outlook for the semiconductor sector as a whole," he wrote.
Joseph said customer demand is running higher than order rates, new products are generating incrementally higher sales and chip orders are accelerating.
Having demand that's higher than order rates is both good and bad for National Semiconductor, said Joseph.
The good news, he said, is that sales booked and shipped in the same quarter have picked up, from about 25 percent in the first quarter to about 29 percent in the second. The bad news is that those sales need to be in the low 30 percent range for the company to meet its revenue forecast.
Some of Joseph's peers focused on the bad. Merrill Lynch & Co's Joseph Osha said in a note to clients that the risk of that business not reaching the low 30 percent level is one reason he kept his "neutral" rating on National Semiconductor shares. Osha didn't immediately return a call for comment.
Regardless, Joseph sees National Semiconductors chip sales improving in the coming year.
"Increasingly," he said, "our distributor and broker contacts tell us that business is picking up across the board."
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