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National Semiconductor (NSM)
National Semiconductor Giving the Pink Slip to 26% of Workforce
Despite beating analyst expectations for their recent 3Q, National Semiconductor stated this morning they would be cutting 1,750 jobs as well. This is about 26 percent of the company's workforce. The cuts themselves will come about in two ways. First, 850 people will be released effective immediately, and over several quarters, two plants will then be closed, forcing another 875 jobs to be lost. The company is expected to take charges of $160-180 million because of this. Shares of the company's stock rose to about $12 per share in Wednesday's early trading session, indicating investors believe the company is making the right decision. After markets were open however, shares steadily declined. Following Tuesday's market rally after Citigroup (C: Charts, News, Offers) announced that the last two months were profitable, pundits are claiming a few consecutive sessions of solid gains can restore the economy. If this is the case, could National Semiconductor's actions be seen as a bit hasty?
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Probably not. A few strong days of rallies will be insufficient in stimulating demand in the tech industry, much less in the company. Though they were able to make a profit of $21.1 million for the quarter, sales for the company fell by as much as 36 percent in this last quarter. The decline seems logical considering fewer individuals are purchasing consumer electronics like digital cameras or mp3 players. The company's chips are also used in cell phones, cars, and even some aerospace products -- which may serve to explain why they were able to generate a profit. As a result of the job cuts however, the company is expecting future sales to fall by 5-10 percent. Wall Street, however, is expecting earnings to be flat.
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National Semiconductor currently owns five manufacturing plants. One of the plants they are closing is in Suzhou, China. That plant is a semiconductor assembly and testing facility. The other plant, located in Arlington, Texas produces wafers, a thin material that acts as a base upon which transistors and similar materials can be placed. $130-145 million of the charges associated with closing down these plants will be accounted for in this quarter, while the remainder in subsequent quarters. Closing down the plants in China and Texas probably makes sense considering the company plans to do it in phases. If the economy suddenly turns around or if there is a sudden breakthrough in technology that requires the semiconductors on a large-scale, their position to take advantage of the opportunity will be lower. However, the other two plants may still be somewhat functional, and that is better than completely shutting down. Hoping for a large break-through may be little more than wishful thinking for the company, but it makes sense to be prepared for the best potential outcome while planning for the worst.
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In comparison to their competitors, National Semiconductor has done decent so far. The company still plans to pay out a dividend of 8 cents per share to shareholders, and they were able to turn a profit. Texas Instruments (TXN: Charts, News, Offers), for example, is struggling to break-even. In fact, TI forecasted yesterday that they would have stronger revenues but face a loss of 8 cents per share. Its stock rose 5 percent on this revised guidance. They also have a more diversified product offering and are about 10 times larger in terms of market cap so a small loss here and there may be less adversarial. Though National Semiconductor is falling on harsh conditions, their management team is demonstrating that they are committed to sustaining the company over the long-run. Their actions have demonstrated they are doing a relatively good job with making decisions. Unless top management is changed or altered, the company should be relatively sound continuing into the future. The rest will be up to market forces, the quality of their products, and the results of future R&D.
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