SANTA CLARA, Calif. -- National Semiconductor Corp. officials today blamed the easing of chip inventories at major PC and wireless handset houses for causing an unexpected shortfall in orders during the current fiscal quarter, which ends Nov. 26.
During a conference call with financial analysts this morning, National's CEO and chief financial officer said they did not believe overall demand for end systems was the problem. Instead, major chip customers now appear more confident about their ability to get devices for products, and that led to a "workdown" of inventories in the recent weeks, said the managers.
After inventories have been reduced by large customers--especially cell phone manufacturers--National expects sequential revenue growth to resume in the 2-to-5% range during the next quarter, which ends Feb. 25.
Today's conference call came after National surprised investors on Monday by announcing revenues would be 6-to-8% lower than the $641 million reported in the company's fiscal first quarter, ended Aug. 27. National said the shortfall may result in a drop of 2.5 percentage points in gross margin to around 51% in the current quarter (see Oct. 23 story).
"In the February quarter, we are expecting 'turns orders' to pick up as we go through the rest of the  calendar year--over the next few months," said Don Macleod, chief financial officer of National. The company has received an increase in orders of 45% to 600% from some of its major customers for products next year, according to Brian Halla, CEO, who was referring to National's overall sales penetration at key accounts for 2001.
National's cellular-phone chip customers are now basing their 2001 forecasts on global markets reaching 525-to-575 million handsets vs. about 400-to-425 million in 2000.
"We are comfortable with those numbers," said MacLeod, who denied that National had bought into forecasts of more than 600 million cell phones next year. In a conference call last month, National executives said some customers were hinting of 40-to-50% unit growth in cell phone shipments worldwide, which would have pushed total number of units over 600 million (see Sept. 7 story).
The problem now, however, is finishing up the inventory workdown after customer stocked up on semiconductors earlier this year. "The typical input we are now getting from our two largest customers in the phone area is that they have six to seven weeks worth of inventory at this time. They would like to work that down to zero or four weeks," Macleod said. In the case of one of those two major customers, inventories were as high as 12 to 13 weeks and now cut in half, he said.
"We can blame ourselves for not knowing that [situation] four or five weeks ago," said the chief financial officer in explaining to analysts why the company's guidance last month did not warn of an inventory correction.
As a result of the inventory correction, National's "new order turns" in the current quarter--orders resulting in sales during the same period--will reach $75-to-80 million vs. an expected $160-to-170 million range, said the company managers. About two-thirds of the shortfall is in the wireless segments, said MacLeod. That means the backlog with wireless chip customers dropped $50-to-60 million from the last quarter's $160 million backlog.
"The inventory adjustments made by a few handset customers and the overall customer confidence in [product] availability, caused a slower than usual order pattern," Macleod said. He said customers believe they will complete their reduction of inventories by the end of 2000 and resume normal bookings in National's fiscal third quarter, which ends Feb. 25.