SANTA CLARA, Calif. -- Worried Wall Street analysts today heard reassuring words from National Semiconductor Corp. executives, who said there is no evidence that chip demand in wireless phones is cooling despite major adjustments in inventory by some of the top-tier handset makers.
During a conference call with analysts, National Semiconductor executives said wireless chip customers were continuing to forecast 420-to-430 million cellular phone shipments in 2000, and preliminary forecasts from handset makers now show the number of phones could increase by 40-50% in 2001. Last year, 270 million cell phones were produced worldwide.
"Most of the year is almost behind us and so that number for 2000 looks like it will be pretty close," said Don Macleod, chief financial officer of National. "We are working on early indications from our customers on what they want next year, from a procurement perspective, and they are talking 600-to-650 million handsets at this point," he said, responding to a question about the outlook for next year's growth.
Today's conference call was hosted by National after the company posted a 33% increase in net revenues to $640.8 million in the first fiscal quarter, ended Aug. 27, compared to $481.8 million last year. National's net income grew to $144.2 million vs. $47.1 million in the quarter last year, including special charges and gains (see today's story).
High on the minds of financial analysts was the state of the wireless chip market. About 25% of National's revenues come from that segment, according to company officials, who admitted that there had been significant adjustments by key customers in that market during the last three months.
"The good news for National is that it felt like to us more shifting market share amongst the Tier 1 handset suppliers and to a lesser extent from Tier 1 to Tier 2," said Brian L. Halla, chairman and CEO of the Santa Clara chip company. "But based on what we see and what we hear from our customers, we still feel the market will support the 420-to-430 million units, and the back half of the year 2000 should be stronger than the front half."
Halla said it is becoming more complex to serve the cellular phone industry as chip customers shift more of their handset production to third-party manufacturers and product life cycles shrink. LM Ericsson of Sweden continues to be National's largest wireless chip customer, he said. Another big customer--Motorola Inc.--has just completed a major adjustment in backlog orders as it repositions itself in the low-end of the handset marketplace, Halla noted.
"From our vantage point, we think these adjustments are behind us and we have seen restored order rates in just the last few weeks to support that belief," said the CEO, referring to Motorola's chip purchases for cellular phones.
For other cellular phone manufacturers, inventory adjustments are mostly completed, according to Macleod, but he added that some shortages of components still are keeping National customers "protective" in releasing new designs to manufacturing. "Some of those components are semiconductors--not ours--and some of those components are passives and connector type products--again, not our," the CFO told analysts. "I'm not sure the industry is clearly beyond the stage of being somewhat protective in its ordering patterns to insure that they have all the right components for new product launches.
"Our lead times for semiconductors haven't changed," Macleod assured the analysts and press during the conference call. "We are still in the mode of being able to quote whatever the customers want--typically being six to eight weeks. Our manufacturing machine is supporting that."
National executives said they wanted to wait until the fourth quarter of this year before firming up their own forecasts for cellular phones in 2001. "But it is looking pretty good for a market that was only 270 million phones last year," Macleod added.