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Tickers in this Article: NSM, TXN, INTC, AMD, ADI
National Semiconductor Corp. (NYSE: NSM) reported a healthy fourth quarter and just ended fiscal 2010. Revenue, net income and margins were all up substantially. This continues a positive trend for the company, which also projected a promising outlook.

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Chip Outlook Improves
The Semiconductor Industry Association raised its forecast for chip sales to a 28.4 percent increase this year. National Semi's earnings report came out shortly after Texas Instruments (NYSE: TXN) raised the lower end of its guidance. Texas Instruments cited continuing strong demand for chips, which has been unaffected by the European debt crisis.

National Semi also cited strong demand for its industrial products, including analog products and wireless handsets. Revenue for the Q4 was $398.5 million, up from last year's Q4 of $281 million. Net income rose to $79.2 million from a loss of $63.7 million, due in part to $116.1 million in restructuring charges during the same quarter in fiscal 2009. EPS was 33 cents versus a loss of 28 cents in last year's quarter. The revenue and earnings represent both sequential quarterly and year-over-year increases.

For fiscal 2010, revenue was $1.42 billion, down from $1.46 billion in 2009. Net income rose to $209 million from $73 million, or 87 cents per share, up from 31 cents. The replenishment cycle of chip buying should continue to grow, as order backlogs in all segments are rising. The momentum is picking up for National Semi, as the company reported gross margins of 68.8 percent in the Q4. Unlike Texas Instruments, which has no debt and a net cash position of $2.8 billion, National Semi has a considerable debt load with a debt-to-capital ratio of 70 percent. Therefore, its execution must be extremely good, even in this new product cycle, to maintain its solid industry position.

Chip Opportunities
The broadline semiconductor space sees several strong competitors, led of course by giant Intel (Nasdaq: INTC). Intel is still expected to lead by a wide margin and further solidify this lead when it reports earnings July 13. Advanced Micro Devices (NYSE: AMD) is still a strong player, though. IT spending for PCs is expected to be part of this buying revival.

Signal processor, data converter and other analog semiconductor device maker Analog Devices (NYSE: ADI) is another company expected to strongly benefit from the new spending cycle. A key part of the tech outlook for all the chipmakers is that opportunity abounds.

With the constant innovation of chips, along with new devices and uses, fueled by the growing demand for electronic devices, there is a large market to be carved up. It's reasonable to argue this is still a growing global market. National Semiconductor, though not the biggest or strongest of the players by far, has a chance to make business headway during this cycle.

National Semiconductor Stock
The company has significant earnings increases projected for fiscal 2011 and 2012 at $1.35 and $1.42 per share, respectively. National Semiconductor needs to make substantial progress in this business up cycle, pay down debt and get leaner. The stock is near its 52-week high and currently sells with a forward P/E close to 12. Still, the leaders in the group, Intel and AMD, are stronger, more attractive investments, notably Intel for the long term. (For more stock analysis, take a look at Education Stocks Put To The Test.)

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