Nationstar Mortgage Holdings Inc. (NSM)

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National Semiconductor Corporation (NSM)

F4Q10 (Qtr End 05/30/10) Earnings Call

June 10, 2010 4:30 pm ET

Executives

Mark Veeh – IR Manager

Don Macleod – President and CEO

Lewis Chew – CFO

Analysts

Craig Ellis – Caris & Company

Mahesh Sanganeria – RBC Capital Markets

Stacy Rasgon – Sanford C. Bernstein & Co.

Sumit Dhanda – Bank of America

Ross Seymore – Deutsche Bank

Harsh Kumar – Morgan Keegan

Uche Orji – UBS Securities

Shawn Webster – Macquarie Research

Tore Svanberg – Thomas Weisel Partners

Presentation

Operator

Good afternoon. My name is Carrie and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 fiscal year 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If would you like to ask a question during this time, simply press star then the number one on your telephone key pad. If you would like to withdraw your question, press the pound key.

I would now like to turn the conference over to Mr. Mark Veeh, Investor Relations manager. Thank you. Mr. Veeh, you may begin your conference.

Mark Veeh

Thank you, Carrie. And welcome everyone to National Semiconductor's fourth quarter fiscal year 2010 earnings conference call. Joining me on the call today is our Chief Executive Officer, Don Macleod, and our Chief Financial Officer, Lewis Chew. During our prepared section of this call we will be providing details around our Q4 results, background to our Q1 outlook and some commentary around our recent market trends and business environment. At the end of our prepared comments, we will then take questions until approximately 2:30 PM Pacific time.

As we begin our call, I would like to remind everyone that today's discussions will contain forward-looking statements that involve risk factors that could cause National Semiconductor's results to differ materially from management's current expectations.

Please review the Safe Harbor statement contained in the press release published today as well as our most recent SEC filing for a complete description of those risks. Also in compliance with SEC Regulation FD, this call is being broadcast live over our Investor Relations website. For those of you who have missed the press release or would like to replay the call, you can find it by going to National's IR website at www.national.com.

With that, I will now turn it over to Don.

Don Macleod

Thank you, Mark. So I'd like to you now attempt to anticipate your interest in our fourth quarter's results and our outlook by answering the following four questions. First, what drove our business in the fourth quarter? Second, what areas could provide National Semiconductor with additional revenue growth going forward? Third, given the economic situation, where do we see our business trending over the next quarter? And why? And finally, how is our business model progressing?

So, on the first topic, what drove our results for the fourth quarter? Looking at the trends by end markets, our sales to the industrial market grew by 11% over Q3 and accounted again for about 45% of sales. Our sales to the next most significant end market for us, mobile phones, grew sequentially by about 12% over Q3. Our sales to our third largest end market which is communications and networking at about 12% of our overall sales grew sequentially at 5% which is less than the overall company, and was driven by a slower quarter of sales to China-based communications infrastructure companies. These three areas accounted for about 82% of our overall sales.

By geographical region, our sales to the Americas grew sequentially by about 13%. To Japan, by 11%; to Asia-Pacific, by 9%; and to Europe, at 8%. i.e., all our four regions showed growth around the overall company's 10% sales growth. Also, by sales channel, our sales to distributors grew by 12.5% over the third quarter, again, not far from the overall 10% company rate.

When I look at our product view of what drove our growth in the quarter, our largest product area which is power management products at 47% of our sales grew sequentially by 11%. Our amplifier products also grew by 11%, and represented 24% of our sales. Both, again, very close to the overall company growth rate.

So to close on the first topic, what drove our results for the fourth quarter? My message here is that our overall revenue growth was very broadly driven by a number of end use markets, by each of the geographical regions, by the channel, and by the major analog product areas, all at similar rates over the third quarter.

So on to our second topic, which is where are we looking to see additional revenue growth beyond our current business going forward? Let me first cover our growth status in two existing market areas, that's mobile phones and industrial power management, before I talk about two of our new initiatives for growth, which is in LED lighting and solar energy efficiency.

First, our focus on power management and other analog solutions for mobile phones. In our last quarter's earnings call, I suggested that the third quarter might have represented the bottom of our declining sales into this mobile phone market. This fourth quarter's results supports that view. Our sales to the mobile phone market grew sequentially by about 12%.

Our bookings from that market in the quarter also grew sequentially by about 14%. And our higher order backlog going forward also indicates that we should grow our revenue to mobile phone customers again in the upcoming first quarter and into our seasonally strong second quarter. Some of this growth is coming from design wins obtained from the second half of calendar year 2009 onwards that are now ramping into production and some is coming from us being more aggressive and pursuing ongoing business opportunities that we might have walked away from in the past.

Our second ongoing revenue growth opportunity is in industrial power management applications. Here, we've been traditionally the go-to brand for industrial power supply designers with our simple switchers and our ease of use web-based design tools, especially here in the Americas and in Europe.

As we extend this ease of use customer functionality, we're seeing accelerating sales. Since about 95% of the sales of these simple switchers and other industrial power management products are to smaller customers worldwide through the distribution channel, a good indicator of the penetration is what the distributors are actually selling to their end customers, in other words, what we call the resales.

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