Brian Halla Quotations

We are ahead of schedule on the return to profits plan we announced on May 5.

We are ahead of our gross margin goals and we are continuing in the same direction.

We're in the analog business, and analog is what's driving all the displays, and audio, and battery life in wireless. Wireless is clearly our biggest segment, and we plan on this market doing exactly what it's been doing for the last three and a half years.

What's needed is more funding for basic research, a desire to compete globally and an awareness of the role technology plays in our security and quality of life.

We feel comfortable that the numbers we've got out there are achievable.

Led by robust analog and wireless sales, we had an outstanding quarter. Focus on execution drove our gross margins to 51 percent, up from 48 percent in the previous quarter.

Seven weeks ago at our Dec. 7 earnings announcement, we projected a falloff in the current quarter of 10 percent based on slowness in the wireless market, PCs and peripherals, and a broad-based distribution inventory correction.

Now that we have the months of December and January finished, we felt it necessary to factor those results into our earlier projections and issue this update.

Business conditions were stronger than we had originally anticipated. We reached our interim goal of 60 percent gross margin earlier than we expected and at the same time continued to gain market share in the analog standard linear market.

Going forward, we will continue to closely control costs while investing in key markets to maximize our potential for profitability.

We ended the year with over a billion dollars in cash reserves, a 21 percent return on invested capital and a stronger analog portfolio. Our goal in fiscal 2006 is to drive gross margins even higher.

We will immediately cease slugging it out in the PC processor market, which has been dragging down our financial performance for several quarters.

But the overall economy is still sluggish. As a result, our near-term outlook remains cautious.

While we are encouraged by the recent seasonal improvement in bookings, we still feel it is too early to call the turn, and we remain cautious on the near-term outlook.

This was a tough action for us to take, especially because it impacts many people who have served National well. However, given the continuing weakness in the marketplace, it is necessary to conform our resources to the market in order to maximize National's opportunity for long-term success.

We have entered the fall with much better backlog in place for delivery in the second quarter. We are looking for continued meaningful improvement in both revenue and profitability in the second quarter.

Due to the low bookings in the fourth quarter we now expect a further decline in sales for the first quarter.

Early indications of consumer demand for the holiday season are not strong at this point, and although we have pockets of opportunity -- driven mostly by our specific product programs -- they may not be enough to offset weak end-user demand for this quarter.

First the PC goes on a chip. Next, the PC becomes a plug-in behind the dashboard of your car, behind a flat-panel display in your kitchen, or inside a set-top box. The PC disappears just the way electric motors are invisible in our lives.

Sales continued soft during the summer quarter. We think, however, we may have touched bottom as bookings in the first quarter improved for the first time in a year.

Our third quarter typically reflects a post-holiday seasonal decline in revenues. Although bookings picked up in October and November, it is too early to tell whether that momentum will carry over enough to offset the normal seasonal pattern.

Now, a lot of people are saying better than 25 percent or better than 30 percent, and we certainly feel as bullish as anybody right now.

As it turns out, the February month was actually the best in an overall underwhelming quarter.

It's one thing to put this business on the books. It's far more important to maximize the profit from it.

I'm pleased with another quarter of strong growth in which our core business revenues increased by 26 percent over last year's second quarter, led by 36 percent growth in analog sales.