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 Dear Shareholders,
In our FY07 annual report to shareholders, we introduced National's evolution from our successful corporate directive of "60/30/30" (achieving 60 percent gross margin with 30 percent combined spending for R&D and SG&A, in order to drop at least 30 percent to operating margin) to "National 3.0," a company using its energyefficient PowerWise® technology and family of more than 300 PowerWise products to solve real-world problems. We also introduced an eye-catching, iconic figure (pictured above), the "PowerWise Guy" superhero.
What if we now, as an industry, joined our PowerWise Guy in his journey to outer space and looked back at the planet with him and asked, "Tell us your concerns and how we, the semiconductor industry, can help?" And, we most assuredly would hear the planet cry out, "Energy costs are soaring, and the world is dumping tens of millions of metric tons daily of CO2 into my atmosphere, using more and more energy, and trying to generate more and more energy with fuel and coal. And, healthcare costs are soaring out of sight, leaving my inhabitants to pay exorbitant healthcare fees or, more sadly, to suffer the consequences of going without healthcare. Shootings, bombings, fires and terrorism leave scars on my surface and fears in the hearts of my inhabitants for lack of adequate warning systems and sensing devices. Technology can take a huge bite out of each of these problems...so that, Mr. Semiconductor Industry, is how you can help."
The Intentions of Our Inventions
Many companies in the semiconductor industry may want to answer back, "Sorry, Planet, we'll have to get back to you on those. Right now, we're busy spending our R&D dollars, so our customers can put 10,000 songs on their MP3 players." Or, "We're busy driving the megapixels in our cameras to a resolution that will force us all to upgrade our hard disks to hold all of our pictures." Or, "We're busy doubling the planet's data centers to store the exponentially growing number of YouTube videos which will, at the current cooling and power consumption levels, dump even more millions of tons of CO2 into the air."
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Okay, our industry is guilty as charged. Even we, at National, took a bow enjoying the fact that we created the driver for the display technology in the most exciting music and video phone introduced last year (and enhanced this summer). We, like our peers, are still proud of enabling longer battery life and enhancing features such as lighting in handhelds but, in fairness, if you'll recall last year's letter to you, I said we would focus on a BHAG, a "Big Hairy Audacious Goal:" Save the world's energy. As we committed to you, we are investing an increasingly large amount of our R&D dollars on this BHAG and on dealing with the world's necessities. We characterize the strength of the company as initiatives focused on improving energy efficiency... particularly with our PowerWise technology. This is evident by our advantage of having first solutions in the marketplace, and this strength in energy efficiency represents opportunities for growth going forward. But, first, here's a recap of the year:
A Good Year...
FY08 capped off a very important year for National Semiconductor. It was our fifth year of ROIC (Return on Invested Capital) above 20 percent, which puts us in an elite group of S&P 500 companies who can claim that accomplishment. It was a year where our gross margins found historic highs, and we grew earnings per share by more than 12 percent over last year. It was a year of increasing value to customers which translated into higher ASPs (Average Selling Prices) for our products, contrary to our sector average. And, it was another year of manufacturing cost reduction "high fives." Speaking of manufacturing, it was yet another year of hearing from our customers that National's service, supply chain and logistics machine is "head and shoulders above other suppliers." And, on top of all that, it was another year of large share count reductions as we bought back over $2 billion of our stock during the year (and over $4 billion in the past four years) as well as leveraged our balance sheet with a strong, investment-grade credit rating. But setting all of this aside, more importantly, it was the first year of National 3.0, a company driving more innovation through collaboration and moving R&D dollars more and more into creating solutions for new megatrends...quality-of-life megatrends.
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