National Semiconductor Corporation

2900 Semiconductor Drive
P.O. Box 58090
Santa Clara, California 95052-8090
U.S.A.
(408) 721-5000
Fax: (408) 739-9803

Public Company
Incorporated: 1959
Employees: 30,000
Sales: $1.72 billion
Stock Exchanges: New York Pacific

National Semiconductor Corporation is one of the leading American manufacturers of semiconductors used in a broad range of electronics applications. During its rapid rise to prominence in the late 1970s, National Semiconductor gained a reputation as perhaps the most efficient producer of semiconductors in the world, turning out a wide array of standardized, reliable parts at very low cost. National’s prosperity relied less on high-tech genius than on low-tech frugality and hard work, qualities instilled in the company by its longtime president and chief executive, Charles E. Sporck. In the increasingly crowded world of semiconductors, however, National suffered during the 1980s from Far Eastern price competition, as a series of money-losing years left in doubt the company’s future health and highlighted its failure to develop more sophisticated, higher-margin products.

“Semiconductor” is the name given to a group of elements which under normal conditions do not conduct electricity, but which when slightly modified can be used as conductors with great precision and reliability. The development of the modern electronics industry, beginning with the 1949 invention of the transistor, has depended on the progressively more subtle use of semiconductors to control and direct electricity in very small packages known as integrated circuits or “chips.” In 1959, Dr. Bernard Rothlein, formerly of Sperry Rand Corporation, joined the burgeoning semiconductor industry by creating National Semiconductor in Santa Clara, California. The company was tiny by industry standards, with only $5.3 million in sales by 1965, but it offered a variety of fairly sophisticated semiconductors and was operating at a profit.

Dr. Rothlein’s former employer filed a suit against National for patent infringement, however, and the case depressed the company’s stock price when it reached the courts in the mid-1960s. The low stock price encouraged a substantial investment by East Coast financier Peter J. Sprague (son of the chairman of Sprague Electric Company), who became chairman of National in 1966 and set out to make the company a major player in the semiconductor industry. Sprague recognized that National needed an injection of strong management if it was to make the transition from small research lab to commercial manufacturer, and in the spring of 1967 he surprised the industry by hiring away five top executives from Fairchild Camera & Instrument Corporation, then the nation’s second largest maker of semiconductors. Chief among the new recruits was Charles E. Sporck, 39-year-old head of Fairchild’s semiconductor division, who accepted a 50 percent cut in pay to become National’s president (and owner of a chunk of its stock). From that day to 1991 National Semiconductor would remain largely the creation of these two men, and especially of the hard-driving Charlie Sporck.

Sporck and National Semiconductor were ideally suited to each other. National had some excellent products but lacked management control, while Sporck was not a technical genius but knew how to run a tight ship, market his wares, and make money. With the full financial and moral backing of Peter Sprague and the board of directors, Sporck turned National upside down in the twelve months following his arrival. He marked down the value of National’s inventory of transistors by $1.5 million (helping the company to a $2 million loss in fiscal 1967) and focused its energies on selling large quantities of standard semiconductors in three different market areas: linear, Transistor-to-Transistor Logic (TTL), and metal-oxide semiconductors (MOS). He also kept a tight lid on corporate overhead, using outside sales representatives whenever possible, farming out basic engineering and accounting work to independent contractors, and generally promoting a corporate ethic of Spartan austerity. In an industry rapidly flooding with new competitors, Sporck’s penny-pinching would prove the key to National’s survival in the coming price wars. As he told Business Week in 1970, “We make money because we have to.”

Though it might not have been apparent to the casual observer in 1967, National Semiconductor had assembled a trio of powerful business advantages. Most fundamentally, National was in an industry about to undergo tremendous growth, as the spread of computers made the semiconductor critical to every aspect of modern life; it could draw on the financial strength of its investors in order to raise the large amounts of money required for expansion; and the company was run by a man naturally inclined to efficiency and thrift. The combination of these elements allowed National to grow with amazing swiftness, 1965’s sales of $5.3 million becoming $42 million in 1970 and $365 million in 1976. For other, less well prepared companies, the same period was fatal, as bitter price wars erupting in 1969 and 1970 drove even giants such as General Electric and Westinghouse out of the semiconductor business and kept profit levels minuscule everywhere. Silicon Valley was suddenly very crowded, and from among its scores of visionary entrepreneurs only a few would survive to dominate the national scene.

Charlie Sporck early brought a global awareness to National. National was one of the first semiconductor companies to move its assembly operations to the Far East, where labor was available at a fraction of its cost in the United States. The company also sold about 20 percent of its finished products overseas, much of it going to Europe at prices that stirred charges of unfair trade practices. On the other hand, Sporck appears to have grossly underestimated the long-term potential for competition from the Far East, where the growth of an indigenous semiconductor industry drove prices ever lower on the kind of standardized semiconductors made by National. Sporck’s preference for selling a high volume of standard items made possible National’s prodigious growth, so long as its competition was limited to American firms operating on similar cost bases; when the Japanese made semiconductors a global business in the 1980s, the same formula brought consistent losses and a desperate appeal from Sporck for federal trade protection. National was at the forefront of political pressure leading to the 1986 Semiconductor Trade Agreement.

Sporck was aware of National’s vulnerability, of course, and beginning in the early 1970s he made a number of attempts to diversify the company’s sales base by “integrating forward,” making consumer products as well as the semiconductors that went inside them. National leaped into the manufacture of calculators, digital watches, and video games, enjoying initial success as the public responded to the novelty of these high-tech gadgets. Within a few years, however, National’s emphasis on low-price mass merchandising again left it vulnerable to the crush of competitors entering these markets. National had no experience in retail manufacturing, and before long its products were saddled with a reputation as low-end junk, without the style or cachet needed to survive in a maturing market. By the time everyone in America was wearing a digital watch National had been driven from the marketplace, suffering minor losses which were fortunately overshadowed by its roaring success in semiconductors.

Two other efforts by Sporck to widen National’s product line had more complex histories, though both also ended in failure. In the mid-1970s, National became interested in the possibility of electronic point of sale terminals for use in supermarkets. In association with a group of California supermarketers, National developed the “Datachecker” system for the scanning and recording of sales, with which it built a substantial and modestly profitable business over the following decade. Of greater potential was National’s decision around 1976 to enter the computer business, originally as a producer of mainframe computers for sale by Itel Corporation, a San Francisco-based marketing and finance company. As many others had tried before, Itel and National were hoping to cut into IBM’s domination of the mainframe market by selling similar machines at a much reduced price. At first, National was satisfied simply to make computers for the Itel name; in the late 1970s, however, National tried to push into the market with its own line of mainframes and minicomputers, encouraged by the huge profits it was making on the Itel IBM-compatibles.

National’s System 200 and 400 lines of large computers never got off the ground, due in part to renewed competition from the ever vigilant IBM. Itel had similar but more severe problems, forced by IBM price pressure in early 1979 to ask National for cheaper computers with which to compete. Charlie Sporck recognized a golden opportunity: he agreed to supply Itel with cheaper computers only if they would agree to buy more machines. Itel foolishly did so, and when the market softened later that year Itel was stuck with computers it could not sell and an obligation to buy a lot more of them. Faced with a complete disaster, Itel essentially gave its inventory and sales force to National in exchange for a release from its contracts; as one former Itel executive told Fortune, “National blackmailed us and then stole the business.” Be that as it may, Sporck had “stolen” little more than a distraction and headache. National enjoyed sporadic success selling a line of mainframes made by Hitachi in Japan, but again its timing and approach were all wrong. Aside from the inherent difficulties of competing with IBM, the 1980s also witnessed a general decline in the mainframe segment of the computer industry that even IBM was not able to withstand successfully. The monolithic mainframe was being replaced by combinations of mini and microcomputers, and in a shrinking market National’s chances of success against IBM fell from slim to none. The company sold its National Advanced Systems division in 1989.

In the meantime National’s semiconductor business continued to boom. 1981 sales reached $1.1 billion—tripling in four years—and the company employed 40,000 workers, two-thirds of them in Southeast Asian assembly plants. Its strength continued to be the manufacture of linear and bipolar logic integrated circuits in large quantities and at low cost; as a competing executive told Fortune, National was the “sweatshop of our industry—a pipe-rack, low-cost, survival-oriented company.” But National was soon faced with a number of grave problems. In 1981, a handful of key National executives left the company to accept more lucrative offers elsewhere, among them Pierre Lamond, for years National’s chief designer and engineer. Job-hopping is endemic to the electronics industry, but the defection of Lamond was still a significant blow for National: never strong on technical ingenuity, the company had now lost its brightest designer. Worse yet, competition from the Far East was now at flood tide, and the first to feel its impact would be companies like National who lived by volume and price appeal. National’s line of staple items could be reproduced anywhere, and even better than having two-thirds of one’s employees in the Far East is to have all of them there. Although the cheapest maker of semiconductors in the United States, National was not the cheapest on earth.

The recession of 1981-82 plunged National into the red. Its losses totaled only $25 million, but they set the tone for the coming decade. The company was solid in the following few years, suffered a sharp downturn in 1985 and 1986, and then recovered again in late 1987. At this point, Charlie Sporck made a purchase that must have given him great personal satisfaction, whatever its permanent value to National Semiconductor. For $122 million National bought the semiconductor division of Fairchild Camera, the same Fairchild from which Sporck and his management team had emigrated back in 1967. Fairchild had been one of the pioneers in semiconductors, but since the departure of Sporck it had staggered through many losing years and was now available at what some observers thought was a bargain price. Sporck felt that Fairchild’s strengths in chips for mainframes and supercomputers and its excellent military ties would complement National’s relative weakness in those segments of the market. Once again, his timing was poor; the mainframe market continued to shrink and military spending declined from its peak during the Reagan administration. Moreover, Fairchild Semiconductor had lost $265 million in the two years prior to its purchase by National, and the latter already had plenty of its own problems.

From fiscal 1987 through fiscal 1992, National posted an aggregate loss exceeding $500 million. President Sporck and Chairman Sprague took vigorous measures to right their floundering ship, getting out of computers and point of sale equipment, dropping the two least profitable semiconductor lines, and in early 1991 replacing Sporck himself with Gilbert F. Amelio. Under the leadership of Amelio, a former Rockwell International executive who had a Ph.D. in physics from Georgia Institute of Technology, National turned more of its energies toward the market for analog semiconductors, used increasingly by the telecommunications industry. National was already the number one producer of analog chips, which for years had been all but lost in the excitement over digital chips for computer applications, and Amelio hoped that the changing demands of the market would make National’s analog expertise far more valuable in the 1990s. The immediate signs were not encouraging. Even after writing off $144 million in the massive reorganization of the company in 1991, National came up with a $120 million loss in the following year. Sprague’s confidence in Amelio’s ability to turn around National’s long slide by developing the kind of advanced products that are not easily duplicated and therefore yield a higher return may or may not pay off. The company chairman, however, has so far managed to maintain a remarkably long tenure in the helter skelter semiconductor industry.

Principal Subsidiaries

Dyna-Craft, Inc.; Stamping Technology Corp.; National Semiconductor International, Inc.; DIS Caribe, Inc.; N.S. Publications, Inc.; National Semiconductor Property, Inc.; Fairchild Semiconductor Corp.; National Semiconductor France S.A.; National Semiconductor GmbH (Germany); National Semiconductor (I.C.) Ltd. (Israel); National Semiconductor Sp.A. (Italy); National Semiconductor A.B. (Sweden); National Semiconductor (U.K.) Ltd.; National Semiconductor Benelux B.V. (Netherlands); National Semiconductor International Finance S.A. (Switzerland); National Semiconductor (Australia) Pty. Ltd.; National Semiconductor (Hong Kong) Limited; Consumer Electronics Limited (Hong Kong); National Semiconductor Distribution Ltd. (Hong Kong); National Semiconductor (Service) Ltd. (Japan); National Semiconductor Japan Limited; National Semiconductor SDN. BHD. (Malaysia); National Semiconductor Technology SDN. BHD. (Malaysia); DynaCraft SDN. BHD. (Malaysia); National Semiconductor (Bangkok) Limited; National Semiconductor Pte. Limited (Singapore); National Semiconductor Asia Pacific Pte. Limited (Singapore); National Semiconductor Manufacturer Singapore Pte. Limited; National Semiconductor Canada Inc.; National Semicondutores de Brasil Limitada; Fairchild Semicondutores Limitada (Brazil); Electronica NSC de Mexico, S.A. de C.V.; ASIC Limited (Bermuda).

Further Reading

“Fast Footwork in an Industry Talent Hunt,” Business Week, March 11, 1967; “Confounding an Industry on Prices,” Business Week, November 21, 1970; Murray, Thomas J., “Live Wire at National Semi,” Dun’s, August, 1972; “The Hot New Computer Company,” Business Week, October 22, 1979; Uttal, Bro, “The Animals of Silicon Valley,” Fortune, January 12, 1981; Brandt, Richard, “The Man National Is Putting Its Chips On,” Business Week, February 18, 1981.

—Jonathan Martin

National Semiconductor Corporation

2900 Semiconductor Drive
Post Office Box 58090
Santa Clara, California 95052-8090
U.S.A.
(408) 721-5000

Public Company
Incorporated: 1959
Employees: 34,764
Sales: $2.6 billion
Stock Index: New York Pacific

National Semiconductor is an old company in a young industry. The firm was founded by Dr. Bernard Rothlein in 1959, when major advances in semiconductors and other transistor-oriented chips were just being made. Rothlein worked for the Sperry Rand Corporation as a high-level engineer in its semiconductor research unit before leaving to start up his own company.

Rothlein was able to exploit his knowledge of transistorized circuits with great success at first. By 1961 National had reached $3 million a year in sales, and its growth continued to climb rapidly. In 1965, National sold $5.3 million worth of chips, a company record. However, record sales did not correspond to record profits; National’s profits slumped to $238,000 in 1965 from $362,000 the year before.

Part of the reason for the drop in profits was the settlement of a suit brought by Rothlein’s old employer, Sperry Rand, in 1959 regarding the misuse of Sperry trade secrets. The suit was decided in 1965: National had to pay Sperry $300,000 over five years and agreed not to make certain chips, an outcome that depressed the price of its stock and prevented National from paying dividends to shareholders. Once-soaring National seemed almost lost.

One of National’s original investors was Peter Sprague, a highly successful 27-year-old operator of an international food-processing business. When he saw his long-term investment in National becoming extremely short-term, Sprague decided to buy National and see if he couldn’t turn it around himself.

Soon after he purchased the company and cleared its legal slate, Sprague went on a talent hunt. It was a search that has shaped National through the rest of its existence. In 1967, Sprague raided the semiconductor division of Fairchild Photographic, one of the world’s top three chip makers in what was then a $1 billion industry. He came away with four men, including the number-two man at Fairchild Semiconductor, Charles L. Sporck.

Sprague installed Sporck as president and CEO of National, and Sporck went right to work. In 1968 he moved National’s headquarters from Danbury, Connecticut to Santa Clara, California. Sporck, with Sprague’s blessing, instituted sharp cost-cutting measures to send the company back towards solvency. “I guess I’m one of the few CEO’s who has spent time in the shipping department,” reflected Sporck once. “But in that first year, everybody did whatever it took to get products out the door.”

The all-hands-on-deck approach succeeded in righting National, thanks in part to another decision made by Sporck and Sprague. The two men decided that National should produce a wide variety of chips instead of just one or two, as many chipmakers its size were doing. Accordingly, National added 30 chips to its product line in 1968. It acted, in other words, like a much larger company—indeed, like the company it has become.

National’s wider product line led to a near-100% increase in sales between 1968 and 1969, from $22.9 million to $41.8 million. Sprague’s next move was to begin expanding out of National’s traditional military and commercial markets into consumer products as well.

In 1970 National moved from its Santa Clara headquarters into a 29-acre research and world headquarters park in Sunnyvale, California. The chip industry in general struggled that year; Fairchild lost $15 million on its chip operations in the first half alone, and Sylvania shut down operations entirely after several consecutive years of losses. National saw sales volume slip slightly, but did not lose money. Sporck told Business Week that year, “The only way you can operate securely is to operate very conservatively from the financial standpoint.”

The three years between 1970 and 1973, when the oil embargo began, were a period of phenomenal growth for the semiconductor industry. National quintupled in size between 1972 and 1976, when it reached $325 million in sales and added consumer products such as calculators and digital watches to its product line under the name Novus. Stock prices reached a then-all-time high of $55 a share. The company also began to focus its research on three major types of chips: MOS (metal oxide) memory chips, T/L (transistor/logic) logic chips, and linear structured chips.

Behind National’s incredible growth in this period was a reputation for high quality and excellent management coupled with the lowest costs in the industry. This combination allowed National to post profit gains in 1975, when the industry as a whole saw sales slacken 30%, one of the worst downturns in computer industry history.

In 1976 National’s vaunted management capabilities and manufacturing discipline took a blow. Its venture into consumer products, begun in 1973 to help the company weather typical semiconductor business cycles, had worked well in 1975, when overall sales increased 10% while semiconductor sales fell 25%. But low pricing and the use of Novus consumer products as promotional giveaways worked against National’s quality reputation. Consumer products slumped badly in 1976, due to both labor problems and mismanagement.

National was also accused of being slow to enter new markets for memory components and microprocessors. An October, 1976 announcement that it was building its own mainframes to sell in the commercial marketplace did not impress many.

But National weathered this period. By 1978, National’s reputation for quality was no longer in question and the company’s sales had reached $720 million, a 46% increase over 1977. A new product, an unprecedented 64K chip, led the increase, and National’s position as the number-one supplier to cathode-ray terminal-makers also helped.

Still, takeover rumors began to dog the company as Schlumberger acquired Fairchild and United Technologies took over Mostek. National was weak enough in both semiconductors (magnetic bubble memories, high-speed logic chips, and microprocessors) and consumer products to create concern, and its mainframe business had only one customer—ITEL. In addition, it was behind in overseas markets, and the stock price remained low. Analysts eyed its Datachecker subsidiary, which pioneered the supermarket point-of-sale scanner, as an easy spinoff.

In late 1979 National scrapped its mainframe project and purchased troubled ITEL’s successful computer-leasing business, bringing the company directly into computer sales and service for the first time in its history. During 1980 National merged repurchase into National Advanced Systems, formerly part of the consumer products group, and continued ITEL’s leasing of IBM-compatible mainframes (the machines were made by Hitachi).

After doubling in size between 1978 and 1980 and recording four years of record earnings, National was labeled “the streetfighter of Silicon Valley” for its bottom-of-the-barrel production costs and its management style. Under Sporck’s leadership, National cut costs wherever possible. It used sales representatives and distributors for its chips rather than employing a sales force, with its higher overhead. It moved most of its labor-intensive operations to the Pacific Rim, and maintained a spartan office center that lacked such basic amenities as carpeting.

In 1981 sales surpassed $1 billion a year for the first time, and National introduced a rash of new products, including advanced versions of its 32-bit chip, which became commercially available in 1983. Still, the same year saw National abandon bubble memory chips when costs did not decline as expected, making the market for this vital technology small. This move left Intel as the only U.S. chipmaker in bubble memories, an area that subsequently became dominated by lower-cost Japanese producers.

National took a big hit in 1981, despite its $1 billion in sales. The company lost money in the face of an industry recession that was just as severe as the national one. National also suffered a major blow when five top managers left, including Pierre Lamond, National’s long-time chief technologist, and Fred Bialek, the trusted trouble-shooter who had keyed National’s low-cost manufacturing, both of whom had come to National from Fairchild with Sporck.

Sporck came under fire for his highly autocratic, centralized management style, which had created fiercely entrepreneurial product managers and frequent clashes of will. Takeover rumors again surrounded the nation’s third-largest chipmaker. At the time, 72% of National’s sales came from semiconductors, while its biggest competitors, Motorola and Texas Instruments, each derived less than 40% of their sales from chips. National also carried low long-term debt, making a leveraged buy-out feasible. Despite its troubles, National had several strong product lines, and shared market dominance with Texas Instruments in bipolar logic chips and linear integrated circuits. But no deal materialized, and as what became an 18-month industry slump started to break, National’s low-cost production made it the likeliest candidate for a quick recovery.

Besides the difficulties of operating during the recession, international competition, especially from Japanese chipmakers, and the rising U.S. dollar hurt the U.S. semiconductor industry during the early 1980s. Like many U.S. chipmakers, National could best be described as “embattled” during this period. It lost money in both 1982 and 1983.

Research-and-development spending had remained important at National through both the good times and the bad times. Major breakthroughs had come in 1975, with the first commercially available 16-bit chip; in 1979, with the Series 32000 32-bit microprocessor; and in 1982, with Digitalker, a speech-synthesis chip. In response to the challenge from overseas, National nearly doubled its research-and-development budget between 1983 and 1986, to $200 million. Through extensive lay-offs and a new public offering, National was able to eke out nearrecord earnings in 1984 and 1985. To celebrate, it bought carpeting for its world headquarters.

Successful new products also helped turn the company around. National, not renowned as a leader in new technology, introduced its 32-bit chip in 1984, six months before any competitor had one that was commercially available, and the product sold extremely well. National’s line of semicustom chips, which allowed customers to adapt chips to better fit their needs, also sold well.

National restructured in 1986. Sporck, 59 years old in 1986, appointed two executive vice presidents, who are expected to vie for the top position when Sporck steps down. Sporck also directed the company away from Datachecker and National Advanced Systems’s sales of Hitachi-made IBM-compatible mainframes, although at one time he felt that these divisions would be National’s profit makers for the future. National also established two “core” businesses, the Semiconductor Group and the Information Systems Group. The company’s long-term efforts at diversification have met some success; by 1986 only 53% of revenues came from semiconductors and National was manufacturing more than 5,000 types of chips in a wide range of product lines. It also was continuing to produce disk-management systems and computer boards, in addition to its Datachecker operations.

Nonetheless, despite the restructuring, National lost money in both 1986 and 1987. The company made a turn-around in fiscal 1988, posting a $62 million profit. It also acquired troubled Fairchild Semiconductors for $122 million in 1988. Revenues increased to $2.5 billion in 1988 with the acquisition of Fairchild, and National jumped from llth-largest chipmaker in the world to sixth.

In fiscal 1989 National posted a loss in three of four quarters, and expected a loss for the year. It also sold its National Advanced Systems division to a joint venture of Hitachi and EDS, and sold Datachecker to ICL, a British concern, for a combined total of about $500 million.

Such moves will allow National to concentrate on its core semiconductor business, but the company faces an uphill road in a tough industry.

Principal Subsidiaries:

National Advanced Systems; N.S. Electronics Pte., Ltd. (Singapore); National Semiconductor (Hong Kong) Ltd.; National Semiconductor (U.K.) Ltd. (United Kingdom); National Semiconductor S.A.R.L., (France); National Semiconductor GmbH (Germany); Dyna Craft, Inc.; N.S. Distributors (Pty.) Ltd. (Australia) (90%); P.T.N.S. Electronics Bandung (Indonesia); N.S. Electronics do Brasil (Brazil); N.S. International Inc.; N.S. Disco Inc.; N.S. Electronics, Ltd. (Canada); Exsysco, Inc.; National Semiconductor AB (Sweden); N.S. Electronics Phillipines, Inc. (Phil.); N.S. Electronics Ltd. (Thailand).

National Semiconductor Corporation

2900 Semiconductor Drive
P.O. Box 58090
Santa Clara, California 95052-8090
U.S.A.
(408) 721-5000
(800) 432-9672
Fax: (408) 739-9803
Web site: http://www.national.com

Public Company
Incorporated: 1959
Employees: 13,000
Sales: $2.53 billion (1998)
Stock Exchanges: New York
Ticker Symbol: NSM
SICs: 3674 Semiconductors & Related Devices; 3679 Electronic Components, Not Elsewhere Classified

National Semiconductor Corporation is one of the leading American manufacturers of semiconductors used in a broad range of electronics applications. During its rapid rise to prominence in the late 1970s, National Semiconductor gained a reputation as perhaps the most efficient producer of semiconductors in the world, turning out a wide array of standardized, reliable parts at very low cost. National’s prosperity relied less on high-tech genius than on low-tech frugality and hard work, qualities instilled in the company by its longtime president and chief executive, Charles E. Sporck. In the increasingly crowded world of semiconductors, however, National suffered during the 1980s from Asian price competition, leading to a series of money-losing years. National staged a turnaround in the mid-1990s under Sporck’s successor, Gilbert F. Amelio, and is now—under another new leader, Brian Halla—staking its future on sophisticated, higher-margin products, most notably the system-on-a-chip.

Founded in 1959

“Semiconductor” is the name given to a group of elements which under normal conditions do not conduct electricity, but which when slightly modified can be used as conductors with great precision and reliability. The development of the modern electronics industry, beginning with the 1949 invention of the transistor, has depended on the progressively more subtle use of semiconductors to control and direct electricity in very small packages known as integrated circuits or “chips.” In 1959 Dr. Bernard Rothlein, formerly of Sperry Rand Corporation, joined the burgeoning semiconductor industry by creating National Semiconductor in Danbury, Connecticut (the company moved to Santa Clara, California, in 1968). The company was tiny by industry standards, with only $5.3 million in sales by 1965, but it offered a variety of fairly sophisticated semiconductors and was operating at a profit.

Dr. Rothlein’s former employer filed a suit against National for patent infringement, however, and the case depressed the company’s stock price when it reached the courts in the mid-1960s. The low stock price encouraged a substantial investment by East Coast financier Peter J. Sprague (son of the chairman of Sprague Electric Company), who became chairman of National in 1966 and set out to make the company a major player in the semiconductor industry. Sprague recognized that National needed an injection of strong management if it was to make the transition from small research lab to commercial manufacturer, and in the spring of 1967 he surprised the industry by hiring away five top executives from Fairchild Camera & Instrument Corporation, then the nation’s second largest maker of semiconductors.

Sporck Hired in 1967

Chief among the new recruits was Charles E. Sporck, 39-year-old head of Fairchild’s semiconductor division, who accepted a 50 percent cut in pay to become National’s president (and owner of a chunk of its stock). From then until 1991 National Semiconductor would remain largely the creation of these two men, and especially of the hard-driving Charlie Sporck.

Sporck and National Semiconductor were ideally suited to each other. National had some excellent products but lacked management control, while Sporck was not a technical genius but knew how to run a tight ship, market his wares, and make money. With the full financial and moral backing of Peter Sprague and the board of directors, Sporck turned National upside down in the 12 months following his arrival. He marked down the value of National’s inventory of transistors by $1.5 million (helping the company to a $2 million loss in fiscal 1967) and focused its energies on selling large quantities of standard semiconductors in three different market areas: linear, Transistor-to-Transistor Logic (TTL), and metal-oxide semiconductors (MOS). He also kept a tight lid on corporate overhead, using outside sales representatives whenever possible, farming out basic engineering and accounting work to independent contractors, and generally promoting a corporate ethic of spartan austerity. In an industry rapidly flooding with new competitors, Sporck’s penny-pinching would prove the key to National’s survival in the coming price wars. As he told Business Week in 1970, “We make money because we have to.”

Though it might not have been apparent to the casual observer in 1967, National Semiconductor had assembled a trio of powerful business advantages. Most fundamentally, National was in an industry about to undergo tremendous growth, as the spread of computers made the semiconductor critical to every aspect of modern life; it could draw on the financial strength of its investors in order to raise the large amounts of money required for expansion; and the company was run by a man naturally inclined to efficiency and thrift. The combination of these elements allowed National to grow with amazing swiftness, 1965’s sales of $5.3 million becoming $42 million in 1970 and $365 million in 1976. For other, less well-prepared companies, the same period was fatal, as bitter price wars erupting in 1969 and 1970 drove even giants such as General Electric and Westinghouse out of the semiconductor business and kept profit levels minuscule everywhere. Silicon Valley was suddenly very crowded, and from among its scores of visionary entrepreneurs only a few would survive to dominate the national scene.

Sporck early on brought a global awareness to National. National was one of the first semiconductor companies to move its assembly operations to the Far East, where labor was available at a fraction of its cost in the United States. The company also sold about 20 percent of its finished products overseas, much of it going to Europe at prices that stirred charges of unfair trade practices. On the other hand, Sporck appeared to have grossly underestimated the long-term potential for competition from the Far East, where the growth of an indigenous semiconductor industry drove prices ever lower on the kind of standardized semiconductors made by National. Sporck’s preference for selling a high volume of standard items made possible National’s prodigious growth, so long as its competition was limited to American firms operating on similar cost bases; when the Japanese made semiconductors a global business in the 1980s, the same formula brought consistent losses and a desperate appeal from Sporck for federal trade protection. National was at the forefront of political pressure leading to the 1986 Semiconductor Trade Agreement.

Failed 1970s Diversification Efforts

Sporck was aware of National’s vulnerability, of course, and beginning in the early 1970s he made a number of attempts to diversify the company’s sales base by “integrating forward,” making consumer products as well as the semiconductors that went inside them. National leaped into the manufacture of calculators, digital watches, and video games, enjoying initial success as the public responded to the novelty of these high-tech gadgets. Within a few years, however, National’s emphasis on low-price mass merchandising again left it vulnerable to the crush of competitors entering these markets. National had no experience in retail manufacturing, and before long its products were saddled with a reputation as low-end junk, without the style or cachet needed to survive in a maturing market. By the time everyone in America was wearing a digital watch National had been driven from the marketplace, suffering minor losses which were fortunately overshadowed by its roaring success in semiconductors.

Two other efforts by Sporck to widen National’s product line had more complex histories, though both also ended in failure. In the mid-1970s, National became interested in the possibility of electronic point-of-sale terminals for use in supermarkets. In association with a group of California supermarketers, National developed the “Datachecker” system for the scanning and recording of sales, with which it built a substantial and modestly profitable business over the following decade. Of greater potential was National’s decision around 1976 to enter the computer business, originally as a producer of mainframe computers for sale by Itel Corporation, a San Francisco-based marketing and finance company. As many others had tried before, Itel and National were hoping to cut into IBM’s domination of the mainframe market by selling similar machines at a much reduced price. At first, National was satisfied simply to make computers for the Itel name; in the late 1970s, however, National tried to push into the market with its own line of mainframes and minicomputers, encouraged by the huge profits it was making on the Itel IBM-compatibles.

Company Perspectives:

National Semiconductor will put systems on a chip for our key trendsetting data highway partners, using our analog expertise as a starting point for forward integration.

National’s System 200 and 400 lines of large computers never got off the ground, due in part to renewed competition from the ever vigilant IBM. Itel had similar but more severe problems, forced by IBM price pressure in early 1979 to ask National for cheaper computers with which to compete. Sporck recognized a golden opportunity: he agreed to supply Itel with cheaper computers only if they would agree to buy more machines. Itel foolishly did so, and when the market softened later that year Itel was stuck with computers it could not sell and an obligation to buy a lot more of them. Faced with a complete disaster, Itel essentially gave its inventory and sales force to National in exchange for a release from its contracts; as one former Itel executive told Fortune, “National blackmailed us and then stole the business.” Be that as it may, Sporck had “stolen” little more than a distraction and headache. National enjoyed sporadic success selling a line of mainframes made by Hitachi in Japan, but again its timing and approach were all wrong. Aside from the inherent difficulties of competing with IBM, the 1980s also witnessed a general decline in the main frame segment of the computer industry that even IBM was not able to withstand successfully. The monolithic mainframe was being replaced by combinations of mini and microcomputers, and in a shrinking market National’s chances of success against IBM fell from slim to none. The company sold its National Advanced Systems division in 1989.

Buffeted by Asian Competition in the 1980s

In the meantime National’s semiconductor business continued to boom. Sales for 1981 reached $1.1 billion—tripling in four years—and the company employed 40,000 workers, two-thirds of them in Southeast Asian assembly plants. Its strength continued to be the manufacture of linear and bipolar logic integrated circuits in large quantities and at low cost; as a competing executive told Fortune, National was the “sweatshop of our industry—a pipe-rack, low-cost, survival-oriented company.” But National was soon faced with a number of grave problems. In 1981, a handful of key National executives left the company to accept more lucrative offers elsewhere, among them Pierre Lamond, for years National’s chief designer and engineer. Job-hopping is endemic to the electronics industry, but the defection of Lamond was still a significant blow for National: never strong on technical ingenuity, the company had now lost its brightest designer. Worse yet, competition from the Far East was now at flood tide, and the first to feel its impact would be companies like National who lived by volume and price appeal. National’s line of staple items could be reproduced anywhere, and even better than having two-thirds of one’s employees in the Far East was to have all of them there. Although the cheapest maker of semiconductors in the United States, National was not the cheapest worldwide.

The recession of 1981-82 plunged National into the red. Its losses totaled only $25 million, but they set the tone for the coming decade. The company was solid in the following few years, suffered a sharp downturn in 1985 and 1986, and then recovered again in late 1987. At this point, Sporck made a purchase that must have given him great personal satisfaction, whatever its permanent value to National Semiconductor. For $122 million National bought the semiconductor division of Fairchild Camera, the same Fairchild from which Sporck and his management team had emigrated back in 1967. Fairchild had been one of the pioneers in semiconductors, but since the departure of Sporck it had staggered through many losing years and was now available at what some observers thought was a bargain price. Sporck felt that Fairchild’s strengths in chips for mainframes and supercomputers and its excellent military ties would complement National’s relative weakness in those segments of the market. Once again, his timing was poor; the mainframe market continued to shrink and military spending declined from its peak during the Reagan administration. Moreover, Fairchild Semiconductor had lost $265 million in the two years prior to its purchase by National, and the latter already had plenty of its own problems.

From fiscal 1987 through fiscal 1992, National posted an aggregate loss exceeding $500 million. President Sporck and Chairman Sprague took vigorous measures to right their floundering ship, getting out of computers and point-of-sale equipment, dropping the two least profitable semiconductor lines, and in early 1991 replacing Sporck himself with Gilbert F. Amelio. Under the leadership of Amelio, a former Rockwell International executive who had a Ph.D. in physics from Georgia Institute of Technology, National turned more of its energies toward the market for analog semiconductors, used increasingly by the telecommunications industry. National was already the number one producer of analog chips, which for years had been all but lost in the excitement over digital chips for computer applications, and Amelio hoped that the changing demands of the market would make National’s analog expertise far more valuable in the 1990s. The immediate signs were not encouraging. Even after writing off $144 million in the massive reorganization of the company in 1991, National came up with a $120 million loss in the following year.

Shift to Value-Added Chips in the Mid-1990s

Nonetheless, for the next three years, as the restructuring reached its culmination, National Semiconductor was on the rebound, posting healthy profits and seeing revenues increase each year. In addition to selling off nonstrategic assets, Amelio also divided the company’s chip lines into two areas: lower-margin, more cyclical logic and memory chips—the so-called commodity chips upon which National gained prominence; and higher-margin, value-added analog and mixed-signal chips. The division seemed to point toward the eventual divestment of the commodity chips, but before he could make this dramatic move, Amelio left National Semiconductor in early 1996 to become CEO of Apple Computer Inc. and attempt another turnaround.

Brought on board in May 1996 as new CEO and president (and soon chairman as well) was Brian Halla, a former executive vice-president at LSI Logic Corp. who had also spent 14 years in marketing at Intel Corporation. The month after his arrival, National announced that it had consolidated its commodity chip lines within a new unit, Fairchild Semiconductor, resurrecting the name of the pioneering Silicon Valley chip company that National had bought in 1987. In March 1997 National completed the divestment of Fairchild whereby it sold the unit to an investment company for $550 million, with National retaining a 15 percent stake in Fairchild.

Halla also staked the company’s future on the so-called system-on-a-chip, a new type of technology in development that would include all functions required for one device on a single chip. For instance, a PC would require only one chip rather than the several typically required (though in both cases, memory chips are also needed). This would result in cheaper, more reliable, and smaller systems, and the system-on-a-chip was therefore ideally suited to such proposed consumer products as cellular phones with Internet access built in and PCs small enough to fit into a wallet.

National Semiconductor was not the only company pursuing this technology but it seemed to be the most aggressive. The company made a number of acquisitions designed to gain the combination of technologies needed to make the system-on-a-chip a reality. In March 1997 National paid $74.5 million for Mediamatics, Inc., a Fremont, California-based maker of MPEG audiovisual chips for the PC market. Cyrix Corporation was acquired in November 1997 for about $540 million. Cyrix specialized in lower-price Intel-compatible microprocessors used in sub-$ 1,000 personal computers. Halla planned to use Cyrix chips as a base for the system-on-a-chip, which could be the heart of PCs costing less than $400. In May 1998 National paid $104.8 million to acquire ComCore Semiconductor, Inc., a maker of integrated circuits for computer networking and communications.

The acquisition of Cyrix was perhaps the final piece needed to complete the system-on-a-chip puzzle. National announced in April 1998 that the first product using the new technology would be ready in mid-1999. The company also announced that month that it would close some plants and lay off 10 percent of its workforce, or about 1,300 people, because of slackening demand worldwide. Charges related to these moves and to the acquisition of ComCore led to a full-year fiscal 1998 loss of $98.6 million. Revenues declined to $2.54 billion from $2.68 billion in 1997.

Principal Subsidiaries

ComCore Semiconductor, Inc.; Future Integrated Systems, Inc.; Cyrix Corporation; Cyrix Manufacturing, Inc.; Cyrix International, Inc.; Mediamatics, Inc.; Dyna-Craft, Inc.; National Semiconductor International, Inc.; DTS Caribe, Inc.; National Semiconductor Netsales, Inc.; National Semiconductor (Maine), Inc.; Comlinear Corporation; ASIC II Limited; National Semiconductor B.V. Corporation; National Semiconductor France S.A.R.L.; National Semiconductor GmbH (Germany); National Semiconductor (I.C.) Ltd. (Israel); National Semiconductor S.r.l. (Italy); National Semiconductor A.B. (Sweden); National Semiconductor (U.K.) Ltd.; National Semiconductor (U.K.) Pension Trust Company; Cyrix International Limited (U.K.); National Semiconductor Benelux B.V. (Netherlands); National Semiconductor B.V. (Netherlands); National Semiconductor International Finance S.A. (Switzerland); Natsem India Designs Pvt. Ltd. (India); National Semiconductor (Australia) Pty. Ltd.; National Semiconductor (Hong Kong) Limited; National Semiconductor (Far East) Limited (Hong Kong); NSM International Limited (Hong Kong; 51%); National Semiconductor Sunrise Hong Kong Limited; National Semiconductor Japan Ltd.; Cyrix K.K. (Japan); National Semiconductor SDN. BHD. (Malaysia); National Semiconductor Technology SDN. BHD. (Malaysia); DynaCraft SDN. BHD. (Malaysia); DynaCraft Asia Pacific SDN. BHD. (Malaysia); National Semiconductor Pte. Ltd. (Singapore); National Semiconductor Asia Pacific Pte. Ltd. (Singapore); National Semiconductor Manufacturer Singapore Pte. Ltd.; Shanghai National Semiconductor Technology Limited (China; 95%); National Semiconductor Korea Limited; National Semiconductor Canada Inc.; National Semicondutores do Brazil Ltda.; National Semicondutores da America do Sul (Brazil); Electrónica NSC de Mexico, S.A. de C.V.; ASIC Limited (Bermuda); National Semiconductor (Barbados) Limited; Cyrix Export Sales Corporation (Barbados).

Further Reading

Amelio, Gil, and William L. Simon, Profit from Experience: The National Semiconductor Story of Transformation Management, New York: Van Nostrand Reinhold, 1996, 312 p.

Brandt, Richard, “The Man National Is Putting Its Chips On,” Business Week, February 18, 1981.

Carroll, Paul B., “For National Semiconductor, Revenue Is the Challenge,” Wall Street Journal, February 8, 1996, p. B4.

______, “National Semi Resets Agenda with New CEO,” Wall Street Journal, May 6, 1996, pp. A3, A9.

“Confounding an Industry on Prices,” Business Week, November 21, 1970.

Epstein, Joseph, “Semi Circle: National Semiconductor’s Turnaround Isn’t Quite Complete,” Financial World, October 21, 1996, pp. 82 +.

“Fast Footwork in an Industry Talent Hunt,” Business Week, March 11, 1967.

Gomes, Lee, “Chip Maker to Revamp Cheaper Lines,” Wall Street Journal, June 21, 1996, p. B7.

“The Hot New Computer Company,” Business Week, October 22, 1979.

Miles, Robert H., Corporate Comeback: The Story of Renewal and Transformation at National Semiconductor, San Francisco: Jossey-Bass, 1997, 388 p.

Murray, Thomas J., “Live Wire at National Semi,” Dun’s, August, 1972.

Reinhardt, Andy, “National Semiconductor’s Silicon Dreams,” Business Week, October 14, 1996, pp. 94, 97.

Richards, Bill, “Computer-Chip Plants Aren’t As Safe and Clean As Billed, Some Say,” Wall Street Journal, October 5, 1998, pp. Al, A13.

Takahashi, Dean, “National Semiconductor to Acquire Cyrix,” Wall Street Journal, July 29, 1997, pp. A3, A4.

______, “New CEO Strives to Revitalize National Semiconductor,” Wall Street Journal, January 3, 1997, p. B5.

______, “New Chip by National Semiconductor May Drive PC Prices to Less Than $400,” Wall Street Journal, April 6, 1998, pp. A3, A6.

Uttal, Bro, “The Animals of Silicon Valley,” Fortune, January 12, 1981.

—Jonathan Martin
—updated by David E. Salamie

National Semiconductor Corporation

2900 Semiconductor Drive
Santa Clara, California 95052
U.S.A.
Telephone: (408) 721-5000
Toll Free: (800) 272-9803
Fax: (408) 739-9803
Web site: http://www.national.com

Public Company
Incorporated: 1959
Employees: 9,700
Sales: $1.98 billion (2004)
Stock Exchanges: New York
Ticker Symbol: NSM
NAIC: 334413 Semiconductors and Related Device Manufacturing; 334419 Other Electronic Component Manufacturing

National Semiconductor Corporation is a leading U.S. manufacturer of semiconductors used in a broad range of electronics applications. During its rapid rise to prominence in the late 1970s, National Semiconductor gained a reputation as the most efficient producer of semiconductors in the world, turning out a wide array of standardized, reliable parts at very low cost. National's prosperity relied less on high-tech genius than on low-tech frugality and hard work, qualities instilled in the company by its longtime president and chief executive, Charles E. Sporck. In the increasingly crowded world of semiconductors, however, National suffered during the 1980s from Asian price competition, turned around in the 1990s under another chief executive, Brian Halla, and used its expertise in analog chips in the 2000s to stake its claim in the evolving consumer products market. National's microprocessing chips power a multitude of portable electronics, such as cellular phones with cameras and Internet access, personal digital assistants, global positioning systems, tiny handheld television screens, and MP3 and iPod music players.

Humble Beginnings: Late 1950s

"Semiconductor" is the name given to a group of elements that under normal conditions do not conduct electricity, but that when slightly modified can be used as conductors with great precision and reliability. The development of the modern electronics industry, beginning with the 1949 invention of the transistor, depended on the use of semiconductors to control and direct electricity in very small packages known as integrated circuits or "chips." In 1959 Dr. Bernard Rothlein, formerly of Sperry Rand Corporation, joined the burgeoning semiconductor industry by creating National Semiconductor in Danbury, Connecticut (the company moved to Santa Clara, California, in 1968). The firm was tiny by industry standards, with only $5.3 million in sales by 1965, but it offered a variety of fairly sophisticated semiconductors and was operating at a profit.

Dr. Rothlein's former employer filed a suit against National for patent infringement, however, and the case depressed the company's stock price when it reached the courts in the mid-1960s. The low stock price encouraged a substantial investment by East Coast financier Peter J. Sprague (son of the chairman of Sprague Electric Company), who became chairman of National in 1966 and set out to make the company a major player in the semiconductor industry. Sprague recognized that National needed an injection of strong management if it was to make the transition from small research lab to commercial manufacturer, and in the spring of 1967 he surprised the industry by hiring away five top executives from Fairchild Camera & Instrument Corporation, then the nation's second largest maker of semiconductors.

Sporck Taking Charge: The Late 1960s and Early 1970s

Chief among the new recruits was Charles E. Sporck, 39-year-old head of Fairchild's semiconductor division, who accepted a 50 percent cut in pay to become National's president (and owner of a chunk of its stock). From then until 1991 National Semiconductor would remain, in large part, the creation of Peter Sprague and the hard-driving Charlie Sporck.

Sporck and National Semiconductor were ideally suited to each other. National had some excellent products but lacked management control, while Sporck was not a technical genius but knew how to run a tight ship, market his wares, and make money. With the full financial and moral backing of Sprague and the board of directors, Sporck turned National upside down in the year following his arrival. He marked down the value of National's inventory of transistors by $1.5 million (giving the company a $2 million loss in fiscal 1967) and focused its energies on selling large quantities of standard semiconductors in three different market areas: linear, Transistor-to-Transistor Logic (TTL), and metal-oxide semiconductors (MOS).

Sporck also kept a tight lid on corporate overhead, using outside sales representatives whenever possible, farming out basic engineering and accounting work to independent contractors, and generally promoting a corporate ethic of austerity. In an industry rapidly flooding with new competitors, Sporck's penny-pinching proved key to National's survival in the coming price wars. As he told Business Week in 1970, "We make money because we have to."

Although it might not have been apparent to the casual observer in 1967, National Semiconductor had assembled a trio of powerful business advantages. First, National was in an industry about to undergo tremendous growth, as the spread of computers made semiconductors critical to every aspect of modern life. Second, National was able to draw on the financial strength of its investors to raise the large amounts of money required for expansion, and third, the company was run by a man naturally inclined to efficiency and thrift. The combination of these elements allowed National to grow with amazing swiftness, from 1965 sales of $5.3 million to $42 million in 1970 and an incredible $365 million in 1976.

For less well-prepared companies, the same period was fatal as bitter price wars erupting in 1969 and 1970 drove even giants such as General Electric and Westinghouse out of the semiconductor business and kept profit levels minuscule. Silicon Valley was suddenly very crowded and from among its scores of visionary entrepreneurs only a few would survive to dominate the national scene.

Sporck brought a global awareness to National. It was one of the first semiconductor companies to move its assembly operations to the Far East, where labor was available at a fraction of its cost in the United States. The company also sold about 20 percent of its finished products overseas, much of it going to Europe at prices that stirred charges of unfair trade practices. On the other hand, Sporck appeared to have grossly underestimated the long-term potential for competition from the Far East, where the growth of an indigenous semiconductor industry drove prices ever lower on the kind of standardized semiconductors made by National. Sporck's preference for selling a high volume of standard items generated National's prodigious growth, so long as its competition was limited to American firms operating on similar cost bases.

When the Japanese made semiconductors a global business in the 1980s, this formula brought consistent losses and a desperate appeal from Sporck for federal trade protection. National was at the forefront of political pressure leading to the 1986 Semiconductor Trade Agreement.

Failed Diversification Efforts: The Middle and Late 1970s

Sporck was aware of National's vulnerability and beginning in the early 1970s he made a number of attempts to diversify the company's sales base by "integrating forward," making consumer products as well as the semiconductors that went inside them. National leapt into the manufacture of calculators, digital watches, and video games, enjoying initial success as the public responded to the novelty of these high-tech gadgets. Within a few years, however, National's emphasis on low-price mass merchandising again left it vulnerable to the crush of competitors entering these markets. National had no experience in retail manufacturing and before long its products were saddled with a reputation as low-end junk, without the style or cachet needed to survive in a maturing market. By the time every American was wearing a digital watch, National had been driven from the marketplace, suffering minor losses that, fortunately, were overshadowed by its roaring success in semiconductors.

Two other efforts by Sporck to widen National's product line had more complex histories, though both also ended in failure. In the mid-1970s National became interested in the possibility of electronic point-of-sale terminals for use in super-markets. In association with a group of California supermarkets, National developed the "Datachecker" system for the scanning and recording of sales, with which it built a substantial and modestly profitable business over the following decade. Of greater potential was National's decision around 1976 to enter the computer business, originally as a producer of mainframe computers for sale by Itel Corporation, a San Francisco-based marketing and finance company. As many others had tried before, Itel and National hoped to cut into IBM's domination of the mainframe market by selling similar machines at a reduced price. At first, National was satisfied simply to make computers for the Itel name. In the late 1970s, however, National tried to push into the market with its own line of mainframes and minicomputers encouraged by the huge profits it was making on the Itel IBM-compatibles.

Key Dates:

1959:

Dr. Bernard Rothlein forms National Semiconductor in Danbury, Connecticut.

1967:

Charles Sporck joins the firm as president.

1968:

The company moves to Santa Clara, California.

1969:

Fierce price wars erupt in semiconductor manufacturing.

1970:

National reaches sales of $42 million.

1976:

Company sales top $365 million, and National enters the computer mainframe market.

1981:

Sales top the $1 billion mark for the first time.

1987:

National buys Fairchild Semiconductor.

1989:

National's mainframe unit, Datachecker, is sold.

1991:

Gilbert Amelio is named National's new president and the company reorganizes.

1996:

Brian Halla comes on board as the firm's new president and chief executive.

1997:

National buys Cyrix, a manufacturer of microprocessors, and sells Fairchild.

2000:

National and Taiwan Semiconductor Manufacturing Corporation partner to produce chips in Maine.

2004:

The company opens its first manufacturing facility in China.

National's System 200 and 400 lines of large computers never got off the ground, due in part to renewed competition from the ever vigilant IBM. Itel had similar but more severe problems, forced by IBM price pressure in early 1979 to ask National for cheaper computers with which to compete. Sporck recognized a golden opportunity: He agreed to supply Itel with cheaper computers only if they agreed to buy more machines. Itel did so and when the market softened later in the year, Itel was stuck with computers it could not sell and an obligation to buy many more. Faced with a complete disaster, Itel essentially gave its inventory and sales force to National in exchange for a release from its contracts. As one former Itel executive told Fortune, "National blackmailed us and then stole the business."

Be that as it may, Sporck had "stolen" little more than a distraction and headache. National enjoyed sporadic success selling a line of mainframes made by Hitachi in Japan, but again its timing and approach were all wrong. During the 1980s National, aside from the inherent difficulties of competing with IBM, faced a general decline in the mainframe segment of the computer industry that even IBM was not able to withstand. The monolithic mainframe was being replaced by combinations of mini and microcomputers, and in a shrinking market National's chances of success against IBM fell from slim to none. The company eventually sold its National Advanced Systems division in 1989.

Buffeted by Asian Competition: The 1980s

Despite its mainframe difficulties, National's semiconductor business continued to boom. Sales for 1981 reached $1.1 billion—tripling in four years—and the company employed 40,000 workers, two-thirds of them in Southeast Asian assembly plants. Its strength continued to be the manufacture of linear and bipolar logic integrated circuits in large quantities and at low cost; as a competing executive told Fortune, National was the "sweatshop of our industry—a pipe-rack, low-cost, survival-oriented company." National, however, soon faced a number of grave problems. In 1981 a handful of key National executives left the company to accept more lucrative offers elsewhere, among them Pierre Lamond, who had been National's chief designer and engineer.

While job hopping was common in the electronics industry, the defection of Lamond was a significant blow. National had never been particularly strong on technical ingenuity and the company had relied on its brightest designer. Worse yet, competition from the Far East had increased and National would soon feel its impact. National's line of staple items was easily reproducible, and although it was the cheapest semiconductors manufacturer in the United States, it was not the cheapest producer worldwide.

The recession of 1981–82 plunged National into the red. Its losses totaled only $25 million, but they set the tone for the coming decade. The company was solid in the following few years, suffered a sharp downturn in 1985 and 1986, and then recovered again in late 1987. At this point Sporck made a purchase that must have given him great personal satisfaction, whatever its permanent value to National Semiconductor. For $122 million National bought the semiconductor division of Fairchild Camera, the same Fairchild from which Sporck and his management team had emigrated back in 1967. Fairchild had been one of the pioneers in semiconductors, but since Sporck's departure it had staggered through many losing years and was now available at what some observers thought was a bargain price. Sporck felt that Fairchild's strengths in chips for mainframes and supercomputers and its excellent military ties would complement National's relative weakness in these segments.

The timing of the Fairchild deal, however, was poor, as the mainframe market continued to shrink and military spending declined from its peak during the Reagan administration. Moreover, Fairchild had lost $265 million in the two years prior to its purchase by National, and the latter already had plenty of its own problems.

Changing Directions: The 1990s

From 1987 through 1992 National posted an aggregate loss exceeding $500 million. President Sporck and Chairman Sprague took vigorous measures to right their floundering ship, getting out of computers and point-of-sale equipment, dropping the two least profitable semiconductor lines, and in early 1991 replacing Sporck himself with Gilbert F. Amelio. Under the leadership of Amelio, a former Rockwell International executive who had a Ph.D. in physics from Georgia Institute of Technology, National turned more of its energies toward the market for analog semiconductors, used increasingly by the telecommunications industry. Analog chips not only made consumer products simpler, but lengthened battery life and powered audio and visual components. National was already a top producer of analog chips, which for years had been all but lost in the excitement over digital chips for computer applications, and Amelio hoped the changing demands of the market would make National's analog expertise far more valuable in the 1990s.

The immediate signs, unfortunately, were not encouraging. Even after writing off $144 million in the massive reorganization of the company in 1991, National came up with a $120 million loss in the following year. As the restructuring took hold, National began to post healthy profits and saw revenues increase with each year. In addition to selling off noncore assets, Amelio also divided the company's chip lines into two areas: lower-margin, more cyclical logic and memory chips (the so-called "commodity chips" upon which National gained prominence); and higher-margin, value-added analog and mixed-signal chips.

Amelio's divisional shift seemed to point toward the eventual divestment of the commodity chips but before he was able to make this dramatic move, Amelio left National in early 1996 to become CEO of Apple Computer Inc. and attempt another turnaround. Amelio's replacement was brought on board in May 1996. National's new CEO and president (soon chairman as well) was Brian Halla, a former executive vice-president at LSI Logic Corporation who also had spent 14 years in marketing at Intel Corporation. The month after Halla's arrival, National announced the consolidation of its commodity chip lines within a new unit, Fairchild Semiconductor, resurrecting the name of the pioneering Silicon Valley chip company National had bought nine years earlier. Within months, however, in March 1997, National sold the Fairchild unit to an investment company for $550 million, retaining a 15 percent stake.

Halla also gambled on the "system-on-a-chip," new technology able to handle all functions, including processing, logic, and memory, on a single chip. National's initial plans for the system-on-a-chip was to drive down the costs of PCs, essentially creating a PC-on-a-chip. National was not the only company pursuing this technology, rivals Texas Instruments and the France-based SGS-Thomson also were developing their own versions. Although Texas Instruments was bigger and SGS-Thomson had the clout of the French and Italian governments behind it, National seemed to be the most aggressive. The company made a number of acquisitions designed to gain the combination of technologies needed to make the PC-on-a-chip a reality. In March 1997 National paid $74.5 million for Mediamatics, Inc., a Fremont, California-based maker of audiovisual chips for the PC market.

Cyrix Corporation was acquired in November 1997 for about $540 million. Cyrix specialized in lower-priced Intel-compatible microprocessors used in PCs under $1,000. Halla planned to use Cyrix chips as a base for the revolutionary new chip, telling Electronic News (April 6, 1998), "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. We use them all day long, but we only think about the appliance, not the motor."

Even though Cyrix seemed the most valuable piece of the system-on-a-chip puzzle, National acquired several other firms to make the chips a reality. Unfortunately, the road to fruition was not smooth. Workforce reductions occurred in 1996, 1997, and 1998, along with the closure of a manufacturing plant in Scotland. While National was certainly pouring research and development dollars into the system-on-a-chip technology, the company also inked a deal with Three-Five Systems, Inc. to develop liquid crystal silicon microdisplays for electronics and initiated a $2.5 million program to give teachers free training on the Internet.

In May 1998 National paid $122 million for ComCore Semiconductor, Inc., a manufacturer of integrated circuits for computer networking and communications. Sufficient progress had been made on the PC-on-a-chip for several top companies including Compaq and IBM to sign on, but delays, a softening PC market, and Intel's highly functional, competitively priced Celeron chip sent National into a tailspin. National sank into the red for both 1997 and 1998 despite overall sales of $2.68 billion for 1997 and $2.54 billion in 1998.

In 1999 National left the PC-on-a-chip business by selling most of Cyrix's assets for less than $200 million, keeping only the firm's MediaGX microprocessing products. MediaGX technology was used in National's new Geode line of chips for the rapidly expanding "information appliance" market. Information appliances, such as PDAs (personal digital assistants), MP3 players, and phones with Internet capabilities, used Geode chips to share data and power their many functions. The first Geode products included tiny handheld television screens for Philips Electronics and AOL. Other National product launches included a miniscule analog amplifier in protective packaging called "micro SMD" and "Merlin," the industry's first high-performance single-chip color scanner.

The New Century: The Early 2000s

The new millennium brought National renewed focus and vigor in its core operations. Analog products, while less glamorous than its sibling components, continued to be the mainstay of the company with new innovations in display screens, wireless technology, and interface capabilities. National also turned increasingly toward a wide array of information appliances, as well as informational infrastructure (Internet and related technology). In addition to finalizing a deal with Taiwan Semiconductor Manufacturing Corporation (TSMC) to produce chips, National unveiled a new slogan, deeming its mission to be the "sight and sound of information" to its many customers around the world.

National finished 2000 with fiscal sales topping $2.14 billion and net income of slightly less than $621 million. The next year, however, was particularly tough on chip manufacturers, despite strides made in technology such as National's joint venture with IBM for remote Internet access and the acquisition of Wireless Solutions Sweden AB, Vivid Semiconductor, and InnoCOMM Wireless. The cost of the acquisitions, ongoing research and development, and a weak chip market took its toll in 2001, forcing National to lay off about 10 percent of its workforce. The company finished the fiscal year with sales of $2.11 billion and income of $245.7 million.

In 2002 and 2003 National continued to hone its amazing technological breakthroughs, with its chips becoming smaller, more sophisticated, and more reliable as the demand for hand-held consumer products swept the world. Cell phones with Internet access and cameras dominated the market, along with a new generation of PDAs and musical devices (such as MP3 players and Apple's new iPod). National seemed to be ahead of these trends, but fierce competition and a still struggling economy forced sales well below the $2 billion mark to $1.49 billion for 2002 with a loss of $121.9 million for the fiscal year ending in May.

In 2003 National fared only slightly better: Sales reached $1.67 billion and income was still a loss but at $33.3 million. By 2004, however, National had begun another turnaround, hitting its stride with new product introductions, the opening of its first manufacturing plant in China, and the sale of its imaging sensor unit for small handheld appliances and cellular phones to Eastman Kodak. Sales for 2004 climbed only to $1.98 billion, but income rose to just shy of $283 million, a healthy leap from the previous two years' losses.

For early 2005 National's sales continued to fluctuate, though earnings were strong. Worldwide economic woes, however, did not bode well for continued strength in the chip market. Despite National's strong showing at the end of 2004 and in the first quarter of fiscal 2005, a round of layoffs was announced in January to keep the firm on the straight and narrow. Although National's outlook for the future was somewhat shaky, the company had come though several years of repositioning itself as a worldwide leader in analog technology. National already owned the color display market, with the majority of the planet's half-billion cellular phones using its chips for sight and sound functions. The future of National Semiconductor continued to lie within the tiniest of possibilities: creating microscopic chips with ever more tremendous capabilities.

Principal Subsidiaries

National Semiconductor A.B. (Sweden); Semiconductor Asia Pacific Pte. Ltd. (Singapore); National Semiconductor (Australia) Pty. Ltd.; National Semiconductor B.V. Corporation; National Semiconductor Bangkok Ltd.; National Semiconductor Benelux B.V. (Netherlands); National Semiconductor Canada Inc.; National Semicondutores do Brazil Ltda.; National Semiconductor France S.A.R.L.; National Semiconductor GmbH (Germany); National Semiconductor Hong Kong Ltd.; National Semiconductor (Israel) Ltd.; National Semiconductor Japan Ltd.; National Semiconductor Korea Limited; National Semiconductor (Maine), Inc.; National Semiconductor S.R.L. (Italy); National Semiconductor Technology Limited (China; 95%); National Semiconductor (UK) Ltd.

Principal Competitors

Analog Devices, Inc.; Cirrus Logic Inc.; Intel Corporation; LSI Logic Corporation; STMicroelectronics N.V.; Texas Instruments Inc.

Further Reading

Amelio, Gil, and William L. Simon, Profit from Experience: The National Semiconductor Story of Transformation Management, New York: Van Nostrand Reinhold, 1996.

Brandt, Richard, "The Man National Is Putting Its Chips On," Business Week, February 18, 1981.

Carroll, Paul B., "For National Semiconductor, Revenue Is the Challenge," Wall Street Journal, February 8, 1996, p. B4.

——, "National Semi Resets Agenda with New CEO," Wall Street Journal, May 6, 1996, pp. A3, A9.

"Color LED Displays Synchronize Light and Audio," Product News Network, November 19, 2004, n.p.

"Confounding an Industry on Prices," Business Week, November 21, 1970.

Epstein, Joseph, "Semi Circle: National Semiconductor's Turnaround Isn't Quite Complete," Financial World, October 21, 1996, pp. 82+.

"Fast Footwork in an Industry Talent Hunt," Business Week, March 11, 1967.

"Geode IA Processor Hits the Streets," ElectronicBuyers' News, April 17, 2000, p. 28.

Gomes, Lee, "Chip Maker to Revamp Cheaper Lines," Wall Street Journal, June 21, 1996, p. B7.

"The Hot New Computer Company," Business Week, October 22, 1979.

Kenneally, Christopher, "New & Improved," PC Week, May 12, 1997, p. 21.

Kirkpatrick, David, "Three Promising (non-Intel) Chipmakers," Fortune, December 8, 1997, p. 211.

Levine, Bernard, "Betting on System-on-a-Chip," Electronic News, June 26, 2000, p. 22.

Lubove, Seth, "Deus ex machina," Fortune, November 30, 1998, p. 50.

Miles, Robert H., Corporate Comeback: The Story of Renewal and Transformation at National Semiconductor, San Francisco: Jossey-Bass, 1997.

Murray, Thomas J., "Live Wire at National Semi," Dun's, August 1972.

Reinhardt, Andy, "National Semiconductor's Silicon Dreams," Business Week, October 14, 1996, pp. 94, 97.

Richards, Bill, "Computer-Chip Plants Aren't As Safe and Clean As Billed," Wall Street Journal, October 5, 1998, pp. A1, A13.

Roberts, Bill, "Virgin Territory," Electronic Business, September 2000, p. 132.

Silverstein, Roberta, "Old Chipmakers Learn New Tricks," Business Journal, March 24, 2000, p. 22.

"Streetalker," Forbes, February 21, 2000, p. 166.

Takahashi, Dean, "National Semiconductor to Acquire Cyrix," Wall Street Journal, July 29, 1997, pp. A3, A4.

——, "New CEO Strives to Revitalize National Semiconductor," Wall Street Journal, January 3, 1997, p. B5.

——, "New Chip by National Semiconductor May Drive PC Prices to Less Than $400," Wall Street Journal, April 6, 1998, pp. A3, A6.

Uttal, Bro, "The Animals of Silicon Valley," Fortune, January 12, 1981.

—Jonathan Martin

—updates: David E. Salamie;

Nelson Rhodes