Texas Instruments 1Q profit rises, but outlook weighs shares

By: AP
By: AP

DALLAS (AP) -- Texas Instruments Inc. said Monday its first quarter profit rose 28 percent despite weaker sales of chips for high-end cell phones, but the company offered a cautious outlook for the second quarter due to the slowing economy.

The leading maker of chips for cell phones, TI said it earned $662 million, or 49 cents per share, in the first quarter this year, compared with $516 million, or 35 cents per share, a year ago.

Excluding a tax gain, the most recent profit would have been 43 cents per share. That was in line with the prediction of analysts surveyed by Thomson Financial.

Revenue rose 3 percent, to $3.27 billion, a tick below analysts' forecast of $3.28 billion.

Before the report was released, Texas Instruments shares rose 99 cents, or 3.3 percent, to $30.59. In extended trading after the report's release, they fell 69 cents, or 2.3 percent.

The Dallas-based company said it benefited from strong sales of high-performance analog semiconductors, which are widely used in a variety of industrial products and consumer gadgets such as digital cameras and music players. They make up about 40 percent of TI's revenue.

Sales of digital signal processors, used in cell phones, fell 3 percent.

Sales of chips for wireless devices fell 18 percent from the fourth quarter into the first, compared to the usual seasonal drop-off of about 5 percent, Vice President Ron Slaymaker said in an interview.

"We have lowered production in the manufacturing plants and expect to bring the inventories down over a few quarters ... probably in that two- or three- (quarter) range," he said.

Texas Instruments uses a combination of its own plants and outside foundries to make silicon chips, and both would be affected by production cuts, Slaymaker said.

Inventories also rose, and the company gave a cautious preview of the April-June quarter.

"Given uncertainty in the near-term economy, we have become more conservative with our outlook for the second quarter," said Chairman and Chief Executive Richard K. Templeton.

The company said it expected to earn 42 cents to 48 cents per share in the second quarter, while analysts were forecasting 48 cents per share.

Texas Instruments said April-to-June revenue would be $3.24 billion to $3.50 billion. Analysts were expecting $3.44 billion.

Texas Instruments faces an erosion of business from top customers Nokia and Sony Ericsson, which indicated last year they would work with several suppliers of cell phone chips instead of just TI.

Last month, Texas Instruments lowered expectations for the quarter, citing reduced sales to a big customer it didn't name that analysts widely assumed was Nokia, the world's largest cell phone maker.

Texas Instruments officials said the decisions by Nokia and Ericsson were not factors in their disappointing wireless sales, and Cody Acree, an analyst at Stifel Nicolaus & Co., said he agreed.

"The easy conclusion to draw is that TI is off because they're losing share, but it's not showing up at Broadcom or Infineon or STMicroelectronics," Acree said, referring to chipmakers that expect to receive some of Nokia's business.

Acree said it was more likely that a slowdown in sales of high-end phones was disproportionately hurting Texas Instruments.

Slaymaker said Texas Instruments can get $20 or more for chips used in advanced phones typically sold in developed countries, but only $4 on average for basic phones frequently sold in emerging markets. The weakened high end of the market "disproportionately affected TI's revenue," he said.

Glen Yeung, an analyst with Citigroup, said Texas Instruments' cautious outlook for the second quarter was expected, given the evidence of weak sales for cell phone components. But with demand for high-end phones still questionable into next year, he might reconsider his "hold" rating on TI shares.

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