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TI slips past 2Q forecast
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July 24, 2000: 7:05 p.m. ET
Strong sales of DSP, analog chips help electronics giant surpass estimates
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NEW YORK (CNNfn) - Texas Instruments Inc. on Monday reported a second-quarter operating profit of 31 cents per share, beating analysts' expectations by a penny, amid soaring demand for its semiconductor products.
Executives at TI in Dallas also said they expect sequential revenue growth in the company's semiconductor business to increase in the third quarter, and the company will spend more to expand its capacity to manufacture its chips.
Excluding one-time items, the Dallas-based semiconductor and electronics outfit said its operating income was $648 million, or 31 cents per share. That's up 25 percent from $517 million, or 23 cents per share during last year's second quarter and a penny ahead of the 30 cent-per-share profit analysts polled by earnings tracker First Call had expected.
Revenue for the quarter was $2.8 billion, up 19 percent from $2.4 billion in last year's second quarter.
Those figures do not include a pre-tax gain of $1.2 billion derived in the most recent quarter from the sale of its partial stake in Micron Technology, which bought TI's memory-chip business in 1998. They also do not include a one-time royalty it collected from Hyundai Electronics in the year-ago period.
Shares of TI (TI: Research, Estimates) stock soared in after-hours trading after the earnings report, rising to 67-5/8 on the Instinet trading system after closing at 63 on the New York Stock Exchange.
 That reaction was the opposite of what some tech shares have seen recently, many of which fell sharply after reporting results that either were in line with or slightly ahead of expectations.
The company is the world's leading designer and supplier of digital signal processors (DSPs) and analog integrated circuits. Those two types of semiconductor products are used in digital cellular phones and high-speed Internet access devices, among other applications.
In a conference call with analysts Monday evening, Bill Aylesworth, TI's chief financial officer, said revenue from the company's semiconductor business was $2.4 billion, up 22 percent from $2 billion in the same quarter last and up 6 percent sequentially.
Within the semiconductor business, sales of chips for wireless communications devices rose 42 percent, Aylesworth said. There have been some questions about potential softening in demand for wireless handsets but he added that the company has made no revision to its expectations that the wireless phone industry will sell 435 million handsets this year.
"We believe demand is strong and that forecast is still in the ballpark," he said.
Despite the relatively small upside surprise in its bottom line, those comments were reassuring to investors, according to A.G. Edwards analyst Christopher Chaney.
"They supply about 65 percent of the chips in cell phones," Chaney said in an interview on CNNfn's Street Sweep program Monday.
"We didn't think that TI was going to blow away the numbers, and that's probably the general consensus on the Street," Chaney added. "I don't think there was a very wide range of earnings forecasts out there. But the fact that their book-to-bill was above one, orders were up 12 percent sequentially and revenues were in line with expectations is all good news."
Semiconductor sales growth on the rise
Moving into the third quarter, which Chaney said is typically weaker than the second for TI, the company expects sequential semiconductor revenue growth to accelerate, based on strong demand in key markets such as wireless and broadband communications.
He said he expected the mass market for TI's DSP and analog products to continue to grow rapidly as a result of new applications, new product introductions and increased demand for existing products. TI's broadband communications revenue should reflect developing demand for the chips that are used in digital subscriber line (DSL) and cable modem products, Chaney said.
Moreover, after four quarters of decline, Chaney said revenue from the sales of chips used in hard-disk drives is expected to resume sequential growth in the third quarter.
Sales of chips for hard-disk drives were down 40 percent year-over-year, a decline Chaney said weighed heavily on the company's income statement.
"The decline we experienced in hard-disk drive in the second quarter was significant enough to constrain all of our growth comparisons," he said.
To keep up with the increasing demand for its chips, TI said it is raising its capital expenditure forecast to $2.8 billion for 2000, up from the previous forecast of $2.5 billion. The increase will be used to convert manufacturing of TI's analog products to larger silicon wafers.
Chaney also said that TI is continuing to position itself for long-term growth in the market for DSP and analog chips, pointing to acquisition agreements it reached during the quarter.
During the quarter, TI announced the acquisitions of Burr-Brown Corp., Dot Wireless Inc. and Alantro Communications Inc.
"The second quarter was good for TI not only in terms of our financial performance, but also as we strengthened the company's strategic position through acquisitions," he said.
With Burr-Brown, TI's will add new high-performance analog products to its portfolio. Dot Wireless gives the company a stronger foothold in the market for 3G wireless communications technology. Alantro specializes in wireless local area networking technology.
"These acquisitions ... position TI for higher growth in some of the most attractive DSP and analog markets we see in the future," Chaney said. 
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