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Texas Instruments gives mixed outlook
No. 1 maker of chips for cell phones cuts sales target but raises earnings guidance; stock rallies.
September 8, 2004: 6:34 PM EDT
By Paul R. La Monica, CNN/Money senior writer

NEW YORK (CNN/Money) - Texas Instruments cut its sales forecast but raised its earnings target slightly for the third quarter Wednesday, a mixed outlook on demand for high-tech gadgets heading into the important holiday shopping season.

The stock, however, gained about 2 percent in after-hours trading as investors apparently were relieved the news was not as bad as some had feared. Other chip companies also rose slightly following TI's report.

In addition, an executive from TI said during the company's conference call that some worries about weakening wireless sales were a bit overblown.

The news, and the comments from TI executives, may calm investors who had started to fear that tech demand, particularly on the consumer side, was starting to wane following recent tepid outlooks from other chip firms.

Most notably, Intel slashed its third-quarter sales target last Thursday, citing weakening demand for both personal computers and cell phones.

"People were anticipating the worst and the worst case news didn't come through," said David Wu, an analyst with Wedbush Morgan Securities, referring to TI's update.

Texas Instruments, the biggest maker of chips used in cell phones and other consumer electronics devices, said it now expects third-quarter sales to be $3.1 billion to $3.24 billion. The $3.17 billion midpoint of the forecast is below Wall Street's $3.32 billion consensus estimate.

TI told Wall Street in July that sales would be between $3.2 billion and $3.44 billion.

Stronger earnings may soothe Street

But the company also said earnings per share should be 27 to 29 cents. The 28-cent midpoint is a penny higher than the 27 cents a share analysts had been expecting. TI's July forecast called for earnings to come in at a range of 26 cents to 29 cents a share.

Shares of TI (TXN: Research, Estimates) rose in after-hours trading after edging higher in regular trading on the New York Stock Exchange.

The stock has tumbled about 36 percent this year due to concerns that the company's profit and sales growth may be peaking. Market share woes at TI's largest customer, cell phone manufacturer Nokia, have aggravated these fears.

Shares of Texas Instruments could be due for a bounce after a rough few months.  
Shares of Texas Instruments could be due for a bounce after a rough few months.

However, there have been increased hopes in recent weeks that Nokia has stemmed market share declines and may be getting back on track, thanks to price cuts and the introduction of new cell phone models.

And during a conference call with analysts, Ron Slaymaker, TI's vice president and manager of investor relations, said that sales of wireless chips remained on track for the third quarter.

He said that there has been a "misperception" in the market about cell phone demand. Despite concerns about excess inventories of cell phones in China, Slaymaker added, wireless sales in other markets were strong enough to outweigh this.

Slaymaker also said that the company's digital light processors (DLPs) business was doing well, another sign that consumer demand for tech gadgets may not be faltering quite as badly. DLPs are used in high-definition televisions.

"DLPs have now emerged as a significant business," Slaymaker said. "We're riding the digital television wave."

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TI said in a statement that its customers are moving quickly to reduce their inventory levels to reflect lower demand for their products. That could mean that inventory problems may only be temporary.

The company added it was able to lift its earnings projection in part because it scaled back on component production due to lower demand. TI also said a lower tax rate due to increased export sales was helping profits.

TI's news could help lift other chip stocks Thursday. Shares of other beaten-down semiconductor companies, including Intel, Advanced Micro Devices and Broadcom, also rose in after-hours trading.

Erach Desai, an analyst with American Technology Research, said that, while TI's lowered sales guidance was slightly worse than he was expecting, the news was not bad enough to make him change his buy rating on the stock. He said there's no need just yet to make major revisions to 2005 estimates.

Wu at Wedbush Morgan said that he didn't think TI's news will be enough to get chip stocks moving substantially higher in the near-term. But he added that he thinks that there's little downside to the stock at these levels.

As long as tech companies follow up on their promises to reduce inventories, then there is a good chance chip stocks could rally in the fourth quarter. "All these companies are saying we have an inventory correction but that the market will come back," Wu said.

Analysts quoted in this story do not own shares of the companies mentioned and their firms have no investment banking ties to the companies.  Top of page




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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.