NEW YORK (MONEY) - The outlook for the semiconductor industry has been improving since late last year. And recent statistics have been equally encouraging. Global chip sales rose 6.8 percent in February, according to the Semiconductor Industry Association.

The news has been even more bullish for companies that make the chips used in mobile phones. Last week, Nokia raised its projection for 2006 handset sales to a gain of 15 percent, compared with an earlier forecast of a 10 percent increase.

Much of this growth is coming in China and India, where consumers are trading up from the cheapest phones to more sophisticated models. That typically means fatter profit margins as well as higher revenues.

This trend is especially good news for Texas Instruments, which is an important supplier of components to Nokia. Analysts have long regarded TI as one of the most attractive companies in the chipmaking business. And Nokia's announcement seems to signal a likely improvement in TI's stock performance.

In fact, TI shares have pretty much gone sideways over the past five years. Today's $32.29 share price is slightly below peaks set in 2004, 2002 and 2001. But TI (Research) stock may now be poised to break through this ceiling.

In addition to Nokia's announcement, there are two other reasons that TI shares appear poised for a significant advance.

First, demand for chips was stronger than expected in the fourth quarter of 2005, which left much of the industry with below-average inventories. At the same time, TI's order backlog grew by 28 percent, to $3.77 billion.

That suggests TI's inventories should continue to be tight through much of 2006, and that sales and earnings should post healthy increases.

Over the next few years, the company should also benefit as television makers upgrade their models to be fully digital. TI is one of the leaders in digital signal processors and digital light processors.

By contrast, the stock's negatives seem fairly minor. As with many tech companies, earnings comparisons will suffer slightly this year as accounting is adjusted to reflect grants of employee stock options.

In addition, quarterly profits could fail to meet expectations even if results are good. In the fourth quarter, net income rose 34 percent, but some investors were disappointed that revenue wasn't up more.

Those drawbacks are minor, however. Earnings are expected to rise 15 percent in 2007 and continue at that rate over the next five years.

At the current share price, Texas Instruments trades at 21 times this year's estimated earnings and 18.5 times next year's expected results. That seems reasonably priced, given the company's bright prospects over both the short and long term.

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