Texas Instruments rallies on forecast
The No. 1 maker of chips for cell phones projects an upbeat current quarter, sending shares up.
By Amanda Cantrell, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - Shares of Texas Instruments, the No. 1 maker of chips for cell phones, rallied in after-hours trading Thursday after the company issued a revised earnings forecast for the current quarter that beat analysts' expectations.

Shares of TI rose 2.5 percent in after-hours trading.

TI (down $0.71 to $30.72, Research) said it expects earnings per share of between 46 and 48 cents for the second quarter and revenue of between $3.63 billion and $3.78 billion.

TI had originally forecast earnings per share for the second quarter of 38 cents to 43 cents, including about four cents for stock-based compensation, and revenue of $3.46 billion to $3.75 billion.

The numbers appear well above analysts' expectations for the quarter, but investors should put them in perspective, said Cody Acree, an analyst at Stifel Nicolaus & Co., noting that the one-time items gave the company a big boost in the quarter.

"You have to back out those one-time issues," he said, adding that without the $70 million in revenue, the revenue figure is "a good number, but not a dramatic number."

The company said the revenue estimate includes a $70 million cash payment from Conexant Systems for a previously announced settlement of patent-related litigation. TI also received a sales tax benefit in the quarter. The two items are expected to contribute a combined 5 to 6 cents per share.

TI, which also makes chips for other consumer electronics devices such as televisions and digital cameras, said it expects revenue from semiconductors, which accounts for 96 percent of TI's total revenue, of between $3.45 billion and $3.59 billion, up from an earlier forecast of $3.29 billion to $3.56 billion. The company expects its calculator business to produce revenues of between $175 million and $185 million. Analysts had forecast sales of $3.6 billion and earnings of 40 cents a share for the second quarter, according to a Thomson FirstCall survey.

Ron Slaymaker, TI's investor relations chief, said that a number of areas outside of chips for cell phones experienced higher-than-expected demand, such as chips for flat-screen TVs, printers and remote metering stations. Slaymaker added that demand for cell phone chips has been consistent with the company's expectations for the quarter.

The news follows a report Wednesday that semiconductor demand overall will be stronger than was initially expected this year, particularly for the chips that power cell phones.

Sales of those chips, also called digital signal processors, are expected to grow by 18.5 percent to $9 billion this year, the Semiconductor Industry Association said this week. Sales of analog chips, which power specific applications in cell phones, are expected to climb 17.3 percent to $37.4 billion. TI counts its analog business as one of its fastest-growing units.

Texas Instruments Chief Executive Rich Templeton told CNNMoney.com last month that the continuing demand for consumer electronics and growth in emerging markets will be bigger drivers for the semiconductor industry than the PC market going forward.

Templeton said that emerging markets including China, India and Africa boast roughly three billion potential new customers for TI. TI's other big growth market will fall at the other end of the technology spectrum, he said, as the world's cell phone networks get upgraded to the third generation, or 3G. These networks will allow users to send images, video and other types data over their phones at much higher speeds than they can now.

Shares of Texas Instruments are down about four percent for the year, despite strong first-quarter results from the company, which posted a 57 percent gain in earnings per share and a 23 percent jump in sales.

Analysts say the decline in TI's share price is partially because the sector as a whole has taken it on the chin this year, with the Philadelphia Semiconductor Index falling about 6.7 percent in 2006.

But they add there had been concern that TI may not be able to further expand its margins, a worry they say has depressed the company's stock price this year. TI posted a gross margin of 50.1 percent and an operating margin of 21.5 percent during the first quarter.

Acree does not own shares of Texas Instruments, and his firm does not have banking ties to the company.



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