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TI tops 4Q estimates
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January 24, 2000: 8:07 p.m. ET
Executives see sales accelerating moving into the first quarter of 2000
By Staff Writer Richard Richtmyer
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NEW YORK (CNNfn) - Texas Instruments on Monday reported a fourth-quarter profit increase of 71 percent, ahead of Wall Street's expectations as strong semiconductor sales gave a boost to the company's bottom line.
And executives at the Dallas-based company said sales during the current quarter should be even higher, a forecast that surprised even the most bullish market observers.
During the quarter ended Dec. 31, Texas Instruments logged earnings excluding special charges and other items of $433 million, or 51 cents per diluted share. That's up from $253 million, or 31 cents per diluted share, during the same period a year earlier.
Analysts polled by earnings tracker First Call expected Texas Instruments (TXN) to post a profit of 47 cents per share during the quarter.
Fourth-quarter revenue rose 26 percent to $2.6 billion, Texas Instruments reported.
During the quarter, the company recorded one-time acquisition-related charges of 8 cents per share, which were offset by a one-time tax benefit of 8 cents per share.
For all of 1999, Texas Instruments reported net income of $1.4 billion, or $1.68 per diluted common share on revenue of $9.5 billion. That's up from a profit of $416 million, or 51 cents per diluted share, on revenue of $8.6 billion in 1998.
Sales to strengthen in 1Q
Texas Instruments executives said they expect to see a sequential increase in sales of its core semiconductor products during the first quarter, which is counter to the industry's seasonal pattern.
The fourth quarter typically is the strongest for semiconductor companies because of an increase in sales of electronics devices during the holiday season.
"We believe we will see sequential revenue growth in semiconductors during the first quarter of 2000," Bill Aylesworth, the company's treasurer and chief financial officer, said in a conference call with analysts Monday evening.
"This is especially encouraging given the fact that the first quarter is generally expected to be a seasonally down quarter for the semiconductor industry," Aylesworth added.
Some analysts were encouraged by those remarks as well.
"I have spoken with a number of investors who had been concerned about TI's business in the first quarter over the fourth quarter," said Tim Kellis of Schroeder & Co. in New York.
"That's probably the most bullish comment that was made, because the expectation was for them not to have revenue growth in the quarter," Kellis added.
Dan Niles, an analyst at Robertson Stephens in San Francisco, also pointed out that semiconductor orders during the quarter rose more than he had expected.
The company said fourth-quarter semiconductor orders rose 41 percent year-over-year and 15 percent sequentially.
"The quarter itself was very nice, but the forward-looking stuff was better than I think most of us were looking for, especially on the order front," Niles said.
DSP, analog sales up sharply
At the core of Texas Instrument's product portfolio are digital signal processors, or DSPs, which are special-purpose chips designed to analyze real-world signals such as sound and images. Those signals are then converted into digital data that can be used by electronic devices.
Texas Instruments' fourth-quarter DSP sales rose 39 percent from 1998's fourth quarter, and 28 percent year-over-year, which Aylesworth attributed mostly to strength in the wireless communications market.
Texas Instruments, which has been a leader in DSP sales for several years, also has been using its position in that market to sell more mass-market analog semiconductors, which work in conjunction with DSPs.
"This is an area of strategic focus for TI, and we were very pleased with the progress in 1999," Aylesworth said. The company's analog sales rose 17 percent in 1999 and 24 percent during the fourth quarter, he said.
Overall, Texas Instruments' semiconductor sales rose 30 percent during the quarter to $2.2 billion. For the year, semiconductor sales were up 21 percent, landing at $7.9 billion.
Demand expected to continue through 2000
And moving ahead, executives expect continued robust demand for those products.
In its earnings report, the company said it will increase its capital spending in 2000 to $2 billion, up more than 40 percent from $1.4 billion in 1999.
Most of that will be focused on developing technology and adding manufacturing capacity for the company's core DSP and analog products, including the transition to more advanced manufacturing processes.
Texas Instruments shares rose 3/32 to 110-7/8 in New York Stock Exchange trade ahead of Monday's earnings release.
But both Niles and Kellis said they expect investors to cheer the news on Tuesday, sending shares even higher.
"You should see it up a few dollars tomorrow," said Niles. "The outlook was quite a bit better than any of us were probably looking for."
Niles, who has a "strong buy" rating on Texas Instruments said he expects shares to gain as much as another 35 percent by yearend, driven by revenue and earnings growth.
Kellis, who as of Monday had a price target of 147 and a "1" rating on Texas Instruments, said he expects shares to trade higher as well, depending on what happens in the broader market.
"I expect the stock to be up, barring overall market weakness like we saw at the end of the day Monday," he said. 
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