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TI beats, warns
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July 23, 2001: 6:25 p.m. ET
Chipmaker beats the Street by a penny, sees weakness in third quarter
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NEW YORK (CNNfn) - Texas Instruments on Monday reported a second-quarter profit that slightly exceeded Wall Street's expectations on sales that fell sharply from the same quarter last year, and warned of a weaker-than-expected third quarter amid flagging demand for its semiconductor products.
Executives of TI warned that they expected to post a loss in the third quarter of "a few cents" per share, where Wall Street had expected a modest profit. But at the same time officials said they see signs that the industry appears poised for an upturn, and they are shifting their focus back to recovery and growth.
After the close of trading, the company said its earnings, excluding extraordinary charges, were $50 million, or 3 cents per share. That compares with a profit of $543 million, or 30 cents per share, during the same period last year, and is a penny more than analysts had expected, according to a survey conducted by earnings tracker First Call.
At $2 billion, the chipmaker's second-quarter sales fell 31 percent from the $2.9 billion it reported in the year-ago quarter but came in ahead of the $1.9 billion analysts had been looking for, according to the First Call survey.
Including one-time charges, TI logged a second-quarter net loss of $107 million, or 11 cents per share, compared with a net profit of $1.3 billion, or 72 cents per share, a year ago.
TI is the leading supplier of digital signal processors (DSPs) and analog semiconductors, which are the key components used in products ranging from digital-imaging equipment to wireless communications devices. Its chips are used in about two-thirds of the world's mobile phones.
During the second quarter, TI reported that revenue from semiconductors for wireless devices fell 49 percent from the same quarter last year and 21 percent from the first quarter. Revenue from TI's catalog products, which includes DSP and high-performance analog chips, declined 36 percent from the year-ago quarter and 29 percent sequentially.
Meanwhile, broadband communications revenue, which includes digital subscriber line (DSL) and cable modems, quadrupled compared with the year-ago quarter and was even with the first quarter.
Total semiconductor orders in the second quarter were $1.3 billion, down 55 percent from the year-ago quarter and 12 percent sequentially. Orders decreased across most product areas, with the exception of wireless, where orders increased, the company said.
As have most of its counterparts in the chip industry, TI has been stung by a sharp slowdown in demand. When the company reported its first-quarter results in April, executives said the industry was on one of the sharpest decelerations that it ever has experienced, noting that it was unclear when demand for TI's semiconductor products would strengthen.
Looking ahead, Bill Ayelsworth, TI's chief financial officer, said while the downturn in the industry is not over, the company is beginning to see signs that things may improve in the foreseeable future. "We now see some signs of stabilization and believe our semiconductor revenue is nearing a bottom," he said, noting that the rate of quarter-over-quarter declines in semiconductor orders has slowed.
Moreover, orders for chips used in wireless devices increased, which Ayelsworth said reflects customers' continued progress in reducing excess inventory as well as the impact of new programs.
Even so, Ayelsworth said he expects TI's third-quarter revenue to decline between 10 percent and 15 percent from the second quarter's level. Several analysts recently had pegged third-quarter estimates of around $2 billion.
He said anticipated gains in sales of chips for wireless devices will be more than offset by weakness in other product and market areas.
Because of the weaker-than-expected revenue, Ayelsworth said TI now forecasts a third-quarter operating loss of "a few cents" per share, where Wall Street had expected a profit of 4 cents per share.
The company's forecast for capital spending in 2001 remains at $1.8 billion, of which it already has spent $1.2 billion. The company will spend $1.6 billion on research and development this year, which also is in line with its prior forecast, Ayelsworth said.
Faced with a sharp decline in demand for its products, TI has laid off more than 3,000 employees this year, roughly 2,500 of whom were let go in the second quarter. Most of the layoffs came from support functions and manufacturing, and executives said the job cuts should save the company about $400 million annually.
The company said its cost-cutting measures have lowered expenses, especially in manufacturing and support functions. TI said it has reduced its manufacturing headcount by roughly 15 percent compared with the year-ago period, mostly in labor-intensive assembly and test operations, and additional savings will be realized as other facilities complete their shutdown process.
Second-quarter selling, general and administrative (SG&A) expenses were down 30 percent, or $120 million, from the second quarter of 2000 as the company continued to reduce overhead, TI said.
Research and development expenses of $389 million in the second quarter were up slightly from the year-ago quarter, which the company attributed to a sustained aggressive expansion of its DSP and analog product and technology portfolios.
Shares of Texas Instruments (TXN: Research, Estimates) fell 71 cents, or 2.3 percent, to $30.80 on the New York Stock Exchange ahead of the earnings news. 
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