TI's loss narrows

January 28, 2002: 6:12 p.m. ET

Chipmaker logs results that are better than expected, sees encouraging 1Q.

NEW YORK (CNN/Money) - Chipmaker Texas Instruments on Monday logged a fourth-quarter loss that was narrower than expected and provided a more upbeat forecast for its business in the current quarter.

The company, whose chips are used in roughly two-thirds of the world's mobile phones, said it lost $105 million, or 6 cents per share. That excludes restructuring and other one-time charges and compares with a profit of $549 million, or 31 cents per share, during the same quarter a year earlier.

Analysts polled by earnings tracker First Call generally had expected TI (TXN: up $0.95 to $28.40, Research, Estimates) to lose 9 cents per share in the quarter.

At $1.8 billion, TI's fourth-quarter revenue was down 40 percent from the corresponding quarter in 2000 and was slightly better than the $1.7 billion analysts generally had expected.

Looking ahead to the current quarter, TI said it expects revenue to match the fourth quarter's $1.8 billion and earnings per share to return to breakeven.

By First Call's count, analysts had expected the company to report first-quarter sales of about $1.7 million and a loss of 6 cents per share.

During the fourth-quarter, TI said its semiconductor business returned to growth after three consecutive quarters of decline.

As have most chipmakers, TI has been struggling through an inventory glut that was intensified by a swift and sharp decline in demand for consumer electronics.

But many analysts have turned more positive on the semiconductor segment recently amid signs that most companies were either near or had already reached the bottom of a downturn.

Credit Suisse First Boston on Monday upgraded its rating on TI's shares to "buy" and set a price target of $35, saying it believes the worst of the downturn is now behind the company.

Shares of TI were up more than $1 in extended-hours trade after rising sharply on the New York Stock Exchange ahead of the earnings release.

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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.

And executives of TI said the company's continued investment in advanced manufacturing technology in spite of the cyclical downturn puts it in a very strong position heading into the upturn.

"At the same time, we maintained a strong balance sheet, and our actions cut about $600 million out of TI's costs on an annualized basis," Tom Engibous, the company's chairman and CEO, said in a statement.

"As the market recovers, TI's revenue growth should fall through to the bottom line at a high rate," Engibous added.

However, the company also announced plans to substantially cut back its capital spending this year compared with last.

For all of 2002, TI said it expects to spend $800 million on capital equipment. That's down more than 55 percent from the $1.8 billion it spent last year and is much less than the $1.2 billion some analysts had expected the company to spend on equipment this year.

The company said the decline follows significant capital expenditures in 2000 and the first quarter of 2001 to install the initial production line of its new DSP manufacturing facility in Dallas and to upgrade three analog production facilities.

That was the second blast of bad news this earnings season for the company's that make chip-equipment.

Earlier this month, Intel (INTC: Research, Estimates), whose capital spending accounts for roughly 20 percent of the chip industry's total, said it plans to spend only $5.5 billion in 2002. That's about 25 percent less than it spent last year and is well below the $6.5 billion-to-$7 billion many industry observers had expected.

The stocks of chip-equipment makers were pressured in extended-hours trade Monday.

Shares of Applied Materials (AMAT: Research, Estimates), the market leader, fell 49 cents to $42.40. Novellus Systems (NVLS: Research, Estimates) shares were down 42 cents at $40.59. KLA-Tencor (KLAC: Research, Estimates) shares were trading 59 cents lower at $54.20.