NEW YORK (CNN/Money) -
Texas Instruments Monday reported fourth-quarter results that topped Wall Street forecasts, thanks to strong sales of wireless phones and consumer electronic gear, and issued upbeat guidance for the first quarter as well.
But the company's stock fell in after-hours trading as the biggest maker of chips for cell phones apparently became the latest tech stock to fall victim to high expectations and so-called whisper numbers on Wall Street.
“ It looks like for TI, all systems are go. As phones become more complex, there is a chance for TI to get more chips in them. ”
Ren Zamora
Loop Capital Markets
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"The numbers are moving in the right direction but maybe it wasn't as fast and furious enough for some of the stock's fans," said Alex Vallecillo, portfolio manager with National City Investment Management Co.
The Dallas-based chipmaker reported net income of $512 million, or 29 cents a share, compared to a net loss of $589 million a year earlier.
Excluding gains of 9 cents a share from a previously announced sale of Micron Technology stock and lower tax rates, TI posted earnings of 20 cents a share, a penny better than the 19 cents a share that Wall Street analysts were expecting, according to First Call.
Sales jumped 29 percent to $2.77 billion, and came in a shade better than the consensus estimate of $2.72 billion. The company raised its sales and earnings guidance for the fourth quarter in December.
For the year, TI reported net income of $1.2 billion, or 68 cents a share, including the gains from the Micron sale. Sales rose 17 percent to $9.83 billion.
First quarter should be better than usual...
Shares of Texas Instruments (TXN: Research, Estimates) lost about 2 percent in after-hours trading, according to Instinet. The stock had jumped 3.3 percent in regular trading on the New York Stock Exchange before the results were released.
However, industry analysts said it was hard to find much to complain about.
TI issued solid guidance for the first quarter, an indication that sales of cell phones and consumer electronic devices will remain strong. It said it expected sales of $2.72 billion to $2.95 billion, compared to Wall Street's estimates of $2.69 billion.
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Typically, semiconductor companies report a sequential decline in sales in the first quarter due to weaker demand for tech gadgets after the end of the year. But if TI meets the high end of its range, it could report a sequential sales increase of 6.5 percent.
On the earnings front, the company said it sees profits of 16 cents to 22 cents a share for the first quarter. The 19 cents a share midpoint is a penny ahead of average forecasts.
Ren Zamora, an analyst with Loop Capital Markets, said TI was in a great position to benefit from the increasing demand for higher-end phones since these models will require even more processors. "It looks like for TI, all systems are go," Zamora said. "As phones become more complex, there is a chance for TI to get more chips in them."
To that end, TI vice president and manager of investor relations Ron Slaymaker said during a conference call with analysts that an increase in demand for advanced feature phones was the biggest factor behind wireless semiconductor growth in the fourth quarter.
TI generates about 30 percent of its total revenue from chip sales to the wireless market.
Tai Nguyen, an analyst with Susquehanna Financial Group, said TI should also benefit from increased sales for analog chips, which convert light and sound waves into digital signals. These chips are used in a wide array of consumer electronic gear. In addition to making semiconductors, TI also manufactures sensors and controls and calculators.
...but was the news good enough?
Loop's Zamora said he was also impressed by the increase in gross margins -- a key measure of profitability -- which rose to 43.1 percent for the fourth quarter from 40.7 percent the prior quarter.
Still, the debate investors seem to be having now is whether chip stock prices reflect the companies' results for 2004.
Intel reported strong results earlier this month and its stock sold off on the news as well. TI, like Intel, enjoyed a solid run last year and there is some thought that no matter how good the news will be, chip stocks won't be able to repeat last year's huge rally.
But Nguyen thinks that once earnings season is over, investors will re-examine results at strong chipmakers like Texas Instruments and Intel, and that the stocks will start to head higher again. "Eventually, the fundamentals will come into play," Nguyen said.
Analysts quoted in this piece do not own shares of Texas Instruments and their firms have no investment banking relationships with the company.
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