NEW YORK (CNNMoney.com) - Texas Instruments announced an increase in quarterly profit of nearly 34 percent, but fourth-quarter revenues that missed Wall Street expectations and what appeared to be a lower-than expected forecast for the current quarter sent the stock 3 percent lower in after-hours trading.

The company reported fourth quarter revenues of $3.59 billion, a 14 percent increase from the year-ago quarter thanks to growth in its semiconductor business. But sales came in short of Wall Street expectations of $3.64 billion because of capacity constraints in the semiconductor business, according to Ron Slaymaker, vice president and manager of investor relations at TI. The company had warned during its mid-quarter update that it would have trouble keeping up with demand for its chips for the fourth quarter.

Production capacity got squeezed as TI awaited the delivery of equipment needed to manufacture chips. Slaymaker said on a conference call to analysts that while inventory levels have improved, they remain below desired levels, which may continue in the current quarter if demand remains high.

"I think it was generally fairly positive, given the fact that demand looks to be at least a little better than seasonal norms and the inventories out there looked pretty thin," said Cody Acree, an analyst with Stifel, Nicolaus & Company. "The biggest concern for TI is that they are capacity constrained, but in general, everyone's trying to get a feel for what's going on in the economy and health of consumer demand. What TI said is they're actually having a hard time keeping up with demand.

Acree added that the selloff could probably be attributed to what he viewed as the company's confusing guidance for the current quarter.

TI said it expects revenues for the current quarter of between $3.11 billion and $3.38 billion, while Wall Street analysts had expected revenues of $3.46 billion. TI expects earnings per share of $0.29 to $0.33 for the current quarter, which, including charges, also missed analysts' expectations of $0.38.

But TI's earnings per share estimate includes about $0.04 for stock-based compensation expense, as well as a $0.03 charge because of a higher than expected tax rate.

Acree said that, before backing out the charges, TI is actually expecting revenues of $0.36 to $0.40.

"You have to talk about options expenses to back out, a tax rate adjustment -- that's a lot of moving parts, and most people don't go that far" in calculating guidance when making split-second investment decisions, Acree said.

The company expects to report an additional $0.03 charge in the current quarter, reflecting the company's divestiture of its sensors and controls business, which Bain Capital has agreed to buy. That acquisition will close in the first half of 2006, but TI will report revenue from that business as income from discontinued operations, which may also be reflected in the current quarter's earnings per share.

The fourth-quarter revenue fell in line with TI's (Research) projections issued during its mid-quarter update, in which the company said it expected revenues of between $3.56 billion and $3.7 billion for the quarter.

TI, a top supplier of chips for cell phones and other consumer electronics, reported earnings per share of $0.40 on net income of $655 million, including a $0.03 stock-based compensation charge. Excluding the charge, earnings for the quarter beat Wall Street expectations of $0.42 per share by a penny. In the year-ago quarter, the company reported $3.15 billion in revenues and $0.28 per share.

The company posted an operating margin of 20.8 percent, a new high.

"It was an in-line quarter; there was not a whole lot of surprise," said Bob Bacarella, president and portfolio manager of the Monetta Fund, which holds shares of Texas Instruments. "Revenues were a tad light, but only a hair. One positive is the semiconductor segment did very well in general."

Bacarella noted that the company's calculator business fell short of expectations, but he attributed it to a seasonal decline in the division, which gets its biggest boost during the back-to-school season.

"The stock is a hold; I would not sell it on this news at all," said Bacarella. "Their base business is solid, they are doing everything right, and they are going to come up with more products in the (third generation cell phone) area, which is a big growth area for them."

Bacarella attributed the stock's after-hours decline to a market environment in which investors are quick to react to any negative news.

For the full fiscal year, TI reported a record $13.39 billion in revenue, a six percent increase over the previous year. Net income for the full year came to $2.32 billion, or $1.39 per share, including $0.07 of stock-based compensation expense.

TI's report followed mixed results from other chip makers. Number one chip maker disappointed investors last week, missing its numbers for the fourth quarter and issuing a muted forecast for the current quarter. Meanwhile, its rival AMD posted a 45 percent revenue increase and a quarterly profit that reversed a year-ago loss, and it also issued an upbeat forecast.

Acree said he felt TI's guidance was better than many analysts had expected -- himself included -- given normal seasonal declines.

"The biggest thing is TI's read on overall economic health, and so far so good," he said.

The company also announced a $5 billion stock buyback plan.

Shares of Texas Instruments rose 30 percent last year and have traded in a 52-week range of 20.70 to 34.74, closing yesterday at $31.66. The company trades at a forward P/E of 18.4, a slight premium to the S&P 500's 15.6.

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