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Texas Instruments Cuts Outlook on Weak Chip Demand

Texas Instruments, the biggest maker of semiconductors for mobile phones, cut its fourth-quarter earnings and revenue outlook, citing weaker-than-expected demand for wireless chips.

Still, the company's stock recovered from its intraday low as J.P. Morgan upgraded the shares to overweight from neutral, on hopes that Texas Instruments' gross margins are bottoming out.

Texas Instruments said demand for cheaper phones was higher than expected, but demand was weak for more expensive high-speed wireless phones that use up to five times more TI chips.

TI, which makes everything from calculators to chips for flat-screen televisions, said it now expects earnings from continuing operations of 37 cents to 40 cents a share, compared with its earlier target of 40 cents to 46 cents.

American Technology Research analyst Doug Freedman said investors had widely expected TI to reduce its estimates after another chip maker, National Semiconductor, posted weak results last week. "A certain element of a cut was priced in (to the stock) for both earnings and revenue," Freedman said. "Demand clearly is not robust."

The company said it now expects revenue of $3.35 billion to $3.5 billion in the fourth quarter, compared with its earlier estimate in October of $3.46 billion to $3.75 billion. On average analysts had expected earnings of 43 cents a share on revenue of $3.58 billion, according to Reuters Estimates.

Ron Slaymaker, an investor relations executive for TI, told analysts on a conference call that distributors were reducing inventory due to softer than usual demand for the season, and that the trend would continue in the first quarter.

"Wireless has weakened further from our expectations in October," he said. "I would say things are broadly down from our expectation in October." Slaymaker said he expects first-quarter revenue to be lower than the fourth quarter due to the combination of inventory corrections and typically slower demand after the end-year holiday shopping season.

"We would say we don't think this has bottomed out yet," said Slaymaker, who expects TI's book to bill ratio to be less than one in the fourth quarter, indicating that the value of new orders would be lower than shipments for the quarter.

The third quarter was the first time in five quarters that TI reported a ratio below one. TI cut its forecast for revenue from chip sales in the fourth quarter to a range of $3.28 billion to $3.42 billion, versus its earlier view of $3.39 to $3.66 billion.

It said it now expects revenue from its calculator unit of $70 million to $80 million, compared with its earlier view of $70 million to $90 million.

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