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Texas Instruments Quarterly Profit Falls, Outlook Disappoints

Reuters
Monday, 23 Jul 2007 | 10:39 PM ET

Texas Instruments posted a lower quarterly profit on weak demand for its calculators and other products, and gave a disappointing revenue forecast for the third quarter, sending shares down 3% on Monday.

TI, a leading supplier of chips for mobile phones, said profit from continuing operations fell to $614 million, or 42 cents per share, in the second quarter, from $739 million, or 47 cents per share, a year earlier.

Revenue fell to $3.42 billion from $3.7 billion as weak demand for calculators outweighed sales of advanced phones using TI's wireless chips. A high inventory of chips had hurt recent quarters.

The second-quarter results were an improvement from the first quarter, when TI reported the low-point of a demand slowdown related to customer inventory levels.

Second-quarter results were in line with Wall Street's lowered expectations after TI adjusted the mid-point of its revenue outlook in June.

But TI's projection that revenue in the third quarter would be between $3.49 billion and $3.79 billion was lower than analysts expected. Analysts' average forecast for revenue was $3.7 billion, according to Reuters Estimates.

"It's slightly light on the top line and in line on the bottom line for the quarter and the guidance," said American Technology Research analyst Doug Freedman.

He also said some investors had been hoping for a change to TI's buyback policy. "I think there were some people out there looking for them to do something more aggressive with their buyback policy," Freedman said.

Another technology research firm, iSuppli, said on Monday that TI may have lost its lead in the market for mobile phone chips in the first quarter to rival Qualcomm , which is due to post second-quarter results on July 25.

This was the first time TI relinquished its lead since iSuppli began tracking the numbers in 2004, said iSuppli, which does not yet have second-quarter ranking estimates.

Disappointing Outlook

TI forecast third-quarter earnings per share of 46 cents to 52 cents. Analysts on average had expected 49 cents, according to Reuters Estimates.

The outlook did not include TI's chip business for wired broadband Internet equipment as it expects to sell the unit to Infineon Technologies at the end of July, or the expected earnings gain from the sale, TI said.

Chief Financial Officer Kevin March said order improvements suggested continued sequential growth in the rest of 2008. "A year ago we were at the high point of the (demand) cycle and customers were building inventory," said March in an interview with Reuters. He said the
semiconductor book-to-bill ratio rose to 1.0 in the second quarter from 0.99 in the first quarter, indicating an improvement in orders as a ratio below 1 indicates order values similar to products shipped.

Total company book-to-bill edged up to 1.01 from 1.0 in the previous quarter, March said. "It gives us some confidence the growth will continue as we move into the the third quarter and the second half," he said.

The company still expects its calculator business to improve in the third quarter as retailers prepare for back-to-school sales, March said. "Our expectation is that (calculator) revenue just shifted from second quarter into third quarter," he said.

TI forecast current-quarter calculator revenue of $200 million to $220 million, up from $167 million in the second quarter. It forecast third-quarter chip revenue of $3.29 billion to $3.57 billion up from $3.26 billion in the second quarter.

Texas Instrument shares fell to $37 in late trading after closing at $38.18 in regular New York Stock Exchange trade.

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