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Texas Instruments' Earnings: Bar Too Low Or Too High?

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Texas Instruments is playing a strange game of financial limbo as the company prepares to report its first quarter earnings later today. On the one hand, significantly lower expectations, thanks to TI's own guidance warning last month, could help the company breeze under the bar.

But bigger issues facing the company from here forward could be pushing the bar higher than investors hoped.

Here's the deal: TIhad initially been looking for revenue of between $3.27 billion and $3.55 billion, but revised that to $3.21 billion to $3.35 billion instead. The earnings per share share range went from 43 cents to 49 cents down to 41 cents to 45 cents. The Street is right in the middle, anticipating 43 cents on $3.28 billion.

Following Intel's report last week, it's clear there is new found strength in the chip sector; and analog chips continue to sell well. But in the same way that Intel appears to be stealing market share from its rival Advanced Micro Devices ,there are market indications that Intel may be also doing the same thing to Texas Instruments, with Intel's partnership with STMicroelectronics. Sure, flash memory hasn't been a bright spot for Intel with many suggesting the unit's problems are the root of Intel's balance sheet problems.

But with Nokia choosing to go a multi-supplier route by using chips from Broadcom, STMicroelectronics and Infineon , that becomes a problem for Texas Instruments, even though the company's chips are in half the world's cell phones. LM Ericsson AB also is pursuing a multi-supplier strategy.

Never mind that there's a difference in opinion on just how serious Nokia's problems are, the fact is it's a key Texas Instruments customer and there's uncertainty about what to expect from the handset maker, at least shorter term. Longer term, Texas Instruments starts to look a little more interesting. There's little question that the handset market is moving quickly to a smart-phone paradigm. And that's where TI may see significant opportunity. As a key provider in analog chips, the more the industry goes digital, the better off TI is going to be since digital chips can't operate without a lot of analog chip support. Just ask the folks at National Semiconductor .

Another key area for Texas Instruments: digital televisions. The company's DLP chip has been a star performer for Texas Instruments these last few years. No question that macro-economic concerns have slowed big screen purchases, and likely will for the next couple of quarters. But with the digital television market set for a major transition a year from now when all US TVs must be digital, there might be a longer term opportunity for the company as consumers set out to replace old screens, or upgrade the digital ones they already have.

And that's where the game of limbo comes in. Expectations around these shares are so low right now, and the negatives hovering over the shares not all that significant, even in the short run, that the company could be in a nice position when it reports later today. For TI, it'll come down to guidance and commentary. Strange times on the market right now. If TI indicates that expectations were simply ratcheted down too steeply, that's good news for this company and its shareholders. Ratcheted down "not enough" and that still might not be so bad since expectations are so low already.

TI may be a sleeper for a while. I don't see much changing that with today's report.

Questions? Comments? TechCheck@cnbc.com

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