Texas Instruments Profit Signals Strong Chip Market

Cell phone chip maker Texas Instruments posted a quarterly profit and outlook that signaled solid demand for its chips despite a weak U.S. economy, sending its shares up more than 3 percent.

Texas Instruments
L.m. Otero
Texas Instruments

TI -- the first of several mobile industry heavyweights including Motorola, Nokia Oyj and Qualcomm to report earnings this week -- soothed investor worries that sales of wireless chips or analog chips, used in a broad array of products, would falter amid economic concerns.

Chief Financial Officer Kevin March said in an interview that TI saw strong demand for chips used in third-generation phones with high-speed Web links while sales of chips for low-end handsets fell slightly from a year ago.

"I'd say our near term demand trends are good," March told Reuters by phone.

Analysts saw the news as a good sign for Nokia, TI's biggest client and the world's top handset maker. Nokia is scheduled to report results on Thursday, a day after Motorola, a smaller client that buys chips for low-end phones from TI.

"The outlook was not below seasonal for wireless, indicating that wireless demand has not fallen off a cliff," said Charter Equity Research analyst John Dryden.

"It didn't show up in the outlook and it didn't show up in the fourth quarter '07 results," said Dryden, referring to whether economic weakness was pressuring analog chip sales.

TI forecast first-quarter earnings of 43 cents to 49 cents a share, on revenue of $3.27 billion to $3.55 billion. That was roughly in line with Wall Street's expectations for earnings of 45 cents per share on revenue of $3.41 billion, according to Reuters Estimates.

The maker of chips used in everything from cell phones to industrial products said its fourth-quarter net profit rose 13 percent to $756 million, or 54 cents a share, from $668 million, or 45 cents a share, in the year-ago quarter.

Excluding a tax benefit, profit was 53 cents per share, beating the average market forecast of 52 cents, according to Reuters Estimates. Revenue rose 3 percent to $3.56 billion, in line with expectations.

March said that a draining of inventory by distributors of TI's catalog products did not appear to indicate any softening of demand. TI sells custom-designed analog and wireless chips as well as off-the-shelf catalog products.

"Indications we got from them is that it's not an indication of demand. It's just them managing their inventory," he said.

Executives told analysts on a conference call that they expect year-on-year revenue growth to accelerate in the first quarter, and that wireless chips sales would contribute to the trend. TI derives roughly 40 percent of revenue from wireless, with about 40 percent coming from analog chips.

TI also said that its research and development spending for 2008 would fall to $2 billion from about $2.15 billion in 2007 as it had outsourced some expensive manufacturing work.