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October 21, 2008 7:21 am

Texas Instruments outlook disappoints

Reuters
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NEW YORK, Oct 20 - Chip maker Texas Instruments Inc warned that its fourth-quarter results would fall far short of expectations, sending its shares down 5 per cent, in the latest sign that the economic crisis is hurting demand for everything from cell phones to industrial equipment.

TI, which has been losing customers to wireless rivals such as Qualcomm Inc and ST Microelectronics, also announced a plan to sell part of a unit that makes wireless baseband chips, which are the brains of mobile phones.

It also cited weak chip orders from all industries that buy its analog chips, which translate phenomena like sound and light into the ones and zeros of digital computer language.

”Not only do we have problems with the macro environment but we have a company going through a restructuring in the midst of it,” said American Technology Research analyst Doug Freedman, adding that TI’s guidance was off by a large amount.

TI forecast fourth-quarter revenue of $2.83bn to $3.07bn, below the average analyst forecast of $3.33bn. It said earnings per share would be 30 cents to 36 cents, including items such as a 5 cent tax-related gain. Analysts had expected 43 cents, without the tax gain.

”It’s gonna be about a nine-month hurdle for them to see a rebound at this point,” said Charter Equity Research analyst John Dryden.

TI’s analog chips are used in everything from consumer electronics and home appliances to industrial equipment and automotives. The company cited a bigger slowdown in orders from automotive than other industries, but said no one segment was to blame for the weakness.

TI Chief Financial Officer Kevin March told Reuters that orders had worsened throughout the third quarter, and were expected to fall further in the fourth quarter.

”It’s very broad-based,” he said of the downturn. ”We’re expecting the quarter’s going to be down quite a bit. It’s a reflection that the order trend has progressively gotten worse.”

He said that while it was hard to predict demand into the first quarter, the company was prepared for revenue to decline from the fourth quarter much more than the typical 1 per cent after the holiday shopping season.

”You’ve heard the term that it’s an uncertain economy. We’re pretty certain that it’s serious,” Chief Executive Rich Templeton told analysts on a conference call.

WIRELESS SALE

TI posted a third-quarter profit of $563m, or 43 cents a share, down from $776m, or 54 cents per share, in the year-ago quarter. Revenue fell about 7 per cent to $3.39bn.

Analysts on average had expected earnings of 44 cents a share on revenue of $3.395bn, according to Reuters Estimates.

March said that third-quarter profit was hurt by TI reducing inventories, which meant that its factories were producing less while it still had to pay fixed costs.

He said TI would double product inventory reductions to $150m this quarter compared with the third quarter.

While TI has long said it was refocusing investments in analog chips and wireless chips for advanced applications such as video players or Web surfing, Monday was the first time it disclosed efforts to sell the business.

TI said it is in talks with several parties to sell its merchant wireless business, which makes off-the-shelf chips for clients such as Motorola Inc. The unit is expected to bring in revenue of $350m to $400m in 2008. TI hopes to be able to say for sure whether it can do a deal by the end of the current quarter.

Freedman estimated that the merchant wireless chip business would sell for about $200m. He noted that investors would have preferred that TI also sell its custom-design chip unit, for which Nokia is its biggest client.

TI, which has 30,000 employees, said its restructuring could leave it with up to 1,400 fewer workers. It plans to cut 750 contractor positions worldwide and 300 TI jobs. The sale of its wireless unit could impact an additional 350 employees.

TI shares have fallen 37 per cent since July. The stock closed up 33 cents at $17.98 on the New York Stock Exchange on Monday, but fell to $17.05 in after-hours trading following the earnings report.

Besides TI, tech companies SanDisk Corp and SunMicrosystems Inc also posted weak financial figures on Monday.

Sandisk, which makes flash memory chips used in portable consumer gadgets like digital music players and cameras, reported a wider-than-expected quarterly loss, blaming a supply glut in the industry.

Computer hardware company Sun gave an outlook that missed Wall Street forecasts, saying the slowing economy was affecting customers.

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