Texas Instruments underlined the bullish mood among chipmakers by promising a 20 per cent increase in its quarterly dividend together with continuation of its stock buyback programme.
The second-largest US semiconductor company will pay a quarterly dividend of 3 cents a share from October, up from 2.5 cents.
The board also authorised a new $2bn share buyback programme following a quarter in which TI invested $1.3bn in its own stock.
Announcing second quarter earnings in line with Wall Street expectations, Rich Templeton, chief executive, said TI was benefiting from strong demand from manufacturers of consumer electronics.
The company specialises in digital signal processing and analogue chips used in mobile telephones, music players and other electronic gadgets.
The figures followed good financial results last week from chipmakers including Intel, Qualcomm and Broadcom.
Intel on Monday announced that it had selected Arizona as the site for a new chipmaking plant expected to cost about $3bn and create 1,000 new jobs.
However, TI, despite the strong outlook, kept its capital expenditure forecast for this year unchanged at $1.3bn.
Intel last week increased its capex forecast by $300m to $5.9bn.
In the three months to June, TI achieved revenues of $3.2bn, unchanged from last year. Sales gains in some sectors were partially offset by disposals.
Net income was $628m,or 38 cents a share, upfrom $441m or 25 cents a share.
Earnings were boosted by a one-off tax benefit equivalent to 6 cents a share.
Mr Templeton said growth in new orders left TI well placed to deliver “solid growth” in the current quarter. Semiconductor orders were $2.9bn, 7 per cent higher than a year ago.
The company forecast earnings of 31-35 cents in the three months to September on revenues of $3.3-$3.56bn. Analysts were forecasting earning of about 32 cents.
Optimism was underpinned by an improved performance from TI's Digital Light Processing (DLP) business, which makes chips based on proprietary technology that power big-screen televisions.
Slower than expected growth of sales of DLP-based TVs in the fourth quarter of 2004 caused TI to slow production of DLP chips to prevent a build-up of inventory. Mr Templeton said the process of reducing inventories was now complete.
TI stock gained 1.16 cents to $31.76 following the announcement, which came after the close in New York. The shares started this year at about $25.