Texas Instruments: Second-Quarter Profits Lower Than Expected

Jun.12.07 | About: Texas Instruments (TXN)

Yesterday, Bloomberg.com: Worldwide reported that:

Texas Instruments Inc., (NASDAQ:TXN) the world’s biggest maker of mobile-phone chips, said second-quarter sales and profit will miss its highest estimates as demand for handsets and calculators declines. The shares fell in extended trading. Sales will be $3.36 billion to $3.51 billion, the Dallas- based company said today in a statement. That compares with an April estimate of $3.32 billion to $3.6 billion. Profit will be 40 cents to 44 cents a share, excluding some costs, compared with an earlier forecast of 39 cents to 45 cents.

After signs from other companies that mobile-phone sales were picking up, analysts had expected Texas Instruments to predict higher revenue. The new report lowers the midpoint of Texas Instruments’ sales forecast to $3.44 billion, compared with an average estimate of $3.46 billion in a survey of analysts by Bloomberg.

Even at the top end of the sales forecast, Texas Instruments’ revenue will be 5.1 percent lower than in last year’s second quarter, when it was $3.7 billion. Profit also won’t top the 47 cents the company reported a year earlier.At a May 9 meeting with analysts, Chief Executive Officer Rich Templeton raised the company’s goals for gross margin to 55 percent from 50 percent and operating margin to 30 percent from 25 percent.

Even though its inventory (in days) has been expanding over the last year, Texas Instruments has produced fewer chips than it is expected to sell over the next couple of quarters, and production has been generally in line with sales recently. All in all, this probably supports the expected margin expansion. However, industry sales are weakening, so the “tightening” of sales guidance should also have been expected.

It still doesn’t do anything to alter my new-found non-bearishness.

TXN 1-yr chart
TXN 1-yr chart