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Texas Instruments (TXN) reported mixed second-quarter earnings early this week. Though the firm earned $0.44 per share on an adjusted basis versus consensus estimates of $0.41, revenue came in below expectations, dropping 4% year-over-year to $3.3 billion. Further, the company guided below the consensus forecast for its third quarter due to a reduced demand outlook and limited visibility heading into the back half of the year. Earnings are now expected to come in the range of $0.34-$0.42 per share during the third quarter, negatively impacted by $0.07 as a result of restructuring charges (consensus was at $0.43 per share).

Though profits fell year-over-year, operating cash flow grew 7% for the second quarter and the company generated over $300 million in free cash flow. Although the acquisition of National Semiconductor is helping the firm grow revenue (namely in the analog segment), several of its units are struggling. Revenue in embedded processing and the wireless segments fell 15% and 39% during the quarter, respectively. Even though we don't think the firm is in any short-term trouble, such large revenue declines are troubling, especially since orders continue to slow as customers delay purchases due to global economic uncertainty. From the company's conference call:

"Even though we believe inventory of TI products is low at our OEM customers and distributors, both are reluctant to place new orders and commit to backlog given the uncertainty in the overall economic environment. This, combined with lead times that are largely below 6 weeks, has resulted in our window of backlog coverage narrowing... Although backlog for July and August has filled in consistent with a typical third quarter, at this point, our visibility is somewhat reduced for the month of September. This could reflect a range of reasons and potential outcomes. On the one hand, customers could be anticipating their own businesses to slow. On the other hand, customers may simply be waiting until the last minute to place orders, given short lead times."

All things considered, we prefer Intel (INTC) in the semiconductor space as a position in our Best Ideas portfolio, but we think shares of Texas Instruments are becoming more attractive as they are currently trading near the low end of our estimated fair value range.

Source: Texas Instruments Gives Weak Guidance

Additional disclosure: INTC is included in our actively-managed portfolios.