TI's Q4 guidance below consensus; legacy wireless sales evaporating

|By:, SA News Editor

Texas Instruments (TXN) expects Q4 revenue of $2.86B-$3.1B and EPS of $0.42-$0.50, below a consensus of $3.12B and $0.51. "Legacy wireless" sales, which include Nokia baseband chip sales and TI's discontinued mobile app processor/combo chip ops, are expected to fall to just $50M in Q4.

The midpoint of TI's revenue guidance range implies flat Y/Y rev. growth. Excluding legacy wireless, guidance is for 8% growth. Q3 book-to-bill was 0.97.

Q3 EPS was boosted by $734M in buybacks, nearly even with Q2's $721M. Gross margin was 54.8%, +330 bps Q/Q and +350 bps Y/Y. Thanks in part to TI's minimal capex (less than 4% of revenue, far below industry norms), free cash flow was $1.03B, well above net income of $629M.

The analog division (60% of revenue) posted sales of $1.93B (+5% Y/Y vs. +6% in Q2) and a $583M op. profit. Embedded processing (DSPs, microcontrollers) had sales of $668M (+13% vs. +10%), but only an $83M op. profit. "Other" (wireless, DLPs, calculators, royalties) had revenue of $645M (-33% Y/Y thanks to legacy wireless), and an op. profit of $178M.

TXN -3.2% AH. CC at 5:30PM ET. Q3 results, PR.