Texas Instruments’ Profit, Sales Tops Estimates

By Ian King - Jan 24, 2012 7:24 AM GMT+0700

Texas Instruments Inc. (TXN)’s fourth- quarter sales and profit declined less than analysts had predicted, signaling that the market for electronic components is bottoming out.

Net income fell 68 percent to $298 million, or 25 cents a share, from $942 million, or 78 cents, a year earlier, the Dallas-based company said today in a statement. Sales dropped 3 percent to $3.42 billion. Analysts had predicted profit of 23 cents a share and revenue of $3.25 billion on average, according to data compiled by Bloomberg.

Texas Instruments is the world’s largest maker of analog chips -- semiconductors that are key components in everything from satellites to refrigerators -- making its earnings a broad indicator of demand across the economy. While the company isn’t predicting a surge in orders, the industry may be nearing the end of a sales slump. Texas Instruments also is closing down two plants, a move that may save $100 million a year.

“Inventories are really low and customers are starting to order again,” said Tore Svanberg, an analyst at Stifel Nicolaus & Co. in San Francisco. He recommends buying shares of Texas Instruments, which he owns himself.

‘At the Bottom’

First-quarter revenue will be $3.02 billion to $3.28 billion, the company predicted. Analysts on average had estimated $3.22 billion. Profit will be 16 cents to 24 cents a share, Texas Instruments said. The company completed its $6.4 billion purchase of National Semiconductor Corp. in September, so the most recent period is the first full quarter to reflect the acquisition’s financial performance.

“We are definitely at the bottom,” said Vern Essi, an analyst at Needham & Co. in Boston. Essi downgraded his rating on the stock to “hold” last week.

Texas Instruments rose as much as 4.6 percent to $34.70 in late trading after the announcement. The stock, down 10 percent in 2011, had closed at $33.19 in New York.

“We are positioning ourselves for a resumption of growth in the second quarter,” Chief Financial Officer Kevin March said in an interview. Customers are beginning to replenish their inventories of chips, he said. Still, “it’s a little early for us to declare victory.”

The company has been phasing out its wireless baseband products, which serve as the communications processor in mobile phones, letting it focus on more profitable areas. Revenue from that market will drop to $75 million in the first quarter from $279 million in the previous three months, March said. Excluding those sales, the company expects revenue to decline about 2 percent, compared with a typical sequential drop of 4 percent.

Plant Closures

The company plans to shut down chip factories in Houston and Japan over the next 18 months because upgrading the plants would be too costly. The move, which affects about 1,000 workers, will result in one-time expenses of about $215 million.

Analog-chip stocks rallied last week after Linear Technology Corp. gave a rosy outlook for first-quarter sales. Still, Linear’s orders come more from industrial customers, so its performance shouldn’t be taken to indicate a general trend, Essi said. With its wider range of customers, Texas Instruments needs the broader economy to improve, he said.

Avnet Inc. (AVT), Arrow Electronics Inc. (3020) and WPG Holdings Ltd. (3702), three of Texas Instruments’ largest customers, are all distributors of electronic components. They account for a combined 18 percent of the company’s sales, according to supply- chain data compiled by Bloomberg.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net