Texas Instruments Trimss Quarterly Sales, Profit Forecast

Texas Instruments Inc. (TXN), the largest maker of analog chips, forecast third-quarter sales and profit that may beat the low end of analysts’ estimates, defying predictions that a weaker economy would crimp orders.

Profit will be 38 cents to 42 cents a share on revenue of $3.27 billion to $3.41 billion, the Dallas-based company said yesterday in a statement. Analysts on average had predicted earnings of 38 cents on sales of $3.34 billion in the current period, according to data compiled by Bloomberg.

At the midpoint of the forecast, revenue would be little changed in the current quarter from the previous period. Sales usually rise because manufacturers are ramping up production for year-end holiday shoppers. While demand remains below normal, the report indicated that Texas Instruments is holding its own even as some regions recover slowly from an economic slump, said Tore Svanberg, an analyst at Stifel Nicolaus & Co.

“We can safely say revenue growth is below seasonality,” said Svanberg, who recommends buying Texas Instruments shares. “But the fact that they haven’t changed forecast suggests things are quite stable, so even though we are below seasonal demand, at least things aren’t getting worse.”

The chipmaker said revenue and profit were boosted by a $60 million insurance benefit from last year’s earthquake in Japan, as well as cost cuts. Still, demand in all segments except for wireless is “tracking below expectations,” Ron Slaymaker, vice president of investor relations, said on a conference call yesterday. Orders, a measure of future sales, will decline in the quarter, he said.

Weakening Economy

Texas Instruments is the largest maker of a type of chip that runs the electronics in devices ranging from home appliances to military hardware, making its earnings and forecasts an indicator of activity across the industry.

In July, the company had forecast a profit of 34 cents to 42 cents a share on revenue of $3.21 billion to $3.47 billion.

Texas Instruments shares were little changed in extended trading following the announcement. They had fallen less than 1 percent to $28.58 at yesterday’s close in New York, leaving the stock down 1.8 percent this year.

The company gets 15 percent to 20 percent of its sales from chips that go into personal computers, according to Chris Caso, an analyst at Susquehanna International Group. On Sept. 7, Intel Corp. (INTC), the world’s largest maker of computer processors, cut its third-quarter sales forecast, citing declining corporate demand for PCs in a weakening economy.

Taking Account

Previous targets may have already taken sufficient account of sluggish activity, Caso said.

“It’s very weak out there,” said Caso. “But I don’t sense it’s getting a lot worse.”

Slaymaker declined to say whether orders showed any sign of improvement or stabilization so far in September.

Texas Instruments is in the phone market via its OMAP processors used in smartphones and it supplies other chips that provide wireless connectivity. OMAP is also key to the company’s attempts to get into the market for tablet computers.

Customers such as Amazon.com Inc. (AMZN), which uses Texas Instruments OMAP processors in some of its Kindle e-readers and tablets, may struggle if Apple Inc. (AAPL) brings a cheaper, smaller version of its iPad to market later this year, according to Tristan Gerra, an analyst at Robert W. Baird & Co.

“As soon as the iPad mini launches, people are going to move back to that device,” said Gerra.

Apple hasn’t commented on plans for a smaller tablet.

To contact the reporters on this story: Dina Bass in Seattle at dbass2@bloomberg.net; Ian King in San Francisco at ianking@bloomberg.net

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

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