Tougher Times for Texas Instruments?

The shares caught a chill Tuesday after the company lowered sales and earnings guidance

Investors sold Texas Instruments (TXN) shares on Tuesday Sept. 12, after the Dallas semiconductor supplier revised its business outlook for the third quarter of 2006.

Texas Instruments late Monday narrowed its forecast on revenue and earnings per share (EPS). The company said it now expects to have revenue between $3.71 billion and $3.87 billion, compared with the prior range of $3.63 billion to $3.95 billion. Its EPS from continuing operations will be between 44 cents and 46 cents, instead of the previous range of 42 cents to 48 cents.

After the news, Texas Instruments' stock price sank 1.7% to $31.24 per share in early trading on Tuesday.

Wall Street players thought the company's guidance signaled tougher times ahead. ThinkEquity Partners LLC analyst Robert Burleson said in a research note that Texas Instruments maintained its guidance by offsetting slow wireless shipments with sales of analog products to its distributors.

"This only delays an inevitable slowdown," Burleson wrote. He says distributors are trying to bring down their inventories because they aren't seeing healthy demand. On a recent conference call, the company wouldn't say that it knew what its distributors were doing with their inventories, Burleson added.

After lowering its sales projections for Texas Instruments, Standard & Poor's Corp. slashed its 2006 EPS estimate on the company to $1.78 from $1.81 and its 2007 EPS estimate to $2.15 from $2.25. S&P analyst Tom Smith also cut his 12-month target price to $43 from $45 - but he kept his "Strong Buy" recommendation on the stock.

"[The company's] broad line of semiconductors for wireless applications appears to us to be creating a steadier sales pace than at many analog peers who reported more spots of inventory congestion," Smith said in a research note Tuesday. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.)

In its press release on Monday, Texas Instruments also revised its semiconductor revenue for the third quarter to between $3.53 billion and $3.67 billion, compared with the prior range of $3.45 billion to $3.75 billion. But Educational & Productivity Solutions revenue guidance remained between $180 million and $200 million.