TI view disappoints, cites caution across markets

By Sinead Carew Mon Apr 21, 9:16 PM ET

NEW YORK (Reuters) - Microchip maker Texas Instruments Inc said quarterly profit rose but forecast results below Wall Street estimates, citing caution among a broad customer base as well as weak demand for high-end cell phones.

TI shares fell 2.5 percent in extended trade after the company also said on Monday its second quarter would be weaker than expected due to an uncertain economic situation.

Analysts believed the order weakness was mainly in wireless even though TI did not say how much was in the rest of its business, which includes analog chips used in various markets including consumer electronics and industrial products.

"We're just responding to our customers' conservatism. They're managing their inventory very tight," Chief Financial Officer Kevin March said in an interview with Reuters. TI cited inventory levels that would take about two weeks longer to clear than in the same quarter a year ago.

While March said guidance was conservative across the board, he said demand for third-generation phones with fast Web links in particular would grow more slowly than anticipated.

"Demand will probably increase over time, but at a more delayed pace than customers might have previously expected," March said, referring to the advanced 3G phones, which include as many as four times more TI chips than more basic phones.

Qualcomm Inc, TI's main rival in wireless chips and a big player in 3G, is set to post results on Wednesday, a day after smaller rival Broadcom Corp reports.

"I would attribute it to wireless despite the company's talk of a conservative outlook for the broad market," said Charter Equity Research analyst John Dryden, who estimated that about half of TI's analog business relates to cell phones.

TI forecast second-quarter earnings per share of 42 to 48 cents on revenue of $3.24 billion to $3.5 billion. Analysts, on average, had expected 48 cents on revenue of $3.45 billion.

Its first-quarter profit rose to $662 million, or 49 cents a share, from $516 million, or 35 cents a share, a year ago. Excluding a 6 cent-per-share tax benefit, the latest number met analyst expectations, according to Reuters Estimates.

Revenue rose to $3.27 billion from $3.19 billion.

Stifel Nicolaus analyst Cody Acree said it was not surprising that TI saw weak 3G demand after a disappointing view from its biggest customer, Nokia, last week, but that TI's broader caution beyond this was a new concern.

"That's the biggest concern right now," said Acree, adding that wireless was likely the biggest factor in the disappointing second-quarter outlook.

In March, TI forecast earnings per share of 41 to 45 cents on revenue $3.21 billion to $3.35 billion, warning at the time that wireless demand was weaker than expected, particularly from one customer.

"It's disappointing that the visibility has not improved," Acree said. TI's March said chip demand for computer hard disk drives was weaker than expected in the first quarter.

TI shares fell to $29.80 in extended trading from its close of $30.59 on the New York Stock Exchange.

(Additional reporting by Michele Gershberg; Editing by Andre Grenon and Braden Reddall)