UPDATE: Texas Instruments Profit Jumps On Mobile Demand

Texas Instruments Inc. (TXN) reported an expected 44% increase in fourth-quarter earnings as the chip maker benefited from strong demand for mobile devices and analog and embedded products.

TI, which makes chips used in everything from cellphones to industrial equipment, has seen a sharp rebound in demand after the recession caused customers to virtually stop buying chips. While there has been weaker consumer demand for PCs and TVs in recent months, and industrial demand is slowing to more normal growth levels, TI is bullish any correction will be "short and shallow."

"Our strong financial results for the fourth quarter reinforce our view that the inventory-driven downturn that started in the second half of 2010 is now mostly complete," Chairman and Chief Executive Rich Templeton said.

Consumer demand for PCs bottomed in the fourth quarter and has resumed growing, Chief Financial Officer Kevin March said. TV demand, meanwhile, likely also bottomed.

"We didn't see growth resume in 4Q in TVs, but we were told by customers to expect it to resume growth in the first quarter," March said. He said smartphones and automotive demand remain strong, while industrial demand returned to more normal levels of growth, as expected.

"Consumers are buying," he added.

For the first quarter, TI forecast earnings of 54 cents to 62 cents a share on revenue of $3.27 billion to $3.55 billion. Analysts surveyed by Thomson Reuters expect 57 cents a share on $3.33 billion in revenue.

Despite the strong results, shares slid 2.7% to $33.73 in after-hours trading. The stock has jumped 50% since the end of August and was up 2.2% during the regular session Monday.

"There were no real surprises, except the one-time gains from the sale of assets," Gleacher & Co. analyst Doug Freedman. The gain, combined with a tax benefit associated with the reinstatement of the federal research and development tax credit, boosted earnings by 14 cents a share.

"Numbers were slightly better than expected, but the stock has been a strong performer along with the semiconductor sector of late," he said.

TI has been increasing its focus on highly profitable analog and embedded-application chips while winding down its business selling mobile baseband chips after major cellphone makers shifted to a multisupplier strategy. The company also has been supplying chips to smartphones and tablets--including for power management and for processing with its OMAP platform.

March said TI has a lot of initial wins for OMAP in products such as tablets, e-readers and navigation systems. And tablets represent a $30-plus opportunity per device, he said, giving TI up to $10 for analog chips per tablet, roughly $15 for the application processor and $3 to $5 for connectivity such as Wi-Fi.

"We have a good portfolio that can capture those opportunities," he said. "There will be interesting ramps in 2011 in tablets."

Meanwhile, TI has been using its ample cash to buy other companies, build plants, and beef up its sales and engineering forces in China and India. The company recently bought new manufacturing facilities in Japan and China, and it is expected to gain share by using RFAB, its new 300-millimeter manufacturing facility for analog semiconductors.

March said the three new factories contributed some revenue in the fourth quarter and that utilization rates should increase steadily through 2011.

TI reported fourth-quarter profit of $942 million, or 78 cents a share, up from $655 million, or 52 cents, a year earlier. Revenue jumped 17% to $3.53 billion. Fourth-quarter earnings were 64 cents a share, excluding a gain from the sale of certain assets to Intel Corp. (INTC) and a tax benefit associated with the reinstatement of the federal research and development tax credit.

In December, TI narrowed its fourth-quarter per-share earnings guidance to 61 cents to 65 cents, excluding the gain, and $3.43 billion to $3.57 billion of revenue--keeping the midpoint of both forecasts unchanged.

Gross margin edged up to 53% from 52.9%.

Sales of analog chips, which made up 43% of total revenue, climbed 20%, while earnings rose 27%.

The company said orders fell 4% from a year earlier and 9% from the prior quarter, which March attributed to shorter lead times for customers to get the products.

-By Shara Tibken, Dow Jones Newswires; 212-416-2189; shara.tibken@dowjones.com

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