TXN Texas Instruments Incorporated

Recently, Texas Instruments (TXN), or "TI," slashed its revenue and earnings expectations for the first quarter of 2012.

The chipmaker now expects sales of $2.99 billion to $3.11 billion, below its previous guidance range of $3.02 billion to $3.28 billion. The earnings outlook has been lowered to 5 cents to19 cents per share from the previous guidance of 16 cents to 24 cents.

We believe that management had previously projected revenues to decline as a result of macro weakness and hard disk drive shortages from the Thailand flood.

Now, the company also expects the demand for its OMAP application processor, which is used in wireless devices like smartphones and tablets to take a tumble, thereby causing a further decline in the first quarter.

As the fourth quarter progressed, TI saw strong demand in the month of December, which pushed up orders during the month. Hence, management expects inventory correction to end very soon and orders to improve going forward. Additionally, TI expects automotive and communications infrastructure end markets to improve and demand to pick up from the second quarter of 2012.

Texas Instruments is one of the largest suppliers of analog and DSP integrated circuits. The company reported revenues of $3.42 billion in the fourth quarter of 2011, down 0.8% sequentially and 3.0% year over year. Earnings were also down 25.8% sequentially and 31.4% year over year.

The company’s compelling product line-up, the increased differentiation in its business, restructuring activities and lower-cost 300mm capacity should drive earnings in the longer term. In the fourth quarter, TI unveiled plans to close two older semiconductor-manufacturing plants in Japan and Texas over the next 18 months to reduce costs and in turn improve profitability.

Texas Instruments is expected to report first quarter results on April 23, 2012. We do not expect a significant improvement before the second half of 2012.

Increasing competition from Maxim Integrated Products (MXIM), Analog Devices (ADI), Broadcom (BRCM), and Intel (INTC) are concerns.

Currently, TI has a Zacks #3 Rank, which translates into a short-term Hold rating.

 
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