Texas Instruments 1Q Results Dip 60% But Sales Higher Than Expected

Texas Instruments (Nasdaq: TXN), the No. 1 maker of communications chips, reported Monday that first-quarter net income dipped a worse-than-expected 60 percent but said revenue was better than predicted.

The world's No. 4 chipmaker reported first-quarter net income was only $265 million, or 22 cents a share, including one-time charges, on revenue that eased 8 percent to $3.12 billion.

CEO Rick Templeton said the company expects much better performance this quarter, with earnings rising to between 30 cents and 38 cents a share on revenue as high as $3.48 billion.

The report is a barometer for the mobile phone and automotive markets, both huge sectors for Dallas-based TI, and indicate a downturn is over.

Backlog Growing Again

Early signs of growth began to emerge, Templeton said. Orders were up 13 percent and backlog is growing again.

The enlarged TI, already a leader in analog chips for communications, got even stronger last year when it acquired National Semiconductor for $6.5 billion, adding that pioneer chipmaker's customer base in Detroit, along with communications equipment makers and defense.

Analysts had expected TI to report earnings dropping about 50 percent to $324.6 million, or 28.6 cents a share, from $666 million, or 55 cents a year ago. Revenue was expected to fall about 10 percent to $3.06 billion from a year earlier.

True to tradition, TI warned on March 8 that the quarter was more difficult than expected and predicted revenue would range only between $2.99 billion and $3.11 billion, with net income ranging between 15 cents and 19 cents a share.

The Texas chipmaker's usual mid-quarter update is usually regarded as a bellwether. But the problem for TI may be customer-specific, because last week, Qualcomm (Nasdaq: QCOM), the biggest designer of mobile chips, reported second-quarter net income more than doubled to $2.23 billion, or $1.28 a share, as revenue rose 28 percent to $4.94 billion.

Analysts Like The Stock

Qualcomm, based in San Diego, said it's facing problems in the current quarter because its Asian chip foundries are running at full capacity and may not have room to make its chips. TI, by contrast, manufactures most of its own chips.

Still, analysts generally believe TI's performance will improve because of overall growth in the sector. At Wedbush Securities, analyst Betsy Van Hees rates the chipmaker Outperform with a $38 price target. Later this year, she said, the company should outgrow the overall industry largely due to market share gains.

At Jefferies, analyst Mark Lipacis rates TI a buy with a target of $40, especially because of demand for its OMAP5 multicore chip that's being designed into many new smartphones and tablets for shipment later in 2012.

TI's chips end up in the mobile phones from most of the biggest suppliers, such as Nokia (NYSE: NOK), Ericsson (NYSE: ERIX), Motorola Mobility (NYSE: MMI) and LG Group. They also are designed into cars of all the Big Three automakers, which have reported strong sales.

Also to note will the No. 4 global chipmaker's cash position. The company reported cash and investments around $3 billion, down about $200 million from Dec. 31.

TI shares closed at $31.98, up 9 cents, on Monday. They've gained more than 10 percent this year but fell 10 percent over the past year. They rose nearly 3 percent in after-hours trading to $32.85.