Texas Instruments cut its outlook for the current quarter and warned demand was broadly lower as customers reduce their inventories, sending the No. 3 chipmaker's shares down sharply.

Weak economies in the United States and Europe have sapped demand for microchips and investors have been looking for signs of when the industry will bottom out and begin to improve.

Adding to negative sentiment in the electronics industry on Thursday, Altera cut its fourth-quarter revenue due to lower demand for its programmable chips.

Even with an earlier Chinese New Year and excitement over Black Friday sales, you're not seeing an inflection in demand and that's reflected both in TI and Altera, Evercore Partners analyst Patrick Wang said.

TI said sales of its OMAP application processors, used in Amazon's recently launched Kindle Fire tablets, have been better than expected during the quarter.

Worries about slow demand have pushed manufacturers in recent months to trim inventories of chips and other components, a trend that is continuing, Ron Slaymaker, TI's head of investor relations, told analysts on a conference call.

Slaymaker was hesitant to predict when the industry would begin to improve.

Historically, if you look at semiconductor inventory corrections, the response time generally results in a couple of quarters of inventory burn, he said.

I would say that we continue to be encouraged that we are in a bottoming process, even though demand was a little weaker than what we had initially expected this quarter.

SPUTTERING GROWTH

Market research firm Gartner on Thursday predicted worldwide semiconductor revenues would grow a tepid 2.2 percent next year, less than a previous forecast for 4.6 percent growth.

Sales of TI's chips used in personal computers are down in the current quarter, partly due to a shortage of hard-drives caused by recent flooding in Thailand, Slaymaker said. That shortage is expected to cause interruptions in PC manufacturing.

Slaymaker said Europe, which is struggling with a deepening sovereign debt crisis, is currently TI's weakest market.

Texas Instruments now expects fourth-quarter revenue of $3.19 billion to $3.33 billion compared with its earlier forecast of $3.26 billion to $3.54 billion. Its new outlook missed Wall Street expectations for revenue of $3.41 billion, according to Thomson Reuters I/B/E/S.

TI, which is winding down its less profitable baseband mobile telephone business and increasing its hand in analog chips, said current-quarter earnings per share would be between 21 cents and 25 cents.

Shares of Texas Instruments dropped 6.4 percent in extended trade after closing down 2.45 percent.

(Reporting by Noel Randewich; editing by Gunna Dickson, Gary Hill and Bernard Orr)

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