Friday, March 9, 2012

Texas Instruments (TI, TXN): Trouble with wireless, analog is stable

March 9, 2012 -- Texas Instruments Incorporated (TI, NASDAQ:TXN) narrowed and lowered its expected ranges for revenue and earnings per share (EPS) in Q1 2012. The reductions are due to lower demand for wireless products, TI said in its report (PRNewswire).

Revenue: $2.99-3.11 billion
EPS: $0.15-0.19

Analysts' take:
This is TI's fourth mid-quarter update cut in a row, noted FBR Capital Markets. The company's entire $100 million revenue cut was attributed to wireless shipments, mainly OMAP sales as well as connectivity. Contributing factors include Q1 2012 sales seasonally falling after an exciting Q4 2011 with new OMAP design wins and initial orders, and chip/device inventory reduction activities also pressuring TI, FBR reports. Short lead times imply soft demand and weaker OMAP, warned Sterne Agee analysts, who also see near-term gross margin challenges for TI due to an under utilized (currently at about 50% capacity) fab base.

OMAP suffered from a lack of high profile design wins at the International CES and the Mobile World Congress (MWC). Some designs may have been sidelined in anticipation of OMAP 5, TXN's dual core A15 OMAP refresh expected in 2H12, FBR asserts, but notes that "OMAP has lost some of its differentiated value proposition" in the face of competitive products. TXN is not expecting an OMAP rebound, says Sterne Agee.

The analysts expect a Q2 2012 reacceleration, noting that "TI has done a good job of focusing on its analog core, building competitive barriers, and growing scale." OMAP and Connectivity "are not the most critical parts" of Texas Instruments, agree the analysts at Barclays Capital. Despite the guidance cut, analog is tracking in line, led by automotive/communications infrastructure/industrial applications, they point out. With "order growth, backlog, and visibility improving," TI should see Q2 begin an upward climb.

Texas Instruments decided to close 2 semiconductor fabs, one in Texas and one in Japan, earlier in 2012.

--Meredith Courtemanche, digital media editor,

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